'Need To Be Practical' : Supreme Court On Whether Appellate Courts Can Modify Arbitral Awards [Day 2 Hearing]

The Supreme Court Constitution Bench today (February 18) continued hearing on the issue of whether Courts have the power to modify an arbitral award under S. 34 and 37 of the Arbitration and Conciliation Act, 1996. During the hearing, CJI Sanjiv Khanna verbally noted that giving a rigid interpretation to S.34 of the Arbitration and Conciliation Act 1996 may end up overlooking the practical purpose of the Act.S. 34 provides the outline for applying to set aside an arbitral award. S. 37 of the Act states the instances where an appeal may lie against orders relating to arbitral disputes.The CJI explained that the 1996 Act was framed when the Country opened its doors for liberalisation and the legislation came for tackling cross-border disputes which may arise. However, S.34 being adopted from the UNICITRAL Model law without modifications would not mean that the provision has to be given an outdated meaning. He said : “What was material at that time, when we implemented the 1996 Act- let's not forget that was the occasion in 1990 when liberalisation had started, we were expecting foreign investment to take place and normally arbitration is a method resorted to for dispute resolutions in cross border disputes.” “So what happened was we adopted the UNICITRAL Model which is basically also the framework of the New York Convention- more or less on that….but if one goes on that - normally we say we have to interpret the intent of the legislation but while doing so we also have to be practical, because the legislation never meant that it would be impacting the law- something which is so obvious, it will be overlooked by it” Previously, SG Tushar Mehta argued that Article 34 of UNICITRAL was adopted within the Indian framework and is reflected in S.34 of the Arbitration Act. The SG noted that the commonality here was the limited power of the court to set aside or partially set aside the arbitral award.The bench led by CJI Sanjiv Khanna comprises Justices BR Gavai, Sanjay Kumar, AG Masih and KV Viswanathan.Senior Advocate Arvind Datar appearing for the lead petitioner submitted that the term 'set-aside' has to be interpreted to mean the power of the Court to either fully or partially set aside an arbitral award. He added that (1) 'recourse to a court' would mean recourse to a civil court in light of S.9 read with S.151 CPC; (2) the inherent powers of the Court to do justice are always there and thus setting aside would entail partially setting aside the award. “The word set-aside cannot be given such a rigid meaning as to make it inflexible and put it into bigamy into black-white.” Datar argued that the Courts under S.34(2) would have the power to rectify an award instead of sending it back to the Tribunal under S. 34(4) as that would lead to years of delay in reaching a conclusion on the award.The CJI interjected to point out that in the presence of an express remedy to remit the award back to the tribunal, allowing the Court to modify may not be possible. He explained: “If we accept that "curable defects" referred to in your arguments- which the court can rectify, are relatable to S.34(4)- then it will lead to difficulty because 34(4) provides for a specific remedy. It can be argued from the other side that when a specific remedy and method of providing for that remedy is given, then we cannot by pass it.” Dattar clarified that his argument is that 34(4) is merely an indicia for the Court to save the award from being completely set aside. “I'm only trying to say- setting aside the award is the last resort. Wherever you can save it, try to save it.” He concluded by asserting that in instances where out of supposing 7 issues considered in the award, 2 issues 'infect the whole award' and are not severable from the core of the award, then the Court should examine such a 'patent illegality' which is not on merits of the case, or on the correction of application of law, then the Court should rectify the patent illegality. “Like a post-correction, the award is off-track, bring it on track and save it.” To illustrate instances where the court modified a 'patent illegality' in the award, Datar cited the decision of Indian Oil Corporation v. Ganesh Petroleum, in which the Court modified the award. In that case, the tribunal changed the rate of the original rent fixed as per the lease agreement. Here, the Court modified the award by correcting the rent period back to 20 years, as per the original lease agreement between the parties. Similarly, in Ssangyong Engineering v. NHA, the Supreme Court went ahead with the dissenting award where the tribunal's decision was split in majority-minority opinion. Senior Advocate Darius Khambata appearing for one of the intervenors submitted that as long as there is no express bar under the provision of law, it cannot be said that courts are restricted from modifying an award. He referred to the example cited by SG Tushar Mehta in his written submissions regarding Singapore's Arbitral Law...

'Need To Be Practical' : Supreme Court On Whether Appellate Courts Can Modify Arbitral Awards [Day 2 Hearing]

Anmol Kaur Bawa

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