The Supreme Court has upheld the sanctity of arbitration awards by overturning changes made to an award made by a civil judge and upheld by the high court.
In the matter of SV Samudram v State of Karnataka [2024], the issue before the Supreme Court was around modifications made to an arbitral award under sections 34 and 37 of the Arbitration & Conciliation Act, 1996.
The appellant had filed a section 34 appeal before the civil judge, contesting the arbitrator’s award claim. The appellant claimed the award passed was lacking any sound reasoning. The judge proceeded to modify the arbitrator’s award and reduced the costs awarded by the arbitrator.
This decision was later upheld by the high court, although it differed with certain findings of the civil judge. Therefore, the main challenge before the Supreme Court was whether the modification made by the civil judge and upheld by the high court were legally justified. In its judgment, the Supreme Court criticised the civil judge’s modification as a deviation from the statutory framework, stating that the judge cited inconsistent reasons that did not align with the restricted grounds under section 34.
The court highlighted the changes in section 34 before and after a 2015 amendment to the act, which limited grounds for challenging awards and introduced the concept of patent illegality on the face of an award. It emphasised that under section 37, too, challenges were confined to confirming, setting aside, or rejecting applications, and no other interference was warranted.
Referring to the cases of National Highways Authority of India v M Hakeen [2021] and Delhi Airport Metro Express Private Limited v Delhi Metro Rail Corporation Limited Civil Appeal No 5627 of 2021, the court highlighted that the question of modification of an arbitral award was no longer res integra (an entirely new or untouched matter). It was also emphasised that an award passed by a technical expert was not meant to be scrutinised in the way a legally trained mind would do.
In conclusion, the court emphasised that any attempt to modify an award under section 34 would exceed legal boundaries as courts were only empowered to set aside awards on specified grounds. It emphasised focusing on the substance of findings rather than a literal interpretation and highlighted the binding nature of arbitral proceedings compared to judicial proceedings.
The court set aside the challenged order and reinstated the original arbitral award, showcasing the importance of independence of arbitral proceedings.
The dispute digest is compiled by Numen Law Offices, a multidisciplinary law firm based in New Delhi & Mumbai. The authors can be contacted at support@numenlaw.com. Readers should not act on the basis of this information without seeking professional legal advice.
