Courts can modify arbitral award under Section 34: Gayatri Balaswamy v. M/s ISG Novasoft Technologies Ltd.

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Introduction

The Supreme Court constituted the Constitution Bench of 5 Judges to decide on the question of law: whether the power of the High Court under Section 34 includes the power to modify, and if such power exists, to what extent this power can be exercised. Can it be read into the power to set aside an award under Section 34?

Issues

Section 34 does not expressly provides for modification or varying of arbitral award. Therefore, the issues:

Whether the power of HC includes the power to modify the award u/s 34 and 37 of the Arbitration and Conciliation Act?
If such power exists, whether such power can be exercised only where the award is severable, and a part thereof can be modified?
What is the extend of such powers?
Can it be read into the power to set aside award u/s 34?
Whether the judgment of this Court in Project Director NHAI vs. M. Hakeem, followed in Larsen Air Conditioning and Refrigeration Company vs. Union of India, and SVSamudram vs. State of Karnataka, lay down the correct law, as other benches of two Judges (in Vedanta Limited vs. Shenzden Shandong Nuclear Power Construction Company Limited, Oriental Structural Engineers Pvt. Ltd vs. State of Kerala, and M.P. Power Generation Co. Ltd. vs. Ansaldo Energia Spa) and three Judges (in J.C.Budhraja vs. Chairman, Orissa Mining Corporation Ltd.,8Tata Hydroelectric Power Supply Co. Ltd. vs. Union of India,9 and Shakti Nath vs. Alpha Tiger Cyprus Investment No. 3 Ltd.10) of this Court have either modified or accepted modification of the arbitral awards under consideration?”

Judicial Divergence on Modification

In McDermott Int. Inc v. Burn Standard Co. Ltd. & Ors., the Supreme Court explained difference between Judicial Interference permitted by the 1996 & 1940 Acts. The Court clarified that the 1996 Act limits the supervisory role of the Court, while the 1940 Acts gave broader power u/s 30 and 33. Under Section 34 the court does not act as an appellate authority for factual findings, evidence or questions of law dealt by arbitration tribunal. Under Section 34, it is mandatory for the arbitral tribunal to issue a reasoned award. Further, Court cannot correct arbitrator mistakes factual or legal, the court role is limited to setting aside.

In some cases, it has been seen that Courts have reduced the interest using power under Article 142 of Constitution of India. Such as Pure Helium India (P) Ltd. v. ONGC and Mukund Lt. v. Hindustan Petroleum Corp. In both of these cases the interest was reduced from 18% to 6% and 11% to 7.5% respectively.

The Court stated that the UNICTRAL Model does not allow court to modify awards. Allowing modification will go against the legal framework which would require legislative amendment.

Arguments raised

In favor of Modification

The counsel for petitioners argued that a greater power includes a lesser power. When the power of setting aside is given the power to modify is also there following the maxim “omne majus continent in se minus.”

Against Modification

The counsel for respondent argued that the model law does not allow modification and in arbitration jurisprudence also, it is unacceptable. New York Convention only allow for the enforcement of an arbitral award and not a court decree. So, it will have enforcement issues, if the court modifies the award. Also, the maxim will not apply here as sec. 34 power is Sui Generis, which allows for setting aside. Once something does not exist, it cannot be modified.

Supreme Court Analysis

Severability of arbitral awards

The kompetenz-kompetenz maxim allows the arbitral tribunal to decide its own jurisdiction. Using this maxim, they can separate the arbitrable part from the non-arbitrable part. It is pragmatic and practical that a valid part can be separated from an invalid part and can be set aside.

Difference between setting aside and modification

Both have different consequences. However, the Court is of the view that recognizing modification power will not inevitably lead to examination of the merits of the dispute.

A limited power of modification can be located in Section 34.

The raison d’être of arbitration will be defeated as the party would be compelled to undergo an extra round of arbitration, adding to the previous four stages.

Post award interest

The Court stated that limited power is significant, as it helps to avoid further rounds of litigation.

Post-Award Settlement

Settlement is allowed, and it must be according to law. Order XXIII of the Code of Civil Procedure should be followed.

SC power to do complete justice under Article 142

The Supreme Court stated that the power under Article 142 should not be exercised where the effect of the order would be to rewrite the award or modify the award on merit.

Judgment and Conclusion

There is limited power under section 34 & 37 to modify the arbitral award. The limited power can be exercised in following circumstances: 1) When award is severable, by severing the invalid portion from valid portion is allowed. 2) By Correcting any clerical, computational or typographical errors. 3) Post award interest may be modified in some circumstances as held in SC analysis 4) Article 142 power must be exercised with great care and caution and within the limits of constitutional power.

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Jeet Sinha