Introduction:
The power of courts to modify arbitral awards under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996 (“the Act”), has consistently been a matter of conflicting interpretation, with divergent views expressed by various High Courts and even the Supreme Court of India.
The scope of interference with an arbitral award is narrowly defined, with Section 34 providing limited grounds for setting aside an award. However, courts have recently been confronted with situations where complete annulment of an award may not be warranted, but minor errors or unjust outcomes still demand redress. This has led to a gradual evolution in judicial reasoning, allowing for limited modifications in certain cases, raising critical questions about the finality of arbitral awards and the boundaries of judicial intervention.
Judicial interference in arbitration has long been a subject of debate in India. The Hon'ble Supreme Court of India, in the case of S.V. Samudharam v. State of Karnataka1, held that the powers of the court under Section 34 of the Act, are purely supervisory in nature and cannot modify the arbitral award. It was held that the Court under Section 37 of the Act, where there are only three powers available to the Court, which includes confirming the award of the arbitrator, setting aside the award as modified under Section 34 and rejecting the application under Section 34 and 37 of the Act. The court cannot exercise appellate powers and, consequently, is not empowered to modify arbitral awards.
The Hon'ble Supreme Court in the case S.V. Samudharam (supra) has followed the principle laid down in the judgement Project Director, National Highways No. 45 E and 220, National Highways Authority of India v. M. Hakeem and Another2, wherein it was categorically held that courts are not permitted to modify arbitral awards.
However, on the contrary in the case of M/S Oriental Structural Engineers Private Limited vs State of Kerala3, the Court intervened to modify the rate of interest even though the arbitral award was within the scope of the contract. This illustrates the inconsistency in judicial reasoning, as there are several judgments taking divergent views on the extent of judicial interference.
The Act, which is based on the UNCITRAL Model Law, reflects the limited scope of judicial intervention. Section 34 of the Act, adopted almost verbatim from the UNCITRAL Model, does not explicitly provide for or warrant judicial interference, but merely enumerates the specific grounds upon which an arbitral award may be set aside. Further, the interpretation of each clause of Section 34 which provides the grounds for interference has evolved over time, resulting in a dynamic and, at times, divergent judicial approach to the extent of interference permissible under the Act.
Recent Supreme Court Ruling:
Recently, a majority decision of a Constitution bench of the Hon'ble Supreme Court in Gayatri Balasamy v. ISG Novasoft Technologies Limited4, held that the courts can modify an arbitral award under certain circumstances under Section 34 as well as Section 37 of the Act.
The Bench, which has favoured the modification of arbitral awards, has observed that the principle of omne majus continet in se minus, “the greater contains the less”, is applicable. The rationale was that the power to set aside an arbitral award necessarily encompasses the lesser power to modify it.
It was further observed that the court is empowered to sever the “invalid” portion of an arbitral award from its “valid” portion and that this lies within the inherent jurisdiction of the court. However, it was also pointed out that partial setting aside may not be feasible where the valid and invalid portions are so legally and practically intertwined that they cannot be separated.
Importance of Reasoned Awards and Section 34(4) of the Act:
The majority observed that a reasoned award, must satisfy three essential criteria; proper, intelligible and adequate5. Section 34(4) plays a vital role here, as it empowers the court to give the arbitral tribunal a chance to remedy shortcomings in the award's reasoning before enforcement is refused. This provision is particularly relevant where the tribunal has either failed to explain its conclusions or left significant gaps in its reasoning, provided these defects are capable of being rectified. The aim is to correct fixable errors within arbitration, allowing limited modification of awards and preventing the delays and expense of starting the process all over again.
Further, the Court has also observed that the power to modify the arbitral award under Section 34 of the Act would not render the regime under the New York Convention and the enforcement of foreign awards affected.
Finally, the Court narrated the usage of the powers vested under Article 142 of the Constitution of India whereunder the Court cannot rewrite or alter an arbitral award on its merits. However, it may appropriately be invoked where doing so is essential to finally resolve the dispute and bring the litigation to a close, and saving both time and costs for the parties.
