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Judicial Conundrum: Analyzing The Jurisprudence Of Court's Power To Modify The Award U/S 34 And 37

Recently, the Supreme Court referred the question of modification of award by the court under section 34 and 37 of the Arbitration and Conciliation Act, 1996 to a larger Constitution bench to decide and set in stone the position of law regarding the same.[1] The author has attempted to analyze the developing body of case laws pertaining to the court's jurisdiction to modify arbitration awards made in accordance with the Arbitration Act.

This analysis is based on the Supreme Court's long-standing divergent views, as well as an analysis of Article 142 of the Constitution, which outlines the Court's authority to provide full justice. Significantly, the Supreme Court's division benches have largely shaped the body of law surrounding this topic.

Nonetheless, the Supreme Court has recently refrained from supporting these changes in its decisions, which runs counter to previous trends in favour of them. The author concludes by discussing the possibility of using Section 34(4) of the Act as a workable remedy. Genesis and Object of Section 34 and 37.

In India, the first Arbitration Act dates back to 1899 which was borrowed from the English Arbitration Act, 1889 following the same The Arbitration (Protocol and Convention), Indian Arbitration Act, 1940, Foreign Awards (Recognition and Enforcement) Act, 1961 and then the current Arbitration and Conciliation Act, 1996 ("A&C Act, 1996")came into being which by virtue of Section 85[2] of Part IV of the act repealed the existence of previous laws on the same.

The Indian legislators sourced the current A&C Act, 1996 on the UNCITRAL Model Law on International Commercial Arbitration 1985.[3] Arbitration Act, 1940 gave the courts the authority to amend the judgment (Section 15), send it back to the arbitrators for additional consideration (Section 16), and set it aside for particular reasons (Section 30). The English Arbitration Act of 1934 served as the basis for the 1940 Act. The English Arbitration Act of 1950 superseded the 1934 Act, and the Arbitration Act of 1975 took its place. The 1979 Arbitration Act then took the place of the 1975 Act.[4]

Article 34 of Chapter VII of the UNCITRAL Model Law on International Commercial Arbitration 1985 contains the provision for recourse against the award which is to move an application to the court[5] for setting aside the award. In the erstwhile Arbitration Act of 1940, Section 30 of the act enlisted broad grounds for setting aside an arbitral award. The Arbitration Act of 1940 provided with three different types of remedies - rectification, remission, and setting aside of the arbitral award in response to arbitral awards. But, the current situation is distinct in that the solutions have now been combined into two i.e., Challenge and Enforcement.

It has been observed by the Hon'ble Supreme Court that Since the parties choose the arbitrator, he acts as a judge, and his decision/award is not to be taken lightly or interfered with [6]. This is to say that the award rendered by the arbitrator is not only binding on the parties but has a legal overtone as the award is passed in the interest of justice, to cast fairness.

The Court has the authority to scrutinise the Arbitrator's acts and also to check whether the tribunal remains under the limits of its jurisdiction and furnishes reasonings for its awards[7]. The court cannot intervene unless the arbitrator violates the fundamental standards of evidence or is radically wrong or vicious during the procedures, or whether they are violating the principles of natural justice.[8]With this goal in mind, the law provides a challenge to the Arbitral Awards.[9]

Section 39 of the erstwhile Arbitration Act of 1940 was in pari materia to the current Section 37 of the A&C Act, 1996 talking about appealable orders having again broad and limited grounds whereas Section 37 of the current arbitration regime encompasses specific orders to be open for appeal. Once the party has approached the court by virtue of Section 37 of A&C Act, 1996 and the same has not been entertained by the court the party has no other remedy left but to knock the doors of Supreme Court under Article 136 of the Constitution.[10]

Similarly, Section 50 of A&C Act, 1996 allows for a limited number of challenges against court orders in foreign-seated arbitrations. A right of appeal against specific orders only and not against others is provided by Section 37 and 50 of the act.[11]

If we look at the cross border stance, In the English Arbitration Act of 1996 Section 69 of the same is setting out the appeals on the point of law only with the consent of all parties involved or with the court's permission which is only granted in certain situations may an appeal be filed. These occasions include when there is a significant impact on rights, when the issue is one that the tribunal should decide, when the tribunal's ruling is obviously incorrect, or when the issue is of general public concern.

