Constitution Bench Permits Limited Modification Of Arbitral Awards Under Sections 34 And 37; Justice Viswanathan Dissents
A Constitution Bench of the Supreme Court today ruled that courts may, in limited situations, modify arbitral awards under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996.
The Bench comprising Chief Justice of India Sanjiv Khanna, Justice BR Gavai, Justice Sanjay Kumar, Justice KV Viswanathan, and Justice Augustine George Masih held that Courts may exercise a limited power to alter arbitral awards, but only under specific conditions, which were, “When the award is severable; to rectify clerical or typographical mistakes; in certain cases involving post-award interest; and under Article 142 of the Constitution, which must be applied sparingly and with restraint.”
However, Justice KV Viswanathan delivered a strong dissent, holding that Courts do not have the power to modify arbitral awards at all, stating, "Section 34 cannot modify or vary the arbitral award…It is crystal clear that they cannot change or vary arbitral award as it will hit the core aspect."
He categorically disagreed with the majority’s invocation of Article 142 to justify modifications, stating, "My point in difference is that Courts cannot use Article 142."
"Article 142 of the Constitution will not be exercised by the Court to modify awards... it is well settled that Article 142 cannot be used to give a go-by to any subject of statutory provision.”, Justice Viswanathan added.
He also disagreed with allowing Courts to alter post-award interest, stating, "The other aspect I have dissented is the power to modify post-award interest. It should rather be referred back to Arbitrator."
Justice Viswanathan noted that party autonomy, the structure of the Act, and the absence of modification powers pointed to legislative intent, and observed, “The absence of express powers to modify for a Court... also points to the legislative intent…When parties agree to arbitrate, they consciously with open eyes agree to step out of the normal judicial process… the Section 34 Court, unless expressly authorised by law, cannot modify or vary the award.”
He concluded, “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.”
“The inherent power under Section 151 cannot be used to modify awards... there is no scope for applying the doctrine of implied powers to modify the award.”
The Court earlier framed the following questions and referred the matter to a larger Bench:
"-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?
-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?
-Whether the power to modify an award can be read into the power to set aside an award under section 34 of the Act?
-Whether the judgment of the Supreme 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) SCC Online SC 982 and SV Samudram v. State of Karnataka (2024) SCC Online SC 19 lay down the correct law, as other benches of two Judges (in Vedanta Limited v Shenzden Shandong Nuclear Power Construction Company Limited (2019) 11 SCC 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) 2SCC 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."
In M. Hakeem, it was held that no power of modification of an award exists in Section 34 of the Arbitration Act. It is only for Parliament to amend the provision in the light of the experience of the courts in the working of the Arbitration Act, 1996, and bring it in line with other legislations the world over. The Court noted that there are three judge bench judgments which have either modified or accepted modification of the arbitral awards under consideration.
Cause Title: Gayatri Balasamy v. M/S Isg Novasoft Technologies Limited
