Court’s power to modify an arbitral award | Day 3: Five-judge bench reserves judgement

Respondents: Court has wide powers under the Act

Opening arguments for the day, Advocate Ashwin Shanker submitted that contrary to the petitioner’s arguments, Section 5 of the Arbitration Act was not an obstacle or limitation but a gateway to the Court’s powers in arbitration matters. Section 5 states that in cases governed by Part 1 of the Act, “no judicial authority shall intervene except where so provided in this Part.” This power, he said, allowed the Court to intervene in any manner once the gateway was opened. Therefore, the Court had the power to modify an award. According to him, there were three instances of this power: 

1. Non-discretionary aspects such as a contractual or statutory right
2. Instances of interest modification
3. Fixing calculation errors 

Advocate Amit George appeared next. He relied on National Highways Authority Of India v Irb Pathankot Amritsar Toll Road (2023) to argue that the ‘lakshman rekha’ (a strict boundary that must not be violated) for a court that is modifying an award is the merit of a case—as long as the court is not reopening merits, it can modify an award. He also highlighted that according to the ‘doctrine of useless formality’ (recognised in cases like MC Mehta v Union of India), if a dictum is unworkable, it can be set aside by the court and made workable. 

Other counsel on the respondents’ side reiterated that allowing courts the power to modify an award would be cost and time-efficient and therefore uphold the objectives of the Arbitration Act. 

Kirpal: Modification and setting aside are distinct concepts

Previously, Datar had suggested that adding a few words to Section 34 would make it “workable” by allowing the power to modify. In response, Kirpal stated that the addition or subtraction of words under a statute was a legislative exercise, not a judicial one. “Just because you want to have a power doesn’t mean you have it,” he said. 

He also argued that allowing modification would not necessarily expedite the arbitration process. Each counsel on the respondent side had recommended several ways to curb the court’s power. However, Kirpal pointed out that determining such instances would take a lot of time, negating the objective of the Act to ensure speedy dispute resolution. It would also lead to a situation where every party would approach the court on the claim of a “curable defect”.

Addressing the argument that allowing courts to modify an award would make arbitration more economical, Kirpal highlighted that the aim of the Act was never to provide a “cheap” resolution. Arbitration was expensive but time-efficient, and that objective needed to be protected. Kirpal noted that the objective of the Act was two-fold: (i) minimum judicial intervention; and (ii) expediency. 

Minimal interference, Kirpal continued, was key to expediency, noting that “at times, parties preferred an imperfect but expeditious award over a proper, but delayed one.”  

He also highlighted that finality and predictability were crucial to commerce. “Nothing is a larger anathema to the world of commerce than unpredictability. This constant flip-flop is a greater danger.” CJI Khanna responded that the argument may not be acceptable as the predictability of litigation was equally important to commerce. Summarising the respondent’s arguments, he questioned why it could not be accepted that courts would reliably apply the law in matters of modification, without going into merits. 

Respondents had relied on the doctrine of implied power to argue that the “larger power” to set aside an award included within its contours the “lesser power” to modify. They had also contended that the power to set aside the award fully subsumed the power to partially set aside the award. 

In response, Kirpal stated that setting aside an award and modification of an award were distinct concepts. “You cannot interpret the word ‘setting aside’ in any manner other than its natural meaning,” he said. Therefore, one could not be read into another. Further, he argued that modification was the “larger power” which also included the power to set aside, not the other way around. 

Banerji: Annulment is not the same as modification

Banerji submitted that when an award is passed, the tribunal becomes functus officio or ceases to exist and the award is final. The court had five ways to attack it: 

1. Confirm the award
2. Vary the award
3. Correct the award
4. Remit the award 
5. Annul or set aside the award. 

Remitting, he said, existed because courts recognised that the tribunal could err. The bench, however, pointed out that this argument could work against him because it could justify why courts could modify an award. 

Notably, Banerji contended that varying could not be equated with partially setting aside the award because they were two distinctive powers. 