Ultimately, the Courts have the limited power under Sections 34 and 37 of the Act, to modify the arbitral award under certain circumstances; when it is severable, by separating the ‘invalid' portion from the ‘valid' portion. It may also be corrected to address clerical, computational, or typographical errors apparent on the face of the record, and post-award interest may be modified in certain circumstances.
Dissenting Opinion:
On the contrary, the opinion of a Single Judge, observed that the maxim omne majus continet in se minus, is not applicable in the case of the powers vested under Section 34 of the Act. It was pointed out pointed out that appellate powers, which are entirely different from the powers under Section 34 of the Act, operate distinctly and belong to a different genus. The application of Section 34 must be limited to setting aside the award and must not vary at any point, as doing so would render the purpose of the arbitral proceedings futile.
It was further pointed out in the dissenting opinion that the court under Section 34 and the courts hearing appeals thereafter have the power to “sever” parts of the award in exercise of the powers of setting aside awards under Section 34. The Court further observed that, before severing any portion of an award, a Section 34 court must undertake a thorough examination to determine whether the “good” part of the award can be distinctly identified both in terms of its liability and quantum without any correlation or dependence on the “bad” portion sought to be set aside. However, this was not same as modification of the arbitral award.
International Perspective:
Several jurisdictions following the UNCITRAL Model Law either fully or partially recognise limited judicial powers to modify or vary arbitral awards to avoid unnecessary re-arbitration. For instance, Kenya under Section 39, Arbitration Act empowers courts to confirm, vary or remit awards; Singapore, International Arbitration Act under Section 24(b) and Arbitration Act, 2001, Sections 47 and 49 allows remission, confirmation or variation; and Australia, International Arbitration Act, Section 34(4); domestic Act, Section 34A permits suspension, setting aside or limited appeals.
The U.S. Federal Arbitration Act, 1925 under Sections 10 and 11 provides for vacating or modifying awards in cases of fraud, corruption or misconduct, while the U.K. Arbitration Act, 1996 under Sections 68 and 69 of the said Arbitration Act, 1996 enables courts to remit or vary awards in cases of defined serious irregularities. The consistent rationale across these jurisdictions is to prevent re-arbitration where defects are minor, ensure cost-efficiency, and promote speedy resolution which is a perspective also recognised by the Hon'ble Supreme Court of India while interpreting the powers of modification of arbitral awards under Section 34 and Section 37 of the Act.
Conclusion:
The fundamental objective of the Act is to secure the speedy and efficient resolution of disputes between parties. Permitting courts to modify arbitral awards, rather than remitting them or setting them aside entirely, furthers this legislative intent by avoiding unnecessary duplication of proceedings. If every defect in an award were to mandate re-arbitration, the process would become not only cumbersome and time consuming but could also end up being more prolonged than litigation. Such an outcome would directly undermine the very rationale behind the enactment of the Act. The Indian courts, while dealing with cases requiring modification of arbitral awards, may lay down defined ground rules, as reflected in the Supreme Court's ruling, to ensure that judicial interference remains restricted to specified circumstances. At the same time, the courts must safeguard the sanctity of the arbitral process, treating modification strictly as an exception. Every instance of modification must therefore be accompanied by clear and detailed reasoning, demonstrating why such interference was warranted at that particular stage.
The evolving stance on modifying arbitral awards reflects a pragmatic shift towards efficiency and fairness in dispute resolution. While the foundational principle of minimal court interference remains intact, recognising a limited power of modification under Sections 34 and 37 ensures that curable defects can be addressed without undermining the autonomy of arbitration. This approach aligns India with progressive international practices, reducing unnecessary delays, avoiding repetitive proceedings, and reinforcing confidence in arbitration as a viable alternative to litigation. The approach of the Courts must ultimately navigate and maintain the sanctity of the arbitration proceedings.
Footnotes
1. (2024) 3 SCC 623
2. (2021) 9 SCC 1
3. (2021) 6 SCC 150
4. (2025) 7 SCC 1
5. Upholding the finding in Dyna Technologies Private Limited v. Crompton Greaves Limited; (2019) 20 SCC 1.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
