In a landmark decision, the Supreme Court has firmly affirmed that the modification of arbitral awards is impermissible under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996. This decisive stance was reiterated while adjudicating on a plea, where the court emphasized the settled legal position that attempts to modify awards during the scrutiny of Sections 34 and 37 petitions are not allowed under the aforementioned Act.
The pivotal case involved Mr. S.V. Samudram (the Appellant), who had entered into a contract with the Karnataka State Public Works Department in 1990. The contract aimed to construct the office and residence of the Chief Conservator of Forests at Sirsi for a stipulated amount. Disputes arose as the Appellant claimed non-completion due to issues with bill clearances and delays caused by changes in the construction site and material delivery.
To settle the claims, arbitration proceedings were initiated, resulting in the Appellant filing a claim before the Arbitral Tribunal totaling Rs. 18,06,439. The tribunal awarded only 9 out of the 11 claims, totaling Rs. 14,68,239 with an 18% interest rate.
Challenging the arbitrator’s decision, the respondent filed a petition under Section 34 of the Act. The Civil Judge, while deciding the petition, modified the award, reducing the claim to Rs. 3,71,564 with a 9% interest rate. Subsequently, the Appellant filed a Section 37 (1) petition before the High Court of Karnataka, which upheld the modification.
The Supreme Court, in its observations, clarified two crucial points:
- Modification Not Allowed under Section 34: The court emphasized that the authority to modify an arbitral award under Sections 34/37 of the A&C Act is non-negotiable. It cited precedent, stating that a court has no jurisdiction to alter an award unless it is in direct conflict with the specified grounds under Section 34.
- No Violation of Public Policy: The court rejected the notion of a violation of India’s public policy, stating that the reasons provided for modifying the award did not allude to any conflict with the public policy of India.
The court further underscored that interference under Section 37 cannot go beyond the restrictions laid down in Section 34. It highlighted the circumscribed nature of the power under Sections 34 and 37, demonstrating legislative intent to limit the court’s interference in arbitral awards.
In conclusion, the Supreme Court allowed the appeal of the claimant-appellant, setting aside the judgments of the Single Judge of the High Court and the Civil Judge. The court restored the original arbitral award, directing the State of Karnataka to promptly fulfill its payment obligation to the claimant-appellant.
