Case Citation: Project Director, NHAI v. M Hakeem 2021 SCC Online SC 473.
Bench: Rohinton Fali Nariman, B.R. Gavai
Decided on: 20 July 2021
Relevant Act/Section/Article: Section 34, 37 of the Arbitration and Conciliation Act, 1996
In this case, the Supreme Court of India (Apex Court) has brought clarity to a debate that has raged for decades. The Apex Court has held that it would be crossing the “Lakshman Rekha” if there will be the inclusion of the power for the courts to amend an arbitral award given by the arbitrators as per section 34,” reiterating that there was minimum court intervention in arbitral awards as per the position that the statute envisions. This decision has cleared the air around this.
Following the National Highway Act of 1956, which mandated the publication of a variety of notices[i], the competent authority promulgated a few orders. In this particular instance, the Special District Revenue Officer is the authority that should be consulted (SDRO). The SDRO is authorized to make decisions regarding the amount of land that will be compensated for being used for highway construction. If either party is unhappy with the payment or compensation that SDRO has made or decided, the dispute will be settled through the process of arbitration. When it came time to make these orders, the competent authority referred to the guideline value of the lands in question rather than the value that was derived from the sale deeds of other lands that were identical to those being ordered sold. As a direct consequence of this, SDRO had to compensate the affected parties with an excessively meager sum. After receiving a request to contest the compensation that was awarded, the arbitral tribunal came to the conclusion that the compensation should not be contested, which made SDRO’s order enforceable. As a direct consequence of this, the amount of compensation that was granted for each of the other claims was the same. Numerous petitions were handed into the district and session judges to have the decisions of the arbitral tribunal, which were made under section 34 of the 1996 Arbitration Mediation Act, revised.[ii] The district court concluded that it possessed the authority to both modify and overturn the arbitral award as to the provisions of section 34 of the Arbitration Mediation Act. As a consequence of this, the court decided that the amount of compensation should be raised to Rs. 645 per square meter because the amount that was originally awarded by the ruling was deemed to be insufficient. The Arbitration and Conciliation Act of 1996, Section 34, grants the court jurisdiction to modify the decision made by the arbitral tribunal. The High Court at Madras has decided that the court has the authority to increase the amount that was decided by the arbitral tribunal in light of this provision. As a consequence of this, the High Court upheld this particular aspect of the ruling made by the lower court. The Indian National Highway Authority filed an appeal with the Supreme Court of India, requesting the court to overturn the decisions that were made by the lower courts (the District Court and the High Court).
Whether the court can modify or amend the arbitral award under section 34 of the Arbitration Act or not.
According to the appellant’s attorneys, the powers granted to the appellate court under the Land Acquisition Act[iii] and section 34 of the Arbitration Law are separate from one another because the former grants the authority to “overturn the ruling” while the latter grants the authority to “refuse the ruling.” They added that the NHA was intended to provide a quick process where an objection to an arbitral award would only be dealt with following section 34 of the Arbitration Act. This challenge is not based on the award recipient’s qualifications, as was made clear by a few decisions that the Supreme Court rendered. In their argument, the appellants cited the Arbitration Act of 1940, claiming that section 15[iv] expressly grants the arbitral tribunal the authority to create or modify arbitral awards. The Arbitration and Conciliation Act of 1996, which is based on the 1985 UNCITRAL Model Law[v] on International Commercial Arbitration, however, explicitly limits the scope of alternative redress and results in remedies that can only be overruled or revoked under specific conditions.[vi]
Respondents argued that, under the appellant’s proposed interpretation of section 34, a district judge could only vacate an arbitral award that fell under its purview. As these cases would result in new arbitration proceedings before the same bureaucracy or another officer chosen by the same Government so there was no remedy for unfair awards. The Madras High Court made a distinction between consensual arbitration and arbitrators appointed by the central government who only sanction compensation awarded by other government officials.[vii] Setting aside the current decision and starting a new arbitration would be pointless because the new arbitration will take place before comparable bureaucrats are appointed by the central government.
JUDGEMENT AND OBSERVATIONS
The Supreme Court concluded that the Arbitration Act’s Section 34’s Subsections (2) and (3) only permit a small number of grounds for overturning an arbitral award. The Supreme Court came to the following conclusion. The arbitral tribunal emphasized that this section was based on the UNCITRAL model law and that the legislature’s goal in enacting it was to ensure that the arbitration process required as little interference from the courts as possible. The court also made several decisions, including those in the cases of Renusagar Co. Ltd.[viii] and SsangYong Engg & Construction Co[ix]. The Arbitration Act only specifies the directorial role of the courts, which is to examine arbitral awards, according to an earlier case[x], which the Court also cited about this issue. In certain circumstances, such as when the natural justice principles have been disregarded, it is appropriate for the court to intervene and settle the dispute. The courts are not required to make up for arbitrators’ mistakes. The Delhi High Court’s ruling[xi] was also cited by the court where it was ruled that the lower court cannot hear cases that have already been decided by the Arbitration Tribunal because the jurisdiction of the courts under section 34 differs from that of the appellate court. The legal system outlined in section 34 would be violated if the courts took this action. While doing so, the court determined that the case it had used as the basis for its decision had changed the way Article 142[xii] of the Constitution had been applied. The court reached this conclusion while discussing the petitioners’ cited case of Gayathri Balaswamy. The Arbitration Act’s Section 34, which gives judges the power to review, alter, and modify awards, was deemed inappropriate by the court to be applied in this way. This would violate a large number of judgments as well as the general structure of the arbitration law, which was created to limit the role of the courts. The arbitrator concluded that it was incorrect to interpret this judicial bias in section 34 of the arbitration agreement as the right to amend and alter awards. The arbitrator came to this conclusion because he thought the outcome would be unfair. Many awards and arbitration regimes’ terms, which limit the role of the court system, would be broken by doing this. In this case, the court affirmed the earlier observations by stating that for a judge to correctly interpret a statute’s provision, he must assume the role of the legislature and then consider whether the result was what the legislature had intended. The legislature has made it abundantly clear that no authority under Section 34 of the Arbitration Act of 1996 may be used to modify a prior arbitral award. The laws mentioned above cannot be changed by Parliament alone, according to court rulings.
