Arbitral Award:Power To Set Aside To Include Modify: Need To Relook NHAI Vs. M.Hakeem

The Supreme Court in Mcdermott International Inc. vs Burn Standard Co. Ltd. 2006 (11) SCC 181 held inter-alia that the power of the Court is supervisory and the Courts can only quash the award leaving the parties free to begin the arbitration again if it is desired.

Subsequent to the decision in Mcdermott International (supra), a Ld. Single Judge of the Madras High Court (Presently a Judge of the Supreme court) in Original Petition No. 463 of 2012 titled Gayatri Balaswamy v. ISG Novasoft Technologies Ltd., took a view that the power to set aside an Award under Section 34 would include the power to modify the Award. The Ld. Single Judge in this case has discussed how the award was modified by the Supreme Court, the Bombay High Court and the Delhi High Court in various cases, all of which were governed by the Act of 1996. The Ld. Single Judge thus came to a conclusion that the judicial trend appears to favour an interpretation that would read into Section 34, a power to modify or revise or vary the award. The Ld. Single Judge also held that merely because such recourse is to be made in the form of an application to set aside the award, it cannot be construed that the power of the Court is limited by Section 34(1), only to set aside the award and to leave the parties in a position much worse than what they contemplated or deserved before the commencement of the arbitral proceeding. In his considered view, the power under Section 34(1) includes, within its ambit, the power to modify, vary or revise.

The decision of Mcdermott International has been affirmed by the Supreme Court in various subsequent decisions including the recent decision of Project Director National Highways Authority of India vs M. Hakeem. In this judgement, the Supreme Court also dealt with the Madras High Court Judgement in Gayatri Balaswamy's case (Supra). The Supreme Court held that as a matter of fact, the issue stands concluded in McDermott International Inc. v. Burn Standard Co. Ltd. and that Section 34 of the Arbitration Act, 1996 cannot be held to include within it a power to modify an award. To hold such a view, the Court relied on previous decisions of Supreme Court. It also held that an interpretation that would read into Section 34 a power to modify, revise or vary the award, would result in ignoring the previous law contained in the 1940 Act; as also ignoring the fact that the 1996 Act was enacted based on the UNCITRAL Model Law on International Commercial Arbitration.

It is to be seen that an award can be saved from being set aside only in a very limited way as provided under Section 34 (4) of the Act at the stage of challenge itself. Section 34(4) applies only when a request is made by one party. In this regard, the Supreme Court in Kinnari Mullick v. Ghanshyam Das Damani  has inter-alia held that the quintessence for exercising power under this provision is that the arbitral award has not been set aside. Further, the challenge to the said award has been set up under Section 34 about the deficiencies in the arbitral award which may be curable by allowing the Arbitral Tribunal to take such measures which can eliminate the grounds for setting aside the arbitral award. No power has been invested by the Parliament in the Court to remand the matter to the Arbitral Tribunal except to adjourn the proceedings for the limited purpose mentioned in sub-section 4 of Section 34. The limited remedy available under Section 34(4) is required to be invoked by the party to the arbitral proceedings before the award is set aside by the Court.

However, in a recent judgement of the  Supreme Court in I-Pay Clearing Services Private Limited Vs. ICICI Bank Limited 2022 LiveLaw (SC) 2, it has been held that the power under Section 34(4) is discretionary for remitting the matter to the arbitral tribunal to give it an opportunity as to whether the proceedings ought to be resumed or not. The absence of any finding by the Arbitral Tribunal on contentious issues in the Award is a defect in the Award which cannot be cured under any circumstance. Thus, no application under Section 34(4) of the Act can be filed by a party under the guise of need for additional reasons and to fill up the gaps in reasoning, where in actuality there are no findings. If there are no findings or if findings are recorded ignoring the material evidence on record, only then the Award can be set aside.

The above being the legal position, if courts were to be powerless to modify the Award, it will pose many problems. Arbitration as an alternate dispute mechanism has to be not only speedy, but also which saves the parties from the rigmaroles of the Court. As a ground reality, in the event of the Award ultimately getting set aside, the entire process of Arbitration gets frustrated. A fresh Award rendered again in de-novo proceedings would be challenged again making the entire process cyclic. Assuming, one of the parties challenges the award only limited to the rate of interest being unreasonable, and if the award is finally set aside, it will result in enormous amounts of money being incurred by way of fees and expenses once again in denovo proceedings. The Supreme Court cannot keep modifying awards exercising its extraordinary powers under Article 142 of the Constitution of India in each and every case, which it has done in certain decisions. Also in deserving cases, not all parties will file appeal resulting in injustice.

The power to modify the award would be an incidental or ancillary power of the court while dealing with an application for setting aside the award, which would be exercised in aid to the final proceedings, namely, the very application for setting aside the award. As per the Judgement, the expression "ancillary" means aiding, auxillary, subordinate, attendant upon, that which aids or promotes a proceeding regarded as the principal. So any Order passed in aid of the proceedings under Section 34 of the Act would be ancillary.

Therefore, it is not as if the Court is powerless to modify the award under Section 34 of the Act. The incidental and ancillary power of Courts to modify the Award should include the power to vary the rate of interest, imposition of heavy costs in fit cases where the Arbitrator/Arbitral Tribunal has abdicated his/their essential quasi-judicial functions. These all will be incidental and ancillary to the power to set aside the award.

With utmost respect, the Supreme Court in Hakeem's case has given a very strict interpretation of Section 34 of the Act by holding that the Lakshman Rekha would be crossed if one were to include the power to modify an award in Section 34. A wider and liberal interpretation could have been given. In the circumstances, the Supreme Court needs to have a relook at the view taken in Hakeem. The judgements of Hakeem and McDermott International, both having been rendered by two Judges, the appropriate course would be to refer the issue to a larger Bench for reconsideration. The view taken in Gayatri Balaswamy's case (supra) needs to be restored.

With utmost respect, the Supreme Court needs to give an authoritative pronouncement on this issue especially in the light of changing times. A need is felt to read down Section 34 and give it an interpretation, which will subserve the objectives of the Act rather than defeating it, especially in the backlog of cases filed in various district Courts and High Courts.

Otherwise, the arbitration as an alternate dispute mechanism will be ineffective.

The author is an Advocate practising before various Courts including arbitral Tribunals. Views are personal.