The award may be confirmed, modified, remitted, or set aside by the court; if setting aside is judged improper, the court will choose to remit things to the tribunal for reconsideration. The court shall grant permission before any more appeals may be made, either because the matter is of general significance or for other reasons the court deems appropriate.

Courts' stand , a bit of conundrum?
The courts' view with respect to the modification of award under Section 34 and 37 is capricious. Chronologically speaking a single judge bench of Delhi High Court back in 1999 observed that under Section 34 of A&C Act, 1996 court cannot re-write the award and/or modify the award of the arbitrator or of the Arbitral Tribunal and only errors clerical in nature can be rectified.[12] Later in the year 2002 the Hon'ble Apex Court in State of Rajasthan v. Nav Bharat Construction Co. modified the award qua the rate of interest and reduced the same rate of interest as this case the respondent contractor approached the Hon'ble Supreme Court against the state seeking to enhance the interest on delayed payments while the SC held that arbitrator was correct in his reasoning and modified the rate of interest.[13]

Subsequently the Delhi High court observed that 'If only one understanding is possible from a reading of the relevant clauses of a contract, and this understanding is at variance with that preferred by the arbitrator, the courts may step in and modify the award. Where, however, multiple understandings and interpretation are possible on a perusal of the contract, the court cannot impose its own interpretation on that of the arbitrator.'[14]

In an another case before the Bombay High Court where there was a dispute regarding the claims of the bills and wherein the petitioner contented that the arbitrator erroneously awarded high rate of interest on delayed payments the court modified the award and cut down the rate of interest and found arbitrator's computation as over the line.[15]

The Hon'ble Apex court In Hindustan Zinc Ltd. v. Friends Coal Carbonisation upheld the modification did by the trial court to the award in the escalation charges to be paid by the respondent and thereby ratified such modification in award by the trial court.[16] Furthermore, in the year 2007 the Apex Court again ruled in favor of modification of award and modified the arbitrator's imposition of idling charges of the machines for a specific time period and the Apex Court by allowing the appeal of the respondents agreed to the submission of the respondent that there was omissions on the part of the arbitrator to consider several aspects at the machinery site and modified the award from 1.47 Crores to 1 Crore to be payable now by the respondents (Krishna Bhagya Jala Nigam Ltd. v. G. Harischandra Reddy )[17] In an another case before the Apex Court McDermott International Inc. v. Burn Standard Co. Ltd, (McDermott) the court modified the award on merit as well as on interest and cut down the interest rate under Section 31(7)(a) awarded by the arbitrator.

However, in this case it was observed by the Apex Court that the court may only become involved in certain situations, such as where there has been fraud or bias on the part of the arbitrators, when natural justice has been violated, etc. The arbitrators' mistakes cannot be fixed by the court. It can only revoke the decision, allowing the parties to reopen the arbitration at their discretion.[18] Later in the year 2009 the Hon'ble Apex Court again modified the award of the arbitrator by amending the interest rates for late payment by the party.[19]

Later in 2014 the Apex court in ONGC Ltd. v. Western Geco International Ltd (ONGC)was of the view that The Court has the power to modify the offending part of the award in case it is severable from the rest.[20] And then in 2018 the Apex Court again modified the award of the tribunal in relation to the bank guarantees and stopped the appellants to invoke the bank guarantees.[21] In another decision of the apex court in an International commercial arbitration, the Supreme Court modified the interest rate awarded by the tribunal by scrutinising the reasoning of the tribunal to compute the interest.[22]

Ruling antagonistic to its previous settled jurisprudence discussed above, the Hon'ble Apex Court in Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies (P) Ltd. (Dakshin Haryana), in the year 2021 held that Section 34 of the Arbitration Act contemplates that the the court has two options: if the grounds listed in Subsections (2) and (2-A) are proven, it may set aside the award and dismiss the objections that were filed. A decision made by an arbitrator cannot be changed.[23]

In UHL Power Company Ltd. vs State of HP[24], the Apex Court agreed with the viewpoint that the appellate court's authority under Section 37 to review an order and decide whether to set aside an award or not is further restricted due to the limited jurisdiction provided by Section 34 of the Act and thereby held that the court u/s 37 does not have the authority to change the award while it is being examined by the courts.

