Even if the Arbitral Award is set aside, Other Elements in the Award can still retain Validity
Hindustan Steelworks Construction Limited vs. New Okhla Industrial Development Authority; Arbitration Appeal No.219 of 2022
In a recent landmark ruling, the Allahabad High Court has reinforced the significance of the doctrine of severability in arbitral awards. This legal doctrine allows the court to separate the valid portions of an award from the invalid ones, provided they are independent of each other and findings in the award are not substituted by the court. This judgment has far-reaching implications for the arbitration process in India, as it clarifies the court’s authority to apply the doctrine of severability while considering objections under Section 34 of the Arbitration and Conciliation Act, 1996.
The case involved a contract between Hindustan Steel Works Construction Limited (HSCL) and NOIDA for constructing flyovers and related work. Disputes arose over inflated contract costs. After arbitration, HSCL was awarded damages. Dissatisfied, NOIDA filed objections under Section 34 of the Act.
The Commercial Court observed while setting aside the entire award that the award could not be upheld in part since modification in the award was not permitted.
HSCL thereafter appealed, claiming the Courts have the power to modify the award.
The High Court’s Verdict
This ruling of Hon’ble Allahabad High Court sheds light on the crucial limitations imposed by the Arbitration and Conciliation Act, 1996 (“Act”) on judicial interference. The court observed that the Act restricts the court’s authority and assigns only a supervisory role to the courts to ensure fairness and strike at arbitrariness, violation of public policy of India, patent illegalities appearing on the face of record, jurisdictional error and the like (Section 34 (2) and (3) of the Act).
The Hon’ble Court however, clarified that when Section 34 confers authority on the court to set aside an award, this power can be exercised in relation to any or all types of awards, whether they are composite, interim, final, or additional. The setting aside of an entire award would not only compel the parties to endure additional rounds of litigation, thus causing significant injustice, but it would also defeat the fundamental purpose of the 1996 Act, which aims to provide swift resolution to disputes. Consequently, the Hon’ble Court rejected the Commercial Court’s stance on the question of severability of arbitral awards.
To support its position, the Hon’ble Court cited the precedent set in the case of R.S. Jiwani (M/s.) Mumbai vs. Ircone International Ltd. Mumbai, where a full bench of the Bombay High Court asserted that the Arbitration Act of 1996 does not in any manner prohibit the court from applying the doctrine of severability to arbitral awards. The court also relied on the Supreme Court’s decision in J.G. Engineers Pvt. Ltd. vs. Union of India and another, wherein the doctrine of severability was successfully employed to set aside certain claims, as they were identified as separate and distinct elements within the award.
Author of this article:
Adv. Ravish Bhatt,
Partner, R&D Law Chambers,
Dual Qualified Lawyer Solicitor | International Tax Affiliate
Connect with Mr. Bhatt on Linkedin: https://www.linkedin.com/in/adit-ravishbhatt/
- Readers should contact their attorney to obtain advice with respect to any particular legal matter. No reader or user should act or refrain from acting on the basis of information written above without first seeking legal advice from qualified law practitioner.