Arbitration In IndiaCourts not empowered to modify An Arbitral Award under Section 34 of A&C Act

The Delhi High court in National Projects Constructions Corporation Ltd. (NPCC) v. M/s ACC India Pvt. Ltd. [FAO (COMM) 140/2021 decided on 02.11,2023, held that that court had limited authority in interfering into Arbitral Proceedings under Section 34 of the A&C Act. Moreover, the Courts are not empowered to set aside an Arbitral Award.

FACTS

The National Projects Constructions Corporation Ltd. (NPCC) (hereinafter referred to as the “Appellant”) is a Government Enterprise under the Ministry of Water Resources and also a company registered under the Companies Act, 1956. The Appellant entered into an Agreement dated 13.03.2017  with M/s. AAC India PVT. Ltd.(hereinafter referred to as the “Respondent”) as the Project Management Consultant for the Central Reserve Police Force (CRPF) for the installation of a Fire Protection System. The Respondent was a micro-enterprise having a turnover of less than 10 lakhs.

As per the Agreement, the project was stipulated to be completed within a period of 7 months from the date of issuance of LOI for a total contract value of Rs. 90,79,200/-. However, performance got delayed. The respondent took 33 months to complete the project. The Appellant claimed liquidated damages under Clause 35.5 of the Agreement and hence, withheld 10%  of the work cost of the Agreement.

The Respondent invoked Arbitration under Clause 52 of the Agreement and the arbitration proceedings were conducted, and eventually Arbitral Award dated 29.08.2016 (hereinafter referred to as the “Impugned Award”).

The Impugned Award was challenged under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the “A&C Act”). The Additional District Judge partially allowed the Impugned Award and disallowed the interest vide order dated 22.03.2021(hereinafter referred to as the “Impugned Order”).

Being aggrieved by the Impugned Order, the Petitioner has preferred the present appeal.

ISSUES  BEFORE THE HIGH COURT

1. Whether the Ld. Additional District Judge had the authority to modify the Impugned Award ?

2. Whether the Ld. Additional District Judge had erred in interpreting the Agreement between the parties?

CONTENTION OF THE PARTIE

The Appellant contended that the Ld. Additional District Judge had erred in perceiving the provisions of the Agreement between the parties and despite of delay on part of the Respondents, the liquidated damages were modified. Moreover, modification of Arbitral Award is beyond sanction of law. ,

DECISION AND FINDINGS 

The Delhi High Court observed that the Ld. Additional District Judges possess limited powers to set aside the Arbitral Award under Section 34 of the A&C Act. Moreover, under the UNCITRAL Model Law on International Commercial Law, 1985, no court has the power to modify an Arbitral Award. The High Court relied upon Hindustan Construction Company Limited v. National Highways Authority of India (2023 SCC OnLine SC 1063) and Reliance Infrastructure Ltd. v. State of Goa (2023 SCC OnLine SC 604) and held that the Ld. Additional District Judge had no authority to modify the Arbitral Award and has gone beyond the provisions of the A&C Act.

The High Court further referred to the Agreement which clearly stipulated 10% liquidated damages in case of delay in performance of the work.  It further relied upon M/s. Kailash Nath Associates v. Delhi Development Authority (FAO (COMM) 140/2021) and held that the Arbitral Tribunal had the authority to impose liquidated damages for the breach of contract.

The Delhi High Court set aside the Impugned Order to the extent it had quashed the Impugned Award and upheld the Impugned Award

The court further held that a court does not have power to re-evaluate evidence or interfere unless the award’s conclusions are patently perverse.

The court observed that the decision of modification is flawed, erroneous and unsustainable in law.

AMLEGALS REMARKS 

The Delhi High court has upheld the legislative intent of the A&C Act i.e. minimal judicial intervention in the Arbitral Proceedings. The Courts under Section 34 of A&C Act are not authorised to modify an Arbitral Award.  It further explicitly highlights the limited grounds of setting aside an Arbitral Award.

The A&C Act explicitly lays down the limited grounds on which a court can set aside an arbitral award. The court through this case has revisited and explored the principles laid down in Sec 34 and Sec 37 of the act.

This decision reinforces the principle of minimal judicial interference in arbitration, contributing to legal clarity on the court’s role in arbitral proceedings and upholding the sanctity of arbitration agreements.

-Team AMLEGALS, assisted by Mr. Agresh Sharma (Intern)

For any query or feedback, please feel free to get in touch with rohit.lalwani@amlegals.com or himanshi.patwa@amlegals.com