A five-judge Constitution Bench of the Supreme Court of India ruled by a 4-1 majority that under some circumstances, only appellate courts have limited power to modify arbitral awards. This ruling ends the existing and long-standing confusion about the extent to which the judiciary could intervene, under the Arbitration and Conciliation Act, 1996.
A bench headed by Chief Justice Sanjiv Khanna and also comprising Justices BR Gavai, Sanjay Kumar, and AG Masih ruled that courts do have the power to modify arbitral awards. Still, such power has to be exercised with ‘great caution’ in particular circumstances. Such adjustments include correcting clerical or typographical errors, adjusting post-award interest on an award in fixed circumstances, or a severable award. The judgment also reiterated how Article 142 of the Constitution of India empowers the Supreme Court to modify awards to deliver ‘complete justice’ in a specific case.
Justice KV Viswanathan dissented from the majority on the crucial aspects, particularly the court’s powers regarding post-award interest. He further made the argument that Article 142 cannot be used by the Supreme Court to amend the post-award interest rates, nor should those be modified and left to the arbitral tribunal to reconsider.
The same three-judge bench had earlier this year made a reference while scrutinising petitions under Sections 34 and 37 of the Arbitration and Conciliation Act, which deal with setting aside of arbitral award or appeal against such order, as the case may be.
The facts of the original case were between ISG Novasoft Technologies Ltd, a company in the IT sector, and the employee who was suing in terms of the terms of an employment agreement regulated in terms of the 1996 Act. First, it went to a three-judge bench, which referred it for clarity of issues in arbitration matters to a larger 9 judge Constitution bench.
A detailed judgment is awaited.
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