A long journey from Set aside or Upheld to Modification of awards under Section 34 & 37 of the Arbitration Act, after Gayatri Balasamy.

The extent of power of the courts to modify an arbitral award has always been a topic of discussion from time to time. One such instance is the recent case of Gayatri Balasamy Vs. ISG Novasoft Technologies Limited[1] which came before a five-judge Constitution Bench of Hon’ble Supreme Court. In this case the bench with 4:1 majority held that the courts only have limited power to modify an Award passed by an Arbitral Tribunal under Section 34 & 37 of the Arbitration & Conciliation Act, 1996 [hereinafter as “Arbitration Act”] which cannot be exercised unfettered. Only in some specific circumstances the courts can go with this recourse. Some of these circumstances includes (a) to set aside an invalid part of an arbitral award where it is severable, (b) to correct any clerical, typographical or computational errors, (c) or to modify post-award interest. In this 4:1 judgment, it was Hon’ble Justice K.V. Vishwanathan who gave a detailed dissenting opinion, where he observed that courts are not empowered to interfere with or modify the arbitral awards under Section 34 & 37 of the Arbitration Act.

Before this judgement, there existed a conflicting jurisprudence over the issue. The core issue herein was whether the courts have jurisdiction to modify the arbitral award? If yes then at what extent it can? In regard to which the Hon’ble Court went into the wordings and form of the Section 34 the Arbitration Act. The Hon’ble Court observed that the word “modification” itself contains some sort of limit and restriction, and has lesser power than the “annulment” of an award, which itself is more severe in nature. Hence, the Hon’ble Court went into the purposive interpretation of the Section 34, to find out the scope of power to modify an award within Section 34, and held that the Court can modify an award by applying the doctrine of severability by setting aside the invalid portion of award while leaving the rest. However, this can only be done where it is practically and legally possible to separate the invalid part from other part.

Further, the Hon’ble Court also observed that the courts are also empowered to correct any kind of computational, clerical or typographical mistakes. However, the condition precedent for the same is that it does not requires the court to go into the merits of the award. In regard to this the Hon’ble Court observed that these things falls within the domain of inherent power of court and does not require to be explicitly granted by the legislature. While as far as the post-award interest is concerned the Hon’ble Court held it to be a future oriented things which is subjected to the facts and circumstances under which the award is made. If the facts and circumstances demands the intervention and modification to the post award interest then it is justified for the court to modify award under Section 34.

Further, the Hon’ble Court also emphasized on the court’s power that is provided under the Article 142 of the Constitution of India, which grants power to the court to modify awards in exceptional circumstances. This is to be done to ensure the complete justice, however there is a caveat attached to it, while exercising such power the court should be cautious that it should not result into rewriting the awards and go into the merits. In regard to this Hon’ble Court further noted that the powers provided under the Article 142 is complementary to objectives and principles incorporated under the Arbitration Act especially the principle of minimal judicial interference. Hence, the powers provided under Article 142 should not be exercised in derogation and suppression of the scheme of the Arbitration Act.

With this the Hon’ble Court while observing that the courts are empowered to modify the awards, it held that it can only be used in certain circumstances. The Hon’ble Court was cautious enough to not make it as precedent to be used against the scheme and principle laid down in Arbitration Act. Hence, it fettered this power to modify awards under Section 34 and 37 of the Arbitration Act, in limited circumstances only. This judgment of the Hon’ble Supreme Court also addressed the issue of judicial overreach by emphasising upon the discretionary power of the Hon’ble Supreme Court provided under Article 142 to do “complete justice” when facts and circumstances requires the same. In my opinion, this judgment attempts to strike a balance between the fundamental principles of arbitration law, such as minimal judicial interference and avoiding protracted litigation, while upholding and ensuring justice in cases where modification of the award is necessary. Further, this judgment emphasized on the middle ground approach of modifying the arbitral award rather than the previous approach of “Set aside or uphold” approach at the stage of challenging an award.

Author: - Akshara Singhal, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney.

[1] Gayatri Balasamy v ISG Novasoft Technologies Ltd SCC OnLine SC 986 (SC)