Supreme Court Allows Limited Modification of Arbitral Awards

Supreme Court Allows Limited Modification of Arbitral Awards

Why in the News ?

In a significant 4:1 verdict, the Supreme Court ruled that appellate courts can modify arbitral awards under limited circumstances, citing powers under Sections 34 and 37 of the Arbitration Act and Article 142 of the Constitution.

Supreme Court Allows Limited Modification of Arbitral Awards

About the Supreme Court’s Majority Verdict:

  • In a 4:1 ruling, a Constitution Bench led by CJI Sanjiv Khanna held that appellate courts can modify arbitral awards under limited conditions.
  • The majority included Justices B R Gavai, Sanjay Kumar, and A G Masih.
  • The verdict interpreted Section 34 (setting aside awards) and Section 37 (appeals) of the Arbitration and Conciliation Act, 1996.
  • Cited Article 142 of the Constitution, which allows courts to do complete justice, though this power must be used with great care and within constitutional limits.

Permitted Grounds for Modification

  • Courts may modify awards only when:
    • The award is severable—invalid parts can be separated from valid ones.
    • There are clerical, computational, or typographical errors.
    • Post-award interest requires revision in certain circumstances.
  • This power is limited and must not be used as a blanket review mechanism.

Dissenting Opinion by Justice Viswanathan

  • Justice K V Viswanathan dissented, stating:
    • Courts under Sections 34 and 37 have no power to modify arbitral awards.
    • The power to modify is not implied and cannot be derived from Section 151 of CPC.
    • Invoking Article 142 to modify awards goes against statutory provisions and is not permissible.

UNderstanding Arbitration and Conciliation Act :

Overview and Importance

●Provides a legal framework for alternative dispute resolution (ADR) in India.
●Codifies and updates laws on arbitration, mediation, and conciliation.
●Aims to offer faster, cost-effective, and less adversarial dispute resolution than traditional courts.

Key Features

●Two-tiered ADR: Offers both arbitration and conciliation mechanisms.
● Flexibility: Parties can choose procedures, venues, and arbitrators.
●Confidentiality: Proceedings are confidential, crucial for business disputes.
● Binding Nature: Awards are enforceable in courts like court decrees.
●Judicial Support: Courts assist only in limited aspects (e.g., appointment of arbitrators).
●Global Compatibility: Aligned with UNCITRAL Model Law for international relevance.

Major Provisions

●Arbitration Agreement: Written consent by parties to settle disputes via arbitration.
●Appointment of Arbitrators: Chosen by parties; courts intervene if no consensus.
● Interim Measures: Courts may provide temporary relief before proceedings.
●Arbitral Award Requirements: Must be written, reasoned, and signed.
●Limited Appeal: Grounds to challenge awards are narrow to avoid delays.

Key Amendments

● 2015: Time-bound resolution (12 months), reduced judicial intervention, cost regulation.
●2019: Established ACI, mandated disclosure of conflict of interest.
● 2021: Removed automatic stays, ensured pro-enforcement of awards.

Arbitration vs Litigation – A Comparative Overview

Aspect Arbitration Litigation
Nature Private, alternative dispute resolution mechanism Public, court-based judicial process
Forum Disputes are resolved by arbitrators chosen by the parties Heard and decided by a judge in a court of law
Legal Framework Governed by Arbitration and Conciliation Act, 1996 Governed by Civil Procedure Code, Indian Evidence Act, etc.
Flexibility High – parties can choose procedures, venue, and arbitrators Low – must follow rigid court procedures and timelines
Time Taken Generally faster (12–18 months with amendments) Slower due to heavy court pendency and procedural delays
Cost Relatively lower due to quicker resolution and fewer formalities Can be high due to legal fees, documentation, and delays
Confidentiality Proceedings are private and confidential Proceedings are public and court records are accessible
Enforceability Awards are binding and enforceable like court decrees Court judgments are binding with full force of law
Appeal Possibility Very limited grounds for appeal Multiple levels of appeal possible, prolonging final resolution
Role of Courts Minimal – only in cases like appointment of arbitrators or enforcement of award Central – courts conduct the entire process and issue verdicts
International Suitability Highly preferred for cross-border commercial disputes Less preferred due to jurisdictional and procedural complexities