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Judgment
Alka Sarin, J.
The present appeal has been preferred by the appellant aggrieved by the judgment dated 06.07.2018 passed by the learned Additional District Judge, Chandigarh on a petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‘1996 Act’) challenging the majority award dated 10.07.2012/13.07.2012.
Brief facts relevant to the present lis are that the appellant - M/s Nectar Lifesciences Limited - is an integrated Pharmaceutical Company and its various manufacturing facilities have been established at Village Saidpura, Tehsil Dera Bassi, District Mohali and Baddi in Himachal Pradesh. It was incorporated in the year 1995. The manufacturing facility at Village Saidpura, Tehsil Dera Bassi, District Mohali consists of two units namely, Unit-I and Unit-II. The building, plant and machinery and stocks of Unit-I had been insured by respondent No.1 for the period 06.05.2007 to 05.05.2008 through two difference insurance policies. The insurance policies fell under the General Category "Standard, Fire and Special Perils Policy". The genesis of the dispute was a fire incident which occurred in Unit-I on 07.05.2007 resulting in major loss of stocks, building, plant and machinery, furniture and fixtures. One Mr. Sanjay Gupta was appointed as a Preliminary Surveyor by respondent No.1 on 08.05.2007 who assessed the loss to be in excess of ₹75 crores. Thereafter, respondent No.1 herein appointed Joint Surveyors, namely, M/s S. Soni & Company and R.K. Singhal & Company Pvt. Ltd., as ‘Class A’ Joint Loss Assessors and Surveyors. The appellant herein filed a claim of ₹81.85 Crores on 29.05.2007. The Joint Surveyors submitted an interim report dated 01.10.2007 (Ex.C5 in the arbitral proceedings). As per the said report, the Joint Surveyors assessed the loss as ₹38,52,82,510/- as against a claim of ₹81,85,11,817.63. After the release of the interim report, respondent No.1 released an amount of ₹20 Crores as interim payment on 31.12.2007. The final Joint Surveyors report was submitted on 23.05.2008 assessing the loss as ₹44,64,26,080/-. Vide an addendum report, the loss was assessed as ₹44,65,00,311/-. Respondent No.1 felt that the Joint Surveyors had not taken into consideration several aspects of the matter while assessing the loss in relation to “Plant and Machinery”. Respondent No.1 thereafter appointed Shri Vinod Sharma as a Verifier on 12.12.2008. Vide a report dated 21.03.2009, Shri Vinod Sharma assessed the loss with respect to plant and machinery as ₹13,33,17,939/- as against the loss assessed by the Joint Surveyors at ₹27,24,62,038/-. Intimation was sent to the appellant herein that a sum of ₹28,62,57,661/- had been approved by way of full and final payment and that since ₹20 crores had already been released as interim payment on 31.12.2007, after deducting that amount, the payment due was ₹8,62,57,661/-. The said offer was not accepted by the appellant. An amount of ₹8,62,57,661/- was directed to be released in a writ petition filed before this Court. It was left open to the appellant herein to claim for its remaining amount by raising a dispute under the policies. Arbitration Clause was hence invoked by the appellant herein and an Arbitral Tribunal was constituted. The appellant herein filed the following statement of claims :
“Claim No.1 : The claimants claim a sum of ₹5,61,18,687/- towards amount short assessed on account of loss of Stock ₹5,55,63,057/- and ₹5,55,630/- towards debris removal charges @ 1%.
Claim No.2 : The claimants claim a sum of ₹2,14,62,437/-on account of deficit in Net Claim assessed towards Building Loss.
Claim No.3 : The claimants claim a sum of ₹21,03,68,713/- towards short assessment of loss caused to Plant & Machinery.
Claim No.4 : The claimants claim a sum of ₹1,38,55,934/-towards interest @ 12% p.a. on account of delay in payment of ₹5,61,18,687/- towards loss of stock from date of Joint Final Report as pre-reference interest and further pendente lite and future interest @ 12% p.a.
