Brief Overview:
In a significant development in Indian arbitration jurisprudence, the Constitution Bench of the Hon’ble Supreme Court (“Court”), by a 4:1 majority, has held that courts exercising jurisdiction under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996 (“the Act”) possess a limited power to modify arbitral awards. This marks a departure from the earlier interpretation which confined the court’s role to either setting aside or upholding an arbitral award, without any authority to alter its terms.
[Gayatri Balasamy vs. M/s. ISG Novasoft Technologies Limited, (SLP (C) Nos. 15336-15337 of 2021) Order dated 30th April 2025 passed by Supreme Court]
Technical Details:
1) Power to Modify Arbitral Award under Section 34
(a) The Court examined whether the power to set aside an arbitral award under Section 34 of the Act includes the authority to modify the award.
(b) The Court observed that if courts are denied the authority to modify awards, the objectives of a cost-effective and expeditious dispute resolution process, as envisioned by the Act, would be defeated.
2) Scope of Section 34
(a) Section 34 of the Act limits recourse to the courts to an application for setting aside an arbitral award.
(b) However, the Court clarified that Section 34 does not restrict the range of remedies a court can grant, as long as such relief remains within the statutory framework of the Act.
(c) Courts are permitted to grant a different form of relief, provided it does not violate the limitations of the power granted under Section 34 of the Act.
3) Doctrine of Severability and Judicial Modification
(a) The Court held that the inherent power of the court to sever portions of an arbitral award, while setting it aside, implies a broader power to modify the award.
(b) The Court recognized that, under Section 34, the court may apply the doctrine of severability, which allows modification of specific portions of an award while retaining the rest of the award intact.
4) Modification of Post-Award Interest under Section 37
(a) The Court highlighted that arbitral tribunals, when determining post-award interest, are unable to foresee future developments and issues that may arise.
(b) Since post-award interest is inherently future-oriented, the Court ruled that it is appropriate for the Section 34 court to have the authority to modify the post-award interest, provided that the facts and circumstances justify such a modification.
JC Takeaway:
This judgment opens a new avenue for judicial intervention in arbitral awards, granting courts limited authority to modify awards. While the Supreme Court has emphasized that such modifications should remain narrow, this recognition of judicial power could gradually expand the court’s role in arbitration. While aimed at reducing costs and delays, this development may impact the independence of arbitral tribunals envisioned under the Act.
For further details, please see:
20788_2021_1_1501_61506_Judgement_30-Apr-2025.pdf
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