Arbitral Awards Cannot Be Modified Under Sections 34 And 37 Of The Arbitration And Conciliation Act, 1966 – S.V. Samudram v. State of Karnataka & Anr.

Civil Appeal No.8067/2019

Decided on 4^th January 2024.

Summary:

The Supreme Court has held that the scope of interference with the Arbitral Award under Section 34 and 37 of the Arbitration and Conciliation Act does not provide for the modification of the award. The Division Bench of Supreme Court comprising of Justices Abhay S. Oka and Sanjay Karol has set aside an order passed by the High Court of Karnataka, wherein the High Court had confirmed the order of Senior Civil Judge modifying the order of the learned Arbitrator.

Facts of the case:

Mr. S.V. Samudram (the Appellant) had entered into a contract with the Karnataka State Public Works Department (the Respondent) on January 29, 1990, to construct the office and residence of the Chief Conservator of Forests at Sirsi for Rs. 14.86 Lakhs. The agreement stated that the construction site’s possession would be handed over to the Appellant on March 8, 1990, and the work was to be completed by May 6, 1992, excluding the monsoon season. The Appellant claimed that the work couldn’t be completed on time due to delays caused by the PWD department’s failure to clear bills at each stage, as well as delays resulting from a change of site and the late delivery of construction materials.

The parties to the contract had resorted to the arbitral mechanism to settle the claims. The claimant-appellant had filed the claim to the tune of Rs. 18,06,439/- along with an interest payable thereupon @18% per annum. The arbitrator had accepted 9 out of the total 11 claims filed by the claimant which totalled to Rs. 14,68,239/- with interest payable @18%.

The respondent filed a petition under Section 34 of the Act challenging the arbitrator’s decision. The Civil Judge, in addressing the Section 34 petition, revised the tribunal’s award, reducing the claimed amount to Rs. 3,71,564 with a 9% interest rate. In response to that, the claimant-appellant contested this Section 34 Petition order by filing a Section 37(1) petition before the High Court of Karnataka. The High Court upheld the Civil Judge’s modification of the arbitral award, dismissing the application filed by the Claimant-Appellant.

Issue:

Whether the modification of the arbitral award, carried out by the learned Civil Judge and later confirmed by the High Court of Karnataka, was in consonance with principles set in law?

Judgement:

The court has clarified that the issue of whether an arbitral award can be modified in proceedings initiated under Sections 34/37 of the Arbitration and Conciliation Act (A&C Act) is no longer a matter requiring fresh consideration. Referring to its earlier decision in National Highways Authority of India v. M. Hakeem and Another, the court emphasized that a court, when dealing with Section 34, lacks the authority to modify an arbitral award. Any attempt to do so, unless the award conflicts with the grounds specified under Section 34, would be legally unsustainable.

Furthermore, the court highlighted the general binding nature of the arbitrator’s view on the parties, unless set aside on specified grounds. The court recognized the importance of giving primacy to the arbitral tribunal in adjudicating disputes agreed to be resolved through arbitration. Citing the Supreme Court’s three-judge bench judgment in Dyna Technologies Private Limited v. Crompton Greaves Limited, the court stressed the need to assess the substance of the findings rather than their form. The court reiterated the importance of interpreting the award in a fair and just manner, discouraging an unduly literal approach. Therefore, the court concluded that no interference, such as modifying the award, is permissible when adjudicating a Section 34 petition.

To conclude, the Court has allowed the appeal filed by the claimant-appellant by overturning the challenged judgment issued by the Learned Single Judge of the High Court and the Learned Civil Judge. As a result, the court has reinstated the award dated February 18, 2003, issued by the Arbitrator, instructing the State of Karnataka to promptly fulfill the payment obligation to the claimant-appellant.

Analysis:

This Judgement is a welcome step as it upholds the legislative intent behind bringing the 2015 amendment in the Arbitration and Conciliation Act, 1966. This Judgement has reiterated the fact that the arbitral procedure needs to be respected and the scope of interference by the courts is limited. The Courts need to respect the contours laid down in the provisions of the Arbitration and Conciliation Act and act within the jurisdiction provided to it by the law. This judgement is an example of the Judiciary restricting its own power.