SC upholds courts’ power to modify arbitral awards under limited circumstances

Supreme Court allows limited modification of arbitral awards under Section 34, with Chief Justice Khanna emphasizing restricted grounds.

The Supreme Court, in a majority judgment, on Wednesday held that courts had the power to modify arbitral awards under limited circumstances.

Chief Justice of India Sanjiv Khanna, heading a five-judge Constitution Bench, authored the majority 4:1 opinion that courts were judicially empowered under Section 34 of the Arbitration and Conciliation Act, 1996 to alter arbitral awards on restricted grounds.

Modifications by a court were allowed to amputate the invalid portion of an award from its valid part or to get rid of obvious typographical, computational, clerical errors in the award or if the interest post the award needed to be changed.

“The scope of judicial intervention under Section 34 is confined to the limited grounds expressly provided. The court does not possess the power to correct errors of fact, reconsider costs or engage in a review of the merits of the arbitral award,” the majority judgment said.

Chief Justice Khanna held that the Supreme Court was however empowered to flex its inherent powers under Article 142 of the Constitution to do complete justice in case of an arbitral award. Nevertheless, the judgment cautioned that this power must be exercised with great care and caution and within the limits of the Constitutional power.

“As far as Article 142 of the Constitution is concerned, the exercise of this power has to be in consonance with the fundamental principles and objectives behind the 1996 Act and not in derogation or in suppression thereof,” Chief Justice Khanna noted.

In his dissenting opinion, Justice K. V. Viswanathan held that an arbitral award cannot be modified unless expressly permitted by the arbitration statute.