This blog has been written by Roshni Basu and Saket Pathak, 4th year B.A.LL.B(Hons.) students at MNLU, Mumbai.
Section 34 of the Arbitration and Conciliation Act, 1996 (“the Act”) delineates the grounds on which an arbitral award may be set aside by a Court on the application of a party. Under this Section, the Courts are empowered to review the matter’s constitutionality and arbitration process. However, the scope of the power of Courts under this Section has been a point of debate on the issue of whether the power of the Court to set aside awards under Section 34 can be extended to modification of the award. Over the years, various High Courts and the Supreme Court have been divergent on the issue. The Supreme Court, in the 2005 judgement of Mcdermott International Inc v. Burn Standard Co. Ltd. (“Mcdermott”),held that the Court could not modify an award under the provision. However, a decade later, the Madras High Court held that the Court could change an award even though it is not mentioned in the Section as the term ‘recourse to a Court against an arbitral award’ could also be construed to mean application for modification.
The article compares the practical implications of modifying awards against that of not modifying them to determine whether Courts should be given the power to modify awards. The recent Supreme Court judgement will be analyzed, wherein it overruled previous High Court and Supreme Court judgements that held that the award could be modified. Furthermore, the position of law in other jurisdictions will also be compared.
A Case for Modifying Awards
Several Courts have ruled in favor of the modification of awards. In Tata Hydro-Electric Power Supply Co. Ltd. v. Union of India, the Court modified the period of interest in the award while keeping the original interest rate. This power was exercised under Article 142 of the Constitution of India to meet “the ends of natural justice, equity, and fair play.” The same rationale was applied to pass the decision to modify the interest rate in Krishna Bhagya Jala Nigam Ltd. v. G. Harischandra Reddy and Royal Education Society v. LIS (India) Construction Co. (P) Ltd.
Another reasoning followed by Courts is that the expression “recourse to a Court against an arbitral award” cannot be interpreted to mean only a right to seek setting aside of the award. The Madras High Court in Gayatri Balaswamy v. ISG Novasoft Technologies Ltd. held that recourse can be in the form of setting aside the award and modifying it. Subsequently, when the case was appealed, the Division Bench held that a reasonable interpretation of Section 34 would empower the Courts to modify the award. If such a power is not vested with the Courts, it shall lead to a multiplicity of proceedings that will be against the intention that the Legislature had in mind while framing Section 34.
Additional Advantages of Modifying Awards
Some substantial advantages of allowing Courts to modify the award would be saving time and cost for the parties. The Court setting aside the award and reverting it to the tribunal shall result in additional proceedings. This will lead to the unnecessary lengthening of the arbitration process, thereby adding to the parties’ expenses. Another advantage would be that modifying an award would avoid additional application of mind. To pass an order under Section 34, the Court examines the evidence and passes an order after due deliberation. Further application of mind by the Court will not be required to modify the award. Therefore, the Courts, by merely going a step ahead and modifying the award instead of reverting it to the tribunal, shall have its own practical benefits.
However, the rationale used by Courts to justify modifying awards has been rebutted by various other Courts. Along with these refutations, modifying awards can also lead to other drawbacks, which have been discussed in the next section.
A Case Against Modifying Awards
In Mcdermott, the Court held that the provision gives a supervisory role to the Courts. The intervention of the Court is minimal and has been clearly laid down. Therefore, the Court does not have the power to modify an award.
In Cybernetics Network Pvt. Ltd., it was held that Section 34 does not align with Section 15 of the 1940 Act. The provision in Section 15 of the 1940 Act was deliberately excluded from the 1996 Act. The power to modify under Section 34 would contradict the Act’s scheme and the Legislature’s intention.
In M/s. National Highways Authority of India v. M/s. Oriental Structural Engineers Pvt. Ltd., the Court observed that the instances where an award can be set aside by Courts is unambiguously mentioned in the provision. Therefore, the power to set aside an award is minimal and is meant to be cautiously used. Empowering Courts to modify an award shall usurp finality from the arbitral tribunal’s award. The arbitration shall no longer be an alternative to the Court proceeding but will be reduced to another tier in the hierarchy of Courts.
- NHAI v. M. Hakeem – SC Settles Debate
In the recent NHAI judgement, the Supreme Court laid down that the Court cannot modify an award under Section 34. Firstly, the Court established that Section 34 had been drafted along the lines of UNCITRAL Model Law on International Commercial Arbitration, 1985 (“Model Law”), which does not empower Courts to modify an award. Secondly,there is no ambiguity in the provision that leaves any scope for the assumption of power to modify an award. Thirdly,Sections 15 and 16 of the Arbitration Act of 1940 contained provisions that empowered Courts to modify an award. The Court indicated that excluding such a provision in the Act is deliberate. Fourthly, modification of an award under Article 142 to achieve the ends of justice does not constitute the ratio decidendi of the judgement. These judgements cannot be taken as a precedent as the Courts in these judgements did not venture into the scope of the Court’s power under Section 34. Arguments from both sides have been weighed, and the extent decided by the Court has been exhaustively justified. This judgement takes on even more significance considering the time this issue has been a point of debate and the glaringly contradictory judgements that have been passed regarding this issue.
- Unavoidable Consequences of Modifying Awards
In addition to the points put forward by the Court, there are undoubtedly other factors that require deliberation. A crucial question in the article earlier is that when Courts can entirely set aside an award, why can’t they be empowered to modify the award since the Court already has the requisite evidence? To answer this, the point to be considered is that if Courts are allowed to change awards, the losing party in all cases will tend to make an application under the Section. This would inevitably lead to an increase in the burden on the formal Courts. The Supreme Court rightly observed in the recent Amazon.com NV Investment Holdings LLC v. Future Retail Ltd and Ors that the 1996 Act was enacted to reduce the burden of the Courts.
The power of the Court is narrow under the provision. It is in place to undo any error on the arbitrator’s part. Empowering Courts to modify an award would magnify judicial intervention, resulting in gross violation of the Act’s scheme and the Legislature’s intention. Therefore, the Courts cannot be empowered.
Position in Other Jurisdictions
In the USA, an award can be modified by Courts only if there is a deficiency in the form of the award, or the arbitrators have decided on an issue that was not submitted to them, or if there are calculation errors in the numbers or a mistake in respect of the evidence produced. Furthermore, Courts do not have the power to retract or revise an award. In the UK, Courts can set an award aside if there is a lack of jurisdiction or significant deficiencies in the award. An award can also be set aside on the question of law only if the parties have not waived this right off. In Singapore, an award can be appealed to on specific questions of law or factual errors. The Courts have the power to set aside awards as well. Therefore, these countries empower the Courts to modify or set aside an award only to rectify deficiencies in the award.
Conflicting opinions given by the Courts over the years have created a further scope of ambiguity on the matter. However, analysing the NHAI judgement and critically examining both sides of the issue led to the inference that the scope of the provision cannot be interpreted to include the power to modify the award. Empowering Courts to modify the award can lead to adverse consequences which outweigh its benefits. Interpreting the provision to include the power of modification will not be in cognizance of the scheme of the Act. Moreover, this provision will add to the Court’s burden instead of shouldering it.