Kiran Raj

A Constitution Bench of the Supreme Court, by a 4:1 majority, has held that appellate courts exercising powers under Sections 34 or 37 of the Arbitration and Conciliation Act, 1996, have limited scope to modify arbitral awards. The majority judgment was delivered by Chief Justice of India Sanjiv Khanna, with concurrence from Justices BR Gavai, Sanjay Kumar, and AG Masih. Justice KV Viswanathan dissented on key aspects.

The majority held that the courts may modify an award in limited circumstances. These include instances where the award is severable by separating an invalid portion from a valid portion, to correct clerical, computation or typographical errors that are evident on the face of the record, or to modify post-award interest under certain conditions. It was further held that the Supreme Court may exercise its powers under Article 142 of the Constitution to modify awards, but such power is to be exercised with caution and within constitutional boundaries.

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Justice KV Viswanathan delivered a dissenting opinion on certain aspects. He held that courts under Section 34 do not have the power to modify arbitral awards, as such modification constitutes a review on merits. He stated that any change to the award amounts to interference with the foundational principles of arbitration.

Justice Viswanathan disagreed with the majority view on post-award interest. He stated that if interest requires modification, the matter must be remitted back to the tribunal. He also noted that permitting modification powers may create complications in the enforcement of foreign awards. On Article 142, Justice Viswanathan held that this provision cannot be used to alter awards, as doing so would introduce uncertainty into arbitration litigation. However, he agreed that courts can correct clerical or typographical errors under Section 34.

He stated: "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."

The Court examined three primary issues: the meaning of “modification” in the context of arbitral awards; the scope of permissible partial modification without altering the core of the award; and the extent of severability of an award.

The reference originated in February 2024 when a three-judge bench comprising Justices Dipankar Datta, KV Viswanathan, and Sandeep Mehta referred the matter to a larger bench. The referral was made in view of conflicting decisions—some judgments held that courts cannot modify arbitral awards under Sections 34 or 37, while others had upheld or themselves modified such awards.

The five key legal questions framed in the referral were:

1. Whether the powers under Sections 34 and 37 of the Arbitration Act include the power to modify an arbitral award;

2. If such a power exists, whether it can be exercised only in severable awards;

3. Whether the power to set aside an award under Section 34 includes the power to modify it;

4. Whether modification can be read into the power to set aside;

5. Whether previous judgments modifying awards correctly interpreted the law, in contrast to decisions like Project Director, NHAI vs. M. Hakeem, Larsen Air Conditioning, and SV Samudram, which held otherwise.

In M. Hakeem and related rulings, the Court had held that courts are not empowered to modify awards under the Act. However, other benches in matters like Vedanta Limited vs. Shenzden Shandong, Oriental Structural Engineers vs. State of Kerala, and Tata Hydroelectric Power Supply Co. had accepted or modified arbitral awards.

The Solicitor General of India, Tushar Mehta, appearing for the Union, submitted that Section 34 reflects Article 34 of the UNCITRAL Model Law and permits only the setting aside of awards, not their modification. He stated that Section 34(1) provides a single recourse—to set aside an award. Section 34(4) allows the tribunal to remove the grounds for setting aside, but if not done, the award must be set aside. On the question of severability, it was submitted that severing part of the award does not amount to modification.

The Union argued that modification and setting aside are distinct actions, and while a need for modification may arise, it cannot be introduced judicially and must be legislated.

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Senior Advocate Arvind Datar, appearing for the petitioners, submitted that the Indian adoption of Article 34 of the UNCITRAL Model Law did not account for its original context in inter-state arbitration. He stated that other jurisdictions such as the UK, Singapore, and Canada drafted their own arbitration laws rather than directly adopting Article 34. The petitioners submitted that courts should have the power to modify awards where the award is fundamentally flawed. They also argued that the term “set aside” should be interpreted to include full or partial annulment and that inherent powers under the CPC allow for such relief in appropriate circumstances.

It was submitted that “recourse to a court” should be read in the context of CPC Sections 9 and 151, allowing courts to do justice. The petitioners contended that a restrictive reading of Section 34 would limit judicial intervention even in patently unjust awards.

Advocates Representing the Parties:

For the Petitioners: Mr. Arvind Datar, Sr. Advocate; Nishanth Patil, Advocate
For the Respondents: Mr. Saurabh Kirpal, Sr. Advocate; Ms. Manmeet Kaur, Mr. Debmalya Banerjee, Rohan Sharma, Gurtejpal Singh, Jai Dogra, Liza Vohra, Advocates

For the Union of India: Mr. Tushar Mehta, Solicitor General of India; Archana Pathak Dave, ASG; Nikilesh Ramachandran, Aastha Singh, Kaustubh Prakash, Surjendu Sankar Das, Advocates

For the Intervenors: Mr. Gourab Banerji, Sr. Advocate; Mr. Shekhar Naphade, Sr. Advocate; Mr. Prashanto Chandra Sen, Sr. Advocate; Mr. Sumeet Pushkarna, Sr. Advocate; Mr. Ritin Rai, Sr. Advocate; Mr. Darius Khambata, Sr. Advocate

Case Title: Gayatri Balasamy vs. M/s ISG Novasoft Technologies Limited
Case Number: SLP(C) Nos. 15336-15337/2021
Bench: Chief Justice Sanjiv Khanna, Justice BR Gavai, Justice Sanjay Kumar, Justice KV Viswanathan, Justice AG Masih