Section 34 of the Arbitration and Conciliation Act, 1996, circumscribes judicial interference with arbitral awards to narrowly defined grounds, reflecting the legislative policy of minimal court intervention. The provision permits setting aside an arbitral award if the procedure violates the parties’ agreement or the Act, if it contravenes Indian public policy or if it shows patent illegality.

In ONGC v. Saw Pipes Ltd., the Supreme Court expanded the scope of “public policy” to include patent illegality, while subsequently calibrating this expansion in Associate Builders v. DDA by clarifying that interference is warranted only where the award is perverse, irrational, or reflects no application of mind. In Ssangyong Engineering & Construction Co. Ltd. v. NHAI, the Court further narrowed the scope of review post the 2015 amendments, holding that courts cannot reappreciate evidence and may intervene only where the award contravenes fundamental notions of justice or suffers from patent illegality.

To understand the controversy, a short recap of Bharat Drilling is required. In Bharat Drilling the contract at issue contained express clauses excluding certain heads of claim – for example, claims for idle machinery and loss of profit. The arbitral tribunal nonetheless awarded those heads; a civil court set those parts of the award aside as being contractually barred. On appeal, the Supreme Court had restored the award, reasoning (in part) by drawing analogies to precedents about the grant of interest under Section 31(7) of the Arbitration and Conciliation Act, 1996 (“Act”). Over time, several courts have treated Bharat Drilling as authority for the broader proposition that prohibitory or excepted clauses in a contract bind only the employer and do not necessarily constrain the arbitral tribunal.

In Indian Builders, under the construction contract between the State of Jharkhand and Indian Builders, Clauses 4.20.2 and 4.20.4 purported to bar claims for idle labour/machinery and for business loss respectively. The tribunal,  inter alia, awarded, sums for under-utilised overheads, loss due to underutilised tools, plant and machinery, and loss of profit. In Section 34 proceedings filed by the State of Jharkhand before the Civil Court-I, Jamshedpur, the Civil Court, while otherwise upholding the Award set aside claims awarded under the abovementioned heads as the same were contractually prohibited. The claimant filed an appeal against the judgment of the Civil Court under Section 37(2) of the Act. The Jharkhand High Court allowed the appeal under Section 37(2) of the Act and restored the Award, relying chiefly on Bharat Drilling and without conducting a detailed analysis of the contractual clauses themselves. The State appealed, contending that Bharat Drilling was fact-specific, and should not be read as a sweeping precedent for all government contracts. This is the question the  Supreme Court has now directed to a larger bench for authoritative reconsideration.

The Arbitration and Conciliation Act, 1996 (“Act”) is distinct for domestic arbitration and ICA, especially when it comes to appointment of arbitrators. While Section 2(1)(f) of the Act defines an ICA, Section 11 governs the appointment procedure. The most significant proviso is Section 11(12)(a), which provides that where matters under Section 11 arise in the context of an ICA, any reference to the “High Court” shall be construed as a reference to the Supreme Court. Judicial interpretation has been guided by such statute, which mirrors legislative intent. Section 11 leaves no residual or concurrent authority with High Courts after characterisation of an arbitration as international.

The principle that procedural amendments operate retrospectively, whereas substantive amendments apply prospectively unless otherwise expressly provided, has been consistently reaffirmed by Indian Courts. This distinction is justified on the ground that procedural amendments pertain to enforcement mechanisms, whereas substantive amendments pierce the core of the matter by affecting vested rights and liabilities. Procedure law is recognised as the “machinery of justice,” governing the forum, manner, and evidentiary requirements of adjudication, without altering substantive rights. Viewed in isolation, the amended Section 34(2)(a) can be characterised as a procedural modification, as it limits the mode of proof while leaving the substantive grounds for setting aside an award untouched. In this regard, the presumption of retrospective operation applicable to procedural amendment would ordinarily follow.  

Consequently, if the amendment is to be treated as purely procedural, it must be applied retrospectively to all pending and future proceedings. A retrospective application would result in parties with outstanding challenges being suddenly precluded from relying on evidence outside of the arbitral record. This would create an unanticipated disability that would not have been contemplated when the challenge was first filed and potentially defeat challenges that were otherwise maintainable at the time of filing.

Juxtaposed against this presumption lies the vested rights doctrine. This doctrine functions to restrain the retrospective operation of amendments that impair pre-existing rights, liabilities and entitlements. Courts have repeatedly maintained that the accrual of a cause of action crystallises the right to pursue a remedy within a particular evidentiary framework. This is rooted in the maxim ‘nova constitutio futuris formam imponere debet non praeteritis’, signifying that a new law ought to regulate the future, not the past. Thereby, any amendment that extinguishes or restricts this remedial capacity is substantive in effect. Crucially, the vested right to challenge an arbitral award is not merely limited to the formal availability of grounds under Section 34, but also the effective ability to establish those grounds through admissible proof. The amendment denies petitioners a previously available remedy by prohibiting the use of evidence beyond the one’s produced during arbitral proceedings.

If the amendment is treated as substantive in effect, its application must necessarily be confined prospectively, protecting challenges already instituted under the pre-amended framework. If implemented prospectively, the disparity in remediation between challenges filed prior to and following the modification may be justified based on fairness, legal stability and justice.

