Introduction

Recently, in Project Director, National Highways Authority of India v M Hakeem and another, the Supreme Court held that Section 34 of Arbitration and Conciliation Act, 1996 (Arbitration Act), does not provide the power to modify the arbitral award. The only remedies available to a court under Section 34, in case the challenge is successful, is to either set it aside or remand the matter to the arbitral tribunal.

In this article, I discuss that this case is a missed opportunity to lay down principles/guidance for consequences of setting aside an award and whether courts should have the power to vary award. I also discuss whether in-principle in-eligibility of an arbitrator as held in Perkins Eastman Architects DPC and another v. HSCC (India) Ltd, should also apply to statutory arbitrations.

NHAI v Hakeem

The awards in question were rendered under statutory arbitrations under the National Highways Act, 956 (NH Act). The NH Act provides a mechanism for acquisition of land for construction of national highways. As per the scheme, the competent authority determines the compensation payable to the land owner. If the same is not acceptable to NHAI or the land owner, it is determined by an arbitrator appointed only by the Central Government as per Section 3G (5) of NH Act. Section 3G (6) of NH Act specifies that subject to the provisions of NH Act, the provisions of Arbitration and Conciliation Act will apply to every arbitration under NH Act. The awards were made for compensation for land acquisition. The basis of compensation was ‘guideline value’ of lands in question which were very low amounts and not the value of sale deeds of similar lands. The awards were challenged before the District and Sessions Judge and the compensation for acquisition of land per square metre was enhanced. Thus, the awards were modified by the Section 34 court. In the appeal before the Division Bench of Madras High Court, the modification of awards was upheld. The validity of this modification was challenged before the Supreme Court. A peculiar fact was that in some cases, NHAI had deposited compensation before the Section 34 and it was received by the landowners. There was no challenge to the modification of the award in these cases.

Issue before the Supreme Court – Whether power of a court under Section 34 of the Arbitration Act to “set aside” an award, includes the power to modify the award?

The court held that Section 34 of Arbitration Act does not include the power to modify the arbitral award. The only remedies provided in Section 34 for the court hearing a challenge to an award, in case the challenge is successful, is to either set it aside or remand the matter to the arbitral tribunal.

In paragraph 48, the Court did observe that the arbitrator has awarded compensation on a completely perverse basis i.e., by taking into account ‘guideline value’, which is relevant only for stamp duty purposes, and not taking into account the sale deeds which would have reflected the proper market value of the land.However, it seems the court cannot remedy the wrong in such a situation.

In paragraph 53, the court notices that it cannot appreciate why the regime of appeal under Land Acquisition Act does not apply in NH Act and NH Act provides for an award by an arbitrator who is clearly not independent. The award cannot be challenged on merits.

In paragraph 54 and 55, the court observes that differential compensation cannot be provided by the government for national highways and acquisition for other purposes. Logically, the compensation for land acquired for national highways ought to be higher. However, in the facts of the case, the court declined to exercise its jurisdiction under Article 136, dismissed the appeal but did not suggest fresh arbitration.

Approach of other countries in modifying award

Courts in United Kingdom^[1], Australia^[2], and Singapore^[3] have the express power to vary awards. These countries adopted the UNCITRAL Model law which does not provide for power of court to vary the award, but later modified the law to keep up with the development.

For instance, in the United Kingdom, if an application to challenge an award for lack of substantive jurisdiction succeeds, the court has the power to confirm, vary or set aside the award in whole or in part (Section 67(3)). If a challenge succeeds on the grounds of serious irregularity, the court has the power to remit all or part of the award to the tribunal for reconsideration, or to set aside the award, or to declare the award to be of no effect, in whole or in part (Section 68(3)). If an award is successfully appealed on a point of law, the court may confirm or vary the award, remit the award to the tribunal, or set aside the award in whole or in part (Act, Section 69(7)).

In India, the Madras High Court^[4], Telangana High Court^[5] and the Andhra Pradesh High Court^[6] have held that under Section 34, courts can modify awards. The main reason that weighed with these courts for their view was that mere setting aside the arbitral award would “leave the parties in a position much worse than what they contemplated or deserved before the commencement of the arbitral proceeding”^[7].

There is a suggestion by the court in paragraph 46 of NHAI v Hakeem, for Parliament to amend the legislation and bring it in line with legislations across the world. There is no real benefit in not providing for power to modify/vary the award as relegating parties to a fresh arbitration, after setting aside an award, serves no purpose. In that sense, parties are better off litigating in courts than opting for arbitration. Therefore, to keep pace with the development of the law, the Indian parliament should consider providing courts the power to vary award. This will not only save parties time but also the expense of another trial.

Consequences of setting aside award

See the big picture. The competent authority (government) gives compensation for acquisition of land by the land owner. The land owner finds the compensation inadequate and challenges it in arbitration before the arbitrator appointed by the government. The arbitrator cannot look at merits but finds the compensation inadequate and sets aside the award. In other words, the land owner deserves greater compensation. The government most likely would have acquired the land but the land owner must continue to fight for enhanced compensation in fresh arbitration.

This is where the consequences of setting aside an award become relevant. This case could have been an opportunity for guidance on consequences of setting aside of an award and its bearing in fresh arbitration.

Will the new tribunal be appointed by government under NH Act?

Will the new tribunal conduct proceedings afresh – in which case there is a chance that the compensation given by the authority will be upheld?

Will observations of Section 34 court on the merits of the matter constitute estoppel before the new tribunal? In this way, at least the court which held the award bad and gave reasons for enhancing compensation – those reasons could ensure for the benefit of the land owner?

Will the parties file the same pleadings before the new tribunal, or can they file new pleadings?

Will the evidence be led afresh?

Will everything from the earlier proceeding stand wiped out?

In an earlier article, I discussed that there are issues of estoppel which will likely have a bearing on the fresh arbitration proceedings.

In-principle ineligibility for appointment as an arbitrator – does it apply to arbitrations under NH Act?

The court in Perkinsheld that a person who has an interest in the outcome or award passed by the arbitrator during arbitration is not entitled to appoint an arbitrator, irrespective of the fact that the parties agreed to it at the time of entering into the contract.

In Sayedabad Tea, the court recognized that the provisions of the Arbitration Act will apply to every arbitration under NH Act to the extent NH Act is silent. As there is no separate provision under the NH Act, for challenging the appointment of arbitrator, Section 12 of the Arbitration Act and Perkins hold the ground.

The Central Government is an interested party in arbitrations arising out of NH Act and in the author’s view appointments made by the Central Government, should be non-est after Perkins. However, after Perkins, in Railways Electrification v. M/s ECI-SPIC-SMo-MCML (JV), the court upheld the validity of the arbitration clause where a party, having the unilateral power to appoint an arbitrator, constituted a panel of arbitrators and the other party could choose from the panel. The court found that a panel counter balances the unilateral power of one party to appoint an arbitrator. Therefore, this decision provides a solution to the Central Government to constitute a panel of arbitrators while appointing arbitrator under NH Act, instead of appointing a sole arbitrator unilaterally and falling foul of Perkins.

***Research contribution by Deeksha Pokhriyal, 3rd year B.A., LL.B. (Hons.) student at NALSAR University of Law.