Supreme Court reiterates that an appellate court cannot modify an arbitral award under section 34

Contributed by: Khaitan & Co




INTRODUCTION

A two-judge bench of the Supreme Court of India (“Supreme Court”), comprising Justices R.F. Nariman and B.R. Gavai, vide a judgment dated 20 July 2021 in the case of The Project Director, National Highways Nos. 45E & 220, National Highways Authority Of India v. M. Hakeem & Anr. held that under Section 34 of the Arbitration and Conciliation Act, 1996 (“Act”), the appellate court cannot modify an arbitral award.


FACTUAL BACKGROUND

The appeals filed before the Supreme Court pertain to notifications issued under the provisions of the National Highways Authority Act, 1956 (“NHAI Act”) in the year 2009 and awards passed thereunder. The Special District Revenue Officer, being a competent authority under the NHAI Act, passed awards on ‘guideline value’ of the lands in question and not on the basis of sale deeds of similar lands. As a result of which, abysmally low amounts were granted to the Respondents. Thereafter, the Respondents filed petitions under Section 34 of the Act before the District and Sessions Judge, who passed an order enhancing the amounts, thereby modifying the award.

Aggrieved by the order of the District and Sessions Judge, the Petitioners approached the Madras High Court (“High Court”) under Section 37 of the Act. The High Court, while disposing of the appeals, held that at least insofar as arbitral awards made under the NHAI Act, Section 34 of the Act must be so read as to permit modification of an arbitral award made under the NHAI Act to enhance compensation awarded by an Arbitrator. Impugning the order of the High appeals were filed before the Supreme Court.


ISSUE

The issue before the Supreme Court was whether the power of a court under Section 34 of the Act to ‘set aside’ an award of an arbitrator would include the power to modify the award.


ARGUMENTS BY THE APPELLANT

  • The Appellant submitted that challenging the award passed by an arbitrator under Section 34 of the Act, cannot be considered as a challenge on the merits of the award. The Appellant further argued that under the said section, the appellate court’s power is only limited to either setting aside the award or remitting the award to the arbitrator under Section 34(4) to eliminate any ground of challenge under Section 34.

  • The Appellant also submitted that as per Section 34 of the Act and numerous judgments passed by the Supreme Court and various High Courts, the aforesaid settled position must be applicable to award passed under the NHAI Act.


ARGUMENTS BY THE RESPONDENTS

  • The Respondents submitted that if Section 34 were to be interpreted in the manner suggested by the Appellant, then grievous wrong would be committed, as no remedy would be available to the aggrieved, and the District Judges would only be able to set aside the award under Section 34. In lieu of which, the arbitrations would start afresh before either the self-same bureaucrat or another bureaucrat appointed by the Central Government, as the power of appointing an arbitrator under the NHAI Act, solely vests with the Central Government.


JUDGMENT

  • The Supreme Court, while analysing judgments passed by it and various High Courts, held that there is no doubt that Section 34 cannot be held to include within it a power to modify the award. The Supreme Court also noted that Section 34, being in the nature of an appellate provision, only provides for setting aside awards on very limited grounds, such grounds being sub-sections (2) and (3) of Section 34. The Apex Court further noted that marginal note of Section 34 indicates, “recourse” to a court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-sections (2) and (3).

  • The Supreme Court held that Section 34 is modelled on the UNCITRAL Model Law under which no power to modify an award is given to a court hearing a challenge to an award.

  • While placing reliance upon MMTC Limited v. Vedanta Limited, (2019) 4 SCC 163 and various other judgments, the Supreme Court held that it is a settled law that a Section 34 proceeding does not contain any challenge on the merits of the award.

  • Subsequently, the Supreme Court concluded by upholding the judgment passed in Mcdermott International Inc. v. Burn Standard co. Ltd., (2006) 11 SCC 181 (Mcdermott International), wherein it was held that the Act makes provisions for the supervisory role of courts, for the review of the arbitral award only to ensure fairness, and that court can only intervene in few circumstances viz., fraud, bias by the arbitrators, violation of natural justice, etc. It was further held in the aforesaid judgment that the appellate court can only quash the award leaving the parties to begin the arbitration again, if desired.

CONCLUSION

Scheme of the Arbitration and Conciliation Act, 1940 Act provided that an award may be remitted, modified or otherwise set aside given the grounds contained in Section 30 of the 1940 Act, which are broader than the grounds contained in section 34 of the Act. The Supreme Court vide this judgment, has reiterated the principle laid down in Mcdermott International. While reiterating the scheme of Section 34 of the Act, it has also reemphasised that the principle of minimalistic intervention is absolute and limited only by the exceptions carved out under the Act. Thus it has been held that Section 34 of the Act does not give power to the appellate court to modify an award, but only allows setting aside the award or remitting it.


Although the procedure of arbitrations under the NHAI Act is different from the Act, vide this judgment, the Supreme Court has reiterated the applicability of the provisions of the Act, to act as an umbrella for arbitrations conducted in the country, thereby providing for a uniform platform which would aid swifter enforcement of awards.


Contributed by Khaitan & Co


The above article is authored by Ajay Bhargava (Partner), Shivank Diddi (Senior Associate), and Maithili Moondra (Associate).