Category: LANDMARKS

In a landmark judgment, a 5-judge Constitution Bench of the Supreme Court ruled (by a 4:1 majority) that courts can modify arbitral awards under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996 — but only in specific, narrowly defined situations. 🔹 What the Court Held: Limited Scope for Modification Chief Justice Sanjiv Khanna, writing for the majority, laid down four clear circumstances in which a court may modifyan arbitral award: Severable Awards: If the flawed part of the award can be clearly separated from the valid part, only the invalid portion can be struck or altered. Clerical/Typographical Errors: Obvious mistakes in numbers, language, or calculations can be corrected. Modification of Post-Award Interest: In certain cases, courts can revise the interest awarded after the arbitration concludes. Article 142 (Supreme Court Only): The Supreme Court may use its extraordinary constitutional powers to modify awards—but only cautiously and within legal boundaries. 🔹 Dissenting Opinion by Justice Viswanathan Justice K.V. Viswanathan disagreed on key points: He held that Section 34 does not allow for modification, as that would amount to a merits review, which is against the spirit of arbitration. Courts can only set aside an award—not change or rework it. He opposed using Article 142 to modify awards, warning it could destabilize arbitration outcomes, especially in cases involving foreign awards. However, he agreed that clerical and typographical errors could be corrected. In his view, allowing modification blurs the line between judicial review and arbitration, undermining the finality and autonomy of the arbitral process. 🔹 Issues the Court Considered The case focused on three central questions: What does it mean to “modify” an arbitral award? Can the court partially modify an award without changing its core? Can valid and invalid parts of an award be separated (severability)? 🔹 Background: Why the Case Was Referred The case arose after conflicting judgments from different benches of the Supreme Court. Some earlier decisions held that courts cannot modify arbitral awards (M. Hakeem, SV Samudram), while others had modified or approved modified awards (Vedanta, J.C. Budhraja, Tata Hydroelectric). This contradiction led a 3-judge bench in February 2024 to refer the matter to a larger bench for clarity. 🔹 Arguments by the Union of India Solicitor General Tushar Mehta argued against allowing modifications: He emphasized that Section 34 only permits setting aside an award, not changing it. If the tribunal doesn’t fix errors upon remand (under Section 34(4)), the only option is to set aside the award. Modification is not the same as severing a flawed portion—severance doesn’t involve rewriting. Any expansion of power should come from the legislature, not through judicial interpretation. 🔹 Petitioners’ Stand Senior Advocate Arvind Datar, for the petitioners, argued that: The original UNICITRAL Model Law wasn’t adapted properly into Indian law. Other countries (like the UK and Singapore) didn’t adopt Article 34 rigidly. Indian courts should have the power to partially set aside or modify awards to correct serious errors. Section 34 must be read broadly to allow for justice and fairness, especially when an award is clearly wrong. 🔹 Article 142 and Modification Powers The majority allowed the Supreme Court to modify awards under Article 142 of the Constitution, which gives it extraordinary powers to ensure complete justice. However, they stressed this must be used sparingly and cautiously. Justice Viswanathan strongly opposed this, warning that such use could create uncertainty, particularly in cases with international implications. 🔹 Conclusion: A Balanced Approach This ruling strikes a middle path: It confirms courts cannot rewrite or reassess the merits of arbitral decisions. But it allows limited corrective power in specific and justifiable situations, preserving the efficiency and integrity of arbitration.