Introduction
A Constitution Bench of the Hon'ble Supreme Court ("The Court or SC"), recently, in Gayatri Balaswamy v.ISG Novasoft Technologies Limited1 ("Gayatri Balaswamy") confirmed that Indian Courts possess limited power under Sections 34 and 37 of the Arbitration & Conciliation Act, 1996("the Act") to modify an arbitral award. The Court, by a 4:1 majority, held that this limited power may be exercised by the Court to correct any clerical, computational errors in the award and also to modify post-award interest under Section 31(7)(b) of the Act. In doing so, the Court settled the long-standing legal controversy over whether Indian Court(s) were jurisdictionally empowered to modify an arbitral award. The present article traces the existing jurisprudence on the issue and explains the Court's judgment in the said context.
Earlier Law on the Issue
Arbitration, as the preferred mode of Alternate Dispute Resolution, stands firmly on the premise of speedy, efficient and final adjudication of disputes. However, there are occasions when the delivered award is either entirely wrong, rendering it unenforceable, or may be saved by the Courts through tweaking or modifying certain portions of it. While the Act explicitly provides for a clear statutory framework for setting aside an illegal award on stipulated grounds under Section 34 of the Act, there is no explicit power under the Act to per se modify and save an award. Therefore, it was a prevalent legal view that the Court(s) were not empowered to correct errors of the Arbitral Tribunal. It could only set aside the award leaving the parties free to commence the arbitration process afresh.2
The Hon'ble SC in McDermott International v. Burn Standard3 ("McDermott") clarified for the first time that the Act only envisages a supervisory role for the Indian courts. It added that while the courts possessed the authority to review arbitral awards for the limited purpose of ensuring fairness, they were not permitted to rectify errors made by the Arbitral Tribunal. The said view of the Hon'ble SC was affirmed in National Highways Authority of India v. M. Hakeem4 wherein the Hon'ble Court held that Section 34 of the Act varies from being in the nature of appellate provisions. It provides only for setting aside the awards on very limited grounds, as contained in Sub-sections (2) and (3) of Section 34. It was categorically observed that Section 34 of the Act is modelled substantially on the UNCITRAL Model Law on International Commercial Arbitration, 1985 which provides no power to the Courts to modify the award while hearing a challenge to an award. Thus, the Court emphatically observed that any attempt to 'modify an award' under Section 34 would tantamount to "crossing the Lakshman Rekha".
In its subsequent landmark decisions in Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India5, Larsen AC & Refrigeration Co. v. Union of India6 and S.V. Samudram v. State of Karnataka,7 the SC more firmly entrenched this legal position.
However, in parallel to this view, a series of judgments emerged in which the Court, while deprecating the practice of modifying arbitral awards, had inadvertently modified the mandate of the arbitral award in certain ways.8 For instance, the Court in Oriental Structural Engineers Private Limited v. State of Kerala9 upheld the award for being in consonance with the contract but intervened to modify the interest rate. Similarly, in McDermott, the Court invoking its power under Article 142 of the Constitution varied the awarded interest rate, reducing it from 10% per annum to 7.5% per annum.
Therefore, these inconsistent views and decisions of the Hon'ble SC muddled the legal certainty on whether the Indian Courts were authorized to modify the arbitral award. It was, therefore, important that through an authoritative pronouncement clarity was provided for the guidance of the Courts which are required to exercise jurisdiction under Section 34 and 37 of the Act. Accordingly, the said question was referred to a constitutional bench in Gayatri Balaswamy v.ISG Novasoft Technologies Limited.10
Ruling in the Present Judgment
The Hon'ble Court considered the conflicting series of judgments along with the statutory framework of the Act and concluded that the Act conferred a power on the Court(s) to modify an arbitral award, albeit in a limited manner.
The Supreme Court reasoned that if it was held that courts could only set aside and not modify awards at all, then the parties would be compelled to undergo an extra round of arbitration, adding to the previous four stages: the initial arbitration, Section 34 (setting aside proceedings), Section 37 (appeal proceedings), and Article 136 (SLP proceedings). In effect, this interpretation would force the parties into a new arbitration process merely to affirm a decision that could have been easily arrived at by the Court.
