2025 (5) TMI 566 - SC - Indian Laws

Scope of judicial powers under the Arbitration and Conciliation Act 1996 - powers of the Court under Sections 34 and 37 of the Arbitration and Conciliation Act 1996 to modify an arbitral award - such power can be exercised only where the award is severable and a part thereof can be modified - power to set aside an award under Section 34 of the Act - power to modify an award can be read into the power to set aside an award under Section 34 of the Act - the judgement in Project Director NHAI vs. M. Hakeem and others 2021 (7) TMI 1343 - SUPREME COURT correctly laid down the law on the modification of arbitral awards or not - five bench decision. As per CJI. (SANJIV KHANNA) J. (B.R. GAVAI) J. (B.R. GAVAI) and J. (AUGUSTINE GEORGE MASIH) HELD THAT - The questions of law referred to by Gayatri Balasamy 2024 (2) TMI 1549 - SC ORDER are answered by stating that the Court has a limited power under Sections 34 and 37 of the 1996 Act to modify the arbitral award. This limited power may be exercised under the following circumstances I. when the award is severable by severing the invalid portion from the valid portion of the award as held in Part II of our Analysis. II. by correcting any clerical computational or typographical errors which appear erroneous on the face of the record as held in Part IV and V of our Analysis; III. post award interest may be modified in some circumstances as held in Part IX of our Analysis; and/or IV. Article 142 of the Constitution applies albeit the power must be exercised with great care and caution and within the limits of the constitutional power as outlined in Part XII of our Analysis. As per K. V. VISWANATHAN J. HELD THAT - i) While exercising power under Section 34 of the A C Act and consequently the Courts in the appellate hierarchy do not have the power to modify the arbitral award. ii) Modification and severance are two different concepts while modification is not permitted under Section 34 severance of the award falling foul of Section 34 is permissible in exercise of powers under Section 34. Such a power of severance is also available to the courts in the appellate hierarchy to the Section 34 Court. iii) The power to set aside will not include the power to modify since the power to modify is not a lesser power subsumed in the power to set aside and as held hereinabove the power to set aside and power to modify do not emanate from the same genus and are qualitatively different powers in the context of the A C Act. iv) The judgment in Hakeem insofar as it holds that a Section 34 Court has no power to modify the award lays down the correct law. The only exception made in this judgment is with regard to the power to carry out corrections in computational errors clerical errors or typographical errors and any other errors of similar nature. This is based on the principle of actus curiae neminem gravabit (act of court shall prejudice no one). Reference disposed off.

Summary

The core legal questions considered by the Court in this judgment revolve around the scope of judicial powers under the Arbitration and Conciliation Act, 1996 ("1996 Act") concerning arbitral awards, specifically:

1. Whether courts possess the power under Sections 34 and 37 of the 1996 Act to modify an arbitral award.

2. If such power exists, whether it is exercisable only where the award is severable and a part thereof can be modified.

3. Whether the power to set aside an award under Section 34, being a broader power, includes the power to modify an arbitral award, and to what extent.

4. Whether the power to modify can be read into the power to set aside under Section 34.

5. Whether earlier judgments of the Court, particularly Project Director NHAI vs. M. Hakeem and others, correctly laid down the law on the modification of arbitral awards, in light of other decisions where awards were modified or such modifications were accepted.

Issue-wise Detailed Analysis:

I. Scope of Judicial Powers under Section 34 of the 1996 Act

The Court examined the statutory framework, emphasizing Section 5, which restricts judicial intervention to what is expressly provided in Part I of the 1996 Act. Section 34 prescribes the grounds and procedure for setting aside arbitral awards, using the term "recourse" exclusively in the context of setting aside awards. The Court noted that the phrase "set aside" means to annul or quash, and the statutory language is mandatory and exhaustive, permitting setting aside only on enumerated grounds.

