Sunday 19 March 2023

Whether the court can set aside arbitration award partly following the principle of severability?

 The conundrum which now arises is whether there can be partial setting aside of the Award or would it amount to modification of Award and has to be necessarily set aside in toto leaving the parties for a fresh round of arbitration, if so advised. {Para 61}

  It was further observed that such an interpretation that the Award has to be set aside in its entirety is bound to cause greater hardship, inconvenience and even injustice to some extent to the parties. To compel the parties, particularly a party who had succeeded to undergo the arbitral process all over again does not appear to be in conformity with the scheme of the Act. The provisions of Section 34 are quite pari materia to the provisions of Article 34 of the Model Law except that the proviso and explanation have been added to Section 34(2)(iv). The attempt under the Model Law and the Indian Law appears to circumscribe the jurisdiction of the court to set aside an award. There is nothing in the provisions of the Act and for that matter absolutely nothing in the Model Law which can debar the court from applying the principle of severability provided it is otherwise called for in the facts and circumstances of the case and in accordance with law. The courts will not get into the merits of the dispute. Thus, the interpretation which should be accepted by the court should be the one which will tilt in favour of the Model Laws, scheme of the Act and the objects sought to be achieved by the Act of 1996. {Para 63}

64. In the case of R.S. Jiwani (supra), it was held that it is difficult to prescribe legal panacea which, with regard to the applicability of the principle of severability can be applied uniformly to all cases. The judicial discretion vested in the court in terms of the provisions of Section 34 of the A&C Act, 1996 was held to take within its ambit, power to set aside an award partly or wholly depending on the facts and circumstances of the given case and it was held that the same is not intended to be whittled down or to divest the court of competent jurisdiction to apply the principle of severability to the award of the Arbitral Tribunal, legality of which is questioned before the court. Moreso, the proviso to section 34(2)(a)(iv) has to be read ejusdem generis to the main section, as in cases falling in that category, there would be an absolute duty on the court to invoke the principle of severability where the matter submitted to arbitration can clearly be separated from the matters not referred to arbitration and decision thereupon by the Arbitral Tribunal.

65. In R.S. Jiwani (M/S.) (supra) a reference was made to the decision of the Apex Court of India in NHAI v. M. Hakeem(2021) 9 SCC 1 wherein it was observed as under:

“Quite obviously if one were to include the power to modify an award in Section 34, one would be crossing the Lakshman Rekha and doing what according to the justice of a case, ought to be done. In interpreting a statutory provision, a Judge must put himself in the shoes of Parliament and then ask whether Parliament intended this result. Parliament very clearly intended that no power of modification of an award exists in Section 34 of the Arbitration Act, 1996. It is only for Parliament to amend the aforesaid provision in the light of the experience of the courts in the working of the Arbitration Act, 1996, and bring it in line with other legislations the world over.”

66. It thus settled the law and held that the court does not possess the power to modify an arbitral award while hearing a challenge under Section 34 of the Act.

67. However, in R.S. Jiwani (M/S.) (supra) it was observed that the observations were in regard to modification and not to the partial setting aside of the Award. It was thus, concluded that the Court, while exercising power under Section 34 of the A&C Act, 1996, can set aside an Award partly, depending upon the facts and circumstances of the case.

68. In this context, reference was made to the judgment of the Supreme Court in the case of J.G. Engineers Pvt. Ltd. v. Union of India(2011) 5 SCC 758. (23) wherein the doctrine of severability was invoked and it was held that when the Award deals with several claims that can be said to be separate and distinct, the Court can segregate the Award on items that do not suffer from any infirmity and uphold the Award to that extent.

69. The Bombay High Court in the recent judgment of National Highway Authority of India v. The Additional Commissioner, Nagpur2022 SCC OnLine Bom 1688 noted the aspect of grave inconvenience highlighted in the aforesaid Full Bench judgment of Bombay High Court in the case of R.S. Jiwani (M/S.) (supra) and observed that if parties are required to go for arbitration afresh in its entirety on every occasion, even when the arbitral award is only partly set aside, that the arbitral award is found liable to be set aside on some issues, it would lead to multiple rounds of litigation, going against the very purpose of alternative dispute redressal mechanisms like arbitration. The claimants would be forced to pursue numerous rounds of proceedings before the arbitrator and Courts, which cannot be countenanced, thereby indicating that the contention raised in this regard on behalf of the appellants is unsustainable. Thus, following the principle of severability of claims it was held that the Award may be set aside partially.

70. In the present case, the respondent has not contested the matter before the ld. Arbitrator and has also not challenged the impugned Award. So much so there is an admission of liability by the respondent. In these circumstances, to drive the parties to Arbitrate the entire dispute afresh despite admissions would indeed be extreme harshness which is not in accordance with the ethos of arbitration.

In the High Court of Delhi at New Delhi

(Before Neena Bansal Krishna, J.)

Amazing Research Laboratories Ltd. Vs  Krishna Pharma 

O.M.P. (COMM) 376/2020

Decided on March 13, 2023

Citation: 2023 SCC OnLine Del 1498.

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