Explainer: Why the 'curing' of arbitral award under Article 142 is sheer judicial overreach

ON February 19, 2025, a five-judge Constitution Bench of the Supreme Court  reserved judgement in Gayatri Balasamy v. ISG Novasoft Technologies Ltd on  whether courts have the power to modify an arbitral award under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996. 

Section 34 of the Act provides the mechanism to set aside an arbitral award in the court. It lays down certain grounds such as the agreement being invalid, the tribunal lacking jurisdiction, or the agreement violating the public policy. However, the provision does not allow the court to go into the merits of the award. 

Section 37 of the Act provides for the appeals against certain orders made under the Act. It allows the aggrieved party to appeal with issues related to the enforcement of arbitral award or interim protection under Section 9 of the Arbitration Act. However, the scope of Section 37 is limited as it only provides a set of categories of decisions which can be appealed. Both of these Sections reflect the idea of the Act of minimum court intervention and expediting the dispute resolution process.

Legislative intent and schizophrenic court rulings

The 1996 Act, which repealed the erstwhile Indian Arbitration Act1940 drew inspiration from the UNCITRAL Model Law on International Commercial Arbitration, 1985 (‘Model Law’). Sections 15 and 16 of the 1940 Arbitration Act expressly  provided for the varying of an arbitral award; However, Section 34 of the 1996 Act, a replica of Model law, provided for setting aside an arbitral award as the absolute recourse. Article 34 of the model law never emphasised on changing or modifying the arbitral award by the court. This shows that Parliament did not intend to include the power to modify awards under Section 34 of the Act. 

In December 2019, the Supreme Court in Dyna Technologies Ltd. v, Crompton Greaves Ltd. clarified thatSection 34(4) was inserted to give the opportunity to an arbitral tribunal to rectify its mistakes which ultimately minimises the risk of setting aside an arbitral award. It empowers the tribunal to reopen a complete award and eliminate the grounds of setting aside. However, modification meant changing an existing award. 

The Courts, time and again, have emphasized the restrictive nature of Section 34. In Project Director NHAI v. M Hakeem (2021), the Supreme Court widely discussed the scheme of Section 34 and held that the court has no power to modify an arbitral award under the Act.It declared that Section 34 only provided limited grounds to challenge the award and did not permit them to ‘correct errors of arbitrators’, but only to quash and set it aside. 

In Larsen Air Conditioning and Refrigeration Company v. UOI (2023), the Court held that there is no power of court to modify an award under the Act and at best, it could set aside the award if preconditions under Section 34 were met. Recently, in SV Sundaram v. State of Karnataka (2024), the Supreme Court held that the power of the court to modify the award would be a travesty to the Act and would amount to “crossing the Lakshman Rekha”. Clearly, while enacting the 1996 Act, the legislature wanted to do away with such a provision.

However, contrary to the accepted rules, the Court on multiple occasions, has either modified the award or upheld the modification done by lower courts. In Tata Hydro-Electric v. UOI (2003), the Court modified the date of effect of the award. Similarly, in J.C. Budharaja v. Chairman, Orissa Mining Corporation Ltd. (2008), the total sum award to the claimant was reduced, while keeping the interest unchanged, on the grounds that the award was not vitiated by any illegality or legal misconduct. The rate of interest was modified by the Supreme Court in certain instances on the grounds of unreasonability or the consent terms.

In all these aforementioned cases, the court had duly given the reasons which compelled them to modify the awards. Nevertheless, the substantial question of law as to whether such powers could be exercised under Section 34 of the Act was not discussed.

Modification in other jurisdictions

In the international regime, pro-arbitration countries such as the United Kingdom, United States, Canada, Singapore and Australia  have particular provisions in domestic legislations to govern the modification of awards.

