The Supreme Court has reserved its judgment on the questions of whether the power of a court under Section 34 and Section 37 of the Arbitration and Conciliation Act includes the power to modify awards, and the severability of arbitral awards. The three-judge bench of the Supreme Court referred the matter to the Constitution Bench after observing opposite judgments on similar questions.
“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,” a three-judge bench said while referring the matter before the Constitution Bench.
The Supreme Court has occasionally used Article 142 of the Indian Constitution to modify the arbitral award, considering non-existence of an expressed provision in the Arbitration and Conciliation Act. “While Courts have occasionally modified awards under Article 142 of the Constitution to ensure “complete justice,” the absence of explicit statutory authority has led to unwanted ambiguity and uncertainty. Moreover, the judiciary’s reliance on Article 142 to modify awards is an ad-hoc solution that lacks predictability,” said Shryeshth Ramesh Sharma, Partner, SKV Law Offices.
Due to the non-existence of the provision, there is a reliance on the discretionary power of the Supreme Court to modify the arbitral award. The only way to address the issue is to provide a structured statutory framework allowing modification, and tackling the issue of unwanted ambiguity and uncertainty. “A structured statutory framework—such as permitting corrections of manifest errors or revising disproportionate interest rates—would definitely strike a requisite balance between judicial intervention and integrity/independence of arbitral proceedings,” he added.
The need to empower the court to modify arbitral award, “is crucial to ensuring justice,” says Arman Roop Sharma, Partner, Anand Sharma & Associates.
Granting courts the power to modify awards would enhance judicial safeguards, allowing necessary adjustments without entirely nullifying awards.Arman Roop Sharma, Partner, Anand Sharma & Associates
The Supreme Court’s power to modify will not inly bring uniformity within the framework, but also rectify procedural irregularities. The need also stems from addressing the severe challenge related to arbitral misconduct, and strengthening the integrity and credibility of the process. Sandeep Bajaj, Advocate, Supreme Court of India said, “The ability to rectify glaring mistakes or address manifestly unjust outcomes is essential to maintaining public confidence in the arbitration process, which is often viewed as a more efficient alternative to traditional litigation.”
The serious question relates to the extent of the modification power that can be allowed for the modification of the arbitral award. “On one hand, allowing courts to intervene too freely could undermine the very essence of arbitration, which is designed to provide parties with a definitive resolution without prolonged judicial interference. On the other hand, a rigid adherence to finality may lead to situations where parties are left with untenable awards that fail to reflect the true intentions of their agreements or the merits of their cases,” he adds.
The Supreme Court ruling is set to find a balance between the process’ efficiency and strengthen trust in the arbitration as a means of dispute resolution. “The Arbitration Act was designed to balance minimal judicial interference with the need for effective recourse,” said Amit Tungare, Managing Partner, Asahi Legal.
This measured approach would maintain party autonomy while preventing procedural inefficiencies, reinforcing India’s reputation as a pragmatic and arbitration-friendly jurisdiction.Amit Tungare, Managing Partner, Asahi Legal
Meherzeen Avasia, Solicitor, Mulla & Mulla and Craigie Blunt & Caroe said, ” Limited modifications to arbitral awards, could serve the interests of justice, without undermining the finality of arbitration awards,” adding, “However, this must be carefully balanced to avoid excessive judicial interference. The Supreme Court’s decision will be key in determining the future landscape of arbitration in India.”
The other critical omission in the Arbitration and Conciliation Act of 1996 was excluding, and not adopting similar provisions for the modification of an arbitral award by the courts, as provided under the Arbitration Act of 1940.”This shift was made with the clear intention of preserving the integrity of the arbitral process, which should, ideally, remain free from unnecessary interference by the judiciary. The omission reflects a deliberate choice to allow the arbitral process to be final and binding, except in instances of procedural or substantive errors that warrant setting aside the award,” said Manini Roy, Senior Associate, TAS Law.
She highlights that the courts should refrain from modifying arbitral awards because judicial intervention could undermine the expediency that arbitration promises. “Arbitration, by design, is meant to offer a quicker resolution than litigation,” she adds.
The power to modify arbitral award can open floodgates for further litigation if allowed unrestricted. The modification must be allowed from the legislation, considering the deliberate omission made to the Act. “Courts are bound by the text of the law, and it would be a step beyond their jurisdiction to insert provisions not explicitly provided for,” she added.
