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Synopsis

The Supreme Court has on January 4, 2024 said a court under Section 34 of the Arbitration and Conciliation Act, 1996 does not have jurisdiction to modify the arbitral award as it cannot correct errors of the arbitrators but can only quash the award.

A bench of Justices Abhay S Oka and Sanjay Karol set aside the Karnataka High Court's order of February 7, 2017, which had confirmed the order passed by senior civil judge, Sirsi, modifying the award passed by the arbitrator and reducing the amount awarded to a civil contractor, S V Samudram.

The matter arose out of failure by the contractor to construct the office and residence of the Chief Conservator of Forests at Sirsi following a contract in 1990. The contractor blamed the government authorities for inordinate delay in handing over of site, non-supply of working drawings and designs; and delay in supply of material, among other reasons for the delay. The arbitrator in 2003 awarded a sum of over Rs 14 lakh with 18 per cent interest. However, it was reduced to over Rs three lakh by the court.

Examining the expositions of the Supreme Court on the scope to interfere with arbitral awards under Sections 34 and 37 of the A&C Act, the bench said, the court had categorically observed that any attempt to “modify an award” under Section 34 would amount to “crossing the Lakshman Rekha”.

"It is a settled principle of law that arbitral proceedings are per se not comparable to judicial proceedings before the Court (Dyna Technologies Private Limited v. Crompton Greaves Limited, 2023)," the bench said. 

The arbitrator’s view generally is considered to be binding upon the parties unless it is set aside on certain specified grounds, the court added.

"An award passed by a technical expert is not meant to be scrutinised in the same manner as is the one prepared by a legally trained mind (Delhi Airport Metro Express Private Limited v. Delhi Metro Rail Corporation Limited, 2022)," the bench said.

The bench said prior to the Amending Act 2015, it was open for the court to examine the award as to whether it was in conflict with, (a) public policy of India; (b) induced or affected by fraud; (c) corruption; and (d) any violation of the provisions of Section 75 and 81 of the A&C Act. 

However, "In the instant case, the only provision under which the award could have been assailed was for it to have been in conflict with the public policy of India," the bench said.

A perusal of the judgment and order of the Civil Judge, in the considered view of this court, does not reflect fidelity to the text of the statute. Nowhere does it stand explained, as to, under which ground(s) mentioned under Section 34 of the A&C Act, did the court find sufficient reason to intervene, the bench said.

"We find that the view taken by the arbitrator is a plausible view and could not have been substituted for its own by the court. The reasons assigned by the court under Section 34 of the A&C Act, to our mind, are totally extraneous to the controversy, to the lis between the parties and not borne out from the record. In fact, they are mutually contradictory," the bench said.

Going through the facts of the matter, the bench said the observation of the court for the contractor to have commenced the work, even without handing over design and complete site for one part of the contract is unwarranted and uncalled for, in fact perverse.

The other observation that there was a delay on the part of the contractor in completing the work or speeding up the work does not reflect in the record. They are nothing short of conjectures, it pointed out.

"Accounting for the legal position, the court could have at best set aside the award and could not modify the same," the bench said.

The court held the modification of the arbitral award by the Civil Judge, Sirsi, does not stand scrutiny, and must be set aside.

Likewise, it noted the High Court while confirming the modification of the award committed the very same mistake which the court under Section 34 of the A&C Act, made.

The court, thus, restored the award made by the arbitrator and used its power under Article 142 of the Constitution to reduce the interest at the rate of 9% per annum from the date of award pendante lite and future, till date of payment.

Cause Title: S V Samudram Vs State of Karnataka & Anr