2021 (7) TMI 1343 - SC - Indian Laws

Supreme Court upholds Arbitration Act, restricts judicial interference in arbitral awards

PROJECT DIRECTOR, NATIONAL HIGHWAYS NO. 45 E AND 220 NATIONAL HIGHWAYS AUTHORITY OF INDIA Versus M. HAKEEM & ANR.

The Supreme Court dismissed the appeals, affirming that Section 34 of the Arbitration Act, 1996 does not empower courts to modify arbitral awards. The ... Interpretation of statute - Jurisdiction - power of a court to modify an award - whether the power of a court under Section 34 of the Arbitration and Conciliation Act, 1996 [Arbitration Act] to set aside an award of an arbitrator would include the power to modify such an award? - HELD THAT:- In the present case, a notification designating a Special District Revenue Officer as the competent authority has been made. The amount determined by the aforesaid authority has then to be sent to an arbitrator, on application by either of the parties. What is important to remember is that the aforesaid arbitration is not a consensual process with both parties having a hand in appointing the arbitrator. As a matter of fact, the land owner has no say in the appointment of the arbitrator, who is to be appointed only by the acquiring authority, that is the Central Government. It is settled law that a Section 34 proceeding does not contain any challenge on the merits of the award. There can be no doubt that given the law laid down by this Court, Section 34 of the Arbitration Act, 1996 cannot be held to include within it a power to modify an award. In KRISHNA BHAGYA JALA NIGAM LTD. VERSUS G. HARISCHANDRA REDDY & ANR. [2007 (1) TMI 498 - SUPREME COURT], a judgment of this Court referred to in para 36, this Court reduced the rate of interest for the pre-arbitration period, pendente lite and future interest. It also referred to a suggestion that a certain amount be reduced from the awarded amount from Rs.1.47 crores to Rs.1 crore, which the learned counsel for the respondent therein fairly accepted. Obviously, these orders were also made under Article 142 of the Constitution of India and do not carry the matter very much further. From these judgments, to deduce, in para 39, that the judicial trend appears to favour an interpretation which would read into Section 34 a power to modify, revise or vary an award is wholly incorrect. The observation found in McDermott’s decision clearly bound the learned Single Judge and any decision to the contrary would be incorrect. Given the fact that in several similar cases, the NHAI has allowed similarly situated persons to receive compensation at a much higher rate than awarded, and given the law laid down in NAGPUR IMPROVEMENT TRUST AND. VERSUS VITHAL RAO AND OTHERS [1972 (12) TMI 82 - SUPREME COURT], the jurisdiction under Article 136 is declined to be exercised in favour of the appellants on the facts of these cases. Also, given the fact that most of the awards in these cases were made 7-10 years ago, it would not, at this distance in time, be fair to send back these cases for a de novo start before the very arbitrator or some other arbitrator not consensually appointed, but appointed by the Central Government. Appeal dismissed. Issues Involved:1. Whether Section 34 of the Arbitration and Conciliation Act, 1996 includes the power to modify an arbitral award.2. Interpretation of the National Highways Act, 1956 in relation to the Arbitration Act, 1996.3. The scheme and legislative intent behind Section 34 of the Arbitration Act, 1996.4. Judicial precedents on the scope of Section 34 of the Arbitration Act, 1996.5. Application of purposive construction in statutory interpretation.6. The impact of non-challenge to the constitutional validity of the NH Amendment Act, 1997.7. Discrimination in compensation under different statutes for land acquisition.Detailed Analysis:1. Whether Section 34 of the Arbitration and Conciliation Act, 1996 includes the power to modify an arbitral award:The Supreme Court examined whether Section 34 of the Arbitration Act allows courts to modify arbitral awards. The judgment concluded that Section 34 does not confer any power to modify an award but only to set aside or remit it under specific circumstances. This conclusion aligns with the UNCITRAL Model Law on International Commercial Arbitration, which also does not permit modification of awards by courts.2. Interpretation of the National Highways Act, 1956 in relation to the Arbitration Act, 1996:The Court analyzed the National Highways Act, particularly Section 3G, which allows the determination of compensation by a competent authority and, if disputed, by an arbitrator appointed by the Central Government. The Court highlighted that this arbitration process is not consensual and differs from typical arbitrations under the Arbitration Act, 1996. Despite this, the limited grounds for challenging an award under Section 34 remain applicable.3. The scheme and legislative intent behind Section 34 of the Arbitration Act, 1996:Section 34 is designed to provide minimal judicial interference in arbitral awards, allowing courts only to set aside or remit awards on limited grounds. This legislative intent is to maintain the finality and expediency of arbitration, as opposed to the broader powers under the Arbitration Act, 1940, which included modification and correction of awards.4. Judicial precedents on the scope of Section 34 of the Arbitration Act, 1996:The judgment referenced several Supreme Court decisions, including McDermott International Inc. v. Burn Standard Co. Ltd., which established that courts cannot correct errors of arbitrators but can only set aside awards, leaving parties to begin arbitration anew if desired. This principle was reaffirmed in subsequent cases like Kinnari Mullick v. Ghanshyam Das Damani and Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies Pvt. Ltd.5. Application of purposive construction in statutory interpretation:The Court discussed the limits of purposive construction, emphasizing that while statutes should be interpreted to fulfill legislative intent, this should not extend to judicially creating powers not explicitly provided by the legislature. The judgment cautioned against crossing the 'Lakshman Rekha' by judicially adding the power to modify awards into Section 34.6. The impact of non-challenge to the constitutional validity of the NH Amendment Act, 1997:The Court noted that the constitutional validity of the NH Amendment Act, 1997, was not challenged in the present case. Therefore, despite recognizing the potential for grave injustice due to the perverse basis of compensation awards by government-appointed arbitrators, the Court refrained from making broader declarations about the Act's validity.7. Discrimination in compensation under different statutes for land acquisition:The Court highlighted the potential for discrimination when different compensation regimes apply under the National Highways Act and the Land Acquisition Act. It referenced the Nagpur Improvement Trust case, which held that different compensation principles for different public purposes or acquiring authorities are impermissible under Article 14 of the Constitution. The judgment underscored that differential treatment in compensation based on the statute under which land is acquired is not justifiable.Conclusion:The appeals were dismissed on facts, with the Supreme Court affirming that Section 34 of the Arbitration Act, 1996, does not include the power to modify arbitral awards. The Court recognized the potential for injustice in the current statutory framework but emphasized that any change must come from legislative amendment rather than judicial interpretation.