What in the world is Alternate Dispute Resolution and Arbitration?
To resolve a dispute, whether domestic or international there are two main ways through which it can be resolved. First, the most common method is, through litigation. The second option is through Alternate Dispute Resolution (ADR) methods. ADR refers to “a collection of procedures and methods designed to enable the settlement of legal issues outside of the courts with the help of third party.”1 ADR most commonly consists of four types: arbitration, mediation, negotiation, and conciliation. Out of these four, the two most popular methods of ADR are Mediation and Arbitration. Litigation is a lengthy and costly process, whereas ADR, are cheaper and faster alternatives for Dispute Resolution compared to Litigation.2 In this article, we will be specifically deal with Arbitration in India.
Arbitration is “a process of dispute resolution in which a neutral third party (arbitrator) renders a decision after a hearing at which both parties have an opportunity to be heard. Where arbitration is voluntary, the disputing parties select the arbitrator who has the power to render a binding decision.”3 The decree passed by the Arbitrator can be enforced in the court. In India, arbitration is governed by The Arbitration and Conciliation Act, 19964 (hereinafter referred to as (“the act”). This act replaced The Arbitration Act, 1940 as the latter was neither vibrant nor universal and provided far less scope for judicial interference in the arbitral process.
What are the Advantages of Arbitration?
But what is the need for Arbitration? As mentioned before, litigation is a slow process due to overburdened Indian courts. As of today, there are 1,09,35,968 (One Crore Nine Lakhs Thirty-Five Thousand Nine Hundred Sixty – Eight) civil and 3,45,63,867 (Three Crores Forty-Five Lakhs Sixty-Three Thousand Eight Hundred Sixty-Seven) criminal pending cases in India, which totals more than 4.5 crores pending cases.,5 This means more than 4.5 crore cases are awaiting justice. Due to this overburdened judiciary, more and more people are opting for Arbitration so that the case can be settled quickly. At the same time arbitration is private, informal, convenient and neutral. Almost all the types of disputes, except criminal ones, can be resolved through arbitration, including, Commercial, Civil, Labour and Family disputes etc.6
Power of Judiciary to intervene in an Arbitration and modify awards
Section 347 “gives power to the court to set aside the arbitral awards if the award” violates any conditions given in the sub-section (2) of the section8, such as situations in which one of the parties was incapable, the arbitration agreement is invalid under the legislation to which the parties have committed, the party submitting the application was not properly notified of the arbitrator's appointment, and more. The section does not provide courts the authority to modify the arbitral awards. It limits their role to either affirming or dismissing the awards. Whereas, Section 379 allows court to “hear appeals from original decrees of the court passing the order and specifically Section 37(1)(c) empowers the court to hear appeals against orders of setting aside given under Section 34 of the Act.” Sections 34 and 37 limit the court’s power to interfere with the arbitration and arbitral awards. Courts have, on multiple occasions discussed the possibility of modifying arbitral awards but they have held that, interference must be limited to the guidelines given in Section 34.10 In the case of NHAI v. M Hakeem (2019)<>, the Court had held that “the Court’s power to “set-aside” an arbitral award under Sections 34 and 37 was very limited. Further, this power did not involve the power to “modify” an arbitral award”.
The review on merits is outside the purview of the Section 34, as held in the case of Ssanyong Engineering and Construction Company Limited v. National Highway Authority of India.12 The Hon'ble Delhi High Court defines "modify" as altering or modifying the final award that an arbitral tribunal may make or replacing the arbitrator's ruling on a specific claim or counterclaim with the court's ruling.13 In the case of Larsen Air Conditioning & Refrigeration Co. v. Union of India14, the Supreme Court distinguished itself from the 1940 Act by declaring that the court can only partially or completely set aside an award after determining that the requirements outlined in Section 34 of the Act have been satisfied. Therefore, the court cannot fix arbitral errors or grant the initial relief requested before the arbitrator when the arbitral award is modified under Sections 34 and 37 of the Act in the context of setting aside proceedings.
The Gayatri Balasamy v. ISG Novasoft Technologies Limited
In this case, Gayatri Devi, who was an employee at ISG Novasoft Technologies, tendered her resignation as CEO is ISG following charges of sexual harassment against her but the resignation did not materialise . Gayatri Devi decided to lodge a complaint regarding the employment contract and approached the court. Meanwhile, the company also filed a defamation complaint n against Gayatri Devi. The case was referred to arbitration by the Supreme Court, and she was granted a sum of 2 crores in the arbitral award. Aggrieved by the arbitral award, Gayatri Devi moved to the Madras High Court under Section 34 of the Act to set aside the arbitral award, stating that some of her issues were not considered by the tribunal.
The Hon’ble Hight Court, instead of setting aside the award, modified it, awarding Gayatri Devi an additional 1.6 crore on top of earlier 2 crores. The case was then moved from Single bench of High Court to the Division bench, where the award was further modified, reducing the additional compensation of 1.6 crores to 50,000. Aggrieved by this, Gayatri Devi moved to the Supreme Court.
The High Court of Madras clarified that the term "recourse to a court against an arbitral award" should not be interpreted rigidly, as it simply refers to the right to request that an award be set aside. According to the judgement, an application to set aside, alter, improve, change, or revise an arbitral verdict might be considered a remedy against it.
