POWER OF A COURT UNDER SECTION 34 OF THE ARBITRATION ACT: MCDERMOTT A CASE PLAGUED WITH PERPLEXITIES
Updated: Jun 21
Niyati Bhogayta, 4th year, ILS Law College, Pune.
The object of arbitration is to ensure an effective, quick and consensual decision-making process evading the arduous process of courts. Courts in India have adopted a policy of minimal court intervention in arbitration proceedings thereby making the arbitral tribunal the functus officio after the tribunal has rendered its final award. Section 5 of 1996 opens with the non-obstante clause which provides no judicial authority shall intervene except where so provided.
This article aims at striking balance between enhanced intervention of courts post arbitration and its need for limitation by the courts.
Under the repealed Act of 1940, three remedies were available against an award viz. modification, remission and setting aside under Section 15, 16 and 30 respectively. This under 1996 Act rectification of errors has been handed over to the parties and the Tribunal. In 1940 Act, Section 30(c) conferred wide powers to the court when award can be set aside even on the ground of ‘otherwise invalid’. While enacting 1996 Act, the Parliament has chosen not to enact above mentioned provisions demonstrating the object of the act is to see that the disputes are not unduly prolonged.
The Supreme Court in the case of Guru Nanak Foundations v. Rattan Singh while referring to the 1940 Act has observed that informal forum is chosen by the parties for expeditious disposal of the disputes and decisions of the Courts being clothed with ‘legalese’ of unforeseeable complexity. The Act proved to be unfavourable due to wide extent of court intervention leading to Justice Desai’s oft-cited remark on how it “made lawyers laugh and legal philosophers weep”.
There has always been an element of doubt as to whether the Court has the power under Section 34 only to set aside the award on application filed by the parties or can even modify, vary, revise or reverse the award passed by the tribunal. The position differs under various jurisdictions. There is a severance of opinions amongst the Courts in India in relation to power of a Court under Section 34.
Position in India:
The case which has created a dichotomy on this question is McDermott International Inc. v. Burn Standard Co. Ltd. & Ors. (McDermott), as the Apex court considering the diversion in 1996 Act from 1940 Act on scope of judicial intervention. In this case it has held that “The 1996 Act makes provision for the supervisory role of courts, for the review of the arbitral award only to ensure fairness. The court cannot correct the errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it desires.”
The judgement finds the power of a Court limited to supervisory role and this limitation is justified as the parties through arbitration agreement consciously decides to keep judicial intervention at minimum level as they prefer expediency and finality offered by arbitration.
It is thus clear that if the Court finds that the award is vitiated because of principles of natural justice or reasons which cannot be called for adjudication on merits, the Court can merely set aside the award. So, parties post McDermott’s case can merely begin the arbitration again and the court does not have the power to amend any decision given by the tribunal.
Similar views have been taken by various High courts. Delhi High Court in Cybernetics Network Pvt. Ltd. v. Bisquare Technologies Pvt. Ltd held that “There is no specific power granted to the Court to itself allow the claims originally made before the Arbitral Tribunal where it finds the Arbitral Tribunal erred in rejecting such claims. If such a power is recognized as falling within the ambit of Section 34(4) of the Act, then the Court will be acting no different from an appellate court which would be contrary to the legislative intent behind Section 34 of the Act”
Allahabad High Court in Managing Director v. Asha Talwar favoured the guiding principle set out by the Apex Court in McDermott. The Division Bench of Delhi High Court in Puri Construction Pvt. Ltd. v. Larsen and Toubro Ltd., a 2015 judgment held, no modification is possible in view of express “dictate of McDermott” which in opinion of the court was determinative of the Court’s approach.
The contrary views were cited by the Madras High Court in Gayatri Balaswamy v. ISG Novasoft Technologies Ltd. which appropriately noted that these observations in McDermott were not in the context of the specific issue being dealt with. The Court examined the issue in Gayatri Balaswamy and held as follows: “Recourse against an arbitral award within its ambit, the power to modify, vary or revise." However, this judgement is per incuriam having failed to take previous judgement passed by Divisional Bench of the same Court in Central Warehousing Corporation v. A.S.A. Transport wherein a direction given by Single judge to appoint the arbitrator for conducting the arbitration was set aside referring to the judgement of McDermott.
Comparative Analysis under other jurisdictions:
The English Arbitration Act, 1996 categorises the powers of the Court in relation to an award, into three types under Section 67, 68 and 69. The power to set aside the award in whole or in part, is available in all the three Sections. But the power to vary the award is available only in Section 67 and 69, when the challenge is on the question of substantive jurisdiction or when it is an appeal on a question of law. In a case falling under Section 68 of the English Arbitration Act, 1996, challenging the award on the ground of serious irregularity, there is no power to vary the award.
Also, The Singapore Arbitration Act, 2001, contains some interesting provisions. Section 48 is almost identical with section 34 of the Indian Act which empowers the court to set aside the award. But, section 49 of the Singapore Act provides for a remedy of an appeal, empowers the court, under sub-section (8) even to vary the award.
Although awards are final domestic awards under The Federal Arbitration Act in the US, they are subject to review according to the enumerated grounds in Section 11 of the Act. If there is a mistake, a party may apply to a US district court and petition for “order modifying or correcting the award” can be made under US Code Title 9, Section 11. Under section 11(a-c) grounds for modifying or correcting an award are provided by subsequent confirmation of the award as modified.
The power to vary and modify the award is given under all three jurisprudence i.e. the English law, the Singaporean law and the US law, however such power is not explicitly provided in the Indian law.
In a recent judgement delivered by the division bench of the Delhi High Court in Delhi Development Authority v. M/s Bharadwaj brothers, the Court held that “A Party under cannot use Section 34 proceeding to convert into remedy of appeal. Mere erroneous interpretation of evidence or fact by the Tribunal cannot be looked into by the Court as the same will set at naught he whole purpose of the amendment of the Arbitration Act.”
The Apex Court in SAIL v. Gupta Brothers Steel tubes Ltd held the court while considering the challenge to the arbitral amount does not sit in appeal.
Court in State Trading Corporation of India V/s Toepfer International Asia Pte. Ltd. has led the principle that Court simply have the power of annulment and not an appeal as the intent of the Act is minimal intervention by the Court in arbitral proceedings.
Analysing the above position and status of power of Courts in India, the restriction placed on Court limiting the power only to set aside the award and not modify or vary the awards reflects the aim and objective of the Act. Parliament has chosen an approach of minimal curial intervention to balance fairness and efficiency of the forum. The intent behind Section 34 expressly using the term ‘set aside’ is to not allow the courts to modify but simply annul the award on an application filed by the parties. The 1996 Act which follows UNCITRAL Model Law does not contain a provision similar to Section 15 of the 1940 Act which conferred power to modify the awards. In short, the Court may totally accept it or reject it but cannot take the intermediate course of modifying the decision by the tribunal.
 (2006) 11 SCC 181.