Precedents, including McDermott International Inc. v. Burn Standard Co. Ltd., clarified that courts do not act as appellate bodies reviewing merits or facts but can only annul awards on limited grounds. The Court emphasized that the 1996 Act, modeled on the UNCITRAL Model Law, deliberately restricts judicial interference to maintain arbitration's finality and efficiency.

The Court rejected arguments that the power to set aside inherently includes the power to modify, holding that these are qualitatively distinct powers. The power to set aside annuls an award, while modification involves altering it, which would amount to merits review, inconsistent with the Act's intent.

II. Severability of Awards and Partial Setting Aside

The Court acknowledged the proviso to Section 34(2)(a)(iv), which permits courts to set aside only parts of an award dealing with disputes not submitted to arbitration, provided such parts are severable from the valid parts. This severability doctrine is recognized as inherent in the power to set aside and is distinct from modification.

The Court held that partial setting aside (severance) is permissible only when the valid and invalid parts are legally and practically separable and not interdependent. If inseparable, the award must be set aside in entirety.

Judicial precedents and principles from the Privy Council and this Court were cited to support the necessity of clear segregation before severance.

III. Correction of Clerical, Computational, and Similar Errors

The Court distinguished between modification and correction of errors apparent on the face of the award. Section 33 of the 1996 Act empowers arbitral tribunals to correct clerical, typographical, or computational errors within 30 days of the award. However, if the tribunal fails or refuses to correct such errors, courts under Section 34 may intervene to correct these errors to prevent injustice, relying on inherent judicial powers and the principle of actus curiae neminem gravabit (an act of court shall prejudice no one).

The Court clarified that such corrections do not amount to modification or merits review and are limited to obvious errors that do not affect the substance of the award.

IV. Power of Courts to Modify Interest in Arbitral Awards

The Court analyzed Section 31(7) of the 1996 Act, which uniquely provides for the award and modification of interest in arbitral awards. It held that courts have limited power to modify post-award interest rates where warranted by facts, such as delays or defaults by a party, or where the award is silent on post-award interest.

This power is justified because post-award interest depends on future events unknown at the time of the award, and the statutory standard interest rate serves as a benchmark. However, courts must exercise this power cautiously, avoiding appellate review of merits.

V. Power to Remand under Section 34(4)

The Court emphasized Section 34(4) as a "safety valve" allowing courts to adjourn setting aside proceedings and remit the award to the arbitral tribunal for reconsideration or correction of defects that can be cured. This power is discretionary and limited to curable defects such as lack of reasoning or procedural irregularities but does not permit merits review or rewriting of the award.

The Court rejected the view that a written request is mandatory for remand, holding that oral requests recorded by courts suffice, and remand can be exercised suo motu by courts in appropriate cases.

VI. International Jurisprudence and Comparative Analysis

The Court reviewed foreign jurisdictions where courts have express statutory powers to modify or vary arbitral awards, including Singapore, the United Kingdom, Australia, New Zealand, Canada, Kenya, and others. These jurisdictions incorporate modification powers alongside setting aside and remand, often with specific procedural safeguards and statutory provisions ensuring enforceability of modified awards.

However, the Court noted that the Indian 1996 Act does not contain such express powers, and the absence of legislative sanction distinguishes Indian law from these jurisdictions.

VII. Doctrine of Merger and Enforcement under the New York Convention

The Court rejected arguments that court modifications would affect enforceability of awards under the New York Convention. It held that Section 48(1)(e) of the 1996 Act aligns with Article V of the Convention, requiring enforcement courts to consider whether the award is binding under the law of the seat. Therefore, limited modification powers read into Section 34 would not conflict with international enforcement obligations.

VIII. Statutory Arbitrations and the NHAI Act

The Court rejected submissions for a differential or expansive interpretation of Section 34 for statutory arbitrations, including those under the National Highways Act, 1956. It held that the 1996 Act's provisions apply uniformly to statutory and consensual arbitrations, and any grievances arising from statutory arbitrations must be addressed under the relevant statutes or writ jurisdiction, not by expanding Section 34 powers.

