Court’s power to modify an arbitral award | Judgement Summary

Severance of an award under Section 34

Severance means to separate or disjoin. In arbitration, it allows courts to remove invalid parts of an arbitral award under the grounds specified in Section 34, while upholding the valid portions. This power is explicitly recognised in the proviso to Section 34(2)(a)(iv). It states that Courts can set aside awards which address matters beyond the scope of the arbitration proceedings.  

All judges, including Justice Viswanathan, agreed that courts possess the power to “sever” portions of an arbitral award under Section 34 of the 1996 Act. They relied on the maxim “omne majus continet in se minus”: the greater power includes the lesser. In other words, they concluded that the authority to set aside an award entirely encompasses the power to set it aside in part. 

This power, the majority held, was inherent in and clarified by the provision to Section 34(2)(a)(iv). They cautioned that severance is permissible only when the valid and invalid parts are legally and practically separable and not intrinsically intertwined. Justice Viswanathan noted that the severance of an invalid part should not disturb or impact any other portion of the award. 

Power to partially set aside v modify 

The majority interpreted the power to “partially set aside” as nothing but the power to modify.  “…the limited and restricted power of severing an award implies a power of the court to vary or modify the award,” they wrote. This is where Justice Viswanathan diverged from the majority. 

The majority reasoned that this limited power would avoid significant hardships, escalating costs and unnecessary delays that arise if courts were permitted to only set aside an award “in toto”. This would force parties into a new round of arbitration. They stated that the silence of the 1996 Act should not be interpreted as a complete prohibition on such power:

“To deny courts the authority to modify an award—particularly when such a denial would impose significant hardships, escalate costs, and lead to unnecessary delays—would defeat the raison d’être of arbitration.”

Justice Viswanathan held that the power to partially set aside was not the same as the power to modify, as they “operate in different spheres and are not of the same genus”. He hinged his dissent on the distinction between severance and modification. According to him, “modification” means to “change, or vary, to qualify or reduce” and “severance” means “to separate” and “disjoin”. 

Moreover, Justice Viswanathan rejected the argument that not allowing courts to modify awards would cause hardships to the parties on two grounds:

1.  Section 43(4) contemplates the recommencement of proceedings and precludes the argument that denying the court’s power to modify an award will cause hardship to parties looking for a recourse. 
2. There is a “contractual ouster” in the judicial process when parties pick arbitration as their rights and limitations are governed by the Arbitration Act. 

According to him, the only powers available to the court were remittance or setting aside an award, not modification. 

Modification to rectify errors

The majority held that the court possesses the authority to rectify “computational, clerical, or typographical errors, as well as other manifest errors” in an arbitral award. This power, they said, was inherent, even if not explicitly granted by the legislature. The majority observed that this power was similar in character to Section 152 of the Code of Civil Procedure, 1908, which allows courts to correct clerical or arithmetic mistakes in judgments or orders arising from accidental slips or omissions. But the error must be “apparent on the face of the record” and not debatable. Further, it is different from an appellate power or a review on the merits. 

Justice Viswanathan explicitly stated that courts have no general power to “modify” an arbitral award, but agreed that a limited exception can be carved out to this rule for the rectification of certain errors.

Modification of interest pendente lite and post-award

The majority opinion held that courts cannot modify interest pendente lite. Pendente lite interest means interest granted during the arbitration proceedings. In such cases, the option is for the court to set it aside or remit it. 

The majority, however, noted that courts may modify post-award interest in certain cases if the arbitrator’s post-award interest rate appears unjustified, especially since arbitrators cannot anticipate future events or market shifts. Post-award interest under Section 31(7)(b) of the Arbitration and Conciliation Act, 1996, is the extra money added to the awarded amount if it is not paid on time. It applies from the date the award is given until the payment is actually made. This interest is meant to make up for the delay in payment and to encourage the losing party to pay without unnecessary delay.

The majority held that this limited power was available to both reduce and increase the rate of interest. It was also considered necessary to prevent setting aside an entire award or ordering a fresh arbitration merely due to an erroneous rate.

The majority acknowledged that Section 34 of the Indian Act draws from the 1985 UNCITRAL Model Law, which does not allow courts to modify an arbitral award. However, they highlighted that Section 31(7) of the Indian Act dealt with interest as a distinct provision drafted by the Indian legislature that was not found in the Model Law.

