Section 34 of the Arbitration and Conciliation Act, 1996

Table of Contents

34. Application for setting aside arbitral award.- (1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3). 

(2) An arbitral award may be set aside by the Court only if—  

(a) the party making the application [establishes on the basis of the record of the arbitral tribunal that]— 

(i) a party was under some incapacity, or 

(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or 

(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or 

(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or 

(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or 

(b) the Court finds that— 

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or 

(ii) the arbitral award is in conflict with the public policy of India.  

Explanation 1.—For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,— 

(i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or 

(ii) it is in contravention with the fundamental policy of Indian law; or 

(iii) it is in conflict with the most basic notions of morality or justice. 

 

Explanation 2.—For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.  

(2A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award: 

Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.

(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal: Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter. 

(4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award. 

(5) An application under this section shall be filed by a party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement. 

(6) An application under this section shall be disposed of expeditiously, and in any event, within a period of one year from the date on which the notice referred to in sub-section (5) is served upon the other party.

Introduction

Section 34(1) of the Arbitration and Conciliation Act 1996 (“1996 Act”) permits parties to file an application for setting aside of an arbitral award under limited grounds enumerated in Sections 34(2) and (2A) of the Act. Moreover, Section 34(3) provides for a limitation period of 3 months for instituting an application under this section, extendable for a further period of 30 days, provided ‘sufficient cause’ is shown by the party for the delay in preferring the application. The provision, through Section 34(4), also permits the Court to remit the application back to the arbitral tribunal, in order to provide the tribunal with an opportunity to take such actions that would eliminate the grounds for setting aside the award. Section 34(5) lays down the notice requirements for the parties and Section 34(6) states that an application under the section should be disposed of expeditiously, within a period of one year from the date on which the notice is served to the other party. 

Hence, the scheme of the provision is largely clear, wherein it promotes minimal judicial interference in arbitral awards, and advocates for a speedy institution and disposal of such cases even where judicial interference is permissible. However, there still exist a few ambiguities regarding provisions such as that of modification of awards and the partial setting aside of awards. Moreover, even terms that today appear to be definite and unambiguous, such as ‘public policy’ under Section 34(2) and ‘patent illegality’ under Section 34(2A), have reached a stage of such ample clarity after multiple judicial interpretations and legislative changes.

Succinctly expositing the legal position on Section 34, this article explores the history and background of the provision, to lay out its judicial evolution. Thereafter, the landmark cases on each specific sub-section would be elucidated upon. Lastly, the prevailing controversies and ambiguities are examined in order to provide a holistic overview of the provision and its application going forward.

History and Background of Section 34

Section 30 of the Arbitration Act, 19401 (“1940 Act”) first dealt with the setting aside of arbitral awards. It laid down very broad and wide conditions under which setting aside of arbitral awards was permitted, such as misconduct by the arbitrator, an award being made after the court has superseded the arbitration, or if the award is improperly procured or is otherwise invalid. Moreover, Sections 15 and 16 of the 1940 Act specifically dealt with the power of the court to modify and remit arbitral awards, respectively. 

Therefore, under the 1940 Act, the Court had wide powers to interfere with an arbitral award, which defeated the objective of arbitration being a speedy and efficient process of dispute-resolution. Under the 1940 Act, arbitral awards were often set aside if they were inconsistent with the terms of the contract. Moreover, grounds for setting aside an arbitral award were extremely broad, including failure to consider material facts or evidence, which led to the excessive and unnecessary judicial interference . 

Hence, there was a need to restrict the grounds for judicial interference and ensure a speedier resolution of disputes. With this objective in mind, the Arbitration and Conciliation Act, 1996 was passed. It introduced, inter alia, Section 34, which laid down very limited and specific circumstances under which an arbitral award could be set aside. A notable deletion was a parallel provision on modification of arbitral awards. It is worth considering that the Law Commission, in its Report in 1978, had termed the provision on modification of awards “a salutary one”, and had recommended no changes to it.2 The 1996 Act also severely restricted the provisions regarding remission of awards under Section 34(4). The1978 Law Commission Report, in the context of remissions, had stated that “care has to be taken that scope is not created for unnecessary interference by the court”. 

However, despite the attempt to reduce judicial interference through the 1996 Act, a major ambiguity that remained was in relation to the interpretation of the term ‘public policy’ as mentioned under Section 34(2)(b). Judicial interpretation of this term was largely inconsistent, as has been elucidated below. This resulted in courts oscillating between  promoting a narrow and extremely wide definition to the term, necessitating legislative intervention to fill this vacuum. 

