The referral sought clarity on whether pertains to whether courts have the authority to modify an arbitral award under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996.

New Delhi (ABC Live): On January 23, 2024, a three-judge bench of the Supreme Court of India, led by Chief Justice Sanjiv Khanna and comprising Justices Sanjay Kumar and KV Viswanathan in case tiled GAYATRI BALASAMY Versus M/S ISG NOVASOFT TECHNOLOGIES LIMITED| SLP(C) No. 15336-15337/2021 referred a significant legal issue to a constitution bench of five judges. The issue pertains to whether courts have the authority to modify an arbitral award under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996.

The bench emphasized the necessity of examining the scope and contours of these provisions while considering the extent to which modification powers, if permissible, can be exercised.

Section 34 of the Act outlines the framework for setting aside an arbitral award, while Section 37 provides for instances where an appeal may be filed against orders related to arbitral disputes. In February 2024, another Supreme Court bench, comprising Justices Dipankar Datta, K.V. Viswanathan, and Sandeep Mehta, also referred an identical matter to a larger bench. The referral sought clarity on whether courts possess the power to modify arbitral awards under Sections 34 or 37 of the Act.

Justice Datta's bench observed that while some Supreme Court decisions have held that courts lack the authority to modify arbitral awards, other judgments have either modified such awards or upheld modifications made by lower courts. The five key questions framed by the Datta-led bench for consideration are:

1. Whether the powers of the Court under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996, include the power to modify an arbitral award?
2. If such power exists, can it only be exercised where the award is severable, allowing for partial modification?
3. Does the broader power to set aside an award under Section 34 include the power to modify it, and if so, to what extent?
4. Can the power to modify an award be inferred from the power to set aside an award under Section 34 of the Act?
5. Whether the judgment in Project Director, NHAI vs. M. Hakeem, followed in Larsen Air Conditioning and Refrigeration Company vs. Union of India and SV Samudram vs. State of Karnataka, lays down the correct law, considering other decisions such as Vedanta Limited vs. Shenzen Shandong Nuclear Power Construction Company Limited, Oriental Structural Engineers Pvt. Ltd. vs. State of Kerala, M.P. Power Generation Co. Ltd. vs. Ansaldo Energia Spa, and three-judge bench decisions in J.C. Budhraja vs. Chairman, Orissa Mining Corporation Ltd., Tata Hydroelectric Power Supply Co. Ltd. vs. Union of India, and Shakti Nath vs. Alpha Tiger Cyprus Investment No.3 Ltd., which have modified or accepted the modification of arbitral awards?

In the cases of M. Hakeem, Larsen Air Conditioning, and SV Samudram, the Supreme Court ruled that courts do not have the power to modify arbitral awards under Sections 34 or 37 of the Act. However, in other aforementioned cases, the Court has permitted modifications or upheld modified awards.

During the proceedings, counsel for the respondent argued that, since the reference was made by a three-judge bench, a five-judge bench should be constituted to conclusively settle the issue. The counsel highlighted that the instances where awards were not modified involved two-judge benches, while three-judge benches have permitted modifications under Article 142 of the Constitution. However, no three-judge bench has explicitly ruled on whether courts can exercise modification powers under Article 142.