LI Network
Published on: 14 August 2023 at 13:50 IST
The Supreme Court has reaffirmed that a court, acting under Section 34 of the Arbitration and Conciliation Act, lacks the authority to modify an arbitration award.
According to the bench of Justices S Ravindra Bhat and Dipankar Datta, the court’s jurisdiction under Section 34 of the Act is strictly limited and narrowly defined.
It permits the court to interfere with an award only in cases involving patent illegality.
In a specific case before the Court, the Allahabad High Court had modified an arbitral award through its judgment under Section 37 of the Act.
The modification entailed a reduction in the interest rate, changing it from a compound interest rate of 18% to a simple interest rate of 9% per annum.
Upon appeal, the Court observed that the previous Arbitration Act of 1940 included a provision that authorized the court to modify an award.
However, this authority was deliberately omitted by the Parliament when enacting the Arbitration and Conciliation Act of 1996.
This omission indicates the legislative intent to exclude the court’s power to modify an award in any manner.
Overturning the High Court’s directive that altered the award, the Supreme Court emphasized:
“The court’s jurisdiction under Section 34 of the Act is limited and highly restricted, allowing intervention only on the grounds of patent illegality. Illegality must pertain to the fundamental essence of the matter and cannot be trivial. Additionally, the tribunal must adhere to the terms of the contract.
If an arbitrator interprets a contract term reasonably, it does not warrant setting aside the award. Another ground for intervention is the denial of natural justice. In appeals, Section 37 of the Act provides a narrower scope for the appellate court to review findings in an award that has been upheld, or mostly upheld, under Section 34.”
The ruling reinforces the principle that under the Arbitration and Conciliation Act, the court’s authority is not to alter but to partially or fully set aside an award based on the conditions established under Section 34.
Case Reference: Larsen Air Conditioning and Refrigeration Company V. Union of India (2023)
