The Constitution Bench of the Supreme Court, by a 4:1 majority, clarified that appellate courts have only restricted powers to alter arbitral awards while acting under Sections 34 or 37 of the Arbitration and Conciliation Act, 1996. The majority opinion, authored by Chief Justice Sanjiv Khanna, held that such modifications may be permissible only under narrowly defined circumstances.
The Court observed that changes to an award could be considered when: (1) the arbitral award is severable; (2) there are clerical, calculation, or typographical errors; (3) modifications to post-award interest are necessary; and (4) limited relief can be granted under Article 142 of the Constitution to do complete justice. Justice KV Viswanathan delivered a dissenting view, opposing any inherent power to modify arbitral decisions under the Act.
The Bench, also comprising Justice BR Gavai, Justice Sanjay Kumar, Justice A.G. Masih, and Justice KV Viswanathan, had reserved judgment in February after a three-day hearing.
The central legal questions revolved around whether the term "modification" is distinct from "setting aside," and to what extent courts can intervene without altering the core of an award. It also examined the idea of severability — whether parts of an award could be struck down without modifying the entire decision.
The Union of India, represented by Solicitor General Tushar Mehta, submitted that Sections 34 and 37, read in light of the UNCITRAL Model Law, allow only for setting aside awards, not modifying them. He emphasised that the statutory framework did not empower courts to rewrite or alter awards, and that legislative intervention, not judicial interpretation, would be needed for granting such power.
Senior Advocate Arvind Datar, appearing for the lead petitioner, argued for a broader interpretation of Section 34. He contended that in cases of patent errors, courts should be allowed to partially or wholly modify arbitral decisions. He further noted that India's adoption of the UNCITRAL framework was not entirely suited to domestic arbitration and that other jurisdictions like the UK and Singapore had tailored laws better aligned with local needs.
The petitioners stressed that recourse to the court under Section 34 should include not only setting aside but also the power to mold relief where justice demands. They argued that inherent powers of the court under the Civil Procedure Code should complement the statutory framework of arbitration.
The decision marks an important development in arbitration jurisprudence, setting boundaries on judicial interference while also leaving room for exceptional intervention in the interest of justice.
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