Institute of Legal and Management Studies

The Supreme Court recently held that in order to ensure efficient dispute resolution and uphold the objectives of the Arbitration and Conciliation Act 1996, the Court should be allowed to modify awards when parties challenge the tribunal's decision.

The decision was rendered by a Constitutional Bench led by CJI Sanjiv Khanna comprising Justices BR Gavai,Sanjay Kumar, AG Masih and KV Viswanathan. Justice KV Viswanathan, however dissented on th issue whether Courts can modifiy awards under the jurisdiction of S.34 of the Arbitration and Conciliation Act 1996

The majority held that denying modification powers to the Court under S.34 and 37 would be contrary to the main purpose of arbitration, which is efficient dispute resolution. The Court noted that the cycle of litigation post-award takes years, especially in cases challenging the award under S.34 and appeals against the S.34 order. The Court stated :

"To deny 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 raison d'être of arbitration. This concern is particularly pronounced in India, where applications under Section 34 and appeals under Section 37 often take years to resolve."

The Court then explained the drawback of refusing modification powers to Court as follows :

"Given this background, if we were to decide that courts can only set aside and not modify awards, then the parties would be compelled to undergo an extra round of arbitration, adding to the previous four stages: the initial arbitration, Section 34 (setting aside proceedings), Section 37 (appeal proceedings), and Article 136 (SLP proceedings). In effect, this interpretation would force the parties into a new arbitration process merely to affirm a decision that could easily be arrived at by the court. This would render the arbitration process more cumbersome than even traditional litigation."

Statutory Silence On Modification Powers Doesn't Mean Arbitration Act Prohibits It

The majority held that the discretion to annul the award has harsher effects on the parties as compared to the modification of the award. While the Arbitration Act does give a limited power to sever the award, it can be implied that the Court can also modify the award. It explained as follows :

"We are of the opinion 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. Read in this manner, the limited and restricted power of severing an award implies a power of the court to vary or modify the award. It will be wrong to argue that silence in the 1996 Act, as projected, should be read as a complete prohibition."

"We are thus of the opinion that the Section 34 court can apply the doctrine of severability and modify a portion of the award while retaining the rest. This is subject to parts of the award being separable, legally and practically, as stipulated in Part II of our Analysis."

Notably, under Part II of its Analysis, the majority declared that the "power conferred under the proviso to Section 34(2)(a)(iv) is clarificatory in nature".

S.34(2)(a)(iv) provides that an arbitral award be set aside by the Court if "the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration".

The proviso to section states "Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside."

Under Part II, the Court also concluded that the power to set aside an award includes the power to partially set it aside. This is based on the principle omne majus continet in se minus—the greater power includes the lesser. Thus, within the power to partially set aside the award, there also lies a caveat to ensure that such setting aside is done only when the valid part of the award can be clearly separated from the invalid part.

The bench referred to the commentary of Sir Michael J. Mustill & Stewart C Boyd 'Commercial Arbitration' where the authors have analysed that changing an arbitral award isn't the same as appealing it. They say a modification is only suitable when it clearly follows from the tribunal's decision on a legal issue. This method helps save time and money.

Mustill and Boyd have observed that an order varying an award is not equivalent to an appellate process. The authors suggest that a modification order would only be appropriate where the modification, including any adjustment of costs, follows inevitably from the tribunal's determination of a question of law. This approach would be beneficial, as it would reduce costs and delays.

Thus, the bench agreed that Courts don't need to investigate the facts. Recognising their power to modify awards doesn't mean they're changing the law. The power to review and set aside an award under Section 34 also includes a limited power to modify it.

"The courts need not engage in any fact-finding exercise. By acknowledging the Court's power to modify awards, the judiciary is not rewriting the statute. We hold that the power of judicial review under Section 34, and the setting aside of an award, should be read as inherently including a limited power to modify the award within the confines of Section 34."

When Can The Court Modify The Award Despite Sections 33 and 34(4) :

The majority held that, like S.33, which provides a recourse to arbitrator to correct or re-interpret an award, the Courts too can correct clerical and calculation mistakes under S.34 as they do not relate to the merits of the award. This is so because some powers are naturally part of the court's authority, even if not clearly stated in the law. The extent of these powers depends on the type of jurisdiction the court is using, like in appeals or reviews under Section 34.

"Notwithstanding Section 33, we affirm that 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 merits-based evaluation. 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 powers are intrinsically connected as they are part and parcel of the jurisdiction exercised by the court."

