J. Sreenivas Rao, J
Heard Sri V.Vivek Jain, learned counsel for the appellant and Sri K.Raghava Charyulu, learned counsel for the first respondent.
2. The appellant herein, M/s.Indu Projects Limited, represented by its authorised signatory (Law), Sri Ramana Murthy filed this appeal under section 13 of Commercial Courts Act, read with Section 37 of Arbitration and Conciliation Act, 1996 aggrieved by the order dated 17-08-2021 passed in C.O.P.No.215 of 2017 on the file of the Court of Special Court for Trial and Disposal of Commercial Disputes, Hyderabad, allowing the petition filed by NMDC (A Government of India Enterprise), Hyderabad/first respondent and setting aside the award passed by the learned Arbitrator/second respondent except the finding on claim No.1 is set aside and directed the parties to commence the arbitration proceedings again from the stage of appointment of the Arbitrator in respect of claim No.5 of the appellant and the counter-claim of the first respondent. While allowing the petition with costs, the learned trial Judge held that if the first respondent herein is successful in proving its counter-claim, it can plead set-off in respect of claim No.1 of the appellant to the extent allowed by the learned Arbitrator.
3. For the sake of convenience, the parties hereinafter will be referred to as "petitioner" and "respondents", as they were arrayed before the Special Court for Trial and Disposal of Commercial Disputes at Hyderabad.
4. The relevant facts, which have bearing on the issues raised by the parties and which emerge from the pleadings and documents filed by the parties are as follows:
That petitioner-NMDC called tenders for construction of studio type apartments comprising of 220 flats and shopping complex in Chowkawada Village in Chattisgarh State and the first respondent/contractor was awarded the contract on 22-06-2021 and the value of the contract is Rs.28,36,96,197/- and the stipulated time for completion of work was 12 months and the first respondent has to complete the construction by 21-06-2012. The first respondent has not completed the work within the stipulated time and sought extension on four occasions and the petitioner considered and granted extension. In spite of the same, the first respondent has not completed the work and the petitioner issued several letters to complete the work but the first respondent did not attend the work within the stipulated time. Ultimately the petitioner issued letter of termination on 14-07-2015. Thereafter, the first respondent has invoked arbitration clause and made nine claims before the learned Arbitral Tribunal for an amount of Rs.32,83,33,562/-. The learned Arbitrator has disallowed seven claims and partly allowed claim No.1 and claim No.5 was allowed in total. The petitioner-NMDC made a counter-claim and the learned Arbitral Tribunal did not take any decision on it on the ground that the cause of action did not arise for the counter-claim. Questioning the award passed by the second respondent/Arbitrator, dated 20-05-2017, the petitioner-NMDC filed C.O.P.No.215 of 2017 before the Special Court.
5. The learned counsel for the appellant/first respondent vehemently contended that the learned Arbitrator after considering the contentions raised by both parties and after considering the entire oral and documentary evidence; namely, Ex.C-1 to Ex.C-27 and Ex.R-1 to Ex.R-67 was pleased to pass the award, allowed the claim No.5 and directed the first respondent to refund the security amount of Rs.2,83,69,700/- and also partly allowed the claim No.1 and directed the appellant/first respondent to pay an amount of Rs.1,58,000/- together with interest @ 18% p.a. within a period of four weeks by assigning cogent findings and there is no illegality committed by the learned Arbitrator while passing the award. The learned trial Judge without considering the scope of section 34 of the Arbitration and Conciliation Act, 1996 passed the impugned order modifying the award passed by the second respondent/Arbitrator, which is contrary and against the settled proposition of law by the Hon'ble Supreme Court as well as High Court.
6. The learned counsel for the appellant/first respondent further contended that the learned trial Judge while upholding the findings in respect of claim No.1, on the other hand, set aside the award passed by the Arbitrator in respect of claim No.5 and directed the parties to commence Arbitration proceedings again from the stage of appointment of Arbitrator. The order passed by the learned trial Judge is contrary to the law and without jurisdiction.
7. In support of his contention, the learned counsel for the appellant/first respondent relied upon the judgment of the Hon'ble Supreme Court in NATIONAL HIGHWAYS AUTHORITY OF INDIA V/s. P. NAGARAJU @ Cheluvaiah & ANR (2022 SCC ONLINE SC-864), wherein it was held at Para Nos. 26 and 27 as follows:
26. Under the scheme of the Act 1996 it would not be permissible to modify the award passed by the learned Arbitrator to enhance or reduce the compensation based on the material available on record in proceeding emanating from Section 34 of Act, 1996. The option would be to set aside the award and remand the matter. In this regard it would be apposite to take note of the observation in M. Hakeem (supra), as hereunder:-
“42. It can therefore be said that this question has now been settled finally by at least 3 decisions of this Court. Even otherwise, to state that the judicial trend appears to favour an interpretation that would read into Section 34 a power to modify, revise or vary the award would be to ignore the previous law contained in the 1940 Act; as also to ignore the fact that the 1996 Act was enacted based on the UNCITRAL Model Law on International Commercial Arbitration, 1985 which, as has been pointed out in Redfern and Hunter on International Arbitration, makes it clear that, given the limited judicial interference on extremely limited grounds not dealing with the merits of an award, the “limited remedy” under Section 34 is coterminous with the “limited right”, namely, either to set aside an award or remand the matter under the circumstances mentioned in Section 34 of the Arbitration Act, 1996.”
