Supreme Court Clarifies Limited Judicial Power to Modify Arbitral Awards: A Detailed Analysis
Introduction
Arbitration in India has grown as a preferred method for resolving disputes, especially in commercial and infrastructure matters. The Arbitration and Conciliation Act, 1996 governs arbitration proceedings in India and aims to reduce judicial interference. One key provision, Section 34, allows courts to set aside arbitral awards under limited circumstances. However, an important question lingered for years—can courts modify an arbitral award under this section?
On April 30, 2025, a five-judge Constitution Bench of the Supreme Court, headed by Chief Justice Sanjiv Khanna, finally addressed this critical issue. In a 4:1 majority, the Court held that modification of arbitral awards is permissible in limited circumstances, but not equivalent to appellate review. This ruling attempts to strike a balance between the need for judicial oversight and the core principle of minimal court interference in arbitration.
Background: What Is Section 34 of the Arbitration Act?
Section 34 of the Arbitration and Conciliation Act, 1996 allows a party to apply to set aside an arbitral award under specific grounds such as:
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The arbitration agreement was invalid.
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The party was not given proper notice.
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The award goes beyond the scope of the arbitration.
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The award is in conflict with public policy.
But the law does not mention whether a court can modify or alter the award instead of setting it aside. This created confusion among courts and litigants, with conflicting decisions over the years.
The Constitution Bench’s Verdict: Overview
The Constitution Bench addressed whether courts have the power to modify arbitral awards under Section 34. Here's what they ruled:
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Majority View (4 Judges - CJI Sanjiv Khanna, Justices B.R. Gavai, P.V. Sanjay Kumar, A.G. Masih):
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Modification is allowed in limited cases.
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Courts can modify post-award interest.
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Supreme Court can invoke Article 142 of the Constitution for modification.
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Rectification of clerical or computation errors is permitted.
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Dissenting View (Justice K.V. Viswanathan):
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No power of modification under Section 34.
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Only powers allowed are setting aside or remitting the award.
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Article 142 cannot be used to modify arbitral awards.
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Post-award interest cannot be altered by courts.
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Severance of Award Under Section 34: All Judges Agree
The term "severance" means splitting an invalid portion of an award from the valid portion. This allows courts to partially set aside the invalid part while retaining the valid parts.
All five judges, including Justice Viswanathan, agreed that:
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Courts have the power to sever parts of an award.
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This is explicitly provided under Section 34(2)(a)(iv).
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It helps maintain valid portions without starting a new arbitration.
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Severance is allowed only when the parts are legally and practically separable.
Power to Modify vs. Power to Partially Set Aside
This was the key point of divergence between the majority and the dissenting judge.
What the Majority Held:
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The ability to sever parts of an award implies a limited power to modify.
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This avoids the hardship of setting aside the entire award and forcing parties to re-arbitrate.
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Section 34’s silence on modification doesn't mean absolute prohibition.
They emphasized:
"Denying courts the authority to modify an award would defeat the purpose of arbitration by increasing costs and delays."
What Justice Viswanathan Said:
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Severance and modification are not the same.
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Severance means to remove, while modification means to change.
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Courts can only remit or set aside awards under Section 34—not modify them.
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Cited Section 43(4) to support the view that hardships due to setting aside are part of the arbitration system.
Rectifying Clerical and Typographical Errors
The majority clarified that courts have the power to correct manifest errors like:
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Clerical mistakes.
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Arithmetic or calculation errors.
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Typing or obvious factual mistakes.
They said this power is similar to Section 152 of the Civil Procedure Code, which allows correction of accidental errors in judgments.
However, this does not mean the court can review or alter the award’s merits.
Justice Viswanathan's View:
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Agreed that courts can rectify errors, but this is a narrow exception.
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Rejected the idea of a broader modification power.
Interest on Awards: Different Types, Different Rules
There are two types of interest in arbitral awards:
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Pendente Lite Interest – During the arbitration.
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Post-Award Interest – After the award is announced.
Majority’s View:
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Courts cannot modify pendente lite interest.