The English Arbitration Act, 1996 lays down three major grounds under which the award can be challenged namely on the question of substantive jurisdiction (Section 67); serious irregularity (Section 68) and Appeal on the point of law (Section 69). The power of court to set aside is available under all three Sections; however, the power to ‘vary’ the award is only with Sections 67(3) and 69(7) when the challenge is on substantive jurisdiction or appeal on the point of law.

The Australian Arbitration regime is governed by two different legislations which cover their domestic and international arbitration respectively. As the Act is in pari materia with the UNCITRAL model law, Section 34 of the Act provides for recourse by way of setting aside the award or opting for an appeal under Section 34-A. However, unlike the Model Law, Section 34-A(7) empowers the court to either confirm, vary remit or set aside the award. Hence, a literal interpretation of Section 34A would give the power to modify or vary the awards to the Australian courts.

The Canadian Commercial Arbitration Act,1985 mostly derives its provisions from the Model Law. Schedule I of the Act contains a commercial arbitration code which is the reproduction of model law and Section 34 of the Code uses the same expressions namely recourse to a court and setting aside the award. It does not grant any power to vary or remit the award.

As far as the U.S. is concerned, Section 11 of the Federal Arbitration Act,1925 allows the American courts in the district where the award is made, to make an order for modification on three major grounds: miscalculation of figures and mistakes in description, award on a non assigned matter and imperfect award in matter of form affecting the disputed merits. The clause is intended to promote justice between the parties.

Some jurisdictions have provided for the modification of awards since their inception, whereas others empowered their courts through statutory amendment to keep up with the Global Arbitration Regime.

How Article 142 has been invoked

The statute clearly does not provide the court with the powers to modify the award. Therefore, such a modification is done by the Supreme Court under Article 142 of the Constitution, by exercising its powers to do “complete justice”. Under Article 142, the Court, at its discretion, can pass any decree or order to do complete justice and make the same applicable across the country. The importance of these powers has been explained by using strongly worded phrases such as by calling it entirely of “different level and of a different quality, which cannot be limited or restricted by the provisions contained in the statutory law”, “not dependent or conditioned”, and “co-extensive in each case”. However, the expanse of this power has resulted in the court taking a cautious approach to using it and advising to exercise it sparingly and only in extraordinary cases.

The Court uses such powers in cases where the law is absent, there is no proper remedy, or intervention is needed in public interest. Similarly, the Court used Article 142 to modify the arbitral award. However, the very nature of the powers under Article 142 means that can be used on a case-to-case basis. Hence the judgements cannot be used as a precedent for future cases, and as a result, the basic question of whether an arbitral award can be modified by a court has remained unanswered.

An examination of the historical use of Article 142 tells that, in practice, it has undergone several changes. It was interpreted in such a manner that it gave the Court unfettered and absolute powers, by enlarging the scope and making it a carte blanche to ignore the existing statutory provisions and constitutional restrictions. The exercise of such powers has been considered not to be limited to the cases concerning fundamental rights.

However, this trend of unbridled powers of the Court came to an end with tSupreme Court Bar Association v. Union of India (1998) where it was held by the Court that:

“Article 142, even with the width of its amplitude, cannot be used to build a new edifice where none existed earlier, by ignoring express statutory provisions dealing with a subject and thereby to achieve something indirectly which cannot be achieved directly”

Therefore, the use of Article 142 is limited to work as a supplement, rather than a replacement of substantive law. It cannot be a tool to override the legislative intent and should be used to tackle lacunae, legislative loopholes, and procedural defects in furtherance of the constitutional mandate. In Vishakha (1997), Article 142 was used to fill in the legislative vacuum regarding sexual harassment of women in the workplace. However, there were some cases where such rules were not strictly followed by courts, resulting in the Supreme Court clarifying that these instances could not be followed as precedents.

Modification of award: Not justifiable under Article 142

The exercise of the powers under Article 142 for modification of arbitral award raises serious questions. 

Is it justified, even, to use Article 142 for modification of arbitral award given the nature and scope of powers under Article 142?

