Courts have the power to modify arbitral awards but with limitations: SC

Business Standard

30-04-2025

The Supreme Court ruled on Wednesday that courts have the authority to modify arbitral awards, but only within narrow confines.
A five-judge Constitution Bench, in a 4-1 majority decision -- by Chief Justice Sanjiv Khanna, and Justices B R Gavai, Sanjay Kumar and A G Masih -- held that courts may exercise powers under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996, to alter arbitral awards in certain situations.
The majority judgment emphasised that courts should intervene only sparingly -- such as correcting clerical or calculation mistakes, adjusting interest, or making similarly limited changes -- without nullifying the entire award. In extraordinary cases, the Bench said, Article 142 of the Constitution, which allows the Supreme Court to pass orders to do 'complete justice', may be invoked.
Justice K V Viswanathan dissented with the majority verdict and held that under Section 34 of the Act, courts cannot modify the award unless expressly authorised by the law, since it amounts to exercising a merits review. 'If there is any need for modification of interest, the matter has to be remitted back to the Tribunal as this can lead to uncertainties and difficulties in enforcing foreign awards,' said Justice Viswanathan.
'Courts exercising Section 34 power cannot change, vary or modify arbitral awards as it strikes at the core and the root of the ethos of the arbitration exercise,' he added. While Section 34 talks about the mechanism to challenge an arbitral award in court, Section 37 outlines which arbitration-related orders are appealable.
Justice Viswanathan also disagreed with the view that Article 142 of the Constitution can be used to modify awards, saying if such a power is recognised, it will lead to uncertainties in the arbitration litigation. However, he agreed that clerical or typographical mistakes can be corrected under Section 34.
According to experts, parties opting for arbitration will now need to reverse-plan their approach to avoid the chances of interference under the Arbitration Act.
'The judgment affirms that the court has powers to modify awards even though subject to certain circumstances. This is bound to impact the principle of party autonomy as the foundation of arbitration. Courts have refrained from interfering with awards unless warranted by exceptional circumstances. This is expected to change,' said Shiv Sapra, partner at law firm Kochhar & Co.
Indranil D Deshmukh, partner (head-disputes) at law firm Cyril Amarchand Mangaldas, argued that the majority decision undermined the integrity of the award and the arbitral process. 'The significant dissenting opinion of Justice Viswanathan is the voice of the future -- perhaps a future where the arbitration landscape is much more evolved and imbibed and institutionalised within its framework internal mechanism to prevent egregious errors from appearing in arbitral awards,' he said.
Kunal Vyas, a partner at Gandhi Law Associates, on the other hand, welcomed the majority's judgment, saying it's a step in the right direction. 'The courts would now be required to consider modification of awards without the application under Section 34 or Section 37 being treated like regular appeals and rendering the awards unenforceable,' Vyas said.
For parties currently involved in litigation over modified awards, Deshmukh noted that the onus will now lie in demonstrating that any alteration falls within the defined boundaries of the judgment.
The ruling is expected to have an impact on ongoing high-stakes arbitration cases, such as the Oil and Natural Gas Corporation (ONGC) vs Reliance Industries Limited (RIL), said Sapra of Kochhar & Co.
The Delhi High Court earlier this year overturned a 2018 international arbitral award that favoured the Mukesh Ambani-led company and its foreign partners in a dispute over gas migration from fields operated by state-owned ONGC in the Krishna-Godavari basin. 'This was a significant modification in the absence of the clarifications now available. Today's verdict creates the potential for even further modifications and empowers courts to go beyond the erstwhile albeit salient boundaries of interference,' Sapra said.
Last year, in the Delhi Metro Rail Corporation Limited v Delhi Airport Metro Express Private Limited decision, the Supreme Court exercised its extraordinary curative powers to annul an award of approximately ₹3,000 crore plus interest, on the ground of patent illegality. Along with interest, the amount totalled around ₹7,600 crore on the date of the decision. This was against the strict mandate laid down in its own decision in Rupa Ashok Hurra vs Ashok Hurra and Anr (2002).