Power of Court to Modify Arbitral Awards

Introduction

Setting aside a dispute by referring to a trial person was done in the ancient and medieval period. After that, if any of the parties to the dispute was not satisfied with the third-party decisions. They can go on an appeal to the court of the King. In the modern world, the modern law of arbitration evolved in the form of regulations formed by the East Indian Company in which the courts have given the power to refer the suits to arbitration.

The first Indian Arbitration Act of 1899 was formed on the English Arbitration Act of 1889, it was only applicable to the presidency towns of Calcutta, Bombay and Madras. It dealt with arbitration without the intervention of the court. It was limited to presidency towns and to such other areas to which the local government may have applied it by notification.

Former Chief justice of the Supreme Court of India, Justice M. N. Venkatachaliak observed that “Judicial delay is a major handicap of the Indian Judicial system” The Arbitration Act, 1940 was enacted to consolidate and amend the law relating to arbitration. The Arbitration Act, 1940 came into force on July 1, 1940. In this Act it was held that arbitration can be deals without the intervention of the court or with the intervention of a court where there was no suit pending or in a pending suit.

This Act empowered the courts to modify the awards, remit the award to the Arbitrators for reconsideration, and set aside the awards on specific grounds. Finally the Arbitration and Conciliation Act 1996 was enacted by Parliament based on the UNCITRAL mode law on international Commercial Arbitration, 1985 and the UNICITRAL Conciliation Rules 1980.

Setting Aside the Arbitral Award

In case of Vipul Agarwal v. Atual Kanodia the Allahabad High Court held that “the scope of interference on an application contemplated under Section 34 of the Act for setting aside arbitral award is very limited.

The court may set an arbitral award only on satisfying the requisite conditions contemplated under Section 34(2) of the Act.

The use of the word “only” is quite significant and it excludes a ground of attack on the arbitral award other than those contemplated under Section 34(2)(a) and (b) of the Act. So, if the parties to the dispute are not satisfied by an arbitral award, they can seek ways of setting it aside.

Salient Features of Section 34

  • It prohibits any aid against arbitral award other than the given provision in sub-section(1) of Section 34 of Arbitration & Conciliation Act
  • It restricts the ground on which the award abuse in sub-section (2) of Section 34 of Arbitration and Conciliation Act.
  • Under sub-section (3) of Section 34 of Arbitration and Conciliation Act provides time limit, it means an application for setting aside may not be made after three months have elapsed.

Time Limit

Sub-section (3) of Section 34 provides three month time limit in which an application for setting aside an arbitral award has to be made from the date on which the parties making the application have received the arbitral award. This provision of sub-section also provides that if the competent Court is satisfied that the party was prevented by sufficient cause from making the application within a three months, then it may have a further period of thirty days but not thereafter.

An application under this section shall be disposed of expeditiously, and in any event, within a period of one year from the date on which the notice is served upon the other party.

In NHAI v. Subhash Bindlish (2019), Supreme Court observed that the mandate under Section 34(3) of the Arbitration and Conciliation Act providing outer limit of 120 days of file an application to set aside Arbitral Award remains unchanged even after 2015 amendment of the Act.

Union of India v. Popular Construction co.[1] In this case Supreme Court held that the words “but not thereafter” used in the provision of sub-section (3) would amount to an express exclusion within the meaning of Section 29(2) of the Limitation Act, 1963 and it also bar the application of Section 5 of the Limitation Act, 1963. The history and scheme of the Arbitration and Conciliation Act, 1996 also support the conclusion that the time limit prescribed under Section 34 to challenge an award is absolute and unextendable by Court under Section 5 of the Limitation Act, 1963

In Union of India v. Tecco Trichy Engineers & Contractors[2], the Supreme Court of India held that delivery of a signed copy of the arbitral award to each party as stipulated under Section 31(5) was not a mere formality.

Public Policy

An arbitral award can be set aside if the court finds that it is in conflict with the public policy of India. The term public policy of India is a ground for setting aside an arbitral award under Section 34(2)(b)(ii) of the Arbitration and Conciliation Act, 1996. The expression public policy is not the policy of a particular government. The concept of what is good for the public and its interest or what would be harmful for the public interest or public good has varied from time to time.

Gherulal Parekh v. Mahadeodas Maiya[3] In this case the Supreme Court held that the term public policy has been used in a narrower sense and in order to abuse the bar of public policy and the enforcement of the arbitral award must be adjure something more than the violation of the system of law of India.