Keeping this in mind, the Arbitration and Conciliation (Amendment) Act, 20153 (“2015 Amendment”), added two Explanations to Section 34(2)(b). These explanations clarified that ‘public policy’ as used in the section, must be narrowly interpreted and the merits of the dispute must not be delved into while examining challenges to an arbitral award. Moreover, Section 34(2A) was added to the Act, which stated that the ground of ‘patent illegality’ could not be raised for international commercial arbitrations. However, an erroneous application of law or appreciation of evidence, could not give rise to ‘patent illegality’. 

Lastly, the 2015 Amendment inserted two new sub-sections into Section 34. Section 34(5) laid down the notice requirements, whereas Section 34(6) emphasized on the requirement of expeditious disposal of such applications, within a maximum period of one year from when the notice is served. 

Judicial Interpretation of the Provisions of Section 34

Section 34(2): Interpreting the Public Policy/Patent Illegality Ground 

The 2015 Amendment has finally settled the position on the narrow interpretation that must be accorded to the term ‘public policy’ under Section 34(2)(b)(ii) of the 1996 Act. The same has been affirmed by subsequent judicial decisions such as Ssangyong Engineering v. NHAI.4 However, before this position was settled, a cleavage of judicial opinions existed, with some judgements construing the scope of challenge as wide while other judgements treating the remit of challenge to be narrow. 

One of the first cases that interpreted the term ‘public policy’ was Renusagar Power Co. Ltd. v. General Electric Co., (Renusagar).5 Public policy was interpreted in a narrow manner by the Court, and an award was held to be in conflict with it only if it was contrary to: (i) the fundamental policy of Indian law; or (ii) the interests of India; or (iii) justice or morality. 

However, a few years later, the Apex Court re-interpreted ‘public policy’ in a wider manner in the case of Oil and Natural Gas Corporation Ltd. v. Saw Pipes Ltd.,.6 It held that public policy concerned aspects of ‘public good’ or ‘public interest’, and an award patently in violation of statutory provisions, cannot be in ‘public interest’. Hence, in defining public policy, the Court added the additional criterion of ‘patent illegality’ to the three parameters that had been previously laid down in Renusagar.7 However, it qualified this criterion by adding that the ‘patent illegality’ must go to the root of the matter for an award to be set aside. Moreover, the violation of ‘public policy’ had to be so unfair and unreasonable that it should shock the conscience of the court. Therefore, an arbitral award could be set aside on the grounds of public policy if it was contrary to: (i) the fundamental policy of Indian law; or (ii) the interests of India; or (iii) justice or morality; or (iv) in addition, if it is patently illegal. 

The Court, in the aforementioned string of cases, has held the ‘fundamental policy of Indian law’ to be one of the constituents of ‘public policy’. However, there still exists a lack of clarity on the meaning of ‘fundamental policy of Indian law’. The same was sought to be dispelled by the Supreme Court in ONGC Ltd. v. Western Geco International Ltd.8  It held that the violation of fundamental policy, inter alia, required: (i) failure to adopt a ‘judicial approach’ which involves the application of judicial mind by the authority and bodies, (ii) non-adherence to the principles of natural justice, and (iii) a decision which is perverse or so irrational that no reasonable person would have arrived at the same. The ‘perversity’ or ‘irrationality’ of a decision is to be tested on the touchstone of Wednesbury’s principle of reasonableness. Hence, the Court held that if the arbitrators failed to make an inference that should have been made or made a prima facie wrong inference, then the arbitral award could be set aside by the Court. The Court thus modified the quantum of damages awarded to ONGC. 

The definition of ‘public policy’ as established in Saw Pipes, was affirmed by the Court in Associate Builders v. DDA.9 It further elaborated upon the various heads of the public policy ground, and held the following:

(i) “Fundamental Policy of Indian law”- relying primarily on Western GECO, the Court included factors such as taking a judicial approach, which is antithetic to an arbitrary approach; adhering to principles of natural justice; and, ensuring that the decision of arbitrators is not so perverse and irrational that no reasonable person would come to the same conclusion.

Moreover, the Court held that an arbitrator is the sole judge with respect to the quality and quantity of facts. Furthermore, it stated that the court under Section 34 does not act as a court of appeal and consequently “errors of fact” cannot be corrected unless the approach of the arbitrator is arbitrary or capricious.

(ii) “Interest of India”- it was interpreted to mean something which deals with India in world community and its relations with foreign nations.

(iii) “Award is against justice and morality”- ‘Justice’ was held to mean that the award should not be such that it shocks the conscience of the court. On the other hand, ‘morality’ would be a valid ground when the contract is not illegal but against the mores of the day. However, this would also only be applicable when it shocks the conscience of the court.

(iv) “Patent Illegality”- This was held to include three subheads, namely:

  1. Contravention of the substantive law of India, which goes to the root of the matter. This was essentially held to be a violation of Section 28(1)(a) of the 1996 Act; 
  2. Contravention of the Arbitration Act itself; 
  3. Where the arbitrator fails to consider the terms of the contract and usages of the trade as required under Section 28(3) of the Act.

