Supreme Court can't use Article 142 to modify arbitral awards: Justice KV Viswanathan dissents

Justice KV Viswanathan of the Supreme Court in his dissenting opinion today held that courts cannot modify arbitral awards under Sections 34 or 37 of the Arbitration and Conciliation Act, 1996, and that Article 142 of the Constitution cannot be used to confer such a power..Article 142 empowers the Supreme Court to pass any decree or order for doing complete justice in any matter before it."The power under Article 142 cannot be used to ‘supplant’ substantive law…or achieve something indirectly which cannot be achieved directly,” Justice Viswanathan held, disagreeing with the view of the majority that Article 142 can be used to modify arbitral awards under exceptional circumstances. He held that doing so would violate binding precedent and disturb the statutory scheme of the Arbitration Act..Justice Viswanathan was part of a five-judge Constitution Bench, the majority of which held today that the power of courts to modify arbitral awards under Sections 34 and 37 of the Arbitration Act is limited and can be exercised only in certain circumstances.The Bench was headed by Chief Justice of India (CJI) Sanjiv Khanna and comprised Justices BR Gavai, PV Sanjay Kumar and Augustine George Masih.In January, the issue was referred to a five-judge Constitution Bench after acknowledging inconsistencies in prior decisions..Section 34 of the Arbitration and Conciliation Act provides the mechanism to challenge an arbitral award in court. It sets out the grounds on which an award may be set aside, ensuring that the arbitration process remains fair and lawful. These grounds include instances where the award violates public policy, the arbitration agreement was invalid, the tribunal lacked jurisdiction or the party raising the challenge was not given proper notice of the arbitration proceedings.However, Section 34 does not allow for a review of the merits of the award. Courts have interpreted this provision narrowly, emphasising minimal judicial interference to uphold the principles of finality and efficiency in arbitration.Section 37 of the Act governs appeals against certain orders made under the Act. It allows parties to appeal against decisions such as orders refusing to refer disputes to arbitration, refusing to enforce an arbitral award or granting or refusing interim measures under Section 9..The majority held that the power to modify arbitral awards can be exercised in the following circumstances:a) Where the award is severable;b) For correcting typographical or clerical errors;c) Post-award, interest can be corrected in some circumstances;d) Article 142 of the Constitution can be used by the Supreme Court to modify awards to do complete justice in a case before it, though it should be exercised with caution..Justice Viswanathan dissented from the majority on certain issues. In his dissent, he held that the Supreme Court cannot use its inherent powers under Article 142 to modify arbitral awards. He has also ruled that Court cannot interfere on the post-award interest and the issue should rather be referred back to the arbitrator..The judge held that the statutory framework of the Arbitration Act does not permit courts to modify an award. Section 34 only provides for setting aside an award on specific limited grounds.“From the reasons stated in the earlier part of the judgment, it is crystal clear that Courts exercising powers under Section 34, which will include the appellate hierarchy cannot change, vary, or qualify “arbitrary awards” as it strikes at the very core and root of the ethos of 92 the arbitration process. Such an exercise of power will derogate from the core aspects of the A&C Act and will breach a pre-eminent prohibition in the said Act."He emphasised that the two powers - modification and setting aside - are not interchangeable:“The power to modify is not a lesser power to that of the power to set aside, as the two operate in separate spheres and are not of the same genus.”.Justice Viswanathan noted that Parliament had amended the Arbitration Act multiple times - in 2015, 2019, and 2021 - but did not insert any provision authorising courts to modify arbitral awards. He also referred to expert committee reports that recommended such a provision, but which were not acted upon by the legislature.“Notwithstanding the fact that there have been three occasions for the Parliament to amend the A&C Act…the power to modify has not been incorporated. Hence, for the Court to read the power would be completely untenable.".The dissenting opinion rejected reliance on inherent jurisdiction under the Civil Procedure Code (CPC) or the doctrine of implied powers to support modification.“Section 34 is couched in clear terms and the parameters for setting aside the award are clearly laid out in mandatory terms…Could inherent powers under CPC be exercised in a manner to be in conflict with the expressly provided powers by the legislature? The answer has to be an emphatic ‘No’.”He added that no implied power to modify could be read into Section 34 in the absence of clear legislative intent..Justice Viswanathan clarified that courts may sever invalid parts of an award under the proviso to Section 34(2)(a)(iv), if those parts are separable from the valid portion. But modification of the contents of an award, including interest rates or factual conclusions, was impermissible.“Modification and severance are two different concepts. While modification is not permitted under Section 34, severance of the award falling foul of Section 34 is permissible.”He explicitly disagreed with the majority view that courts may modify post-award interest under Section 31(7)(b) of the Arbitration and Conciliation Act, 1996. He held that interest awarded by an arbitral tribunal cannot be modified by a court while exercising powers under Section 34."Interest awarded also cannot be modified in exercise of powers of setting aside and the course of action under Section 34(4) will have to be adopted as discussed in the judgment.".The dissenting judgment emphasised that party autonomy is the cornerstone of arbitration's legitimacy as an alternative dispute resolution mechanism. It noted:"Party autonomy enables parties to dispense with technical formalities and procedures of National Court proceedings, contractually. They agree to abide by the terms of the statute regulating arbitration which they perceive as advantageous. Having done so, they cannot be allowed to cry afoul, when it does not suit their needs and clamor for certain procedures which are legislatively not sanctioned in the arbitration process and are available in the normal machinery of the Courts."It expressed serious concerns about the international implications of permitting courts to modify arbitral awards, particularly for enforcement under the New York Convention. The judge meticulously analysed how other jurisdictions handle this issue through specific statutory provisions:"Mr. Gourab Banerji, learned Senior Counsel and Mr. Gaurav Pachnanda, learned Senior Counsel drew the attention of this Court to certain specific statutory provisions obtaining in the UK, Singapore, New Zealand and Kenya. This was to drive home the point that not only were there express provisions to modify awards in those statutes by the Court hearing the setting aside application, there are also express provisions recognising that the award will hitherto be read in the modified form."The opinion addressed potential complications for international enforcement if Indian courts were permitted to modify awards: "Learned Senior Counsels submit that if the award is modified by the Section 34 Court in India, any enforcement brought abroad will run into complications as objections will be taken that what is sought to be enforced is not the award but the judgment of the Court. There is merit in the submission and this is one another reason why these matters are best left for the legislature to be comprehensively addressed.".[Read Judgment]