4:1 majority verdict set to impact commercial disputes
New Delhi: In a verdict set to impact commercial disputes, the Supreme Court on Wednesday held courts can modify arbitral awards under the 1996 law on arbitration and conciliation under certain circumstances.
In a 4:1 majority verdict, Chief Justice Sanjiv Khanna, writing the 61-page verdict also on behalf of Justices BR Gavai, Sanjay Kumar and Augustine George Masih, held the larger power to set aside an arbitral award under the Arbitration and Conciliation Act, 1996, would also include the authority to modify it if certain conditions were met.
Justice KV Viswanthan, however, was the lone dissenting judge on the five-judge Constitution bench.
“To this extent, the doctrine of omne majus continet in se minus ‘the greater power includes the lesser’ applies squarely. The authority to set aside an arbitral award necessarily encompasses the power to set it aside in part, rather than in its entirety,” the verdict said. The court went on, “This interpretation is practical and pragmatic. It would be incongruous to hold that power to set aside would only mean power to set aside the award in its entirety and not in part. A contrary interpretation would not only be inconsistent with the statutory framework but may also result in valid determinations being unnecessarily nullified.”
The verdict answered the questions referred to it previously and held “court has a limited power under Sections 34 and 37 of the 1996 Act to modify the arbitral award”.
“This limited power may be exercised under the following circumstances: when the award is severable, by severing the “invalid” portion from the “valid” portion of the award, as held in Part II of our Analysis,” it added.
The CJI said the power could be used to correct “any clerical, computational or typographical errors which appear erroneous on the face of the record”.
The verdict pointed out the power could also modify the post arbitral award interest in some circumstances.
“Article 142 of the Constitution applies, albeit, the power must be exercised with great care and caution and within the limits of the constitutional power,” the verdict said.
Article 142 empowers the Supreme Court to pass any order for “doing complete justice” in any case.
The CJI said though the law does not expressly mention a power to modify arbitral awards, but such a power can be inferred in limited cases when the award is severable, allowing the “invalid” portion to be removed while preserving the “valid” part.
The verdict came on a reference made to it by a three-Judge Bench on February 20, 2024 in a case titled as Gayatri Balasamy v. ISG Novasoft Technologies Limited.
The respondents were represented by senior advocate Saurabh Kirpal and others on behalf of law firm Karanjawala & Company.
One of the key questions was whether the powers of the court under Sections 34 and 37 of the Arbitration and Conciliation Act will include the power to modify an arbitral award”.
Section 34 enumerates specific grounds on which an award can be set aside. On the question whether the power to set aside an award includes the power to partially set it aside, the bench answered in affirmative.
“We hold that the power conferred under the proviso to Section 34(2)(a)(iv) is clarificatory in nature. The authority to sever the ‘invalid’ portion of an arbitral award from the ‘valid’ portion, while remaining within the narrow confines of Section 34, is inherent in the court’s jurisdiction when setting aside an award,” it held.
The bench, however, added a caveat that not all awards could be severed or segregated into separate silos.
“Partial setting aside may not be feasible when the ‘valid’ and ‘invalid’ portions are legally and practically inseparable. In simpler words, the ‘valid’ and ‘invalid’ portions must not be inter-dependent or intrinsically intertwined. If they are, the award cannot be set aside in part,” it added.
