2024 (1) TMI 295 - SC - Indian Laws

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

S.V. SAMUDRAM Versus STATE OF KARNATAKA & ANR

SC set aside HC judgment that modified arbitral award. Lower court improperly re-appreciated evidence and modified award without identifying valid grounds ... Modification of the arbitral award as carried out by the learned Civil Judge as confirmed by the High Court - Whether the petitioner made out the proper grounds that the award passed by the arbitrator is not supported by sound reasonings and it is in arbitrary nature and it is liable to be set aside? HELD THAT:- In the instant case, the only provision under which the award could have been assailed was for it to have been in conflict with the public policy of India. A perusal of the judgment and order of the learned Civil Judge, in the considered view of this Court, does not reflect fidelity to the text of the statute. Nowhere does it stand explained, as to, under which ground(s) mentioned under Section 34 of the A&C Act, did the Court find sufficient reason to intervene. In fact, quite opposite thereto, the Court undertook a re-appreciation of the matter, and upon its own view of the evidence, modified the order. The reasons recorded by the learned Civil Judge for modifying the arbitral award, as reflected from a perusal thereof, have been recorded in an earlier section of the judgment. None of those reasons even so much as allude to the award being contrary to the public policy of India, which would enable the court to look into the merits of the award. The reasons assigned by the Court under Section 34 of the A &C Act, are totally extraneous to the controversy, to the lis between the parties and not borne out from the record. In fact, they are mutually contradictory. The award passed by the learned Arbitrator is “patently illegal, unreasonable, contrary to public policy.” There is no reason forthcoming as to how the holding of the learned Arbitrator flies in the face of public policy - it cannot be doubted that the Claimant-Appellant is entitled to interest. In the absence of compliance with the well laid out parameters and contours of both Section 34 and Section 37 of the A&C Act, the impugned judgement(s) are required to be set aside. Consequently, the award dated 18th February 2003 of the learned Arbitrator is restored, for any challenge thereto has failed. Appeal allowed. 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 AwardThe 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 AwardThe 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 ActThe 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 AmountThe 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.ConclusionThe 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.