To modify or not: The peculiarities of the reference order
While the country continues to pay undue attention to Ranveer Allahbadiya’s comments on India’s Got Latent, a 5-judge bench of the Supreme Court is deciding an important question: whether or not in the exercise of powers under Section 34 of the Arbitration and Conciliation Act, 1996, courts are empowered to modify an arbitral award? Modify here means to substitute the court’s own decisions for the decision made by the arbitrator on any given claim.
There are competing interests before the 5-judge bench. Those who argue that the courts cannot modify an award say that: a) the language of Section 34 permits courts only to set aside an award, that is get rid of it in its entirety; and b) the Act intends to minimise judicial intervention, and if courts could modify awards, courts would exercise powers expressly conferred by parties to a tribunal. The argument against this is that – a) the power to set aside in Section 34 necessarily includes the power to modify; and b) the Act intends to provide finality to disputes and if the courts can only set aside awards, the only recourse is to restart from ground zero. As a senior counsel for the latter camp pithily pointed out even if a claimant is successful in Section 34, ‘the best result he can get is to restart the arbitration.’ As is evident, the battle before the Constitution Bench is being fought on two fronts – literal and purposive. The literal aspect is how one interprets Section 34(2)(a) which says that an arbitral award ‘may be set aside by the Court only if -’. The purposive aspect – which may determine how you would interpret Section 34(2)(a) – is what value you place a premium upon: those arguing that courts should not modify awards believe in party autonomy as they say that courts should not substitute the tribunal’s view even at the cost of providing finality to disputes.
This post’s purpose is not to provide my view on which camp is right but to make sense of how a 5-judge bench has come to adjudicate this issue. This is relevant because typically a case is referred to as a larger bench when co-ordinate benches of the court take contrary views on a question of law. Here, a crucial question of law has been referred to a larger bench even though no bench specifically disagreed with the dictum in Project Director NHAI v. M. Hakeem. For completion, it is important to note that M. Hakeem had held that courts do not have any power to modify an award under Section 34 of the Act. Hakeem has since been followed by Larsen Air Conditioning and Refrigeration Company, and SV Samudram. Thus, the argument that the language of Section 34 permits courts only to set aside an award, has received express judicial approval; on the contrary, the opposite argument, to the best of my knowledge, has never been expressly adopted by any court.
This peculiarity is apparent from a careful reading of the reference order in Gayatri Balasamy v. M/s ISG Novasoft Technologies limited:
2. 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 is a question which frequently arises in proceedings not only before this Court but also before the High Courts and the District Courts. While one line of decisions of this 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.
Thus, while one line of Supreme Court decisions (Hakeem onwards) authoritatively said that courts should not modify awards, the other proceeded to modify awards without delving into whether they had the power to do so. The reference order in Gayatri Balasamy, lists several cases in the latter category. Amongst them, Vedanta Limited and Oriental Structures are cases where arbitral tribunals had awarded a particular interest rate, which the Supreme Court deemed excessive. As such, the Court modified the interest granted by the tribunal to a more equitable sum. In Tata Hydroelectric, the Supreme Court did not modify the interest rate but changed the date from which it should be levied. In M.P. Power Generation, the Supreme Court reduced the entitlement of a party under an award as it was not entitled to certain bank guarantees which were towards amounts advanced by the other side. Shakti Nath is a case where the Supreme Court modified with the consent of parties the amount awarded by the tribunal towards interests. Peculiarly, J.C Bhudhraja is a case under the 1940 Act where the court did not even modify an award but partially set aside that portion of the award which could be severed from the rest.
None of the cases mentioned above explain what power the Supreme Court exercised to modify arbitral awards. Presumably, the Supreme Court was exercising its plenary powers under Article 142 of the Constitution of India as M. Hakeem is clear that the power to modify does not exist under the Arbitration Act. The absence of a judicial voice contrary to M. Hakeem makes the order in Gayatri Balasamy, peculiar. This does not mean that the reference was not otherwise justified. The position that had emerged after M. Hakeem was that High Courts and Civil Courts across the country which deal with Section 34 applications at the first instance, could not modify awards. Only the Supreme Court could exercise its god-like powers to remedy the hardship caused by arbitral awards. This has led many parties to approach the Supreme Court for one last bite at the cherry. The problem is that there is a high degree of uncertainty regarding when, how or why the Supreme Court exercises its equitable powers under Article 142. What may be equitable for one bench of the Supreme Court, may not be for another. Therefore, the limited submission in this post is that if the 5-judge bench affirms the view in M. Hakeem, it should either provide guidance on when the Supreme Court should modify awards under Article 142 or close that source of discretion altogether.
