Modifying Arbitral Awards: Judicial Conundrum

The power to modify arbitral awards under Section 34 of the Arbitration and Conciliation Act, 1996 (“1996 Act”), has been a subject of great debate. The recent order of the Supreme Court referring this issue to a larger bench has highlighted the conflicting stands on this matter, and has sparked a debate on whether the Supreme Court should take it upon itself to confer powers of modification or variation of arbitral awards rather than awaiting a potential amendment to the 1996 Act by an act of Parliament.

Under the 1996 Act, Courts have the power to set aside arbitral awards on the limited grounds specified in Section 34. However, the 1996 Act does not expressly grant Courts the power to modify arbitral awards. The Supreme Court in National Highway Authority of India v. M. Hakeem & Anr. 2021 (9) SCC 1 (“Hakeem”) opined that the courts have no power to modify an arbitral award, and the only available recourse is to set aside an award if it falls within the parameters of Section 34 of the 1996 Act.

The aforesaid judgment examined the provisions of the 1996 Act in juxtaposition to the Arbitration Act, 1940 (“1940 Act”) which specifically empowered Courts to modify arbitral awards. The Supreme Court noted that the legislative intent of “minimum judicial interference” only empowered the Courts to either wholly or partly set aside an arbitral award, nothing more – nothing less!

In Dakshin Haryana Bijli Vitran Nigam Limited v. Navigant Technologies Private Limited 2021 (7) SCC 657 (“Dakshin”) and Larsen Air Conditioning and Refrigeration Company v. Union of India & Ors. 2023 SCC Online 982 (“Larsen”) the Supreme Court reiterated these principles.

Recently, in SV Sundaram v. State of Karnataka [2024] 1 SCR 281 (“Sundaram”), the Supreme Court once again reiterated the principles laid down in Hakeem that the Courts under Section 34 of the 1996 Act cannot “cross the Lakshman Rekha” by modifying an award.

While the above line of decisions appear to have settled the legal position, the Supreme Court has time and again invoked Article 142 of the Constitution of India to do “complete justice” while modifying arbitral awards. In this regard, reference may be made to Vedanta Ltd. v. Shenzhen Shandong Nuclear Power Construction Company Ltd., (2019) 11 SCC 465, MP Power Generation Ltd. Ansaldo Energia Spa (2018) 16 SCC 661, Oriental Structural Engineers Pvt. Ltd. v. State of Kerala, (2021) 6 SCC 150 and Shaktinath & Ors. v. Alpha Tiger Cyprus Investment no. 3 Limited & Ors., (2020) 11 SCC 685 to name a few.

Having regard to these conflicting stands and with a view to settle the controversy once and for all, a three judge bench of the Supreme Court in Gayatri Balasamy v. M/s ISG Novasoft Technologies Ltd. SLP (C) no. 15336/2021 has referred the matter to a larger bench. While doing so, the Supreme Court has framed questions of law as to whether the Court has the power to modify an arbitral award.

The statutes governing arbitrations in United Kingdom, United States of America and Singapore empower the Courts to modify awards, albeit on limited grounds.

In the United Kingdom, Section 67 (3) of the Arbitration Act, 1996 (“UK Act”) specifically empowers a Court to either (a) confirm the award, (b) vary the award, or (c) set aside the award in whole or in part. Section 69 of the UK Act permits a party to challenge an award on a point of law.

In Singapore, the statute dealing with domestic arbitrations permits variation of awards on a question of law. This is in similar vein to Section 69 of the UK Act. The International Arbitration Act in Singapore, which governs international arbitrations, however does not contain any provision allowing variation or modification of an award.

The United States Arbitration Act, 1925 also expressly provides for the power of modification in Section 11. 

The Indian Supreme Court in the Hakeem case also takes note of the legal position in these other jurisdictions, where courts are expressly empowered to modify arbitral awards in terms of the powers conferred under the respective statutes. Unfortunately, the 1996 Act does confer any such power as the same is based on the UNCITRAL Model Law. Pertinently, none of the other jurisdictions mentioned above have based their laws on the UNCITRAL Model Law.

