BACKGROUND

A three-Judge Bench of the Supreme Court, vide order dated 20th February 2024, directed that the Special Leave Petitions be placed before the Chief Justice of India for an appropriate order. The controversy arose because the Act does not expressly empower courts to modify or vary an arbitral award. Section 34 of the Act only confers upon courts the power to set aside an award. Nevertheless, Supreme Court, on several instances, has been compelled to modify arbitral awards, seeking to minimize protracted litigation and foster the ends of justice. In contrast, some judgments have posited that Indian courts cannot modify awards, due to the narrowly defined scope of Section 34. Therefore, divergent and contrasting judicial opinions existed on this question.

VERDICT

In its significant judgment in Gayatri Balasamy vs. ISG Novasoft Technologies Limited [Civil Appeal @ S.L.P.(C) Nos.15336-15337 of 2021], the Supreme Court’s Constitution Bench clarified that Section 34 of the Arbitration and Conciliation Act, 1996 (‘Act’), which governs the courts’ power to set aside awards, also provides a limited power to modify them in specific instances. The Supreme Court (by a majority of 4:1) held that a Court has a limited power under Sections 34 and 37 of the Act to modify an arbitral award in relation to the following circumstances:

When the arbitral award is severable, by severing the ‘invalid’ portion from the ‘valid’ portion of the arbitral award.
To correct clerical, computational, or typographical errors which appear to be erroneous on the face of the record.
To increase or decrease the post-award interest where the circumstances justify such alteration.
Exercise of the Supreme Court’s powers under Article 142 of the Constitution of India to pass orders for doing complete justice in a matter pending before it in consonance with the fundamental principles and objectives underlying the Act towards bringing the dispute to an end.

REASONING

Acknowledging that the arguments canvassed symbolizes longstanding conflict between equity and justice, on one hand, and the fetters imposed by the court’s jurisdictional limits, on the other, the bench decided to adopt balanced approach and favour an equitable & pragmatic view. Key principles which weighed the majority decision are set out below:

Doctrine of omne majus continet in se minus—the greater power includes the lesser—applies squarely. The authority to set aside an arbitral award necessarily encompasses the power to set it aside in part, rather than in its entirety.
That modification represents a more limited, nuanced power in comparison to the annulment of an award, as the latter entails a more severe consequence of the award being voided in toto. It will be wrong to argue that silence in the Act, as projected, should be read as a complete prohibition.
There are certain powers inherent to the court, even when not explicitly granted by the legislature. The scope of these inherent powers depends on the nature of the provision, whether it pertains to appellate, reference, or limited jurisdiction as in the case of Section 34.
The argument that several countries like Singapore, Kenya, and the United Kingdom though originally following the Model Law now allow courts to modify an award in limited cases, while the Act does not, is only linguistically correct, however, is not convincing jurisprudentially or in principle.

THE DISSENTING OPINION:

While the dissenting opinion, authored by Justice K.V. Vishwanathan, concurs with the majority opinion to the extent of upholding the court’s power to sever ‘valid’ portions of an arbitral award from the ‘invalid’ ones and rectify computational, clerical, or typographical errors in arbitral awards, it has held the following in the course of its disagreement with the rest of the majority opinion:

While exercising power under Section 34 of the Act and consequently the Courts in the appellate hierarchy do not have the power to modify the arbitral award.
Modification and severance are two different concepts while modification is not permitted under Section 34, severance of the award falling foul of Section 34 is permissible in exercise of powers under Section 34.
The power to set aside will not include the power to modify since the power to modify is not a lesser power subsumed in the power to set aside. The power to set aside and power to modify do not emanate from the same genus and are qualitatively different powers in the context of the Act.
The argument that parties will face hardship if they have to re-arbitrate their dispute if the arbitral award is set aside is without merit. The Act itself provides for such re-arbitration in Section 43(4) of the Act and such statutory provisions cannot be brushed aside on the ground that hardship will be caused to parties.

ANALYSIS

Viewed from the angle of pragmatism, the court’s power to modify arbitral awards is likely to prevent wastage of resources of litigants as they would not need to re-arbitrate their dispute. However, it appears that in its quest to answer a long-pending question, the Court has given rise to new ones, such as:

Is the well settled principle that where the language is plain and clear, Court will prefer the plain meaning rule and when there is no casus omissus (omissions in a statute cannot be supplied by construction), the Court cannot interpret a statute as to create one, given a go by?. This assumes importance since majority view observed that silence in the Act with regard to power of modification should not be read as a complete prohibition, failing to appreciate that power to modify existed under 1940 Act, pointing out to the legislative intent of not conferring such power under the Act.
The finding that notwithstanding Section 33, a court reviewing an award under Section 34 possesses the authority to rectify computational, clerical, or typographical errors, as well as other manifest errors provided that such modification does not necessitate a merit-based evaluation, though cautions against a merit-based review, any modification of an award would invariably involve some assessment of merits. This may lead to exceeding of jurisdiction by Court in Section 34 or 37 proceeding.

Further, if what is held to be permissible under Section 34, can very well be done under Section 33 by arbitral tribunal, there is no clarity as to why Section 34 Court should take upon itself the task of correcting such errors instead of doing what is contemplated under Section 34(4) of the Act. This will help in saving the arbitral award being set aside or modified for insignificant errors.

There is no or little clarity as to what is captured under “other manifest errors” which opens-up the floodgates for interpretation and may enable the parties to seek substantive modifications to an award under the garb of correcting such errors.

Thus, though the Supreme Court has delineated limited grounds for modification in the Gayatri Balasamy, it remains of interest to see as to how the principles enunciated therein will be interpreted by Courts while modifying an arbitral award. Disclaimer: Please note that the views expressed in this article are solely of the author’s and not that of the Company.

Analysis Of Supreme Court Judgment on Court’s Power to Modify Arbitral Award

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DILIP GULABRAO KAMTHE