Arbitral Award

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

1. Supreme Court Observer | Arbitral Award
2. SSC Times | Arbitral Award