India – Supreme Court Draws Lakshman Rekha On Powers Of A Court Under Section 34: No Power To Modify An Award.

1. The Supreme Court handed down a significant judgment[1] on the scope of power of a Court hearing a challenge to an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”). The Supreme Court reiterated that there is no power under Section 34 to modify or vary an arbitral award.

 

FACTS
 

2. A batch of appeals before the Supreme Court, pertaining to the notifications issued under the National Highways Act, 1956 (“NH Act”), consisting of awards made by the competent authority (Special District Revenue Officer). These awards were made based on the guideline value of the specific lands and were not based on the sale deeds. This resulted in abysmally low amounts being granted by the competent authority. However, the District Collector, appointed by the Government as the arbitrator, did not find any infirmity in the amounts awarded and affirmed the compensation.
    

3. The District and Sessions Judge, while hearing the challenge under Section 34 of the Arbitration Act, enhanced the compensation, thereby modifying the award of the District Collector. The Division Bench of the Madras High Court upheld the modification.
    

ISSUE
 

4. One of the issues before the Supreme Court was whether the power of the Court under Section 34 of the Arbitration Act, includes the power to modify an arbitral award.
    

PETITIONER’S SUBMISSIONS 
 

5. The Petitioner – National Highways Authority of India (“NHAI”) argued that the NH Act was amended to speed up the acquisition process and that the amount of compensation for the acquisition is determined by the competent authority. However, in case the amount was not acceptable to either NHAI or the land-owner, the same could be determined by an arbitrator appointed by the Central Government.
    

6. NHAI also argued that to preserve the swiftness of the process, a challenge to the arbitrator’s award was only provided under Section 34 of the Arbitration Act, which restricted the grounds of challenge and did not entail a challenge on the merits of the award. The Court, under Section 34, it was submitted, could only set aside, or remit the award to the arbitrator under Section 34(4) to eliminate any grounds of challenge.
    

7. The decision of the Division Bench of the Madras High Court was challenged as being incorrect, having followed the decision of a Single Judge in Gayatri Balaswamy v. ISG Novasoft Technologies Ltd.[2] (“Gayatri Balaswamy”). In Gayatri Balaswamy, it was held that a Court under Section 34 of the Arbitration Act could modify an arbitral award.
    

RESPONDENT’S SUBMISSIONS
 

8. The Respondent relied on the decision in Gayatri Balaswamy and contended that the compensation was rightly enhanced by the District Judge. Relying on the said decision, it was further contended that the Division Bench, while following the decision in Gayatri Balaswamy, had rightly made a distinction between consensual arbitration and an arbitrator appointed by the Central Government, who would merely be giving his approval to the compensation awarded by yet another Government servant. The Respondent also disagreed with NHAI’s submission of starting a fresh arbitration, contending that a fresh arbitration would only be before a similarly placed bureaucrat appointed by the Central Government.
    

FINDINGS BY THE SUPREME COURT
 

9. The Supreme Court observed that the arbitration process provided for under the NH Act was not a consensual process and that the landowner has no say in the appointment of the arbitrator who would always be appointed by the acquiring authority, being the Central Government.
    

10. In relation to Section 34 of the Arbitration Act, the Supreme Court observed that the said provision provided extremely limited grounds on which an arbitral award could be set aside. The Court also considered the marginal note of Section 34, as per which “recourse” to a court against an arbitral award could only be made by an application for setting aside the award. The Court thus held that considering the limited grounds of challenge provided under Section 34(2) and (3), an application could only be made to set aside the award. This, the Supreme Court observed, was even more apparent upon a consideration of sub-section (4), under which a Court could adjourn the proceedings under Section 34, so that the arbitral tribunal could eliminate the grounds for setting aside of the arbitral award.
     

11. Importantly, it was highlighted that Section 34 of the Arbitration Act was modelled on the UNCITRAL Model Law on International Commercial Arbitration, 1985, which did not give any power to a Court hearing a challenge to an award, to modify such award. It was also noted that Section 34 encapsulates the legislative policy of minimal judicial interference in arbitral awards. In relation to the Arbitration Act, 1940 (“1940 Act”), the Supreme Court noted that this statute gave the Court the power to remit, modify or correct an award under Sections 15 and 16 of the 1940 Act, or to set aside the award on grounds contained in Section 30 of the 1940 Act (such grounds being broader than those provided under Section 34 of the Arbitration Act).
     

12. The Supreme Court further observed that it was well settled that a challenge to an award under Section 34 did not entail a challenge on the merits of the award. This has been conclusively decided in several decisions such as MMTC Ltd. v. Vedanta Ltd.[3], Ssangyong Engg. & Construction Co. Ltd. v. NHAI[4], which had relied on Renusagar Power Co. Ltd. v. General Electric Co.[5], the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958, to hold that there could be no challenge on the merits under the grounds enumerated under Section 34.
     

13. The Court also noted that the issue had been conclusively decided in McDermott International Inc. v. Burn Standard Co. Ltd.[6], where it was held that the Arbitration Act only provided for a minimum supervisory role of the courts, and envisaged limited judicial intervention, which did not include correcting errors of the arbitrator. It was observed that the law laid down in McDermott had been followed in other decisions – Kinnari Mullick v. Ghanshyam Das Damani[7], and Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies Pvt. Ltd.[8], which had also held that Section 34 did not contain any power to modify an arbitral award. The Supreme Court also observed the decision in Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd.[9] to this effect, where it was held that the provision of curing defects in the award by the arbitral tribunal was specifically provided for under Section 34(4).
     

