Prelims – Current events of national and international importance.
Mains – General Studies- II (Structure, organization and functioning of the Executive and the Judiciary)
Why in news?
Recently, in a 4:1 majority ruling, a five-judge Bench of Supreme Court held that the Appellate Courts may exercise limited powers to modify arbitral awards under certain specific circumstances.
- Arbitral award – Is simply the final decision made by the arbitrator.
- It is binding on all parties involved, similar to a court judgment.
- Arbitration – Is an alternative dispute resolution mechanism where parties agree to resolve their disputes outside of courts through a neutral third party called an arbitrator.
- This process is governed by the Arbitration and Conciliation Act, 1996 in India.
- Arbitration and Conciliation Act, 1996 – It does not expressly empower courts to modify or vary an arbitral award.
- Section 34 of the 1996 Act only confers upon courts the power to set aside an award.
Supreme Court Judgment (2025)
- A five-judge Constitution Bench of the Supreme Court delivered an important judgment in Gayatri Balasamy v. ISG Novasoft Technologies Ltd. clarifying courts' powers regarding arbitral awards.
- Modify arbitral awards – The courts can modify arbitral awards in limited circumstances in the following scenarios:
- When separating valid from invalid portions (severability).
- To correct obvious errors (clerical, computational, or typographical).
- To adjust post-award interest rates when necessary.
- Supreme Court's Special Powers – The Supreme Court can use its powers under Article 142 of the Constitution to modify awards, but must do so cautiously.
- Interest Modification – Courts cannot change interest awarded during arbitration proceedings.
- Courts can modify interest for the period after the award is given.
- Severance Power – All judges agreed that courts can "sever" or separate invalid portions of an award while keeping the valid parts intact.
Significance of Arbitral Awards
- Binding Decision – The arbitral award is binding on the parties, meaning they are legally obligated to comply with it.
- Finality – Generally, there is limited scope for challenging an arbitral award in courts to ensure the process remains efficient.
- Enforcement – An arbitral award can be enforced by a court in the same way as a decree of that court.
- Time and Cost Efficiency – Generally faster and less expensive than court litigation.
- Expertise – Arbitrators with specialized knowledge can be selected for complex disputes.
Reference
- Supreme Court Observer | Arbitral Award
- SSC Times | Arbitral Award