The bench referred to the decision in Grindlays Bank Ltd. v. Central Government Industrial Tribunal and Others, where the Court held that all courts and tribunals have basic powers needed to do justice. It explained that asking to cancel an ex parte award (made without hearing one party) because of a valid reason is not the same as asking for a full review of the case. Fixing procedural mistakes is part of a tribunal's inherent powers and doesn't count as re-examining the case on its merits.

Brewing further on the implied power of modification under S.34, the Court said that this has its basis under the Doctrine of Implied Powers which has to be applied only in consonance with the prime objectives of the Arbitration Act. It held :

"The doctrine of implied power is to only effectuate and advance the object of the legislation, i.e., the 1996 Act and to avoid the hardship. It would, therefore, be wrong to say that the view expressed by us falls foul of express provisions of the 1996 Act."

The Court further illustrated the application of the above principles by drawing a parallel from the modification powers of the executing court while delaing with civil decrees. It explained :

"Under Section 152 of the Code, a court executing a decree has the power to correct clerical or arithmetic mistakes in judgments, orders, or decrees arising from any accidental slips or omissions. This Court, in Century Textiles Industries Limited v. Deepak Jain and Another,held that clerical or arithmetical errors may be corrected by the executing court, however, the court must take the decree according to its tenor and cannot go behind the decree."

The Court thus declared that " inadvertent errors, including typographical and clerical errors can be modified by the court in an application under Section 34."

The Court added that such modification powers cannot come in conflict with the appellate jurisdiction of a higher court or review powers by a lower court. The differentiating factor between S.33 and S.34 is that the Court under S.34 should not be under any doubt while exercising modification powers. If the nature of modifcation done raises concerns on the effect on the whole award, then Court should rather avoid such modification. The ideal recourse in such instances should be that parties seek modification only through the procedure laid under S.33 and S.34(4).

"However, such a power must not be conflated with the appellate jurisdiction of a higher court or the power to review a judgment of a lower court. The key distinction between Section 33 and Section 34 lies in the fact that, under Section 34, the court must have no uncertainty or doubt when modifying an award. If the modification is debatable or a doubt arises regarding its appropriateness, i.e., if the error is not apparent on the face of the record, the court will be left unable to proceed, its hands bound by the uncertainty. In such instances, it would be more appropriate for the party to seek recourse under Section 33 before the tribunal or under Section 34(4)."

Setting Gaurdrails For Modification Powers Would Amount To Judicial Legislation; Incorrect To Assume Vishakha Like Situation : Justice Viswanathan Dissents

During the hearings, the Solicitor General Tushar Mehta (SG) argued that both 'set aside' and 'modification' had different essences altogether. He added that modification powers may be needed but cannot be culled through the Court's interpretation of what extent modification of award can be done . It should be left to the legislature to prescribe such modification.

While the SG acknowledged that there is a legislative gap when it comes to the question of modification of an award, the present situation cannot be equated to the Vishakha v. State of Rajasthan case, where the Court laid down guidelines for the prevention of sexual harassment at workplace. India, although had ratified international treaties on the subject of sexual harassment like the CEDAW in 1993, but had not passed any domestic law to that effect.

The SG stressed that in Vishakha, the Court was compelled to do so because of the lack of any legislation on the issue; here, an intact arbitration statute already exists.

The dissenting opinion agreed with the argument made by the SG.

Justice Vishwanathan opined that the present issue of modification of awards does not relate to India's need to fulfil its international obligations, as in the case of Vishakha.

"The interpretation of the A&C Act is not akin to the situation that obtained in Vishaka (supra) and other cases where recognising certain positive obligations in the State, this Court filled the gap by setting out guidelines."

He also conceded to the submission made by Senior Adv Gourab Banerji that there cannot be "judicially manageable standards and this Court cannot venture into formulating guidelines as myriad situations will arise when Section 34 applications are heard before the appropriate Courts."

It was added that allowing modification powers and agreeing to lay down 'guardrails' for such powers under S. 34 would lead to 'judicial legislation', which is a judicial overreach.

"Further, as rightly contended by the learned Senior Counsel, it would amount to judicial legislation which we are loathe to do."

Case Details : GAYATRI BALASAMY Versus M/S ISG NOVASOFT TECHNOLOGIES LIMITED| SLP(C) No. 15336-15337/2021

Citation : 2025 LiveLaw (SC) 508

Click Here To Read/Download Judgment

Other reports from the judgment :

When Can Court Remand Arbitral Award To Tribunal Under S.34/37 Arbitration Act ? Supreme Court Explains

Article 142 Can Be Used To Modify Arbitral Awards, Holds Supreme Court; Justice Viswanathan Dissents