By – Malvika Nambiar

Abstract

Section 34 of the Arbitration and Conciliation Act is the most used provision by parties seeking to challenge and set aside arbitral awards. It is a recourse often taken by the losing parties to try for a favourable outcome. However, this power of courts to set aside is strictly restricted to a preliminary review based on the grounds set out within Section 34. Going into the merits of the case is strictly prohibited. There has been a growing debate on giving courts the power to modify, with many countries following suit. This article seeks to analyse whether a power to modify the arbitral award vests in the court through section 34.

Introduction

Arbitration does not stop at the stage of the arbitral award. The award must be enforced or can be challenged. Section 34 is a provision within the Arbitration Act that allows for recourse to setting aside an arbitral award based on limited grounds provided therein. However, in the recent past, there has been a rise in debate that this power to set aside also contains the power to modify the arbitral award challenged before the court. The majority in the case of Gayatri Balasamy v. ISG Novasoft Technologies Ltd. upheld the court’s limited power to modify an arbitral award. It stated that modification can be made to the extent of partial setting aside, typographical, computational or clerical errors, and modification of post-award interest and invoking powers under Article 142 in a limited manner. However, Justice Vishwanathan provided a strong dissent to this power to modify even in a limited manner. Dissecting his arguments can help us understand the validity of such a power to modify.

“The Lesser Power is subsumed within the Greater Power.”

Firstly, the majority holds that the lesser power to modify is subsumed within the greater power to set aside. ‘Recourse’ as per section 34 is interpreted to mean recourse to modify as well. This interpretation isolates a single word, ‘recourse’, and fails to give context to the entirety of the provision, which clearly lays down grounds for setting aside. The power to set aside falls within a different framework from the power to modify, and the act of combining the two can lead to inappropriate results that will give courts excessive power. Further, while there is a power to partially set aside irrelevant grounds within the award using the principles of severability, this power to partially set aside cannot be stretched to include the power to modify. Modification does not simply iron out the creases; it leads to virtual mutilation of the entire fabric.

In the case of McDermott International Inc. v. Burn Standard Co. Ltd., it was held that the court’s role under Section 34 is merely supervisory and only for specific grounds listed in the Act. Arbitration is meant to be a party-driven process, and the power to modify takes away the autonomy of parties who have mutually consented to the arbitration process and hands this power to the courts. Even though they might not go into the merits of the case, the power to modify is much more intrusive as compared to the power to set aside an award.

Sections 33 and 34(4) of the Arbitration Act exist as curative measures to allow the tribunals to remedy mistakes in the award through the power of the court to remand awards back to the tribunal for rectification. This helps tribunals correct typographical, computational or clerical errors, or even correct mistakes that could be used to challenge the validity of the award. However, this power to rectify is categorically given to the tribunal. Reasons like convenience or avoiding absurdity, or hardship to parties cannot be used by courts to take matters into their own hands. In this case, the majority and dissenting opinions converge on the fact that typographical errors can be remedied by the court since it does not require going into the merits. This position, while seemingly innocent, can open the floodgates to possible ‘review’ of awards by the courts.

Inherent powers of the Court

Another avenue for courts to examine the validity of arbitral awards is by invoking Section 151 of CPC, which provides courts with the inherent power to make a necessary order to meet the ends of justice. However, this is a procedural provision that cannot override substantive restrictions made under special legislation like the Arbitration Act, 1996. Provisions like Section 151 are important when the law is silent and there is a need for interpretation or filling up the gap for doing justice. But, Section 34 of the Arbitration Act is worded, leaving no room for excessive interpretation that overreaches legislative bounds. When all fails, Article 142 of the Constitution acts as a beacon of hope. To do ‘complete justice’, the Supreme Court is empowered with the power under Article 142. The power under this Section has been excessively used over the years, and any further use where not necessary can prove fatal.

Legislative Intent

The majority has taken interpretative liberty to read legislative intent to modify Section 34. However, upon examination, the legislature has had several opportunities to lay down the rule on modification of awards, but has skipped on doing so. The Arbitration Act, 1940, contained a provision on modification which was subsequently removed from the 1996 Act. Further, the Dr. T.K. Viswanathan Committee had made a recommendation for the Arbitration Act (Amendment) Bill, 2024, for the inclusion of modification powers, which was overlooked, indicative of a hesitation from the legislature to give statutory validity to modification. The power to modify needs to be introduced legislatively and not through judicial law-making.

Foreign Enforceability of amended award

Several countries, like Singapore, have statutorily introduced the power to modify or vary an award. (International Arbitration Act 1994) Through cases like CAI v. CAJ and CAK, the courts have held that the power to set aside necessarily includes the power to make an ancillary or consequential order to give effect to setting aside. However, it is important to note that countries like Singapore have included this power in their statutes. In the absence of such statutory power in India, the enforcement of amended awards in foreign jurisdictions will pose serious problems. An award, once amended by the courts, will become a court decree. While Article V of the New York Convention and Section 46 of the Arbitration Act recognise the supremacy of the domestic law of the country where such an award is made, the New York Convention does not provide for the enforcement of court decrees. If two versions of the arbitral award now exist, the repercussions can be severe on international and domestic enforceability.

Conclusion

The present status of the power of modification lies in limbo. The Gayatri Balasamy case provided the court with an opportunity to take a clear stance against the power of modification as per the current legislative framework. The legislature has had several opportunities to legislate on the modification of arbitral awards, but there is an obvious hesitation that might be keeping it from acting in the best interests of the public. A ‘limited’ power of modification is a subjective standard that leaves room for more judicial overreach in the future. What might begin as a modification of a typographical error might end up modifying the essence of the arbitral award and take away the little party autonomy that remains.

Arbitration in India is still a growing landscape that requires space, flexibility, and autonomy. Judicial interference is likely to stop this growth. There is a pattern of excessive reliance on precedents by judges, and this tendency to ‘copy-paste’ excerpts from previous judgements can lead to a lack of application of mind to each case. Arbitration is a private process that requires arbitrators to take a tailored approach to every case. Generalising the dispute as per judicial standards will lead to dilution of the sanctity of both the arbitration and the judicial process, leaving us in a state of uncertainty and flux.

About the Author

Malvika Nambiar is a final-year law student at O.P. Jindal Global University, pursuing BA LLB (Hons.). She is specifically interested in International Human Rights Law, Business, Dispute Resolution and their intersection.

Image Source: https://www.scobserver.in/journal/modification-of-arbitral-awards-a-practitioners-perspective/