Alerts & Updates 31st Aug 2023

National Highways Authority of India v. Trichy Thanjavur Expressway: Courts under Section 34 can partially set aside separate, complete and self-contained claims

Authors

Alok Jain Partner | Mumbai
Samarth Saxena Senior Associate | Mumbai
Anuli Mandlik Advocate | Mumbai

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  • “You raise the blade, you make the change,

    You rearrange me till I am sane.”[1]

    Exercising the scalpel, the Delhi High Court in National Highways Authority of India v Trichy Thanjavur Expressway Ltd [2] (Trichy), has held that when an arbitral award is challenged under Section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act), the court is not empowered to modify the award, but can surgically set aside severable parts of the arbitral award.

  • Background

    The issue is not a new one. However, it warranted a look in light of the decision of the Hon’ble Supreme Court in NHAI v. M. Hakeem (M. Hakeem)[3] wherein the Supreme Court had held that an arbitral award could not be modified by a court hearing a challenge to the award.

    The judgement in M. Hakeem pertained to arbitral awards whereby land compensation was awarded in relation to lands acquired under the National Highways Act, 1956. Dissatisfied by the compensation awarded, challenges were filed against these arbitral awards. The court hearing the challenge modified the compensation upwards. When the matter reached the Supreme Court, it ultimately held that it was impermissible for the court to modify an award; the court could either uphold it or set it aside.

    Since the natural consequence of a blanket embargo on a court’s power to modify an award under Section 34 was construed by many as a prohibition on partial setting aside of an arbitral award, the question was posed to the Delhi High Court whether modification of an award would include within its ambit partial setting aside. If the answer is in the affirmative, partial setting aside would be impermissible and an entire arbitral award would be set to nought because of one defect.

    There also existed conflicting precedents of various High Courts, allowing[4] and disallowing[5] partial setting aside of arbitral awards. Further, the decision in M. Hakeem had failed to consider J.G. Engineers Private Limited v. Union of India[6] (J.G. Engineers). In J.G. Engineers, the Supreme Court had already held that if an arbitral award dealt with several claims separately and distinctly, then a court could separate the claims which did not suffer from any infirmity and uphold the award to that extent. Thus, the Delhi High Court was called upon to answer the question in light of these various decisions.

  • Findings of the Court

    Modification v. Partial Setting Aside

    The Delhi High Court held that partial setting aside of an award would not be contrary to the judgement in M. Hakeem since:

    • Hakeem did not deal with the question of partial setting aside of an award at all. It only dealt with modification of an award.
    • The expression ‘modify’ in Hakeem would mean a “variation or modulation of the ultimate relief that may be accorded” by the arbitral tribunal.
    • Partially setting aside an arbitral award would not necessarily fall within the subset of modification as it would be confined to the offending part of the award which would lead to annulment thereof and not a modification.
    • If partial setting aside renders other portions of the arbitral award unsustainable, then it would be a subset of modification and such an action would fall afoul of Hakeem.
  • The power to partially set aside emanates from the statute.

    Although Section 34 does not contain an overarching provision permitting the court to partially set aside an award, the Delhi High Court found that such a power could be read into it by holding as follows:

    • Section 34(2)(a)(iv) enumerates a ground for setting aside which is limited to whether the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration.
    • However, the proviso thereto permits the court to set aside part of the arbitral award as long as the decisions on matters submitted to arbitration can be separated from those not so submitted.
    • The proviso to Section 34(2)(a)(iv) of the Arbitration Act expressly rescues the valid parts of an award and safeguards the parties from restarting arbitration from scratch. This proviso is in fact an “acknowledgement” of partial setting aside not being an alien concept and further indicates that parts of an award can be viewed as separate and distinct.
    • Recognition of each claim as an award by itself is contemplated by the Arbitration Act as the arbitral tribunal has the power to render interim final awards in respect of various claims.[7]
  • A separate and distinct claim in an award forms an award in itself and the award in respect of such a claim may be set aside whilst upholding another distinct claim.
    • Partial setting aside is only permissible if the award is in relation to several claims each of which are separate, complete and self-contained in themselves.
    • The claims should be of such a nature that any decision rendered thereon ought to be viewed as distinct irrespective of an invalidity in other claims.
    • An award on a claim that is not “entwined or interdependent upon another” would constitute an independent award in itself. An award containing such claims therefore needs to be understood as an agglomeration of awards and in such cases, the court may set aside the award in respect of certain independent and distinct claims whilst upholding others.
  • Conclusion

    The consequence of losing the entire arbitral award to a partial defect is one of the most dreaded outcomes for an award-holder. The Delhi High Court, by way of the instant judgment, has afforded clarity to the practice of partially setting aside awards in India and has struck the right balance between minimal intervention by courts in arbitral awards and preventing travesty of justice.

    Nevertheless, unless the courts uphold the concept of minimal intervention in arbitral awards, the state of challenged awards could easily resemble Frankenstein disassembled and reassembled by an overzealous surgeon.

    This is a gift. It comes with a price. Who is the lamb and who is the knife?[8]

  • We hope you have found this information useful. For any queries/clarifications please write to us at insights@elp-in.com or write to our authors:

    Alok Jain, Partner – Email – AlokJain@elp-in.com   
    Samarth Saxena, Senior Associate – Email – SamarthSaxena@elp-in.com 
    Anuli Mandlik, Advocate – Email – anulimandlik@elp-in.com

  • References:

    [1] ‘Brain Damage’ from the album ‘The Dark Side of the Moon’ by Pink Floyd.
    [2] 2023 SCC OnLine Del 5183
    [3] (2021) 9 SCC 1
    [4] R.S. Jiwani v. IRCON International Ltd., 2010 (1) Mh. L.J. 547; Union of India v. Alcon Builders & Engineer(P) Ltd., 2023 SCC OnLine Del 160; Navayuga Engineering Company Ltd. vs. Union of India 2021 SCC OnLine Ker 5197
    [5] MBL Infrastructures Ltd. v. Telecommunication Consultants of India, 2022 SCC OnLine Del 4613
    [6] (2011) 5 SCC 758
    [7] See Section 2(c) of the Arbitration Act.
    [8] ‘Rabbit Heart (Raise it Up)’ from the album ‘Lungs’ by Florence and the Machine

Disclaimer: The information contained in this document is intended for informational purposes only and does not constitute legal opinion or advice. This document is not intended to address the circumstances of any individual or corporate body. Readers should not act on the information provided herein without appropriate professional advice after a thorough examination of the facts and circumstances of a situation. There can be no assurance that the judicial/quasi-judicial authorities may not take a position contrary to the views mentioned herein.