Recently a Five Judge Constitution Bench of the Supreme Court of India, in the matter of Gayatri Balusamy Vs M/S. ISG Novasoft Technologies Limited case held that the Arbitration awards can be modified to a limited extent by the Courts exercising jurisdiction under S.34 or 37 without acting like an appellate court. This is great relief for the arbitrating parties, because if the powers of the supervisory Courts are restricted only to setting aside and not for altering an award, that may lead to multiple re-arbitrations and consequential litigations. More specifically, in countries like India where pendency in courts is very high and re-arbitrations and consequential litigations will frustrate the parties. Hence, it is really a practical judgment balancing the power of the arbitrators and the early resolution of disputes without pushing the parties into multiple re-arbitrations and consequential litigations

The Court dealt with various issues relating to the scope of alteration of Arbitration awards while the Courts exercising powers under Section.34 and 37 of the Act. The Court further held that the court exercising its powers under S.34 of the Act can apply doctrine of severability and modify a portion of the award while retaining the rest. The Court held that the authority to set aside the arbitration award includes the authority to partly set aside the award or the full award. Hence it can be understood that the Court need not set aside the entire award always and it can set aside the award partly by setting aside only the “invalid portion” of the award. The Constitution Bench also settled the law that Kinnari Mullik1 judgment which held that the 34 Court can remand back the award to the Arbitrator for rectification under S.34(4) without a written application by one party and held that even an oral request of a party is sufficient. Moreover the Court also held that such remand powers are available in S.37 proceedings also.

In addition to that the court distinguished the powers to modify the award from its powers to (i) the Court’s power of setting aside the award, (ii) the arbitrator’s power under Section.33 to correct, reinterpret and issue an additional award and (iii) the power of the Court to remand the award to Arbitrator under S.34(4). The Court held that the apprehension of the parties that powers to Court to modify the awards might result in full appreciation of facts and evidence by the supervisory courts, is an imaginary one since this judgment restricts and defines the scope of interference. The Court also held that denying the courts the authority to modify an Award particularly when such a denial would impose significant hardships, escalate costs and lead to unnecessary delays would defeat the basic objective of the arbitration. The Court also held that the above said concern is more in India because of the long delays in disposing of the S.34 & S 37 Applications by the Courts

The Court further held that the fact-finding exercise should be done by S.34 Court. It is further held that the said power under S.34 is not the power of all Appellate court as envisaged under Order XLI of the Civil Procedure Code. The Court further held that inadvertent errors, including typographical and clerical errors can be modified by the court in an application Under Section 34.

The above said judgment also settles the law relating to computation of the limitation period to initiate fresh arbitration after a court setting aside the arbitration award. The 1996 Act provides for a fresh arbitration after setting aside of an award. It is important to understand that even if one of the Claims raised in an arbitration is set aside, a separate arbitration can be initiated for that claim alone. But there is no indication about the computation of the limitation of the fresh arbitration in the Act. The said judgment provides a solution by excluding the period from the date of commencement till the date of setting aside of the award. But one question which remains to be unanswered is about the period spent in appeals against the setting aside. Hopefully, court again gives a clarity on that issue.

The above said judgment also has dealt with the issue of interfering with the awards relating to the issue of interest and rate of interest as well. This issue is very important because, in our country many times, the interest amount is more than the principal amount because of long delays in the execution of work, as well as long pendency of litigations in the courts. The Court held that “pendent lite” interest cannot be modified by the Court and if the court is not able to agree with the decision of AT then it has to set aside the award or it has to resort to Section 34(4) and remand the matter to AT. But the Court has power to grant or alter the award relating to post award interest, which is covered under Section 31(7)(b) of the Act.

Arbitration is a process of private adjudication of commercial disputes. Arbitration has gained popularity because of speedy resolution, simplified procedure, enforceability, domain expert arbitrators etc., against the complex procedures to be adopted in the Courts. But at the same time, the arbitral process is guarded by the supervising Court system in the seat of Arbitration. Supervisory Court system ensures that an arbitrator cannot give an award which is ignoring the contract terms and the law selected by the parties. Even though the interference by the supervisory court system is expected to be minimal, the supervisory Court system is necessary. Even though there is a legislative framework provided in the Act about the scope and the powers of the supervisory Court system, the judgments of the Supreme Court and High Courts further fine tune the supervisory roles of the Courts. Now, to certain extent by the above said judgment Supreme Court of India has settled the law relating to the powers of supervising Courts.