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Courts can modify post-award interest in limited cases, especially if:
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The arbitrator's rate is unjust.
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Market shifts make the rate unreasonable.
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It helps avoid setting aside the whole award.
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They emphasized that Section 31(7)(b) of the Arbitration Act allows post-award interest and that courts can tweak it when needed.
Justice Viswanathan's Dissent:
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Firmly rejected the court’s ability to change any interest amount.
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Stated that even if the interest rate is flawed, the proper remedy is to remit the matter under Section 34(4).
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Argued that India follows the UNCITRAL Model Law, which bars such modifications.
Use of Article 142 of the Constitution
Article 142 allows the Supreme Court to pass any order necessary to ensure complete justice.
Majority Opinion:
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Article 142 can be used to modify awards in rare cases.
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Should be exercised with great caution.
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Cannot be used to review the merits of an award.
Justice Viswanathan’s Objection:
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Strongly opposed using Article 142 to modify arbitral awards.
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Said it would violate the Arbitration Act.
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Article 142 cannot override the express limitations in the law.
Enforcement of Foreign Awards: A Divided View
A concern was raised that modifying arbitral awards could affect their enforceability in foreign countries, especially under the New York Convention.
Majority's Response:
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The concern is unfounded.
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The Convention respects the domestic law of the seat of arbitration.
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Since Indian law now permits limited modification, it's valid under the Convention.
Justice Viswanathan’s Warning:
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Disagreed strongly.
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Said modifications could threaten enforcement of Indian awards abroad.
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Unlike the UK or Singapore, India lacks provisions recognizing court-modified awards.
Statutory Arbitration: Special Case?
Statutory arbitrations, like those under the National Highways Act, are not by mutual consent but compulsory under law.
Some argued that courts should be allowed to modify awards (e.g., compensation in land acquisition cases) in these cases.
Verdict from Both Majority and Dissent:
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Section 34 does not differentiate between statutory and consensual arbitration.
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Uniform standards apply.
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No special modification power for statutory arbitrations.
Revisiting the NHAI v. M. Hakeem Case
In 2021, the Supreme Court ruled in Project Director, NHAI v. M. Hakeem that courts cannot modify arbitral awards under Section 34.
Current Judgment:
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Majority view indirectly departs from Hakeem, without expressly overruling it.
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Justice Viswanathan upheld Hakeem, calling it a correct and binding precedent.
Suo Moto Remand by Courts
Can courts on their own send an award back to the tribunal for correction?
Majority Opinion:
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Courts can remit an award under Section 34(4), but only if a party requests it.
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The request can be oral or written.
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This power is separate from the power to modify.
Justice Viswanathan's Take:
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Courts can suo moto remit the matter without a request.
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Called it a “safety valve” in the arbitration process.
Key Takeaways for Legal Practitioners and Businesses
Aspect | Majority View | Justice Viswanathan’s View |
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Modification Power | Permitted in limited cases | Not permitted |
Severance | Allowed | Allowed |
Rectifying Errors | Allowed (clerical/computational) | Allowed (only minor errors) |
Modify Post-Award Interest | Allowed | Not allowed |
Modify Pendente Lite Interest | Not allowed | Not allowed |
Article 142 | Can be used cautiously | Cannot be used for awards |
Foreign Awards | Modifications valid | Modifications threaten enforcement |
Statutory Arbitration | No special modification power | Same view |
Suo Moto Remand | Not allowed | Allowed |
Conclusion
This landmark judgment has clarified a long-debated issue in arbitration law. While the Supreme Court has now allowed limited modification of arbitral awards, it has simultaneously placed important checks and balances to avoid misuse of this power.
For legal professionals, this decision provides new tools to address genuine errors in arbitral awards without restarting arbitration. For businesses, it ensures faster dispute resolution and less cost escalation.
However, the dissenting opinion also acts as a cautionary note, reminding courts and litigants to respect the limited role of judiciary in arbitration matters.
As the Indian arbitration ecosystem matures, this ruling could pave the way for further clarity and confidence in the arbitration process—both domestically and internationally.