Can Appellate Courts Modify Arbitral Awards Under S.34/37 Arbitration Act? Supreme Court Constitution Bench Reserves Judgement

The Supreme Court 5-judge constitution bench today (February 19) reserved its decision on the issue of whether Courts have the power to modify an arbitral award under S. 34 and 37 of the Arbitration and Conciliation Act, 1996.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 bench led by CJI Sanjiv Khanna comprises Justices BR Gavai, Sanjay Kumar, AG Masih and KV Viswanathan.During the hearing, CJI Sanjiv Khanna observed that S.34 and S.33 of the Act were brought in by the legislature to ensure corrective measures are there in a 'one-step adjudication' model like Arbitration. He opined : “Arbitration is a one-step adjudication, one-step adjudication has its drawbacks and people don't like being put into one-step adjudication. But the legislature's intent is to ensure that even if it's a one-step adjudication, there should be corrective measures available to the parties- whether in the form of S.33 or S.34(4)” Sr Advocate Saurabh Kirpal argued against the contention that the term setting aside includes modification as a sub-set of the Court's powers under S.34. He argued that the Indian Jurisprudence has a bifurcated understanding of 'modification powers' and 'powers to set aside'. He explained : “If the power to set aside included modification, there was no need for the 1940 Arbitration Act to separately use the term 'modification', there was no need for our CPC under Order 41 from Rule 24 to 32 to say that pass an order to vary etc. Then the appellate court only has the power to uphold or set aside the judgment…it is always in the view of the Courts and Jurisprudence of our country that the powers of modification/ variation is different from the powers of setting aside or upholding a judgement. These are different and distinct concepts” Justice Sanjay Kumar inquired that the content of S.15 of the 1940 Act has been 'smuggled into the 1996 Act' where partially setting aside an award has been provided under S.34(2) and proviso to S.33, so should the absence of the word 'modification' in the 1996 Act be given so much significance? Kirpal answered that modification as a general concept is always seen distinctly from the concept of setting aside an award. “Even if the power of setting aside has been smuggled in from the 1940 Act….it has been smuggled in (to the 1996 Act) as a legislatively different concept” He added that partially setting aside an award would very much be part of the powers of setting aside an award, but this power will not allow 'modification' or variation of an award to be consumed as a sub-power within it. Notably, under the Arbitration Act of 1940, S.15 provided for Powers of the Court to modify awards. In the 1996 Act, S. 34(2) incorporated the contents of S.15 as a ground for the Court to set aside an award. S. 33 of the 1996 Act provides for Correction and interpretation of award; additional awardKirpal argued that the Arbitration Act of 1996 as it stands today has 'worked fairly well' and it is not as if 'arbitration areas have collapsed and no one is going to arbitration and people are rushing to the Courts for justice saying that because there is no power to modify - that look, there is an absurdity (in law)' However, CJI interjected to point out that (1) in every 10-20 matters before the Supreme Court the issue of the need for modification in awards is raised; (2) when a court partially sets aside an award, in a way it is modifying the award, which is done in exercise of the Court's wider powers beyond S.34“When you say partially setting aside the award, that is also modification of the award - it is because you are saying that this part of the award has to be segregated, and that power exists regardless of the power given in the proviso. We have not restrained only to the proviso to S. 34(2)(b) , we have given it a much wider meaning” “Normally as a principle of interpretation, we don't refer to a section by the interpretation of another section in another Act, that is normally not done”, He added further. He also highlighted that: “Arbitration is a one-step adjudication, one-step adjudication has its drawbacks and people don't like being put into one-step adjudication. But the legislature's intent is to ensure that even if it's a one-step adjudication, there should be corrective measures available to the parties- whether in the form of S.33 or S.34(4)” Kirpal stressed that the policy of the Arbitration Act is to uphold an award 'come what may' and is different from the policy of IBC where the company is to be saved from liquidation. He argued that in arbitration the parties have big financial stakes involved. He submitted : “There is an economic cost involved even in the delay. An expeditious decision even if sometimes unfair, is possibly more acceptable to business than a correct decision which eventually takes 50 years because parties cater to...

Can Appellate Courts Modify Arbitral Awards Under S.34/37 Arbitration Act? Supreme Court Constitution Bench Reserves Judgement

Anmol Kaur Bawa

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