Supreme Court Clarifies: Courts Have Limited Power Under Sec 34/37 Arbitration Act to Modify Awards Only in Specific Circumstances; M. Hakeem Largely Upheld - 2025-05-03

Supreme Court Rules on Court's Power to Modify Arbitral Awards, Largely Upholds M. Hakeem Decision

New Delhi: In a significant ruling addressing a long-standing conflict in arbitration jurisprudence, a five-judge Constitution Bench of the Supreme Court of India, led by Chief Justice Sanjiv Khanna , has held that courts possess only a limited power to modify arbitral awards under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996. Justice K.V.Viswanathan delivered a separate, concurring judgment with key points of difference. The judgment largely affirms the principle laid down in Project Director NHAI vs. M. Hakeem (2021), which held that courts could only set aside awards, not modify them.

Case Overview and Judicial Divergence

The case, originating from Gayatri Balasamy vs. M/S. ISG Novasoft Technologies Limited and several related appeals, was referred to the larger bench due to conflicting precedents. While M. Hakeem and subsequent cases denied modification powers, several other benches of the Supreme Court had previously modified awards or upheld modifications made by lower courts, often citing the need to do complete justice and avoid protracted litigation.

The core question before the bench was whether the power to "set aside" an award under Section 34 inherently included the lesser power to "modify" it, especially concerning aspects like severability, interest calculation, or patent errors.

Arguments Presented

Pro-Modification Arguments: * Proponents argued that the power to set aside, being a larger power, should include the lesser power to modify ( omne majus continet in se minus ). * They contended that denying modification power would lead to unnecessary delays, costs, and hardship, forcing parties into fresh arbitration rounds even for minor corrections. * Reference was made to international practices where some jurisdictions (like UK, Singapore, Australia) statutorily allow modification. * Arguments were also raised regarding inherent court powers (Section 151 CPC), the broad meaning of "recourse" in Section 34, and the specific context of statutory arbitrations (like under the NHAI Act) requiring broader intervention for justice.

Anti-Modification Arguments: * Opponents stressed that the Arbitration Act, 1996, based on the UNCITRAL Model Law, deliberately omitted the power to modify (unlike the 1940 Act). * They argued that Section 34 provides exhaustive grounds only for setting aside, aiming for minimal judicial interference and respecting party autonomy. * Modification was argued to be distinct from setting aside (annulment) and risked courts delving into the merits, acting like an appellate body. * Concerns were raised about the enforceability of modified awards under the New York Convention, which recognizes arbitral awards, not court decrees modifying them. * The availability of Section 33 (correction by tribunal) and Section 34(4) (remand to tribunal) were highlighted as existing mechanisms to address certain defects without modification by the court.

Supreme Court's Analysis and Decision (Majority View - Khanna CJI)

The majority opinion, delivered by CJI Sanjiv Khanna , navigated the "longstanding conflict between equity and justice... and the fetters imposed by the court’s jurisdictional limits." The court concluded that while Section 34 does not grant broad modification powers, a limited power exists in specific circumstances:

Severability: Courts can set aside part of an award if the invalid portion (e.g., dealing with non-arbitrable matters) is clearly separable, legally and practically, from the valid portion. This power stems from the proviso to Section 34(2)(a)(iv) and the principle that the greater power (setting aside) includes the lesser (partial setting aside). > "We hold that the power conferred under the proviso to Section 34(2)(a)(iv) is clarificatory in nature. The authority to sever the “invalid” portion... while remaining within the narrow confines of Section 34, is inherent in the court’s jurisdiction..." (Para 33)

Correction of Errors: Courts can correct apparent clerical, computational, or typographical errors under their inherent powers to prevent injustice, provided it doesn't involve a merits review. > "Notwithstanding Section 33, we affirm that a court reviewing an award under Section 34 possesses the authority to rectify computational, clerical, or typographical errors, as well as other manifest errors, provided that such modification does not necessitate a merits-based evaluation." (Para 49)

Post-Award Interest: Courts retain the power to modify post-award interest under Section 31(7)(b) if facts justify it (e.g., unreasonable delay by a party) or grant it if omitted, as this relates to future circumstances not fully predictable by the tribunal. However, pendente lite interest modifications are generally limited to setting aside or remand. > "For the post award interest in terms of Section 31(7)(b), the courts will retain the power to modify the interest where the facts justify such modification... In the absence of grant of post award interest in the award, the court also possesses the power to grant post award interest." (Para 74)

Article 142 Power: The Supreme Court can use its power under Article 142 to modify an award to do "complete justice," but this must be exercised with great caution and not to rewrite the award on merits or contravene the Act's fundamental principles. > "While exercising power under Article 142, this Court must be conscious... the power should not be exercised where the effect... would be to rewrite the award or modify the award on merits. However, the power can be exercised where it is required and necessary to bring the litigation or dispute to an end." (Para 84)

Remand vs. Modification: The power to remand under Section 34(4) is distinct. Remand allows the tribunal to cure defects identified by the court. Modification by the court is only permissible when there is no uncertainty or doubt, like "a sculptor working with a chisel, needing precision and exactitude." If doubt exists, remand is the appropriate course. The court also clarified that the request for remand under Section 34(4) need not be in writing, partially differing from Kinnari Mullick .

The Court rejected arguments for expansive modification powers based on hardship, inherent powers beyond the specific exceptions, or the context of statutory arbitration under the NHAI Act. It affirmed that the M. Hakeem judgment largely laid down the correct law.

Justice K.V.Viswanathan 's Separate Opinion

Justice Viswanathan , while concurring on the limited scope of Section 34 and upholding M. Hakeem , differed on certain key aspects:

No Modification Power: Held that courts have no power to modify awards under Section 34/37, maintaining a strict conceptual distinction between modification and severance.

Correction of Errors: Agreed that computational, clerical, typographical, or similar errors can be corrected by the court, but framed this under the actus curiae neminem gravabit principle (an act of the court shall prejudice no one), not as modification power.

Interest: Disagreed that courts can modify interest; held that the only recourse is setting aside or remand under Section 34(4).

Article 142: Disagreed with using Article 142 to modify awards, stating it would contravene substantive statutory provisions.

Section 34(4): Concurred that the request need not be written and added that courts can exercise this power suo motu in appropriate cases.

Severability: Agreed that severability is permissible if parts are distinct and independent.

Final Decision and Implications

The Constitution Bench answered the reference by stating that the court's power under Sections 34 and 37 to modify an arbitral award is limited to the specific circumstances outlined by the majority (severability, correction of specified errors, potential modification of post-award interest, and cautious use of Article 142 by the Supreme Court). The judgment in M. Hakeem was largely upheld, reinforcing the principle of minimal judicial intervention in arbitral awards. The ruling provides much-needed clarity on the scope of judicial review, balancing the finality of arbitration with the need for courts to correct certain limited types of errors without forcing parties back into lengthy proceedings unnecessarily.