Modifying The Un-Modifiable: Supreme Court To Revisit The M. Hakeem Judgement – Trials & Appeals & Compensation

India while revamping its 1940’s arbitration law, had
consciously chosen to adopt largely from the model law circulated
in 1985 by the United Nations Commission on International Trade Law
(‘UNCITRAL‘). Accordingly, the legislature
enacted the new arbitration law i.e. Arbitration and Conciliation
Act, 1996 (‘Act‘) and even accredited the
model law in its preamble. The new Act provides a structure to the
process of domestic arbitration, which concludes into an
‘Award’ between the parties. Moreover, the Act also
outlines the considerably debated, argued and legislated process of
challenge to the very award. However, both the Act and UNCITRAL
Model law are uncomfortably silent of the process in case such
challenge to the award is allowed either partly or wholly.

This is the ‘Lakshman Rekha’ that many litigants are now
faced with, post the ruling of the Hon’ble Supreme Court in
Project Director NHAI vs. M. Hakeem¹
(‘M.Hakeem’). The Apex Court in M. Hakeen has
interpreted Section 34 and 37 of the Act to restrict the power of
the Courts from modifying or varying an arbitral award. Such has
been followed and re-enforced in Larsen Air Conditioning and
Refrigeration Company vs. Union of India² and SV
Samudram vs. State of Karnataka³. Therefore, a litigant, post
setting aside of an award, is forced to revisit another arbitral
process on the issue from scratch to be decided afresh in an
appropriate proceedings⁴ causing both delay, pendency
and cost escalation for all parties.

Hence, M. Hakeem, in interpreting the provisions had
the un-intended effect of categorising courts as mere gatekeepers,
who are to screen awards basis a narrow compass, and either let
them pass or set them aside to be restarted again.

But don’t de novo proceedings run contrary to the
idea of speedy alternative modes of dispute resolution? The Supreme
Court has acknowledged that de novo proceedings are
against alternative modes of dispute resolution. In holding so, the
Supreme Court has itself at times even exercised its extraordinary
powers under Section 142 of the Constitution of India to modify
awards to put a quietus to long pending disputes⁵. Hence, even as per
the Supreme Court, restraining the power of courts in allowing
modification/variation of arbitral awards is to be balanced between
the interpretation of Section 34 and 37 of the Act and the
interests of litigants choosing alternative dispute resolution
mechanisms. However, the flip side to the argument disallowing
modification/variation is that the judge hearing a Section 34/37
petition may modify an award summarily without having a holistic
view of the proceedings or having gone through the entire
proceedings including witness examinations or may in effect then be
sitting in appeal akin to a regular court litigation, which defeats
the purpose of the speedy alternative dispute resolution
process.

Section 34(4) of the Act also offers little help in this regard,
as it is not akin to the power to remit the dispute back to the
arbitrator for re-adjudication or review, but is limited to only
provide reasons to fill in gaps or cure ‘curable defects’⁶.

A comparative analysis of similar statutes also doesn’t help
the case for the interpretation for modification, especially, as
under the legislations in countries like England⁷, Singapore⁸ and
Australia⁹, specific powers to modify awards
have been provided instead of expansion of the scope of powers by
interpretation.

Interpreting M.Hakeem, recent judgement of the Delhi
High Court in National Highway Authority of India v Trichy
Thanjavur Expressway Limited¹⁰ has carved a niche by allowing
setting aside of independent portions of the award in a partial
manner. This approach does away with the broad-brush argument that
the award will either have to be upheld or set aside in its
entirety. This interpretation has been applied by courts to impact
one portion of the award, which independently can be severed and
still effect in varying the entire award without directly modifying
any specific claim¹¹.

In light of the above, recently, a full bench of the Supreme
Court in Gayatri Balasamy v M/s ISG Novasoft Technologies
Limited¹² has referred the following
questions to the Chief Justice of India for appropriate orders:

1. Whether the powers of the Court under section 34 and 37 of
   the Arbitration and Conciliation Act, 1996, will include the power
   to modify an arbitral award?




2. If the power to modify the award is available, whether such
   power can be exercised only where the award is severable and a part
   thereof can be modified?




3. Whether the power to set aside an award under section 34 of
   the Act, being a larger power, will include the power to modify an
   arbitral award and if so, to what extent?




4. Whether the power to modify an award can be read into the
   power to set aside an award under section 34 of the Act?




5. Whether the judgment of this Court in Project Director NHAI
   vs. M. Hakeem, followed in Larsen Air Conditioning and
   Refrigeration Company vs. Union of India and SV Samudram vs. State
   of Karnataka lay down the correct law, as other benches of two
   Judges (in Vedanta Limited vs. Shenzden Shandong Nuclear Power
   Construction Company Limited, Oriental Structural Engineers Pvt.
   Ltd. vs. State of Kerala and M.P. Power Generation Co. Ltd. vs.
   Ansaldo Energia Spa) and three Judges (in J.C. Budhraja vs.
   Chairman, Orissa Mining Corporation Ltd., Tata Hydroelectric Power
   Supply Co. Ltd. vs. Union of India and Shakti Nath vs. Alpha Tiger
   Cyprus Investment No.3 Ltd.) of this Court have either modified or
   accepted modification of the arbitral awards under
   consideration?”

Therefore, within the question of whether the courts should have
power to modify/vary an award in a strict prism, lies the debate
between the principle of strict interpretation of statute as may
have aptly been done in this case (and has many takers quoting
certainty in law); and between an approach which intuitively seems
unfair on the litigants who may for a procedural defect or mistake
of the arbitrator and be forced to traverse the entire arbitration
process again.

Any limited discretion of the Courts to modify or vary awards,
would therefore need to be given either by way of a purposive or
creative interpretation of the Act, or by a clear legislative
amendment (such as in other national legislations). The reference
of Gayatri Balaswamy¹³ will be closely watched by
arbitration practitioners and would go a long way in deciding the
success of alternate dispute resolution mechanisms in India

Footnotes

1. (2021)
9 SCC 1

2. (2023)
SCC Online SC 982

3. (2024)
SCC Online SC 19

⁴ Dakshin Haryana Bijli
Vitran Nigam Limited v. M/s. Navigant Technologies Pvt. Ltd
(2021) 7 SCC 657

5.
Project Director NHAI vs. M. Hakeem (2021) 9 SCC 1;
Oriental Structural Engineers Pvt. Ltd. vs. State of
Kerala (2021) 6 SCC 150

6.
I-Pay Clearing Services Pvt. Ltd. v. ICICI Bank Limited
2022 SCC Online SC 4

7.
English Arbitration Act, 1996

8.
Singapore Arbitration Act, 2001

9.
International Arbitration Act, 1974

10.
2023 SCC Online Del 5183

11.
M/s NHPC Limited v M/s Jaiprakash Associates, OMP (ENF.)
(Comm) 184/2023 order dated 14^th February
2024

12.
Special Leave to Appeal (C) Nos.15336-15337/2021 order dated
20^th February 2024

13.
Ibid

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