The Indian Arbitration Act 1996 (the Act) provides for recourse to a court against an arbitral award by way of an application to set aside the award under section 34 of the Act, only on the grounds specified in that section.

Section 34(2)(a)(iv) of the Act provides that an arbitral award can be set aside if the award deals with or contains decisions on matters not submitted to arbitration.

The proviso to section 34(2)(a)(iv) allows for the partial setting aside of the award, provided that the decisions on matters submitted to arbitration:

The disputes between the parties arose out of an agreement for construction of a rail over bridge (ROB). The respondents alleged that the appellant was solely responsible for delay in construction of the ROB and imposed a monthly penalty which was required to be deducted from the bills payable to the appellant. The appellant claimed for payment on account for extra expenses and unanticipated losses incurred. The dispute was referred to arbitration where the appellant raised 32 claims, out of which 15 claims were allowed, while the rest were rejected. All the respondents' counterclaims were rejected.

The respondents challenged the award under section 34 of the Act before the single judge of the Bombay High Court. The judge, even while holding that 11 out of 15 claims awarded were sustainable, set aside the entire award in view of an earlier judgment of Division Bench of Bombay High Court in Mrs. Pushpa P Mulchandani v Admiral Radhakrishin Tahiliani, (unreported Judgment in Appeal No. 981 of 2001 in Arbitration Petition No. 432 of 1998) (the Mulchandani case). In the Mulchandani case, an entire award was set aside even though some of the claims were held to be sustainable.

The appellant appealed against this order before the Division Bench. The Division Bench referred the question of partially setting aside of the award to a larger bench as they had reservations as to the correctness of the decision on this point of the Bombay High Court in the Mulchandani case. Further, in their opinion the question of partly setting aside an award was likely to arise repeatedly before the courts and would be of some significance. Therefore, the matter was placed before a larger bench of three judges (Full Bench).

The Full Bench of the Bombay High Court disagreed with the statement of law laid down in the Mulchandani case. Applying principles of statutory interpretation, it held that the courts have discretion under section 34 of the Act to set aside an award in whole or in part, depending on the facts of the case.

The Full Bench held that provisions of section 34 read as a whole cannot be interpreted so as to divest the court of jurisdiction to apply the principle of severability generally to an award which is the subject of challenge. It further stated that the proviso to section 34(2)(a)(iv) has to be read ejusdem generis to the main section and that there would be an absolute duty on the court to invoke the principles of severability if otherwise applicable.

The Full Bench rejected the contention that the court did not have discretion to set aside the award and that the principle of severability can only be applied to set aside the award in part only where the arbitrator has decided on issues not submitted to arbitration. Drawing a comparison between the Arbitration Act 1940 (the earlier Act) and the current Act, the Full Bench noted that just because under the current Act the court has not been given the same powers in relation to correction, remission and modification of awards as under the earlier Act, it cannot be construed that the court is not vested with the power to set aside an award in part if otherwise so warranted. The Full Bench noted that there was nothing in the Act which prohibited the court from adopting the approach under the earlier Act for modifying the award or from applying the principle of severability to awards. Further, the Full Bench observed that if the principle of severability can be applied to statutes and contracts, it can also be applied to awards.

The view of the Full Bench reinforces the spirit with which the Act was passed. Further, the legislative intent can never be to frustrate even a partial resolution of disputes. If the doctrine of severability were only to be applied where statute expressly stated that it should, that would prevent the courts from partly setting aside the award. This judgment rightly overrules the earlier erroneous decision in the Mulchandani case. That decision served not only to prolong the arbitration but also caused unnecessary harassment to the parties by requiring them to start the arbitration afresh - thereby defeating the intent and object of the Act.

Case: Unreported Judgment of Honb'le Bombay High Court in R.S Jiwani v. Ircon International Ltd.. Appeal No. 245 of 2009 in Arbitration Petition Nos. 347 0f 2005, 457 of 2006 and 370 of 2008.