Supreme Court: No Authority to Amend Award Under Section 34 of Arbitration & Conciliation Act

In a recent development, the Supreme Court has once again emphasized a crucial legal principle. It reaffirmed that, within the framework of Section 34 of the Arbitration and Conciliation Act, any judicial entity does not possess the authority to alter or amend an arbitration award. This serves as a significant clarification regarding the limitations of the court’s role in matters governed by this specific legal provision.

Within the parameters of Section 34 of the Act, the court’s jurisdiction is conspicuously confined and strictly delineated. This permits the court to intervene in an award solely in the absence of patent illegality, as articulated by Justices S Ravindra Bhat and Dipankar Datta.

In this instance, the Allahabad High Court, in the process of resolving a matter under Section 37 of the statute, altered the arbitration decision by decreasing the interest component. Specifically, the interest was adjusted from a compound interest rate of 18% to a simple interest rate of 9% per year.

On appeal, the court observed that the previous legislation (Arbitration Act, 1940) included a provision that granted the court the authority to amend an arbitration award.

“However, that power has been consciously omitted by Parliament, while enacting the Act of 1996. This means that the Parliamentary intent was to exclude power to modify an award, in any manner, to the court.”, the bench said.

Rejecting the High Court’s adjustment of the award, the panel stated:

“The limited and extremely circumscribed jurisdiction of the court under Section 34 of the Act, permits the court to interfere with an award, sans the grounds of patent illegality, i.e., that “illegality must go to the root of the matter and cannot be of a trivial nature”; and that the tribunal “must decide in accordance with the terms of the contract, but if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground”. The other ground would be denial of natural justice. In appeal, Section 37 of the Act grants narrower scope to the appellate court to review the findings in an award, if it has been upheld, or substantially upheld under Section 34.”

Larsen Air Conditioning and Refrigeration Company vs Union of India

Arbitration and Conciliation Act, 1996; Section 34, 37 – The court is powerless to modify the award and can only set aside partially, or wholly, an award on a finding that the conditions spelt out under Section 34 have been established – In appeal, Section 37 of the Acts grants narrower scope to the appellate court to review the findings in an award, if it has been upheld, or substantially upheld under Section 34. (Para 13-16)