Courts Can Modify Arbitral Awards In Certain Circumstances Under S.34/37 Arbitration Act: Supreme Court By 4:1

Answering a reference, a Constitution Bench (by 4:1) of the Supreme Court held that Appellate Courts have limited powers to modify arbitral awards while exercising powers under either Section 34 or 37 of the Arbitration and Conciliation Act, 1996.The majority judgment by Chief Justice of India Sanjiv Khanna held that the Courts have a limited power under Section 34/37 to modify arbitral awards. This limited power can be exercised in the following circumstances :1. When the award is severable by separating the invalid portion from the valid portion of the award.2. To correct any clerical, computation or typographical errors which appear erroneous on the face of the record.3. To modify post-award interest in some circumstances.4. The special powers of the Supreme Court under Article 142 of the Constitution can be applied to modify awards. But this power must be exercised with great caution within the limits of the Constitution.A bench comprising Chief Justice of India Sanjiv Khanna, Justices BR Gavai,Sanjay Kumar, AG Masih and KV Viswanathan had reserved the judgment on the matter on February 19 after a 3-day hearing.Justice Viswananathan dissentsJustice KV Viswanathan delivered a dissenting opinion on certain aspects. He held that Section 34 Court cannot modify the award unless expressly authorised by the law, since it tantamounts to exercising a merits review. Courts exercising Section 34 power cannot change, vary or modify arbitral awards as it strikes at the core and the root of the ethos of the arbitration exercise. He disagreed with the view of the majority that the Courts can modify post-award interest. If there is any need for modification of interest, the matter has to be remitted back to the Tribunal. Also, this can lead to uncertainties and difficulties in enforcing foreign awards.Justice Viswanathan also disagreed with the view that Article 142 of the Constitution can be used to modify awards. If such a power is recognised, it will lead to uncertainties in the arbitration litigation, he opined. However, Justice Viswanathan agreed that clerical or typographical mistakes can be corrected under Section 34."The Courts exercising powers under Section 34 and the Courts hearing appeals therefrom under Section 37 have no power to modify an award. Power to modify is not a lesser power than the power to set aside as the two operate in separate spheres. The inherent power under Section 151 CPC cannot be used to modify awards, as it is against the express provision of Section 34. Similarly, there is no scope to invoke the doctrine of implied powers to imply the power to modify the award. Article 142 of the Constitution cannot be exercised to modify an award, as it is well settled that Article 142 cannot be used to go by the substantive statutory provisions." Justice Viswanathan stated in conclusion.S. 34 provides the outline for applying to set aside an arbitral award. S. 37 of the Act states the instances where an appeal may lie against orders relating to arbitral disputes.The Court considered three issues for examination, mainly (1) What is meant by 'modification' of an arbitral award; (2) to what extent, if the court accepts partial modification, without changing the core of the award- what will be the permissible parameters and (3) the scope and extent of severability of an awardWhat Led To The Reference?In February 2024, a bench of Justices Dipankar Dutta, K.V. Viswanathan, and Sandeep Mehta referred to the larger bench the question of whether the courts have the power to modify the arbitral award under Sections 34 or 37 of the Arbitration and Conciliation Act, 1996.The bench led by Justice Datta also noted that 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. The 5 main questions that the other bench had framed were :“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...

Courts Can Modify Arbitral Awards In Certain Circumstances Under S.34/37 Arbitration Act: Supreme Court By 4:1

Anmol Kaur Bawa

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