Arbitral Awards Cannot Be Modified Under Sections 34 & 37 Of Arbitration & Conciliation Act : Supreme Court

While deciding on a plea whether there is a scope of interference with arbitral awards under Section 34 and 37 of the Arbitration and Conciliation Act, 1996, the Supreme Court has reiterated the settled position of law that any attempt to “modify an award” while adjudicating Sections 34 and 37 petitions is not permissible under the Arbitration and Conciliation Act, 1996.The Division Bench of Supreme Court comprising Justices Abhay S. Oka and Sanjay Karol while deciding a Civil Appeal filed by the Appellant against the judgment and order passed by the High Court of Karnataka under Section 37 (1) of the Arbitration and Conciliation Act, 1996, framed a question of law that: “whether the High Court was justified in confirming the order dated 22nd April, 2010 under Section 34 of the Arbitration & Conciliation Act, 1996 passed by the Senior Civil Judge, Sirsi, in Civil Misc. No. 08/2003, whereby the award passed by the learned Arbitrator was modified and the amount awarded was reduced.”Factual BackgroundOne Mr. S.V. Samudram (Appellant) has entered into a contract from the Karnataka State Public Works Department (Respondent) on 29th January, 1990 to construct the office and residence of the Chief Conservator of Forests at Sirsi for an amount of Rs. 14.86 Lakhs with a stipulation that that the possession of the construction site would be handed over to the Claimant-Appellant on 8th March, 1990 and the work allotted was to be completed on or before 6th May 1992 i.e., 18 months from the date of the agreement excluding the monsoon season. However, it was claimed by the Claimant-Appellant that the work allotted could not be completed on time by the him, because the PWD department responsible did not clear his bills, repeatedly at every stage and also due to delays caused by change of site and in delivery of material for such construction.Proceedings before the Arbitral TribunalIn order to settle the claims, the parties resorted to the arbitration proceedings, and the claimant-appellant filed his claim before the learned Arbitrator totalling to Rs.18,06,439/- along with an interest payable thereupon @ 18% per annum. Among the 11 claims filed by the claimant-appellant, only 9 claims were awarded by the learned arbitral tribunal totalling to Rs.14,68,239/- with interest payable @ 18%. Proceedings under Sections 34 and 37 of the ActAssailing the order of the arbitrator, the respondent preferred a petition under Section 34 of the Act. The Ld. Civil Judge while deciding the Section 34 petition modified the award passes by the tribunal and reduced the amount of claim to Rs. 3,71, 564 with interest @ 9% interest, and also provided the reasoning to that effect. Thereafter, against the Section 34 Petition order, the claimant-appellant preferred a Section 37 (1) petition before the High Court of Karnataka, which has confirmed the modification of the arbitral award as has been done by the learned Civil Judge, dismissing the application on part of the Claimant-Appellant.Observations by the CourtWhile adjudicating the dispute, the Supreme Court has held as follows: -1. Modification of Arbitral Award not allowed under Section 34: The Court has observed that the position as to whether an arbitral award can be modified in the proceedings initiated under Sections 34/37 of the A&C Act is no longer res integra. The court in para 14 reiterated the findings of it passed in National Highways Authority of India v. M. Hakeem and Another, categorically held that any court under Section 34 would have no jurisdiction to modify the arbitral award, which at best, given the same to be in conflict with the grounds specified under Section 34 would be wholly unsustainable in law. Moreover, the court in para 17 also observed that “the Arbitrator's view, generally is considered to be binding upon the parties unless it is set aside on certain specified grounds.” The Court also noted the importance of primacy granted to arbitral tribunal to adjudicate the disputes agreed to be resolved by the parties through arbitration. While placing reliance on three judge Bench Judgment of the Supreme Court in Dyna Technologies Private Limited v. Crompton Greaves Limited, the court reiterated the need for the Court to look at the substance of the findings, rather than its form, stood reiterated and the need for adopting an approach of reading the award in a fair and just manner, and not in what is termed as “an unduly literal way”. Thus, no interference by way of modifying the award can be made while adjudicating Section 34 petition.2. No violation of Public Policy: In the instant case, the only provision under which the award could have been assailed was for it to have been in conflict with the public policy of India. The Court took reference to its own judgment Indian Oil Corporation. Ltd. v. Shree Ganesh Petroleum to summarize that an award could be said to be against the public policy of India in, inter alia, the following circumstances:When an award is, on its...

Arbitral Awards Cannot Be Modified Under Sections 34 & 37 Of Arbitration & Conciliation Act : Supreme Court

Yash Mittal

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