There had therefore been a series of judgments which attempted to interpret the meaning of ‘public policy’ and ‘fundamental policy’ of India. The need to statutorily define the term was felt to avoid further confusion. Consequently, Section 18 of The Arbitration and Conciliation (Amendment) Act, 2015 introduced relevant changes to Section 36 of the 1996 Act, which read as follows:

“18. In section 34 of the principal Act,—

(I) in sub-section (2), in clause (b), for the Explanation, the following Explanations shall be substituted, namely:—

“Explanation 1.— For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,—

(i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or

(ii) it is in contravention with the fundamental policy of Indian law; or

(iii) it is in conflict with the most basic notions of morality or justice.

Explanation 2.— For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.”

(II) after sub-section (2), the following sub-section shall be inserted, namely:—

(2A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award:

Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.”

Therefore, the 2015 Amendment narrowed down the scope of ‘public policy’ and ‘fundamental policy’. This narrow interpretation was affirmed in Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India.10 The Supreme Court held that the wide import given to “fundamental policy of Indian law” in Western Geco and Associate Builders was improper, and not in accordance with the intent and purpose of the amended Sections 34 and 48 of the 1996 Act. The Court relied on the 246th Law Commission Report11 and held that “fundamental policy of Indian law” had to accord with the line of reasoning adopted in Renusagar.12 The Supreme Court also clarified that the following interpretation be given to the respective species of public policy under Section 34(2)(b)(ii), and to “patent illegality” under Section 34(2A): (i) “Fundamental policy of Indian law” was interpreted in accordance with Renusagar, to include contravention of a law protecting national interest; disregarding orders of superior courts in India and; principles of natural justice such as audi alteram partem; (ii) “Most basic notions of morality or justice” was interpreted by adopting the ratio of Associate Builders wherein it was observed that an award would be against justice when it shocked the conscience of the court, and morality would be determined on the basis of “prevailing mores of the day”; (iii) “Patent illegality” must go to the root of the matter, but must exclude erroneous application of law by an arbitral tribunal or re-appreciation of evidence by an appellate court. However, this ground may be invoked if no reasons are given for an award; the view taken by an arbitrator is an impossible view while construing a contract; an arbitrator decides questions beyond a contract or his terms of reference, or if a perverse finding is arrived at based on no evidence, or overlooking vital evidence, or based on documents taken as evidence without notice of the parties. The Court did away with the ground of non-adoption of a judicial approach, pre-empting that this would force an entry into the merits of the award, which is clearly prohibited. The Court also held that the head “interest of India” would no longer constitute a ground of challenge.

Hence, the interpretation that must be provided to ‘public policy’ as well as ‘fundamental policy’ of India was both crystallized in law and consistently interpreted by the Court. However, doubts remained as to the exact definition and application of the ground of ‘patent illegality’ which had been explicitly included in the statute through the 2015 Amendment. The same was clarified by the Court in Patel Engineering Ltd. Unity Infrastructure (JV) v. North Eastern Electric Power Corpn. Ltd. (NEEPCO).13 In this case, the Apex Court first clarified that the ground of ‘patent illegality’ can only be invoked for domestic and not international commercial arbitrations, irrespective of the fact that the latter might be seated in India. Similarly, the ground cannot be raised to resist enforcement of a foreign award under the New York Convention. It further relied on Ssangyong Engineering to reiterate the fact that the wide scope of interpretation that had been provided to the term ‘public policy’ by cases such as Saw Pipes and Western Geco had been narrowed and restricted post the 2015 Amendment. It also affirmed the reliance of Ssangyong Engineering on Associate Builders to hold that the construction of the terms of a contract is primarily for an arbitrator to decide, unless the arbitrator construes a contract in a manner which no fair minded or reasonable person would take i.e., if the view taken by the arbitrator is not even a possible view to take. Hence, in light of the amended Section 28(3), the mere fact that a contract could have been interpreted in a different manner would not amount to patent illegality, and could not be a reason to set aside the award. However, if an arbitrator wanders outside the contract and deals with matters not referred to him, then he would be committing an error of jurisdiction, and hence the same would amount to patent illegality. 

A series of judicial pronouncements by the Supreme Court have laid down the judicial approach to be adopted when analysing arbitral awards. In Union of India v. Varindera Constructions Limited and Others14, it held that the award must be based on an objective view of a reasonable person. As observed in MMTC Ltd. v. Vedanta Limited15,  a possible view taken by the arbitrator upon a reasonable construction of the contract ought not to be disturbed by appellate courts. Only an unreasoned and unintelligible award, as was the case in Dyna Technologies Private Limited v. Crompton Greaves Limited16, would be unsustainable. In addition, only interpretation of the contract that was neither reasonable nor fair would justify interference, as done in South East Asia Marine Engineering and Constructions Limited (SEAMEC) v. Oil India Limited.17 In fact, as held in Anglo American Metallurgical Coal Pty. Ltd. v. MMTC Limited18, no interference was justifiable as long as the majority award was predicated on a possible view after considering all evidentiary aspects in great detail. 