The very nature of arbitration is the settlement of disputes without the intervention of the court, a position amply solidified in Section 5 of the 1996 Act. This means that courts can intervene only for purposes like providing interim measures, taking evidence, appointment of arbitrators in case of failure to do so by the parties, extending the period of arbitral proceedings on request of parties, setting aside awards, and enforcement of award. All these instances are such that they do not require the Court to enter into the merits of the case. 

Further, there is no explicit provision to modify the award, and hence no ground for the court to intervene. Analysing this situation on the anvils of Supreme Court Bar Association (1998) shows that express statutory provisions cannot be ignored while exercising powers under Article 142. Thus, modification using extraordinary powers is not justified. If done then it will result in undermining the express provision of substantive law, limiting court intervention.

In Union Bank of India V. Rajat Infrastructure Pvt. Ltd. & Ors (2023), the Court was asked to extend time under the SARFAESI Rules for purchaser’s deposit. The Court dismissed the petition stating that its plenary powers under Article 142 were inherent and complementary to the powers conferred on the court by various statutes. They could be used to supplant the substantive law.

The other concern is regarding the nature and types of cases where Article 142 is mostly used or expected to be used. Most cases which require such broad exercise of powers are inherently related to public interest, or some imminent need. Some examples include the absence of guidelines on sexual harassment in the workplace and the legal process for the administration of passive euthanasia. 

Contrarily, arbitration is inherently a private matter, where the core principle is the honour of the agreement between the parties, upholding their contractual rights and obligations. It only concerns the commercial interests of the parties involved and respects their autonomy, without the court intervention, unless required by the statute. So, the exercise of the powers of that wide amplitude becomes questionable in such instances.

When it comes to commercial cases, the Supreme Court has limited its intervention through Article 142, to cases where there is an apparent lacuna in the law. This was observed in cases related to insolvency, where there was no provision for withdrawal of insolvency upon settlement of outstanding debt. 

When it comes to arbitration, there is a settled law, based on international practices, and there exists no lacuna regarding the powers to modify the award. The provisions of the Act are clear on the scope of intervention by the court and at the same time, to make sure that the grievance of the aggrieved party is not going unheard, it provides for the remission of the award back to the tribunal, wherein, an award can be saved from setting aside if the same qualifies for it.

In the cases where the Court has used powers under Article 142 for the modification of the award, such elements of public interest were not visible, hence not qualifying as a case where the use of powers to do ‘complete justice’ was suitable. The decision in MBL Infrastructures also helped in achieving the ultimate object of the law. And if we look at the judgments regarding the modification of the award, it cannot be called to be delivered in furtherance of the objective of substantive law, as such an intervention by the Court undermines the finality of the arbitral award and express provisions of the law.

Then, what next?

Fostering a pro-arbitration culture would require strict adherence to the legal framework, and judicial restraints in matters where court intervention is not permitted. However, regular instances of modification have made this position contentious. Sections 34 and 37 in the 1996 Act, gives limited grounds to the Court to intervene. The basic idea here is to uphold the finality of the award, without the courts getting into the merits of the award.

The comparison of Indian law with foreign jurisdiction shows that India has a strict adherence to the UNCITRAL Model Law, which also has no provision for modification. Many jurisdictions do not provide for such a power, and the finality of the award is maintained. However, based on internal laws, in some jurisdictions, the courts are vested with the power to ‘vary’ the award on certain grounds. The legal position in India cannot be called uncertain, as the legislative intent is writ visible with the fact that the provision to modify, which was present in the old law of 1940, was explicitly removed from the 1996 Act.

Despite these explicit legislative restraints, the Court has invoked Article 142 to modify awards - interventions that pose as judicial overreach. Extraordinary powers under Article 142 are meant to be used only for special purposes which showcase public interest, urgency, lacuna in law etc. and caution has to be taken to make sure that such an exercise of powers does not nullify the object of the substantive law.