This Article captures key takeaways from the judgment rendered by the five-judge bench of the Hon’ble Supreme Court in Gayatri Balasamy[1]. The takeaways and views expressed are restricted to the Majority Opinion rendered by the Hon’ble Supreme Court.

Background:

A three-Judge Bench of the Hon’ble Supreme Court, vide order dated February 20th, 2024, directed that the Special Leave Petitions in Gayatri Balaswamy v. ISG Novasoft Technologies Limited[2], be placed before the Chief Justice of India for an appropriate order. Pursuant thereto, the following questions of law underlying the Special Leave Petitions were referred to a Larger Bench comprising the Hon’ble Chief Justice of India, Justice B.R. Gavai, Justice Sanjay Kumar, Justice Augustine George Masih and Justice K.V Viswanathan:

  1. Whether the powers of the Court under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996 (“Act”) include the power to modify an arbitral award?
  2. If the power to modify the award is available, whether such power can be exercised only where the award is severable, and a part thereof can be modified?
  3. Whether the power to set aside an award under Section 34, being a larger power, will include the power to modify an arbitral award and if so, to what extent?
  4. Whether the power to modify an award can be read into the power to set aside an award under Section 34 of the Act?
  5. Whether the contrasting judgments passed by the Hon’ble Supreme Court in relation to such questions of law lay down the correct law?

Majority View:

  • The Hon’ble Supreme Court relying upon the doctrine omne majus continent in se minus i.e., the greater power includes the lesser, held that the power to set aside an arbitral award necessarily encompasses the power to set it aside in part. Therefore, Courts can sever and set aside only the invalid part of an award, while retaining the valid part, provided that the “valid” and “invalid” portions are legally and practically separable.
  • The Hon’ble Supreme Court also differentiated between setting aside and modification of an arbitral award in terms of different consequences vis a vis Section 34 and Section 37 of the Act; the former alters the arbitral award, while the latter annuls it. Whilst observing so, the Hon’ble Supreme Court rejected the idea that recognizing a power to modify an arbitral award would inevitably entail a re-examination of the dispute’s substantive issues as long as such power is narrowly defined.
  • On an argument that there exists no express provision under the Act which permits modification of an arbitral award, the Hon’ble Supreme Court observed that the absence of an express provision allowing modification does not imply a prohibition. Rather, it observed that Courts retain inherent powers within the boundaries of Section 34 of the Act to allow limited modifications. Therefore, it will be wrong to imply that non-existence of an express provision under the Act should be construed as complete prohibition to modify the arbitral award.
  • With respect to Section 33 of the Act, which deals with correction and interpretation of an arbitral award by the Arbitral Tribunal, the Hon’ble Supreme Court observed that under Section 34 of the Act, Courts must have no uncertainty when modifying an arbitral award and if the error in the arbitral award is not apparent on the face of record or the modification is debatable, the appropriate recourse shall be under Section 33 or under Section 34(4) of the Act.
  • The Hon’ble Supreme Court observed that if there exists even a fog of uncertainty in exercise of the powers of modification, Courts must not modify the arbitral award and rather, the remedial powers under Section 34(4) ought to be availed and the arbitral award be remanded to the Arbitral Tribunal under Section 34(4). It has been held and observed that the power to remand is restricted to specific issues identified by Courts and the same ought not be confused with the power to modify. Further, the Judgment clarifies that a request for remand by a party can be either oral or in writing and must be recorded by Courts, however, the power to remand cannot be assumed by Court suo motu. Lastly, with respect to Section 34(4), it was observed that the same is an enabling provision, as it does not mandate the Arbitral Tribunal to make corrections but rather, provides it the discretion to amend or decline to amend the arbitral award only to cure such defects so as to make the Arbitral Award enforceable.
  • The Hon’ble Supreme Court has held that Courts can modify (both increase or decrease) or declare post-award interest under Section 31(7)(b) of the Act, if the situation so warrants. However, Courts have been cautioned that the exercise of the said power be done only in cases where there are compelling and well-founded reasons to do so.
  • Insofar as the applicability of Article 142 of the Constitution of India, 1950 (“Constitution”) is concerned, it has been held that such power is to be exercised with great care and caution and in consonance with the principles and objectives underlying the Act and not in derogation or in suppression thereof. The Hon’ble Supreme Court held that under Article 142 of the Constitution, the Court can exercise powers to modify the award where it is required and necessary to end the litigation or dispute and not to rewrite the award or modify the award on merits.

Our Observation:

The Judgment rendered by the Hon’ble Supreme Court marks a pivotal evolution in Indian arbitration jurisprudence, reaffirming a limited but necessary role of Courts in modifying arbitral awards under Sections 34 and 37 of the Act.

The Judgment upholds arbitral autonomy and also reaffirms certain safeguards to ensure justice and efficiency. By affirming that Courts cannot rewrite or reassess the merits of an arbitral award, the Hon’ble Supreme Court reinforces the principle that whilst setting entertaining an Application for setting aside arbitral awards, Courts cannot exercise jurisdiction as vested in appellate forums. However, the Judgment also recognizes that awards, at times, required intervention, especially where minor corrections such as interest rates or clerical errors can avoid fresh proceedings and serve the efficacy of arbitration.

 

Disclaimer:

The views expressed in this Article are those of the Authors.

[1] Supra

[2] 2024 SCC OnLine SC 1681