The Jammu & Kashmir and Ladakh High Court has set aside a judgment from a subordinate court modifying an arbitral award while underscoring that under Section 34 of the J&K Arbitration and Conciliation Act, 1997, courts lack the authority to modify arbitral awards and can only either uphold or set aside the awards.
The question arose from an award in which the Arbitral Tribunal directed the J&K Government to pay over ₹78.92 crores to the claimants, along with interest. The J&K Government sought to challenge this award under Section 34 of the Act, but the Additional District Judge, Srinagar, had modified the award, prompting further appeals.
Justice Vinod Chatterji Koul, who was hearing the matter, underscored the court’s limited role in arbitration proceedings. He observed, “Any attempt to modify an award under Section 34 would amount to ‘crossing the Lakshman Rekha.’ The jurisdiction conferred on courts under this section is narrow and does not extend to correcting errors made by the arbitrators.”
Justice Koul underscored that the legal framework does not permit courts to alter arbitral awards. He cited a series of Supreme Court precedents, including National Highways Authority of India v. M. Hakeen and another and Dakshin Haryana Bijli Vitran Nigam Limited v. Navigant Technologies Private Limited, which collectively affirm that courts cannot modify awards under Section 34.
Justice Koul noted, “Under Section 34, the court may either dismiss objections filed, and uphold the award, or set-aside the award if the grounds contained in Subsections (2) and (2-A) of Section 34 are made out. There is no power to modify an arbitral award. The court cannot correct the errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is desired.”
Additionally, the court cited MMTC Ltd v. Vedanta Ltd, which underscores that the scope of interference under Section 34 is limited and should not extend to reassessing the merits of the award.
Justice Koul remarked that UHL Power Company Limited v. State of Himachal Pradesh established the narrow jurisdiction of courts under Section 34 and further restricted the appellate jurisdiction under Section 37.
The J&K Government had also argued that the arbitral award was against public policy as it involved misinterpretation of statutory provisions and could potentially harm public interest. They contended that the award should be set aside on these grounds.
Justice Koul cited the Supreme Court’s decision in ONGC Ltd v. Saw Pipes Ltd and observed that an award could only be set aside on these grounds if it is so unfair or unreasonable that it shocks the conscience of the court, emphasizing that minor illegalities would not suffice. The illegality must be significant and go to the root of the matter to justify setting aside the award.
The court eventually found the lower court’s decision to modify the arbitral award to be incorrect. Consequently, it set aside the judgment of the Additional District Judge, Srinagar, and remanded the matter back to the lower court for expeditious resolution, directing it to decide the matter within two months.
Case Title: UT of J&K Vs M/s Hindustan Constructions Co. Limited and others
Citation: 2024 LiveLaw (JKL) 197
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