Courts Can Partially Set Aside An Arbitration Award, Doctrine Of Severability Is Enshrined Under Section 34 Of The A&C Act: Delhi High Court

The bench of Justice Yashwant Varma held that the doctrine of severability of arbitration award is explicitly recognised under Section 34(2)(a)(iv) of the Act. Further, it held that an arbitration award consists of distinct components and parts which are independent of each other, therefore, the Courts can set aside an offending part of an arbitration award when it has no bearing on the other components of the award.

The Court observed that the power to partially sever an offending part of the award would ultimately depend on whether the said decision is independent and distinct and whether an annulment of that part would not disturb or impact any other finding or declaration that may have been returned by the AT. The question of severability would have to be decided bearing in mind whether the claims are interconnected or so intertwined that one cannot be segregated from the other.

The Court further clarified that the judgment of the Supreme Court in M. Hakeem does not come in the way of the partial setting aside of an arbitration award as it only prohibits modification of an arbitral award which essentially is a variation or modulation of the award as distinct from partial setting aside of award which is mere severing of an offending portion of the award.

Facts

Two cross petitions under Section 34 of the A&C Act were filed seeking partial modification of an arbitral award dated 07.08.2022. The Court taking note of the nature of the relief sought and the decision of the Supreme Court in M. Hakeem wherein it was held that it is impermissible to modify an arbitration award, published a notice calling upon learned counsels from the bar to make submissions in respect of power of Court to partially set aside an arbitration award and the scope of Section 34(4) of the Act.

Pursuant to the liberty granted by the Court, several members of the bar, including Gaurab Banerjee, Dayan Krishnan, Rajshekhar Rao, Ciccu Mukhopadhyay, Gaurav Pachnanda, Dr. Amit George, Gautam Narayan and others, assisted the Court in deciding the issue before it.

Submissions

The following points summarizes the submissions made by the ld. members of the bar on the issue of partial setting aside of the arbitral award:

• An arbitral award consists of various finding which are independent of each other and each such finding constitutes an arbitral award which could be set aside without having any impact on the remaining part of the award. Reliance was also placed on the concept of interim award.
• Section 34(2)(a)(iv) explicitly confers power on the Courts to partially set aside an arbitral award, therefore, the offending part of the award may be severed without the same having any further effect on other findings, the Court may set aside only that offending portion.
• The judgment in M. Hakeen is only limited to prohibition on the modification of an arbitral award and is not an authority viz. partial setting aside of an arbitral award. The High Court of Bombay in RS Jiwani v. Ircon International recognised that severability is an established concept in law and held that there was no bar in applying the doctrine in cases where awards are severable. The Court held that the words ‘set aside’ under Section 34 could not be construed to imply only a wholescale setting aside of the award as such an interpretation would be destructive of the legislative intent of expeditious disposal of disputes subjected to arbitration.
• Merely deciding the claims and counterclaims separately and distinctly may not by itself render the arbitral award severable in all cases. What would be required is an analysis of whether the good part(s) of the arbitral award, which is to be upheld, can be separately identified, without any correlation with or dependence on the invalid or bad part(s) of the arbitral award and that the setting aside of the bad part(s) would have no impact on the good part(s) of the arbitral award.
• Ex. If the court reverse the finding of the tribunal regarding the illegality of the termination, the damages awarded for such termination would necessarily fall, however, if the court upholds the finding of the tribunal regarding the termination of the contract but reverse the quantification part, the Court would have the power to sever the award to the extent of quantification without disturbing the award on the issue of termination.
• So long as from the award, it is discernible that separate heads have been addressed and separate amounts found due against each head, even if, in the ultimate dispositive section, a tribunal were to make one dispositive award adding all of the amounts awarded, the setting aside of one or more heads of award and resultantly reduction in the ultimate amount awarded would not be a modification, variation or alteration of the award as per the meaning thereof in Hakeem.

