Court’s power to modify an arbitral award | Day 2: Respondents and intervenors argue that the power is inherent under Section 34

Datar: Section 34 cannot be interpreted rigidly 

Continuing his arguments from last week, Datar submitted that Section 34 needed to be interpreted with flexibility. “The word ‘set aside’ cannot be given such a rigid meaning as to make it inflexible,” he said, arguing that the “smaller” power to modify an award must be read into the “larger” power to set aside. 

He contended that a court had inherent powers under Section 34. The limitations on this power were imposed by the two explanations under sub-section 2 and the Court’s power to remit an award under sub-section 4. 

Explanation 1 of sub-section 2 clarifies when an award is “in conflict with public policy”. These grounds include: 

1. The award was made or affected by fraud or corruption or was in violation of section 75 or section 81; or
2. It is in contravention of the fundamental policy of Indian law; or 
3. It conflicts with the most basic notions of morality or justice. 

Explanation 2 states that while testing if an award is contrary to Indian law, the Court “shall not entail a review on the merits of the dispute.” 

Section 34(4) states that the Court can remit an award only when a party has made an application seeking the same. Therefore, it could modify an award as long as it did not breach these powers. 

To buttress his point further, Datar stated that the phrase “court” under Section 34 could also mean a Civil Court. He pointed out that while in states like Bombay and Delhi, parties typically approached the High Courts, in states like Karnataka and Andhra Pradesh, parties approached the Principal Judge of the City Civil Court. In this context, he highlighted that under Section 151 of the Code of Civil Procedure (CPC), the Civil Courts had wide, inherent jurisdiction to pass any order. 

In the previous hearing, Datar had recommended that the Court add a couple of words to Section 34 to recognise the power to modify an award. He reiterated the same by quoting the words of Lord Denning from Seaford Court Estates Ltd. v Asher (1949):

“The English language is not an instrument of mathematical precision. Our literature would be much the poorer if it were….It would certainly save the Judges trouble if Acts of Parliament were drafted with divine prescience and perfect clarity. In the absence of it, when a defect appears a Judge cannot simply fold his hands and blame the draftsman. He must set to work on the constructive task of finding the intention of Parliament, and he must do this not only from the language of the statute, but also from a consideration of the social conditions which give rise to it…”

Khambata: Not allowing courts to modify an award is contrary to the intention of the Act 

Khambata hinged his argument on the intent of the Arbitration Act—to provide speedy, efficient and final resolution of disputes. Several provisions of the Act, he said, had made these intentions clear. In this context, curtailing a court’s powers to just remitting or setting aside, went against this intention as it further delayed the proceedings. 

Relying on the doctrines of moulding relief and implied power, he reiterated Datar’s argument that the power to set aside included the power to partially set aside—the smaller power is subsumed under the larger power. In this context, he argued that if the larger power to “annul” an award exists, then the smaller power to “modify” also exists within the contours of Section 34. Severability itself, he said, was a form of modification.

Moreover, he submitted that the Court did not need to add any words to the provision in order to recognise its power to modify. He pointed out that when a Court set aside an award because of some fault, it would also inevitably arrive at what it considered was the correct position. Therefore, it could modify the award to that extent without sending it back to the tribunal. 

He stressed that recognising such a power would not open the floodgates to excessive litigation, as Section 34 itself contained restrictions on such a power. When the bench enquired where a limitation on the court’s power could be drawn, Khambata suggested that the power be restricted to cases where there is patent illegality. 

He relied on Oil & Natural Gas Corpn. Ltd v Western Geco International Ltd (2014), where it was held that if an award was challenged on the ground that it was inconsistent with the policy of Indian law, it could be “cast away or modified depending upon whether the offending part is or is not severable from the rest.”

Khambata also submitted that if the legislature had intended to deny courts the power to modify an award, they would have created a specific provision in the manner a jurisdiction like Singapore has done. He reiterated that the power under the provision was a “recourse” against an award and did not merely mean the power to annul. 

Rai: Tribunal’s power under 34(4) stands on a different plane than Court’s power to modify

Addressing the bench after lunch, Rai argued that the Court had upheld the modification in  The Project Director National Highways v M. Hakeem (2021) even as it noted that an award could not be modified. 

Rai then responded to the argument that the Court could not modify an award because the tribunal already had that power once an award was remitted to it under Section 34(4). He submitted that this argument could not be accepted as it wrongly accorded the tribunal with the power to modify its award, when in fact, all it was empowered to do is “cure its defects of reasoning”—the tribunal could not change the “end decision of the award.” 

He relied on I Pay Clearing Services Private Limited vs Icici Bank (2022) to support his point that the power “conferred under Section 34(4) of the Act, is to be exercised where there is inadequate reasoning or to fill up the gaps in the reasoning, in support of the findings which are already recorded in the award….” Therefore, the tribunal could not modify an award under this provision. 

He added that the Court’s power to modify would be limited. “Modification under 34 is permissible only in situations where the Court is not supplanting the role of the arbitrator,” he said. The Court could not, for instance, review the case on merits. 

Naphade: A rigid interpretation of Section 34 is violative of Article 14

Senior Advocate Shekhar Naphade highlighted the several forms of arbitration that existed—voluntary, non-voluntary, statutory, commercial, domestic, international etc. Citing the specific example of the National Highways Act, he highlighted that the legislation mandated arbitration under Section 3G(5). This legislation, he explained, touched upon matters of public administration as it dealt with the government’s acquisition of land for the construction of highways. The Arbitration Act, on the other hand, dealt with commercial arbitration.

The two forms could not be treated the same way. Therefore, it was crucial to have a flexible understanding of Section 34. He suggested that if the principle that courts could not modify an award was accepted and was applied equally to commercial arbitration (which was a voluntary process) and statutory arbitration (which was involuntary), it would lead to an absurd outcome and violate Article 14 by treating equally two instances which stand on a different footing. 

He gave the following example of two landowners whose property had been acquired for highway construction. If each of them was paid a different amount of compensation and the court had no power to modify an award, then the disadvantaged party would have to go back and forth between the court and the tribunal. This, he said, would defeat the objective of speedy dispute resolution. 

Further, like the other counsels on the respondents’ side, Naphade also submitted that the court had inherent powers under the provision. Any limitation on such power had to be specified under the provision. If such a limitation was not imposed, then the court could pass any order to meet the ends of justice. 

Other arguments

Advocate Vaibhav Dane, appearing for one of the intervenors, added that the process of remitting under Section 34(4) was long and expensive. The court had to be conferred the power to modify an award to ensure the objectives of the Act were met. 

Senior Advocates Sumeet Pushkarna and Prashanto Chandra Sen also made fleeting submissions on the respondents’ side. The bench refused to entertain Pushkarna’s suggestion that the Court’s power under Section 37 of the Arbitration Act was wider than its power under Section 34. 

Arguments in the case will resume on Wednesday 19 February 2025.