Courts cannot modify arbitral awards since Arbitration Act 1996 does not permit appellate review: Supreme Court

A Constitution Bench of the Supreme Court on Wednesday held that Indian courts cannot modify arbitral awards under the Arbitration and Conciliation Act, 1996 since the statute does not permit courts to sit in appellate review over arbitral tribunal's findings [Gayatri Balasamy v. ISG Novasoft Technologies Limited]..The Bench comprising Chief Justice of India Sanjiv Khanna and Justices BR Gavai, PV Sanjay Kumar, KV Viswanathan and Augustine George Masih ruled that while courts may set aside an arbitral award on limited grounds laid down under Section 34 of the Act, the power to modify an award is not contemplated under the statutory framework."Modification and setting aside have different consequences: the former alters the award, while the latter annuls it... Recognising a power of modification may invite judicial interference with the merits of the dispute—something inconsistent with the framework of the 1996 Act," the Court stated. .The judgment came in a batch of appeals in which the Court was called upon to resolve conflicting judicial views on whether courts can alter arbitral awards during proceedings under Sections 34 or 37 of the Act..The majority view by CJI Khanna and Justices BR Gavai, PV Sanjay Kumar and Augustine George Masih laid down the following circumstances under which courts can modify arbitral award:SeverabilityCourts may set aside only part of an award if the invalid portion is severable from the valid part.“The authority to set aside an arbitral award necessarily encompasses the power to set it aside in part... It would be incongruous to hold that power to set aside would only mean power to set aside the award in its entirety.”Correction of Errors Courts may correct clerical, typographical or computational errors evident on the face of the record.“Such a power must not be conflated with the appellate jurisdiction of a higher court.”Post-Award InterestCourts may intervene and modify the rate of post-award interest, especially where the award is silent or where equity demands a departure from the standard statutory rate.Article 142 (Supreme Court only)The Supreme Court may, in exercise of its constitutional powers under Article 142 of the Constitution, pass directions to do complete justice in a matter. However, the Bench cautioned:“The power should not be exercised where the effect of the order passed by the court would be to rewrite the award or modify the award on merits.”.The Court held that the Arbitration and Conciliation Act, 1996, which is modelled on the UNCITRAL Model Law, envisages a limited role for courts in the arbitral process. Section 34 only permits an award to be set aside on narrowly defined procedural and substantive grounds.“The 1996 Act limits the supervisory role of the court… the court does not act as an appellate authority for factual findings, evidence, or questions of law dealt with by the arbitral tribunal,” the Bench stated.The Court emphasised that modification of awards involves reassessment of the merits, which goes beyond the jurisdiction conferred under Section 34..Addressing concerns that modification could affect enforceability under the New York Convention, the Court held:“This Court’s interpretation... would not be at loggerheads with the New York Convention... The Convention requires the enforcement court to consider whether an award has become binding in terms of the law of the seat.”The Court affirmed that any changes made by Indian courts to domestic awards under Section 34 would not impede enforcement, provided the modifications are within the permissible statutory framework..The Court also recognised that parties are entitled to enter into post-award settlements subject to legal safeguards against coercion, fraud or undue influence.On the issue of limitation, it reiterated that Section 43(4) of the Act excludes the period between the commencement of arbitration and setting aside of the award from the limitation period for any subsequent court or arbitral proceedings..Summarising its conclusions, the Court held:“We hold that the Court has a limited power under Sections 34 and 37 of the 1996 Act to modify the arbitral award. This limited power may be exercised (i) when the award is severable, (ii) to correct errors apparent on the face of the record, (iii) to modify post-award interest, and (iv) under Article 142, when justice so requires.”.[Read Judgment]