CASE DETAILS: GAYATRI BALASAMY Versus M/S ISG NOVASOFT TECHNOLOGIES LIMITED| SLP(C) No. 15336-15337/2021
What Led To the Reference?
In Feb 2024 a bench of Justices Dipankar Dutta, K.V. Viswanathan, and Sandeep Mehta referred to the larger bench the question of whether the courts have the power to modify the arbitral award under Sections 34 or 37 of the Arbitration and Conciliation Act, 1996.
The bench led by Justice Datta also noted that while one line of decisions of this Court has answered the aforesaid question in the negative, there are decisions which have either modified the awards of the arbitral tribunals or upheld orders under challenge modifying the awards. The 5 main questions that the other bench had framed were:
“1. Whether the powers of the Court under Section 34 and 37 of the Arbitration and Conciliation Act, 1996, will include the power to modify an arbitral award?
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 vs. M. Hakeem, followed in Larsen Air Conditioning and Refrigeration Company vs. Union of India and SV Samudram vs. State of Karnataka lay down the correct law, as other benches of two Judges (in Vedanta Limited vs. Shenzden Shandong Nuclear Power Construction Company Limited, Oriental Structural Engineers Pvt. Ltd. vs. State of Kerala and M.P. Power Generation Co. Ltd. vs. Ansaldo Energia Spa) and three Judges (in J.C. Budhraja vs. Chairman, Orissa Mining Corporation Ltd., Tata Hydroelectric Power Supply Co. Ltd. vs. Union of India and Shakti Nath vs. Alpha Tiger Cyprus Investment No.3 Ltd.) of this Court have either modified or accepted the modification of the arbitral awards under consideration?”
In M. Hakeem , Larsen Air Conditioning and S V Samudram the Apex Court has held that the courts are not empowered to modify the arbitral award under Sections 34 or 37 of the Arbitration Act whereas in other aforementioned cases, the Supreme Court had modified or accepted the modified arbitral award.
Arguments Raised By Parties
Solicitor General of India (SG) Tushar Mehta, appearing for the Union, argued that Article 34 of UNICITRAL was adopted within the Indian framework and is reflected in S.34 of the Arbitration Act. The Union noted that the commonality here was the power of the court to set aside or partially set aside the arbitral award.
The Union mainly argued that under S.34, the Courts do not have the power to make modifications to an arbitral award. The Court can only set aside an award as per the literal reading of the provision.
Referring to S.34(1), the Union stressed that S.34 only provides for one option to the Court expressly which is to set aside an award. Underlining S. 34(4), he argued that the Court may allow the arbitral tribunal to eliminate the grounds on which an award may be set aside, but if the tribunal doesn’t follow, the only option left with the court is to set aside the award.
On the issue of whether severability would mean as modifying an award, the Union referred to S.37 of the Act, he explained that when the Court finds a certain part of the award severable from the whole award, it could be set aside- but such severing would not amount to a modification of the award.
Union argued that both ‘set aside’ and ‘modification’ had different essences altogether. He added that modification powers may be needed but cannot be culled through the Court’s interpretation of what extent modification of award can be done . It should be left to the legislature to prescribe such modification.
Sr Advocate Arvind Datar, appearing for the lead petitioner in the present matter, emphasised that Article 34 was not understood correctly when making the domestic law on arbitration. The petitioners stressed that UNICITRAL was intended to cater to arbitration between two nations.
The petitioners explained that other countries like the UK, Singapore, and Canada did not exactly lift Article 34 in the UNICITRAL and chose to draft separate laws suiting their domestic arbitration landscape. This was however not considered while drafting S.34 of the 1996 Act. Thus, petitioners rooted for the present bench’s input on the interpretation of S.34.
The petitioners further stressed that in cases where the award is completely erroneous, then the Courts under S.34 should be given the power to step in and modify it. It was submitted that the term ‘set-aside’ has to be interpreted to mean the power of the Court to either fully or partially set aside an arbitral award. The petitioners stressed that (1) ‘recourse to a court’ would mean recourse to a civil court in light of S.9 read with S.151 CPC; (2) the inherent powers of the Court to do justice are always there and thus setting aside would entail partially setting aside the award.
A bench comprising Chief Justice of India Sanjiv Khanna, Justices BR Gavai, Sanjay Kumar, AG Masih and KV Viswanathan had reserved the judgment on the matter on February 19 2025 after a 3-day hearing.
Answering a reference, a Constitution Bench (by 4:1) of the Supreme Court held that Appellate Courts have limited powers to modify arbitral awards while exercising powers under either Section 34 or 37 of the Arbitration and Conciliation Act, 1996.
The majority judgment by Chief Justice of India Sanjiv Khanna held that the Courts have a limited power under Section 34/37 to modify arbitral awards. This limited power can be exercised in the following circumstances :
1. When the award is severable by separating the invalid portion from the valid portion of the award.
2. To correct any clerical, computation or typographical errors which appear erroneous on the face of the record.
3. To modify post-award interest in some circumstances.
4. The special powers of the Supreme Court under Article 142 of the Constitution can be applied to modify awards. But this power must be exercised with great caution within the limits of the Constitution.
Justice Viswananathan dissents
Justice KV Viswanathan delivered a dissenting opinion on certain aspects. He held that Section 34 Court cannot modify the award unless expressly authorised by the law, since it tantamount to exercising a merits review. Courts exercising Section 34 power cannot change, vary or modify arbitral awards as it strikes at the core and the root of the ethos of the arbitration exercise.
He disagreed with the view of the majority that the Courts can modify post-award interest. If there is any need for modification of interest, the matter has to be remitted back to the Tribunal. Also, this can lead to uncertainties and difficulties in enforcing foreign awards.
Justice Viswanathan also disagreed with the view that Article 142 of the Constitution can be used to modify awards. If such a power is recognised, it will lead to uncertainties in the arbitration litigation, he opined. However, Justice Viswanathan agreed that clerical or typographical mistakes can be corrected under Section 34.
“The Courts exercising powers under Section 34 and the Courts hearing appeals therefrom under Section 37 have no power to modify an award. Power to modify is not a lesser power than the power to set aside as the two operate in separate spheres. The inherent power under Section 151 CPC cannot be used to modify awards, as it is against the express provision of Section 34. Similarly, there is no scope to invoke the doctrine of implied powers to imply the power to modify the award. Article 142 of the Constitution cannot be exercised to modify an award, as it is well settled that Article 142 cannot be used to go by the substantive statutory provisions.” Justice Viswanathan stated in conclusion.
S.34 Provides the outline for applying to set aside an arbitral award. S.37 of the Act states the instances where an appeal may lie against orders relating to arbitral disputes.
The Court considered three issues for examination, mainly (1) What is meant by ‘modification’ of an arbitral award; (2) to what extent, if the court accepts partial modification, without changing the core of the award- what will be the permissible parameters and (3) the scope and extent of severability of an award
powers of the Court to do justice are always there and thus setting aside would entail partially setting aside the award.
