Swetalana Rout
In a significant ruling of the Supreme Court[1], it has been decided that the scope of power of a Court is limited to the grounds under Section 34 of the Arbitration and Conciliation Act, 1996 [hereinafter “1996 Act”]. The Apex Court held that Courts cannot modify or vary an arbitral award and has no power to do so. It also highlights the remodelling of Section 34 in accordance with UNCITRAL Model Law on International Commercial Arbitration, 1985 [hereinafter “Model Law”].
Factual Matrix:
A series of appeals arose before the Apex Court with respect to the notifications issued under the National Highways Act, 1956 [hereinafter “NH Act”] comprising of awards given by the Competent Authority based on the guideline value of the specific lands and not on sale deeds. As a result, , significantly lower amounts were granted by the relevant authorities. The arbitrator appointed by the government (District Collector) did not find irregularities in the compensation amounts and approved the same. However, after the award was challenged in the District and Sessions Court, the Judge enhanced the amount and in reality, modified the award. The High Court of Madras also affirmed the modification. Thus, the Apex Court had to decide whether the power of a court under Section 34 of the 1996 Act to “set aside” an award of an arbitrator would include the power to modify such an award.
Opinion of the Court:
The Apex Court took note of the fact that Section 34 is an appellate provision in nature and an award can be set aside only as per the grounds mentioned in subsections (2) and (3) of Section 34. It further 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.”
Since it is the opinion of the Tribunal that counts to eliminate grounds of setting aside an award, it can be indicated by the Court hearing the Section 34 application. This particular provision is largely based on Model law, which gives no discretion to a Court to modify/vary an award. The Apex Court has also referred to some cases including McDermott International Inc. v. Burn Standard Co. Ltd.[2] and Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies Pvt. Ltd.[3] The Mcdermott[4] judgement specifies that where the Court sets aside the award passed by the majority members of the tribunal, the underlying disputes would require to be decided afresh in an appropriate proceeding. Under Section 34 of the 1996 Act, the Court may either “dismiss the objections filed, and uphold the award, or set aside the award if the grounds contained in sub-sections (2) and (2A) are made out”. There is no power to modify an arbitral award.
There have been a plethora of cases indicating that the High Court is instructive. In Cybernetics Network Pvt. Ltd. v. Bisquare Technologies Pvt. Ltd.[5], the Delhi High Court pointed out that courts cannot deal with claims in detail which are already decided on by the Arbitral Tribunal even if it appeared that the Tribunal/Arbitrator has erred in rejecting a few claims under the power given to the Courts under Section 34(4). Another judgement delivered by the Delhi High Court[6]held that under the Arbitration Act, a successful challenge can lead to setting aside of an award, which was distinct from the power of the court under the Arbitration and Conciliation Act, 1940 [hereinafter “1940 Act”], as per which an award could be modified. Additionally, the decision in Puri Construction P. Ltd. v. Larsen and Toubro Ltd.[7] was also taken into consideration, where the Delhi High Court, while reiterating the law laid down in McDermott,[8] held that the power to modify, vary or remit the award does not exist under Section 34 of the Arbitration Act. The Delhi High Court held that a Court modifying or varying the award, would in essence be correcting the errors of the arbitrator.
The Court also referred to Gayatri Balaswamy[9], relied on by the Respondent, which held that Mcdermott[10]did not settle the issue of modification by Court under Section 34. The Court observed that the judgements relied upon in Gayatri Balaswamy were the modified awards in the exercise of powers under Article 142 of the Constitution of India.[11] Hence, this judgement was wrong in holding that the judicial trend shows that this provision has the power to modify, revise or vary an award. Another decision of the Madras High Court was highlighted to reiterate Mcdermott’s position that a modification is not possible under Section 34. Several other cases cited by the Respondent were also rendered irrelevant by the Apex Court since they were also passed in accordance with Article 142 of the Constitution[12] and did not constitute the ratio decidendi.
Analysis of NHAI vs. M. Hakeem:
To interpret the current judicial trend and reading Section 34 as a power to modify, revise or vary an award would be akin to bringing back the previous law under the 1940 Act to the limelight. It would lead to ignoring the fact that the 1996 Act was based on the Model Law and was remodelled accordingly. Section 34 has also been compared with the provisions for challenging an award under the Arbitration Acts across the globe in this decision. It is explicit that there are provisions exclusively in their legislations, that permit varying the award, unlike Section 34. Further, the Apex Court also held that to assimilate the Section 34 jurisdiction with the revisional jurisdiction under Section 115 of the Code of Civil Procedure, 1908[hereinafter “CPC,1908”][13] is fallacious. Since Section 115 of the CPC, 1908 sets out three grounds for entertaining a revision and states that the High Court may make ‘such order as it thinks fit’ which are clearly missing in Section 34, it is not possible to interpret the award that way.
The legislative intent was also cleared out in this judgement. In the decision, ‘purposive construction’ was referred to by Bennion in his classic on Statutory Interpretation, re-affirming that it must be applied on the facts of this case as in legislations dealing with land acquisition, a pragmatic view is required to be taken and the law must be interpreted purposefully and realistically so that the benefit reaches the masses. Purposive construction of statutes, relevant in the present context, was referred to in a recent concurring judgment of Eera v. State (NCT of Delhi),[14] as the theory of “creative interpretation”. However, even “creative interpretation” has its limits. The legislators did not intend to use the word “modify” anywhere in Section 34 of the Act but what was contemplated is only to “set aside” an award passed by the Arbitrator if it falls within the realm of Section 34 of the Act.
There are a number of case laws where NHAI has not filed an appeal arising out of the Section 3A Notification, resulting in several land owners getting away with more compensation given by the District Court. We cannot be blindfolded by the fact that the award is based on the “guideline value” relevant only for stamp duty purposes and completely ignoring the sale deeds which are a correct measure of the land value.
The Court also acknowledged the fact that differential compensation cannot be awarded solely to achieve a different public purpose. The public purpose can be extremely commendable, but the legislature cannot say that the award for the differential compensation is to be paid depending on the same.
Conclusion:
As per the High Courts, there is a difference of opinion on the issue of modification of awards. Hence, the Hakeem[15]judgement lays down a significant rule since it clarifies the position of Section 34 that Courts can neither modify, revise or vary an award. This decision places importance on the minimal judicial interference of Courts which is the basis of any arbitration. This decision is also consistent with the legislative intent and the recent amendments made to the Arbitration Act, specifically Section 34.
[1]National Highways No. 45E and 220 National Highways Authority of India v. M. Hakeem, 2021 SCC OnLine SC 473. [2] McDermott International Inc. v. Burn Standard Co. Ltd. , (2006) 11 SCC 181. [3] Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies Pvt. Ltd., 2021 SCC OnLine SC 157. [4] Supra note 2. [5] Cybernetics Network Pvt. Ltd. v. Bisquare Technologies Pvt. Ltd, 2012 SCC OnLine Del 1155. [6] Nussli Switzerland Ltd. v. Organizing Committee Commonwealth Games, 2014 SCC OnLine Del 4834 [7] Puri Construction P. Ltd. v. Larsen and Toubro Ltd., 2015 SCC OnLine Del 9126. [8] Supra note 2. [9] Gayatri Balaswamy v. ISG Novasoft Technologies Ltd., 2014 SCC OnLine Mad 6568. [10] Supra note 2. [11] The Constitution of India, 1950, Article 142. [12] Id. [13] The Code of Civil Procedure, 1908, Section 115. [14] Eera v. State (NCT of Delhi), (2017) 15 SCC 133. [15] Supra note 1.