27. In the above backdrop, the contention relating to ‘patent illegality’ in an award in terms of Section 34(2A) of Act 1996 as put forth by the learned Additional Solicitor General needs consideration. On such consideration, only if the award passed in the instant case falls foul of any such requirement so as to bring it within the power of review under Section 34 of Act 1996, the interference would be warranted. As noted, strong reliance is placed by the learned Additional Solicitor General to the decision in the case of State of Chhattisgarh (supra) to contend with regard to the different facets of patent illegality in an award including violation of requirement under Section 28(2) and 31(3) of Act 1996.
40. That being the fact situation and also the position of law being clear that it would not be open for the court in the proceedings under Section 34 or in the appeal under Section 37 to modify the award, the appropriate course to be adopted in such event is to set aside the award and remit the matter to the learned Arbitrator in terms of Section 34(4) to keep in view these aspects of the matter and even if the notification dated 28.03.2016 relied upon is justified since we have indicated that the same could be relied upon, the further aspects with regard to the appropriate market value fixed under the said notification for the lands which is the subject matter of the acquisition or comparable lands is to be made based on appropriate evidence available before it and on assigning reasons for the conclusion to be reached by the learned Arbitrator. In that regard, all contentions of the parties are left open to be put forth before the learned Arbitrator.
8. In PROJECT DIRECTOR, NATIONAL HIGHWAYS No.45E & 220 NATIONAL HIGHWAYS AUTHORITY OF INDIA V/s. M. HAKEEN AND ANR (2021) 9 SCC-1)., it was held at Para Nos. 14 and 15 as follows:
14. What is important to note is that, far from Section 34 being in the nature of an appellate provision, it provides only for setting aside awards on very limited grounds, such grounds being contained in sub-sections (2) and (3) of Section 34. Secondly, as the marginal note of Section 34 indicates, “recourse” to a court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-sections (2) and (3).
“Recourse” is defined by P Ramanatha Aiyar’s Advanced Law Lexicon (3rd Edition) as the enforcement or method of enforcing a right. Where the right is itself truncated, enforcement of such truncated right can also be only limited in nature. What is clear from a reading of the said provisions is that, given the limited grounds of challenge under subsections (2) and (3), an application can only be made to set aside an award. This becomes even clearer when we see subsection (4) under which, on receipt of an application under sub- section (1) of Section 34, the court may adjourn the Section 34 proceedings and give the arbitral tribunal an opportunity to resume the arbitral proceedings or take such action as will eliminate the grounds for setting aside the arbitral award. Here again, it is important to note that it is the opinion of the arbitral tribunal which counts in order to eliminate the grounds for setting aside the award, which may be indicated by the court hearing the Section 34 application.
15. It is important to remember that Section 34 is modeled on the UNCITRAL Model Law on International Commercial Arbitration, 1985, under which no power to modify an award is given to a court hearing a challenge to an award. The relevant portion of the Model Law reads as follows:
Article 34. Application for setting aside as exclusive recourse against arbitral award (1) Recourse to a court against an arbitral award may be made only by an application for setting aside in accordance with paragraphs (2) and (2) of this article.
xxx xxx xxx (4) The court, when asked to set aside an award, may, where appropriate and so requested by a party, suspend the setting aside proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the arbitral tribunal’s opinion will eliminate the grounds for setting aside.
18. By way of contrast, under Sections 15 and 16 of the Arbitration Act, 1940, the court is given the power to modify or correct an award in the circumstances mentioned in Section 15, apart from a power to remit the award under Section 16 as follows:-
15. Power of Court to modify award.
The Court may by order modify or correct an award-
(a) where it appears that a part of, the award is upon a matter not referred to arbitration and such part can be separated from the other part and does not affect the decision on the matter referred; or
(b) where the award is imperfect in form, or contains any obvious error which can be amended without affecting such decision; or
(c) where the award contains a clerical mistake or an error arising from an accidental slip or omission.
16. Power to remit award.
(1) The Court may from time to time remit the award or any matter referred to arbitration to the arbitrators or umpire for reconsideration upon such terms as it thinks fit-
(a) where- the award has left undetermined any of the matters referred to arbitration, or where it determines any matter not referred to arbitration and such matter cannot be separated without affecting the determination of the matters referred;
(b) where the award is so indefinite as to be incapable of execution;
(c) where an objection to the legality of the award is apparent upon the face of it.,
(2) Where an award is remitted under sub- section (1) the Court shall fix the time within which the arbitrator or umpire shall submit his decision to the Court:
Provided that any time so fixed may be extended by subsequent order of the Court.
