Today, On 13th February, The Supreme Court started hearing a case on whether courts can change arbitral awards. Arbitration, under the Arbitration and Conciliation Act, 1996, is a way to settle disputes outside the courts. This law reduces court interference in decisions made by arbitration tribunals. The ruling in this case may affect how much power courts have over such awards.
New Delhi: A five-judge Supreme Court bench began hearings on a critical legal question regarding whether courts have the authority to modify arbitral awards as per the Arbitration and Conciliation Act of 1996.
The Constitution bench, which includes Chief Justice Sanjiv Khanna and justices B.R. Gavai, Sanjay Kumar, K.V. Viswanathan, and Augustine George Masih, is currently hearing Solicitor General Tushar Mehta, representing the Centre.
The Arbitration and Conciliation Act, 1996, facilitates an alternative dispute resolution mechanism that limits judicial interference in tribunal awards.
Section 34 of the Act allows for setting aside an arbitral award only on specific grounds, such as procedural irregularities, public policy violations, or jurisdictional issues. Section 37 addresses appeals concerning arbitration orders, maintaining a similar focus on minimizing judicial intervention in exceptional circumstances.
On January 23, a three-judge bench led by the Chief Justice referred this contentious issue to a larger bench, stating,
“This court will first hear arguments of the counsel seeking reconsideration of the ratio expressed in Project Director, NHAI vs M. Hakeem, that is, the court has the power to modify an award under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996.”
The bench noted the necessity for clarity on this matter, which arose from the case Gayatri Balasamy v. ISG Novasoft Technologies Ltd.
Historically, courts have interpreted Section 34 narrowly, steering clear of reviewing the merits of awards to uphold the principles of finality and efficiency in arbitration.
The bench acknowledged the complexity of the issue, having considered the arguments presented by senior advocate Saurabh Kirpal and his firm, M/s Karanjawala & Co., on behalf of the respondents.
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In February 2024, a three-judge bench, including Justices Dipankar Datta, K.V. Viswanathan, and Sandeep Mehta, framed several questions for the Chief Justice’s consideration.
One question posed was,
“Does the power to set aside an arbitral award under Section 34 include the authority to modify it?”
Another queried the extent and circumstances under which modification might be permitted.
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.