By Binny Yadav
The recent 4:1 judgment of the Supreme Court—declaring that appellate courts may exercise “limited power” to modify arbitral awards under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996—marks a defining moment in India’s arbitration landscape. The majority ruling seeks to prevent manifest injustice without dragging parties back into fresh arbitration. However, critics argue it may undermine the foundational ideals of arbitration: finality, party autonomy, and judicial minimalism.
Breaking with decades of established jurisprudence, the Court’s majority, led by Chief Justice Sanjiv Khanna and joined by Justices BR Gavai, Sanjay Kumar and AG Masih held that courts may now partially alter an arbitral award instead of being restricted to a binary choice of upholding or setting it aside. “The power to modify is not plenary, but must be exercised sparingly and judiciously to avoid miscarriage of justice,” the majority opined.
But the ruling drew a sharp dissent from Justice KV Viswanathan, who warned of dangerous overreach: “Permitting courts to modify arbitral awards risks transforming appellate forums into alternative arbitral tribunals—something the Act does not contemplate.”
DEPARTURE FROM LONG-HELD DOCTRINE
The case arose from a dispute between a public-sector enterprise and a private contractor. When the Madras High Court partially altered the arbitral award over alleged errors, the issue escalated to the Supreme Court, which had to decide whether such modifications fell within judicial authority.
Historically, courts were only permitted to set aside an arbitral award for reasons such as fraud, bias, or patent illegality—never to rewrite or recalibrate it. This verdict, however, shifts that boundary, stating that appellate courts can now fine-tune outcomes—though only in exceptional circumstances.
SLIPPERY SLOPE OR LEGAL EVOLUTION?
Critics warn this opens the floodgates. Finality has always been the bedrock of arbitration: once a tribunal issues a decision, parties move on. Now, with modification on the table, litigants may be incentivized to challenge even mildly unfavourable awards, hoping for partial judicial relief.
This risks transforming arbitration into a hybrid model: arbitrate first, litigate later. The likely consequence? An increase in Section 34 and 37 petitions, clogging appellate courts and prolonging disputes arbitration was supposed to swiftly settle.
GLOBAL OPTICS AND INSTITUTIONAL INTEGRITY
This verdict arrives just as India is striving to become a global arbitration hub, with institutions like the New Delhi International Arbitration Centre created to instil confidence in a court-light process. But for foreign investors and legal advisors, the prospect of post-award judicial tinkering introduces uncertainty and inconsistency—qualities that could push global players towards more predictable venues like Singapore or London.
A DISSENT THAT RESONATES
Justice Viswanathan’s lone dissent is rooted in foundational principles: arbitration is meant to be an alternative to courts, not a preliminary step before judicial redrafting. The very point of party-chosen arbitration is to avoid prolonged legal wrangling. “The integrity of arbitration lies not in legal perfection, but in a fast, fair, and final resolution,” he wrote.
REFORM OR REGRESSION?
While the majority decision may be well-intentioned, aiming to ensure equity and correct glaring errors, it runs the risk of rolling back India’s progress towards efficient and reliable arbitration. Without clearer legislative or constitutional guardrails, courts could start modifying awards with increasing frequency—turning arbitration into a judicial annex rather than an independent forum.
For now, this judgment serves as both a legal innovation and a cautionary tale: a step towards justice, or a stumble away from arbitration’s core promise.
—The writer is a New Delhi-based journalist, lawyer and trained mediator
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