Introduction
In matters of arbitration, courts are ordinarily required to adopt a hands-off approach while scrutinizing arbitral awards. This jurisprudence has evolved to a point where minimal interference with awards is seemingly the principle guiding courts in India. Against this backdrop, the Supreme Court (“SC”) is going to consider the question whether the powers under Section 34 of the Arbitration and Conciliation Act, 1996 (the “Act”), extend to the modification of arbitral awards or are limited only to the setting aside of arbitral awards. Central to this question is the role of the courts as envisaged under the Act.
Conflicting judgments from the SC (see, for example, here and here) regarding the power to modify an arbitral award have prompted the need to finally settle the issue. In this backdrop, a three-judge bench of the SC, among other things, referred the following questions for authoritative determination by a five-judge bench:
- Whether the powers of the Court under Section 34 and 37 of the Arbitration and Conciliation Act, 1996, will include the power to modify an arbitral award?
- 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 wider 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?
While the SC is yet to examine this issue, our present article makes out a case that the power vested in a court under Section 34 of the Act does not include the power to modify the arbitral award. First, based on a literal interpretation, there is no indication in the wording of the statute to grant any power to “modify” with the court. The Act provides for a framework, whereby possible errors in the arbitral award can be remedied without intervention by courts through modification. Second, it is imperative that Indian law gives certainty to and ensures least interference with the decisions rendered in arbitration proceedings as this meets the intent and purpose of the Act.
The language of Section 34: To read it like it is
Section 34 of the Act is not an appeal and provides only for the remedy of setting aside [1]. Further, proceedings under Section 34 do not allow for a challenge qua the merits of the award [2]. Unlike Section 15 of the Arbitration Act, 1940, which expressly provided for the modification of arbitral awards, the Act does not make any such provision. If such a power were to be held to be vested with the courts under Section 34, it would entail a review on merits, and the court would be acting in an appellate capacity to uphold, reverse, or modify the findings of the arbitral tribunal [3]. Such a wide extent of powers may contravene the powers as envisaged under Section 34, viz., recourse to a Court against an arbitral award may be made only by an application for setting aside such award…
If, instead of the power to “set aside an award”, the court had appellate powers under Section 34, the marginal note would read as “Appeal against arbitral award” instead of “application for setting aside arbitral award” as is normally the case with appellate provisions in a statute. An argument in favour of modification under Section 34 is that it would lead to expeditious resolution of disputes and not a fresh arbitration from the get-go. While attractive at first blush, such an argument may not stand the scrutiny of law. Reasons are three-fold.
First, such an adjudication would entail a review on merits, which is completely outside the scope of Section 34 [4]. If such an approach were adopted, parties would be encouraged to reagitate the facts of the matter, which would lead to delayed resolution of disputes. This would, in turn, have a snowball effect since the appellate courts’ power under Section 37(1)(c) of the Act would accordingly be expanded to review the modification so made. It may be argued that in such circumstances, the fundamental principle of party autonomy in choosing an alternate method of dispute resolution may stand defeated.
Second,if while hearing an application it appears to the court that the defects in an arbitral award are curable, it can adjourn the proceedings on an application made by one of the parties under Section 34(4), and the arbitral tribunal may resume arbitral proceedings to eliminate the grounds for setting aside the arbitral award [5]. This ensures that a court acts as a facilitator to the arbitral process and not as a substitute.
Third, instead of modifying the arbitral award, courts have the option to take recourse to the doctrine of severability and partially set aside an award where the claims are separate, distinct, complete, and self-contained in themselves. The claims should be independent and not subordinate to one another to set aside an award partially [6]. The doctrine of severability of arbitral awards has also been affirmed by the SC in JG Engineers (P) Ltd. v Union of India [7] and the Delhi High Court in National Highways Authority of India v Trichy Thanjavur Expressway Ltd [8].
The purpose of Section 34: to (largely) keep the courts out of it
The Act is designed to ensure minimal interference of courts and to respect the finality of arbitral awards. Under Section 34 of the Act, courts only have the power to set aside the award. This is justified as parties to an arbitration agreement make a conscious decision to exclude the jurisdiction of courts [9]. If the power to modify an award were to be read into Section 34, it could go contrary to the purpose of Section 34 while negatively affecting the expediency and finality offered by dispute resolution through arbitration.
As was noted in Project Director, National Highways v. M. Hakeem, some jurisdictions allow for modification of arbitral awards by domestic courts. As an illustration, arbitration acts of England, the United States of America, Canada, Australia, and Singapore give an express power to courts to modify arbitral awards. While this may lead to an argument that India should align its arbitration law with the global practices, Indian lawmakers have consciously chosen not to vest such power with the courts under the Act as litigations in domestic courts are long drawn. Therefore, if courts under Section 34 were to delve into and adjudicate the merits of the claims, parties would be positioned into a long-drawn litigation, something that they wanted to avoid by opting for arbitration in the first place.
CONCLUSION
While the overarching aim of the Act is to minimise the supervisory role of courts in the arbitral process and make provision for an arbitral procedure that is fair, efficient, and capable of meeting the needs of specific arbitrations, only time will tell which way the pendulum swings. In Part II of this series, we will make out a case in favour of modification of arbitral awards. So stay tuned.
[1] – Project Director, National Highways v. M. Hakeem (2021) 9 SCC 1 at para 16
[2] – MMTC Ltd. Vedanta Ltd., (2019) 4 SCC 163 at para 14
[3] – McDermott International Inc v .Burn Standard Co. Ltd. (2006) 11 SCC 181 at para 51
[4] – Ssanyong Engineering and Construction Company Limited v National Highway Authority of India (2019) 15 SCC 131 at para 76.
[5] – Kinnari Mullick v Ghanshyam Das Damani (2018) 11 SCC 328
[6] – National Highways Authority of India v Trichy Thanjavur Expressway Ltd. (2023) SCC OnLine Del 5183
[7] – (2011) 5 SCC 758
[8] – Supra at 6
[9] – Supra at 3, at para 52.