Gayatri Balasamy vs M/s ISG Novasoft Technologies Limited

Arbitration and Conciliation Act, 1996 – s.34 – Application for setting aside arbitral award – Doctrine of merger – New York Convention Awards – Power of modification u/s.34 – Affect on International Commercial Arbitration Regime: Held: [per Sanjiv Khanna, CJI (for himself and for B.R. Gavai, Sanjay Kumar and Augustine George Masih, JJ.)] Once s.34 is reinterpreted to include a limited power to modify awards, this authority will not affect the international commercial arbitration regime or the enforcement of foreign awards – It cannot be said that court orders partially setting aside or modifying an award would render the amended award unenforceable under the New York Convention. [Para 66]

Held: [per K.V. Viswanathan, J. (Dissenting)] In UK, Singapore, New Zealand and Kenya, not only were there express provisions to modify awards in those statutes by the Court hearing the setting aside application, there are also express provisions recognising that the award would hitherto be read in the modified form – In the absence of similar statutory regime serious complications will arise in enforcement of New York Convention awards and will constitute a serious threat to India seated arbitrations under the New York Conventions – If the award is modified by the s.34 Court in India, any enforcement brought abroad will run into complications as objections will be taken that what is sought to be enforced is not the award but the judgment of the Court – Enforcement of foreign judgements and enforcement of foreign awards are distinct legal concepts – Furthermore, since there is no power u/s.34 court to modify, in the absence of a statutory enablement, not necessary to go into the aspect of the applicability of the doctrine of merger. [Paras 121, 123, 125]

Arbitration and Conciliation Act, 1996 – s.34 – Application for setting aside arbitral award – Post-Award Interest – Power of the court to declare or modify interest – Use of power u/s.34(4): Held: [per Sanjiv Khanna, CJI (for himself and for B.R. Gavai, Sanjay Kumar and Augustine George Masih, JJ.)] For the post award interest in terms of s.31(7)(b), the courts will retain the power to modify the interest where the facts justify – In the absence of grant of post award interest in the award, the court also possesses the power to grant post award interest – U/s.31(7) (b), the legislature has established a standard rate of interest to guide the arbitrator’s discretion to determine the post-award interest rate – Unless there are special and specific reasons, the rate of interest stipulated by the statute is to be applied – Furthermore, it is appropriate for the s.34 court to have the authority to intervene and modify the post-award interest if the facts and circumstances justify – Post-award interest can be scrutinized by courts – Court has power to both increase or decrease the post-award interest rate – However, the court, must be cautious and mindful not to overstep its role by altering the interest rate unless there are compelling and well-founded reasons to do so. [Paras 74, 76-78] Held: [per K.V. Viswanathan, J. (Dissenting)] In a given case where the Court feels that interest has not been awarded or interest beyond the terms of the agreement have been awarded or excessive interest have been awarded or abysmally low interest is awarded, the Court u/s.34 cannot modify the interest – Course of action to be adopted would be to record reasons in the order and remit the matter to the arbitrator for the arbitral tribunal to make the necessary course correction – If thereafter again, when the matter comes back to the Court, the Court feels that the grounds for setting aside the award are not eliminated, it will have no choice except to set aside the award. [Para 135]

Constitution of India – Art.142 – Supreme Court’s power to do complete justice – Power to modify an arbitral award, if exercisable u/Art.142:

Held: [per Sanjiv Khanna, CJI. (for himself and for B.R. Gavai, Sanjay Kumar and Augustine George Masih, JJ.)] Power u/Art.142 is to be exercised by this Court but with great care and caution – It enables the court to do complete justice in any cause or matter pending before it – Exercise of power has to be in consonance with the fundamental principles and objectives behind the 1996 Act and not in derogation or in suppression thereof – Power should not be exercised where the effect of the order passed by the court would be to rewrite the award or modify the award on merits – However, the power can be exercised where it is required and necessary to bring the litigation or dispute to an end. [Paras 82, 84]

Held: [per K.V. Viswanathan, J. (dissenting)] In matters arising out of s.34, Supreme Court will refrain from exercising its power u/Art.142 as the Art. 142 power cannot be used to give a go by to the substantive statutory provision – Courts exercising powers u/s.34, which includes the appellate hierarchy cannot change, vary, or qualify arbitrary awards – Such an exercise of power would derogate from the core aspects of the A&C Act and would breach a pre-eminent prohibition in the said Act – If power is reserved for this Court to modify, at the fag end of the litigation, contracting parties will have grave uncertainties as they would not be sure of how the matter will play out when it reaches the apex Court – It would be antithetical to arbitration as an alternative and efficacious mode of dispute resolution – Arbitration and Conciliation Act, 1996 – s.34. [Paras 113-115, 156]