Thus, a clear trend is visible whereby the courts were trying to narrowly interpret the grounds mentioned under Section 34 and consequently minimize their interference with arbitral awards. By providing the awards with greater finality, India is also attempting to transform itself into a global arbitration hub. However, there have been few exceptions to this growing trend, the most notable of them being the case of DMRC Ltd. v. Delhi Airport Metro Express (P) Ltd.19 This case involved a long-standing dispute wherein an arbitral award had first been rendered in favour of the Respondent. Aggrieved by the award, the Petitioner had moved an application under Section 34, but the application was rejected by the High Court. Consequently, the Petitioners filed an appeal against this order under Section 37. The High Court partly allowed the appeal and set aside the arbitral award. Against this decision, the Respondents moved a Special Leave Petition to the Supreme Court under Article 136. The Apex Court allowed the appeal and restored the arbitral award. Thereafter, a Review Petition was filed by the Petitioners, which was promptly dismissed by the Court. Finally, the Petitioners once again moved to the Supreme Court by filing a Curative Petition, and the Court permitting the same went on to overturn the arbitral award. 

Firstly, the Court elaborated on the conditions under which a curative petition could be entertained. It primarily relied on Rupa Hurra v. Ashok Hurra20 to lay down the principles that the Court may entertain a curative petition, which include (i) prevent abuse of its process; and (ii) to cure a gross miscarriage of justice. It then discussed the limited scope of interference of courts while dealing with challenges under Sections 34 and 37. It relied on Associate Builders and Ssangyong Engineering to state that patent illegality could be invoked if the decision of the arbitrator was found to be so perverse or irrational that no reasonable person would have arrived at it or the construction of the contract was such that no fair or reasonable person would take or, that the view of the arbitrator was not even a possible view. Lastly, the Court ruled that the curative petition should be permitted, and the arbitral award should be set aside, on the grounds of patent illegality. This was primarily due to two reasons  (i) the tribunal failed to explain what constituted ‘effective step for curing the breach’ as per the concession agreement; and (ii) the arbitral award overlooked vital evidence and matters on record. The Court stated that the dismissal of the Special Leave Petition had resulted in a ‘grave miscarriage of justice’, and hence warranted the exercise of a curative petition. 

This case has been one of the most criticized judgements on arbitration delivered in the past few years. Critics argue that a curative petition must be permitted only in the most extraordinary circumstances, and that since the current case primarily factual in nature requiring the re-interpretation of an agreement, and hence should not have been entertained by the Court. By delving into the merits of the case, the Court merely upheld an ‘alternative view’ which could have been taken, and hence also went against the basic premise of bringing a challenge on the grounds of patent illegality. Moreover, permitting a curative petition after multiple rounds of litigation, goes against the objective of assigning finality to arbitral awards by promoting minimal judicial interference. 

Generally, however, Courts have largely been firm in upholding the principle of minimal judicial interference with arbitral awards. In Konkan Railway Corporation Ltd. v. Chenab Bridge Project Undertaking21, the Supreme Court deprecated the practice of interfering with an arbitral award as long as the award was based on a reasonable or plausible view taken by the arbitrator that was not perverse or patently illegal. Appellate courts would be in error in excessively dissecting evidence and interfere on merits when there was no error apparent on the face of the record, as was held by the Supreme Court in Reliance Infrastructure Limited v. State of Goa.22 In fact, the award could not be remitted to the arbitrator in the guise of providing additional reasons, and that it was justified only when there was inadequate reasoning or a gap in reasoning in the award. As observed in Haryana Tourism Ltd. v. Kandhari Beverages Ltd.23, entry into merits on by appellate courts would run contrary to the object of expeditious disposal of disputes. 

Recently, in OPG Power Generation Pvt. Ltd. v. Enexio Power Cooling Solutions India Pvt. Ltd. & Anr.24, the Supreme Court painstakingly analysed the gamut of earlier pronouncements on ‘public policy’ and ‘patent illegality’ as grounds for interference with arbitral awards. It reiterated the position in Ssangyong and Associated Builders that a mere violation of substantive law would not be a ground to set aside an award. Instead, a statutory contravention linked to ‘public policy’ or ‘public interest’ would be required to warrant any form of interference. Importantly, the extent of judicial scrutiny could not possibly exceed the limit set by Explanation 2 to Section 34(2)(b)(ii). Furthermore, in Punjab State Civil Supplies Corporation Ltd. & Anr. v. M/s.. Sanman Rice Mills & Ors.25, the Supreme Court emphasised that the power of an appellate court under Section 37 was summary in nature and thus even more limited. Thus, no interference with an arbitral award was warranted simply because the appellate court’s view might be a better view.  These pronouncements have foregrounded the principle of minimal judicial interference with arbitral awards.

