Indian arbitration law has undergone significant change since the enactment of the Arbitration and Conciliation Act, 1996 ("the Act") as amended from time to time. The focus of this article is on Section 341 of the Act, which deals with setting aside the arbitral award. A relevant legal question is whether, under Section 34, courts have the judicial power to modify arbitral awards. Traditionally, courts have been seen as having no power to modify awards and being limited to either upholding, setting them aside, or even partially setting them aside. However, the evolving jurisprudence, driven by significant Supreme Court and High Court decisions, invites a nuanced reconsideration of the legislative intent.
INTRODUCTION
Arbitration is designed as a less formal, more efficient alternative to litigation, providing parties a streamlined dispute resolution mechanism that reduces procedural delays while providing greater autonomy over the proceedings. The Act is inspired by the UNCITRAL Model Law on International Commercial Arbitration, 1985, which seeks to minimize judicial interference in arbitral processes2, envisioning the same under section 53 of the Act. Section 34 embodies this legislative objective by providing narrow grounds for judicial intervention in an arbitral award, by outlining the conditions under which a party can seek to set aside the arbitral award by way of an application. However, this provision does not explicitly allow modification of an arbitral award. The absence of statutory language on the modification of an arbitral award has led to considerable debate in recent times.
STATUTORY POSITION
The Section 344 of the Act permits parties to make an application challenging an arbitral award only on limited grounds such as incapacity of a party, invalidity of the arbitration agreement, lack of proper notice, excess of jurisdiction, procedural irregularities, or conflict with the public policy of India. However, legislative intent in Section 34(2)(a)(iv) adopts a nuanced approach through a vital proviso:
"Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside."
This proviso ensures that the principle of severability is preserved. For example, if the portion of the award that is within the scope of the submissions to arbitration is distinct and unaffected by the part that is beyond the scope, then courts are obliged to uphold the valid portion. This proviso balances judicial powers with respect for arbitral autonomy, preventing the court from setting aside the entire award because it contains one separable defect. It underscores the legislative intent for upholding arbitral awards wherever possible, in alignment with the preamble of the Act. The Act does not specifically empower courts to modify an award, but the court may only set it aside, in whole or in part. In contrast, Section 335 provides a limited opportunity for parties to request the arbitral tribunal itself, only to the extent of correcting any clerical or computational errors or clarifying any specific parts of the arbitral award. This ensures that minor technical issues do not become grounds for unnecessary court intervention.
Together, Sections 33 and 34 restrict the role of courts to exceptional cases only.
HISTORICAL CONTEXT AND EARLY JURISPRUDENCE
In contrast to the above, under the Arbitration Act, 1940, Courts were explicitly empowered to modify an arbitral award as per Sections 15 and 16 of the Arbitration Act 1940. This provision of the erstwhile 1940 Act granted broader powers to the court, providing ample scope for judicial interference with the arbitral award. However, with the enactment of the 1996 Act, which is based on the UNCITRAL Model Law on International Commercial Arbitration, 1985, a complete departure from this model was undertaken by the legislature and the legislature intentionally omitted any provision akin to Sections 15 and 16 of the 1940 Act. This omission limits the court's interference and promotes finality to the arbitral award and party autonomy in arbitral proceedings. The Act thereby embodies a minimalist judicial role, allowing courts only to set aside awards on narrow grounds, and not to modify the arbitral award.
JUDICIAL INTERPRETATION
In McDermott International Incorporated v. Burn Standard Company Limited6 the Hon'ble Supreme Court held that the act limits the judicial intervention to only a supervisory role, permitting courts to interfere with arbitral awards only on narrow grounds such as fraud, bias, or violations of natural justice. It emphasized that courts are not empowered to correct errors made by arbitrators. At most, they may set aside the award, leaving parties free to reinitiate arbitration if they so choose. Further the Court held that interference may arise only when the award: (i) violates contractual terms rendering the dispute non-arbitrable; (ii) offends public policy; (iii) contravenes substantive Indian law; (iv) is perverse on evidence; (v) decides issues never in dispute; or (vi) contains internal contradictions. It also clarified that while the Act does not refer to "partial awards", such awards may still be valid if they conclusively resolve specific matters, functioning as final awards on those issues at an interim stage under Section 31(6)7 of the act.
