6. In McDermott International Inc. v. Burn Standard Co. Ltd. and Others, 12 this Court explained the difference between judicial interference permitted by the 1996 Act vis-à-vis the Arbitration and Conciliation Act, 194013. The 1996 Act limits the supervisory role of the court to specific grounds under Section 34, while the 1940 Act gave courts broader powers under Sections 30 and 33. The Court clarified that under Section 34, the court does not act as an appellate authority for factual findings, evidence, or questions of law dealt with by the arbitral tribunal. At the same time, the 1996 Act mandates that arbitrators issue a reasoned award, which was not a requirement under the 1940 Act.

7. Further, the judgment clarifies the role of arbitrators in determining claims and counterclaims. The court cannot correct the arbitrator’s mistakes, whether factual or legal. Rather, its role is confined to setting aside the award, leaving the parties the option to initiate fresh arbitration proceedings if they wish. However, when it came to the rate of interest, the Court invoked its power under Article 142 of the Constitution14 to vary the award, reducing the interest from 10% per annum (as awarded by the tribunal) to 7.5% per annum. It felt compelled to do so as there was a significant lapse of time. Two earlier decisions were relied upon: Pure Helium India (P) Limited v. Oil & Natural Gas Commission, 15 where the rate of interest was reduced from 18% per annum to 6% per annum, and Mukand Ltd. v. Hindustan Petroleum Corpn. Ltd., 16 where the interest rate was lowered from 11% per annum to 7.5% per annum.

8. In Vedanta Limited v. Shenzhen Shandong Nuclear Power Construction Company Limited, 17 this Court, in the context of an international award, highlighted the need to consider the differing impact of interest rates when the parties operate in different currencies. The rate of interest had to be aligned with the applicable currency of each party. Accordingly, the Court held that applying a uniform interest rate for both the INR and Euro components was not justified. While maintaining the interest rate at 9% per annum for the INR component, the interest on the Euro component was modified to the London Interbank Offered Rate (LIBOR) rate plus 3 percentage points. Furthermore,
the Court deleted the interest rate of 15% per annum, which was applicable if the awarded sum was not paid within 120 days. Significantly, this judgment did not reference the Court’s power under Article 142 of the Constitution.

9. In Oil and Natural Gas Corporation Limited v. Western GECO International Limited, 18 a three Judge Bench of this Court observed that when an arbitral tribunal, upon considering the facts presented before it, fails to draw an inference that ought to have been drawn or, conversely, draws an inference that is manifestly untenable, resulting in a gross miscarriage of justice, such an award becomes amenable to challenge. In such circumstances, the award may be set aside or modified, depending on whether the offending part of the award is severable or not. 

10. Earlier, a two-Judges Bench of this Court in Numaligarh Refinery Ltd. v. Daelim Industrial Co. Ltd., 19 held that courts should ordinarily refrain from substituting their interpretation for that of the arbitrator. However, where the parties, with full knowledge, have consented to refer the matter to arbitration, the court may intervene and modify the award when it is demonstrably and reasonably justified. For example, when an arbitrator acts without jurisdiction or adopts an interpretation that is contrary to established law, the court has the authority to interfere and set the matter right.

11. In an earlier decision of this Court in Tata Hydro-Electric Power Supply Co. Ltd. and Others v. Union of India, 20 this Court exercised its power to modify the effective date from which the awarded interest would apply. However, similar to Numaligarh Refinery Ltd. (supra), this decision did not specifically address the restricted grounds of Section 34.

 12. In a catena of judgments of this Court, it has been consistently held that the arbitral tribunal is the master of evidence. The scope of judicial intervention under Section 34 is confined to the limited grounds expressly provided therein.21 The Court does not possess the power to correct errors of fact, reconsider costs, or engage in a review of the merits of the arbitral award. 