Yet again in NHAI v. M. Hakeem[25], answering to a batch of appeals the Hon'ble Apex Court was dealing with a core question as to whether the power of the court under Section 34 of A&C Act, 1996 includes to modify an award ?. The court vehemently held that It is crucial to keep in mind that Section 34 is based on the UNCITRAL

Model Law on International Commercial Arbitration, 1985, which prohibits a court hearing an award challenge from having the authority to alter an award. The Supreme court by virtue of this judgment declared that the judgments passed in McDermott International Inc. v. Burn Standard Co. Ltd, Krishna Bhagya Jala Nigam Ltd. v. G. Harischandra Reddy, Hindustan Zinc Ltd. v. Friends Coal Carbonisation were incorrect in law.

Following the decision of M. Hakeem, the Apex Court yet in another instance in NHAI v. P. Nagaraju[26] held that In a procedure arising from Section 34 of the 1996 Act, it would not be permissible to modify the award made by the learned arbitrator in order to increase or decrease the compensation, according to the provisions of the Act's scheme. The choice would be to remand the case and set aside the award.

Subsequently, In the year 2023 the Apex Court in Larsen Air Conditioning & Refrigration Co. v. Union of India[27], while dealing with the impugned judgment of Allahabad HC wherein the High Court interfered with the award and modified it, the Supreme Court held that the High Court had little to no justification for interfering with the arbitrator's determination of interest that had accumulated and was due.

In contrast to the old Act, the court cannot change the award and can only set it aside in part or in its entirety if it determines that the requirements outlined in Section 34 of the 1996 Act have been met and further observed that any power to modify the award was only permitted in the old act and the new act of 1996 as intentionally omitted the word modify which is to mean that the parliament intended to exclude the power to modify any award passed by the tribunal upholding the decisions laid down in M. Hakeem[28].

And recently in the year 2024 the Hon'ble Supreme Court in S.V. Samudram v. State of Karnataka,[29] examined the question as to whether under section 34 and 37 of A&C Act, 1996 allows modification of the award where in the High Court of Karnataka modified the arbitrator's award.

The Apex Court while relying on M. Hakeen and Dakshin Haryana Bijli observed that Section 34 confers no jurisdiction to modify the award by the courts and categorically held that any attempt to "modify an award" under Section 34 would amount to "crossing the Lakshman Rekha" and that the court is not supposed to correct the errors of the arbitrator.

Awaiting the Decision of Larger Bench
As most of the decisions of the Hon'ble Supreme Court are comprising of division benches having different tranches and opinions of the court, recently the three judge bench of the Apex Court in Gayartri Balasamy vs M/S ISG Novasoft Technologies Limited[30] referred the seminal question of powers of modification of the arbitral award to be referred to a larger bench so as to set in stone this flummoxed state.

The Supreme Court formed four questions of law to be answered by the larger bench which include the powers of the court under section 34 and 37 to modify the award if it is permissible or not, whether such power can only be exercised where the award is separable and a part thereof can be modified, taking a view from ONGC Ltd. v. Western Geco International Ltd[31], whether setting aside power is a larger power which will include the power of modification of an award and to what extent and whether the power to modify can be read into the power of setting aside under section 34 of the act.

Way Ahead:
Section 34(4) provides the court the power to adjourn the proceedings and remit the award back to tribunal for reconsideration soi as to avoid any defects for challenging the same. It is a powerful tool at the hands of the court and the party wherein even if the court does not modify the award by itself, it can direct the arbitral tribunal by virtue of Sub-section 4 to rectify/amend the same.

However, in Kinnari Mullick vs Ghanshyam Das Damani[32] the Hon'ble Apex Court observed that a party to the arbitration procedures must make a written application for the court to utilize its "limited" discretion; the court "cannot exercise this limited power of deferring the proceedings before it suo moto," according to Section 34(4).

Also, since after passing the final award the tribunal becomes functus officio the Apex court observed that before the Court sets aside the award, the party to the arbitral proceedings must pursue the limited remedy permitted by Section 34(4).[33] This remedy under Section 34(4) is to be exercised swiftly as the tribunal becomes non-functional soon after passing of an award and hence the remedy is to be sought in a time bound manner and the application before the court has to be furnished before the passing of a final award by the tribunal.

Even if Section 34 and Section 37 of A&C Act, 1996 do not allow for such modification explicitly by the court's embarking on the principle of minimum judicial interference, by virtue of Article 142 of the Constitution the court has the powers to do complete justice in any case.