In MMTC Ltd. Vs Vedanta Ltd.8 the Hon'ble Supreme Court held that courts do not sit in appeal over arbitral awards and may interfere only on limited grounds. Specifically, interference on merits is permissible only if the award is found to be in conflict with the public policy of India, as provided under Section 34(2)(b)(ii) of the Act. However, when one of the grounds is established, the Court clarified that its role is not to reassess the merits of the dispute or undertake a reappreciation of evidence. Interference is limited to only when the findings of the arbitrator are shown to be arbitrary, capricious, perverse, or such that they shock the conscience of the Court. If the arbitrator's view is a possible or plausible one based on the facts on record, the Court must not intervene.
DEFINITIVE RULING IN NHAI V. M. HAKEEM
The question of whether courts can modify arbitral awards was conclusively settled in National Highways Authority of India v. M. Hakeem9. In this case, the Hon'ble Supreme Court was asked to examine the correctness of a High Court's decision to modify compensation amounts awarded by an arbitral tribunal. The Court held that interpreting Section 34 of the Act to include the power to modify an arbitral award would be going beyond the boundaries set by the Legislature as the Parliament clearly did not intend to permit modification of arbitral awards.
THE CASE FOR REFORM: ARGUMENTS IN FAVOUR OF LIMITED MODIFICATION POWERS
Despite the legal clarity post-Hakeem, practitioners and academics argue that some scope for modification should exist. For instance, if only a small severable portion of the award is found invalid, then setting aside the entire award may lead to delays, increased costs, and redundancy.
Even in countries like England, under the English Arbitration Act, 1996, the court has the power to vary the award. Courts in Singapore under the Singapore Arbitration Act, 2001 have the power to vary the award. Keeping the above global scenario in mind a limited modification in specific areas should be allowed, as India may benefit from a similar approach.
CONCLUSION
Presently, Indian courts have no power under Section 34 of the Act to modify arbitral awards. The Supreme Court's decision in M. Hakeem conclusively affirms this interpretation, consistent with the Act's objective of minimal judicial interference. However, a blanket prohibition on modifications may not serve the cause of efficient dispute resolution in all cases. Allowing courts to make minor, severable corrections under exceptional circumstances could strike a better balance between finality and fairness.
The lack of a provision permitting courts to modify an award, even in cases where separable errors exist, had led to practical challenges in enforcement proceedings. These questions culminated before a Constitution Bench of five judges in Gayatri Balasamy v. ISG Novasoft Technologies Limited10, where the Hon'ble Supreme Court was poised to clarify whether courts may modify arbitral awards while exercising jurisdiction under Section 34 of the Act. The Apex Court on 30th April, 2025 vide a 4:1 majority has held that the courts have a limited power to modify an arbitral award under Section 34. The limited power as per the judgement of the Apex Court may be exercised under the circumstances (i) when the award is severable, by severing the "invalid" portion from the "valid" portion of the award; (ii) by correcting any clerical, computational or typographical errors which appear erroneous on the face of the record; (iii) post award interest may be modified in some circumstances; (iv) under Article 142 of the Constitution which applies, however, the power must be exercised with great care and caution within the limits of the constitutional power.
The verdict promises to be a watershed moment for arbitration law in India as of now settling a long-standing ambiguity and decisively shaping the contours of judicial involvement in arbitration.
Footnotes
1. Section 34- Application for setting aside arbitral award- The Arbitration and Conciliation Act, 1996
2. Article 5- Extent of court intervention - UNCITRAL Model Law on International Commercial Arbitration 1985
3. Section 5- Extent of judicial intervention
4. Supra
5. Section 33 - Correction and interpretation of award; additional award
6. (2006) 11 SCC 181
7. Section 34- Application for setting aside arbitral award.
8. (2019) 4 SCC 163
9. (2021) 9 SCC 1
10. SLP (C) Nos.15336-15337/2021
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