A recent decision of the Supreme Court of India (SC) in The Project Director, National Highways No. 45E and 220, National Highways Authority of India v. M. Hakeem & Anr.[ 2021 SCC OnLine SC 473] (NHAI v M. Hakeem) has settled a crucial point of law under the Arbitration and Conciliation Act, 1996 (1996 Act). The SC clarified that the power of a court to set aside an arbitral award under section 34 of the 1996 Act does not include the power to modify or vary the arbitral award. While the decision is unassailable, the implications thereof are worth considering. Economic Laws Practice, a leading arbitration law firm in India, throws light on these implications.
In NHAI v M. Hakeem, several arbitral awards were passed by various arbitrators whereby landowners were compensated at various rates per square meter for the lands acquired by National Highways Authority of India (NHAI) for the purposes of construction of highways. The Respondents challenged these awards under section 34 of the 1996 Act seeking revision in the compensation. The District Court modified the arbitral awards increasing the rate of compensation per square meter. The Division Bench of the Madras High Court upheld the modification of the awards even in appeal under section 37 of the 1996 Act. The SC was hence called upon to decide on the issue whether the arbitral awards could be modified/varied when the same were challenged under section 34 of the 1996 Act. The SC categorically stated that the recourse against an arbitral award is a truncated right under which the only relief that can be requested is a setting aside of an arbitral award. The court considering the challenge has no power to vary or modify the arbitral award; at best it can, where appropriate and applied for, give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award. Notably, the SC was of the view that although the SC had the power under Article 142 of the Constitution of India to do complete justice, and which included the power to modify an arbitral award, the lower courts could not exercise the same power even under their revisional jurisdiction under Section 115 of the Code of Civil Procedure, 1908. The SC clarified that it is up to the legislature to amend section 34 and endow the power to modify or vary an arbitral award.
Until the legislature amends the 1996 Act along the lines of the statutory provisions prevailing in countries such as England[ See Section 67(3), 68(3) and 69(7) of the Arbitration Act, 1996], USA[ See Section 11, Federal Arbitration Act], Australia[ See Section 34A(7), Commercial Arbitration Act, 2012 (WA)] or Singapore[ See Section 49(8), Arbitration Act, 2001], the settled position of law is that a court (save the SC under Article 142 of the Constitution), while considering a challenge to the arbitral award, does not have any power to modify or vary the same.
So, what is the ambit of the court’s powers under section 34 of the 1996 Act until the legislature amends the statute?
◾ At the outset, the court can set aside the arbitral award wholly. This may not be a palatable scenario in certain cases. Take for example a case wherein the arbitral award decides the issue of liability correctly, but the quantum of compensation is based on unacceptable principles. Setting aside the entire award may cause more detriment than justice.
◾ The court may adjourn the proceedings so as to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award. However, this is restricted to cases where a party makes a request under section 34(4) for such a relief[ Kinnari Mullick and Anr. vs. Ghanshyam Das Damani, (2018) 11 SCC 328] and not where the award is already set aside. The court has no suo motu power in this regard. Also, this does not amount to a remand.[ Bhaskar Industrial Development Ltd. v. South Western Railway, 2016 SCC OnLine Kar 8330 cited with approval in Kinnari Mullick and Anr. vs. Ghanshyam Das Damani, (2018) 11 SCC 328] Once this power is exercised, the arbitral tribunal will remain functus officio in respect of matters not referred to it, but for the purposes of matters referred, it will have free play.[ MMTC v. Vicnivass Agency, (2009) 1 MLJ 199]
◾ The court may be able to partially set aside the arbitral award, especially in case the issues are severable. This principle of severability is recognized in section 34(2)(iv) itself, albeit in the context of excising the portion of the award on disputes that fall outside the scope of submission. However, surgical precision is required in isolating and cutting away the malignant parts. The SC in NHAI v. M. Hakeem did not specifically state whether partial setting aside would amount to modification. In the view of the authors, partial setting aside would not amount to varying or modification as long as the setting aside creates a situation as if no arbitral award exists on that particular issue. However, if the lower courts do not agree with this view, a party may also strategically drag the matter up to SC, make an argument that the case is fit for exercise of powers under Article 142 of the Constitution and thus have the arbitral award modified or varied rather than being set aside in toto.
Thus, award holders facing challenge proceedings will have to be wary of the duration until the legislature amends the 1996 Act. This is because, a defect in a part of the award may render the whole award susceptible to be set aside in its entirety.
The legislature will have an unenviable task at its hands. It may not be wise to leave the 1996 Act unamended as the social detriment caused by setting aside of otherwise sustainable awards, having curable defects, may be quite high. Instead, the legislature will have to craft provisions to secure the needs of genuine cases where the power to vary or modify should be exercised against the potential abuse of this power given that court interference in arbitral awards whilst a decreasing phenomenon has by no means been eradicated. Indeed, this will bring its own ordeals. Perhaps the middle ground may lie in permitting partial setting aside where the issues are severable, whilst clarifying that such power does not include the power to vary or modify the arbitral award. What is inescapable is that until the dust clears, all award holders facing challenge proceedings will be examining that stamped piece of paper with a fine toothcomb while clenching that rosary.
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