In SC, govt flags legislative gap in arbitration law
Appearing before a five-judge bench led by Chief Justice of India Sanjiv Khanna, solicitor general Tushar Mehta highlighted the key objectives of the Arbitration and Conciliation Act, 1996
The Union government on Thursday acknowledged a “legislative gap” in India’s arbitration framework, which prevents courts from modifying arbitral awards even when they can set them aside. However, it urged a constitution bench of the Supreme Court to refrain from reading such a power into the law, emphasising that the issue should be left to the “wisdom of the legislature”.
Appearing before a five-judge bench led by Chief Justice of India Sanjiv Khanna, solicitor general Tushar Mehta highlighted the key objectives of the Arbitration and Conciliation Act, 1996, which is based on the UNCITRAL Model Law and aims for finality, minimal judicial intervention, and cost-effective dispute resolution. The bench also includes justices Bhushan R Gavai, Sanjay Kumar, KV Viswanathan and AG Masih.
“While inherent powers, procedural jurisprudence and evolving arbitration requirements unique to India may justify reading in to Section 34 the power of modification, leaving the matter to the wisdom of the legislature, would be the most appropriate measure for India’s arbitration framework,” Mehta said.
The primary issue before the constitution bench is whether a court’s power to set aside an arbitral award under Sections 34 and 37 of the Arbitration Act includes the power to modify it, and if so, the extent of such a power. The Centre, while recognising the challenges arising from the absence of a modification provision, maintained that courts should not exercise inherent powers to introduce such an authority.
During the day-long hearing, the bench remarked that the issue requires “urgent determination” given the large number of cases awaiting a final word from the Supreme Court.
Mehta’s written submissions pointed out that the earlier Arbitration Act of 1940 contained Section 15, which allowed courts to modify or correct arbitral awards. “The exclusion of the provision for correcting and modifying the award from the 1996 Act was an impetuous adoption of the Model Law without keeping in mind the contextual and commercial realities of the Indian arbitration experience that inter alia suffered from infrastructural deficiencies,” he submitted.
Citing the Supreme Court’s judgment in the M Hakeem case, which affirmed that setting aside an award under Section 34 does not include the power to modify it, Mehta said the rigid interpretation had led to several practical difficulties and that the courts are left with limited remedy -- to either set aside the award or remand the matter.
The SG further argued that the inability to modify awards has weakened arbitration as an alternative dispute resolution mechanism, often turning it into a mere step in prolonged litigation. “This legislative gap has, in effect, rendered courts powerless to rectify the award in the interest of justice.”
Mehta referred to the Viswanathan Committee Report in 2024, which suggested amending Section 34 of the 1996 Act to allow courts to set aside an arbitral award “in whole or in part” and, in exceptional cases, make consequential modifications. However, Mehta maintained that such a reform should come through legislation rather than judicial interpretation.
Opposing any judicial attempt to read the power of modification into the existing law, Mehta cautioned against “impermissible judicial legislation”, arguing that the judiciary’s role is to interpret the law as it stands, rather than to determine “what the law should have been”.
Mehta suggested that constitutional courts could potentially exercise limited supervisory jurisdiction under Articles 136 and 227 of the Constitution.
As an alternative, Mehta suggested that inherent powers under Section 151 of the Civil Procedure Code (CPC) could be invoked in limited scenarios where an award contained an “obvious error on the face of it” and required only a minor correction. “The inherent power of the Court is complementary to the statutory power conferred in the statute,” he submitted.
Despite these suggestions, the government ultimately maintained that legislative intervention remains the best course.
The arguments will resume on February 18.
The case before the Supreme Court originates from a dispute involving a former employee of ISG Novasoft Technologies Limited (ISG). She was appointed a vice president in April 2006 but resigned in July 2006, citing allegations of harassment against the company’s CEO. The resignation did not take effect, and after a year, she faced three letters of termination. This led to a legal battle with both parties filing criminal complaints against each other. The Supreme Court eventually referred the matter to arbitration, where an arbitral tribunal awarded the woman ₹2 crore. Dissatisfied with the decision, she moved the Madras high court, which modified the award, prompting an appeal to the Supreme Court.
Senior counsel Arvind Datar and advocate Nishanth Patil, representing the former employee, argued in favour of the power of modification, emphasising that there is a need the for Supreme Court to supplement and add few words to the language of Section 34 to make it workable. Datar added that a larger power would invariably include a lesser power. “Therefore, the power to set aside an award will also include power to modify the award,” he said.