Section 34(3): The Period of Limitation 

One of the primary purposes of arbitration is to ensure a speedy resolution of disputes. Hence, Sections 5 and 17 of the  Limitation Act, 1963 have been held to be inapplicable in so far as they condone the delay in filing a Section 34 application, and attempt to extend the period of limitation as laid down in Section 34(3) of the 1996 Act. Section 5 of the Limitation Act permits an application to be accepted even after the limitation period has expired, if the court is convinced that there was sufficient reason for not filing it within the time limit. In Union of India v. Popular Construction Co.26, the Court noted that the objective of the 1996 Act was to minimise judicial intervention in arbitral awards. Furthermore, the use of the term “but not thereafter” in Section 34 signalled the intention of the legislature to exclude the application of Section 5 of the Limitation Act. Hence, it was held that once the limitation period set by Section 34(3) expired, no application could be admitted by relying on Section 5 of the Limitation Act. 

Section 17 of the Limitation Act provides another ground for condonation of delay, by laying down that the period of limitation begins to run from the time when fraud played against the award debtor is discovered or could have been discovered with reasonable diligence. In P. Radha Bai v. P. Ashok Kumar27, the Supreme Court observed that Section 17 of the Limitation Act did not extend or break the limitation period, but only postponed its commencement till the discovery of fraud. On the other hand, Section 34(3) of the Arbitration Act provided that the limitation period commenced from the day when a party making an application had received the arbitral award, or from the disposal of a request under Section 33 of the Arbitration Act. Additionally, the proviso of Section 34(3) permitted condonation of delay in certain cases, where the applicant could challenge the award within a period of 30 days from the expiry of three months “but not thereafter”. Hence, the application of Section 17 of the Limitation Act would be excluded. Moreover, the Court addressed the importance of time-bound disposal of arbitration proceedings to facilitate speedy resolution of disputes.

On the other hand, the Courts have also acknowledged the fact that justice should not be denied in cases where the applicant has been vigilant but has, in good faith, mistakenly approached the wrong forum for seeking redressal of grievances. Hence, they have allowed for the application of Section 14 of the Limitation Act, which excludes the time period where a particular application had been filed in an incorrect forum. In Oriental Insurance Co. Ltd. v. Tejparas Associates & Exports (P) Ltd.28, a Section 34 application had been filed before an incorrect court, due to which the first court returned the application under Order VII Rules 10, 10A CPC. It also directed the parties to present the application before the appropriate court on a particular date. However, the application was filed before the appropriate court with a delay of 8 days from the date that had been assigned by the previous court. The primary issue before the Apex Court was whether the presentation of an application under Section 34 before the appropriate court should be considered, a fresh petition for the calculation of the limitation period, or whether the time spent in pursuing the matter before the incorrect forum can be excluded. The Court stated that condonation of delay under Section 5 of the Limitation Act was not permissible. However, since the present plea was not one of condonation, but rather an  application under Section 14 to exclude the time that had been spent in pursuing the matter before an incorrect forum, the same was permitted by the Court. The only caveat put forth by the Court was that the first application should have been filed within the period of limitation.

Similarly, in Kirpal Singh v. Govt. of India, New Delhi29, the Supreme Court primarily relied upon the case of Consolidated Engineering Enterprises vs. Principal Secretary, Irrigation Department30, to rule that since the scope of Sections 34 and 37 of the Act are limited, the period of limitation should be liberally interpreted to ensure that at least the limited window that is available to challenge an award is not lost. On these grounds, the Court held that Section 14 of the Limitation Act should be made applicable to Sections 34 and 37 of the A&C Act. 

The Supreme Court in State of Himachal Pradesh v. Himachal Techno Engineers31, held that the period of limitation enumerated in Section 34(3) of the Act would be construed as three calendar months, irrespective of the number of days that a particular month would have. 

Section 34(4): Remission of the Award to the Arbitral Tribunal

A major question that existed before the courts was deciphering the circumstances under which it would be appropriate to remit an award back to the tribunal that had first passed the award. In Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd.32,an important distinction was drawn between an award suffering from inadequacy of reasons and an award suffering from perversity. An award suffering from inadequate reasoning could be cured of defects by remitting it to the arbitrator under Section 34(4) of the Arbitration Act, while an unintelligible award or an award suffering from perversity of reasoning had to be set aside. The Supreme Court clarified that the legislative intent to include Section 34(4), wherein the arbitral tribunal can be given an opportunity by the Court to cure any defects, was to ensure that the award remains enforceable. This provision to cure defects is used when there is inadequate reasoning, a gap in the reasoning or has other curable defects.

