Power to Modify Arbitral Orders Through Section 37 – The RMLNLU Law Review Blog

Power to Modify Arbitral Orders Through Section 37 – The RMLNLU Law Review Blog

Power to Modify Arbitral Orders Through Section 37 – The RMLNLU Law Review Blog

By- Akshit Singla


INTRODUCTION

Salesmen of Arbitration often talk of a pro-arbitration regime where the courts do not interfere and all disputes get resolved by the golden process. However, the finality of Arbitral awards and minimal judicial intervention seem to be nothing more than modern myths in reality. A simple arbitral process starts from a dispute, to a tribunal, then to an award, to setting aside the award, and then a final appeal. As an alternative to the system of courts, the process boasts of its minimal judicial intervention where it is only allowed to a very limited extent for orders be they final or interim. In this article, the author argues that not to be the case, where the courts have often read in their powers that undermine the process of arbitration.

Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter ‘1996 Act’) allows the court to set aside the award on certain specified grounds only. This may be followed by an appeal under section 37 of the 1996 Act. Even after so many years, the role and powers of the court remain a contested ground. Firstly, the article deals with the question of whether the court has the power under section 34 to modify or remit the award. The article then looks at the recently discovered (read invented) powers of section 37 to modify the awards by the Delhi High Court. Lastly, it tries to interpret both the sections together to understand whether introducing such power is correct or not.

DEFINING BOUNDARIES OF SECTION 34

Section 34 of the 1996 act deals with the grounds on which the final Arbitral Award may be set aside. According to section 34(4), the court is also empowered to remit the case to the tribunal in cases where the action of the tribunal will eliminate the grounds for setting aside the arbitral awards. Apart from this, if there are any computational or typographical errors or issues of interpretation of the award, the same can be remedied under section 33 of the 1996 Act.

The role of the courts was very well defined in McDermott International Inc. vs Burn Standard Co. Ltd. where the court was to only play a supervisory role and the power of review of the arbitral tribunal was to ensure fairness. It limited the intervention of the courts to a few instances also encompassed under section 34 and held that “the court cannot correct errors of the arbitrators.” The court opined that the parties opt for the process of arbitration to enjoy the expediency and finality offered by it and the same can only be achieved by keeping the role of courts at a minimum. The only option is to quash the award and then the parties may choose to go for another round of arbitration if desired.

There may be two reasons for this regular deviation. Firstly, the lack of clarity on what to do when the award is set aside. The position of law is another round of arbitration but the courts seem to get involved there and then to solve the dispute due to a lack of statutory clarity. While both the title of the section itself says that it is only for setting aside, it is the anxiety of the Arbitration Act, of 1940 (hereinafter ‘1940 Act’) that would often entice courts to see whether they still have the power to modify or remit the awards. Furthermore, the grounds under section 30 of the 1940 Act were much broader than the grounds under section 34 of the 1996 Act allowing regular involvement of the courts in the arbitral process.

Section 34 is modeled on the UNCITRAL Model Law, which asks for very limited judicial interference on grounds that do not deal with the merits of the case. The Apex court in NHAI vs M. Hakeem observed this ‘limited remedy’ coterminous with the ‘limited right’ to either set aside an award or remand the matter under the conditions given in the 1996 Act. Justice Nariman in Hakeem put in rather strong words that the inclusion of powers of modification would be crossing the Lakshmanrekha to enable courts what they feel ought to be done.

Section 34 Jurisprudence not only lays down the grounds on which a court can set aside an award, but also determines the role of courts in an arbitral process thus guiding the interpretation of section 37.

REDEFINING SECTION 37

The Delhi High Court, in the case of Augmont Gold (P) Ltd v. One97 Communication Ltd. came to a rather interesting position where it defined the scope of power under section 37(2) of the 1996 Act. The issue at hand was an appeal against an interim order passed by the tribunal under its powers granted by section 17 to furnish an amount of the money as security in the dispute. The court differentiated between the nature of orders that may be appealed under section 37 and the scope of powers available.

