Can Courts Modify Arbitral Award Under S.34/ 37 Of Arbitration Act? Supreme Court Constitution Bench Begins Hearing

The Supreme Court Constitution Bench today (February 13) began the hearing 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. At the outset, the CJI clarified that the court would not go into the Draft Arbitration and Conciliation (Amendment) Bill, 2024, which is pending parliamentary assent. The two main aspects that the Court would focus on examining are (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 awardSolicitor General of India (SG) Tushar Mehta, appearing for the Union, cited the first draft of Article 34 (then Article 40) of the UNICITRAL Model Law On International Commercial Arbitration. He read :“No recourse against an arbitral award made under this law, whether or not rendered under the territory of this State may be made to a court except for an action for setting aside in accordance with the provisions of Article 41” He pointed out that S.5 of the Arbitration Act today, mirrors the same provision where judicial intervention into arbitration is limited only to wherever the Act specifies. S.5 states “ —Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part.” He added that Article 34 of UNICITRAL was adopted within the Indian framework and is reflected in S.34 of the Arbitration Act. The SG noted that the commonality here was the power of the court to set aside or partially set aside the arbitral award. The SG mainly argued that under S.34, the Courts do not have the power to make modifications to an arbitral award. The Court can only set aside an award as per the literal reading of the provision. Referring to S.34(1), SG stressed that S.34 only provides for one option to the Court expressly which is to set aside an award. “The only prayer permissible is to set aside the award. There is no other prayer permissible either we go by the literal interpretation or any other interpretation,"he stressed. Underlining S. 34(4), he argued that the Court may allow the arbitral tribunal to eliminate the grounds on which an award may be set aside, but if the tribunal doesn't follow, the only option left with the court is to set aside the award. S.34(4) reads : On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award. At this juncture, CJI remarked, “The language used is very careful- 'eliminate the grounds' - it doesn't talk about the grounds which affect the award. So final adjudication at that stage may not be required- that the grounds for setting aside the arbitral award are embedded.” He explained that there are two ways of understanding the sub-clause: (1) where the Tribunal is asked to eliminate the grounds which are raised by the parties raising objections after the Court examines the issue prima facie or (2) Where the Court doesn't examine prima facie on merits and comes to the conclusion that the grounds have actual substantial merit and the award is liable to be set aside- but allows the Tribunal to rectify it. The SG asserted that the provision to set aside cannot be interpreted to also mean as modifying the award: “ I don't think Jurisprudentially, setting aside an award can include modifying. Setting aside may include setting in part.” CJI however pondered: “But when you modify (an award) aren't you setting aside that part?” SG replied that assuming so would go against the literal understanding of the term 'to set-aside'. “ Mylords I think that would be doing violence to the linguistic meaning of the word (setting aside)” CJI then asked, “Why restrict the power of the Court?” SG explain that the holistic purpose of the Arbitration Act is to give minimal Court intervention in arbitral proceedings. To which the CJI replied, “ That's one way of looking at it. The other way to look at it is that the object of every law is to ensure that the litigation must come to an end” SG opined that allowing courts to interfere may in turn flare up further litigation as each court or judge presiding may have a different view on the award challenged. Severability...

Can Courts Modify Arbitral Award Under S.34/ 37 Of Arbitration Act? Supreme Court Constitution Bench Begins Hearing

Anmol Kaur Bawa

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