Can a court modify an Arbitration Award invoking its powers under Section 34 or 37 of the Arbitration and Concilitation Act?
Last week, on 20 February 2024, a three judges bench comprising Justices Dipankar Datta, KV Viswanathan and Sandeep Mehta noted (in Gayatri Balasamy vs ISG Novasoft Technologies Limited) that this issue is of seminal importance and requires an authoritative pronouncement by a larger bench. While one line of decisions of this Court has answered the aforesaid question in the negative, there are decisions which have either modified the awards of the arbitral tribunals or upheld orders under challenge modifying the awards, the bench noted.
However, interestingly, the next day, 21 February 2024, another bench of Justices Abhay S. Oka and Ujjal Bhuyan, set aside an order passed by the Karnataka High Court observing that it modified an Arbitration award, notwithstanding the settled law.
In Gayatri Balasamy, the Court refers to the following three two judges bench judgments which has answered the issue in the negative.
Project Director NHAI vs. M. Hakeem: Quite obviously if one were to include the power to modify an award in Section 34, one would be crossing the Lakshman Rekha and doing what, according to the justice of a case, ought to be done. In interpreting a statutory provision, a Judge must put himself in the shoes of Parliament and then ask whether Parliament intended this result. Parliament very clearly intended that no power of modification of an award exists in Section 34 of the Arbitration Act, 1996. It is only for Parliament to amend the aforesaid provision in the light of the experience of the courts in the working of the Arbitration Act, 1996, and bring it in line with other legislations the world over.
Larsen Air Conditioning and Refrigeration Company vs. Union of India 2023 INSC 708:It is important to notice that the old Act contained a provision which enabled the court to modify an award. However, that power has been consciously omitted by Parliament, while enacting the Act of 1996. This means that the Parliamentary intent was to exclude power to modify an award, in any manner, to the court.
S V Samudram vs State of Karnataka 2024 INSC 17 :: [2024] 1 S.C.R. 281: Any court under Section 34 would have no jurisdiction to modify the arbitral award – The court cannot correct errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is desired.
The court also refers to the following decisions which have either modified or accepted modification of the arbitral awards under consideration.
Two judges bench decisions: Vedanta Limited vs. Shenzden Shandong Nuclear Power Construction Company Limited , Oriental Structural Engineers Pvt. Ltd. vs. State of Kerala and M.P. Power Generation Co. Ltd. vs. Ansaldo Energia Spa )
Three Judges bench decisions: J.C. Budhraja vs. Chairman, Orissa Mining Corporation Ltd. , Tata Hydroelectric Power Supply Co. Ltd. vs. Union of India and Shakti Nath vs. Alpha Tiger Cyprus Investment No.3 Ltd.
However, it is important to note that in none of these decisions which have either modified or accepted modification of the arbitral awards, the court has dealt with the scope of Section 34 of the Arbitration Act. On the other hand, in the three decisions referred earlier, the court has discussed it and categorically answered it.
In Gayatri, the court is considering the correctness of the judgment of Madras High Court which inter alia observed’: “merely because the word “modify” or “vary” is not indicated in Section 34 of the Act, it will not take away the jurisdiction of the Court exercising under jurisdiction Section 34 of the Act to interfere with the award passed by an arbitrator partially. If such a power is not vested with the Court, it will only lead to multiplicity of proceedings, which is not intended by the legislature while framing Section 34 of the Act. “
To illustrate: An Arbitral Award is challenged before a Court by filing a petition under Section 34. The Court finds that a part of the award is in conflict with the public policy of India. But if that part is deleted, then it can be upheld. Can it modify the award by deleting the said part, or can it only set aside the award in its entirety? It is in this context, the following questions were raised by the Court in Gayatri Balasamy : If the power to modify the award is available, whether such power can be exercised only where the award is severable and a part thereof can be modified?. Whether the power to set aside an award under section 34 of the Act, being a larger power, will include the power to modify an arbitral award and if so, to what extent? Whether the power to modify an award can be read into the power to set aside an award under section 34 of the Act?