Today, On 30th April, The Supreme Court clarified when courts can modify arbitral awards under Sections 34 and 37 of the Arbitration Act. Justice KV Viswanathan gave a dissenting opinion, disagreeing with the majority’s interpretation of the law.
New Delhi: A five-judge Constitution Bench of the Supreme Court decided that courts have the authority to modify arbitral awards under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996.
However, this authority is limited and can only be exercised in specific situations.
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.
The Bench determined that the limited power to modify arbitral awards can be used in the following situations:
- When the award is divisible;
- To correct typographical or clerical mistakes;
- To correct post-award interest in certain situations;
- Article 142 of the Constitution applies, but should be used cautiously.
Justice Viswanathan disagreed with the majority opinion, stating that such modifications should not be allowed.
He stated the following,
- 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.
- My point in difference is that courts cannot use Article 142.
- The other aspect I have dissented is the power to modify post award interest. It should rather be referred back to arbitrator.”
In January, a Bench headed by then CJI D.Y. Chandrachud referred the issue to a five-judge Constitution Bench after recognizing inconsistencies in previous judgments.
Section 34 of the Arbitration and Conciliation Act provides the method for challenging an arbitral award in court.
It outlines the reasons for which an award may be set-aside, ensuring the fairness and legality of the arbitration process.
These reasons include situations where the award contradicts public policy, the arbitration agreement was invalid, the tribunal lacked authority, or the party raising the challenge did not receive adequate notice of the arbitration proceedings.
However, Section 34 does not permit a review of the award’s substance. Courts have interpreted this provision strictly, emphasizing minimal judicial intervention to maintain the principles of finality and efficiency in arbitration.
Section 37 of the Act regulates appeals against specific orders made under the Act. It allows parties to appeal decisions such as orders refusing to refer disputes to arbitration, refusing to enforce an arbitral award, or granting or denying interim measures under Section 9.
The scope of Section 37 is restricted to particular categories of decisions, and courts generally exercise caution to avoid undermining the arbitral process. Like Section 34, it reflects the Act’s goal of minimizing court interference while ensuring justice is served in exceptional cases requiring judicial oversight.
Also Read: WBIDC Challenges Arbitral Award Against Tata Motors in Singur Case
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.
While decisions such as Project Director NHAI v. M. Hakeem and Larsen Air Conditioning v. Union of India (2023) had ruled against modification powers, other rulings such as Vedanta Ltd. v. Shenzden Shandong Nuclear Power Construction Co. and J.C. Budhraja v. Chairman, Orissa Mining Corporation Ltd. either upheld or permitted modifications to arbitral awards.
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.
Case Title: GAYATRI BALASAMY vs M/S ISG NOVASOFT TECHNOLOGIES LIMITED, SLP(C) No. 15336-15337/2021
FOLLOW US FOR MORE LEGAL UPDATES ON YOUTUBE
