The conundrum surrounding the issue of whether the power of the courts under Section 34 of the Arbitration Act, 1996 to set aside an Arbitral Award would also include the power to modify such an Award has been an issue of contention for long. The Supreme Court has now ended the controversy and cleared the air giving the arbitration regime a much need clarity.
The Apex Court in The Project Director, NHAI Vs M Hakeem , in an appeal filed against the decision of Madras High Court, (in which the High Court upheld the decision of the District & Sessions Court which modified the Arbitral Award passed by the Competent Authority under the National Highways Act, 1997, has categorically held that Section 34 is a ‘limited remedy’.
It even clarified that the assimilation of Section 34 of the Act with the revisional jurisdiction under Section 115 of the Code of Civil Procedure, 1908 is “fallacious” as Section 115 of the CPC 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’.
These latter words are missing in Section 34, given the legislative scheme of the Arbitration Act, 1996”. The Court observed that Section 34 prescribes the scope of judicial intervention i.e., the ‘recourse’ to a court against an Arbitral Award which can be made only by way of an Application to ‘set aside’ the Arbitral Award in accordance with Sub-section (2) and (3).
Court analysis
Court analysed the term “recourse” and held that “recourse” is a method of enforcing the right, however where the right under Section 34 is itself truncated, enforcement of such truncated right can also be limited in nature.
The Arbitration & Conciliation Act, 1940, gave powers to Indian courts under Section 15 and 16 to modify the Arbitral Awards besides remitting or setting them aside, however, that power of court’s interference was reduced to setting off an Award by amendment of the Arbitration Act, which was based on the UNCITRAL Model Law on International Commercial Arbitration (‘the Model Law’).
The Model Law does not empower the courts to interfere with any Award except on specific grounds. Court placed its reliance on a catena of judgments including MMTC and Ssangyong Engg, which settled the position that a Section 34 proceeding does not contain any challenge on merits.
It has been held that the court cannot correct the errors of the arbitrators. It can only quash the Award leaving the parties to begin the arbitration again if desired. Thus, the Court held, Section 34 did not contain any power to modify an Arbitral Award. Consequently, The Court held the remedy under Section 34 of the Arbitration Act is limited to setting aside an Arbitral Award or remand the matter under the circumstances mentioned under Section 34.
Court noted that the provision for the modification of an Award must be expressly provided in the statute for the courts to interfere in such manner. Under the Arbitration Act, it is clearly stated that the power of court only extends up to setting aside an Award. Since the Arbitration Act is based on Model Law, hence there is a limited remedy under Section 34 and the courts cannot modify an Arbitral Award unless expressly stated in the statute.
(The author is a lawyer with the law firm, RPV Legal)