IX. Party Autonomy and Legislative Intent

The Court underscored the principle of party autonomy as central to arbitration, whereby parties voluntarily choose arbitration with limited judicial intervention. It held that parties cannot circumvent the statutory framework by seeking judicial modification powers not conferred by the legislature.

The Court stressed that judicial powers under Section 34 are limited and must be interpreted in light of the legislative intent to minimize court interference.

X. Article 142 Powers of the Supreme Court

The Court acknowledged its plenary powers under Article 142 of the Constitution to do "complete justice" but held that such powers must be exercised with restraint and cannot be used to override or supplant express statutory provisions. It ruled that Article 142 cannot be invoked to modify arbitral awards in a manner inconsistent with the 1996 Act.

XI. Inherent and Implied Powers

The Court rejected arguments that inherent powers under Section 151 of the Code of Civil Procedure or the doctrine of implied powers could be used to confer modification powers on courts under Section 34. It held that inherent powers cannot override explicit statutory provisions and that implied powers apply only to effectuate express powers, not to create new ones.

XII. Guardrails and Judicial Manageability

The Court declined to lay down judicial guidelines or "guardrails" for modification powers, noting the absence of judicially manageable standards and the risk of converting Section 34 proceedings into appeals on merits, which the Act prohibits. It emphasized that any expansion of judicial powers must come from legislative amendment.

XIII. Summary of Key Findings

1. Courts under Sections 34 and 37 do not have the power to modify arbitral awards; such power is not subsumed within the power to set aside.

2. Courts have the power to sever parts of an award that are invalid and set aside only those parts, provided severance is feasible and the parts are not interdependent.

3. Correction of clerical, computational, or typographical errors, or other errors of a similar nature, is permissible by courts under Section 34, consistent with the principle actus curiae neminem gravabit.

4. Courts may modify post-award interest rates in limited circumstances, exercising caution and respecting statutory benchmarks.

5. Courts may remit awards to arbitral tribunals under Section 34(4) to cure defects, and such remand may be granted suo motu or on oral request.

6. The power to modify awards is absent in the 1996 Act and cannot be read into Section 34; legislative amendment is necessary to confer such power.

7. Article 142 powers cannot be used to modify arbitral awards in contravention of the 1996 Act.

8. The doctrine of merger does not apply to court modifications, and enforcement under the New York Convention remains governed by the law of the seat.

9. The statutory scheme applies uniformly to statutory and consensual arbitrations; no special modification powers arise in statutory arbitrations.

10. The judgment in Project Director NHAI vs. M. Hakeem correctly states the law that courts lack modification powers under Section 34, subject only to the limited exceptions noted.

Significant Holdings and Core Principles:

"Section 34 of the Arbitration and Conciliation Act, 1996, does not confer upon courts the power to modify arbitral awards. The power to set aside an award is distinct and does not include the power to modify."

"The proviso to Section 34(2)(a)(iv) recognizes the power to sever and set aside only the invalid part of an award, provided such invalid parts are separable from the valid parts."

"Correction of clerical, computational, or typographical errors or errors of a similar nature is permissible under Section 34, consistent with the principle actus curiae neminem gravabit."

"Courts may modify post-award interest rates in appropriate cases, exercising caution and respecting statutory standards under Section 31(7)."

"Section 34(4) provides a discretionary power to remit awards to arbitral tribunals to cure defects, which is distinct from court modification powers."

"Article 142 powers of the Supreme Court cannot be exercised to modify arbitral awards in a manner inconsistent with the Arbitration Act."

"Inherent or implied powers cannot be invoked to expand judicial powers beyond those expressly conferred by the Arbitration Act."

"Judicial intervention in arbitration is to be minimal and confined to the grounds and procedures expressly provided by the legislature."

"The judgment in Project Director NHAI vs. M. Hakeem correctly lays down the law that courts do not have the power to modify arbitral awards."