Do Courts have the power to Modify Arbitral Awards?

On February 20, 2025, the Supreme Court of India (“Supreme Court“) reserved its judgement on whether the powers of a court under Section 34 and Section 37 of the Arbitration and Conciliation Act, 1996 (“Act“) extend to the modification of arbitral awards. The Supreme Court, while analysing precedents relating to these Sections, observed that some judgements have emphasized the lack of the courts’ powers to modify an arbitral award, and others have permitted modifications to the arbitral awards. This Article analyses the dual lines of reasoning followed in prior judgements and delves into the implications of receiving a definitive answer from the Supreme Court.

Section 34 of the Act provides for the setting aside of an arbitral award on the grounds of, inter alia: (i) the underlying arbitration agreement being invalid; (ii) the subject matter of the dispute being outside the scope of the matters that may be settled through arbitration under the Indian laws; and (iii) the arbitral award conflicting with the public policy of India. Section 37 of the Act provides for parties to the arbitration to appeal against an order made by the arbitral tribunal. Section 37(1)(c) specifically allows a court to hear an appeal against an order either setting aside or refusing to set aside an arbitral award under Section 34.

In the case of Project Director, NHAI v M Hakeem¹, the Supreme Court opined on the extent of the powers granted to a court under Section 34 of the Act. In this watershed judgement, the Supreme Court unequivocally held that it would be crossing the bounds of the powers granted under Section 34 if a court amended or modified an arbitral award, and further opined that the court’s power to set aside an arbitral award is very limited. The Supreme Court further provided emphasis on the intent of the legislation, reiterating the principle of minimal judicial intervention in arbitral proceedings. It was further observed that the provisions of Section 34 were based on the UNCITRAL model law, which advocates for arbitration proceedings to be subject to as little interference from the judicial system as possible. The Supreme Court held that the Act only specifies the directorial role of the courts, which is to examine arbitral awards in the limited scope provided under Section 34. The Supreme Court held that this limited scope was not to be interpreted to allow for the modification of arbitral awards. This outlook has also been mirrored in the MMTC Ltd. Ssangyong Engineering & Construction Ltd. v NHAI² judgement, which clarified that the power to set aside an arbitral award under Section 34 did not grant courts the power to the modify such arbitral award.

Conversely, in cases like Vedanta Limited v Shenzden Shandong Nuclear Power Construction Company Limited³, the Supreme Court’s ruling made modifications and alterations to the arbitral award. In this case, the Supreme Court criticized the ad hoc nature and lack of uniformity in the method of calculation of the quantum of dues by the arbitral tribunal, and decreed that changes to the arbitral award were made in the manner of such calculation.

The Supreme Court, taking note of this divergence in the interpretation of the Sections has now referred the matter to a larger bench to clarify the legal position on the court’s power to modify arbitral awards. The judgement is expected to primarily bring clarity on: (i) whether the powers of the courts under Section 34 and Section 37 include the power to modify an arbitral award; and (ii) where such power, if read into the relevant Sections, can be exercised. This ruling will settle the debate regarding the modification of arbitral awards, substantiating one of the two lines of reasoning that have been adopted by the courts so far.

The implications of this judgment would be far reaching. Permitting the modification of awards may lead to increased instances of litigation post the conclusion of the arbitral proceedings. In additional to the added judicial burden, such ruling may also completely undermine the finality of any order or award made by an arbitral tribunal. This enlargement of the scope of judicial intervention will go against the very intent of the legislation. It is also essential to consider that minor modifications made to awards, without disrupting the substance of the award itself, allows for the matter to be resolved on shortened timelines as opposed to the setting aside of the award in its entirety. The ruling of the Supreme Court is expected to balance these risks mentioned hereinabove against the benefit of allowing for minor modifications to arbitral awards on restricted grounds.

¹ AIR 2021 SC 3471.

² AIR 2019 SC 5041.

³ AIR 2018 SC 702.