Supreme Court commences hearing on question if courts can modify arbitral awards

New Delhi: A five-judge Supreme Court bench on Thursday commenced hearing on a key legal issue of whether courts can modify arbitral awards under the provisions of a 1996 law on arbitration and conciliation.

A Constitution bench comprising Chief Justice Sanjiv Khanna and justices B R Gavai, Sanjay Kumar, KV Viswanathan and Augustine George Masih is presently hearing Solicitor General Tushar Mehta on behalf of the Centre.

Arbitration is an alternate mode of dispute resolution under the Arbitration and Conciliation Act, 1996 and it minimises the role of courts to interfere with the awards by the tribunals.

Section 34 of the Act provides for the setting aside of an arbitral award on limited grounds such as procedural irregularities, violation of public policy, or lack of jurisdiction.

Section 37 governs appeals against orders related to arbitration, including those refusing to set aside an award.

Like Section 34, it also aims to minimise judicial interference while addressing exceptional cases requiring oversight.

A three-judge bench headed by the CJI, on January 23, had referred the contentious issue to a larger bench.

“This court will first hear arguments of the counsel seeking reconsideration of the ratio expressed in the Project Director, NHAI vs M Hakeem, that is, the court has the power to modify an award under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996.

“Thereafter, this court will hear the counsel who supports the view that the court does not have the power to modify an award under Sections 34 and 37 … While examining the aforesaid question, the court will also examine the contours and scope of the power of the court … and if the power of modification exists, to what extent the same can be exercised,” the bench ordered.

The bench emphasised the need for clarity on the contentious issue. The matter arose from a case titled as Gayatri Balasamy v. ISG Novasoft Technologies Ltd.

The courts have traditionally interpreted this section narrowly, avoiding a review of the merits of the award to uphold arbitration’s principles of finality and efficiency.

While referring to the case, the bench had acknowledged the complexity of the issue after taking note of the submissions of senior advocate Saurabh Kirpal, assisted by law firm M/s Karanjawala & Co, on behalf of the respondents.

In February 2024, a three-judge bench comprising Justices Dipankar Datta, KV Viswanathan, and Sandeep Mehta had framed a few questions and referred the case to the CJI for consideration.

“Does the power to set aside an arbitral award under Section 34 include the authority to modify it,” one of the questions read.

If modification is permitted, what is its extent and under what circumstances, read the second question.