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Power of the court to modify the arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996

Power of the court to modify the arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996

This article discusses the power of the court to modify the arbitral award under the Arbitration Act 1940 (erstwhile act) and the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the present Act). The erstwhile act provided three kinds of remedies against arbitral awards, namely, remission, rectification and setting aside of the arbitral award. However, the position is entirely different under the present Act. It is pertinent to mention that the present Act is based on the UNCITRAL Model Law on International Commercial Arbitration, 1985, which has specifically confined the ground of challenge and consequent remedy, which is only to set aside or remit the arbitral award in limited circumstances. Further, the aim and essence of the UNCITRAL Model Law is also to ensure minimal judicial interference in the arbitration proceedings. It is pertinent to note that the court has the power to either set aside an arbitral award or relegate it to the tribunal for afresh consideration.

The relevant excerpt of Model Law is reproduced herein for ease of reference, which is as follows-

Article 34. Application for setting aside as exclusive recourse against arbitral award

(1) Recourse to a court against an arbitral award may be made only by an application for setting aside in accordance

with paragraphs (2) and (2) of this article.

(4) the Court, when asked to set aside an award, may, where appropriate and so requested by a party, suspend the setting aside 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 arbitral tribunal’s opinion will eliminate the grounds for setting aside.

In contrary to the above, under Sections 15 and 16 of the Arbitration Act, of 1940, the Court was given the power to modify or correct an arbitral award. However, under the present Act 1996, it is imperative to note that the Hon’ble Supreme Court of India has decisively iterated the scope of judicial interference qua the power to modify the arbitral award, which makes it crystal clear that no power is vested with the court to modify the award under Section 34 of the Arbitration Act 1996. Furthermore, the Hon’ble Supreme Court of India made the observation in the case titled “Project Director, National Highways No. 45E and 220 National Highways Authority of India v M.  Hakeem” [(2021) 9 SCC 1] that it is important to notice that the old Act contained a provision which enabled the court to modify an award. However, that power has been consciously omitted by Parliament, while enacting the Act 1996. This means that the Parliamentary intent was to exclude the power to modify an award, in any manner, to the court. It was further observed that the power to modify an award in Section 34 would amount to crossing the Lakshman Rekha. A similar view was also noted in the recent Judgment of M/s Larsen Air Conditioning and Refrigeration Company v Union of India & Ors in Civil Appeal No. 3798 of 2023, which again reiterated the scope and extent of section 34 of the present act.

Cases in which the Apex Court modified the award:
  1. It is also noted that the Hon’ble Supreme Court of India has modified the award in the case titled Dyna Technologies Pvt. v Crompton Greaves Ltd. in Civil Appeal No. 2153 of 2010, Observing in para “36 that when we consider the requirement of reasoned order three characteristics of a reasoned order can be fathomed. They are proper, intelligible and adequate. If the reasoning in the order is improper, they reveal a flaw in the decision-making process.” “38. Remand to the tribunal would not be beneficial as this case has taken more than 25 years for its adjudication. It is in the situation that we lament that the purpose of the arbitration as an effective and expeditious forum itself stands effaced.”
  1. A similar view was reiterated in the judgment passed in Oriental Structural Engineers Pvt. Ltd. v State of Kerala in Civil Appeal no. 3454 of 2011 “ As the agreement is silent on the point of rate of interest but provides for payment of interest on delayed payment. The Tribunal’s exercise of fixing the rate should have been on the basis of applying the principle laid down in the paragraph in the case of the Secretary, Irrigation Department, Government of Orissa & Ors. V G.C Roy [(1992) 1 SCC 508] “43. (i) A person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name. it may be called interest, compensation, or damages. This basic consideration is as valid for the period the dispute is pending before the arbitrator as it is for the period prior to the arbitrator entering upon the reference. This is the principle of Section 34, Civil Procedure Code, and there is no reason or principle to hold otherwise in the case of arbitrator” The said principle is applicable in a proceeding under the 1996 Act as well.”

Arbitration is the most convenient and cost-effective way to settle the dispute amicably between the parties. The UNCITRAL model provides the procedure where parties, at their free will, can invoke arbitration for effective and speedy disposal of the dispute. Further, The Hon’ble Supreme Court has finally settled the conundrum through the catena of judgments that the power of Section 34 is only confined to setting aside the arbitral award, but not modifying the findings in the arbitral award.

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