Justice Viswanathan rejected the majority’s view. He held that neither Section 34 nor the appellate framework under Section 37 permits courts to alter the interest granted by an arbitral tribunal. If a court finds the interest component flawed— omitted, excessive, inconsistent with the agreement, or low—it could only record reasons and remit the matter to the arbitral tribunal under Section 34(4) for correction. In his view, Section 34(4) offers the proper legal route to rectify such curable errors, rather than courts amending the award themselves.

He also emphasised that Section 34 mirrors the Model Law, which categorically excludes the power to modify awards, unlike Section 15 of the Arbitration Act, 1940. This omission, he said, was a deliberate legislative choice to reject any modification power.

Modification powers of the Supreme Court under Article 142

The majority held that Article 142 would also apply when it comes to modifying an award. The provision has been used by Courts in the past to modify awards. They held that it could be a possible source of limited modification power to bring disputes to an end efficiently, where necessary to achieve “complete justice.” 

However, the majority held that the power should be exercised with “great caution” and within narrowly defined limits as it could possibly undermine the Act’s core principle of minimal judicial intervention. It should not be used to alter an award on its merits. 

Justice Viswanathan firmly rejected the use of Article 142 to modify arbitral awards. He maintained that the Supreme Court cannot invoke the provision to alter awards passed by arbitrators, as doing so would bypass the clear statutory limits set by the Arbitration Act. He held that Article 142 cannot override substantive law and concluded that its use in this context would directly conflict with the Act’s framework. 

Enforcement of foreign awards

Those opposing the modification had argued that allowing such power would complicate the enforceability of the modified award in cases of foreign arbitrations, especially the New York Convention to which India is a signatory. 

The majority found this argument “misconceived”. CJI Khanna wrote that allowing limited modification under Section 34 does not conflict with the New York Convention. He reasoned that the Convention looks to the domestic law of the seat to determine if an award is binding, and since Indian law permits limited modification, such changes become part of that domestic framework. 

In dissent, Justice Viswanathan rejected the idea that domestic modifications would not impact international enforceability. He warned that permitting modification could complicate enforcement under the New York Convention. He stressed that the Indian Act, based on the Model Law, embraces minimal court intervention, which excludes modification. He pointed to jurisdictions like the UK, Singapore and New Zealand, which explicitly state that court-ordered variations form part of the arbitral award. In his view, India did not have such legal protection and therefore, any court modification could pose a “serious threat” to the enforcement of India-seated awards under the Convention. 

Modification in statutory arbitration

A key contention by those favouring the court’s modification powers was that it was essential in the context of statutory arbitrations such as those under the National Highways Authority Act, 1956, which make arbitrations compulsory in public law matters like land compensation. In particular, it was argued that courts must be allowed to modify the quantum of compensation awarded, as the Act involves statutory arbitration.

The majority and Justice Viswanathan rejected this argument. They held that Section 34 does not distinguish between statutory and consensual arbitrations and must be applied uniformly across arbitrations. The majority noted that they would refrain from expressing opinions on the validity of the NHAI Act as a challenge against it is already pending before the Court.

One of the issues referred to the Constitution Bench was to determine the correctness of several conflicting judgements which either endorsed or opposed the modification of an arbitral award. One of them was Project Director, NHAI v M. Hakeem (2021). In that Judgement, the top court was dealing with the enhancement of an award in a case involving land acquisitions by the NHAI. The Court in Hakeem had categorically held that an award cannot be modified under Section 34. Justice Viswanathan upheld this view in his dissenting opinion, holding that Hakeem was not per incuriam.

Suo moto powers of the Court to remit an award to the tribunal

The majority held that the power of a court to remit an award back to the tribunal under Section 34(4) had to be preceded by a request by a party. This request could be in writing or oral. But the Court had to record it and then only remit it. They held that the view that the power to remand an award to the tribunal vitiated the power of a court to modify an award as “misconceived” as the latter is a limited power. “They are distinct powers and are to be exercised differently,” they wrote. 

They also emphasised that the power to remit is “discretionary” in nature and “may” be granted by the court to preserve the award when it is identified that a harm can be cured by remittance. However, if the harm caused by the award is irreparable or against the interests of justice, an award may not be remitted. The tribunal’s powers, when an award is remitted, though confined, remain substantial. This was in contrast to the limited modification powers the courts had under Section 34.  

Justice Viswanathan held that the power to remit an award was a “safety valve” to offer the tribunal a chance to course correct before setting aside the award in whole. Therefore, courts could exercise this power suo moto if deemed necessary in the interest of the objectives of the Act. 

“The need for an application oral or in writing is really directory and does not militate against the exercise of Suo Moto powers in given cases by the Court,” he wrote.