Centre Proposes Power To Modify Arbitral Awards Be Left To Legislature
Centre Proposes Power To Modify Arbitral Awards Be Left To Legislature
The Centre has informed the Supreme Court that the critical legal issue regarding whether courts can modify arbitral awards under the Arbitration and Conciliation Act of 1996 should be left to the legislature, considering the evolving arbitration requirements of the country. The matter was being examined by a five-judge Constitution bench, consisting of Chief Justice Sanjiv Khanna and Justices B R Gavai, Sanjay Kumar, KV Viswanathan, and Augustine George Masih, who were deliberating on whether courts have the authority to modify arbitral awards under the 1996 Act.
The bench expressed that if the court concludes that setting aside arbitral awards does not include modification powers, the matter would be resolved, but if modification powers are upheld, guidelines would need to be framed. The bench scheduled further hearings for February 18 and requested input regarding foreign jurisdictional perspectives on modification powers in arbitration.
Solicitor General Tushar Mehta, representing the Centre, discussed the legal history of arbitration, foreign laws, and the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration. He stated that the 1996 law was formulated in line with the UNCITRAL model law.
Mehta argued that the absence of modification powers often leads to inefficient use of judicial resources, as courts are required to set aside entire awards when a minor correction would be sufficient. This, he suggested, contradicted the pro-arbitration approach, which emphasizes minimal judicial interference and swift dispute resolution. He proposed that a narrowly defined modification power, focused on curable defects, would align better with the objectives of arbitration law while ensuring justice.
Mehta emphasized that such a matter should be dealt with by the legislature, rather than by the judiciary. He further argued that while there could be a justification for including modification powers under Section 34 of the Act due to evolving arbitration requirements in India, it would be more appropriate for the legislature to address this issue.
Mehta also cautioned against the court creating guidelines for modifying arbitral awards, comparing it to the Vishaka case, which addressed sexual harassment at the workplace due to a legislative vacuum. He stressed that the present case was not a situation where the judiciary needed to step in to fill a legal gap, as the legislature was aware of the issue and had not provided such a power, even though it existed under previous laws. Additionally, he emphasized that Article 142 of the Constitution cannot be used to contravene or go beyond the statute.
Arbitration, under the 1996 law, is a mode of dispute resolution designed to minimize court interference with awards made by arbitral tribunals. Section 34 of the Act allows for the setting aside of an arbitral award on limited grounds, such as procedural irregularities, public policy violations, or lack of jurisdiction, while Section 37 governs appeals against orders related to arbitration, including those that refuse to set aside an award.
In January, a three-judge bench, led by the Chief Justice, referred this contentious issue to a larger bench. The court will first hear arguments from those seeking reconsideration of the ratio expressed in the Project Director, NHAI v. M Hakeem case, which states that courts can modify an award under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996. The court will then hear from those who argue that courts do not have the power to modify awards under these sections.
The bench emphasized the need for clarity on this important issue, noting that the matter arose from the case of Gayatri Balasamy v. ISG Novasoft Technologies Ltd. Traditionally, courts have interpreted Sections 34 and 37 narrowly, avoiding a review of the merits of arbitral awards to uphold the principles of finality and efficiency in arbitration.
