Severability Doctrine enshrined in under Section 34 of A&C Act allows partial setting aside of Arbitration Award, rest remains valid": Delhi High Court
The High Court of Delhi delivered a significant ruling regarding the authority of courts under Section 34 of the A&C Act to partially set aside arbitration award.
In response to two cross petitions filed under Section 34 of the A&C Act seeking partial modification of an arbitration award dated 07.08.2022, the court was prompted to address this issue. The court's attention was drawn to the ruling in M. Hakeem, which had established limitations on modifying arbitration awards. In light of these circumstances, the court issued a notice inviting legal counsels, including notable figures like Gaurab Banerjee, Dayan Krishnan, Rajshekhar Rao, Ciccu Mukhopadhyay, Gaurav Pachnanda, Dr. Amit George, Gautam Narayan, and others, to provide their insights on the scope of the court's power to partially set aside arbitration awards under Section 34(4) of the Act.
The collective submissions of these legal experts encompassed several key points. They stressed that arbitration awards consist of discrete findings, each capable of being treated as an independent award. They argued that the authority for courts to partially invalidate an award lies in Section 34(2)(a)(iv), enabling them to annul the contentious segment without affecting the rest. They also drew attention to the precedent set by the High Court of Bombay in RS Jiwani v. Ircon International, which recognized the doctrine of severability and upheld the legislative intent of expedited dispute resolution through arbitration.
Furthermore, the legal experts emphasized that the mere separation of claims and counterclaims within an award may not automatically render it severable. Instead, what's pivotal is whether the unaffected sections can stand independently without any reliance on or connection to the objectionable portions. They illustrated scenarios where partial severance is appropriate, such as when quantification is contested while the core finding remains unchallenged.
The Hon’ble Court presided over by Justice Yashwant Varma, after hearing the submissions of the Counsels passed its judgment affirming that the courts possess the jurisdiction to selectively nullify specific portions of an arbitration award, leaving the remainder intact. This decision stems from a case titled NHAI v. Trichy Thanjavur Expressway Ltd, OMP(COMM) 95 of 2023.
Justice Varma's bench underscored the crucial concept of severability within arbitration awards, a principle explicitly recognized in Section 34(2)(a)(iv) of the Arbitration and Conciliation Act. The ruling emphasized the individuality and autonomy of different components constituting an arbitration award. This recognition enabled courts to eliminate objectionable segments without disturbing the unaffected parts of the award. The court, however, highlighted that the permissibility of partial invalidation hinges on the self-contained nature of the decision in question. It further stressed that the outcome should not have any adverse impact on interconnected claims or declarations made by the arbitral tribunal.
Importantly, the court clarified that its ruling did not conflict with the precedent set by the M. Hakeem case. The M. Hakeem decision specifically pertains to the modification of arbitration awards, distinguishing it from the act of selectively setting aside contentious portions. The court's clarification reinforced the distinction between partial setting aside and substantive modification.