THE PROJECT DIRECTOR, NATIONAL HIGHWAYS NO. 45 E AND 220 NATIONALHIGHWAYS AUTHORITY OF INDIA Vs M. HAKEEM & ANR.

Judge: R.F. NARIMAN, J

Date: JULY 20TH, 2021.

Subject : Power To Modify Under Section 34 Of Arbitration & Conciliation Act

LAW POINTS
  • Power under Section 34 of the Arbitration Act, does not include the power  to modify an award. Section 34 is not in  the  nature  of  an  appellate  provision  and only provides for setting aside awards on very limited grounds.
  • Considering the marginal note of Section 34 i.e. “Recourse”, which means enforcement or method of enforcing a right, the enforcement of a truncated right (setting aside under Section 34 on limited grounds) can also be only limited in nature;
  • Section 34 is based on Article 34 of UNCITRAL Model  Law under which, the Court, which is hearing a challenge to an award, has no power to modify an award;
  • On the contrary, under Sections 15 and 16 of the Arbitration Act,  1940,  the Court had the power to modify or correct an arbitral award under certain circumstances or remit the award. Under the scheme of the old Act, an award could be remitted, modified or set aside on the grounds contained in Section 30 of the Old Act, which were broader, and the grounds contained in Section 34 of the Arbitration Act
FACTS

The facts in all these appeals concern notifications issued under the provisions of the National Highways Act and awards passed thereunder. These notifications are all of the years 2009 onwards and consist of awards that have been made  by  the competent authority under the Act, who is a Special District Revenue Officer. In all these cases, awards were made based on the ‘guideline value’ of the lands in question and not on the basis of sale deeds of similar lands.

The result is, in all these cases, that abysmally low amounts were granted by the competent authority. As an example, in SLP (Civil) No.13020 of 2020, amounts ranging from Rs.46.55 to 83.15 per square meter were awarded. In the arbitral award made by the District Collector in all these cases, being an appointee of the Government, no infirmity was found in the aforesaid award, as a result of which the same amount of compensation was given to all the claimants.

In Section 34 petitions that were filed before the District and Sessions Judge, these amounts were enhanced to  Rs.645 per square meter and the award of the Collector

was therefore modified by the District Court in exercise of jurisdiction under Section 34 Arbitration Act to reflect these figures. In the appeal filed to the  Division Bench, the aforesaid modification was upheld, with there being a remand order to fix compensation for certain trees and crops.

ISSUE

Whether the  power of a court under Section 34 of the Arbitration and Conciliation Act, 1996 [“Arbitration Act”] to “set aside” an award of an arbitrator would include the power to modify such an award

OBSERVATIONS OF HON’BLE SUPREME COURT

PERUSAL OF SECTION 34

Section 34 of the  Arbitration  Act,  1996  occurs  in  Chapter  VII  under  the  title “Recourse against arbitral award”. We  are  directly  concerned  with  sub-sections  (1) and (4) of Section 34 which are set out hereunder.

34. Application for setting aside arbitral award. –

(1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).

(4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in  the  opinion  of  arbitral tribunal will eliminate the grounds for setting aside the arbitral award.

It 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 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).

“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. It is clear from a reading of the said provisions 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 clear as even under 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.

COMPARISON WITH UNICITRAL MODEL LAW AND OLD ACT OF 1940

Section 34 is modelled on the UNCITRAL Model Law on International Commercial Arbitration, 1985, under which no power to modify an award is given to a court hearing a challenge to an award.

The statutory scheme under Section 34 of the Arbitration Act, 1996 is in keeping with the UNCITRAL Model Law and the legislative policy of minimal judicial interference in arbitral awards

Also, under the scheme of the old Act, 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 1996 Act.

LIMITED SCOPE OF SECTION 34

The court cannot undertake an  independent assessment of  the merits of  the  award, and must only ascertain that the exercise of power by the court under Section 34 has not exceeded the scope of the provision. Thus, it is evident that in case  an arbitral award has been confirmed by the  court under Section 34 and by the court in an appeal under Section 37, this Court must be extremely cautious and slow to disturb such concurrent findings. (MMTC Ltd. v. Vedanta Ltd., (2019) SC)

The legislative intention of providing Section 34(4) in the Arbitration Act was to make the award enforceable, after giving an opportunity to the Tribunal to undo the curable defects. This provision cannot be brushed aside and the High Court could not have proceeded further to determine the issue on merits.

In case of absence of reasoning, the  utility has  been  provided  under Section  34(4) of the Arbitration Act to cure such defects. When there is complete perversity in the reasoning then only it can be challenged under the provisions of Section 34 of the Arbitration Act.

SUPERVISORY ROLE OF COURTS IN ACT OF 1996

The 1996 Act makes provision for the supervisory role of courts, for the review of the arbitral award only to ensure fairness. Intervention of the court is envisaged in few circumstances only, like, in case of fraud or bias by the arbitrators, violation of natural justice, etc.

The court cannot correct errors of the arbitrators. It can only quash  the  award leaving the parties free to begin the arbitration again if it is desired. So, the scheme of the provision aims at keeping the supervisory role of the court at minimum level and this can be justified as parties to the agreement make a conscious decision to exclude the court’s jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it.

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. It is trite that an arbitrator being a Judge chosen by the parties, his decision would ordinarily be final unless one or the other conditions contained in Section 34 of the Act is satisfied for the purpose of setting aside his award. The Court’s jurisdiction in this behalf is to see whether the arbitrator has exceeded his jurisdiction or not and therefore,  the  scope  of  judicial review of the arbitral award is a narrow one.

NO CROSSING OF LAXMAN REKHA BY COURTS

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.

PRECEDENTS DECIDED

It has been pointed out in Mcdermott International Inc.  v.  Burn  Standard  co. Ltd., (2006) SC as has been followed by this Court in Kinnari Mullick v. Ghanshyam Das Damani, (2018) SC. Also, in Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies Pvt. Ltd (2021) SC, a recent judgment of this Court also followed McDermott (supra) stating that under Section 34 of the Arbitration 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.

Therefore, in light of the dictum in McDermott International Inc. and the difference in provisions of the 1940 Act and the present Act, this Court holds that  the  power  to modify, vary or remit the award does not exist under Section 34 of the Act.

DECISION

The appeals are, therefore, dismissed on facts with no order as to costs.

Similar Posts