He read out excerpts from Redfern & Hunter’s book on arbitration to buttress the point that finality was crucial in matters of arbitration and allowing courts to tinker with the award would violate this principle: 

“…One of the advantages of arbitration is that it is intended to result in the final determination of the dispute between the parties…. By choosing arbitration, the parties choose, in principle, finality. An arbitral award is not intended to be a mere proposal as to how the dispute might be resolved, nor is it intended to be the first step on a ladder of appeals through national courts.”

Variation, he said, was possible in appeals but not in cases of annulments. The minute the court began to vary an award under its annulment powers, it entered the domain of a civil appeal, which was unacceptable. 

He also attacked Khambata’s argument from yesterday, that if Parliament had intended to bar the power of modification, it would have laid down an express provision, as in the case of Singapore. Banerji highlighted that while Part 1 of the Indian Arbitration Act dealt with both domestic and international arbitration, Singapore had separate legislations for each. Banerji noted that the equivalent of Part 1 of the Indian legislation was Singapore’s statute for international arbitration and the provision prohibiting courts from modifying awards was found in Singapore’s domestic statute. 

Banerji submitted that he personally believed that the power to modify must exist with courts. He made sure to state that he was part of the Viswanathan Committee which recommended that courts be granted such power. However, the Act as it exists now, does not permit such a power. 

Pachnanda: A modified award cannot be enforced internationally

Allowing courts to modify an award, Pachananda said, would make it unenforceable internationally because there was no provision under the Act to recognise that the modified award would be merged with the original award. While the doctrine of merger applied to cases of severability and partial annulment, it did not apply to modifications as they stood in separate spheres. 

If an award was partially modified, he said, there was no way to ensure that foreign jurisdictions would recognise such a modification and enforce it. 

Mehta: Modification cannot be allowed by way of judicial pronouncement

In his rejoinder, Mehta first responded to Datar’s argument on the inherent powers of the civil court under Section 151 of the Code of Civil Procedure. He stated that since the Arbitration Act was a self-contained code, the CPC or any other code could not be invoked in any instances other than those provided for by the Act. Section 5 of the Act made this clear. 

In his response later, Datar replied that if the power to modify was read into the Act, then it would not breach the limits of judicial intervention prescribed under Section 5—the “extent” of the Court’s intervention under Section 34 would simply increase. 

Mehta went on to submit that wherever the Act has provided for variation of any kind, it has also provided the contours within which such a variation could be exercised. 

Yesterday, Khambata had questioned why the Court could not read the powers to modify into Section 34. Mehta responded that the real question was if the court had the power to do so via judicial pronouncement and the answer was in the negative. “The Court cannot produce a new jacket while ironing out the creases on the old one,” Mehta said, in response to Datar’s suggestion that modification could be done to “iron out the creases.”

Lastly, the Solicitor General argued that annulment or setting aside an award was not the same as a modification. The former annulled the award fully, while the latter changed it in a manner that is “mid-way”. The Court, he said, could not read one power into the other. To support his argument, he read the following excerpt from Bharat Aluminium Co. v Kaiser Aluminium Technical (2012):

“….the role of the judiciary is confined to ascertaining from the words that Parliament has approved as expressing its intention, what that intention was, and to giving effect to it. Where the meaning of the statutory words is plain and unambiguous it is not for the judges to invent fancied ambiguities as an excuse for failing to give effect to its plain meaning because they themselves consider that the consequences of doing so would be inexpedient, or even unjust or immoral….”

Additional Solicitor General Archana Pathak Dave argued briefly after. She reiterated many of the submissions made by Mehta and other counsel for the petitioners. 

Before the close, Khabmata stated that a modified award simply replaced the original one and therefore could be easily enforced. He also clarified that he recommended restricting the court’s power to modify only to “patent illegality” to avoid unnecessary conflict with the “grey area” of public policy in international arbitration cases. 

Responding to Pachnanda’s argument, Khambata stated that modified awards were enforceable internationally. The doctrine of merger, he said, was a flexible one which could be examined and applied on a case-to-case basis. He pointed out that the Court had previously modified awards in cases where one party was foreign and such an award had been enforceable. 

The bench reserved judgement in the case and finally rose 35 minutes after the usual closing time of 4pm. The decision is much awaited, for it could impact a number of cases where modification of an arbitral award is the central question.