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Can a Court modify an Arbitral Award under Section 34 of the Arbitration and Conciliation Act, 1996?

INTRODUCTION

Arbitration laws in India have had their journey and the Arbitration and Conciliation Act we know today has passed the tests of major international conventions and laws.  Arbitration as a mode of Alternate Dispute Resolution came into existence with a very important objective, i.e., to speed up the process of dispute resolution. To meet this objective the legislation and Courts have time and again made efforts to minimise the interference of the Court’s in the arbitration process.

In the Arbitration Act of 1940, Section 15  of the Act provided the Court’s with the power to amend an award as follows:

15. Power of Court to modify award—The Court may by order modify or correct an award—

  1. where it appears that a part of the award is upon a matter not referred to arbitration and such part can be separated from the other part and does not affect the decision on the matter referred; or
  2. where the award is imperfect in form, or contains any obvious error which can be amended without affecting such decision; or
  3. where the award contains a clerical mistake or an error arising from an accidental slip or omission.”

Thus, the legislation very clearly provided the Court’s with the power to amend/ modify an arbitral award.

In the year 1985, UNCITRAL (United Nations Commission on International Trade Law) was formed. It was formed with the general intention to unify the trade laws across the world. UNCITRAL brought about a major change in the Arbitration Law of the country and in 1996 with substantial amendments, The Arbitration and Conciliation Act, 1996 came into existence. Under this new Act, the legislation provided for Section 34 as the provision that stated about challenge to an arbitral award. This new Act did not provide for any specific provision for modifying an arbitral award.

ANALYSIS OF CASE LAWS

In 1985, with the coming of UNCITRAL, a point that drew much traction was that no specific provision was provided for in UNCITRAL for modification of an arbitral award. The new Arbitration and Conciliation Act of 1996 in light of the UNCITRAL did not provide for any specific provision for modification of an award. Thus, the question of whether an arbitral award can be modified or not by the Courts was left open for discussion in the Courtrooms.

Several High Courts held that an arbitral award can be modified by the Courts. The Madras High Court in the case of Gayatri Balaswamy v. ISG Novasoft Technologies Ltd.[1] held as follows:

the expression “recourse to a court against an arbitral award” appearing in Section 34(1) cannot be construed to mean only a right to seek the setting aside of an award. Recourse against an arbitral award could be either for setting aside or for modifying or for enhancing or for varying or for revising an award. The expression “application for setting aside such an award” appearing in Sections 34(2) and (3) merely prescribes the form, in which, a person can seek recourse against an arbitral award. The form, in which an application has to be made, cannot curtail the substantial right conferred by the statute. In other words, the right to have recourse to a court, is a substantial right and that right is not liable to be curtailed, by the form in which the right has to be enforced or exercised. Hence, in my considered view, the power under Section 34(1) includes, within its ambit, the power to modify, vary or revise.

This view was also taken by the Bombay High Court in the case of Axios Navigation Co. Ltd. v. Indian Oil Corpn. Ltd.[2] and the Calcutta High Court in the case of W.B. Electronics Industries Development Corpn. Ltd. v. Snehasis Bhowmick[3]. These views can be said to be opinions of those Courts, but the law and the guiding principle on this point was firstly given by the Supreme Court in the case of McDermott International Inc. vs. Burn Standard Co. Ltd.[4], wherein the Court held as follows:

The 1996 Act makes provision for the supervisory role of courts, for the review of the arbitral award only to ensure fairness. Intervention of the court is envisaged in few circumstances only, like, in case of fraud or bias by the arbitrators, violation of natural justice, etc. The court cannot correct errors of the arbitrators.

The Apex Court herein clearly ruled out the scope of the Court to modify an award and clearly stated that a court cannot correct errors of arbitrator.

The judgment in the case of McDermott came in 2006, but still divergent views of the High Courts prevailed. To put an end to these divergent views, the Supreme Court recently in the case of Project Director, National Highways vs. M. Hakeem & Another[5] has elaborately dealt with this issue. The Apex Court analysed a number of decisions of both the Supreme Court and the High Courts and came to the following conclusion in light of the question of as to whether a Court has the right to modify/ amend an arbitral award:

………this question has now been settled finally by at least 3 decisions [McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181] , [Kinnari Mullick v. Ghanshyam Das Damani, (2018) 11 SCC 328 : (2018) 5 SCC (Civ) 106] , [Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies (P) Ltd., (2021) 7 SCC 657] of this Court. Even otherwise, to state that the judicial trend appears to favour an interpretation that would read into Section 34 a power to modify, revise or vary the award would be to ignore the previous law contained in the 1940 Act; as also to ignore the fact that the 1996 Act was enacted based on the Uncitral Model Law on International Commercial Arbitration, 1985 which, as has been pointed out in Redfern and Hunter on International Arbitration, makes it clear that, given the limited judicial interference on extremely limited grounds not dealing with the merits of an award, the “limited remedy” under Section 34 is coterminous with the “limited right”, namely, either to set aside an award or remand the matter under the circumstances mentioned in Section 34 of the Arbitration Act, 1996.

Thereafter, the Court to strike down the practice of judicial overreach went on to also state that the legislation had very clearly drafted Section 34 of the Arbitration Act, 1996 and that any attempt to include the power to modify an arbitral award is blatantly illegal. The Court stated as follows:

Quite 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.

Under the Arbitration Act of 1940, a specific provision was also made for remitting an award. Such a specific provision is not found in the Arbitration Act of 1996. Thus, a lacunae was found that if a court cannot modify an award, then if the awards is dismissed does that defeat all the rights of the parties? Will the person in whose favour a partially correct arbitral award stood be subjected to injustice on ground of a legislative lacunae? To fill up this lacunae, the Supreme Court in the case of McDermott International Inc. vs. Burn Standard Co. Ltd.[6] held as follows:

The court cannot correct errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is desired.

The Court held that the court’s only have a supervisory role and cannot dwell into the merits of the arbitration, but this does not leave either of the parties remediless. The parties if so desire are free to begin a fresh arbitration.

CONCLUSION

In the old Arbitration Act, specific provisions were provided for modification of an arbitral award, but the new Arbitration Act did not find place for these provisions. Thus, a point was raised for discussion in the courtrooms: “Can a Court modify an Arbitral Award under Section 34 of the Arbitration and Conciliation Act, 1996?” The Supreme Court in the case of Mc Dermott and thereafter in the case of M. Hakeem has answered this question in the negative. The Supreme Court has held that the objective of the Arbitration Act is to minimize the interference of the Courts in the arbitration process. In absence of a specific provision, modification of an arbitral award by the Courts is against the basic theme of the Arbitration Act and thus, unlawful.

 

[1] 2014 SCC OnLine Mad 6568

[2] 2012 SCC OnLine Bom 4

[3] 2012 SCC OnLine Cal 10262

[4] (2006) 11 SCC 181

[5] (2021) 9 SCC 1

[6] (2006) 11 SCC 181

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Law Wire Team
Law Wire Teamhttps://lawwire.in/
Law Wire Team attempts to delve into pertinent (and sometimes not immediately pertinent) questions regarding socio-politics, Law and their interesting matrix.
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