Introduction
Recently, a three-judge bench of the Supreme Court (“SC”) in Gayatri Balasamy vs M/S Isg Novasoft Technologies Limited (“Gayatri Balasamy”) referred the question regarding the courts’ power to modify arbitral awards to a larger bench to decide. This case involved a claim against which compensation was awarded by the arbitral tribunal. Subsequently, a single-judge bench of the Madras High Court (“HC”) modified the award and ordered additional compensation to the appellant, after which the division bench of the Madras HC modified it yet again, reducing the amount of compensation ordered by the single bench earlier. Seemingly, the debate regarding modification of arbitral awards was put to rest with the verdict of the SC in The Project Director, National v. M Hakeem (“M Hakeem”), where the Court overruled the Madras HC Judgement. Further, the Hon’ble SC in S.V. Samudram vs The State Of Karnataka (“S.V. Samudram”), upheld the decision of M Hakeem, and ruled against the modification of arbitral awards under Section 34 of the Arbitration & Conciliation Act, 1996 (“A&C Act”).
However, the debate has been reignited by the Gayatri Balasamy case which has questioned whether the above-mentioned rulings “lay down the correct law?”. Furthermore, The Report of the Expert Committee to Examine the Working of the Arbitration Law and Recommend Reforms in the Arbitration and Conciliation Act 1996 (“Committee Report”) suggests granting Courts the power to modify arbitral awards within well-defined limits under Section 34 of the Arbitration & Conciliation Act, 1996 (“A&C Act”).[1]
In this piece, the authors analyse the current provisions under the A&C Act hindering modification and point out how they do not achieve their intended objective of minimising judicial interference. Through landmark rulings, the authors point out how despite such hindering provisions, modification takes place, thereby establishing that the same is inevitable. Ultimately, the authors provide solutions to effectively address this issue, by emphasising the importance of allowing the Courts the power to modify arbitral awards under section 34 of the A&C Act.
Current Position under section 34 of the A&C Act
An arbitral award can be challenged under Section 34 of the A&C Act. Consequently, the Court can either set aside the award or adjourn it and remand the matter back to arbitration. Furthermore, section 34(2)(a) and 34(2)(b) of the A&C Act provide cogent reasons why an arbitral award would be set aside. While not explicitly, these provisions and allied jurisprudence (as elaborated above) make modification a contentious issue. A central idea to the hindrance to modification has been the philosophy of limiting judicial intervention as enshrined in the UNCITRAL Model Law on International Commercial Arbitration, 1985 (“Model Law”), which the A&C Act has been formulated upon.
In addition to Section 34, the case of Gayatri Balasamy, while referring questions related to modification to a larger bench, referred to certain cases wherein the SC exercised modification of arbitral award. While the position of modification of arbitral awards under Section 34 of A&C Act is unclear, it should also be noted that the SC has powers to modify the arbitral award under Article 142 of the Constitution of India (“the Constitution”) to provide complete justice to the aggrieved parties. However, in many instances, the Courts have modified the arbitral award (by modifying the interest rate as awarded by the tribunal) without any mention of Article 142 of the Constitution, like in the cases of Vedanta Limited v. Shenzhen Shandong Nuclear Power, M/S Oriental Structural Engineers Pvt. v. State Of Kerala (“Oriental Structural”), and J.C. Budhraja vs Chairman, Orissa Mining, among others.
The question then becomes, under which statute are these Courts allowing/accepting modification, when the same has been prohibited under the A&C Act? Looking at how there is no such statute allowing modification, it shows that modification of arbitral awards is a necessary phenomenon, and disallowing the same does not have any benefit.
The ineffectiveness of the hindrance to modification under section 34
The often-cited reason for disallowing the courts to modify arbitral awards has been the principle of minimum judicial intervention. However, the fetter on the powers of Courts to modify has not been able to hinder judicial interference to the extent envisaged by the Act. This is for two reasons; firstly, it is not followed to the hilt by the Courts (as they end up modifying key elements of the arbitral award) and secondly, if it were followed, it would lead to a miscarriage of justice at times. For instance, the Delhi HC in the case of National Highways Authority Of India v. Trichy Thanjavur Expressway Ltd (“Trichy”) held that the Court can partially set aside the award if its claims and counterclaims are severable and such an action does not shatter the integral foundation of the award. Furthermore, the Allahabad HC in Chandra Kishori v. Union Of India Thru. Chairman Of National Highway Authority Of India And 2 Others (“Chandra Kishori”), held that the Court has the jurisdiction under Section 34 of the A&C Act to recalculate the compensation awarded in an arbitral award. Now, it is argued that neither severability of claims nor recalculation are the kind of elements that can be undertaken without proper adjudication.
