Arbitral Award Suffering From Illegalities Can Be Set Aside: Delhi HC

FACTS:

In the case of National Highways Authority of India v. Trichy Thanjavur Expressway Limited, [2023 SCC OnLine Del 5183], decided on August 21, 2023, the High Court of Delhi dealt with two cross petitions which were filed under Section 34 of the Arbitration and Conciliation Act, 1996. The appellant in one petition was the National Highways Authority of India (NHAI) and in the other, it was Trichy Thanjavur Expressway. The petitions were brought to set aside certain parts of an Arbitral Award dated August 7, 2022. Trichy Thanjavur Expressway sought the quashing of a part of the award to the extent that claims amounting to Rs. 30, 27, 33, 01, 844/- had been rejected. NHAI sought the setting aside of the award to the extent of findings on certain claims and additionally sought elimination of the grounds for setting aside the award under Section 34(4) of the Act.

ISSUES:

1. Whether parts of an award could be severed and whether an award could be partially set aside.
2. Whether the grant of such relief is contrary to the decision of the Supreme Court in NHAI v. M. Hakeem [(2021) 9 SCC 1].

JUDGEMENT:

The Court noted that the proviso placed in Section 34(2)(a)(iv) of the Arbitration and Conciliation Act, 1996 shows that partial setting aside is not a concept that is foreign to the power of setting aside. The proviso itself envisages parts of an award being distinct and capable of severance since an award may consist of a decision rendered on multiple claims. Therefore, according to the Court, the principle of severance is something that has received statutory recognition, especially in cases where the award suffers from illegalities or irregularities in the nature specified under Section 34(2) of the Act and in the opinion of the Court, wielding such power would still be covered under the power of ‘setting aside’.

Regarding whether exercising this power would be against the precedent set in NHAI v. M. Hakeem [(2021) 9 SCC 1], wherein it was held that the power to set aside does not include the power to modify. The Court observed that exercising the power to partially set aside an award would not amount to a modification or variation of the award when the parts of an award are found to be clearly unsustainable and severable. The Court also noted that the wielding of this power would only be warranted in situations where the award relates to a claim that is found to stand on its own and its setting aside would not affect any other part of the award.

Further, looking into the intent of Section 34(4), the Court observed that it was solely for the purpose of removing manifest defects which could be remedied without affecting the foundation of the award or the various findings and conclusions recorded.  Therefore, the Court held that Section 34(4) of the Act, could not save an award that suffers from any illegalities under Section 34(2) (a) or (b), from being set aside.