 "Can courts modify/junk arbitral awards? Here's what experts have to say")
Allowing courts to modify awards arising out of arbitration could expedite dispute resolution, but it might also undermine their finality, say experts.
This is in context of the Supreme Court recently referring to a larger Bench the issue of the powers of courts to modify and/or partially set aside an arbitral award.
The matter falls under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996.
The court was hearing the plea that arose from the decisions of the Madras High Court under Section 37 in the matter of “Gayatri Balasamy Vs ISG Novasoft Technologies Ltd”.
“Earlier, parties had to initiate arbitration proceedings de novo if the award was set aside. If the Supreme Court holds that awards can be modified, it would save time and cost for parties that opt for arbitration,” said Abhinay Sharma, managing partner, ASL Partners.
Courts have taken divergent positions on this despite the judgment of the Supreme Court in “Project Director, NHAI v. M. Hakeem”, where it was categorically held the powers to modify an award did not fall within the permissible contours of Section 34. It was further held that modifying an award under Section 34 was tantamount to crossing the “Lakshman rekha” since the Section did not confer such powers.
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Despite the judgment in the “Hakeem” case, it was discerned that courts in India resorted to partially setting aside arbitral awards where certain parts of those were concerned.
“The rationale behind partially setting aside an award was rooted in the reasoning that courts could do this based on the doctrine of severability. In this light, the Supreme Court has referred the broader question -- ‘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’ -- to be decided by a larger Bench and settle this grey area,” said Sameer Jain, managing partner, PSL Advocates & Solicitors.
The Delhi High Court, however, in “National Highways Authority of India v. Trichy Thanjavur Expressway Limited”, held there was no prohibition on partially setting aside an award and this would not run contrary to the position of the law laid in the judgment of “Hakeem”.
“Since the avenues to set aside an award remain extremely limited – and this forms the bedrock of India’s pro-arbitration approach -- the Supreme Court ought to lay down a clear threshold for courts to follow,” Jain said.
“The impact could be a double-edged sword. Should it be held that an award (or part thereof) cannot be modified, awards would be final and binding with limited scope for interference. Thence, the sanctity and independence of arbitration proceedings shall continue to prevail,” said Shiv Sapra, partner, Kochhar & Co.
If modification is held to be permissible, parties would be armed with a second round of litigation because courts, under Section 34, may need to delve into the merits of the matter (or at least parts of it) to ascertain the extent of the modifications required, Sapra said.
“As of now, courts refrain from going into the merits on which the award came to be passed, thereby recognising the independence and impartiality of arbitrators,” he added.
Nikhil Varma, managing partner, MVAC Advocates & Consultants said, allowing courts to modify awards could prevent parties from being subjected to further lengthy proceedings. “However, it also opens the door to potential abuse of power,” he said.
Gayatri Balasamy was represented by advocates from Karanjawala & Co. law firm.