Similarly, in I-Pay Clearing Services (P) Ltd. v. ICICI Bank Ltd33,  the Supreme Court relied on Dyna Technologies to state that all defects that are capable of being remedied should be addressed in remission proceedings. A lack of, or gap in, reasoning was held to be a curable defect. The Court also clarified that an award which did not record findings on contentious issues or recorded findings which are contrary to the material on record, could not be remitted under the pretext of supplying reasons or filling gaps in the reasoning. These would constitute grounds for setting aside of the award altogether.

Existing Controversy on the Modification of Awards

Section 34 of the 1996 Act permits parties to file an application in the court for setting aside an arbitral award under a few listed circumstances. However, the courts are not expressly granted the power to modify an arbitral award. It is worth noting that the provision is largely influenced by Section 34 of the UNCITRAL Model Law on International Commercial Arbitration, 1985. 

Although the prevailing position is that modification of awards is not permitted under Section 34, as discussed hereinbelow, the Supreme Court has permitted the same in certain instances. This controversy is set to be settled by a larger bench in Gayatri Balasamy vs ISG Novasoft Technologies Limited.34 The bench so constituted will decide whether the power conferred under Sections 34 and 37 includes the power to modify an arbitral award, and whether such power is implied from the power to set aside an award as per Section 34 of the Act. This section has been divided into two parts. The first part examines cases where the Supreme Court permitted modification of an arbitral award. The second part analyses cases where the Supreme Court held that modifying an arbitral award lay outside the scope of Section 34.

1. Cases Where Modification was Permitted by the SC

The Supreme Court, in Tata Hydroelectric Power Supply Co. Ltd. v Union of India35, upheld the arbitrability of the award rendered by the Arbitral Tribunal, thereby overturning the judgment of the High Court. It held that the High Court had erred in setting aside the award of the arbitrator on the grounds of the dispute being contemplated under Section 26(6) of the Indian Electricity Act, 1910. Instead, since there was no dispute about whether the meter was correct, Section 26(6) was not relevant. Hence, the award was upheld to that limited extent. However, the award was modified on the question of the date from which the rate of interest should apply. The Tribunal had held this to be from August 1993, to the passing of the decree, which was modified by the court to the date of the award, i.e., 30 March 1998. 

Similarly, the question in the case of Vedanta Ltd. v. Shenzhen Shandong Nuclear Power Construction Co. Ltd.36, primarily involved the rate of interest that must be permitted. The Supreme Court held the interest rate granted by the Arbitral Tribunal to be extremely onerous. Thereby, it modified the award in two respects. Firstly, it set aside the part of the award which granted a rate of 15% since there was a delay of more than 120 days in payment. Instead, it reduced it to a uniform rate of 9% for the entirety of the monetary component in Indian Rupees (INR). Secondly, the Court held that it would be unfair to charge the same interest rate for the INR and EUR components, and hence, modified the latter to LIBOR + 3 percentage points on the date of the Award. 

Likewise, the issue in Oriental Structural Engineers (P) Ltd. v. State of Kerala37, concerned the legitimate grant of interest by the Arbitral Tribunal due to the delay in payments by the Respondent. The Tribunal passed the award in favour of the appellants on this point and interest was directed to be paid on delayed payment in relation to local currency component payable under the agreement. The Supreme Court did not find any flaw in the reasoning of the Arbitral Tribunal that the contract did not prohibit the award of interest in respect of delayed payment in the local currency component specified therein. Hence, the contrary view expressed by the district court in a proceeding under Section 34 of the Act, which was upheld by the Appellate Court, was held to be impermissible and beyond the scope of patent illegality as defined in the case of Saw Pipes.  However, the court went on to modify the rate of interest to be charged on the grounds that the quantum awarded by the Tribunal was excessive. Therefore, the Court reduced the same to 8% simple interest. 

2. Cases Where Modification Was Held to Fall Outside the Ambit of Section 34 

In McDermott International Inc. V. Burn Standard Co. Ltd.38, the Supreme Court held that the 1996 Act only envisaged a supervisory role for the courts and that the review of arbitral awards could only be conducted in the interest of fairness. Otherwise, intervention is justifiable only in a limited circumstances mentioned in the Act, such as fraud, bias of the arbitrators, violation of natural justice, etc. Furthermore, courts were not empowered to correct the mistake of the arbitrators, and the only recourse available would be to set aside the award. Minimal judicial intervention was justified on the grounds that the parties themselves availed of this form of dispute resolution to expeditiously resolve their disputes.

