[Pallavi Mishra and Drishti Rajain are advocates practicing in the Delhi High Court]
While the law has been settled by the Supreme Court (“SC”) in The Project Director, National v. M Hakeem (“M. Hakeem”) and affirmed in NHAI v. P. Nagaraju (“P. Nagaraju”) with respect to the lack of court’s jurisdiction to “modify” an arbitral award, the recent line of judgements rendered by the High Courts (discussed below) have drawn a parallel between ‘modification’ and ‘partial setting aside’ of the award – re-igniting the debate over a civil court’s jurisdiction to interfere in the arbitral process. The post attempts to analyse the emergence of a ‘new’ position post M. Hakeem, inter alia distinguishing the scope of modification vis-à-vis partial setting aside of an arbitral award to comprehend: (i) whether the latter does in fact form a subset of modification and the High Courts have erred in unsettling the law established by the SC and, (ii) the permissibility of ‘partial setting aside’ of an arbitral award within the restricted scope of section 34, Arbitration and Conciliation Act, 1996 (“the A&C Act”).
Brief overview of principles in question
A bare perusal of section 34 postulates that the inherent powers of reviewing vested in an appellate court have been specifically restricted by the statute with respect to a challenge to the arbitral award. While adjudicating upon the interpretation of section 34 in McDermott International Inc. v. Burn Standard Co. Ltd. (“McDermott”), the SC held that court’s power under section 34 of the A&C Act is limited to either setting aside the award or remitting the award to the arbitrator under section 34(4) to eliminate any grounds of challenge to the award. Besides and in addition to section 34(2), the 2015 Amendment introduced ‘patent illegality’ [section 34(2A)] as a ‘narrow’ ground to set aside the award in domestic arbitrations, if found contrary to the substantive provisions of A&C Act or terms of the contract. As a matter of law, upon setting aside of the award, the parties are placed in a position to agitate the issues ad nauseum even on the aspects of award neither challenged nor expressly set aside by the court under section 34 petition. The precedent laid down in McDermott stating that the courts have a limited supervisory role were affirmed in Kinnari Mullick v. Ghanshyam Das Damani and Dyna Technologies Pvt. Ltd v. Crompton Greaves Ltd.
In the recent case of M. Hakeem, the bench upon perusal of the above-stated judgements inter alia acknowledged the divergent views on the point of court’s power to “modify, vary or remit” the award, and specifically engaged with contradictory views to lay down a determinative approach to foster unanimity on this aspect. M. Hakeem went on to particularly overrule the judgement rendered by a Single Bench of the Madras High Court in Gayatri Balaswamy v. ISG Novasoft Technologies Ltd. (as was heavily relied upon by the Respondent) on grounds of inconsistency with McDermott, thereby laying down an instructive precedent against modification of arbitral award. The judgement rendered in M. Hakeem and concurred by division bench in P. Nagaraju to this extent affixes a seal on the irresistible conclusion that intervention of the court under the A&C Act is restricted to either setting it aside or remitting it to the arbitrator to the extent necessary for elimination of the defects therein.
However, the common central question unanswered/untouched by these judgements revolves around comprehending as to whether partial rejection of a severable part of an award constitutes excessive judicial interference pursuant to the strict caution against ‘modification’ as laid down by M. Hakeem and P. Nagaraju.
Position taken by the High Courts at Delhi, Kerala and Bombay
The recent line of judgements delivered by the High Courts at Delhi, Kerala and Bombay in the last few months, have attempted to carve out an exception to ‘modification’ or rather, distinguish modification from ‘partial setting aside’ of an award. The latest judgement delivered by Single Bench of the Delhi High Court in Union of India v. Alcon Builders and Engineers Pvt. Ltd. considered this question in context of a dispute comprising multiple claims decided by the arbitrator, wherein each claim stood separate and distinct from the other. The Court placed reliance on SC’s ratio in JG Engineers Pvt. Ltd. v. Union of India where the Division Bench had held that “the court will segregate the award on items which (do) not suffer from any infirmity and uphold the award to that extent.…”. Following this precedent, the Learned Single Judge rendered a finding that the award in question was capable of being partly set aside solely on the aspect of ‘pendente-lite interests and costs’ and such partial setting aside of the award would not amount to modification. The Court while partly setting aside the award recorded that the same is in-line with the overarching principle of minimal judicial interference contemplated under the A&C Act.
In National Highways Authority of India v. The Additional Commissioner the Bombay High Court addressed the question concerning whether the Court is mandatorily required to wholly set aside the award even when convinced that the error has been committed only on specific issues, barring which the award would stand sustainable. The Court while answering in negative, distinguished the ratio in M. Hakeem stating that the precedent was not ‘directly relevant’ for the issue of whether an award can be set aside partly. The Court relied on the ratio of the Full Bench of Bombay High Court rendered in RS Jiwani (M/S.) v. Ircon International Ltd. which squarely dealt with the application of doctrine of severability to arbitral award and observed that if “partial challenge to an award is permissible then why not partial setting aside of an award.”
