[Arbitration Act] Court Can't Modify Arbitral Award While Hearing Challenge Under Section 34: Sikkim High Court

Brief Facts:

The matter pertained to a tender invited by CPWD in 2010 for the construction of an ITBP road, which was awarded to M/s M.G. Contractors Pvt. Ltd. (“Respondent”) at a contract value of Rs.70,65,65,490/-. The work, scheduled to commence on 02.10.2010 and completed by 01.10.2012, was delayed and finally concluded on 30.06.2015. Disputes arose between the parties, which made the Respondent invoke the Arbitration Clause 25 of their agreement. Subsequently, a Sole Arbitrator was appointed. The Respondent filed a Statement of Claims, totaling Rs.29,11,26,419/-. The Union of India did not submit any counter-claims.

Claim No.7 pertained to Rs.8,16,41,135/- for escalation compensation from October 2012 to June 2015. Claim No.13 requested interest at 18% from the due date until payment, and Claim No.14 sought applicable GST on the claimed amounts. The Arbitrator's Award favored the Respondent with a sum of Rs.12,80,94,368/- along with interest and GST as per Claim Nos.13 and 14, while rejecting several other claims. The Union of India filed an application under Section 34 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), to set aside the Award regarding Claim No.7, associated interest under Claim No.13, and associated GST under Claim No.14, on the grounds of being barred by limitation.

The Commercial Court upheld the Arbitrator's decisions on Claim No.7, interest under Claim No.13, and GST under Claim No.14 and held that they were not barred by limitation. The court found no illegality in the award of Claim No.14.

The Union of India challenged this judgment in the Sikkim High Court (“High Court”) primarily on the basis that the Arbitrator should have reckoned the cause of action for Claim No.7 from the last day of hindrance rather than the last day of billing as per Article 55 of the Limitation Act, 1963.

Observations by the High Court:

The High Court referred to the decision of the Supreme Court in Project Director, National Highways No.45E and 220, National Highways Authorities of India vs. M. Hakeem and Another, and S.V. Samudram vs. State of Karnataka and Another. The SC in these cases established that Section 34 of the Arbitration Act does not empower courts to modify awards made by arbitrators. The Supreme Court's judgment in M. Hakeem clarified that Section 34, modeled on the UNCITRAL Model Law, only allows courts to set aside awards on very limited grounds and does not include the power to modify them. The SC emphasized that Section 34's scope is restricted to applications for setting aside awards as per its sub-sections (2) and (3), and the term "recourse" used in the section signifies a limited right to challenge, not to alter, an arbitral award.

In S.V. Samudram, the SC held that any attempt to modify an award under Section 34 would be beyond the jurisdiction of the court. The SC held that a modification would only be permissible if the grounds under Section 34 were fully met.

The High Court held that the Union of India's application under Section 34 did not seek to set aside the entirety of the award. The Union of India accepted most of the claims and only contested Claim No.7 and the associated interest and GST. The High Court held that this partial challenge effectively sought a modification of the award, which is beyond the power granted under Section 34.

Further, the High Court agreed that the Commercial Court exceeded its jurisdiction by modifying the award suo motu. The Commercial Court decision to alter the interest rate applicable under Claim Nos. 1, 3, 6, 7, and 9 was held by the High Court to be impermissible since such modification falls outside the court's jurisdiction under Section 34.

The High Court held that it is not authorized to disturb the concurrent findings of fact and law made by the Sole Arbitrator and the Commercial Court in proceedings under Section 37.

Consequently, the High Court upheld the first part of the Commercial Court decision. However, the second part of the decision, which involved the suo motu modification of the award by the Commercial Court, was set aside.

Case Title: Union of India vs M/s M.G. Contractors Pvt. Ltd.

Case Number: Arb. A. No. 1 of 2022

Citation: 2024 LiveLaw (Sik) 2

Advocate for the Appellant: Ms. Sangita Pradhan, Deputy Solicitor General of India with Ms Purnima Subba and Ms Natasha Pradhan, Advocates for the appellant.

Advocate for the Respondent: Mr. Zangpo Sherpa, Mr. Bhaichung Bhutia, and Mr. Mohan Sharma advocate for the respondent.

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