The Arbitration and Conciliation Act of 1996 has been in the limelight on a number of recent occasions. In Cox and Kings vs SAP India, a constitution bench of the Supreme Court permitted adding third-party non-signatories in an arbitration. Subsequently, in the Central Organisation for Railway Electrification case, another constitution bench held that unilateral appointment of arbitrators is impermissible since it breaches the principle of equality.
Even on the policy front, there was a furore when the Centre sought to introduce a guideline that limited the resort to arbitration in large public contracts, much to the chagrin of the arbitration practitioners.
The Act became the focal point yet again with. the Supreme Court constituting a five-judge constitution bench to decide whether the courts have the power to modify arbitral awards under Section 34 of the Act. The reference to the constitution bench was made by a three-judge bench in the Gayatri Balaswamy vs ISG Novasoft case. After extensive hearing, the Supreme Court has reserved its verdict. When it comes, the answer to the question on the power to modify could reshape the foundations of India’s arbitration landscape.
At the outset, it is important to understand that the enforceable nature of awards serves as the fundamental principle of arbitration, ensuring both certainty and closure for the parties. The raison d’etre of arbitration is not only to resolve disputes swiftly, but also to minimise judicial intervention.
The Act allows for limited judicial intervention. If an award is considered to be violative of any grounds under Section 34, the courts are empowered to set it aside. The legal framework regarding the court’s authority to annul an award is firmly established. But the courts are prohibited from conducting an extensive examination of the merits of the award, and keep it limited to the grounds specified in Section 34.
The legal effect of an award being set aside is that the parties are at liberty to recommence arbitration proceedings. Interestingly, Section 34(4) also permits a temporary abeyance of the challenge proceedings, at the instance of one of the parties, to allow the arbitral tribunal to take such steps to eliminate the grounds for challenging the award.
The contours of Section 34(4) were recently considered by the Supreme Court in I-Pay Clearing Services vs ICICI Bank. It held that the power of remittance is discretionary, and it cannot be invoked to fill gaps/additional reasoning in an award, which does not render any finding on the issue. Similarly, Section 33 of the Act also provides recourse to have arithmetical or clerical errors rectified by the arbitral tribunal.
Prior to the Act’s introduction, Section 15 of the Arbitration Act of 1940 permitted modification of an award. Subsequently, in line with the UNCITRAL Model Law, the 1996 Act did not contain such an express permission. As per the 1996 Act, after the issuance of an arbitral award, the parties have three remedial avenues: a) initiate a challenge to the award under Section 34; b) petition the arbitral tribunal for rectifying any arithmetical or clerical errors in the award; c) request the court hearing the challenge to adjourn the hearing and allow the arbitral tribunal to take appropriate steps to eliminate the grounds of challenge.
It is, therefore, quite clear that the power to modify an award does not feature in the present scheme of the Act. Moreover, without the contours of the powers being expressly defined, any such exercise under Section 34 could overlap with the powers available to the arbitral tribunal under Sections 33 or 34(4). Under the garb of modification, if judges frequently change awards, it will undermine the very purpose of opting for arbitration. After an award is issued, it is expected to be conclusive and enforceable, constrained solely by the specific grounds for challenge delineated in Section 34.
This was precisely the essence of all the contrarian judgements rendered by the Supreme Court regarding the power of modification, which originally prompted the current constitutional reference. Interestingly, the Viswanathan Committee of 2024 has recommended an amendment to Section 34 to provide the power to modify under certain circumstances. But the recommendations have not found expression under the Act to date.
Legislative definitions, therefore, become crucial. The grounds for possible modification must be precisely specified and restricted to cases of trivial irregularities that are severable, and which do not require a reconsideration of the substantive merits. However, the guiding principle must be narrow interventionism and utmost respect for the arbitral process’s integrity.
As Justice Benjamin N Cardozo observed, “Finality is a good thing, but justice is better.” Although legislative changes might be necessary for allowing modifications, the existing Sections 33 and 34(4) effectively ensure justice is served while upholding the key tenets of arbitration.
(Views are personal)