Courts empowered to modify arbitration awards, rules SC

In a verdict having commercial implications, the Supreme Court on Wednesday ruled that courts can modify arbitral awards under Sections 34 or 37 of the Arbitration and Conciliation Act, 1996 in certain circumstances.

By a 4:1 majority verdict, a five-judge Constitution Bench led by Chief Justice of India Sanjiv Khanna held that “the Court has a limited power under Sections 34 and 37 of the 1996 Act to modify the arbitral award.”

Writing the majority verdict for himself and Justices BR Gavai, Sanjay Kumar and AG Masih, Chief Justice of India Sanjiv Khanna said the larger power to set aside an arbitral award under the Arbitration and Conciliation Act, 1996, included the authority to modify it, if certain conditions were met.

“This limited power may be exercised under the following circumstances: When the award is severable, by severing the “invalid” portion from the “valid” portion of the award, as held in Part II of our Analysis. By correcting any clerical, computational or typographical errors which appear erroneous on the face of the record…; post award interest may be modified in some circumstances…,” the majority held.

Justice KV Viswanthan, however, delivered a dissenting verdict, saying courts have no power to “modify” an arbitral award under the 1996 Act. The statutory framework of the Arbitration Act does not permit courts to modify an award, he said.

“This interpretation is practical and pragmatic. It would be incongruous to hold that power to set aside would only mean power to set aside the award in its entirety and not in part. A contrary interpretation would not only be inconsistent with the statutory framework but may also result in valid determinations being unnecessarily nullified,” the majority verdict read.

With regard to use of its inherent powers under Article 142 — that empowers the Supreme Court to pass any order for “doing complete justice” in any case — the majority verdict said, “Article 142 of the Constitution applies, albeit, the power must be exercised with great care and caution and within the limits of the constitutional power.”