High Court doesn’t have the power to Modify the Award – M/s Larsen Air Conditioning and Refrigeration Company v. Union of India; Order dated 11th August 2023 – Supreme Court

The Courts have no power to modify the award and can only set aside an award either partially or wholly in the event of that conditions specified under Section 34 of the Arbitration Act, 1996 have been meted out.

Summary:

The Hon’ble Supreme Court in the present case draws a line pertaining to the powers of the Court under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996, wherein the Courts are considering the challenge to an award and appeal against the orders passed by the Court or the Tribunal. The Hon’ble Supreme Court was of the view that the Courts did not have the power to modify the award as was available under the provisions of the Arbitration Act, of 1940. The only power a Court has under Sections 34 and 37 of the Arbitration Act, 1996, is to partially or wholly set aside the arbitral award, and that too only on the condition that the limited grounds available under the provisions of the Act are fulfilled.

Facts of the case:

The appellant in the present case approached the Hon’ble Supreme Court challenging the judgment of the Allahabad High Court wherein the High Court allowed the challenge to an arbitral award and modified the award to the extent of reducing the interest granted by the Arbitrator from 18% to 9% p.a.

Issues raised/ discussed:

The only limited issue discussed herein in this case was whether the High Court has the power to modify the arbitral award. As in the present case, the High Court modified the arbitral award to the extent of reducing the interest, from compound interest of 18% to 9% simple interest p.a., hence, the Hon’ble Supreme Court considered this aspect.

Judgment:

The Appellant in the present case referred to the provisions of Section 31(7)(b) of the Arbitration Act, 1996, which provides for statutory interest rate, i.e., in the event the Arbitrator did not give any specific directions with regards to the interest rate on amount awarded, the amount will carry an interest rate of 18% p.a. The Appellant claimed that the agreement between the parties does not prohibit the grant of interest and therefore, the arbitrator had the power to award interest pendente lite. On the other hand, the Respondent, i.e., Union of India, contended that the 18% compound rate of interest was completely unjustified and warranted revision. The Respondent also focused upon the inherent power of the High Court as a Constitutional Court and how in several instances, the Courts have reduced the interest so granted by the Arbitrator.

Upon considering the contentions of both the parties and after analyzing the provisions of the Arbitration Act, 1996, the Hon’ble Supreme Court was of the view that there exists a very limited scope of interference by the Courts under the provisions of the 1996 Act. The Hon’ble Apex Court considered the scope of Arbitration Act, 1940, Section 15 of which provides for modification of the award by the Courts and the intention of the legislature to do away with the said provision in the 1996 Act. As per the dicta of the Hon’ble Apex Court, it was held that as the Arbitration started in 1997, which is after the enactment of the 1996 Act, the provision pertaining to the statutory rate of interest will be applicable, which itself is contemplated as 18% under Section 31(7) of the 1996 Act. The Hon’ble Apex Court was of the view that the Courts are powerless to modify the award and can only set aside the award, partially or wholly if their conditions u/s 34 of the 1996 Act have been established.

Analysis:

Many a time, the Hon’ble Apex Court has held that there is a limitation on the power of the Courts to interfere with the finding of the Arbitrator and the award passed thereupon. The only consideration that is important in this respect is the limited grounds available for the Court to consider while interfering with the award. Under Section 34, the Act permits the Court to interfere with an award under the grounds of patent illegality and the other ground would be the denial of natural justice. Similarly, Section 37 of the 1996 Act grants a narrower scope to the appellate Court to review the findings of the Arbitrator, if the same has been upheld under Section 34. The scope provided under the provisions of the 1996 Act and the intention of the legislature pertaining to the minimal interference of the Courts in an arbitration proceeding should not be done away with and this judgment has provided the required jurisprudence when it comes to the revision of the interest rate granted by the Arbitrator.