If Courts Can Only Set Aside Awards & Can't Modify Them, Parties Will Be Forced To Undergo Fresh Round Of Arbitration : Supreme Court

The Supreme Court recently held that in order to ensure efficient dispute resolution and uphold the objectives of the Arbitration and Conciliation Act 1996, the Court should be allowed to modify awards when parties challenge the tribunal's decision. The decision was rendered by a Constitutional Bench led by CJI Sanjiv Khanna comprising Justices BR Gavai,Sanjay Kumar, AG Masih and KV Viswanathan. Justice KV Viswanathan, however dissented on th issue whether Courts can modifiy awards under the jurisdiction of S.34 of the Arbitration and Conciliation Act 1996The majority held that denying modification powers to the Court under S.34 and 37 would be contrary to the main purpose of arbitration, which is efficient dispute resolution. The Court noted that the cycle of litigation post-award takes years, especially in cases challenging the award under S.34 and appeals against the S.34 order. The Court stated : "To deny courts the authority to modify an award—particularly when such a denial would impose significant hardships, escalate costs, and lead to unnecessary delays—would defeat the raison d'être of arbitration. This concern is particularly pronounced in India, where applications under Section 34 and appeals under Section 37 often take years to resolve." The Court then explained the drawback of refusing modification powers to Court as follows : "Given this background, if we were to decide that courts can only set aside and not modify awards, then the parties would be compelled to undergo an extra round of arbitration, adding to the previous four stages: the initial arbitration, Section 34 (setting aside proceedings), Section 37 (appeal proceedings), and Article 136 (SLP proceedings). In effect, this interpretation would force the parties into a new arbitration process merely to affirm a decision that could easily be arrived at by the court. This would render the arbitration process more cumbersome than even traditional litigation."Statutory Silence On Modification Powers Doesn't Mean Arbitration Act Prohibits It The majority held that the discretion to annul the award has harsher effects on the parties as compared to the modification of the award. While the Arbitration Act does give a limited power to sever the award, it can be implied that the Court can also modify the award. It explained as follows : "We are of the opinion that modification represents a more limited, nuanced power in comparison to the annulment of an award, as the latter entails a more severe consequence of the award being voided in toto. Read in this manner, the limited and restricted power of severing an award implies a power of the court to vary or modify the award. It will be wrong to argue that silence in the 1996 Act, as projected, should be read as a complete prohibition." "We are thus of the opinion that the Section 34 court can apply the doctrine of severability and modify a portion of the award while retaining the rest. This is subject to parts of the award being separable, legally and practically, as stipulated in Part II of our Analysis." Notably, under Part II of its Analysis, the majority declared that the "power conferred under the proviso to Section 34(2)(a)(iv) is clarificatory in nature". S.34(2)(a)(iv) provides that an arbitral award be set aside by the Court if "the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration". The proviso to section states "Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside."Under Part II, the Court also concluded that the power to set aside an award includes the power to partially set it aside. This is based on the principle omne majus continet in se minus—the greater power includes the lesser. Thus, within the power to partially set aside the award, there also lies a caveat to ensure that such setting aside is done only when the valid part of the award can be clearly separated from the invalid part. The bench referred to the commentary of Sir Michael J. Mustill & Stewart C Boyd 'Commercial Arbitration' where the authors have analysed that changing an arbitral award isn't the same as appealing it. They say a modification is only suitable when it clearly follows from the tribunal's decision on a legal issue. This method helps save time and money.Mustill and Boyd have observed that an order varying an award is not equivalent to an appellate process. The authors suggest that a modification order would only be appropriate where the modification, including any adjustment of costs, follows inevitably from the tribunal's determination of a question of law. This approach would be beneficial, as it would reduce costs and delays. Thus, the bench agreed that Courts don't need...

If Courts Can Only Set Aside Awards & Can't Modify Them, Parties Will Be Forced To Undergo Fresh Round Of Arbitration : Supreme Court

Anmol Kaur Bawa

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