Last week, the Constitution Bench of the Supreme Court led by the bench of Chief Justice of India Sanjiv Khanna 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 matter was before the Constitution Bench after the three-judge bench of the Supreme Court referred the matter 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 ruling is set to settle the matter, and have a significant development on positioning India’s pro-arbitration stance in commercial disputes. “This ruling will settle contradictory rulings on modification of award by a Court in a section 34 and hopefully put quietus to the controversy,” said Varun Pathak, Partner, Shardul Amarchand Mangaldas.
“Judgment by the Supreme Court will have an impact on India’s pro-arbitration stance in commercial disputes,” he added.
The judgment is set to reshape the future of domestic and international arbitration in India. The power to modify arbitral award is likely to have an impact on the commercial dispute.
“As the five-judge Constitution bench examines a case that could reshape the future of domestic and international arbitration, India’s legal landscape stands at a crossroads and at the heart of the matter lies the court’s power to modify arbitral award,” said Mitakshara Goyal, Partner, Svarniti Law Offices.
The global business confidence in the prevalent arbitration is dependent upon the efficient and effective legal framework. “The outcome will not only impact legal frameworks but also shape global business confidence in India’s arbitration system,” she added.
With high stakes and far-reaching implications, rather consequences, this landmark ruling is poised to set new precedents in the realm of justice and fairness.Mitakshara Goyal, Partner, Svarniti Law Offices
The ruling allowing for modification of an arbitral award is likely to be perceived differently among different sections of lawyers. The power to modify the arbitral award is being looked at with skepticism, as there’s a different legislative framework prevailing in different jurisdiction. “If the Supreme Court of India decides that modification of arbitral awards is permitted or if the Statute is amended to provide for the same, in my opinion, it will have a devastating impact on Indian arbitration ecosystem,” said Akhil Chowdary Unnam, Partner & Head (Dispute Resolution Services), Unnam Law Firm.
The legislative intent must be considered, in the context of legislative history and legislative framework. “The Indian Arbitration and Conciliation Act, 1996, was modeled on the UNCITRAL Model Law, which firmly limits court intervention,” he added.
Further highlighting that such a power to modify the arbitral award into the Act could significantly harm India’s arbitration-friendly stance.
The fear sounds reasonable, and valid considering the challenge of judicial inconsistency. The power to modify the arbitral award is likely to result in more litigation, and courts indulging in full-fledged rehearings. Further, undermining the party autonomy and finality, leading to more prolonged and costly proceedings.
If India takes this step, it could undo decades of progress, discourage foreign investment, and weaken confidence in India’s arbitration regime. Instead of increasing judicial intervention, the focus should be on ensuring that courts apply existing limited review standards more rigorously and consistently.Akhil Chowdary Unnam, Partner & Head (Dispute Resolution Services), Unnam Law Firm.
Nikhil Varma, Managing Partner, MVAC Advocates & Consultants highlights that allowing courts to modify arbitral awards will lead to judicial overreach, as it would ultimately put the Courts into the shoes of the Arbitral Tribunal, defeating the objective of party autonomy, and minimal judicial interference in Arbitration.
He explains the principle of severability, “which is already recognized under Section 34 must not be confused with modification. Severability allows a court to set aside only the portion of an award while upholding the remaining,” he said.
The application differs from modification, under which an award is altered by the court.”Severability is about discarding which is not legally tenable, whereas, modification would involve the Courts to judicially alter the arbitral award,” he explains.
The power to modify stands in contradiction with all the principles, as non-judicial interference, and finality being core of the pro-arbitration spearheaded by the legislative and judiciary.
The ruling is set to affect pending and future arbitration cases. The most reasonable line seems to be the modification of arbitral awards on narrow grounds. “if ruled in favour, the court’s can modify unworkable awards in a circumscribed manner, which will prevent the parties to go through multiple rounds of litigations and assist them in obtaining an award that can be easily enforced,” said Chirag Gupta, Associate Partner, Alpha Partners.
He adds, “Whereas, if the Supreme Court rules against such power to modify the award, the parties will have to arbitrate afresh,”
He cautions that the order will then result in prolonged litigation without achieving finality.