Lastly, the final judgement (as on date of writing this post) on this point emerges from the Division Bench of the Kerala High Court in Navayuga Engineering Company Ltd. v. Union of India where preliminary objections were raised on maintainability of the petition on grounds of ‘partial setting aside’ of the award by the District Court. The Kerala High Court negatived the objections on the reasoning that setting aside claims in the award which did not suffer from any infirmities would result in ‘gross injustice and absurd results’, which could not have possibly been contemplated by the Legislature.
Before delving into analysis, at the outset, it is necessary to separate the facts of M. Hakeem which categorically dealt with inter-dependent claims pertaining to award of inadequate compensation for land acquisition and did not in fact have any scope for possible severing of claims for partial setting aside. Keeping this in view, what appears is that M. Hakeem actually remains silent on whether there is any bar under section 34 in applying doctrine of severability to arbitral awards consisting of multiple claims eventually leading to ‘partial setting aside’ of the award. Proceeding on this premise, it will not be incorrect to state that the High Courts have not erred in drawing a parallel between M. Hakeem and other cases at hand.
The authors acknowledge that in MBL Infrastructures Ltd. v. Telecommunication Consultants of India, a Division Bench of the Delhi High Court had stated that the award is to be set aside as a ‘whole’, however, the same is particular to the peculiar facts and context of that case, wherein the Learned Single Judge had proceeded to correct the errors of the award which, undisputedly cannot be done under section 34. However, the Division Bench abstained from expressing any opinion on the question of setting aside some claims (without modifying the findings) in contrast to all claims comprising the award under section 34 of the A&C Act. Thus, similarly to M. Hakeem, the dictum does not directly address the issue in question.
Besides the conundrum of judicial precedents, it is important to peruse the language of section 34, a bare reading of which does not admit of any limitation to divest the Court of the power to ‘partially set aside’ an award on claims which are separate and distinct from each-other. The court in doing so is neither correcting nor amending the findings on merits of the case, hence the question of ‘modification’ – even in its widest connotation does not arise. In authors’ view, to state that the judgements of the High Courts have been rendered per incuriam to the precedent laid down in M. Hakeem et al. would be an argument on the surface, bereft of merit due to its failure to capture the true legislative intent and interpretation of the provisions of the A&C Act. It is clear that severability is not a new issue and has been considered by precedents prior to M. Hakeem. Purely on the aspect of equity as well, it would be unjust to deny the benefits accrued upon the parties by not applying the doctrine of severability if some part of the award is unsustainable and while the other part is found to be good and enforceable in law by the court. The word “set aside” appearing in section 34(2) cannot be narrowly construed to imply setting aside the award ‘wholly’ to prejudice the discretion vested in the court supported by the fact that the very purpose and object underlying the A&C Act is to provide for a speedy mechanism for adjudication of disputes. Such object would stand frustrated if each time the parties are forced to agitate the issues which did not in fact suffer from infirmities. It could not have been the intent of the legislature to direct the parties to undertake multiple rounds of litigation on already settled claims. Neither the Model Law nor section 34 (pari materia to Model Law) contemplate barring the court’s jurisdiction in applying doctrine of severability which is a fundamental judicial expression to minimise elongation of litigious processes.
At this juncture, given the new dimension of judgements rendered by various High Courts, it is fairly evident to state that ‘modification’ and ‘partial setting aside of the award’ are not two sides of the same coin, and operate on distinct levels within the challenge made under section 34. In case a particular claim within the arbitral award remains undisturbed or confirmed by the court, it is necessary to exercise caution against setting aside findings which are resultantly undisputed between the parties.
Keeping up with its previous judicial trends, question remains that if in later judgements the SC concludes that partial setting aside of the award does in fact form a subset of modification, a valid scope remains open for legislative amendment to carve out an exception for partial setting aside of the award to save the parties from re-agitating issues that neither stand nor fall – in other words – remain severable and unchallenged by consensus. Parallel yet similar to the issue discussed in this post, guidance is drawn from Sssangyong Engineering & Construction Co. Ltd. v. NHAI where the SC had exercised wide powers under Article 142 to uphold and apply the formula of compensation rendered by the minority award. It is desirable that instead of utilising the jurisdiction of the SC under Article 142, an amendment to clarify the position on “partial setting aside” of award is introduced in A&C Act, given its self-contained nature. Extensive guidance can be drawn from the jurisdictions of England, United States and Canada concerning the powers of a court to modify an award (as to whether partial setting aside forms subset of modification), if at all considerations of amendment to scope of section 34 remain valid in the coming times. Moreover, given the differing positions taken in various above-stated judgements, it is desirous for a larger bench to settle the difference between “modification” and “partial setting aside” of the arbitral award under section 34 of the A&C Act.
– Pallavi Mishra and Drishti Rajain