(3) An award remitted under sub- section (1) shall become void on the failure of the arbitrator or umpire to reconsider it and submit his decision within the time fixed.
20. Thus, under the scheme of the old Act, an award may be remitted, modified or otherwise set aside given the grounds contained in Section 30 of the 1940 Act, which are broader than the grounds contained in Section 34 of the 1996 Act.
39. As has been pointed out by us hereinabove, McDermott (supra) has been followed by this Court in Kinnari Mullick (supra). Also, in Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies Pvt. Ltd., 2021 SCC OnLine SC 157, a recent judgment of this Court also followed McDermott (supra) stating that there is no power to modify an arbitral award under Section 34 as follows: -
(f) In law, where the Court sets aside the award passed by the majority members of the tribunal, the underlying disputes would require to be decided afresh in an appropriate proceeding.
Under Section 34 of the Arbitration Act, the Court may either dismiss the objections filed, and uphold the award, or set aside the award if the grounds contained in sub-sections (2) and (2A) are made out. There is no power to modify an arbitral award.
9. The learned counsel for the appellant further relied on the judgments in RADHA CHEMICALS V/s. UNION OF INDIA (Civil Appeal No.10386 of 2018 arising out of SLP (C) No.2334/2018), KINNARI MULLICK AND ANR. V/s. GHANSYAM DAS DAMA (2018) 11 SCC-328)., DYNA TECHNOLOGIES (P) LTD. Vs. CROMPTON GREAVES LIM (2019) 20 SCC-1), ASSOCIATE BUILDERS V/s. DELHI DEVELOPMENT AUTHORITY (2015) 3 SCC-49)., and SsANGYONG ENGG. & CONSTRUCTION CO.LTD. V/s. NATIONAL HIGHWAYS AUTHORITY OF INDIA (NHAI) (2019) 15 SCC-131).
10. Per contra, the learned counsel for the first respondent/petitioner contended that the court below while exercising its powers under section 34 of the Act has rightly passed the impugned order and there is no illegality or irregularity in the impugned order.
11. In support of his contention, the learned counsel relied upon the judgments in Dr.A.PARTHASARATHY & ORS. V/s. E. SPRINGS AVENUES PVT.LTD. & ORS (2022 SCC ONLINE SC-719)., and NATIONAL HIGHWAYS AUTHORITY OF INDIA V/s. P.NAGARAJU @ CHELUVAIAH AND ANR (2022 SCC ONLINE SC-864).
12. The point that emerges for consideration is:
whether the order dated 17-08-2021 passed by the Special Court for Trial and Disposal of Commercial Disputes in COP.No.215 of 2017 is within the ambit of Section 34 of the Arbitration and Conciliation Act?
13. During the course of hearing of the appeal, the learned counsel for the appellant, M/s. Indu Projects Private Limited, has drawn the attention of this Court and taken us predominantly to the provisions envisaged under Section 34 of the Arbitration and Conciliation Act, 1996 (for brevity 'the Act') and contended that the Special Court can either uphold or set aside the award passed by the learned Arbitrator is not having jurisdiction to modify or alter the award passed by the learned Arbitrator.
14. In this case, the Special Court has exercised its jurisdiction beyond the scope and ambit of Section 34 of the Act, 1996 and passed the impugned order in such a way setting aside the award except the
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finding on claim No.1 and directed the parties to commence the arbitration again from the stage of appointment of the Arbitrator in respect of claim No.5 of the first respondent and the counterclaim of the first respondent herein and allowed the petition with costs and observed that if the first respondent is successful in proving its counter-claim, it can plead set-off in respect of claim No.1 of the appellant to the extent allowed by the learned Arbitrator. Thus, the impugned order passed by the Special Court amounts to modification of the award passed by the learned Arbitrator, which is not permissible under law, especially in view of the law laid down by the Honourable Supreme Court in NATIONAL HIGHWAYS AUTHORITY OF INDIA V/s. P. NAGARAJU @ Cheluvaiah & ANR., referred supra-1. 15. The learned counsel for the respondent also fairly concedes and he too also relied on the principles laid down in the decision referred supra-1. 16. In the above backdrop, without going into the merits or demerits of the appeal, we are of the considered view that the order dated 17-08-2017 passed by the learned Special Judge for trial and disposal of commercial disputes in COP.No. 215 of 2017 be and is hereby set aside and the matter is allowed and remanded to the court below for proper adjudication. 17. In the result, the appeal is allowed without costs and the Special Court is directed to adjudicate COP.No.215 of 2017 afresh uninfluenced by any of the observation made in this judgment and dispose of the same on merits and in accordance with law as expeditiously as possible after affording reasonable opportunity to both parties. 18. As a sequel, miscellaneous applications pending if any, shall stand closed.