13. In Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India (NHAI), 22 a two-judge bench of this Court ruled that interference based on public policy violations under Section 34(2)(b)(ii) is limited to the fundamental policy of Indian law. The court cannot interfere merely because the arbitrator lacked a “judicial approach”.23 Albeit in the said case, an issue arose which went beyond the narrow scope of Section 34. The fundamental principle of justice was stated to be violated due to a unilateral change or addition to the contract by the arbitral tribunal. The Court emphasized that such changes, made without the affected party’s consent, cannot be allowed. As a result, the majority award was set aside, along with the judgments of the Single Judge and the Division Bench of the High Court that had upheld the award. To ensure full justice, this Court, using its power under Article 142 of the Constitution, upheld the minority award and the interest it stipulated.

14. In Oriental Structural Engineers Private Limited v. State of Kerala, 24 this Court upheld the award for being in consonance with the contract but intervened to modify the interest rate. It was observed that the principles laid down in Secretary, Irrigation Department, Government of Orissa and Others v. G.C. Roy, 25 for determining the interest rate would be equally applicable to the 1996 Act. In fact, Section 31(7)(a) of the 1996 Act, incorporates this principle. Simple interest at the rate of 8% per annum was directed to be paid on the sum left unpaid. 

15. In Project Director, National Highways No. 45 E and 220 National Highways Authority of India v. M. Hakeem and Another, 26 a two-judge
bench of this Court held that Section 34 allows arbitral awards to be set aside only on the limited grounds specified in sub-sections (2) and (3). When a right is limited, its enforceability is coterminous with its limited nature, i.e., it can only be enforced in line with those limitations. As a result, the award can either be set aside or remanded to the arbitral tribunal. Section 34(4) facilitates such remand by allowing the court to adjourn the proceedings, and hence providing the arbitral tribunal a chance to eliminate the grounds for setting it aside. Here again, the tribunal’s opinion is key in determining whether the grounds for setting aside have been resolved.

 16. The Court also noted that Section 34 is modelled on the UNCITRAL Model Law on International Commercial Arbitration, 1985,27 which does not allow courts to modify awards. Unlike the broader powers available under the 1940 Act, the court’s powers under the 1996 Act are narrower. The Court cited previous judgments of this Court and various High Courts, emphasizing that allowing modification under Section 34 would go against the legal framework, as only the legislature has the power to change the law. Any expansion of Section 34’s powers to include modification would require a legislative amendment.

B. ARGUMENTS RAISED

I. In Favour of Modification

17. First, it is contended that the judgment in M. Hakeem (supra) warrants reconsideration, as it conflicts with several decisions rendered by Benches of two and three Judges of this Court, in which awards were modified and varied. This Court has also upheld the modification of awards by the High Courts or District Courts on other occasions. Second, it is claimed that the Model Law, based on the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 195828, permits a broader scope of judicial intervention. Several signatory countries to the Model Law have enacted provisions for domestic awards that permit modification and/or variation (Annexure B), in addition to allowing for the setting aside of awards. This international perspective, it is argued, reflects a broader understanding of the court’s powers in arbitrations. Lastly, the principle that a greater power includes a lesser power is invoked. Since Section 34 allows for the setting aside of an award, it is argued that this power inherently includes the ability to modify the award, as modification is seen as a lesser form of intervention than annulment. 

18. Reference is made to Ahmedabad St. Xavier College Society and Another v. State of Gujarat and Another, 29 where a nine-Judge Bench of this Court applied the maxim “omne majus continent in se minus” – the greater contains the lesser. Applying this maxim, it is contended that the power to set aside will include power to modify or partially set aside an award. It is also submitted that the power to modify and set aside an award can be exercised when the award is in conflict with public policy in terms of Section 34(2)(b)(ii) or to the extent it is vitiated by patent illegality in terms of Section 34(2A) of the 1996 Act. This approach aligns with the jurisprudence of other jurisdictions such as the United

Kingdom, Australia, Singapore, and other countries (Annexure B), where similar powers are vested in the courts.