Arbitration and Conciliation Act, 1996 – s.34, proviso to s.34(2) (a)(iv) – Severability of awards – Power to set aside an award, if inclusive of the power to partially set it aside: Held: [per Sanjiv Khanna, CJI (for himself and for B.R. Gavai, Sanjay Kumar and Augustine George Masih, JJ.] Proviso to s.34(2)(a)(iv) permits courts to sever the non-arbitrable portions of an award from arbitrable ones – Power conferred under the proviso is clarificatory in nature – Authority to sever the “invalid” portion of an arbitral award from the “valid” portion, while remaining within the narrow confines of s.34, is inherent in the court’s jurisdiction when setting aside an award – Authority to set aside an arbitral award necessarily encompasses the power to set it aside in part, rather than in its entirety – Partial setting aside may not be feasible when the “valid” and “invalid” portions are legally and practically inseparable – “Valid” and “invalid” portions must not be interdependent or intrinsically intertwined – Power of partial setting aside should be exercised only when the valid and invalid parts of the award can be clearly segregated without any correlation between valid and invalid parts. [Paras 33-36]

Held: [per K.V. Viswanathan, J. (Supplementing)] Severance as a concept is recognised intrinsically in s.34 itself – When there are several claims adjudicated and if awards on a few claims fall foul of s.34, such standalone claims falling foul of s.34 can be set aside as long as they are capable of being severed without affecting the other parts of the award – If the claims falling foul of s.34 are not inseparably intertwined with the good portion of the award, the award can be severed – Power to set aside will include the power to partially set aside the award and sever the portions of the award which fall foul of s.34 subject to the riders engrafted. [Paras 146, 153]

Arbitration and Conciliation Act, 1996 – ss.33, 34 – Application for setting aside arbitral award – Power of the court to modify an award – Correction of computational, clerical and typographical errors, or any other error of similar nature – Actus curiae neminem gravabit:

Held: [per Sanjiv Khanna, CJI. (for himself and for B.R. Gavai, Sanjay Kumar and Augustine George Masih, JJ.)] Notwithstanding s.33, a Court reviewing an award u/s.34 possesses the authority to rectify/modify computational, clerical, or typographical errors, as well as other manifest errors, provided that such modification does not necessitate a merits-based evaluation – There are certain powers inherent to the court, even when not explicitly granted by the legislature – Scope of these inherent powers depends on the nature of the provision, whether it pertains to appellate, reference, or limited jurisdiction as in the case of s.34 – Powers are intrinsically connected as they are part and parcel of the jurisdiction exercised by the court – Such power must not be conflated with the appellate jurisdiction of a higher court or the power to review a judgment of a lower court. [Paras 49, 54] Held: [per K.V. Viswanathan, J. (Supplementing)] s.33 enables parties to move the arbitral tribunal to correct any computational error, any clerical error or typographical error or any other errors of similar nature – Ordinarily computational error, clerical or typographical error or any other error of a similar nature would not be objected by other party – However, in the unlikely event of an objection and in a scenario where the arbitrator has not been moved u/s.33 or having moved the arbitral tribunal has been obstinate in not correcting, a Court in s.34 to uphold the maxim actus curiae neminem gravabit can invoke power and correct computational errors, clerical or typographical errors or any other similar errors without modifying, altering or adding to the original award. [Paras 139, 141]

Arbitration and Conciliation Act, 1996 – ss.34(4) and 37 – Power u/ss.34(4) and 37 – Suo moto exercise of s.34(4) – Modification versus remitting:

Held: [per Sanjiv Khanna, CJI (for himself and for B.R. Gavai, Sanjay Kumar and Augustine George Masih, JJ.] If uncertainty obscures the exercise of modification powers, the courts must not modify the award, instead, should avail their remedial power and remand the award to the tribunal u/s.34(4) for reconsideration of specific aspects – It cannot be said that remand powers make modification unnecessary – They are distinct powers and are to be exercised differently – s.34(4) does not authorize the arbitral tribunal to rewrite the award on merits or to set it aside – Primary objective is to preserve the award if the identified defect can be cured, thereby avoiding the need to set aside the award – If the award suffers from serious acts of omission, commission, substantial injustice, or patent illegality, the same may not be remedied through an order of remand – Additionally, remand may be inappropriate when it does not serve the interests of the parties, particularly in time-sensitive matters or where it would lead to undue costs and inefficiencies – Once an order of remand is granted, the arbitral tribunal has the authority to vary, correct, review, add to, or modify the award. [Paras 55, 56, 58, 60, 62]