Thereafter, in NHAI v. M. Hakeem39, the Supreme Court took note of the differing strands of opinion on the question of modification, and decisively held that the courts had no power to modify arbitral awards under Section 34. It examined the provisions of the 1996 Act in juxtaposition to the Arbitration Act, 1940 (“1940 Act”) which specifically empowered Courts to modify arbitral awards. It also highlighted the fact that Section 34 was modelled on the  UNCITRAL Model Law on International Commercial Arbitration, 1985, under which no power to modify an award is given to a court hearing a challenge to an award. It thereby ruled that the legislative intent of “minimum judicial interference” only empowered courts to set aside, but not modify, arbitral awards. The Court once again reiterated its stance of McDermott that the Arbitration Act does not permit judges to “correct errors of arbitrators”, but only to set aside an arbitral award. Thus, the Court held that the limited right available to courts is co-terminus with the limited remedy available to parties, namely, to set aside the award or remit the matter back to the arbitrator.

Relying on the judgment in M Hakeem, the Supreme Court, in Larsen Air Conditioning and Refrigeration Company V. Union of India40, ruled that the court does not have the power to modify an award, and that it could only partially or fully set aside an award after finding that the conditions stipulated under Section 34 of the Act are met. While highlighting the explicit modification provision under the 1940 Act, and its conspicuous absence from the 1996 Act, the Court held that Sections 34 and 37 of the 1996 Act did not allow courts to correct mistakes or grant the original relief claimed before the Arbitrator.

Recently, the Supreme Court, in S.V. Samudram v. State of Karnataka41, reiterated the fact that the scope of interference with arbitral awards under the Arbitration Act was very limited, and the scheme of Sections 34 and Section 37 of the Arbitration Act did not permit modification of an arbitral award. Moreover, any attempt to carry out such a modification was held to be crossing the ‘Laxman Rekha.’ In holding so, it specifically relied on the judgements in M Hakeem and Larsen Air Conditioning. 

3. On Partial Setting Aside

One of the novel solutions adopted by courts is to permit partial setting aside of such awards. For instance, in J.G. Engineers Pvt. Ltd. v. Union of India42, the Supreme Court held that if an award decides several claims separately and distinctly, and an error is identified in some of the claims, then the unaffected claims can be segregated and upheld. It relied upon the doctrine of severability to uphold the power of courts to partially set aside awards where the claims were separate and distinct.

Even post M Hakeem, which held that modification of arbitral awards was not to be included within the ambit of Section 34 of the 1996 Act, there have been a few High Court cases where partial setting aside of the award has been permitted. These includes cases like National Highways Authority of India v. Additional Commissioner43 and John Peter Fernandes v. Saraswati Ramchandra Ghanate.44 which did not consider partial setting aside to be equivalent to modification, and hence permitted the same. Lastly, in National Highways Authority of India v Trichy Thanjavur Expressway Ltd45, the Delhi High Court held that when an arbitral award is challenged under Section 34 of the Arbitration and Conciliation Act, 1996, the court is not empowered to modify the award, but can surgically set aside severable parts of the arbitral award. The Court held that the proviso of the Section 34(2)(a)(iv), thereto allows for setting aside of a part of the arbitral award as long as the decisions on matters submitted to arbitration could remain distinct from those not submitted.

4. Legal Position in Some Foreign Jurisdictions

The statutes governing arbitrations in the United Kingdom, the United States of America, and Singapore empower courts to modify awards, albeit on limited grounds. In the United Kingdom, Section 67 (3) of the Arbitration Act, 1996  specifically empowers a Court to either (a) confirm the award, (b) vary the award, or (c) set aside the award in whole or in part. Section 69 permits a party to challenge an award on a point of law. In Singapore, the statute dealing with domestic arbitrations permits variation of awards on a question of law, similar to Section 69 of the UK Act. The International Arbitration Act in Singapore, which is applicable to international commercial arbitrations, however, does not contain any provision allowing variation or modification of an award. The United States Arbitration Act, 1925 also expressly provides for the power of modification, as enumerated in Section 11. 

5. The Vishwanathan Committee Report

The Vishwanathan Report has recommended that courts be clothed with powers to vary arbitral awards, albeit only in exceptional circumstances, to meet the ends of justice.46 It stated:

“An express provision incorporated in the Act is likely to streamline the process, saving time, effort, and resources for all the parties involved. Thus, granting the Courts the authority to modify awards within well-defined limits would help strike a balance between preserving finality of the arbitral process and ensuring fairness.”

