No Power to Modify The Award Under Section 34: Clearing The Mist

[This guest post is authored by Shubham Gandhi, 3rd year student and Tanish Gupta, 2nd year student at National Law University, Jabalpur, India]

No Power to Modify The Award Under Section 34: Clearing The Mist

Introduction

The Supreme Court of India, on July 20, 2021, in the case of National Highways Authority of India (NHAI) v. M. Hakeem & Anr., (“NHAI”), has authoritatively dictated that the courts do not have the power under Section 34 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) to modify the award passed by the arbitral tribunal.

The matter was concerned with the notification under National Highway Act, 1956, and the award passed thereto. The amount was calculated based on the guiding value of the land instead of the sale deeds. Upon petition under Section 34 of the Arbitration Act, the lower courts considered the amount abysmally low and increased the compensation, thereby modifying the arbitral award. The High Court of Madras upheld such modification of the award, resulting in the present appeal and the decision thereof.

Parties generally enter into arbitration agreements to avert the rigours of judicial remedy and settle the dispute on their terms. Lately, conflicting approaches have emerged with the courts in India modifying the award, thus diluting the efficacy of the whole arbitration process and breaching the least intervention principle.

In this article, the author(s) highlight the conflicting ruling of various High Courts (“HC”) and the Supreme Court (“SC”), exemplify the principle of least intervention, and discourse the perspective prevailing in different jurisdictions on the issue to bring forth the clarified position.

Inconsistent Approach by the Courts

Until July 20, 2021, there was no settled position on the power of courts to modify the award with different benches of the court endorsing differing or, to say, contradictory views. In 2006, the division bench of the SC, in McDermott International Inc. v. Burn Standard Co. Ltd., categorically held that the court cannot modify but only quash the award under Section 34 leaving it to the parties to re-arbitrate if they desire so. However, in the same case, the court proceeded with modifying the award by invoking its power to do complete justice under Article 142 of the Constitution. Surprisingly, in the same year, another division bench in Hindustan Zinc Ltd. v. Friends Coal Carbonisation upheld the modification of the award by the trial court, which was concerned with the plea for setting aside the award. This was followed by Oil & Natural Gas Corporation Ltd. v. Western Geco International Ltd., wherein the court held that when the arbitration tribunal draws a wrong inference on facts, the award can be “cast away or modified”. Similarly, in Vedanta Ltd. v. Shenzhen Shandong Nuclear Power Construction Co. Ltd., the court modified the award passed by the tribunal in international commercial arbitration (this judgment has been discussed on the blog here). Interestingly, none of these decisions elaborates upon the source of the court’s power to modify the arbitral award.

On the other hand, the SC in Kinnari Mullick v. Ghanshyam Das Damani and in Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies Pvt. Ltd. negated the existence of the power to modify the award with courts. The conundrum has not left the HC untouched with various HC deciding distinctly.

In the much-talked judgment of Gayatri Balaswamy v. ISG Novasoft Technologies Ltd., the Madras HC held that the power of courts to modify the arbitration award is inherent in Section 34 of the Arbitration Act. In contrast to this, the Delhi HC in Cybernetics Network Pvt. Ltd. v. Bisquare Technologies Pvt. Ltd. held that the court is not empowered to modify the award, and any attempt to do so would make the court an appellate authority which is contrary to the scheme of the arbitration act. Holding the case of Gayatri Balaswamy per incuriam, the SC has put the controversy to rest by the present judgment.

The Predominant Principle of Least Intervention

Section 34 of the Arbitration Act is premised on the UNCITRAL Model Law, which provides recourse against the award “only by an application for setting aside” and prohibits interference with the award. In Enercon v. Enercon GMBH, the SC highlighted the presence of an “overarching” principle of least intervention in the Arbitration Act that needs to be kept in mind while interpreting the act.

In other jurisdictions, the strength of the principle of least judicial intervention is that even the principle of party autonomy, which is considered the brooding and guiding spirit of arbitration cannot precede it. In Hall Street Associates, L.L.C. v. Mattel, Inc., the parties inserted a clause in their arbitration agreement prescribing erroneous conclusion of law by the arbitrator and findings of the arbitrator unsupported by facts as grounds for vacating, modifying, or correcting the award. However, the Supreme Court of the United States held that the parties cannot, by their agreement, enlarge the statutory grounds provided in the legislation to set aside the arbitral award.

Indeed, the principle applies to modifying the award falling under Section 34 of the Act, and the courts cannot overlook it to modify the award. Moreover, the Arbitration Act, 1940 provided power to the court to modify, remits, and set aside the award against the Arbitration Act of 1996, which prescribes only for setting aside an arbitral award. The legislature in 1996 was aware of the existence of the remedy of modification and remission. The exclusion of these terms from the present act clarifies the legislative intent to preclude the remedy of modification by the courts, and the same should not find its way into the Indian arbitral regime through judicial decisions.

International Viewpoint

It is interesting to note that the law regarding the modification of awards is subject to debate in many jurisdictions. The English Arbitration Act, 1996 contains provisions that allow the court to modify the award on specific grounds. The English court has the power to vary the award when the challenge is made on substantive jurisdiction (Section 67) or when an appeal is preferred on the question of law (Section 69).

In Australia, the International Arbitration and Conciliation Act, 1974, later amended in 2010 in the light of UNCITRAL Model Law, provides recourse to an arbitral award by making an application under Section 34 for setting aside the award. The provisions, by using the phrase “recourse against arbitral award”, is worded similar to the Indian enactment. Strikingly, the provision does not empower the court to vary the award; thereby, Section 34-A was added to provide for an appeal, through which modification can be done and not otherwise.

In the United States, the power to modify awards does not come from interpretation by courts, rather,  comes from the statute. Section 11 of the United States Federal Arbitration Act, 1925 lays down that a court is empowered to make an order modifying or correcting the awards, and it laid down three conditions, i.e. (a) evident material mistake (2) arbitration award on an issue not submitted for dispute (c) award is imperfect as to matter of form not affecting the merits. The last portion of the Section states that “The order may modify and correct the award, so as to effect the intent thereof and promote justice between the parties.”

The Singapore Arbitration Act, 2001 vide Section 47 and 51(2) empowers the court to either set aside an award or vary the award’s terms. It is interesting to note that, Section 48 which talks about setting aside an award, and Section 49 relates to appeal on a question of law, gives the identical picture as to the position held by English and Australian law, i.e., in an application for setting aside an award, modification cannot be done. However, the Singapore Act allows Section 51(2) to overlap Section 48 and 49, thereby allowing modification of award and set aside in the same proceeding, thus holding a unique position.

It is to be noted that, in above jurisdictions, the power to “set aside” an award does not extend to modification. The legislature intended to provide for such a power explicitly by enactment or amendment. Thus, the courts in other jurisdictions have not interpreted such a wide power and ruled on the basis of a specific provision to that effect.

Concluding Remark

Given the various conflicting dictum, the NHAI judgment has cleared the air concerning the court’s power to modify the award, and it fosters the policy of minimal judicial intervention. The judgment rightly notices the deliberate omission of remedy of modification by the legislature and gives effect to legislative intent. However, as done in the McDermott case, the courts can still modify the award under Article 142 of the Constitution to do complete justice. Article 142 empowers the SC and not other courts, denying legitimacy to any such modification by the lower courts and their affirmation by the Supreme Court thereafter. The modification of awards by court is undesirable especially by invoking Article 142 since it would justify what the enactment by legislature prohibits.

In the light of the principle of minimum judicial intervention, the author(s) firmly believe that modification of awards should be done only after the legislature, in its wisdom, amends the act to that effect.

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