Introduction
The Delhi High Court, had recently in the case of National Highway Authority of India v. Trichy Thanjavur Expressway Ltd. O.M.P. (COMM) 95/2023 and Trichy Thanjavur Expressway Ltd. v. National Highway Authority of India O.M.P. (COMM) 106/2023 (collectively the “Trichy Thanjavur Expressway Matters”), invited counsels to advance submissions in relation to a court’s powers under Section 34 of the Indian Arbitration and Conciliation Act, 1996 (“Act”), and more particularly on the power of courts to partially set aside arbitral awards.
The express language of Section 34(1) of the Act provides for recourse to courts for setting aside an arbitral award in accordance with sub-section (2) and sub-section (3) of the Act. While sub-section (2) provides for grounds for setting aside an arbitral award, sub-section (3) provides the timeline within which an application for setting aside of the award must be made. Sub-section (4) of Section 34 of the Act provides a discretionary power to the courts to adjourn the proceedings and remand the matter to the tribunal for either resuming proceedings or eliminating the grounds for setting aside the arbitral award, provided an application to that effect is made by either of the parties.
On a reading of these provisions, it is clear that an application made under Section 34 of the Act can have two possible outcomes -i) the court may set aside the arbitral award; or ii) adjourn the proceeding and remand the matter back to the arbitral tribunal. In case of the former, it is settled that parties are relegated to their original position and the dispute between the parties, or the portions of it which has been set aside, can be decided afresh before a new tribunal[1]. However, in the latter scenario, for the purposes of Section 34(4), the matter is remanded back to the same tribunal which passed the arbitral award in the first place.
In the landmark case of National Highways Authority of India v. M. Hakeem, (2021) 9 SCC 1 (“M. Hakeem”), the Supreme Court took note of a plethora of judicial precedents on the issue of modification of awards and categorically held that under Section 34 of the Act, courts do not have the power to modify arbitral awards as doing so will be crossing the line in the sand under the guise of judicial interpretation of statutes. The same has also been reiterated by a co-ordinate bench of the Supreme Court in the case of National Highways Authority of India v. P. Nagaraju alias Cheluvaiah and Anr. 2022 SCC OnLine SC 864. It is also well settled after M. Hakeem (supra) that the courts’ power to do complete justice is not envisaged under Section 34 of the Act. Only the Supreme Court of India, while exercising its powers under Article 142 of the Constitution, can modify an arbitral award to do complete justice to the parties. (see a previous post on Modification v. Doing Complete Justice here). Despite these unequivocal findings of the Supreme Court in M. Hakeem (supra), the controversy on modification of awards has not been entirely put to rest as the High Courts have continued to pass orders partially setting aside awards under Section 34 of the Act.
Interplay between partial setting aside and modification
In the past, the Supreme Court has upheld the practice of partial setting aside of arbitral awards in specific circumstances. In the case of J.G. Engineers Pvt. Ltd. v. Union of India, (2011) 5 SCC 758, theSupreme Court held that in the event an award decides several claims separately and distinctly, and an error is identified in some of the claims, then the unaffected claims must be segregated and upheld. In this case, the High Court of Guahati had found an error only in relation to some of the claims but it proceeded to set aside the entire award as a whole on the reasoning that if the arbitral tribunal allowed certain counterclaims, the amounts granted under the upheld claims would also have to be adjusted. The Supreme Court, however, disagreed with the reasoning adopted by the High Court. The Supreme Court relied upon the doctrine of severability to uphold the power of courts to partially set aside awards where the claims were separate and distinct.
Severability and partial setting aside of claims has also been reiterated in the recent judgments of National Highways Authority of India v. Additional Commissioner and Others, 2022 SCC OnLine Bom 1688 and John Peter Fernandes v. Saraswati Ramchandra Ghanate since deceased and Others 2023 SCC OnLine Bom 676. It is pertinent to note that these judgments were passed after the decision in M. Hakeem (supra) and do not treat partial setting aside as modification for which no express statutory mandate exists.