Claim No.5 : The claimants claim a sum of ₹51,32,377/-towards interest @ 12% p.a. on account of delay in payment of ₹2,07,86,925/- towards loss on account of damage to building as per Claim No.2 from date of Joint Final Report as pre-suit interest and further pendente lite and future interest @ 12% p.a.
Claim No.6 : The claimants claim a sum of ₹5,19,40,900/-towards interest @ 12% p.a. on account of delay in payment of ₹21,03,68,713/- towards loss of Plant & Machinery (P&M) from date of Joint Final Report as pre-reference interest and further pendente lite and future interest @ 12% p.a.
Claim No.7 : The claimants claim a sum of ₹1,80,92,840/-towards interest @ 12% p.a. on account of delay in payment of ₹8,62,57,661/- which was duly admitted on 24.04.2009 but paid on 20.01.2010 but is payable from 23.05.2008.
Claim No.8 : Claim for costs (Actual).”
(details of claim are not reproduced for the sake of brevity).
The Arbitral Tribunal vide a majority award dated 10/13.07.2012 awarded an amount of ₹23,62,16,668/- under Claim Nos.1, 2 and 3 as well as interest @ 12% p.a. from 23.06.2008 to the date of award i.e. 10.07.2012 as ₹11,47,04,225/- (Total ₹35,09,20,893/-). The appellant was further held entitled to interest on the aforesaid amount @ 18% p.a. from the date of award till the date of payment in terms of Section 31(7)(b) of the 1996 Act. Claim No.7 was rejected and under Claim No.8 costs were quantified as ₹96,00,000/-payable by respondent No.1 to the appellant. A minority view was also expressed by a third Arbitrator dated 08.09.2012.
The appellant herein filed objections under Section 34 of the 1996 Act raising various challenges to the majority award dated 10/13.07.2012. Vide the impugned judgment dated 06.07.2018 it was held that the report of Joint Surveyors could not be relied upon for assessing the loss caused to the plant and machinery and further held that the report of the Verifier deserved to be accepted. By modifying the claim under the head plant and machinery, an amount of ₹13,33,17,939/- was awarded. Qua the stocks it was held that the Joint Surveyors had awarded ₹14,99,10,979/-, however, the Arbitral Tribunal awarded ₹20,54,74,036/-. While modifying the award, it was held that an amount of ₹14,99,10,979/- was correctly assessed by the Joint Surveyors and stated that consequently the observation in the minority opinion was upheld.
Learned senior counsel appearing on behalf of the appellant has at the outset contended that as per the Constitution Bench’s judgment of the Supreme Court in the case of Gayatri Balasamy Vs. M/s ISG Novasoft Technologies Limited [2025 (7) SCC 1] the Court under Section 34 of the 1996 Act does not have the power to modify the arbitral award.
Learned senior counsel appearing on behalf of respondent No.1 has contended that vide the impugned judgment dated 06.07.2018 the award has not been modified and it is only the view taken by the minority, which considered the report of the Verifier, that has been taken into account. Learned senior counsel has further contended that a very vital report (Ex.C9) that is a report of the Verifier – Shri Vinod Sharma – was not considered in the award however, the same was referred to in the minority view given by the third Arbitrator and the Court while dealing with the objections under Section 34 of the 1996 Act has merely considered the same and found that the report was reliable and should have been considered and considering the same, the impugned judgment has been passed. Reliance has been placed on the judgments of the Supreme Court in the cases of Ssangyong Engineering and Construction Company Ltd. Vs. National Highways Authority of India (NHAI) [(2019) 15 SCC 131]; Associates Builders Vs. Delhi Development Authority [(2015) 3 SCC 49]; Kuldeep Singh Vs. Commissioner of Police & Ors [(1999) 2 SCC 10]; H.B. Gandhi, Excise and Taxation Officer-cum-Assessing Authority, Karnal & Ors. Vs. M/s Gopi Nath & Sons & Ors. [1992 Supp (2) SCC 312] and Dyna Technologies Private Limited Vs. Crompton Greaves Limited [(2019) 20 SCC 1].
