Empowering Indian Courts to modify arbitral awards

Aditya Singh & Rahul Kumar*

Introduction

The scope of Judicial intervention in Arbitration proceedings in India has been a matter of concern for the future of Arbitration in the country. This Judicial intervention, inter alia, entails the power to modify arbitral awards. In some legal systems, courts have the authority to modify or set aside arbitral awards. This power is typically granted to courts through statutory provisions or through the arbitration agreement itself. In order to modify an arbitral award, a court must typically find that the award is in some way incorrect or unjust. Indian law, however, as was reaffirmed by the Supreme court in NHAI v M Hakeem, leaves no room for the discretion of the court to vary or change the award even if it thinks the same is necessary for Justice.

The authors of this piece aim to highlight why it is essential to rethink the concept that the power to modify the award should only lie with the Arbitral Tribunal, and the only option available to the court should be to remand the award back to the tribunal.

Current Scenario

The language of the Arbitration and Conciliation Act, 1996, under Section 34 and Section 37, makes it abundantly clear that it would not be correct for a court to modify the award even if it suffers from patent illegality or erroneous interpretation of the law. The only recourse available in this matter would be either to set aside the award or to remand it back to the tribunal. Furthermore, it is important to note that the 1996 act has been modelled on the UNCITRAL Model Law on International Commercial Arbitration, 1985, which provides for a minimal scope for judicial intervention, restricting the relief for dissatisfaction with the award to either set aside the award or remand the matter back to the Tribunal as per the provisions of Section 34 of the Act.

The NHAI v M Hakeem judgement of the Supreme Court cements this position by terming the 'limited remedy' under Section 34 to be coterminous with the 'limited right' to have the award either set aside and/or remand the matter. Even as the court found glaring errors in the calculation of the award by the arbitrator, it found itself bound by law not to alter the award in any manner and merely set it aside.

Justice Nariman, in the instant case, goes on to mention that if, in its current form, the courts interpret Section 34 to include the power to modify awards to do what it considers justice, it would be going against the intent that the parliament had when developing the Act. However, he did state that the parliament may consider amending such a provision to bring the Act in line with arbitration laws the world over such as in Singapore,Australia and the United Kingdom, which do give the courts the power to vary the award if they see that there is a need for the same. Moreover, in NHAI v P Nagaraju, the Supreme Court held that the arbitrator had erred in determining the market value; however, it could not substitute its own view and modify the award. One can argue that a more sensible approach would have been to substitute the correct market value and enforce the award accordingly, as this would have saved both parties a lot of costs and trouble, and would not deem the entire arbitration process worthless.

This is not to say that there have not been instances of courts altering the interest component in awards based on fairness and correcting any irrationality that the award suffers from. In oriental structural engineersreduced the interest on the late payment of the award on the grounds of ‘justice and equity’. Even the Delhi High Court reduced the interest awarded in Jindal Biochem, stating that it was higher than the prevailing bank rate. Dyna Technologies took this one step further when the court modified the sum awarded itself after holding that the award was unsustainable. It is, however, observed that across all such judgements, none of the courts mentioned which exact provision granted them the power to alter the interest rates of such awards.

A Practical Approach

While the view that the stand of the supreme court to not step in and alter awards on their own, is the way forward, allowing the courts to take the other extreme step does more harm to the process of arbitration than good. If the court can dismiss the award in its entirety and order that the entire process is started from scratch, it might as well disregard arbitration as a process entirely in the eyes of the court. It would double up the costs of the parties and only serve to deepen the pockets of the legal teams representing them, and this entire process would still not ensure the finality of the second award as the court may decide to dismiss that as well. A middle ground must be sought wherein neither is the process of arbitration dismissed nor does an award full of errors harm the interest of any party. For this, the language of Section 34 has to be interpreted in a broad and liberal manner, so as to include the power of modifying the award, by highlighting that the words ‘recourse against an arbitral award’ would entail varying it to ensure a fair outcome.

Even the Andhra Pradesh High Court in the K. V. Rao case interpreted the term ‘recourse to a court against an arbitral award’ to not be limited to setting aside the award, as not only would that defeat the whole purpose of the arbitration proceeding, it would also effectively put the parties in a position worse than that at the start of the proceeding. The Madras High Court in Novasoft Technologies interpreted the provision in a similar manner and stated that ‘A statute cannot be interpreted in such a manner as to make the remedy worse than the disease.’

Keeping in mind such open-minded interpretations of the courts and the remarks of Justice Nariman, a statutory amendment must be considered to the Arbitration and Conciliation Act which empowers the courts to vary the award to a certain degree in order to achieve the final goal of any dispute resolution mechanism- Justice.

A slightly off-centre approach here would be to allow specific, limited areas where modification of the award is possible by the courts to rectify some errors. While contemplating such changes to the powers of the courts, the legislature must be careful in maintaining a balance between the autonomy and independence that one seeks to have with the process of arbitration and the efficiency that arbitration is supposed to provide, while also making sure that no glaring errors go by unfettered and prejudice any party.

Conclusion

Courts must realise that parties choose arbitration as the method of settling their disputes to escape the court proceedings. If a court then proceeds to disregard the autonomy of the parties and write a judgement correcting or modifying the award, it would be against the very spirit of the legislation and would serve to undermine the entire arbitration process. The judicial pronouncements on arbitration have always been marred with inconsistencies, and such judgments are necessary to provide some finality in some issues. This stance of the Supreme Court to not entertain any pleas to modify the award and remanding it back to the tribunal should be the standard moving forward, and courts should stay away from interfering with the modalities of the award. However, where the errors are minute or where it would be more practical, courts should be allowed to make minor changes in arbitral awards. Where precisely this line should be drawn must be answered by a combination of legislative amendments, judicial pronouncements and common sense not to alter the essence of the award itself.

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* Aditya Singh is an undergraduate law student from Dr Ram Manohar Lohiya National Law University, India. They hold interests in various fields of law including Arbitration Law, Insolvency Laws, IPR, Alternative Dispute Redressal processes and Securities Law. Rahul Kumar is an Advocate at Sarvada Legal and can be contacted at rahul@sarvada.co.in.