It is clear that an award may be partly set aside where claims are severable or distinct, however there is no universally applicable principle for the determination of this severability and the decision finally boils down to the facts of each case. Some reference may be taken from the Bombay High Court judgment of R.S. Jiwani (M/S.) v. Ircon International Ltd., (2010) 1 Mah LJ 547 where the Court cited two specific instances of partial setting aside of awards: first, where the party itself challenges only a limited part of the award, and second, where setting aside the entire award as a whole would be deemed unjust, unfair and inequitable, especially in cases where only a few time-barred claims are involved. While, these instances were cited as observations, they are still indicative of the restricted canvass within which the exercise of partial setting aside must be undertaken by the courts. Thus, since the courts have continued to recognise their power to partially set aside awards, the root of the controversy is then a smaller sub-set of cases where courts have effectively modified awards when intending to partially set them aside. These aspects will likely be decided by the Hon’ble Delhi High Court in the Trichy Thanjavur Expressway Matters, currently being heard before the Hon’ble High Court.
A specific carve out for payment of interest?
There is, however, a specific carve out for modification of awards in situations where a statutory mandate exists, such as payment of interest. Interfering with the interest granted by the arbitral tribunal is a discretion which has been exercised by the Supreme Court under Article 142 of the Constitution[2]. However, under Section 34 of the Act, courts do not sit in appeal[3] as merits of the dispute are not to be adjudicated[4], and therefore, while partially setting aside the award, courts must refrain from going into the substance of the dispute. Thus, under Section 34 of the Act the courts must not interfere with interest or compensation awarded by the tribunal as the same could amount to modification of the award.
The Delhi High Court in the case of Canara Bank v. State Trading Corporation of India Ltd. and Another 2022 SCC OnLine Del 3060, while relying on the law laid down in M. Hakeem (supra) held that since the powers of the court in Section 34 of the Act are restricted, courts cannot award interest to the parties and doing so would amount to modification of the award.
As opposed to the ratio of Canara Bank (supra), in the case of Shri Sarjuprasad s/o Sangmlal Gupta versus National Highways Authority of India and others 2021 SCC OnLine Bom 2343, the Bombay High Court upheld granting solatium and interest to the landowners under the provisions of Land Acquisition Act, 1956.The High Court held that while modification of awards was not permitted under Section 34 of the Act, awarding interest under the Land Acquisition Act would not amount to modification because such interest and solatium was automatically payable once compensation as per market value stood determined. The reasoning in Sarjuprasad (supra) does not violate the established principle on modification of awards, as the High Court in that case merely recognised what the interest is under the relevant statute as opposed to determining what it should be. The former is only a recognition of an already existing right whereas the latter would have amounted to modification of arbitral award which is impermissible.
Conclusion
The Trichy Thanjavur Expressway Matters have reignited the debate with respect to modification of arbitral awards vis a vis partial setting aside under Section 34 of the Act. We hope that while deciding on the controversy in these matters, the Hon’ble Delhi High Court provides further clarity on the nature/ kinds of claims which may be partially set aside so that the courts while granting relief under Section 34 of the Act, can avoid entering the realm of modification of awards for which no statutory/ judicial prescription exists. The arguments in the Trichy Thanjavur Expressway Matters have been completed and the judgment is reserved.
For further information, please contact:
Jyoti Dastidar, Partner, Cyril Amarchand Mangaldas
jyoti.dastidar@cyrilshroff.com
[1] Dakshin Haryana Bijli Vitran Nigam Limited v. M/s. Navigant Technologies Pvt. Ltd. Civil Appeal No. 791 of 2021
[2] McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181; Pure Helium India (P) Ltd. (2003) 8 SCC 593; Mukand Ltd. v. Hindustan Petroleum Corpn. Ltd. (2006) 9 SCC 383
[3] M. Hakeem (supra)
[4] MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC 163