However, the procedural law doesn't allow for that as Article 142 power can only be exercised in the situations where the matters cannot be effectively and appropriately tackled by the existing provisions of law, the same was being held in Bharat Sewa Sansthan vs U. P. Electronics Corporation Limited wherein the Supreme Court held that the court will not in usual course surpass the provisions of a special act i.e., A&C Act 1996. In an absence of any clear mention of the powers to modify the award it is to be looked into the circumstances of a case if the Supreme Court deems it fit it can still invoke Article 142 and modify the award.

Looking at the current established jurisprudence by the Hon'ble Supreme Court on the same, since most of the decisions of the Supreme Court are given by the division benches it was necessary to lift the conundrum of modification of modification of the award by referring the same before a larger bench.

However, looking at the current stance of the court its highly probable that the larger bench will rule against such power of modification of the award keeping in mind one of its latest decisions on the same[34]. Keeping in mind the objective of the act and India's goal to become a pro-arbitration regime the current act should be amended giving effect and power of such modification by the courts to rule out the latency in resolving this conundrum.

  1. Gayatri Balasamy Versus M/S Isg Novasoft Technologies Limited, SLP (C) Nos.15336-15337/2021
  2. Repeal and savings
  4. Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552
  5. Article 2 (c) "court" means a body or organ of the judicial system of a State
  6. Indu Engineerinering and Textiles Ltd. v . Delhi Development Authority (2001)3 SCR 916
  7. Associate Builders v. Delhi Development Authority (2015) 3 SCC 49
  8. Des Raj & Sons V. Union of India 1984 Arb LR 156, Krishna Gopal Prasad V. Chandiprasad Duryandhanparsad AIR 1953 Nag 309 (DB)
  9. Aishwarya Padmanabhan, Analysis of Section 34 of Arbitration and Conciliation Act � Setting Aside of Arbitral Award and Courts' Interference : An Evaluation With Case Laws,
  10. Chintels (India) Ltd. v. Bhayana Builders (P) Ltd., (2021) 4 SCC 602
  12. Global Co. Decree Holder v. National Fertilizers Ltd., 1999 SCC OnLine Del 356
  13. State of Rajasthan v. Nav Bharat Construction Co., (2002) 1 SCC 659
  14. Em and Em Associates v. Delhi Development Authority, (2003) 2 AP LJ 16 (DNC) (Del)
  15. Indian Lead Ltd. v. R.L. Dalal & Co. (P) Ltd., 2004 SCC OnLine Bom 1061
  16. Hindustan Zinc Ltd. v. Friends Coal Carbonisation, (2006) 4 SCC 445
  17. Krishna Bhagya Jala Nigam Ltd. v. G. Harischandra Reddy, (2007) 2 SCC 720
  18. McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181
  19. State of Rajasthan v. Ferro Concrete Construction (P) Ltd., (2009) 12 SCC 1
  20. ONGC Ltd. v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12
  21. M.P. Power Generation Co. Ltd. v. ANSALDO Energia SpA, (2018) 16 SCC 661
  22. Vedanta Limited vs. Shenzden Shandong Nuclear Power Construction Company Limited, (2019) 11 SCC 465, Oriental Structural Engineers Pvt. Ltd. vs. State of Kerala (2021) 6 SCC 150, Tata Hydroelectric Power Supply Co. Ltd. vs. Union of India (2003) 4 SCC 172
  23. Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies (P) Ltd., (2021) 7 SCC 657
  24. UHL Power Company Ltd. vs State of HP, Civil Appeal No. 10341 OF 2011
  25. NHAI v. M. Hakeem, (2021) 9 SCC 1
  26. NHAI v. P. Nagaraju, (2022) 15 SCC 1
  27. Larsen Air Conditioning & Refrigration Co. v. Union of India, 2023 SCC OnLine SC 982
  28. Supra Note 25
  29. S.V. Samudram v. State of Karnataka, 2024 SCC OnLine SC 19
  30. Gayatri Balasamy Versus M/S ISG Novasoft Technologies Limited, SLP (C) Nos.15336-15337/2021
  31. Supra Note 22
  32. Kinnari Mullick v. Ghanshyam Das Damani
  34. Larsen Air Conditioning & Refrigration Co. v. Union of India, 2023 SCC OnLine SC 982, S.V. Samudram v. State of Karnataka, 2024 SCC OnLine SC 19

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