Central Inland Water Transport Corp. Ltd v. Brojo Nath Ganguly[4] In this case the apex court interprets the word public policy on the pillars of its conscience, public interest and public good.

Renusagar Power Co. Ltd v. General Electric Co.[5]In this case the Supreme Court again held that the concept of public policy appearing in Section 7(1)(b)(ii) of the Foreign Awards (Recognition and Enforcement) Act, 1961 construed in a narrow manner. The court held that the award would be refused on the ground that it is contrary to public policy such as fundamental policy of Indian Law or justice or morality or the interest of India.

Further in case ONGC v. Saw Pipes[6], the apex court gave a wide interpretation of public policy. It was held that the validity of arbitral award is challenged and wider meaning is required to be given so that the patently illegal passed by the tribunal could be set aside and is required to be adjudged void.

Need for Reconsideration

The decision given in ONGC v. Saw Pipes case, the question arise that what exactly in this case Court mean and when it stated that an award would also be contrary to public policy if it were patently illegal? So before that we all need to know what illegality means in arbitration. Illegality means in arbitration has threefold meaning:

  • The illegal nature of the underlying contract
  • The subject matter
  • The arbitration agreement

But in this case the Supreme Court gave a whole new meaning to the term illegality in arbitration by equating it to mean error of law.

Rajasthan State Mines and Minerals Limited v. Eastern Engineering Enterprise in this case, the supreme court held that the Court cannot interfere with an arbitrator’s decision on the ground that his decision is based on error of law or fact.

This Act provides specific heads under Section 34 of Arbitration and Conciliation Act on which an appeal can be made to Court to set aside the arbitral award. Only if the Court wants to include error of law as a ground for setting aside the award as provided in Section 34 of this Act. There are two legislative proposals before the Indian Parliament which clearly show that the legislature did not intend to include error of law as a public policy under Section 34(2)(b)(ii) of this Act. Both the April 2001 bill and December 2003 Bill have proposed amendments to the 1996 Act.

Judicial Responses

In Babar Ali v. Union of India, the apex court upheld the constitution validity of the Arbitration and Conciliation Act, 1996 since the Act does not in any way offend the basic structure of the constitution of India. It was said that only because the question of jurisdiction of the Arbitrator is required to be considered after the award is passed and not at any penultimate stage by the appropriate court it cannot be grounds for submitting that such an order is not subject to any judicial scrutiny. The time and manner of judicial scrutiny can legitimately be laid down by the Act passed by parliament.

In case Delhi Airport Metro Express (P) Ltd. v. Delhi Metro Rail Corporation Ltd.[7]

In this the Supreme Court appositely examined the extent of judicial contours under Section 34 of the Act. And then it was held that given the primary objective of the Act to minimize judicial intervention in the arbitral process, the grounds under Section 34 are to be construed in a narrow manner. The courts must refrain from appreciation or re-appreciation of facts or law under Section 34.

The Supreme Court also delineated the limited instances when interference by courts is permissible. This includes cases wherein the arbitrator takes a view that no prudent or reasonable person could have taken or if the arbitrator commits an error of jurisdiction by wandering outside the four walls of the contract. Additionally, addressing issues that did not form part of the reference is another ground where courts may interfere with the award.

Conclusion

In NHAI judgment has settled the issue of whether a court has the power to modify and Arbitral Award or not. In this case Supreme Court of India has drawn lakshman rekha on the powers of a court under Section 34 of this Act and said that a court has no power to modify an arbitral award while re-affirms the minimal judicial interference shall be adopted by the Indian Court when dealing with a challenges to an arbitral award.

Section 34 of this also did not mention the word modify but if any awards fall within the realm of Section 34 of this act can set aside the award. Therefore, the decision is also consistent and takes forward the amendments made to the Arbitration Act, particularly those made to Section 34 of the Arbitration Act.


[1] UNION OF INDIA V. POPULAR CONSTRUCTION CO. AIR 2001 SC 4010

[2] UNION OF INDIA V. TECCO TRICHY ENGINEERS & CONTRACTORS 2005 (4) SCC 239

[3] AIR 1959 SC 781

[4] AIR 1986 SC 1571

[5] 1994 SC 0195

[6] Air 2003 SC 2629

[7] Civil Appeal No. 5628 of 2021

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