NEW DELHI, Jan 24: The Supreme Court has referred to a five-judge Constitution bench the key legal issue of whether courts can modify arbitral awards under the provisions of the Arbitration and Conciliation Act, 1996.
In a significant move, a bench comprising Chief Justice Sanjiv Khanna and justices Sanjay Kumar and KV Viswanathan, on Thursday, emphasised the need for clarity on the contentious issue of whether courts can modify arbitral awards under Sections 34 and 37 of the 1996 law.
The matter arose from a case titled as Gayatri Balasamy v. ISG Novasoft Technologies Ltd. Section 34 of the Act provides for the setting aside of an arbitral award on limited grounds such as procedural irregularities, violation of public policy, or lack of jurisdiction.
The courts have traditionally interpreted this section narrowly, avoiding a review of the merits of the award to uphold arbitration’s principles of finality and efficiency.
Section 37 governs appeals against orders related to arbitration, including those refusing to set aside an award.
Like Section 34, it also aims to minimise judicial interference while addressing exceptional cases requiring oversight.
The legal ambiguity centred on whether these provisions allow courts the power to modify arbitral awards or if the courts’ role is strictly limited to upholding or setting them aside.
On Thursday, the CJI acknowledged the complexity of the issue and the broader implications for arbitration jurisprudence and referred the case to a five-judge Constitution bench after taking note of the submissions of senior advocate Saurabh Kirpal, assisted by law firm M/s Karanjawala & Co, on behalf of the respondents.
Kirpal submitted that it would be appropriate to refer the question to a five-judge bench to ensure that the issue is brought to a quietus since the reference was made by a three-judge bench itself earlier. Petitioner Gayatri Balasamy was represented by senior advocate Arvind Datar.
The detailed order is awaited.
In February 2024, a three-judge bench comprising Justices Dipankar Datta, KV Viswanathan, and Sandeep Mehta had framed few questions and referred the case to the CJI for consideration.
“Does the power to set aside an arbitral award under Section 34 include the authority to modify it,” one of the questions read.
If modification is permitted, what is its extent and under what circumstances, read the second question.
Arbitration is an alternate mode of dispute resolution under the 1996 law and it minimises the role of courts to interfere with the awards by the tribunals. (PTI)
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