[Aditi is a student at NALSAR University of Law.]
Section 34 of the Arbitration and Conciliation Act 1996 (Act) permits parties to file an application in the court for setting aside an arbitral award under a few listed circumstances. However, the courts are not expressly granted the power to modify an arbitral award.
This has led to the Supreme Court delivering contradictory judgments on the issue. In cases such as NHAI v. M Hakeem (Hakeem) and Sangyoung Construction v. NHAI, the court has ruled that Sections 34 and 37 of the Act do not grant modification powers to the courts. On the other hand, it has permitted modification of awards in Vedanta Limited v. Shenzden Shandong Construction Company, and Oriental Structural Engineers v. State of Kerala. The above controversy is set to be settled by the court in the case of Gayatri Balasamy v. ISG Novasoft Technologies.
This article attempts to first decipher the current legal position on the modification of awards, and the implications of such a law. Thereafter, it discusses the shortcomings of the most frequently suggested proposal of legislative amendment that current scholarship offers. Lastly, it proposes a few alternative solutions such as partial setting-aside of awards and an opt-in facility for award-rectification.
Interpretation of Section 34 Excludes Modification
The Act has expressly omitted the inclusion of a provision for modification of awards, as was present in Section 15 of the Arbitration Act 1940. In Arakhita v. Revenue Officer, it was recognized that an amendment to a statute is indicative of the legislative intent.
Moreover, Section 34 uses the words ‘setting aside’ of arbitral award. When the words used in a statute indicate only a single meaning, then the court cannot construe the statute on its own notion of what ought to be enacted.[1] In Padama Sundara v. State of Tamil Nadu, the court held that when exact and precise words are used, they indicate the intent of the legislature.
Hence, the intent of the legislature was clearly to exclude the power of modification of arbitral awards from the ambit of the courts. The Supreme Court, in Hakeem, also acknowledged that the legislative intent of ‘minimum judicial interference’ only permitted the setting aside, and not modification of arbitral awards.
Furthermore the preamble of a statute can be used to understand its meaning since it reflects the general objective and intention of the legislature.[2] The preamble of the Act specifically mentions that the intention of the legislature is to frame the statute in consonance with the UNCITRAL Model Law on International Commercial Arbitration (Model Law). The Model Law does not envision the modification of a tribunal’s decision.[3] Article 5 of the Model Law states that courts may only intervene in matters that the Model Law specifically provides for. Even in cases where critical pieces of evidence and information have been overlooked by the tribunal, only an annulment and not a modification of the award is permitted.
Implications
According to the doctrine of functus officio, the authority of an arbitrator ceases once they have rendered the award. An exception to this doctrine lies in Section 33 of the Act, which permits the tribunal to correct its awards in the limited cases of computation, clerical or typographical errors. This provision is in pari materia with Article 33 of the Model Law, and follows the approach adopted by 2021 ICC Rules and 2021 UNCITRAL Rules. Hence, in cases where the tribunal has made a substantive error in assessing the facts or the law, neither the tribunal nor the court has the power to rectify such error through modification of the award. The only recourse with the court is setting aside the award, which would consequently result in a new arbitration proceeding being instituted. This often results in substantial increase in both the time and cost of the proceedings, thereby being antithetical to the purpose of arbitration.
Another significant implication of the absence of modification powers is the staggering rate at which the courts set aside arbitral awards. This is because even in cases of minor substantive errors, the court cannot modify the award. An empirical analysis shows that the Delhi High Court set aside 36% of the awards that were brought before it in the first 3 months of 2020. Similarly, the Bombay High Court set aside 31% of the awards during the same time period. These rates are considerably higher than that of most other jurisdictions.
Solutions
The Vishwanathan Committee Report suggests that the courts should be vested with the power to modify arbitral awards to meet the ends of justice. Such a proposal is in line with the international practice of vesting in the courts the powers to modify. For instance, Sections 67 and 69 of the Arbitration Act of the United Kingdom and Section 49 of the Arbitration Act of Singapore vest modification powers in the hands of the court. Furthermore, existing literature on the subject primarily advocates for a legislative amendment to include the powers of modification within the ambit of the Act. However, granting the courts the power to modify arbitral awards may in some cases lead to the principle of ‘integrity of the arbitral process’ being compromised. This is because by granting the courts the power to change the final decision made by a tribunal, the authority of the tribunal might be undermined. Therefore, the following alternatives are proposed to deal with the implications of the limited scope of Section 34.
Partial setting-aside of the award
The courts could be granted the power to partially set-aside awards, when the defective portion is severable from the rest of the award. Such an approach was encouraged by the Supreme Court in JG Engineers v. Union of India. This would ensure that the parties only require a second round of arbitration for the portion of the award that was erroneous, and not for matters that were correctly decided. Such a solution would help maintain efficacy and efficiency of arbitral awards, as well as help maintain the integrity of the arbitral process.
Opt-in facility for award-rectification
The Arbitration Committee of NYC Bar Association has published a report titled “The Functus Officio Problem in Modern Arbitration and a Proposed Solution”. It proposes a mechanism of award rectification which can be availed by the parties on an opt-in basis. Such an agreement between the parties would permit the tribunal itself to correct any error in their award due to a mistake of fact or law, but within an extremely limited timeframe. Such a solution seems viable since it promotes the arbitral value of party autonomy, by vesting in the parties the power to willingly opt-in to an agreement, where the tribunal has the power to modify its award. Hence, the introduction of such a provision in the Act may solve the implications arising out of the limited ambit of Section 34.
Such a solution must be distinguished from the approach adopted by American courts in cases such as Syncor International Corp. v. David McLeland. In this case the court opined that the parties, through an agreement, can choose to expand the scope of judicial review of the decision of the tribunal. Hence, the court modified the award on substantive grounds. However, such an approach essentially leads to diminution of the integrity of the arbitral process, by permitting the court to have an extremely wide control over the award of a tribunal. This clash between the values of ‘party autonomy’ and ‘integrity of the arbitral process’ can be prevented if the tribunal itself is given the power to modify its award within a limited timeframe.
Conclusion
Section 34 of the Act favours an interpretation which denies the power of modification of arbitral awards to the court. However, this limitation of the power of the courts has presented significant problems such as a new arbitral proceeding being initiated even in cases of minor errors, thereby increasing time and cost for the parties. Furthermore, the frequency with which the courts set aside awards, tarnishes India’s image as a global arbitration hub.
The simplest method of remedying such a situation would be an amendment to Section 34, expanding the court’s power and permitting modification of awards. However, this may present another problem where by changing the final decision of the tribunal, the court compromises on the value of integrity of the arbitral process. Instead, the court could be granted the power to partially set aside an award, when the defective part is severable from the rest of the award. Another possible solution could be an opt-in facility through which the parties expressly permit the tribunal to rectify its award. Both these solutions would ensure that the efficiency and integrity of the arbitral process is maintained.
[1] NS Bindra, Interpretation of Statutes 16 (Amita Dhanda ed., 2016).
[2] Peter Benson Maxwell, On the Interpretation of Statutes 46 (W. Maxwell & Son 2010).
[3] Additional Award, in I. Bantekas et al. (eds.), UNCITRAL Model Law on International Commercial Arbitration: A Commentary 850-51 (2020).
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