Supreme Court Sets Aside Arbitrator’s Modification of Award Under Section 33 of Arbitration Act
The case of Gyan Prakash Arya vs. M/s Titan Industries Limited concerns a dispute over an arbitral award regarding the recovery of pure gold in possession of the appellant. The Supreme Court had to determine whether an arbitrator could modify an award under Section 33 of the Arbitration and Conciliation Act, 1996, and whether the modification exceeded the permissible scope of correction under the Act.
Background of the Case
On 9th July 2003, the appellant and respondent entered into an agreement, which later led to a dispute over 3648.80 grams of pure gold allegedly in the appellant’s possession. The respondent, Titan Industries Ltd., invoked the arbitration clause, and the High Court appointed a retired District Judge as the sole arbitrator.
The respondent filed a claim before the arbitrator, seeking:
- The return of 3648.80 grams of pure gold or Rs. 27,00,112 (valued at Rs. 740 per gram).
- Interest of Rs. 11,74,545 on the principal amount.
- Losses incurred due to default amounting to Rs. 26,50,338.
- Legal costs.
Initial Arbitration Award
On 4th December 2010, the arbitrator directed the appellant to return the gold within three months or pay the market value, calculated at Rs. 740 per gram, with 18% interest from 24th July 2004.
Modification of the Award Under Section 33
The respondent later filed an application under Section 33 of the Arbitration Act, claiming a computational error in the valuation. The arbitrator allowed the modification, replacing the valuation of Rs. 740 per gram with Rs. 20,747 per 10 grams, significantly increasing the payable amount.
Challenge Before Courts
The appellant challenged the modification before the City Civil Court under Section 34 of the Arbitration Act, which dismissed the appeal. The Karnataka High Court also upheld the decision under Section 37.
Arguments by the Appellant (Gyan Prakash Arya)
- The modification went beyond a clerical or computational correction and amounted to a substantive change in the award.
- The arbitrator did not have the power to revise the awarded amount after considering the claim during initial proceedings.
- Both the City Civil Court and High Court erred in treating the modification as a permissible correction under Section 33.
Arguments by the Respondent (M/s Titan Industries Ltd.)
- The modification only rectified an error in calculating the market value of gold.
- Even if the modification was invalid, the original award required the appellant to return the gold.
- The courts correctly upheld the modification as a correction of a clerical error.
Supreme Court’s Observations
The Supreme Court bench, comprising Justices M.R. Shah and B.V. Nagarathna, examined whether the arbitrator had the jurisdiction to make substantive modifications under Section 33.
The Court ruled:
“Only in a case of arithmetical and/or clerical error can the award be modified. The modification in this case changed the substantive relief granted and went beyond the jurisdiction of Section 33.”
Key Findings
- The modification changed the principal amount owed, making it a substantive alteration rather than a clerical correction.
- The arbitrator acted beyond jurisdiction by modifying the awarded market value after final adjudication.
- The City Civil Court and High Court erred in upholding the modification.
Final Judgment
The Supreme Court ruled that:
- The High Court’s judgment was set aside.
- The original award dated 4th December 2010 was restored.
- The modification under Section 33 was quashed as it exceeded the arbitrator’s jurisdiction.
- Each party would bear its legal costs.
Impact of the Judgment
This ruling has significant implications for arbitration law:
- Limited Scope of Section 33: Arbitrators cannot modify awards beyond correcting clerical or computational errors.
- Finality of Awards: Once an award is made, substantive modifications are not permissible under correction provisions.
- Judicial Oversight: Courts must ensure that arbitrators do not exceed their powers under Section 33.
Conclusion
The Supreme Court’s ruling in Gyan Prakash Arya vs. M/s Titan Industries Ltd. reinforces the principle that arbitration awards must remain final unless challenged through proper legal channels. This decision ensures that post-award modifications do not alter substantive rulings, maintaining the integrity of arbitration proceedings.
Petitioner Name: Gyan Prakash Arya.Respondent Name: M/s Titan Industries Limited.Judgment By: Justice M.R. Shah, Justice B.V. Nagarathna.Place Of Incident: Bangalore, Karnataka.Judgment Date: 22-11-2021.
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