This is because, in a case like Trichy, the Courts are confronted with the monumental task of determining whether certain claims possess inherent defects. Segregating these claims from the rest requires a thorough examination of the facts and circumstances of the case. In a similar vein, to hold that a particular award needs to be recalculated (as done in Chandra Kishori) there needs to be an analysis of the quantitative elements concerning the case and adjoining relevant facts which bring those quantitative elements to light.
This demonstrates that in order to meet the ends of justice, Courts have undertaken a substantial re-examination of not just the prima facie character of the award but has delved into its intricacies. It is also well established that this is necessary to ensure just adjudication. As a result, it is only prudent to assume that there needs to be a change in the present law to allow such a modification.
Empowering Courts to Modify the Awards Under Section 34 of the A&C Act
Despite limited powers being given to the courts under section 34 of the A&C Act, the High Courts, as in the case of Gayatri Balasamy (Madras HC), rightly went ahead and exercised modification to meet the ends of justice. The authors believe that the same is required and it is not the Courts which should be restricted to exercise their power of modification, but the arbitration regime which must be amended to accommodate this power.
The Committee Report recommends adding an express provision in the A&C Act, providing Courts the power to modify arbitral awards within well-defined limits, which would likely “streamline the process, saving time, effort, and resources for all the parties involved”,[2] and ensure fairness. This is also envisaged in the arbitration regime of various Model law adapting countries. Foreign laws based on the model law, such as Singapore Arbitration Act, 2001 (Singapore) and International Arbitration Act, 1974 (Australia) have express provisions empowering the Courts to modify the arbitral awards in the interest of Justice. Furthermore, the Arbitration framework of Hong Kong considers the partial setting aside of the award as a subset of modification, as envisaged under section 81 of the Hong Kong Arbitration Ordinance (Cap. 609 of the Laws of Hong Kong) (Hong Kong).
Contrarily, all the current provisions under Indian Law put the Courts in an arduous position, where they are hindered from giving real observations while also leading the parties to commence arbitration again. This is because when the Courts set aside the award, the same is nullified and there is no decision pertaining to the dispute. Parties find themselves reinstated to the point where they had first entered arbitration, thereby wasting time, effort and resources, running contrary to the very objective of arbitration. The most viable solution to prevent this is to provide the Courts with the power under section 34 of the Act to move one step ahead in situations like the Chandra Kishori and Trichy and allow the Courts to modify the award. This would prevent the parties from re-initiating the arbitration proceedings again and will ensure a timely end to the dispute.
Conclusion and Way Forward
It can be seen that the debate on whether modification of awards by the Courts should be allowed or not has been reignited by the Gayatri Balasamy ruling. There shall be no end to this debate until contradicting judgments, such as the S.V. Samudram and the Oriental Structural Judgment do not stop coming. However, the very reason why such judgements are coming about is due to the paradoxical situation that the Courts find themselves in wherein they have to make a proper analysis to exercise their power of setting aside the award, but the tools for such analysis are kept away from them.
Therefore, the most viable construction favouring both; the Courts and the parties to the arbitration, along with securing the legitimacy of the arbitral tribunal, is to bring a legislative amendment. This can be done by adding a provision under Section 34 to allow Courts to exercise modification based on their discretion, as also suggested by the Committee Report. Furthermore, as mentioned by the Committee Report, the Courts should be allowed such powers of modification “only in exceptional circumstances to meet the ends of justice”.[3] To ensure clarity in this respect, the legislative amendment should specifically mention circumstances under which such modification should be allowed. It is suggested that the exceptional circumstances should be certain specific cases wherein the Courts must go into the merits of the case to ensure a well-informed decision.
This would ensure that neither the Courts are restricted completely from modifying the arbitral award nor given unfettered powers of modification. This would harmonise the principles that the A&C Act sets out to follow, along with minimising the hardship faced by the parties.
[1] Expert Committee, Centre on reforms in the Arbitration and Conciliation Act, 1996, Report of the Expert Committee to Examine the Working of the Arbitration Law and Recommend Reforms in the Arbitration and Conciliation Act 1996 to make it alternative in the letter and spirit para 3.25.8.
[2] Committee Report para 3.25.11.
[3] Committee Report para 3.25.9.
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