The Supreme Court will form a Constitution Bench to examine the authority of courts to modify arbitral awards. A bench led by Chief Justice of India Sanjiv Khanna, along with Justices Sanjay Kumar and KV Viswanathan, referred the matter to a five-judge bench on Thursday. The decision highlights the importance of clarifying judicial powers in arbitration cases.
New Delhi: A Constitution Bench of the Supreme Court will address the legal questions regarding the courts’ authority to modify arbitral awards under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996.
A Bench led by Chief Justice of India Sanjiv Khanna, along with Justices Sanjay Kumar and K.V. Viswanathan, referred the matter to a five-judge Constitution Bench.
Section 34 of the Arbitration and Conciliation Act outlines the process for challenging an arbitral award in court, specifying grounds for setting aside an award to ensure that arbitration remains fair and lawful.
These grounds include violations of public policy, invalid arbitration agreements, lack of jurisdiction by the tribunal, or failure to provide proper notice of the arbitration proceedings.
Notably, Section 34 does not permit a review of the award’s merits, with courts interpreting it narrowly to minimize judicial interference and uphold the principles of finality and efficiency in arbitration.
Section 37 governs appeals against specific orders made under the Act, allowing parties to appeal decisions such as refusing to refer disputes to arbitration, denying enforcement of an arbitral award, or granting or denying interim measures under Section 9. Similar to Section 34, Section 37 aims to limit court interference while ensuring justice in exceptional cases requiring judicial oversight.
During initial hearings in February 2024, a bench comprising Justices Dipankar Datta, K.V. Viswanathan, and Sandeep Mehta raised several questions, including:
- Can the power to modify an award be exercised only when the award is severable, allowing for partial alteration?
- Does the authority to set aside an award under Section 34 include the power to modify it, and if so, to what extent?
- Can the power to modify be inferred from the ability to set aside an award under Section 34?
- Do past Supreme Court judgments, such as Project Director NHAI v. M. Hakeem (2021), correctly interpret this law, particularly given other decisions that permit modifications?
The Court acknowledged its own inconsistent rulings on this matter. While cases like Project Director NHAI v. M. Hakeem and Larsen Air Conditioning v. Union of India (2023) ruled against modification powers, other decisions such as Vedanta Ltd. v. Shenzden Shandong Nuclear Power Construction Co. and J.C. Budhraja v. Chairman, Orissa Mining Corporation Ltd. either upheld or allowed modifications to arbitral awards.
Given these inconsistencies, the February 2024 bench directed that the case be referred to the Chief Justice for consideration by a larger bench. Following this, the matter was brought before Chief Justice Khanna’s bench on Thursday, which then referred the case to a Constitution Bench.
The petitioners represented by Senior Advocate Arvind Datar and advocate Nishanth Patil, while the respondents were represented by Senior Advocate Saurabh Kirpal along with Debmalya Banerjee, Manmeet Kaur, Rohan Sharma, and Gurtejpal Singh from Karanjawala & Co.
An arbitral award is the decision issued by an arbitration panel or tribunal after resolving a dispute between parties. It serves as a legally binding ruling and is typically enforceable in court, similar to a court judgment. Arbitral awards can result from commercial, civil, or labor disputes and are usually final unless challenged on specific grounds such as procedural irregularities or violations of public policy.
Case Title: Gayatri Balasamy Vs ISG Novasoft Technologies Ltd