Is modification of the arbitral award under section 34 permissible?

The Supreme Court ruled that a court cannot amend/modify an award under Section 34 of the Arbitration and Conciliation Act,1996. “It would be crossing the Lakshman Rekha” to incorporate the ability to amend an award in Section 34, Justices RF Nariman and BR Gavai remarked.

In Project Director, National Highway No. 45 E AND 220, National Highways Authority of India vs M.Hakeem & Anr., the court while considering appeals filed by NHAI against the Madras High Court judgment held that, at least insofar as arbitral awards made under the National Highways Act 1956, Section 34 of the Arbitration Act, 1996 must be so read as to permit modification of an arbitral award made under the National Highways Act so as to enhance compensation awarded by an Arbitrator.

The main issue involved in this case was whether the power of a court under Section 34 of the Arbitration and Conciliation Act, 1996 (“Act”) to “set aside” an award of an arbitrator would include the power to modify such an award.

NHAI’s main contention was that a court’s limited power under the said Section is wholly unlike the power of an appellate court under the Land Acquisition Act, and hence such power is only limited to either setting aside the award or remitting the award to the arbitrator under Section 34(4) of Act so as to eliminate any ground of challenge under Section 34.

What does Section 34 of the Arbitration and Conciliation Act,1996 provide?

While addressing contentions made by the NHAI, the Apex Court referred to Section 34 and observed that it provides only for setting aside awards on very limited grounds, such grounds being contained in sub-sections (2) and (3) of Section 34 of the Act.

What is important to note is that, far from Section 34 being in the nature of an appellate provision, it provides only for setting aside awards on very limited grounds, such grounds being contained in sub-sections (2) and (3) of Section 34. Secondly, as the marginal 18 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).”

What is recourse?

“Recourse” is defined by P Ramanatha Aiyar’s Advanced Law Lexicon (3rd Edition) as the enforcement or method of enforcing a right. Where the right is itself truncated, enforcement of such truncated right can also be only limited in nature.

What is clear from a reading of the said provisions is that, given the limited grounds of challenge under sub-sections (2) and (3), an application can only be made to set aside an award. This becomes even clearer when we see subsection (4) under which, on receipt of an application under subsection (1) of Section 34, the court may adjourn the Section 34 proceedings and give the arbitral tribunal an opportunity to resume the arbitral proceedings or take such action as will eliminate the grounds for setting aside the arbitral award.”

Here again, it is important to note that it is the opinion of the arbitral tribunal which counts in order to eliminate the grounds for setting aside the award, which may be indicated by the court hearing the Section 34 application.

What does Section 15 & 16 of Arbitration Act, 1940 say?

The court also noted that Sections 15 and 16 of the Arbitration Act, 1940 (“Old Act”), the court is given the power to modify or correct an award in the circumstances mentioned in Section 15, apart from a power to remit the award under Section 16. However, a Section 34 proceedings do not contain any challenge on the merits of the award, the bench noted. Referring to various judgments on this aspect, the bench observed.”

“It can therefore be said that this question has now been settled finally by at least 3 decisions of this Court. Even otherwise, to state that the judicial trend appears to favor an interpretation that would read into Section 34 a power to modify, revise or vary the award would be to ignore the previous law contained in the 1940 Act; as also to ignore the fact that the 1996 Act was enacted based on the UNCITRAL Model Law on International Commercial Arbitration, 1985 which, as has been pointed out in Redfern and Hunter on International Arbitration, makes it clear that, given the limited judicial interference on extremely limited grounds not dealing with the merits of an award, the ‘limited remedy’ under Section 34 is coterminous with the ‘limited right’, namely, either to set aside an award or remand the matter under the circumstances mentioned in Section 34 of the Arbitration Act, 1996.”

Section 34 jurisdiction with the revisional jurisdiction under Section 115 of CPC:

The court also disapproved the High Court approach of assimilating the Section 34 jurisdiction with the revisional jurisdiction under Section 115 of the Code of Civil Procedure, 1908.

Also, to assimilate the Section 34 jurisdiction with the revisional jurisdiction under Section 115 of the Code of Civil Procedure, 1908 [the “CPC”], is again fallacious. Section 115 of the CPC expressly sets out the three grounds on which a revision may be entertained and then states that the High Court may make ‘such order as it thinks fit’. These latter words are missing in Section 34, given the legislative scheme of the Arbitration Act, 1996.”

The bench further noted that the Parliament very clearly intended that no power of modification of an award exists in Section 34 of the Arbitration Act, 1996.

Intent of the parliament:

In this regard, the Court observed and held:

Quite obviously if one were to include the power to modify an award in Section 34, one would be crossing the Lakshman Rekha and doing what, according to the justice of a case, ought to be done. In interpreting a statutory provision, a Judge must put himself in the shoes of Parliament and then ask whether Parliament intended this result. Parliament very clearly intended that no power of modification of an award exists in Section 34 of the Arbitration Act, 1996. It is only for Parliament to amend the aforesaid provision in the light of the experience of the courts in the working of the Arbitration Act, 1996, and bring it in line with other legislations the world over.”

Angel Broking Ltd. v. Sharda Kapur:

 in Angel Broking Ltd. v. Sharda Kapur (“Angel Broking“), the Delhi High Court directly dealt with the issue of whether Section 34 of the Act authorizes the Courts to modify arbitral awards or grant additional or alternative reliefs which were prayed for in the arbitration proceedings but were denied by the arbitral tribunal. While answering the aforesaid issue, the Delhi High Court observed that Section 34 does not provide the Courts with the power to modify, vary or remit the arbitral award. It was thus held that the Courts have no authority to modify the arbitral award or to grant additional/alternative reliefs, which the arbitral tribunal did not grant. While arriving at the said conclusions, the High Court relied upon the Supreme Court’s judgment in McDermott as well as the earlier judgment passed by a Division Bench of the Delhi High Court in Puri Construction Ltd. and Ors. v. Larsen and Turbo Ltd. (“Puri Construction“).

Concluding Remarks:

In the light of the above, it appears that the law laid down in the judgments passed by the Delhi High Court in Angel Broking and Puri Construction is the accurate position regarding this issue. The Courts should recognize that while opting to resolve disputes through arbitration, the parties consciously choose to exclude the Court’s jurisdiction. Thus, the exercise of modifying or altering the arbitral award by the Courts not only goes against the scheme of the Act but also defeats the objective of the arbitration process. Therefore, after the dispute between the parties is resolved through arbitration, the Courts should recognize that their role is limited to setting aside arbitral awards based on the specific grounds enshrined under Section 34 of the Actand should refrain from making any modifications in the arbitral awards. In the author’s view, a bench of the Supreme Court of appropriate strength must settle this issue in order to prevent the modification of arbitral awards by the Courts in the proceedings initiated under Section 34 of the Act.

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