Blanket Forbearance From Modifying An Arbitral Award – How Far Justiciable?
Non-interference of courts, except to the extent of supervision, is the spinal cord of arbitration legislations across the jurisdictions. However, the difference between interference and supervision is often differentiated by a thin line. One such occasion raising the question of whether an indulgence of the court is supervision or interference arises while answering the question of...
Non-interference of courts, except to the extent of supervision, is the spinal cord of arbitration legislations across the jurisdictions. However, the difference between interference and supervision is often differentiated by a thin line. One such occasion raising the question of whether an indulgence of the court is supervision or interference arises while answering the question of whether the court while entertaining an application for setting aside an arbitral award has the power to modify an arbitral award.
Until the decision of the Supreme Court of India [Court] in Project Director, National Highway Authority of India vs. M. Hakeem (2021) [M. Hakeem], the position of law in India on the above-said question was conflicting. In M. Hakeem, the Court has settled that at the stage of the challenge of an arbitral award i.e., an application under section 34 of the Indian Arbitration and Conciliation Act, 1996 [Indian Arbitration Act], the court can either set aside the arbitral award or remand the matter to arbitration, but cannot itself vary or modify an award.
This absolute forbearance of the Courts from making any modification has placed India into a peculiar place vis-à-vis jurisdictions like the U.K., U.S.A, Singapore. For example, section 67(3) and section 69(7) of the English Arbitration Act, 1996 empowers the Court to modify the arbitral award where the challenge is made to substantive jurisdiction of the arbitral tribunal and where the appeal is made on a question of law, respectively. Similarly, section 49(8) of the Singapore Arbitration Act, 2001 empowers the Court to modify the arbitral award where the appeal is made on a question of law and section 11 of the Federal Arbitration Act, 1925 empowers the Court to 'modify and correct the award, so as to effect the intent thereof and promote justice between the parties'.
It has often been noted that India being a maturing arbitration-friendly jurisdiction, the legislature and the courts have in past catching up with other jurisdictions. However, the decision in M Hakeem has placed India into a slightly advanced and peculiar position vis-à-vis above-noted jurisdiction. In the instant blog, the author hereunder critically appreciates this position.
Appreciating the merits of the position, it is undoubted that the decision in M. Hakeem is another win of the principle of minimal judicial intervention and pro-arbitration approach of India. As a consequence of it, the courts now only have the power to, either set aside the arbitral award on the grounds mentioned in section 34(2) or remand the matter to the arbitral tribunal to eliminate the grounds of challenge in terms of section 34(4) of the Indian Arbitration Act, provided an application for the same is made by a party and court deems it appropriate. The only exception to this is Article 142 of the Constitution of India, 1950 where the Supreme Court can modify an arbitral award exercising its inherent power where the situation warrants.
However, an absolute bar on power to modify or vary an award, makes India adopt a water-tight approach vis-à-vis the above-mentioned jurisdictions despite several legal infirmities and practical limitations engrained in the same. First, at para. 15 of the decision, the Court noted that section 34 of the Indian Arbitration Act is modelled on section 34 of the UNCITRAL Model Law on International Commercial Arbitration [Model Law] which does not provide any power to modify. However, the Court failed to note that heading to section 34 of the Model Law is worded as 'Application for setting aside as exclusive recourse against arbitral award' whereas section 34 of the Indian Arbitration Act is worded as 'Application for setting aside arbitral award'. The omission of 'exclusive recourse' indicates that the legislature did not intend to absolutely divest the courts of the power to modify an arbitral award.
Second, section 34(1) of the Indian Arbitration Act provides that 'recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3)'. One, the term 'recourse to a court against an arbitral award' is a comprehensive and inclusive expression [Gayatri Balaswamy vs. ISG Novasoft Technologies Ltd. (para. 51)]. Two, the usage of the phrase 'only by an application for' instead of 'only for' indicates that the provision merely prescribes the form in which a recourse against the award can be had. The form should not be construed as limiting the power of the court to grant appropriate reliefs to the parties when circumstances warrant. Thus, the issue does not involve fact-finding or adjudication of intricate questions of law, the power to modify should be considered as species of the power to set aside [Union of India v. Modern Laminators (para. 21].
Third, it is a well-settled principle of law that the ouster of jurisdiction has to be strictly and narrowly construed. In Benara Bearings & Pistons Ltd. v. Mahle Engine Components India (P.) Ltd. the High Court of Delhi observed that in so far as the ouster of power of court is concerned 'it is a well-known principle that whenever the Legislature intents an ouster, it makes it clear' (para. 24).
Fourth, it must be noted that cost and time efficiency have often been the prime considerations for the parties to choose for arbitration. However, setting aside an arbitral award wipes the slate clean and the parties have to re-initiate the legal proceedings on a clean slate. This zeroing of the cost and time employed by the parties particularly, when the same could have been avoided by the court, except for blanket forbearance, is unwarranted. It is opined that the non-intervention of courts cannot be placed at a pedestal higher than the cost, time, and convenience of the parties.
The situation becomes grimmer when the arbitrations today are no longer cheap and the legal proceedings even post-award are lengthy and time-consuming. For example, in I-Pay Clearing Services Private Limited vs. ICICI Bank Limited (2022), the dispute dated back to the year 2002 and was referred to arbitration in 2012. The arbitral award was passed in the year 2017. The same was set aside by the High Court in 2019. The award-holder preferred an appeal to the Supreme Court which was decided vide the above-said decision. Thus, ultimately after all these many years, the parties are set back at zero.
Fifth, an absence of power to modify is likely to multiplicate the dispute despite the court having sufficient means to cure the defect by moulding the award [ISG Novasoft Technologies Limited v. Gayatri Balasamy (para. 42)].
Last, given that the jurisdiction of challenge proceedings in India either lies with the district courts or the High Courts, the parties are now encouraged to approach the Supreme Court seeking modification of the award under the only open window i.e., Article 142 of the Constitution on the pretext of 'complete justice'.
In view of the above, the author opines that the decision in M. Haseem has treated the principle of minimal judicial intervention as sacrosanct despite such an approach having the above-said limitations, more pertinently, practical limitations.
However, it is to be remembered that India is a maturing arbitration-friendly jurisdiction. In such circumstances, a window for modification of an award with courts bears the risk of seepage, ultimately, leading to intervention with each award on the pretext of doing complete justice. Apprehensive of such consequences, the author believes that the Supreme Court has adopted a crystal-clear approach over creating any contextual exceptions based on factors like cost of time, effort, and finances of the parties consumed.
(The author is a Research Assistant at the Supreme Court. He can be reached at pareekshitbishnoi@gmail.com)