Does Section 34 Arbitration Act include power to modify arbitral awards? Supreme Court Constitution Bench reserves verdict

A Constitution Bench of the Supreme Court on Wednesday reserved its judgment on the questions of whether the power of a court under Section 34 of the Arbitration and Conciliation Act includes the power to modify awards, and the severability of arbitral awards..A Constitution Bench of Chief Justice of India (CJI) Sanjiv Khanna and Justices BR Gavai, PV Sanjay Kumar, KV Viswanathan and Augustine George Masih heard a battery of senior lawyers in the case..Background.Section 34 of the Arbitration and Conciliation Act provides the mechanism to challenge an arbitral award in court.It sets out the grounds on which an award may be set aside, ensuring that the arbitration process remains fair and lawful.These grounds include instances where the award violates public policy, the arbitration agreement was invalid, the tribunal lacked jurisdiction or the party raising the challenge was not given proper notice of the arbitration proceedings.However, Section 34 does not allow for a review of the merits of the award. Courts have interpreted this provision narrowly, emphasising minimal judicial interference to uphold the principles of finality and efficiency in arbitration.Section 37 of the Act governs appeals against certain orders made under the Act. It allows parties to appeal against decisions such as orders refusing to refer disputes to arbitration, refusing to enforce an arbitral award or granting or refusing interim measures under Section 9.The scope of Section 37 is limited to specified categories of decisions and courts are generally cautious in their approach to avoid undermining the arbitral process. Like Section 34, it reflects the Act's objective of minimizing court interference while ensuring that justice is served in exceptional cases requiring judicial oversight.When the matter was initially heard in February 2024, a bench of Justices Dipankar Datta, KV Viswanathan and Sandeep Mehta had raised the following questions:Can the power to modify an award be exercised only when the award is severable, allowing a part to be altered?Does the power to set aside an award under section 34 include the authority to modify it, and if so, to what extent?Can the power to modify an award be inferred from the power to set it aside under section 34?Do previous judgments of the Supreme Court, such as Project Director NHAI v. M. Hakeem (2021), correctly interpret the law in this regard, especially in light of other decisions permitting modifications?The Court in February 2024 acknowledged that its own judgments have provided inconsistent guidance.While decisions like Project Director NHAI v. M. Hakeem and Larsen Air Conditioning v. Union of India (2023) had ruled against modification powers, other rulings such as Vedanta Ltd. v. Shenzden Shandong Nuclear Power Construction Co. and J.C. Budhraja v. Chairman, Orissa Mining Corporation Ltd. either upheld or permitted modifications to arbitral awards.In view of the same, the 2024 Bench directed that the matter be placed before the CJI to be decided by a larger Bench.Pursuant to that, the matter came to be heard by the Constitution Bench headed by CJI Khanna..Hearing and Arguments.During the hearings, Justice Kumar observed that the legislature may have excluded the power of modification knowingly."...Parliament consciously excluded powers of modification from Section 34 of Arbitration Act because it was aware that there will be problems in allowing modification of arbitral awards.".CJI Khanna observed that the power of procedural review is available to all courts and tribunals, and does not require any express provision."If remission contemplated under Section 34(4) is permitted in all scenarios, it will permit substantive review of arbitral award by the arbitral tribunal," said the CJI..Justice BR Gavai observed that if the legislature wanted a prohibition, it would have done so, as is done in Singapore."If it's a patent illegality then the best course is to set aside the award...why modify it?" Justice Gavai had asked. .Senior Advocate Arvind Datar submitted that the word "set aside" in Section 34 of Arbitration Act "cannot be given such a rigid meaning as to make it inflexible and put it in a binary of black or white.""...set aside must include 'partially set aside' and this inherent power is there in court. When patent injustice is there, court cannot say we will fold our hands.".Datar further contended that Section 34 is part of the inherent powers of the court, and that it is not taken away explicitly.He submitted that it would be illogical if the concept of severability applies to Section 34(2)(a)(iv) but doesn’t apply to the rest of Section 34 of the Act."...that there can be two kinds of patent illegalities – curable and not curable illegality. He submitted that if patent illegality goes to the root of the matter, the court must have power to cure the defect," said Datar..Senior Advocate Saurabh Kirpal, briefed by M/s Karanjawala & Co, argued against the power to modify under Section 34 of the Act. He submitted that the petitioners have argued on two limbs - one adding words to Section 34 to add powers of modification and second, reading powers of modification into the power of setting aside an award.Kirpal argued that the words in the statute clearly provide that there is no power to modify."It is not the case that without the powers of modification, the statute is unworkable. The Act has been workable and has worked itself for the last 30 years...It is well settled that courts do not add words to the statute unless the statute is completely untenable," he added..Senior Advocate Darius Khambata submitted that the object of the Arbitration Act is expeditious disposal of disputes and that the object of Section 34 is to save the award, and not to set it aside."If it is held that court has no power of modification, it will lead to restarting the entire process of arbitration once again, thereby undermining the very idea of arbitration...Section 34 itself contains power to modify the award and does not require addition of any words into the statute.".Senior Advocate Gourab Banerji submitted that in this case, awards are being considered in a wrong manner, by equating them with judgments. He stressed that party autonomy is fundamental to arbitration..Senior Advocate Gaurav Pachnanda submitted that the doctrine of merger does not apply to an order issued by the court exercising power and jurisdiction under Section 34 of the Act, since the nature of power of the superior forum is different from the nature of powers of the lower forum. "Power to set aside is only an annulment of the award and nothing else. The scope of Section 34 is not akin to normal appellate jurisdiction in any manner," he argued..Senior Advocate Shekhar Naphade stated that whenever the legislature wanted to put fetters on the powers of courts, it has done so."If not done in crystal clear terms, then it is not limited by any limiting factors. If any limiting factor is to be found in the judicial power of the court, then it is clearly stated..it will defeat the purpose for which the Act was enacted. If it is said that there is no power to modify at all, it will be incorrect. When Parliament enacts a law, it is aware of existing law," said Naphade..Senior Advocate Prashanto Chandra Sen submitted that partial setting aside of the award also amounts to modification..Senior Advocate Ritin Rai submitted that the intention of parties while submitting the dispute to Arbitration is expeditious and cost effective disposal of dispute. "Once an award is passed, except for Section 33 and Section 34(4) of the Act, the Tribunal becomes functus officio. Therefore, it is imperative to have power to modify the award. The power under Section 34(4) for remission of award is different from power of modification. Remission is only for curing defects in reasoning and not to change the decision," Rai contended..Solicitor General Tushar Mehta in rejoinder stated that the Arbitration Act is a complete Code."The omission of modification powers in the 1996 Act was a conscious departure, intended to streamline judicial intervention within a limited supervisory paradigm," stated the SG..[Read a live account of today's hearing]