Pertinently, the Court located the power to modify an arbitral award under Section 34 (2) (iv) of the Act which allows Courts to severe invalid portions of an award from the valid and enforceable portions. The Court held that the limited and restricted power of severing an award under Section 34 (2) (iv) of the Act clearly implies a power of the court to vary or modify the award as well. In this background, it stated that denying any power to the Courts to modify awards would militate against the spirit of the Act.
The Court held that the Courts(s) reviewing an award under Section 34 of the Act possess the authority to rectify computational, clerical, or typographical errors, as well as other manifest errors, provided that such modification does not necessitate a merit-based evaluation. Therefore, similar to the Tribunal's powers under Section 33, the Court(s) also contain the power to correct apparent or inadvertent clerical typographical errors under Section 34 of the Act. However, the Apex Court cautioned that the Court(s), in the guise of modifying an award, ought not engage in any fact-finding exercise. It further added that this limited power must not be conflated with the appellate jurisdiction of a higher court or the power to review a judgment of a lower court.
Distinction between Section 33 and 34 of the Act to Modify Awards
While the Court laid down that both the Tribunal and the Court(s) are empowered to correct and modify apparent errors in the arbitral award under Section 33 and 34 of the Act, respectively, it clarified that there lies an inherent difference between the powers vested in both. The Court, importantly, noted that under Section 34, the Court could exercise its power only when it does not have any uncertainty or doubt when modifying an award. In effect, if the modification is debatable or if the error is not apparent on the face of the record, then the Court must send the Parties to seek recourse under Section 33 before the Tribunal or remand the matter back to the Arbitral Tribunal under Section 34(4) of the Act.
The Court further clarified that Courts power to modify awards under Section 34 was much more circumscribed in comparison to its power to remand the matter back to the tribunal under Section 34(4) of the Act. It pointed out that the power to remand permits the tribunal to revisit and reconsider certain specific aspects. For instance, the arbitral tribunal, upon remand, is at liberty to continue in a way that is justified by the circumstances, such as gathering further evidence, providing a party a chance to present its case if it denied previously, or taking any other remedial action required to cure the defect. On the other hand, no such flexibility is conferred on the Courts while exercise of its modification powers. Therefore, it is evident that the Court's modification of the award must be precise, certain, and the error in the award should be such that it can be borne out of the record without any appreciation of evidence.
Exercise of Article 142 of the Constitution to Modify Awards
Significantly, the Court held that its plenary powers under Article 142 should be cautiously utilized to modify awards. The Court held that this power should not be exercised where the effect of the order passed by the court would be to rewrite the award or modify the award on merits. Thus, while the Supreme Court can, in exceptional circumstances, utilize Article 142 to modify awards, the same is not an unfettered power to review the award on merits.
Conclusion
The Apex Court in Gayatri Balaswamy has attempted to strike a delicate balance between the Court's power to modify an arbitral award and the principles of minimal judicial interference by limiting its use on specific grounds. The Hon'ble Court has correctly ruled that a limited power to modify must vest in the Courts to preserve the critical time and resources of the concerned parties, aligning it with the purpose and objective of the Act. However, the ruling may open floodgates to a multitude of litigation in the country, if the Court adjudicating the Section 34 Courts petition, oversteps its delineated jurisdiction by modifying critical elements of an award on merits. Therefore, it would be interesting to keep an eye on judicial decisions modifying arbitral awards to what extent, pursuant to the present judgment.
Footnotes
1 2025 INSC 605 (5-Judge Bench)
2 Dakshin Haryana Bijli Vitran Nigam Limited v. Navigant Technologies Private Limited, (2021) 7 SCC 657 (2-Judge Bench).
3 (2006) 11 SCC 181, (2-Judge Bench).
4 [2021] 5 S.C.R. 368 (2-Judge Bench).
5 AIR 2019 SCC 5041, (2-Judge Bench).
6 2023 INSC 708, (2-Judge Bench).
7 2024 INSC 17, (2-Judge Bench).
8 Hindustan Zinc Ltd vs Friends Coal Carbonisation, 2006 (4) SCC 445 (2-Judge Bench).
9 (2021) 4 SCR 137, (2-Judge Bench).
10 Special Leave to Appeal (C) Nos.15336-15337/2021
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