To modify or not to modify an Arbitral Award: Supreme Court Constitution Bench to decide - Part II

The article analyzes Sections 34 and 37 of the Arbitration Act and the power of the Courts to modify an Arbitral Award.

Legal Scriptures - Abhijit Mittal, Anukalp Jain and Divynk Panwar

This is in continuation to Part 1 of the article accessible here.

Modification, when done

Despite such clear declarations of law, the Supreme Court has on multiple occasions either upheld modification done by lower courts under Section 34 of the Arbitration Act or has modified an award itself.

In the case of Tata Hydro-Electric v. Union of India [(2003) 4 SCC 172] the apex court upheld the award but modified the date from which it was to come into effect. Similarly, in JC Budhraja v. Chairman, Orissa Mining Corporation Ltd. [(2008) 2 SCC 444], the claimant was awarded a certain sum of money with interest of 12 percent per annum from a specific date till the date of the award. The High Court, on appeal, set aside the award on grounds of limitation, excess of jurisdiction, non-reasoned conclusion with respect to certain items, etc. On appeal, the Supreme Court, upon examination of the case, concluded that a part of the award was not vitiated by any illegality or legal misconduct. As a result, the award was modified, and the total sum awarded was reduced while keeping the rate of interest unchanged. In the case of MP Power Generation Ltd. Ansaldo Energia Spa [(2018) 16 SCC 661], again the apex court, while principally upholding the Arbitral Award under challenge, made a modification nonetheless stating that the claimants were not entitled to the amounts involved in bank guarantees, justifying such interference on the strength of the law laid down previously Associate Builders V. DDA [(2015) 3 SCC 49]. The rate of interest in an Arbitral Award, upon being concluded as unreasonable, was again modified by the Supreme Court in the cases of Vedanta Ltd. V. Shenzhen Shandong Nuclear Power Construction [(2019) 11 SCC 465] and Oriental Structural Engineers V. State of Kerala [(2021 6 SCC 150]. The case of Shakti Nath V. Alpha Tiger Cyprus Investment [(2020) 11 SCC 685] was another instance where, under a peculiar set of circumstances, the apex court modified the awarded interest and penal interest with the consent of parties involved.

Interestingly, in all the instances where the Supreme Court modified an Arbitral Award, elaborate reasons were given as to why the award was modified and the reasons that compelled the Court to interfere with the awards. However, the question of law as to whether such powers could be exercised under Section 34 of the Arbitration Act were not discussed.

Modification for ‘Complete Justice’?

The curious question as to how the Supreme Court could modify awards in certain cases when there were clear declarations of law to the contrary was answered by the court itself in M. Hakeem where it was clarified that in instances where the award was modified by the Supreme Court, even if not mentioned in the judgments, the same was presumably done under Article 142 of the Constitution of India. The Court admitted that in all the instances where the award was modified, it was not discussed as to whether the same could be traced to Section 34 of the Arbitration Act. A further clarification was also given that orders passed under Article 142 do not constitute ratio decidendi of a judgment and that the law declared in McDermott is correct.

The Way Forward

The thorough analysis done in M. Hakeem has made it clear that modification of an Arbitral Award, when done by the Supreme Court, is done under Article 142 of the Constitution. As can be observed in the case laws examined, modification has been majorly done to the interest rates, the sum of the amount awarded and the date on which the award is to come into effect. Consequently, any person dissatisfied with an Arbitral Award now has a window to seek interference of the Supreme Court for modification under Article 142 on any grounds mentioned in Section 34, though the final discretion would rest with the court itself. It must be kept in mind that powers under Article 142 are extraordinary powers, which ought to be exercised only under extra ordinary situations. Certainly, the Supreme Court would be circumspect to interpret the provision in a manner that requires invocation of Article 142 as a matter of routine. It would be interesting to see how the Constitution Bench examines this issue, especially in the light of the judgments wherein the scope of powers under Article 142 has been examined. In some cases, it has been held that powers under Article 142 cannot be exercised ‘by ignoring express statutory provisions dealing with a subject and thereby to achieve something indirectly which cannot be achieved directly.’ It has also been held that directions under Article 142 should not be inconsistent with, repugnant to, or in violation of specific provisions of any statute. On the other hand, numerous judgements that have expanded the scope of Article 142 and have held that statutory limitations cannot come in the way of the power of the Supreme Court to do ‘complete justice’ [Harbans Singh V. State of UP (1982) 2 SCC 101; Union Carbide V. Union of India (1991) 4 SCC 584], a reasoning that could easily come to the aid of explanation given in M. Hakeem. The scope of Article 142 has been recently considered by the Constitution Bench called upon to examine the correctness of the Asian Resurfacing judgment, wherein, albeit in a different context and briefly, the apex court has sought to put some limitations on the extensive powers under Article 142. Thus, the trend seems to favor an interpretation that discourages invocation of Article 142 in a routine manner, which is likely to be followed by the Constitution Bench seized of the said matter, lest the floodgates of litigation be opened.