This conflict may be illustrated by a practical example. Consider a Section 34 petition filed prior to the 2019 amendment alleging arbitrator bias based on undisclosed post-hearing communications. If the amendment is applied retrospectively, the petitioner would be barred from relying on such external evidence, rendering the challenge ineffective despite its maintainability at the time of filing. Conversely, if applied prospectively, the petitioner would retain the evidentiary latitude available under the pre-amended framework, preserving the integrity of the accrued remedial right.

The vested rights doctrine and the fairness principle underpinning temporal application thus form the jurisprudential foundation of this issue. The ability to contest an arbitral ruling is not merely a procedural convenience, but a crucial corrective measure against arbitral misconduct. The amendment limits the remedial nature of the right by limiting the evidentiary pathways for establishing grounds of challenge. In doing so, it applies the principle that rights acquired under the previous regime cannot be retrospectively undermined by laws affecting substantive remedies. At the same time, the statutory presumption in favour of retrospective suggests that the legislature merely recalibrated the method of proof; the substantive impact of the amendment points in the opposite direction.

Therefore, the conflict is whether the change should be carved out as an exception due to its impact on vested rights or included in the procedural presumption. This dilemma also arises due to the lack of legislative clarity and express provision as to the temporal application of the provision. Realising that the amendment is a composite category of legislative change, procedural in its linguistic construction but substantive in its influence on vested remedial rights, is the first step toward moving forward. Instead of applying the retrospective–prospective dichotomy mechanically, this character calls for a hermeneutic approach to temporal application. In order to apply the principle that amendments affecting the effectiveness of an existing right are to be viewed as substantive and therefore prospective in operation, courts must look beyond the form of the provision. In addition to resolving the conflict, this approach guarantees adherence to the principles of justice and vested rights protection, which are fundamental to adjudicatory legitimacy.

In Gayatri Balasamy, when the case reached the Supreme Court of India (‘the SCI’), the majority ruled that despite Section 34’s silence, courts can modify awards in certain scenarios such as severance of invalid portions from the valid remainder of the award. Even clerical, typographical, or arithmetic mistakes can be corrected to avoid disproportionate annulments [Para 85]. Additionally, under Section 31(7)(b) of the Act, if there is a deliberate delay by the debtor, a court may adjust interest to reflect the then prevalent economic conditions [Para 75]. The majority based its decision on three pillars: firstly, ensuring efficiency by sparing parties the time and expense of full remission for trivial or severable errors; secondly, by upholding party autonomy on valid grounds without forcing de novo hearings; and lastly, to hold power under Article 142 to do complete justice whenever necessary [Para 84]. The SCI stressed that this power must be exercised sparingly with written reasons and only when there are no other recourses available under Section 33 or Section 34(4) [Para 58 to 63].

The Gayatri Balasamy decision sharply departs from the motive of international arbitrations and the Model Laws’ bright-line approach. Some legal experts are of the view that such a liberal grant of power threatens arbitral finality, since allowing modifications opens the way for broad interpretations by the courts. This may discourage foreign parties that prefer clarity or predictability in outcomes over unpredictable exceptions. This concern becomes even more prominent in the context of India-based international awards since the New York Convention governs only “final” arbitral awards and is silent on the procedure for modified ones, raising a key question regarding governing the enforceability of court-modified international awards.

In Engineering Projects, EPI appealed an ICC arbitrator’s non-disclosure of previous involvement in a suit relating to its management. This omission was found to be insufficient by the ICC court and Singapore High Court alike, the latter being the supervisory court designated by the arbitral seat. In accordance with the seat rule, these findings ought to have been final.

The DHC intervened nonetheless, appreciating EPI’s arguments and issuing an anti-arbitration injunction relying on the reasoning that the nondisclosure “stuck at the root of the tribunal’s integrity” which rendered the process “vexatious and oppressive.” It also relied upon Section 9 of CPC invoking its “residual equitable jurisdiction” to prevent what it deemed to be a denial of natural justice to a public sector Indian company. By reassessing objections already considered by the court of the seat as matters of Indian public policy, the DHC displaced the authority of Singapore courts.

The dispute arose under a Compulsory Convertible Debenture (CCD) Subscription and Securities Holders Agreement dated 21.06.2013, which contained an arbitration clause. The clause required disputes to be resolved first through good-faith consultations and, if unresolved, finally settled under the LCIA India Rules then in effect. On 11.12.2024, L&T Infra (the appellant) invoked arbitration under Section 21 of the A&C Act, followed by a formal request to the LCIA on 10.01.2025. The respondents, Bhoruka Power Corporation Ltd. and its promoter shareholders, filed a petition before the Bengaluru Commercial Court, arguing that the arbitration clause had become void because LCIA India had ceased operations in 2016 and could not be extended to LCIA London. The Commercial Court accepted this argument and, by order dated 28.04.2025, restrained L&T from proceeding with arbitration. L&T appealed to the Karnataka High Court.

The High Court considered two main issues:

• Whether the arbitration clause in the CCD Agreement remained valid and operable after LCIA India’s closure, and
• If LCIA India was unavailable, whether arbitration could continue under LCIA London or by some alternative or ad hoc process.

Furthermore, the CCD Agreement also specified the seat of arbitration as either Mumbai or Bengaluru, at the investor’s discretion (Clause 16.2), a fact that placed the arbitration within the framework of the Indian A&C Act, 1996 and materially influenced the curial law and forum considerations.