  1. Arbitration Act, 1940, No. 10 of 1940, India Code (1940). ↩︎
  2. Report no. 76: Arbitration Act, 1940, Law Commission of India, Government of India (09 November 1978).  ↩︎
  3. Arbitration and Conciliation (Amendment) Act, 2015, No. 3, Acts of Parliament, 2016 (India). ↩︎
  4. Ssangyong Engineering v. NHAI, (2019) 7 SCR 522.  ↩︎
  5. Renusagar Power Co. Ltd. v. General Electric Co.,(1994) Supp 1 SCC 644. ↩︎
  6. ONGC v. Saw Pipes, (2003) 5 SCC 705. ↩︎
  7. supra note 3.  ↩︎
  8. ONGC v. Western Geco International Ltd., (2014) 9 SCC 263. ↩︎
  9. Associate Builders v. DDA, (2015) 3 SCC 49. ↩︎
  10. supra note 4. ↩︎
  11. Law Commission of India, 246th Report on Amendments to the Arbitration and Conciliation Act, 1996 (Report No. 246, 2014). ↩︎
  12. Report No. 246: Amendments to the Arbitration and Conciliation Act, 1996 (Along with supplementary report), Law Commission of India, Government of India (2014).  ↩︎
  13. Patel Engineering Ltd. v. North Eastern Electric Power Corp. Ltd., 2019 SCC OnLine SC 1806.  ↩︎
  14. Union of India v. Varindera Constructions Ltd. and Ors., (2018) 7 SCC 794. ↩︎
  15. MMTC Ltd. v. Vedanta Limited, (2019) 4 SCC 163. ↩︎
  16. Dyna Technologies Private Limited v. Crompton Greaves Limited, (2019) 20 SCC 1. ↩︎
  17. South East Asia Marine Engineering and Constructions Limited (SEAMEC) v. Oil India Limited (2020) 5 SCC 164. ↩︎
  18. Anglo American Metallurgical Coal Pty. Ltd. v. MMTC Limited, (2021) 3 SCC 308. ↩︎
  19. DMRC Ltd. v. Delhi Airport Metro Express (P) Ltd., (2024) 6 SCC 357. ↩︎
  20. Rupa Hurra v. Ashok Hurra, (2002) 4 SCC 388.   ↩︎
  21. Konkan Railway Corporation Ltd. v. Chenab Bridge Project Undertaking, (2023) 9 SCC 85.  ↩︎
  22. Reliance Infrastructure Limited v. State of Goa, (2024) 1 SCC 479.  ↩︎
  23. Haryana Tourism Ltd. v. Kandhari Beverages Ltd., (2022) 3 SCC 237.  ↩︎
  24. OPG Power Generation Pvt. Ltd. v. Enexio Power Cooling Solutions India Pvt. Ltd. & Anr., 2024 SCC OnLine SC 2600. ↩︎
  25. Punjab State Civil Supplies Corporation Ltd. & Anr. v. M/s.. Sanman Rice Mills & Ors., 2024 SCC OnLine SC 2632. ↩︎
  26. Union of India v. Popular Construction Co., (2001) 8 SCC 470.  ↩︎
  27. P. Radha Bai v. P. Ashok Kumar, (2019) 13 SCC 445.  ↩︎
  28. Oriental Insurance Co. Ltd. v. Tejparas Associates and Exports (P) Ltd., (2019) 9 SCC 435. ↩︎
  29. Kirpal Singh v. Govt. of India, New Delhi, 2024 INSC 944. ↩︎
  30. Consolidated Engineering Enterprises v. Principal Secretary, Irrigation Department, 2008 (7) SCC 169.  ↩︎
  31. State of Himachal Pradesh v. Himachal Techno Engineers, (2010) 12 SCC 210.  ↩︎
  32. Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd., (2019) 20 SCC 1.  ↩︎
  33. I-Pay Clearing Services (P) Ltd. v. ICICI Bank Ltd., (2022) 3 SCC 121.  ↩︎
  34. Gayatri Balasamy v. ISG Novasoft Technologies Limited, OSA No. 151/200. ↩︎
  35. Tata Hydroelectric Power Supply Co. Ltd. v. Union of India, (2003) 4 SCC 172. ↩︎
  36. Vedanta Ltd. v. Shenzhen Shandong Nuclear Power Construction Co. Ltd., (2019) 11 SCC 465. ↩︎
  37. Oriental Structural Engineers (P) Ltd. v. State of Kerala, (2021) 6 SCC 150. ↩︎
  38. McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181. ↩︎
  39. NHAI v. M. Hakeem, (2021) 9 SCC 1.  ↩︎
  40. Larsen Air Conditioning and Refrigeration Company v. Union of India, 2023 SCC OnLine SC 982.  ↩︎
  41. S.V. Samudram v. State of Karnataka, (2024) 3 SCC 623. ↩︎
  42. J.G. Engineers Pvt. Ltd. v. Union of India, (2011) 5 SCC 758.  ↩︎
  43. National Highways Authority of India v. Additional Commissioner, Appeal No. 03 of 2022.  ↩︎
  44. John Peter Fernandes v. Saraswati Ramchandra Ghanate, Arbitration Appeal No. 14529 of 2023. ↩︎
  45. National Highways Authority of India v. Trichy Thanjavur Expressway Ltd., 2023 SCC OnLine Del 5183.  ↩︎
  46. Report of the High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India, July 30, 2017.   ↩︎