Author: Deepika K.M, at RV Institute of Legal Studies, Bengaluru
ABSTRACT:
Section 34 of the Arbitration and Conciliation Act, 1996 governs the grounds for setting aside arbitral awards, offering limited judicial intervention in the enforcement process. Unlike the previous Arbitration Act, 1940, which granted the court the authority to modify awards under Section 15, the current Act intentionally omits this provision. In a recent ruling, the Delhi High Court in NHAI v. Trichy Thanjavur Expressway Ltd. clarified that courts do not have the power to modify an arbitral award, but may instead partially set it aside. The Court made a clear distinction between the two, challenging the Supreme Court’s earlier decision in NHAI v. Hakeem, which held a different view regarding the modification of awards.
INTRODUCTION:
Arbitration serves as an Alternative Dispute Resolution (ADR) mechanism to minimize litigation and expedite dispute resolution. However, disputes over enforcement of arbitral awards often find their way to courts under Section 34, which allows a party to seek setting aside of an arbitral award on limited grounds, such as lack of jurisdiction, bias, procedural irregularities, or conflict with public policy. A key legal question is whether courts can annul only the tainted portion of an award while allowing the remainder to stand?
The Arbitration Act, 1940, under Section 15, granted courts the power to modify an arbitral award, but the 1996 Act deliberately omitted this provision to uphold the finality of arbitration. The debate, however, has evolved around whether partial setting aside equates to modification—a distinction critical to judicial review under the Act.
STATUTORY FRAMEWORK: SECTION 34 OF THE ARBITRATION ACT, 1996
Section 34 of the Arbitration and Conciliation Act, 1996, lays down the limited grounds for setting aside an arbitral award:
- Incapacity or invalidity of the arbitration agreement [(Section 34(2)(a)(i))].
- Lack of proper notice or opportunity to present a case [(Section 34(2)(a)(ii))].
- Exceeding terms of reference [(Section 34(2)(a)(iv))].
- Illegality or conflict with public policy [(Section 34(2)(b))].
The Proviso to Section 34(2)(a)(iv) explicitly recognizes that an arbitral award may contain severable parts, thus allowing courts to annul only the defective portion while preserving the valid portions.
JUDICIAL INTERPRETATION AND CASE LAWS
1. Supreme Court in NHAI v. M. Hakeem [(2021) 9 SCC 1]:
In this landmark ruling, the Supreme Court held that Section 34 does not empower courts to modify an arbitral award. The Court emphasized that interference with arbitral awards must be limited to setting aside in whole or part, but not rewriting or altering the Tribunal’s decision. However, the judgment did not explicitly prohibit partial annulment, leaving the door open for further interpretation.
2. Delhi High Court in NHAI v. Trichy Thanjavur Expressway Ltd. [2023 SCC OnLine Del 5183]:
The Delhi High Court distinguished between modification and partial annulment. It held that where an award comprises independent and severable claims, courts may annul only the portion suffering from illegality. The judgment clarified:
- The doctrine of severability allows courts to strike down specific claims or findings without disturbing the rest of the award.
- If an arbitral award contains multiple claims based on distinct obligations, a flawed part can be severed without impacting the valid claims.
- Section 34(4) allows the court to remand the matter back to the tribunal for correction, but it does not grant courts the power to modify the award themselves.
3. McDermott International Inc. v. Burn Standard Co. Ltd. [(2006) 11 SCC 181]:
The Supreme Court observed that under Section 34, a court can only set aside an award, not alter it. However, it acknowledged that in cases where portions of an award are independent, the defective part alone may be struck down.
4. Kinnari Mullick v. Ghanshyam Das Damani [(2018) 11 SCC 328]:
The Supreme Court reaffirmed that Section 34(4) is curative in nature and can be used to remand the matter back to the Tribunal to eliminate defects, provided the foundation of the award remains intact. However, it cannot be used as a means to rewrite the award.
ANALYSIS: DOCTRINE OF SEVERABILITY
The doctrine of severability allows courts to excise invalid portions of a legal document or decision while retaining the valid remainder. In the context of arbitration, this doctrine justifies partial annulment in cases where:
- The award consists of multiple distinct claims, and
- The annulment of one claim does not affect the enforceability of the remaining award.
For instance, if a Tribunal grants damages under three independent contractual clauses, but one is based on an erroneous interpretation of law, a court can strike down only that portion while upholding the rest.
Partial setting aside of an arbitral award is effectuated under exceptional circumstances wherein only a severable portion of the award is found to be vitiated by legal infirmities, while the remainder retains its enforceability. The principle of separability is pivotal in such instances, ensuring that the unaffected segments of the award continue to operate with full legal efficacy. Courts exercise their supervisory jurisdiction with circumspection, intervening solely when the impugned portion is afflicted by patent illegality, procedural impropriety, or contravention of public policy. The doctrine of Minimal Judicial Interference, as enshrined in modern arbitral jurisprudence, mandates that the arbitral tribunal’s autonomy be preserved to the fullest extent possible. Consequently, judicial scrutiny in matters of partial annulment is confined to rectifying manifest errors without undermining the sanctity of arbitral proceedings.
COMPARATIVE PERSPECTIVE: INTERNATIONAL ARBITRATION
Globally, partial setting aside is widely recognized:
- UNCITRAL Model Law (Article 34(2)) supports annulment of only the affected portion of an award.
- Singapore Arbitration Act (Section 49) allows courts to set aside parts of an award.
- UK Arbitration Act, 1996 (Section 68) recognizes partial annulment in cases of serious irregularity.
Thus, India’s evolving jurisprudence aligns with international best practices, ensuring that valid portions of arbitral awards are upheld while only defective parts are annulled.
CONCLUSION
The partial setting aside of arbitral awards under Section 34 is a legally sound and pragmatic approach that upholds both judicial restraint and arbitral finality. While NHAI v. Hakeem cautioned against modification, recent judgments clarify that severability is not tantamount to modification. Courts may annul specific portions where claims are distinct, provided such annulment does not render the award unenforceable.
FREQUENTLY ASKED QUESTIONS (FAQS)
- Can courts modify an arbitral award under Section 34?
No, the Supreme Court in NHAI v. Hakeem held that courts cannot modify an arbitral award but may set it aside partially if the invalid portion is severable.
- What is the doctrine of severability in arbitration?
It is a legal principle that allows courts to annul specific portions of an arbitral award while upholding valid portions, provided the two are not inextricably linked.
- How does Section 34(4) differ from Section 34(2)?
Section 34(2) enables courts to set aside an award if it violates legal principles, while Section 34(4) allows courts to remand the matter back to the Tribunal for rectification of curable defects.
- Can courts set aside an arbitral award in part under Indian law?
Yes, as reaffirmed by the Delhi High Court in NHAI v. Trichy Thanjavur Expressway Ltd., courts can partially set aside awards if the defective portion is severable from the remainder.
- Does partial setting aside amount to modification?
No, modification implies changing or altering the Tribunal’s decision, whereas partial setting aside only removes the invalid portion without affecting the rest of the award.