We have heard the learned senior counsel for the parties and with their able assistance perused the record.
Hon’ble Supreme Court in the Constitution Bench’s judgment in Gayatri Balasamy’s case (supra) examined the following questions of law which were referred to a Larger Bench :
“1.Whether the powers of the Court under Sections 34 and 37 Act 1996 will include the power to modify an arbitral award? of the Arbitration and Conciliation
2.If the power to modify the award is available, whether such power can be exercised only where the award is severable, and a part thereof can be modified?
3.Whether the power to set aside an award under Section 34 of the Act, being a larger power, will include the power to modify an arbitral award and if so, to what extent?
4.Whether the power to modify an award can be read into the power to set aside an award under Section 34 of the Act?
5.Whether the judgment of this Court in Project Director NHAI v. M. Hakeem, (2021) 9 SCC 1. followed in Larsen Air Conditioning and Refrigeration Company v. Union of India, (2023) 15 SCC 472. and SV Samudram v. State of Karnataka, (2024) 3 SCC 623. lay down the correct law, as other benches of two Judges (in Vedanta Limited v. Shenzden Shandong Nuclear Power Construction Company Limited, (2019) 11 SSC 465 Oriental Structural Engineers Pvt. Ltd. v. State of Kerala, (2021) 6 SCC 150 and M.P. Power Generation Co. Ltd. v. Ansaldo Energia Spa), (2018) 16 SCC 661 and three Judges (in J.C. Budhraja v. Chairman, Orissa Mining Corporation Ltd., (2008) 2 SCC 444. Tata Hydroelectric Power Supply Co. Ltd. v. Union of India, (2003) 4 SCC
172.and Shakti Nath v. Alpha Tiger Cyprus Investment No.3 Ltd.,(2020) 11 SCC 685.) of this Court have either modified or accepted modification of the arbitral awards under consideration?”
The reference was answered by holding as under :
“Conclusion:
(a)The Courts exercising power under Section 34 and Courts hearing appeals thereunder have no power to "modify" an award.
(b)The power to modify is not a lesser power to that of the power to set aside, as the two operate in separate spheres and are not of the same genus.
(c)The inherent power under Section 151 C.P.C. cannot be used to modify awards as it will be contrary to the express power mentioned in Section 34. Similarly, there is no scope for applying the doctrine of implied power to modify awards.
(d)Article 142 of the Constitution of India will not be exercised by this Court to modify awards passed by arbitrators as it is well settled that the Article 142 power cannot be used to give a go by to the substantive statutory provision.
(e)Interest awarded also cannot be modified in exercise of powers of setting aside and the course of action under Section 34(4) will have to be adopted as discussed in the judgment.
(f)Hakeem (supra) is not per incuriam insofar as it held that a Section 34 Court cannot modify the award will be read with the only exception made in this judgment now. On the principle of actus curiae neminem gravabit computation, clerical and typographical errors or other errors of similar nature is permissible to be corrected made by the Section 34 Court, in terms of the holding above.
(g)Kinnari Mullick (supra) does not lay down the correct law insofar as it holds that the request under Section 34(4) to the Court by a party to grant an opportunity to the Arbitral Tribunal to resume proceedings or to take such other action has to be in writing. Even an oral request under Section 34(4) can be entertained by the Court.
(h)The power under Section 34(4) can be exercised by the Court Suo Moto also under the circumstances set out herein above.
(i)A Court under Section 34 and the Courts hearing appeals thereafter have the power to "sever" parts of the award in exercise of the powers of setting aside awards under Section 34. However, while severing, the parameters set out herein above and flowing from the judicial precedents discussed therein have to be followed.
