‘Trimming the edges, not redrawing the canvas' – Supreme Court on award modification

Time of India

03-05-2025

Vivek Narayan Sharma is an Advocate (AOR) at Supreme Court of India with 25 years of core experience in litigation, arbitration, mediation. Known for resolving high-stakes disputes in a quick-time frame & representing industries, business leaders, celebrities, politicos; he also serves as pro bono Lawyer to enhance societal hues & spectrum. LESS ... MORE
In a far-reaching Constitution Bench decision delivered on April 30, 2025, the Supreme Court has put to rest the longstanding controversy over whether Indian courts can modify arbitral awards under the Arbitration and Conciliation Act, 1996. The five-judge bench, led by Chief Justice Sanjiv Khanna, has clarified that courts have a limited and carefully circumscribed power to modify arbitral awards under Sections 34 and 37 of the Act, thus striking a balance between minimal judicial interference and complete justice in the arbitration regime.
The core controversy
The fulcrum of the debate revolved around the interpretative vacuum in Section 34 of the 1996 Act, which permits courts to 'set aside' an award but does not explicitly authorize its 'modification.' Over the years, conflicting judgments emerged. Some benches strictly held that courts had no power to modify (notably Project Director, NHAI v. M. Hakeem), while others endorsed partial modifications, especially regarding interest rates and quantum adjustments, to prevent unjust outcomes (Vedanta Ltd. v. Shenzen Shandong, Tata Hydro-Electric, etc.).
The key questions answered
The Bench framed and decisively addressed the following questions:
1. Can courts modify an arbitral award under Section 34?
2. If yes, under what conditions is this permissible?
3. Do doctrines like severability and implied powers justify such judicial actions?
I. Jurisdictional empowerment to modify arbitral awards
The core question before courts and commentators has been: Do Indian courts have jurisdictional power to modify arbitral awards under the Arbitration and Conciliation Act, 1996 ('1996 Act')? While the Act does not explicitly confer modification powers under Section 34, judicial interpretation has explored whether such a power may be implicitly located within the scheme of the Act, especially when required to uphold justice without usurping arbitral autonomy.
II. Judicial divergence on the power to modify
Over the years, judicial opinion on this subject has evolved. The prevailing view had been that Section 34 is not appellate in nature and courts are restricted to setting aside awards on specific statutory grounds. However, a nuanced approach has emerged, recognizing that courts may, in limited cases, modify an award, particularly when dealing with clerical,
computational, or typographical errors. Such modifications are not to be confused with appellate review under Order XLI of the Civil Procedure Code. Rather, they are procedural corrections that do not disturb the substantive findings or reasoning of the arbitral tribunal.
III. Difference between setting aside and modification
The distinction between setting aside and modification is both doctrinal and functional. Setting aside an award entails nullifying it wholly or in part, effectively erasing its legal consequences. Modification, on the other hand, involves altering a portion of the award while retaining the rest making it a less intrusive and more calibrated judicial remedy. Justice K.V. Viswanathan (in his partial dissent in the Constitution Bench judgment) emphasized this distinction, noting that while modification is impermissible in substance, severance – which involves judicial pruning of the award – remains permissible.
IV. Concerns of judicial overreach
Permitting modification raises concerns over judicial encroachment into the merits of the dispute, undermining the legislative intent of minimal court interference under the 1996 Act. The Act's objective is to foster finality and party autonomy in arbitration, discouraging court-driven alterations based on subjective reassessment of facts or merits.
V. Section 34 and the scope for limited modification
Despite the absence of explicit language, a narrow window of modification may be inferred under Section 34, provided:
a. The modification does not violate the textual guardrails of Section 34;
b. It is not premised on a re-evaluation of factual findings or merits;
c. It involves severance of parts of the award that are clearly unsustainable.
This construction avoids conflating the Section 34 jurisdiction with appellate jurisdiction and adheres to the principle of non-interference with arbitral merits, while still allowing courts to avoid unjust consequences flowing from inadvertent errors.
VI. Interplay with Sections 33 and 34(4)
The judgment also considered the relevance of Sections 33 and 34(4) of the Act. Section 33 permits the arbitral tribunal to rectify errors, interpret specific parts of the award, or issue additional awards. Section 34(4) allows courts to adjourn proceedings and give the arbitral tribunal an opportunity to eliminate grounds for setting aside the award. The argument that
Section 33 and Section 34(4) occupy the field of award correction does not entirely oust the court's inherent power under Section 34 to rectify non-merit based, manifest errors. Courts have residual authority to prevent injustice arising from obvious mistakes, especially where arbitral correction has not been triggered or is no longer available.
VII. The doctrine of inherent and implied powers
Relying on Grindlays Bank Ltd. v. CGIT, the Court held that every court or tribunal has incidental and ancillary powers to perform its functions effectively. This includes correcting inadvertent errors, which is procedural in nature and does not amount to review on merits. This jurisprudence supports the existence of inherent judicial powers under Section 34, not to modify awards substantively, but to rectify procedural or technical oversights, and ensure justice is not sacrificed at the altar of technical finality.
VIII. The doctrines of severability and implied power
The judgment also reaffirmed the importance of the doctrines of severability and implied power. Severability permits courts to strike down only those parts of an award that are legally unsustainable, while preserving the rest. In practice, this results in a limited form of modification, albeit under a different label. The doctrine of implied powers, on the other hand, supports the view that courts must be allowed to ensure that legislative intent is not frustrated merely because the statute does not expressly provide for every eventuality. Both doctrines work in tandem to ensure that arbitral awards do not become instruments of injustice due to formalistic constraints.
IX. Section 152 CPC as a comparative anchor
Under Section 152 of the Code of Civil Procedure, courts may correct clerical or arithmetic mistakes or accidental slips. Analogously, the Section 34 court, although not an executing court, functions within a special statutory framework, and similar limited corrective powers can be inferred to preserve judicial efficacy and avoid injustice.
Closing thoughts
The 2025 Constitution Bench judgment may well become a turning point in Indian arbitration law. It embraces realism without sacrificing principle, offering a pragmatic route to avoid injustice without undermining arbitral autonomy.
In the wake of this decision, it is now for parliament, arbitral institutions, and drafting professionals to integrate this judicial evolution into clearer statutory frameworks and better-crafted arbitration clauses.
India's aspiration to become an international arbitration hub demands not just speed and autonomy, but a justice system agile enough to course-correct when fairness demands.
This judgment is a confident step in that direction.
While Indian courts lack a broad jurisdiction to modify arbitral awards, a limited power of correction and severance exists under Section 34. The distinction between modification of substance and rectification of form is vital. Courts must walk a fine line i.e. correcting what is manifestly wrong, while never rewriting the arbitrator's intent or revisiting the merits. This balanced interpretive approach honors both judicial responsibility and arbitral sanctity under the 1996 Act.
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Views expressed above are the author's own.