Analysis by the Court

The Court held that the Courts exercising powers under Section 34 of the A&C Act has the power to partially set aside an arbitration award to strike off the offending portion of the award while retaining the remaining award.

The Court held that the doctrine of severability of arbitration award is explicitly recognised under Section 34(2)(a)(iv) of the Act. Further, it held that an arbitration award consists of distinct components and parts which are independent of each other, therefore, the Courts can set aside an offending part of an arbitration award when it has no bearing on the other components of the award.

The Court observed that the power to partially sever an offending part of the award would ultimately depend on whether the said decision is independent and distinct and whether an annulment of that part would not disturb or impact any other finding or declaration that may have been returned by the AT. The question of severability would have to be decided bearing in mind whether the claims are interconnected or so intertwined that one cannot be segregated from the other.

The Court further clarified that the judgment of the Supreme Court in M. Hakeem does not come in the way of the partial setting aside of an arbitration award as it only prohibits modification of an arbitral award which essentially is a variation or modulation of the award as distinct from partial setting aside of award which is mere severing of an offending portion of the award.

Case Title: NHAI v. Trichy Thanjavur Expressway Ltd

Citation: 2023 LiveLaw (Del) 739

Date: 21.08.2023

Counsel for the Petitioner: Mr. Santosh Kumar, Standing Counsel with Mr. Daksh Arora, Mr. Manish K. Bishnoi and Ms. Pallavi Singh Bishnoi, Advs.

Counsel for the Respondent: Ms. Kaadambari, Mr. Pankaj Agarwala, Mr. Sahil Khanna, Ms. Ayushi and Mr. Amir Zaidi, Advs.

Counsel Assisting the Court: - Dr. Amit George, Adv, Mr. Gautam Narayan and Ms. Asmita Singh, Advs. Mr. Gaurav Pachnanda, Sr. Adv. with Ms. Nikita Jaitly and Ms. Anvi Sharma, Advs. Mr. Ramesh Singh, Sr. Adv. Mr. Rajshekhar Rao, Sr. Adv. with Ms. Mansi Sood and Mr. Areeb Amanullah, Advs. Mr. Ciccu Mukhopadhyay, Sr. Adv. with Mr. Rishi Agarwala, Ms. Shruti Arora, Mr. KaranVir Singh, Adv. Mr. Dayan Krishnan, Sr. Adv. with Mr. Rishi Agarwala, Mr. Shreedhar Kale, Mr. Sanjeevi Seshadri, Ms. Shruti Arora, Mr. Karan Vir, Advs. Mr. Saurabh Banerjee, Sr. Adv. with Mr. Yashwardhan, Ms. Anjali Dwivedi, Mr. Rakesh T., Mr. T.S. Sundaram, Mr. S.P. Mukherjee, Advs. Mr. George Pothan, Ms. Manisha Singh, Mr. Ashu Pathak and Ms. Jyoti Singh, Advs. Mr. Ashim Sood, Adv. Ms. Aarzoo Aneja, Adv. Mr. R.A. Iyer, Adv. Mr. Arjun Natarajan and Ms. Kamana Pradhan, Advs, Adv. Mr. Rohan J Alva, Adv. Mr. Karan Aggarwal, Adv. Dr. Shashwat Bajpai, Mr. Akshay Anurag and Ms. Sanjana Sachdev, Advs. Mr. Zafar Khurshid, Mr. Amit Singh Chauhan and Mr. Abhishek Sharma, Advs. Mr. Manish Bishni, Mr. Nirmal Prasad, Adv. Mr. Karan Agarwal, Adv. Mr. Anurag Ojha and Mr. Udit Nagar, Advs. Mr. Karn bhardwaj, Adv. Mr. Naushad Ahmed Khan, Adv. Ms. Payal Chawla and Ms. Hina Shaheen, Advs. Mr. Amit Gupta, Adv. Mr. Mozzam Khan, Adv. Mr. Manish Bishnoi, Adv.

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