Answers To The Reference:
242.In view of the discussion herein above, the reference is answered in the following terms.
Question No.1 - As set out in the body of the judgment, while exercising power under Section 34 of the A&C Act and consequently the Courts in the appellate hierarchy do not have the power to modify the arbitral award.
Question No.2 - Modification and severance are two different concepts while modification is not permitted under Section 34, severance of the award falling foul of Section 34 is permissible in exercise of powers under Section 34. Such a power of severance is also available to the courts in the appellate hierarchy to the Section 34 Court.
Question No.3 & 4 - The power to set aside will not include the power to modify since the power to modify is not a lesser power subsumed in the power to set aside and, as held herein above, the power to set aside and power to modify do not emanate from the same genus and are qualitatively different powers in the context of the A&C Act.
Question No.5 - The judgment in Hakeem (supra), insofar as it holds that a Section 34 Court has no power to modify the award, lays down the correct law. The only exception made in this judgment is with regard to the power to carry out corrections in computational errors, clerical errors or typographical errors and any other errors of similar nature. This is based on the principle of actus curiae neminem gravabit (act of court shall prejudice no one).
243.Appreciation is recorded for the painstaking efforts put in by the learned Solicitor General and all the Learned Senior Counsels/Counsels who addressed arguments and to the teams assisting them.
244.The reference is disposed of in the above terms.”
In the present case the Arbitral Tribunal vide a majority award dated 10/13.07.2012 awarded an amount of ₹23,62,16,668/- under Claim Nos.1, 2 and 3 as well as interest @ 12% p.a. from 23.06.2008 to the date of award i.e. 10.07.2012 as ₹11,47,04,225/- (Total ₹35,09,20,893/-). The appellant was further held entitled to interest on the aforesaid amount @ 18% p.a. from the date of the award till the date of payment in terms of Section 31(7)(b) of the 1996 Act. Claim No.7 was rejected and under Claim No.8 costs were quantified as ₹96,00,000/- payable by respondent No.1 to the appellant. A minority view was also expressed by a third Arbitrator dated 08.09.2012. Vide the impugned judgment dated 06.07.2018, the said award has been modified and under Claim No.1, the appellant has been held entitled to an amount of ₹14,99,10,979/- and to an amount of 13,33,17,939/- under Claim No.3 – Plant and Machinery. This clearly amounts to modification of the arbitral award. The Court while dealing with a petition under Section 34 of the 1996 Act has the power to either set aside the award or to uphold the same. The Constitution Bench’s judgment in the case of Gayatri Balasamy (supra) clearly lays down that a Court exercising the powers under Section 34 of the 1996 Act has no power to modify an award. The argument of the learned senior counsel for respondent No.1 that the same does not amount to a modification cannot be accepted. Whatever may the reasoning, the award only could have been upheld or set aside and there was no power with the Court to modify the award. It is not a case where the award is severable, by severing the "invalid" portion from the "valid" portion of the award. Infact, this is not an issue which has even been touched upon by the Court.
The judgments relied upon by learned senior counsel for respondent No.1 would not come to the aid of respondent No.1 inasmuch as the proposition of law dealt with in the said cases is wholly different from the proposition in hand.
This Court has confined itself only to the issue as to whether an award can be modified under Section 34 of the 1996 Act. The law is no longer res integra in view of the Constitution Bench’s judgment in the case of Gayatri Balasamy (supra), therefore, this Court has no hesitation in holding that the impugned judgment dated 06.07.2018 cannot be sustained in law and the same is accordingly set aside. The matter is remanded to the Successor Commercial Court for a decision afresh on merits in accordance with law.
It is made clear that any observation made in the impugned judgment and hereinbefore shall not be treated as an expression of opinion on the merits of the case and the Successor Commercial Court would decide the case on the basis of the pleadings, evidence on the record and the law applicable thereto.
Pending applications, if any, also stand disposed off.