The Report of the Expert Committee to Examine the Working of the Arbitration Law and Recommend Reforms in the Arbitration and Conciliation Act 1996 (“Vishwanathan Report”) which was submitted to the Law Ministry on February 7, 2024 also makes specific recommendations empowering courts to modify or vary awards.

The Vishwanathan Report has recommended that courts be clothed with powers to vary arbitral awards, albeit only in exceptional circumstances to meet the ends of justice. This will enable a Section 34 Court to provide a quietus to the matter, so as to avoid further litigation. The Vishwanathan Report has recommended:

“An express provision incorporated in the Act is likely to streamline the process, saving time, effort, and resources for all the parties involved. Thus, granting the Courts the authority to modify awards within well-defined limits would help strike a balance between preserving finality of the arbitral process and ensuring fairness.”

One of the avowed objectives of the 1996 Act is to ensure minimal judicial interference. The power of the courts to modify an award certainly militates against this principle. Another very important aspect is that of finality. As opposed to traditional litigation, arbitration is certainly a faster dispute resolution process which entails a time bound adjudication before the tribunal and limited interference by courts under Section 34 and 37 of the 1996 Act. It is thus felt that granting powers of modification to a court would expand the scope of judicial interference rather than minimise it. This may ultimately erode the efficacy of the arbitral process.

On the other hand, granting the power to modify awards would enable the courts to correct ‘curable’ errors in the award and to ultimately ensure that justice prevails. In terms of the present regime, the only recourse available to the court is to set aside or uphold an arbitral award, and many a times, this leads to gross injustice to parties who are then forced to initiate fresh proceedings for arbitration rather than the proceedings culminating before the court itself. Also, there is no evidence to suggest that granting such powers to courts to modify an award would, in any manner, erode the efficacy or the confidence in the arbitral process. As already highlighted above, in countries like United Kingdom and Singapore, the courts are empowered to modify or vary awards and this ability of the court to do so has not in any manner hampered the status of these countries as being global hubs of arbitration.

The recent decision by the Supreme Court to refer the issue to a larger bench indicates the complexity of the issue and the need for a thorough examination of this issue. Additionally, the Viswanathan Committee has recommended amending the Act to confer on courts the power to partly modify arbitral awards in exceptional circumstances. However, the lack of clarity on what constitutes exceptional circumstances raises concerns about the potential for judicial intervention.

The author strongly feels that the power to modify or vary an award must flow from the statute itself and the courts must not interpret the existing provisions in a manner which enables the courts to modify or vary an award. The legislature in its wisdom has clearly excluded such a power and based our law on the UNCITRAL Model Law, which again does not have such a provision. The 1996 Act clearly mentions the UNCITRAL Model Law in its preamble and the courts must respect the wisdom of the legislature in this regard. The Supreme Court ought to thus not overstep the proverbial “Lakshman Rekha” and read the power of modification into Section 34 of the 1996 Act. At the same time, the amendment to Section 34 of 1996 Act, in line with the recommendations of the Vishwanathan Report should also be expedited by the Parliament to ensure that the Indian arbitration regime is in toe with international best practices.

Only time will tell whether the Supreme Court will read the power of modification into Section 34 of the 1996 Act or whether the same would be left to the wisdom of the legislature to amend the current laws. Ultimately, whether the power of modification is conferred upon courts by statute or left to legislative discretion, the evolution of India's arbitration regime must align with international best practices to foster confidence and efficacy in the resolution of disputes.

About the author: Saurabh Seth is a practicing advocate and heads Chambers of Saurabh Seth.

The author would like to thank Sumeera Seth, Neelam Deol and Abhiroop Rathore, counsel at Chambers of Saurabh Seth for their research and assistance.

A special acknowledgment for Omar Ahmad, Sukrit Seth, Niyati Kohli and Sumer Dev Seth for their invaluable inputs in compiling this piece.