ANALYSIS OF THE JUDGEMENT
By limiting the powers of Section 34, India’s Supreme Court minimized court intervention in arbitrations and strengthened India’s status as a favorable venue for arbitrations, so the decision is arguably in the right direction. Article 34 of the UNCITRAL Model Law was the inspiration for Section 34 of the Arbitration Act, which gives national courts the power to revoke all or part of the article, overturning previous versions of the Arbitration Act that expressly provided for such changes in Section 15. From this, we can conclude that the legislator wanted to limit judicial intervention in the arbitrator’s decision. The Supreme Court had already ruled on the issues raised in this case, but clarification was still needed.
QUESTIONS UNANSWERED AND CONSEQUENCES OF SETTING ASIDE AWARDS
When the land is purchased by the competent authority, the landowner will be compensated for their losses. The landowners believe that the indemnity is insufficient and are contesting the matter before arbitrators who have been appointed by the government. The arbitrator is unable to consider the proposal, but they will rule out inadequate damages and reserve their decision. To put it another way, landowners are entitled to greater compensation. There is a high probability that the land has been acquired by the government; however, the applicants are required to keep fighting for better compensation in a new arbitration proceeding. The outcome of rescinding an award becomes useful at this point in the process. This case presented an opportunity to shed light on the consequences of the abolition and how it will influence the selection of a new arbitrator, but it was passed up. Under the laws of NH, will the government establish a new court? Will a fresh proceeding be launched once the new court takes over? In that case, is it possible that the compensation offered by the relevant authority will be recognized? The question before the new tribunal is: Will the observations of Section 34 of the court on the matter’s merits constitute estoppel? Therefore, the court that at least overturned the verdict and found that the increase in compensation was warranted can use these arguments to protect the rights of property owners. The parties want to know if they can file the same defenses in the new court or if they can file a new petition instead. Will there be another round of proofs? Will everything that was done in the previous process be eliminated? In addition, there is the matter of estoppel, which has the potential to have an impact on the new arbitration.
There are three ways to interpret this case. First, the Arbitration and Conciliation Act of 1996’s Section 34 prohibits the Court from making a merit-based determination or overturning the arbitrator’s decision. Second, there cannot be any distinction between how one behaves toward others and how one compensates others in a similar circumstance. In this case, the Supreme Court finally put an end to the years-long misunderstanding regarding the Court’s authority under Section 34, clarified the law in this matter, and shifted the burden of amending the current law to keep up with international practices and to ensure justice for the parties as well to the legislature.
This case commentary is authored by JAY KUMAR GUPTA, a student of the School of Law, NMIMS Bangalore, currently in the second year pursuing BBA LL.B.(Hons.).
[i] National Highway Act 1956, s 3A
[ii] Akash Krishnan, ‘NHAI v. M Hakim: putting a quietus to issue of modification of arbitral awards’(leaders,1 November 2021)<https://blog.ipleaders.in/nhai-v-m-hakim-putting-quietus-issue-modification-arbitral-awards/> accessed on 21 July 2022
[iii] The Right To Fair Compensation And Transparency In Land Acquisition, Rehabilitation And Resettlement Act 2013
[iv] Arbitration and Conciliation Act 1940, s 15
[v] UNCITRAL Model Law on International Commercial Arbitration 1985
[vi] Subroto Banerjee, ‘India: Project Director, NHAI v M Hakeem: Analysis On Supreme Court’s Power To Modify Arbitral Award’(Mondaq,16 February 2022) <https://www.mondaq.com/india/trials-appealscompensation/1162216/project-director-nhai-v-m-hakeem-analysis-on-supreme-court39s-power-tomodify-arbitral-award> accessed on 21 July 2022
[vii] Gayatri Balaswamy v. ISG Novasoft Technologies Ltd SCC Online Mad 6568
[viii] Renusagar Co. Ltd. v. General Electric Co. [1994 ]Supp (1) SCC 644
[ix] SsangYong Engg & Construction Co. v. NHAI 4 SCC 163
[x] McDermott International Inc. v. Burn Standard Co.  11 SCC 181
[xi] Cybernetics Network (P) Ltd. v. Bisquare Technologies (P) Ltd., 2012 SCC OnLine Del 1155
[xii] The Constitution of India 1950,s 142