14. On the issue of whether the power to modify exists, the Supreme Court also referred to certain judgments of the High Courts as being instructive. In Cybernetics Network Pvt. Ltd. v. Bisquare Technologies Pvt. Ltd.[10], the Delhi High Court held that Section 34(4) did not empower a Court to deal with the claims already dealt with by the arbitral tribunal, where it felt that the tribunal erred in rejecting the claims. This, the Court held would amount to the court acting as an appellate court, which would be contrary to the statutory scheme of Section 34. Another decision[11] of the Delhi High Court was noted where it was held that under the Arbitration Act, a successful challenge to an arbitral award would only result in the award being set aside, which was distinct from the power of the Court under the 1940 Act, as per which, it could modify the award.
     

15. In addition, the decision in Puri Construction P. Ltd. v. Larsen and Toubro Ltd.[12] was also taken into consideration, where the Delhi High Court, while reiterating the law laid down in McDermott, held that the power to modify, vary or remit the award does not exist under Section 34 of the Arbitration Act. The Delhi High Court had held that a Court modifying or varying the award, would in essence be correcting the errors of the arbitrator.
     

16. The Supreme Court then dealt with the decision in Gayatri Balaswamy, which had been relied on by the Respondent, and where it was held that McDermott did not settle the issue of whether a court had the power to modify under Section 34. The Supreme Court observed that the judgments relied upon in Gayatri Balaswamy were those where the arbitral awards were modified by the Supreme Court in exercise of its powers under Article 142 of the Constitution of India. Therefore, the Supreme Court held that Gayatri Balaswamy was wrong in holding that the judicial trend reads into Section 34, the power to modify, revise or vary an award.
     

17. The Supreme Court also highlighted that in Central Warehousing Corpn. v. A.S.A. Transport[13], an earlier decision by a Division Bench of the Madras High Court had specifically considered the decision in McDermott and reiterated that the power of modification was not available under Section 34. The decision in Central Warehousing Corpn, although binding on the Single Judge in Gayatri Balaswamy, was not cited and hence was not considered by the Single Judge. The decision in Gayatri Balaswamy was thus held to be per incuriam.
     

18. Further, in ISG Novasoft Technologies Limited v. Gayatri Balasamy[14], a subsequent Division Bench judgment of the Madras High Court had agreed with the Single Judge in Gayatri Balaswamy, however, without noticing the earlier Division Bench judgement in Central Warehousing Corpn. The Supreme Court held that the Division Bench judgment in ISG Novasoft Technologies Limited suffered from the same infirmities as that of the decision in Gayatri Balasamy.
     

19. The Respondent had also relied on the decisions in Numaligarh Refinery Ltd. v. Daelim Industrial Co. Ltd.[15]; DDA v. R.S. Sharma and Co.[16], and Royal Education Society v. LIS (India) Construction Co. (P) Ltd.[17], as examples where an award was modified. The Supreme Court held that these decisions did not help the Respondent since these were also passed under Article 142 of the Constitution of India and did not constitute the ratio decidendi. The Court also noted that there was no discussion in these decisions as to whether, as a matter of law, the power to vary an award can be found in Section 34 of the Arbitration Act.
     

20. Section 34 of the Arbitration Act was also contrasted against the provisions for challenging an award under the Arbitration Acts of England, the United States, Canada, Australia, and Singapore. The Supreme Court noted that in each of these legislative measures, there are express provisions which permit the varying of an award, unlike Section 34 of the Arbitration Act. The Supreme Court also held that to assimilate the Section 34 jurisdiction with the revisional jurisdiction under Section 115 of the Code of Civil Procedure, 1908, is fallacious. The Court noted that Section 115 of the Code of Civil Procedure, 1908, expressly sets out the three grounds on which a revision may be entertained and then states that the High Court may make “such order as it thinks fit”. The Court noted that these words are missing in Section 34, given the legislative scheme of the Arbitration Act.
     

21. The Supreme Court then highlighted that if the power to modify an award was to be included under Section 34 of the Arbitration Act, it would amount to crossing the “Lakshman Rekha”. Pertinently, the Court held: “[q]uite 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.”
     

CONCLUSION
 

22. Given the difference of opinion of certain High Courts on this issue, the decision by the Supreme Court is significant since it clarifies that there exists no power to modify or vary an award under Section 34 of the Arbitration Act. This decision once again re-affirms the minimal judicial interference followed by the Indian Courts when it comes to challenges to an award. The decision is also consistent and takes forward the amendments made to the Arbitration Act, and in particular, those made to Section 34 of the Arbitration Act.
     

 

For further information, please contact:

 

Omar Ahmad, Partner, Cyril Amarchand Mangaldas 

omar.ahmad@cyrilshroff.com
 

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insofar that a party could not choose 2 of the Constit

[2] 2014 SCC OnLine Mad 6568

[3] (2019) 4 SCC 163

[4] (2019) 15 SCC 131

[5] 1994 Supp (1) SCC 644

[6] (2006) 11 SCC 181

[7] (2018) 11 SCC 328

[8] 2021 SCC OnLine SC 157

[9] (2019) 20 SCC 1

[10] 2012 SCC OnLine Del 1155

[11] Nussli Switzerland Ltd. v. Organizing Committee Commonwealth Games; 2014 SCC OnLine Del 4834

[12] 2015 SCC OnLine Del 9126

[13] 2007 SCC OnLine Mad 972

[14] 2019 SCC OnLine Mad 15819

[15] (2007) 8 SCC 466

[16] (2008) 13 SCC 80

[17] (2009) 2 SCC 261