SC Commences Hearing On Question If Courts Can Modify Arbitral Awards

A five-judge Constitution Bench of the Supreme Court on Thursday began hearings on whether courts have the authority to modify arbitral awards under the Arbitration and Conciliation Act, 1996.

The bench, led by Chief Justice Sanjiv Khanna and comprising Justices B.R. Gavai, Sanjay Kumar, K.V. Viswanathan, and Augustine George Masih, is reviewing arguments from Solicitor General Tushar Mehta, representing the Central government.

Legal Context and Core Issue

Arbitration, as outlined in the 1996 Act, is designed to provide a swift and final resolution to disputes, limiting court intervention. The key provisions under review include:

Section 34: Permits courts to set aside an arbitral award on limited grounds such as procedural lapses, violation of public policy, or lack of jurisdiction.

Section 37: Governs appeals related to arbitration, reinforcing the principle of minimal judicial interference.
The central legal question is whether courts can modify an arbitral award, rather than merely setting it aside under these provisions.

Reference to Larger Bench and Case Background

On January 23, 2024, a three-judge bench, led by the CJI, referred the matter to a larger bench due to its significant legal implications. The issue stems from the case Gayatri Balasamy v. ISG Novasoft Technologies Ltd., which revisits the Supreme Court’s 2021 ruling in Project Director, NHAI v. M. Hakeem. In that case, the Court held that courts do not have the power to modify arbitral awards under Sections 34 and 37.

The Constitution Bench will first hear arguments supporting a reconsideration of the Hakeem judgment, followed by arguments against judicial modification of arbitral awards. Additionally, it will clarify the scope and limits of such a power if it is found to exist.

In February 2024, a three-judge bench comprising Justices Dipankar Datta, K.V. Viswanathan, and Sandeep Mehta framed key questions and referred them to the CJI for further deliberation. These include:

Does the authority to set aside an arbitral award under Section 34 include the power to modify it?
If modification is permissible, to what extent and under what circumstances can courts exercise this power?

Potential Impact on Arbitration in India

Traditionally, Indian courts have taken a restrictive approach, upholding the finality and autonomy of arbitral decisions. However, the Supreme Court’s ruling in this case could redefine the extent of judicial oversight in arbitration and influence future legal interpretations of the Arbitration and Conciliation Act, 1996.

The hearings continue, with the legal fraternity closely watching for a landmark decision that could reshape arbitration law in India.