Highlights
- The Supreme Court of India has reserved its judgment on whether the powers of a court under Section 34 and Section 37 of the Arbitration and Conciliation Act, 1996, include the authority to modify arbitral awards, after observing contradictory judgments on the matter.
- Legal experts express concerns that allowing courts to modify arbitral awards could lead to excessive judicial intervention, undermining the effectiveness of arbitration as an alternative dispute resolution mechanism.
- The ruling is anticipated to clarify the limited scope of modification of arbitral awards, aligning with the original intent of the Arbitration and Conciliation Act of 1996 to minimize judicial interference in arbitration proceedings.
The Supreme Court has reserved its judgment on the questions of whether the power of a court under Section 34 and Section 37 of the Arbitration and Conciliation Act includes the power to modify awards, and the severability of arbitral awards.
The three-judge bench of the Supreme Court referred the matter to the Constitution Bench after observing opposite judgments on similar questions. “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,” a three-judge bench said while referring the matter before the Constitution Bench.
| The following questions were referred to a larger Bench for answers |
| 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 India8 and Shakti Nath vs. Alpha Tiger Cyprus Investment No.3 Ltd.9 ) of this Court have either modified or accepted modification of the arbitral awards under consideration? |
“Arguments concluded. Judgment reserved,” said the Constitution Bench while reserving the order.
To prevent increased litigation, the Supreme Court must ensure the arbitration process remains effective without compromising its fundamental principles through award modifications.”While considering the power of modification, the Apex Court on one side has to ensure the effectiveness of arbitration as an ADR tool should not be neutralised because if modification will be permitted so casually, the concept of arbitration will turn into a regular appellate litigation,” said Tushar Agarwal, Founder & Managing Partner, C.L.A.P. JURIS – Advocates & Solicitors.
The perceived challenges stem from award modifications that encourage excessive judicial intervention. While recent reforms signal a reduction in judicial interference, their limited scope can facilitate the avoidance of re-arbitration when an award is set aside. “Modification of award may encourage excessive judicial intervention, which in the last decade has been discouraged. Limited scope provided to Courts to modify awards may, however, help in avoidance of re-arbitration in case of set aside,” said Gauhar Mirza, Partner, Cyril Amarchand Mangaldas.
The journey of jurisprudence from the judgment in Mc Dermott (which allows re-arbitration), Associate Builder (which discourages judicial intervention in arbitration) till M. Hakeem (bar on modification of award) and the recent position of Delhi High Court in the case of Jaiprakash Associates on “no-rearbitration” will be put to test.Gauhar Mirza, Partner, Cyril Amarchand Mangaldas
The Supreme Court’s ruling is poised to be a significant development in Indian arbitration jurisprudence. The modification is likely to open the floodgates of litigation en masse. “One needs to remember that Arbitration was enacted to reduce the burden of litigation and minimise the court’s interference. Now in this case, if courts gain the power to modify the award, that means there is no end or finality to litigation,” said Alay Razvi, Managing Partner, Accord Juris.The industry expects the modification to have a limited adjudication scope considering the law’s letter and intent. The literatal interpretation of Section 34, and reading the intent of the whole act suggested that the provision must only be deployed for setting aside arbitral awards rather than modifying the award. “The power is to set aside and not to set right,” said Prachi Dubey, Advocate, Delhi High Court.
She adds, “The court lacks the power to alter an arbitral award, as doing so would blur the line between appellate and summary jurisdiction.”
Akshaya Bhansali, Partner, Mindspright Legal shares the same opinion regarding the intent and objective of the provision in question. “A careful reading of these provisions clearly establishes that courts are empowered only to either validate or set aside an award,” she said.
The backdoor entry of judicial interference is inconsistent with the aims and objective of the Act. “The Act sought to facilitate arbitration by restricting judicial interference to limited grounds. The ruling is expected to draw a balance, and not substitute their ruling in the place of arbitral awards.
“They do not have the authority to substitute their own opinion or observations in place of the arbitral decision,” added Akshaya Bhansali, Partner, Mindspright Legal.
This approach aligns with the intentions of the parties involved in the arbitration, who sought to resolve their disputes through this alternative mechanism, free from judicial interference.Akshaya Bhansali, Partner, Mindspright Legal
The other critical omission in the Arbitration and Conciliation Act of 1996 was excluding, and not adopting similar provisions for the modification of an arbitral award by the courts, as provided under the Arbitration Act of 1940. “In my view, the legislature was quite clear in its intent by not adopting or including similar provisions for the modification of an arbitral award by the courts, as provided under the Arbitration Act of 1940, into the Arbitration Act of 1996,” said Mayur Shetty, Partner, Kochhar & Co.
The ruling is expected to allow the courts power to modify the arbitral award, albeit only on restricted grounds such as patent illegality. The major challenge before the Apex Court is to decide what criteria can be accommodated to facilitate the modification of an arbitral award.
“It would be in the greater interest, particularly with regard to time and cost, for the courts to be allowed to modify an arbitral award, albeit only on restricted grounds such as patent illegality,” Mayur said.
“Nevertheless, such powers can only be conferred by the legislature,” he recommended.