According to the court, section 16 orders are to be treated in a much different light from section 17 due to the latter’s discretionary nature. It is only in rare and extreme cases that an exercise of appellate jurisdiction may be exercised for section 17 orders. After establishing the importance of minimal interference, the court holds in para 75 of the judgment how it shall have the power to modify under appeal which it cannot do under section 34. This becomes important as the language used in the judgment does not restrict itself to modification of the interim orders, but seems to extend itself to final awards as well. This is an important discussion then where the court has assumed powers that were specifically curtained by the Act and is evident from section 34. The Court has thus in some sense provided a solution to the limitations of section 34 which would impact the concept of finality and strike at the very root of an arbitral process. The court finally set aside the interim order given by the arbitral tribunal in the case as well.

This however is not the first time that the Delhi High Court has gone into this line of reasoning. Back in 2014, in State Trading Corporation of India Ltd. v. Toepfer International Asia PTE Ltd, the court while defining powers under section 34, remarked that the appeal may not only confirm the orders but also have the power to modify the said orders. Further in 2020, the high court while deciding Edelweiss Asset Reconstruction Company Ltd. v. GTL Infrastructure Ltdheld that the courts may modify the interim orders where the orders were given by the tribunal without appreciating all the merits of the case.

COURTS READING IT ALL WRONG (?)

The 1996 Act does not have an explicit section on the powers of the court in appeal and needs to be read from the language of section 37 with section 5 of the act. The language of section 37 does not differentiate between 37(1)(c) and 37(2)(b). While the legislative intent seems to have envisaged the common standard of section 34 for all orders under 37, courts seem to have applied different standards even when the language of all subsections is identical. The powers that would be envisaged under appeal for the latter would then also flow to the former making the awards to be modified if deemed necessary by the court in the interest of justice. The role of the court in appeal in arbitration is not to decide the matter afresh and to decide the case as they would have ought to. Unlike the 1940 Act, the 1996 Act does not have a provision giving them the power to modify the award. The same should also not be read into the legislation by the court.

MMTC Ltd. v Vedanta Ltd. briefly went over the interface between 34 and 37 to hold that the interference under section 37 on an award assessed under section 34 already should not exceed the restrictions laid down under section 34. In simple words, the courts can only look at the order section 34 under 37 through the restricted lens of the act and not go over the merits of the case.

Delhi High Court in Asian Hotels (North) Ltd. vs Sital Dass Sonsreferred to the discussion of Augmont Gold and then referred to a Supreme Court judgment of James Joseph vs State of Kerala where the apex court defined the principles regarding appeals. It provides that the legislation may expressly or impliedly restrict the appellate jurisdiction of the courts. Delhi High Court in its various decisions[1] has laid down the limitations as to the use of the sparing power of section 37(2)(b) to only cases where the use of discretion by the arbitrator is to be seen as arbitrary, capricious, irrational or perverse. However, the very existence of such powers is also judicial intervention.

What is to follow Augmont Gold and the reasoning put by the court is to impact the way the system of arbitration is to work. The Indian legal system in its various amendments and law commission reports has tried to decrease the amount of judicial intervention which only becomes difficult with the courts increasing their powers and role in the arbitral process. If the courts are to sit in review of each order, be it final or interim and have the power to modify the same, the entire purpose of arbitration will be lost. Each order will go into appeal where the courts may choose to decide it afresh in the name of modification. Such reading of the statute would in turn make the process ineffective.

If we truly want to become a system that facilitates the process of arbitration, one of the biggest impediments in this way is the extent of judicial intervention that has been read into the statute by the court. An arbitration is an ADR mechanism which can only thrive when such power to interfere is limited.


(Akshit Singla is a law undergraduate at the National Law School of India University, Bangalore. The author may be contacted via email at [email protected]).

Cite as: Akshit Singla, ‘Reading in the Forbidden Procedure : Power to Modify Arbitral Orders Through Section 37’ (The RMLNLU Law Review Blog, 31 March 2023) date of access.

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