Supreme Court Constitution Bench to examine power of courts to modify arbitral awards

A Constitution Bench of the Supreme Court will examine the legal questions concerning the power of the courts to modify arbitral awards under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996 [Gayatri Balasamy Vs ISG Novasoft Technologies Ltd]..A Bench led by Chief Justice of India Sanjiv Khanna and comprising of Justices Sanjay Kumar and KV Viswanathan on Thursday referred the issued to a five-judge Constitution Bench. A copy of the order is awaited. .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 scope of Section 37 is limited to specified categories of decisions and courts are generally cautious in their approach to avoid undermining the arbitral process. Like Section 34, it reflects the Act's objective of minimizing court interference while ensuring that justice is served in exceptional cases requiring judicial oversight..When the matter was initially heard in February 2024, a bench of Justices Dipankar Datta, KV Viswanathan and Sandeep Mehta had raised the following questions: Can the power to modify an award be exercised only when the award is severable, allowing a part to be altered?Does the power to set aside an award under section 34 include the authority to modify it, and if so, to what extent?Can the power to modify an award be inferred from the power to set it aside under section 34?Do previous judgments of the Supreme Court, such as Project Director NHAI v. M. Hakeem (2021), correctly interpret the law in this regard, especially in light of other decisions permitting modifications?.The Court in February 2024 acknowledged that its own judgments have provided inconsistent guidance. While decisions like Project Director NHAI v. M. Hakeem and Larsen Air Conditioning v. Union of India (2023) had ruled against modification powers, other rulings such as Vedanta Ltd. v. Shenzden Shandong Nuclear Power Construction Co. and J.C. Budhraja v. Chairman, Orissa Mining Corporation Ltd. either upheld or permitted modifications to arbitral awards.In view of the same, the 2024 Bench directed that the matter be placed before the CJI to be decided by a larger Bench. Pursuant to that, the matter came before the Bench headed by CJI Khanna on Thursday. This Bench then proceeded to refer the case to a Constitution Bench..The petitioners were represented by Senior Advocate Arvind Datar with Advocates Payal Chawla, Hina Shaheen, Mukunda and Nishanth Patil.The respondents were represented by Senior Advocate Saurabh Kirpal with Debmalya Banerjee (Partner) Manmeet Kaur (Partner), Rohan Sharma, (Principal Associate) and Gurtejpal Singh (Senior Associate) from Karanjawala & Co.