The Supreme Court observed that there are multiple Division bench judgements both in favour of and against the modification of an arbitral award. It is concluded that the case should be referred to a larger bench for the review.15
The Act is intended to protect the finality of arbitral awards and ensure minimal court interfere. Courts may “only set aside the award under Section 34 of the Act”. This principle is supported by the fact that parties to an arbitration agreement consciously choose to waive judicial control.16 If the authority to amend an award were incorporated into the Act, the convenience and finality provided by arbitration as a conflict resolution process may be adversely affected, potentially undermining the objective of Section 34.
Situation in other countries.
In contrast to the Act, major arbitration centres across the globe, including the United State’s Section 11 of the United States Federal Arbitration Act, 1925, the United Kingdom’s Section 67 and 69 of the English Arbitration Act, 1996, Australia’s Section 34A (7) of the Commercial Arbitration Act, 2017, and Singapore’s Sections 49(8) of the Singapore Arbitration Act, 2001, contain explicit provisions in the domestic laws that allow for the modification or alteration of an arbitral award. This authority differs from the court's ability to revoke an award. Particularly, Singapore has two distinct laws that regulate arbitration: one for local arbitration and one for international arbitration. Section 49(8) of the Singapore Arbitration Act,17 2001, which governs domestic arbitration, includes a clause that permits award modification. This clause is based on Section 69 of the English Arbitration Act, 1996.18
However, the International Arbitration Act of 200219 does not allow for such a change to an arbitral ruling. To keep pace with the global expansion of arbitration law, some jurisdictions approved and enabled their courts to modify awards via future amendments , while others have always permitted award modification from the outset .
Conclusion
The court essentially decides the scope of its jurisdiction regarding arbitral awards during setting aside or annulment proceedings by considering Sections 34 and 37 of the Act. The term 'Modification' of an arbitral ruling may mean different things to different people. Courts have repeatedly stated in previous rulings that the authority to alter an arbitral verdict is distinct from the authority to overturn it. However, to ensure the prompt settlement of disputes, the extent of modification has been limited, even in cases where the court's jurisdiction to alter an arbitral judgement under Section 34 was acknowledged.
In reality, it accomplishes nothing to require parties to undergo another arbitration after invalidating the arbitral ruling in a dispute. Denying the authority to change an award when the disparity is obvious from the outset has no benefit. In that sense, parties would be better served suing in court rather than using arbitration. It is relevant because in the NHAI v. Hakeem20 ruling, the Supreme Court recommended that the parliament to amend the law to align it with international standards. Therefore, keep pace with the evolution of the law, the legislature should consider proposing an amendment to include the ability to modify arbitral ruling.
Additionally, this would save costs and time. Arbitration will coexist with the legal system, even though it serves as a substitute for litigation. Regarding the the power to modify, the current all-or-nothing approach should be replaced with a balanced one.
Since, it would impact all pending proceedings when the courts begin to sit in review, the Supreme Court's deliberation and decision in Gayatri Balasamy's case would mark a breakthrough in the authority of High Courts and Section 34 Courts to alter the judgement under the Arbitration and Conciliation Act.
Footnotes
1 Mnookin, Robert, "Alternative Dispute Resolution" (1998). Harvard Law School John M. Olin Center for Law, Economics and BusinessDiscussion Paper Series. Paper 232.http://lsr.nellco.org/harvard_olin/232.
2 Rajkumar S. Adukia, a Practical Guide to the Concept and Practice of Arbitration Law 6 – 7 (Rishabh Academy Private Limited 2016).
3 Henry Campbell Black, Black’s Law Dictionary 105 (6th ed. 1990).
4 The Arbitration and Conciliation Act, 1996, No. 34, Acts of Parliament, 1996 (India).
5 National Judicial Data Grid, https://njdg.ecourts.gov.in/njdg_v3/ (last visited Jan. 17, 2025).
6 Supra note 2.
7 The Arbitration and Conciliation Act, 1996, §34, No. 34, Acts of Parliament, 1996 (India).
8 The Arbitration and Conciliation Act, 1996, §34 (2), No. 34, Acts of Parliament, 1996 (India).
9 The Arbitration and Conciliation Act, 1996, §37, No. 34, Acts of Parliament, 1996 (India).
10 UHL Power Co. Ltd. v. State of H.P., (2022) 4 SCC 116.
11 National Highways Authority of India v. M. Hakeem, (2021) 9 SCC 1.
12 Ssanyong Engineering and Construction Company Limited v. National Highway Authority of India, (2019) 15 SCC 131.
13 National Highways Authority of India v. Trichy Thanjavur Expressway Ltd. 2023 SCC OnLine Del 5183.
14 M/S Larsen Air Conditioning & Refrigeration Co. v. Union of India, 2023 INSC 708.
15 Gayatri Balaswamy v. ISG Novasoft Technologies Ltd., Special Leave to Appeal (C) No(s).15336-15337/2021.
16 McDermott International Inc v. Burn Standard Co. Ltd. (2006) 11 SCC 181.
17 Arbitration Act, Act No. 6 of 2001, § 49(8), (Sing.).
18 Arbitration Act 1996, c. 23 (Eng.).
19 International Arbitration Act 2002, Act No. 13 of 2002, (Sing.).
20 National Highways Authority of India v. M. Hakeem, (2021) 9 SCC 1.
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