Courts have limited power to modify arbitral awards in rare cases, rules SC

Constitution Bench of the SC says modification of arbitral awards allowed only in limited cases like clerical errors, severable parts or under Article 142 to ensure complete justice

A five-judge Constitution Bench of the Supreme Court on Wednesday held that courts have very limited powers to modify arbitral awards under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996, Bar and Bench reported. 

The SC bench, comprising Chief Justice Sanjiv Khanna and Justices BR Gavai, PV Sanjay Kumar, KV Viswanathan, and Augustine George Masih, clarified that such modifications are permissible only in specific situations. These include when the arbitral award is severable, to correct clerical or typographical errors, in certain cases, to adjust post-award interest, and  when invoking Article 142 of the Constitution, but only to ensure complete justice and with extreme caution. 

Justice KV Viswanathan dissented from the majority opinion on two key aspects. He disagreed with the use of Article 142 by the Supreme Court to modify arbitral awards and objected to the court’s power to alter post-award interest. 

“Section 34 cannot modify or vary the arbitral award. It is crystal clear that they cannot change or vary arbitral award as it will hit the core aspect,” Justice Viswanathan said. 

He further said, “My point in difference is that courts cannot use Article 142. The other aspect I have dissented is the power to modify post award interest. It should rather be referred back to arbitrator.” 

Justice Viswanathan maintained that arbitral awards must remain untouched by courts and that any corrections related to interest should be referred back to the arbitral tribunal.   

 

The case background

The matter reached the Constitution Bench after a three-judge Bench in February 2024 identified conflicting interpretations in previous rulings. Recognising the need for clarity, CJI Khanna had referred the matter to a five-judge Bench in January.

  Under Section 34 of the Arbitration and Conciliation Act, 1996, courts may set aside arbitral awards on limited grounds such as violations of public policy, procedural irregularities, or lack of jurisdiction. However, the provision does not permit a review of the award’s merits, and courts have consistently interpreted it narrowly to preserve the finality of arbitration, the news report said.

Section 37 of the Arbitration and Conciliation Act, 1996 allows for appeals against specific orders under the Act, including refusals to enforce or refer disputes to arbitration. Its scope, too, is limited, reinforcing the principle of minimal court intervention.

 

  Arguments from the bar

Extensive submissions were made by senior advocates during the hearing. Justice PV Sanjay Kumar observed that Parliament may have intentionally excluded modification powers from the Act. CJI Khanna highlighted the importance of maintaining arbitration’s finality, while Justice Gavai pointed out that Parliament could have expressly prohibited modifications if that was the intent. 

Senior Advocate Arvind Datar supported a flexible interpretation of “set aside ”, arguing it could include partial modifications to address injustice. In contrast, Saurabh Kirpal asserted that Section 34 clearly excludes any such power. Solicitor General Tushar Mehta described the Act as a “complete code”, stressing that its streamlined nature must be preserved.