Supreme Court restores arbitral award after lower court improperly modified it without valid Section 34 grounds

SC set aside HC judgment that modified arbitral award. Lower court improperly re-appreciated evidence and modified award without identifying valid grounds under Section 34 of Arbitration Act. Court found no basis for intervention as award was not contrary to public policy. Civil Judge's reasons were extraneous to controversy and mutually contradictory. Original arbitral award dated 18th February 2003 was restored as challenge failed to meet statutory requirements. Appeal allowed.

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Issues Involved:

1. Justification of High Court's confirmation of the modification of the arbitral award.
2. Legality of the Civil Judge's modification of the arbitral award.
3. Scope of interference with arbitral awards under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996.
4. Entitlement to interest on the awarded amount.

Summary:

Issue 1: Justification of High Court's Confirmation of the Modification of the Arbitral Award

The High Court confirmed the modification of the arbitral award by the learned Civil Judge, Sirsi, dismissing the application by the Claimant-Appellant. It observed that the primary dispute was regarding the grant of revised rates of the escalated cost of work. The High Court held that the Arbitrator's view that the Department was solely responsible for the breach of the contract could not be accepted as the shift in venue was only in respect of the residential quarters and not for the office complex. The estimation of cost based on the tender notification relating to the year 1989-90 was deemed exaggerated, and the quantification of damages was termed unreasonable and contrary to public policy.

Issue 2: Legality of the Civil Judge's Modification of the Arbitral Award

The learned Civil Judge, Sirsi, modified the award passed by the Arbitrator, reducing the amount awarded and the interest thereon. The reasons included the change in site being minor, the Claimant-Appellant not explaining the idleness of machinery, and the Claimant-Appellant being responsible for water facilities. The court found the award to be almost equal to the tender amount and the interest rate to be excessively high. However, the Supreme Court found these reasons extraneous to the controversy and contradictory, noting that the court undertook a re-appreciation of the matter, which is not permissible under Section 34 of the A&C Act.

Issue 3: Scope of Interference with Arbitral Awards under Sections 34 and 37 of the A&C Act

The Supreme Court emphasized that the scope of interference with arbitral awards under Sections 34 and 37 is limited. The court cannot modify an arbitral award; it can only set it aside if it is in conflict with the public policy of India. The Supreme Court referred to precedents, including National Highways Authority of India v. M. Hakeen and Another and Dakshin Haryana Bijli Vitran Nigam Limited v. Navigant Technologies Private Limited, reiterating that modification of an award is beyond the jurisdiction of the court under Section 34.

Issue 4: Entitlement to Interest on the Awarded Amount

The Arbitrator had awarded interest at 18% per annum, which was reduced to 9% by the courts below. The Supreme Court found no legal basis for this reduction and, in exercise of its powers under Article 142, deemed it appropriate to award interest at 9% per annum from the date of the award, pendente lite, and future, till the date of payment.

Conclusion

The Supreme Court set aside the judgments of the learned Civil Judge, Sirsi, and the High Court, restoring the award dated 18th February 2003 by the learned Arbitrator. The appeal was allowed with a direction to the State of Karnataka to expeditiously pay the awarded amount.

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