Arbitration has been deemed an effective alternative to traditional litigation for resolving disputes. However, the process of setting aside arbitral awards has been a subject of legal debate, particularly, when it comes to the concept of partially setting aside an arbitral award. 

The legal framework governing arbitration in India is primarily enshrined in the Arbitration and Conciliation Act, 1996.  Section 34(2)(a)(iv) [https://www.indiacode.nic.in/show-data?actid=AC_CEN_3_46_00004_199626_1517807323919&orderno=38] of the Act empowers the court with the power to partially set aside an arbitral award, as explicitly mentioned in the proviso. This provision allows the court to invalidate specific segment of the award that extends beyond the scope of the arbitration agreement, given that the severance of such part is possible. However, the practical application of this provision faces significant challenges due to the manner of its interpretation. Furthermore, while observing the doctrine of minimal judicial intervention in arbitration proceedings, the court’s authority gets substantially limited when it comes to reviewing the already rendered findings and conclusions. Therefore, while safeguarding the integrity of arbitration, the Act simultaneously constrains judicial discretion in partially setting aside the award.

The complexity is further compounded by its interaction with other grounds outlined under section 32(2)(a). Sub-sections 2(a)(i), (ii) and (iii) delineate specific grounds for challenging the fairness and validity of the arbitral award. The court’s power under Section 34(2)(a)(iv) is thus intertwined with the grounds specified in Section 34(2)(a)(i), (ii) and (iii), creating a nuanced legal landscape that demands meticulous scrutiny and interpretation.

Examining International jurisprudence offers valuable inputs into the complex landscape of the partial setting aside of arbitral awards. Although the judgement by the Swiss Federal Tribunal in X._____ v. Z._____ Inc. [https://jusmundi.com/fr/document/pdf/decision/en-z-v-american-company-decision-of-the-swiss-federal-tribunal-4a-360-2011-tuesday-31st-january-2012] did not result in a partial setting aside of the disputed arbitral award. Nonetheless, the judgement, while illuminating on the aspect of complexities and implications of partial setting aside of the arbitral award dealt by the Judicial Authorities, serves as a reference point for understanding the global perspectives on partial annulment and its ramifications in the realm of international arbitration.

Building upon the national context, the Delhi High Court in a recent case, titled National Highways Authority of India v. Trichy Thanjavur Expressway Ltd.’ [M.P. (COMM) 95/2023 & O.M.P. (COMM) 106/2023] [https://www.livelaw.in/pdf_upload/trichy-final-final-488275.pdf], shed light on the scope of judicial intervention when an arbitral award is challenged under Section 34 of the Act. The court categorically held that while there is no authority to modify the arbitral award, the concerned court can surgically set aside severable parts of the arbitral award. This stance gains significance in light of the recent judgement delivered by the Hon’ble Supreme  Court in NHAI v. M. Hakeem   [https://main.sci.gov.in/supremecourt/2020/22596/22596_2020_32_1502_28660_Judgement_20-Jul-2021.pdf], wherein the Hon’ble Court while hearing a challenge under Section 34, had held that an arbitral award could not be modified by a court.

The dispute in consideration was associated with land compensation concerning the lands acquired under the National Highways Act, 1956. The dissatisfied parties challenged the arbitral award, which resulted in the court revising the disputed award and significantly raising the compensation amount. Being aggrieved by the court’s order, NHAI approached the Hon’ble Supreme Court. Herein, the Court assertively held that although under the Arbitration Act, of 1940, courts had the power to modify the Arbitral Awards, but owing to the growing litigation, the amended 1996 Act, has restrained the court’s power to modify the arbitral award, they can either uphold it or set it aside.

Since the limitations imposed on the court while exercising their power to modify the award under Section 34 was construed by many as a prohibition on partial setting aside of an arbitral award, the Delhi High Court was tasked with addressing the question of whether modification of an award would include partial setting aside of the award. The Hon’ble High Court of Delhi while answering the said question, concluded that partial setting aside of the award does not fall within the ambit of “modification” of the Arbitral Award.

The pre-existing judgments provided a fragmented approach, wherein various High Courts adopted diverging interpretations by allowing as well as disallowing partial setting aside of arbitral awards. Additionally, the decision in M. Hakeem had failed to consider J.G. Engineers Private Limited v. Union of India. [https://main.sci.gov.in/jonew/judis/37943.pdf] In J.G. Engineers, the Apex Court had already held that if an arbitral award dealt with several claims separately and distinctly, then a court is empowered to separate the claims which do not suffer from any infirmity and uphold the award to that extent. Thus, the Delhi High Court was called upon to answer the question in light of these various decisions.

The issue of partially setting aside arbitral awards is not merely a matter of legal interpretation; it also delves into the practical implications of such decisions. The need for evidence and proof when challenging an award is paramount, as the court’s power to set aside an award partially must be exercised judiciously and with due regard to the underlying facts and circumstances.

 

The Court’s Observation: An Attempt To Resolve Interpretative Divergence

The Delhi High Court held that partial setting aside of an award would not be contrary to the judgement in M. Hakeem since:

  • Hakeem did not deal with the question of partial setting aside of an award at all. It only dealt with modification of an award.
  • The expression ‘modify’ in Hakeem would mean a “variation or modulation of the ultimate relief that may be accorded” by the arbitral tribunal.
  • Partially setting aside an arbitral award would not necessarily fall within the subset of modification as it would be confined to the offending part of the award which would lead to annulment thereof and not a modification.
  • If partial setting aside renders other portions of the arbitral award unsustainable, then it would be a subset of modification and such an action would fall afoul of Hakeem.

 

Conclusion

In conclusion, the legal landscape surrounding the issue of partially setting aside an arbitral award is multifaceted and intricate. The interplay between statutory provisions, judicial precedents, and international perspectives underscores the need for a nuanced and comprehensive approach to address this complex legal conundrum. As arbitration continues to gain prominence as a dispute resolution mechanism, a thorough understanding of the intricacies of setting aside arbitral awards, particularly in a partial capacity, is indispensable for legal practitioners, arbitrators, and stakeholders alike.