2019 (8) TMI 1923 - HC - Indian Laws

Courts can modify arbitral awards under Section 34 when contrary to evidence or public policy

The Madras HC ruled that courts possess power under Section 34 of the Arbitration and Conciliation Act, 1996 to modify arbitral awards when contrary to ... Enhancement of compensation - Section 34 of The Arbitration and Conciliation Act, 1996 - whether the Court, in exercise of power under Section 34 of the Act is entitled to modify or vary the award passed by the Arbitrator? - HELD THAT:- A reasonable interpretation to Section 34 would only lead to an irresistible conclusion that the Court can modify or vary the award of the arbitrator if it is contrary to the material evidence adduced by the parties. Even otherwise, as contemplated under Section 34 (2) (v) (b) (ii) of the Act, when the award passed by the Arbitrator is in conflict with the public policy in our Country, reversal or modification of such award passed by the arbitrator is well within the provisions contained under Section 34 of the Act itself. In the present case, as rightly observed by the learned single Judge, the non-constitution of a committee as per the direction of the Honourable Supreme Court in Vishaka case [1997 (8) TMI 456 - SUPREME COURT] is to be regarded as a statutory violation and contravention of public policy prevailing in India and therefore, the appellant is entitled for a just and fair compensation. The learned single Judge, having held that the Court is empowered to modify or vary the award passed by the arbitrator, rightly, proceeded to conclude as to what would be the compensation payable to the appellant under claim No. 12. In order to arrive at the quantum of compensation the learned single Judge proceeded to discuss the material evidence available to conclude that there is a breach on the part of the Management in not constituting a committee. The learned single Judge has not made any arithmetical calculation while awarding compensation under Claim No. 12. Even though the learned Arbitrator has awarded a sum of Rs. 2 crores under Claim No. 3 towards severance compensation, the learned single Judge proceeded to award a sum of Rs. 1,68,00,000/- towards non-constitution of a committee as directed by the Honourable Supreme Court in Vishaka case. The Court, in exercise of jurisdiction under Section 34 of the Arbitration and Conciliation Act, 1996 shall vary or modify the amount awarded without disturbing the factual finding and such a course is legally permissible under Section 34 of the said Act. Conclusion - The learned single Judge awarded Rs. 1,68,00,000/- for the non-constitution of a committee under the Vishaka guidelines, emphasizing the employer's obligation to provide a safe working environment. The appellate court found this amount excessive and reduced it to Rs. 50,000/-, deeming it a fair and reasonable compensation. Appeal allowed in part. 1. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment include:Whether the rejection of certain claims by the arbitrator was justified, particularly claims related to non-revision of salary, non-relocation to the USA, non-compliance with termination procedures, failure to provide stock options, loss of employment opportunity, and non-constitution of a committee to inquire into allegations of sexual harassment.Whether the learned single Judge had the authority to modify the arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996.Whether the compensation awarded for the non-constitution of a committee as per the Vishaka guidelines was appropriate.2. ISSUE-WISE DETAILED ANALYSISNon-revision of Salary and Non-relocation to the USAThe appellant claimed damages for non-revision of salary and non-relocation to the USA as per the employment agreement. The arbitrator found no breach by the employer, as the appellant herself had agreed to postpone relocation. The learned single Judge concurred, noting that the appellant's own communications indicated her willingness to remain in India.Non-compliance with Termination ProceduresThe appellant argued that the termination procedures outlined in the employment agreement were not followed. The arbitrator and the learned single Judge found that the management had complied by offering four months' salary in lieu of notice, as per the agreement. Thus, the rejection of this claim was upheld.Failure to Provide Stock OptionsThe appellant claimed damages for the failure to provide stock options. The arbitrator and the learned single Judge found that no such scheme was in place, and the employment agreement did not specify any enforceable stock option rights. Therefore, this claim was rejected.Loss of Employment OpportunityThe appellant sought compensation for loss of employment opportunity due to her termination. The arbitrator and the learned single Judge found no evidence that the appellant was unreasonably prevented from seeking other employment. The claim was dismissed due to lack of supporting evidence.Non-constitution of a Committee for Sexual Harassment AllegationsThe appellant argued that the failure to constitute a committee as per the Vishaka guidelines caused her prejudice. The arbitrator dismissed this claim, suggesting that the appellant did not prove any injury resulting from the alleged harassment. The learned single Judge disagreed, finding the arbitrator's reasoning flawed and awarding compensation. The Judge emphasized the mandatory nature of the Vishaka guidelines and the public policy implications of non-compliance.3. SIGNIFICANT HOLDINGSAuthority to Modify Arbitral AwardsThe learned single Judge held that courts have the authority to modify arbitral awards under Section 34 of the Arbitration and Conciliation Act, 1996, particularly when an award conflicts with public policy. This interpretation was supported by precedents from the Supreme Court, which allowed modifications in certain circumstances.Compensation for Non-constitution of a CommitteeThe learned single Judge awarded Rs. 1,68,00,000/- for the non-constitution of a committee under the Vishaka guidelines, emphasizing the employer's obligation to provide a safe working environment. However, the appellate court found this amount excessive and reduced it to Rs. 50,000/-, deeming it a fair and reasonable compensation.Final DeterminationsThe appellate court confirmed the learned single Judge's judgment, except for modifying the compensation amount for the non-constitution of a committee. The appellant's claims for additional compensation were dismissed, and the first respondent's appeal was partly allowed to the extent of reducing the compensation awarded under Claim No. 12.