The appeals in the case relate to notifications issued under the provisions of National
Highways Act and awards passed under the Act. The notifications were issued from 2009 onwards and the concerned awards were made based on a ‘guideline value’ of the lands in question and not on the basis of sale deeds of similar lands. Thus, in all the concerned cases abysmally low amounts were granted by the competent authority.
Upon a Section 34 application being filed under the Arbitration and Conciliation Act 1996 (‘Section 34’), the district and sessions judge enhanced the amounts to Rs. 645 per square meter and modified the awards to reflect these figures. In the appeal filed to the Division Bench of the Madras High Court, the aforesaid modifications were upheld. National Highways Authority of India challenged the Division Bench decisions in the Supreme Court (‘court’). The appeals raised the question of whether the power of a court under Section 34 was limited to setting aside an award or remitting it to an arbitrator, or did it include the power to modify the award.
Decision of the Court
The court first reiterated that Section 34 challenges are not challenges on the merits of the case. The court, while quoting the obiter from McDermott International Inc. v. Burn Standard Co. Ltd. (2006) 11 SCC 181, reiterated that the role of the court under a Section 34 application is of minimal intervention and that cases can be set aside only on limited grounds. The grounds under Section 34 for setting-aside of an award are limited to grounds such as incapacity of a party, unlawful agreement, lack of notice to a party, subject-matter scope of the arbitration agreement, lack of due process and conflict with the public policy of India.
The court observed that Section 34 does not permit courts to modify an award. The court reasoned that Section 34 of the Arbitration & Conciliation Act of 1996 is based on the UNCITRAL Model Law on International Commercial Arbitration, 1985; which does not envisage modification of an award by a national court. The court observed that a perusal of the Arbitration Acts of England, Singapore and United States of America further establishes the aforesaid understanding of the UNCITRAL Model Law.
The court contrasted Section 34 with Section 15, 16 and 17 of the Arbitration Act of 1940, i.e., previous arbitration act in India. The 1940 Act explicitly gave courts the power to modify, remit and set-aside an award. The court stated that to interpret Section 34 to include modification of an award tantamount to ignoring the fact that the scope of judicial intervention under Section 34 was purposefully narrowed by the Parliament.
The court elaborated that to include the power of modification of award to Section 34 would be crossing the ‘Lakshman Rekha’ of statutory interpretation. The ‘Lakshman Rekha’ of statutory interpretation is crossed when a judge alters the material of which the act is woven or goes beyond the intention of the Parliament that enacted the act. The court observed that had the Parliament intended Section 34 to include modification or revision of the award, the Parliament would have expressly included such language in the section.
While previous judgments had been clear that a court cannot go into the merits of the dispute, there remained ambiguity on the question of modification or revision of an award. Hence, the judgment is a much-needed clarification on the extent of the supervisory nature of a court under Section 34 of the Arbitration and Conciliation Act.