Held: [per K.V. Viswanathan, J. (Supplementing)] Ordinarily the stage of s.34(4) would arise when the Court has put the award through the test of fire under the prior clauses of s.34 and entertains the opinion that there are grounds for setting aside the arbitral award – Power to remit u/s.34(4) can be exercised for undoing the curable defects – s.34(4) is the safety valve provided in the 1996 Act by the legislature to prevent awards being set aside and to offer a chance to the arbitral tribunal to adopt a course correction – Court is even Suo Moto empowered to invoke powers u/s.34(4) in accordance with the parameters set out – All that s.34 mentions is a request being made and there is no prescription that the request should be in writing. [Paras 128, 131, 132, 134, 136] Arbitration and Conciliation Act, 1996 – s.34 – National Highways Act, 1956 – Modification of arbitral award under the NHAI Act – Permissibility:

Held: [per Sanjiv Khanna, CJI (for himself and for B.R. Gavai, Sanjay Kumar and Augustine George Masih, JJ.)] Jurisdiction conferred u/s.34 does not distinguish between statutory and non-statutory arbitration in terms of the scope of courts’ power of review – Submission that s.34 should be expansively interpreted to permit modification of awards under the NHAI Act, particularly court should be allowed to modify quantum of compensation as the Act involves statutory arbitration, is untenable in law. [Para 70] Held: [per K.V. Viswanathan, J. (Supplementing)] Interpretation of s.34 cannot be bifurcated, and one set of interpretations for commercial arbitrations and another for statutory arbitrations to which the A&C Act is applicable, cannot be offerred – Submission that differential interpretation of the A&C Act for some statutory arbitrations alone is rejected. [Para 119]

Arbitration and Conciliation Act, 1996 – s.34 – Application for setting aside arbitral award – Post-award settlement, if allowed – Abandonment of claims for which awards have been granted, or compromise arrived at between the parties contrary to the terms of the award – Effect:

Held: [per Sanjiv Khanna, CJI (for himself and for B.R. Gavai, Sanjay Kumar and Augustine George Masih, JJ.)] Parties are entitled to enter into an agreement or settlement even after an award is pronounced – Law of the land does not bar the parties from entering into a post award or post decree settlement – Such settlement must be verifiable and in accordance with law, the settlement is not a result of undue influence, force, fraud, coercion, etc. [Para 80]

Held: [per K.V. Viswanathan, J. (Supplementing)] In case of settlements which are not severable, the option would be to dismiss the s.34 application as not pressed, in view of the settlement arrived at – If the compromise has the effect only of severing a standalone portion of the award with it being not inseparably intertwined with any other portion, s.34 Court can give effect to compromise and sever that portion of the award in accordance with the principles of severability – Same principle would apply with regard to abandonment or giving up of claims by a successful party – However, if the aspects are not severable and the abandonment/giving up has the effect of impinging upon the award and is inseparably intertwined, then the option available to the s.34 Court is to set aside the award. [Paras 154, 155] Arbitration and Conciliation Act, 1996 – s.34 – Application for setting aside arbitral award – Power of recourse to a court against arbitral award u/s.34 – Scope and ambit – Discussed. [Paras 27-30]

Arbitration and Conciliation Act, 1996 – s.34 – Application for setting aside arbitral award – Permissibility and scope of the court’s modification powers, within the parameters of s.34 – Difference between setting aside the award and modification of the award:

Held: [per Sanjiv Khanna, CJI (for himself and for B.R. Gavai, Sanjay Kumar and Augustine George Masih, JJ.)] Modification and setting aside of the award have different consequences, the former alters the award, while the latter annuls it – Recognizing any modification power will not inevitably lead to an examination of the merits of the dispute – It completely depends on the extent of the modification powers recognised. [Para 39] Arbitration and Conciliation Act, 1996 – s.34 – Application for setting aside arbitral award – Limited power of modification in s.34:

Held: [per Sanjiv Khanna, CJI. (for himself and for B.R. Gavai, Sanjay Kumar and Augustine George Masih, JJ.)] To deny courts the authority to modify an award-particularly when such a denial would impose significant hardships, escalate costs, and lead to unnecessary delays would defeat the raison d’être of arbitration – s.34 limits recourse to courts to an application for setting aside the award, however, s.34 does not restrict the range of reliefs that the court can grant, while remaining within the contours of the statute – Power cannot contradict the essence or language of s.34 – Modification represents a more limited, nuanced power in comparison to the annulment of an award, as the latter entails a more severe consequence of the award being voided in toto – Read in this manner limited and restricted power of severing an award implies a power of the court to vary or modify the award – Silence in the 1996 Act, should not be read as a complete prohibition – Thus, u/s.34 court can apply the doctrine of severability and modify a portion of the award while retaining the rest – Power of judicial review u/s.34, and the setting aside of an award, should be read as inherently including a limited power to modify the award within the confines of s.34. [Paras 41-46]

Arbitration and Conciliation Act, 1996 – ss.34, 43(4) – Application for setting aside arbitral award – Limitation period – Calculation of, within which the fresh arbitration or court proceedings to be commenced:

Held: [per Sanjiv Khanna, CJI (for himself and for B.R. Gavai, Sanjay Kumar and Augustine George Masih, JJ.)] Once an award is set aside, it becomes null and void, but the original dispute may still require resolution – s.43(4), enables the parties to initiate fresh arbitration or court proceedings in relation to the dispute – s.43(4) stipulates that the period between the commencement of arbitration and the Court’s order setting aside the award is excluded for the purposes of calculating the limitation period under the Limitation Act – Time during which the award is in force is not counted – s.43(4) provides liberty for the parties to invoke either arbitration or court proceedings, as applicable, following the annulment of the award – Limitation Act, 1963. [Para 81]

Arbitration and Conciliation Act, 1996 – s.34 – Application for setting aside arbitral award under – If words “and, to the extent” and the words “or modified”, and “to the extent”can be read into s.34:

Held: [per K.V. Viswanathan, J.] It cannot be said that words “and, to the extent” and the words “or modified”, and “to the extent” be read into parts of s.34 – Where the language is plain and clear, the Court will prefer the plain meaning rule and when there is no casus omissus, the Court cannot interpret a statute as to create one – s.34 speaks of ‘recourse’ being taken against an arbitral award – s.34 clearly states that an arbitral award may be “set aside” by the Court “only if” the prescribed circumstances are established – Phrase “only if” in the context in which it is used makes it amply clear that only if the grounds prescribed are established could the award be set aside – Combined use of the phrase “set aside” and “only if” read with the phrase “recourse” makes it amply clear that the only manner of interfering with the award as permitted in the Act, is to file an application to set aside or annul the award by establishing the grounds prescribed therein – ss.5, 33. [Paras 70, 73-76]

Arbitration and Conciliation Act, 1996 – s.34 – Application for setting aside arbitral award – Plea that hardship will be caused if power to modify is not read in s.34:

Held: [per K.V. Viswanathan, J.] Submission that absurdities will result and hardship will be caused if power to modify is not read in cannot be accepted since s.43(4) itself contemplates that on the setting aside of the award the option is to commence proceedings including arbitration with respect to the dispute – Law makers are fully conscious of the situation that setting aside of the award will result in the dispute continuing to be thrown open at large since notwithstanding the setting aside of the award the legal position is that the arbitration agreement survives, except in situations where the order setting aside has findings impinging on the validity of the arbitration agreement itself – Recommencement of proceedings including arbitration proceedings-wherever legally maintainablebeing expressly contemplated in the statute the same cannot be brushed aside on the grounds of causing hardship to the parties. [Paras 77, 81]

Arbitration and Conciliation Act, 1996 – s.34 – Application for setting aside arbitral award – Contrast between the appellate power under Code of Civil Procedure and powers available to s.34 Court:

Held: [per K.V. Viswanathan, J.] Wide power under CPC is not available to a Court u/s.34 while entertaining an application to set aside the arbitral award – Court does not sit in appeal over the arbitral award – Arbitration has its origin in the contract between parties where parties have stepped out of the ordinary judicial process and in that sense there is an ouster of the jurisdiction of the Court’s power to adjudicate – s.34 Court unless expressly authorized by law cannot modify or vary the award since it will be tantamount to exercising the power of merits review, when parties have contracted to have their disputes referred to a third party outside the normal judicial process, for adjudication by arbitration – Code of Civil Procedure, 1908. [Paras 84, 87-89] Arbitration and Conciliation Act, 1996 – s.34 – Application for setting aside arbitral award – Power to ‘modify’, if a lesser power: Held: [per K.V. Viswanathan, J.] Qualitative nature of an appellate power is different from the power u/s.34 – Power to modify is not a lesser power to that of the power to set aside, as the two operate in separate spheres and are not of the same genus – They do not have similar characteristics – It cannot be said that power to set aside is larger and power to modify is smaller or lesser without keeping the context in which s.34 occurs in the Act and without considering the very ecosystem of the arbitration process – Thus, the power to modify which would include the Court entering the arena of adjudicating the dispute on merits when parties have contractually agreed to go to the arbitrator, cannot be said to be subsumed in the power to “set aside”. [Paras 91, 93] Arbitration and Conciliation Act, 1996 – s.34 – If Court can lay down guardrails for s.34:

Held: [per K.V. Viswanathan, J.] There are no judicially manageable standards and this Court cannot venture into formulating guidelines as myriad situations will arise when s.34 applications are heard before the appropriate Courts – It would amount to judicial legislation which the Court is loathe to do. [Para 117]

Arbitration and Conciliation Act, 1996 – s.34 – Application for setting aside arbitral award – Judgment in ‡Hakeem’s case, if per incuriam:

Held: [per K.V. Viswanathan, J.] Judgement in Hakeem’s case rightly interpreted the provisions of A&C Act and is in no manner conflict with any ratio of a co-equal or larger Bench – It cannot be said that Hakeem’s case is per incuriam for not noticing Western Geco’s case – Other judgments prior to Hakeem’s case have not discussed the aspect whether power to modify exists in a s.34 Court – Hakeem’s case insofar as it held that a s.34 Court has no power to modify the award, is not per incuriam. [Paras 126, 127] Judicial process – Contractual ouster of normal judicial process: Held: [per K.V. Viswanathan, J.] When parties agree to arbitrate, they consciously agreed to step out of the normal judicial process and submit their dispute to a third party – Parties are also conscious that when they agree to arbitrate, their rights and liabilities would be governed by the regulating Act, A&C Act – Thus, there is a contractual ouster subject to the terms of the A&C Act of the normal judicial process – Arbitration and Conciliation Act, 1996. [Para 82] Legal maxims – Application, when:

Held: [per K.V. Viswanathan, J.)] Legal maxims to be deployed after ascertaining context – Mechanical deployment of the legal maxims unless they apply on all fours to a case to be discouraged – Legal maxims, no doubt, are very useful tools but its application has to be with great caution – There would be uncertainity and sometimes legal maxims if deployed without adequate attention may lead to pitfalls. [Para 97]

Code of Civil Procedure, 1908 – s.151 – Inherent powers of the Court u/s.151, if available to modify awards: Held: [per K.V. Viswanathan, J.] s.34 is couched in clear terms and the parameters for setting aside the award are clearly laid out in mandatory terms – Inherent powers under CPC cannot be exercised in a manner to be in conflict with the expressly provided powers by the legislature – It cannot be said that s.34 recourse is taken in the normal Civil Courts as defined in s.2(e) of the A&C Act and those Courts being Civil Courts of Original jurisdiction or the High Courts the inherent power vested in them should be available to modify awards – Arbitration and Conciliation Act, 1996. [Para 99] Doctrines – Doctrine of implied power, if vest in s.34 Court a power to modify the award:

Held: [per K.V. Viswanathan, J.] Doctrine of implied powers is invoked to effectuate the final power – Where it is impossible to effectuate the final power unless something not authorized in express terms be also done, in such an event, the power will be supplied by necessary intendment as an exception – No scope for applying the doctrine of implied power to modify awards – No implied power needed to effectuate the final power provided u/s.34 and, there is no impediment to exercise the final power. [Paras 102, 103] Arbitration – Arbitration process – Concept of party autonomy: Held: [per K.V. Viswanathan, J.] Party autonomy enables parties to dispense with technical formalities and procedures of National Court proceedings, contractually – They agree to abide by the terms of the statute regulating arbitration which they perceive as advantageous – Having done so, they cannot be allowed to cry afoul, when it does not suit their needs and clamor for certain procedures which are legislatively not sanctioned in the arbitration process and are available in the normal machinery of the Courts – s.34 Court cannot be invited to enter into the merits – Limited recourse available is the one provided u/s.34 and when the Section is plain and clear the historical, textual and the contextual interpretation does not permit the reading in of any implied power to expand the scope of s.34 – Arbitration and Conciliation Act, 1996 – s.34. [Para 105]