[S. 34, Arbitration and Conciliation Act, 1996] Any attempt to modify an award would amount to crossing the ‘Lakshman Rekha’; Sikkim HC reiterates

Sikkim High Court

Sikkim High Court: The parties to a contract, subject to an arbitration clause, had referred their dispute to arbitration; the arbitral award (“Award”) therefrom was challenged by the appellant through an application under Section 34 of the Arbitration and Conciliation Act, 1996 (“ACA”) before the Commercial Court, North Sikkim (“Trial Court”), that modified the Award through its judgment to some extent. The same was challenged before the Division Bench comprising of Biswanath Somadder, CJ, and Bhaskar Raj Pradhan, J.*, by both the parties through two connected appeals under Section 37 of the ACA. The Court discussed the scope of modification of an arbitral award by the court; the Bench found that the first appeal was not maintainable, whereas the second appeal was allowed. Therefore, the impugned judgment of the Trial Court was partly set-aside. The Court reiterated Supreme Court’s decision in SV Sundaram v. State of Karnataka, (2024) 3 SCC 623, wherein it was observed that any attempt to modify an award under Section 34 would amount to crossing the “Lakshman Rekha”.

Background

The appellant had invited tenders for the construction of a ITBP Road in 2010, and MG Contractors (P) Ltd. (“respondent”)’s tender was accepted. An agreement between the parties was executed, which provided for Arbitration as the mode for resolution of disputes. The construction was delayed due to various reasons and was completed in 2015.

Disputes arose between the parties and were referred to Arbitration, for which a Sole Arbitrator (“Arbitrator”) was appointed, wherein 15 claims were made by the respondent, out of which 7 claims were not granted by the Arbitrator. The Award concluded that the claim of 8% interest (“Claim 13”), and of Goods and Services Tax (“GST”) [“Claim 14”], were not barred by limitation.

The appellant filed an application under Section 34 (“Application”) of the Arbitration and Conciliation Act, 1996 (“ACA”) before the Trial Court, praying the setting aside of three of the claims (including Claims 7, 13 and 14) granted by the Arbitrator, as being barred by limitation.

The Trial Court held that the impugned claims were not barred by limitation. However, it opined that that the grant of interest of 8% per annum claimed by the respondent was contrary to the provisions of Section 31(7)(b) of the ACA, and modified the Award as to Claim 13, barring the time period until when the interest could be claimed. Therefore, the Application was partly allowed.

However, the appellant challenged the impugned judgment of the Trial Court, contending that the time period set for Claim 7 (granted by the Arbitrator) was a damage claim, the cause of action for which should have arisen from the date of breach of contract, instead of from the last day of billing; therefore the Arbitrator failed to examine the bar by limitation of Claim 7.

Court’s Analysis and Judgment

The Court analysed the scope of modification of an arbitral award by the court under the ambit of Section 34 of the ACA. The Court referred to NHAI v. M Hakeem, wherein the Supreme Court held that Section 34 ACA is modelled on the UNCITRAL Model Law, under which no power to modify an award is given to a court hearing a challenge to an award and SV Sundaram v. State of Karnataka.

Retracting to the instant case, the Court noted that the Application was not for setting aside the Award, as the appellant had accepted the award of all other claims except Claims 7, 13 and 14. Therefore the appellant could not seek the setting aside of only these three claims as it would amount to seeking modification of the Award.

The Court further opined that they were not authorised to disturb the concurrent findings of the Arbitrator and the Trial Court. The Court found that the arbitration was invoked within the limitation period of three years from the date of finalisation of the bill.

With respect of the above, the Court noted that the impugned judgment to the extent of the appellant’s challenge in the first appeal, need not be interfered with, and their application was unmaintainable; the first appeal was therefore dismissed.

However, in the second appeal, the Trial Court had examined the Award narrowly and modified the same, which was beyond its jurisdiction. Therefore, allowing the second appeal, the impugned judgment was partly set-aside.

[Union of India v. MG Contractors (P) Ltd., 2024 SCC OnLine Sikk 29, decided on 28-05-2024]

*Judgment by: Justice Bhaskar Raj Pradhan


Advocates who appeared in this case :

For the appellant: Sangita Pradhan, Deputy Solicitor General of India; Purnima Subba, Natasha Pradhan

For the respondents: Zangpo Sherpa, Bhaichung Bhutia, Mohan Sharma

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