Modification Of Arbitral Award U/S. 34 Or 37 Of A&C Act – Reference Made To Larger Bench

Summary:

[1] A three (3) Judges Bench of the Hon’ble Supreme Court has referred to the larger bench the question of whether the courts have the power to modify the arbitral award under Sections 34 or 37 of the Arbitration and Conciliation Act, 1996.

Background:

The instant Special Leave Petition (Civil) is preferred against the judgment/order passed by the Division Bench of the Madras High Court where the High Court while partly allowing the arbitral award had modified the award passed by the Arbitral Tribunal. Two modifications were made by the High Court. One by the Single Judge and another by the Division Bench. The Single Judge proceeded to award a sum of Rs.1,68,00,000/- to the Appellant in addition to the amount of arbitral award amounting to a sum of Rs.2 crores.

The Division Bench after noting that no arithmetic calculation was being done by the Single Judge to grant an additional amount to the Appellant had further modified the arbitral award by reducing the amount to Rs. 50,000/- from Rs. 1,68,00,000/-.

It is against the modification in the amount made by the Division Bench that the instant petition was preferred by the Appellant.

Issues for consideration of Larger Bench:

The Hon’ble Court was of the opinion that the following questions are needed to be referred to a Larger Bench for answers:

1. Whether the powers of the Court under section 34 and 37 of the Arbitration and Conciliation Act, 1996, will include the power to modify an arbitral award?
2. If the power to modify the award is available, whether such power can be exercised only where the award is severable and a part thereof can be modified?
3. Whether the power to set aside an award under section 34 of the Act, being a larger power, will include the power to modify an arbitral award and if so, to what extent?
4. Whether the power to modify an award can be read into the power to set aside an award under section 34 of the Act?
5. Whether the judgment of this Court in Project Director NHAI vs. M. Hakeem [(2021) 9 SCC 1], followed in Larsen Air Conditioning and Refrigeration Company vs. Union of India [(2023) SCC Online SC 982] and SV Samudram vs. State of Karnataka [(2024) SCC Online SC 19] lay down the correct law, as other benches of two Judges (in Vedanta Limited vs. Shenzden Shandong Nuclear Power Construction Company Limited [(2019) 11 SCC 465] , Oriental Structural Engineers Pvt. Ltd. vs. State of Kerala [(2021) 6 SCC 150] and M.P. Power Generation Co. Ltd. vs. Ansaldo Energia Spa [(2018) 16 SCC 661]) and three Judges (in J.C. Budhraja vs. Chairman, Orissa Mining Corporation Ltd. [(2008) 2 SCC 444] , Tata Hydroelectric Power Supply Co. Ltd. vs. Union of India [(2003) 4 SCC 172] and Shakti Nath vs. Alpha Tiger Cyprus Investment No.3 Ltd. [(2020) 11 SCC 685]) of this Court have either modified or accepted modification of the arbitral awards under consideration?

Observations of the Bench:

1. The Hon’ble Bench observed that the question “Whether or not the Courts in exercise of power under sections 34 or 37 of the Arbitration and Conciliation Act, 1996 are empowered to modify an arbitral award” frequently arises in proceedings not only before the Hon’ble Supreme Court but also before the High Courts and the District Courts.

• The Hon’ble Court further observed that while one line of decisions of the Supreme Court has answered the aforesaid question in the negative, there are decisions which have either modified the awards of the arbitral tribunals or upheld orders under challenge modifying the awards. Therefore, the Bench, in light of the above opined that “It is, therefore, of seminal importance that through an authoritative pronouncement clarity is provided for the guidance of the Courts which are required to exercise jurisdiction under the aforesaid sections 34 and 37, as the case may be, day in and day out.”

Analysis:

The reference to a larger bench is the need of the hour as it shall addresses the ambiguity surrounding the judicial power to modify arbitral awards under sections 34 and 37 of the Arbitration and Conciliation Act, 1996. By acknowledging conflicting decisions, the bench highlights the necessity for clarity and guidance in such matters, emphasizing the importance of an authoritative pronouncement to aid courts in their routine exercise of jurisdiction. The identified questions for consideration underscore the complexity of the issue and the need for a comprehensive legal interpretation to establish uniformity in judicial practice. Therefore, the decision to refer these questions to a larger bench ensures a thorough examination and resolution of the underlying legal uncertainties, ultimately contributing to a more consistent and effective arbitration process.

[1] BEFORE THE HON’BLE SUPREME COURT

SLP (C) Nos.15336-15337/2021

Order dated 20th February, 2024

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