Courts lacks Authority to Modify Awards Under Section 34 of the Arbitration and Conciliation Act : Supreme Court Affirms
The Supreme Court has restated a pivotal legal principle regarding the powers of a court under Section 34 of the Arbitration and Conciliation Act. It reiterated that courts do not possess the authority to alter the decisions rendered through arbitration. This specific section delineates the limited circumstances under which a court can interfere with an arbitration award. Notably, this interference is permissible solely in cases of patent illegality.
The clarification came from a bench comprising Justices S Ravindra Bhat and Dipankar Datta. They elucidated that the court's jurisdiction under Section 34 is meticulously constrained. It empowers the court to intervene in an award only if it is marred by blatant legal errors that can be categorized as patent illegality. The court went on to underscore that this illegality must be of a substantial nature, going to the core of the matter, and not merely trivial in nature.
The Hon’ble Court highlighted that the earlier Arbitration Act of 1940 did include a provision that allowed the court to modify an arbitration award. However, this power was consciously omitted when Parliament enacted the Arbitration and Conciliation Act of 1996. This omission in the new Act underscored the clear intention of the legislative body to divest the court of any authority to modify an award.
The case at hand involved the Allahabad High Court's modification of an arbitral award, particularly reducing the interest rate from a compounded 18% to a simple interest of 9% per annum. The Hon’ble Supreme Court, ruled against this modification, emphasizing that the High Court exceeded its jurisdiction.
In its decision, the Supreme Court outlined the grounds upon which an award can be interfered with. Apart from patent illegality, another ground is the denial of natural justice. The court made it clear that merely reasonable interpretation of contractual terms by an arbitrator does not warrant setting aside an award. This further reaffirmed the court's commitment to respecting the autonomy and authority of arbitrators within the framework of their mandate.
Moreover, the appellate review of an award is also constrained by Section 37 of the Arbitration and Conciliation Act. This section limits the scope of review by the appellate court to instances where an award has been upheld or substantially upheld under Section 34.
The Hon’ble Supreme Court's ruling underscores the principle that the court's intervention in arbitration awards is minimal and primarily reserved for instances of grave illegality or denial of natural justice. This reaffirms the Act's intent to uphold the finality of arbitration awards and the authority of arbitrators in rendering them.