Recently, the Delhi High Court (“DHC”) has reiterated that Section 34 of the Arbitration and Conciliation Act, 1996 (“Act”), empowers courts to partially set aside an arbitral award and it would not amount to a modification, as an arbitral award consists of distinct components independent of each other.
In North Delhi Municipal Corporation v. R&T Enterprises[1] and Indian Railways Catering and Tourism Corp. Ltd. v. Brandavan Food Products,[2]theDHC echoed theposition laid down in NHAI v. Trichy Thanjavur Expressway Ltd. (“Trichy Thanjavur”),[3] i.e.,the courts can set aside an offending part of an arbitral award when it has no bearing on its other components. The DHC in Trichy Thanjavur(supra) had observed that “… It is this distinction between a modification of an award and its partial setting aside that must be borne in mind.” The DHC also observed that the scope of Section 34(4) of the Act was limited to only rectifying curable defects and could not be used to review or revisit past findings.
Brief Background
In Trichy Thanjavur , two cross-petitions were filed under Section 34 of the Act seeking to quash a part of the of arbitral awards. The main issue in Trichy Thanjavur arose in light of the Supreme Court’s (“SC”) ruling in NHAI v. M. Hakeem (“M. Hakeem”),[4]which dealt with an increase in the amount of compensation by the District and Sessions Court under Section 34 of the Act. While referring to Sections 15 and 16 of the Arbitration Act, 1940 (“Act of 1940”), the SC held that courts had the power to modify or vary an award; however, currently, i.e., the only option available to the courts under Section 34 of the Act is to set aside the award and not modify it. Interestingly, M. Hakeem does not discuss the question of “partial setting aside of an award”.
The DHC in Trichy Thanjavur has referred to the proviso to Section 34(2)(a)(iv) of the Act, which stipulates that if the decision on matters submitted to arbitration can be sseparated from those not submitted, only the part related to decision on matters not submitted to arbitration may be set aside. In RS Jiwani v. Ircon International,[5]the Bombay High Court had opined that this proviso has to be interpreted ejusdem generis to Section 34 of the Act, casting an absolute duty upon the courts to “invoke the principle of severability where the matter submitted to arbitration can clearly be separated from the matters not referred to arbitration and the decision thereupon by the Arbitral Tribunal”.Thus, before the Trichy Thanjavur, the courts’ position was that awards could be partially set aside. The DHC also had to elucidate the scope and intent of Section 34(4) of the Act.
DECISION OF THE DHC
The DHC in Trichy Thanjavur, after considering Section 34 of the Act, various judgments, and the UNCITRAL Model Law, held that the proviso to Section 34(2)(a)(iv) of the Act should not be restricted to Clause (iv) unaided but should be read together with the whole section. The proviso manifests that the concept of partially setting aside an award was not foreign to Section 34 and that an award comprises several distinct components that can be set aside in part as well. The court has to exercise caution to ensure that the part to be severed is independent and does not have a cascading effect on other parts of the arbitral award. While applying the doctrine of severability, the courts should look not only for textual severability but also for substantial severability. Thus, the Trichy Thanjavur case establishes that the Section 34 of the Act should not be construed strictly and rigidly and the proviso to Section 34(2)(a)(iv) must be applied to the whole section, empowering the courts to partially set aside an award.
Section 34(2) of the Act lays the grounds on which an award can be set aside. If the award is hit by the grounds mentioned in Section 34(2), Section 34(4) cannot cure such defects. The only option then is to set aside the award. Section 34(4) of the Act is curable or remedial in nature; however, it cannot be assumed that it empowers the arbitral tribunal to act as a court of review. The DHC held that “…what M. Hakeem proscribes under Section 34(2) cannot be introduced by way of a side wind and read into Section 34(4). Consequently, it must be held that if an award be found to suffer from any of the illegalities which are spelt out in Section 34(2) (a) or (b), it must suffer the fate of being set aside and cannot be saved with the aid of Section 34(4)”.Therefore, Section 34(4) of the Act cannot cure the defects that are grounds for setting aside an arbitral award under Section 34(2)(a) or (b) of the Act, because it will amount to modification, which is impermissible in view ofthe SC judgment in M. Hakeem.
Conclusion
The DHC decision in Trichy Thanjavur provides much-needed clarity on the courts’ power to partially set aside the award vis-à-vis modification in light of the M. Hakeem case. Furthermore, the DHC’s approach supports the objective of the Act. Otherwise, forcing the parties to revisit arbitration proceedings because of the court’s inability to partially set aside an award would defeat the intent and purpose of the Act. The DHC’s wider interpretation of the proviso to Section 34(2)(a)(iv) of the Act applies it to the whole section to suggest that “set aside” in Section 34 not only means setting aside the award as a whole but also includes within its ambit the power to set aside the award in part as well.
In Trichy Thanjavur, the DHCalso reaffirmed the ratio passed in the I-pay Clearing Services (P) Ltd. v. ICICI Bank[6] that provided a finding already exists, the power vested in Section 34(4) of the Act can be used only to cure typing or mathematical errors or to explain the gaps in reasoning but cannot be used to cure defects that are grounds for setting aside an award under Section 34(2)(a) or (b) of the Act. Furthermore, it also clarified that since M. Hakeem forbids modification, Section 34(4) of the Act cannot be introduced indirectly to do what the law otherwise does not allow, i.e., curing non-curable defects in the award.
For further information, please contact:
Shikha Tandon, Partner, Cyril Amarchand Mangaldas
shikha.tandon@cyrilshroff.com
[1] 2024 SCC OnLine Del 5436.
[2] 2024 SCC OnLine Del 5607.
[3] (2023) 304 DLT 357.
[4] (2021) 9 SCC 1.
[5] (2009) SCC OnLine Bom 2021.
[6] (2022) 3 SCC 121.
