Courts in India have limited powers to modify arbitral awards, says SC

Time of India

30-04-2025

In a significant ruling, a five-judge Constitution bench of the
Supreme Court
on Wednesday in a 4:1 majority judgment held that the courts in India have only limited powers to modify arbitral awards.
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Such power may be exercised under Sections 34 and 37 of the Arbitration and Conciliation Act 1996 only when the award is severable, by severing the 'invalid' portion from the 'valid' portion, and by correcting any clerical, computational or typographical errors which appear erroneous in the award, a bench led by Chief Justice Sanjiv Khanna said.
An arbitral award is severable when it addresses multiple, distinct claims, and a part of the award is found to be invalid or illegal while the remaining parts are valid and enforceable. In essence, courts can then uphold the valid portions while setting aside the invalid ones.
The Constitution bench also said the court can modify the post award interest on arbitral awards in some circumstances and this power should be exercised under Article 142 of the Constitution with great care and caution.
'We recognise that the legal controversy carries significant implications. The arguments canvassed symbolise the longstanding conflict between equity and justice, on the one hand, and the fetters imposed by the court's jurisdictional limits, on the other,' the majority judgement by the CJI stated. Justices B.R. Gavai, Sanjay Kumar, and Augustine George Masih also concurred with the CJI.
'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 bench said.
The authority to set aside an arbitral award necessarily encompasses the power to set it aside in part, rather than in its entirety, the court said.
"This interpretation is practical and pragmatic. It would be incongruous to hold that power to set aside would only mean power to set aside the award in its entirety and not in part. A contrary interpretation would not only be inconsistent with the statutory framework but may also result in valid determinations being unnecessarily nullified," the bench said.
In his dissenting opinion, Justice K.V. Viswanathan said the top court cannot use Article 142 to modify arbitral awards. He held that courts cannot modify arbitral awards as that would hit the core aspect of arbitration. On the issue of post-award interest, too, Justice Viswanathan said the issue ought to be referred back to arbitration.
The majority judgment said if it were to be decided 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," the court said.
In 2024, a three-judge bench of the top court had referred the issue to a five-judge Constitution bench after having contrary opinions in the previous rulings.