Partial Setting Aside Of An Arbitral Award Valid U/s 34 If Part Is Independent And Doesn't Affect Other Components: Delhi High Court Allows Execution Petition

Brief Facts:

This matte pertained to the execution of an Arbitral Award. The Arbitral Award, as per the majority opinion of Justice B.P. Jeevan Reddy and Sri K.K. Madan, determined the Claimant's additional costs for overstay at the project site at Rs. 60.00 Crores. The Respondent's Counter Claims were allowed at Rs. 14,05,03,428/-. The net amount awarded to the Claimant was Rs. 45,94,96,572/-. The Award was subsequently modified, correcting figures to Rs. 46,75,96,572/.

The decree-holder approached the Delhi High Court (“High Court”) for execution of the award and for recovery of Rs. 13,24,03,428/-. Also, the decree-holder challenged the award in High Court under Section 34 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) and the High Court subsequently aside the Award's grant of additional costs of Rs. 60 Crores in favor of the judgment-debtor. The judgment-debtor, in a separate petition, also challenged the Award, asserting entitlement to a higher amount than Rs. 60 Crores. The High Court set aside the Award regarding additional costs of Rs. 60 Crores in favor of the judgment-debtor.

The decree-holder contended that the amount of Rs. 13,24,03,428/-, awarded in its favor, is enforceable. In contrast, the judgment-debtor argued that the modified Award was only for Rs. 46,75,96,572/-, and the entitlement of the decree-holder was not an Award but a mere entitlement. The judgment-debtor asserted that, given the set-aside of the Award, parties must initiate arbitration again. Moreover, the judgment-debtor emphasized that any modification or partial setting aside should be done by the Court hearing the Section 34 petition and not by the executing Court.

Observations by the High Court:

The High Court held that definition of "Arbitral award" under Section 2(1)(c) of the Arbitration Act, explicitly includes an interim award. It noted that the Arbitral Tribunal initially allowed the judgment-debtor's demand up to Rs. 60 crores and the decree-holder's counterclaim of Rs. 13.24 crores. However, a subsequent adjustment was made by the Arbitral Tribunal, considering the amount of Rs. 13.24 crores, resulting in an amended award of Rs. 46,75,96,572/- in favor of the judgment-debtor. It held that asserting the award to be only for Rs. 45.75 crores would be a misinterpretation.

The High Court held that the Arbitral Tribunal has the power to set aside an award in part which must be exercised cautiously, ensuring that the part proposed for annulment is independent and can be validly separated without affecting the other components of the award. It emphasized the need to strike a balance and not disturb other parts of the award while partially setting it aside. It clarified that the term "modify" refers to a variation or modulation of the ultimate relief accorded by an Arbitral Tribunal. However, it held that under Section 34 of the Arbitration Act, when the Court considers the power to partially set aside, it does not amount to a modification or variation of the entire award. Instead, it is confined to annulling and setting aside an offending part of the award. The distinction between modifying an award and partially setting it aside must be kept in mind during such considerations.

Therefore, it upheld that arbitrator's interpretation and held that the decree-holder was entitled to the execution of the recovery amounting to Rs. 13,24,03,428/-.

Case Title: M/s NHPC Ltd Vs M/s Jaiprakash Associates Ltd.

Citation: 2024 LiveLaw (Del) 201

Case Number: OMP (ENF.) (COMM.) 184/2023, EX.APPL.(OS) 1736/2023.

Advocate for the Decree Holder: Mr Gauhar Mirza, Ms Hiral Gupta and Ms Sukanya Singh.

Advocate for the Judgement Debtor: Mr Lovkesh Sawhney, Sr. Adv. with Mr Rohit Kumar.

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