Gayatri Balasamy v. M/s. ISG Novasoft Technologies Limited 2025 INSC 605
Bench – CJI Sanjiv Khanna, B.R. Gavai, Sanjay Kumar, Augustine George Masih, K.V. Viswanathan, JJ.
Delivered on April 30, 2025
Facts: The issue arose due to differing judicial interpretations of Section 34 of the Arbitration and Conciliation Act, 1996. In contrast to the earlier Arbitration Act of 1940, which specifically empowered courts to alter arbitral awards under Section 15, the 1996 statute limits the court’s role to setting aside an award. In the case involving Gayatri Balasamy, a District Court went beyond this by increasing the amount awarded, prompting a challenge on the ground that such an alteration exceeded the court’s authority. The Supreme Court itself has delivered inconsistent views on this question. In Project Director NHAI v. M. Hakeem (2021) 9 SCC 1, it was held that courts lack the power to modify arbitral awards. However, in decisions such as Vedanta Limited v. Shenzden Shandong Nuclear Power Construction Company Limited (2019) 11 SSC 465, and Oriental Structural Engineers Pvt. Ltd. v. State of Kerala (2021) 6 SCC 150, the Court appeared to permit or uphold limited modifications, especially in relation to interest components, thereby contributing to the ambiguity.
The five-judge Constitution Bench was tasked with deciding the following issues:
i. Do the powers of the Court under Sections 34 and 37 include the power to modify an arbitral award?
ii. If such power exists, is it limited only to severable parts of the award?
iii. Does the “larger power” to set aside an award inherently include the “lesser power” to modify it?
iv. Can the power to modify be read into Section 34 of the Arbitration and Conciliation Act, 1996?
Majority Reasoning (CJI Sanjiv Khanna, B.R. Gavai, Sanjay Kumar, and Augustine George Masih, JJ.)
Practicality and Fairness: The majority adopted a practical and fairness-oriented approach in interpreting Section 34. It emphasized that refusing courts the ability to make limited modifications would often push parties into initiating a fresh arbitration, effectively adding another layer to an already prolonged process that includes arbitration, challenges under Section 34, appeals under Section 37, and potential recourse under Article 136. Such an outcome, the Court noted, would undermine the very objective of arbitration as a speedy and cost-efficient dispute resolution mechanism.
Severability Principle: The judges also relied on the doctrine of severability. They pointed out that the proviso to Section 34(2)(a)(iv) already permits courts to separate the invalid portions of an award from those that are valid. In substance, this act of partially setting aside an award operates as a form of modification, even if not expressly labelled as such.
Implied Judicial Powers: The majority recognized that courts possess inherent and implied powers to correct obvious errors—such as clerical, arithmetical, or typographical mistakes—that are evident on the face of the record. Such corrections, they clarified, do not amount to a re-evaluation of the merits.
Adjustment of Interest: On the issue of interest, the Court observed that Section 31(7) of the 1996 Act provides a statutory framework for interest, unlike the Model Law. Accordingly, courts may intervene to adjust post-award interest where it is inconsistent with statutory standards or where subsequent developments justify such correction, especially since arbitrators cannot anticipate future circumstances at the time of making the award.
Use of Article 142: The majority reaffirmed that the Supreme Court retains its broad constitutional authority under Article 142 to modify arbitral awards in order to achieve complete justice and bring finality to disputes. However, it cautioned that this power must not be exercised in a manner that effectively rewrites the award on its merits.
Dissenting Opinion (K. V. Viswanathan, J.)
Statutory Silence as Prohibition: Justice K.V. Viswanathan took a strict textual approach, emphasizing that the Arbitration and Conciliation Act, 1996 deliberately excludes any reference to the power of modification—a term that was expressly present in the 1940 Act. This omission, in his view, reflects a conscious legislative choice to confine the role of courts and prevent expansive judicial intervention.
Qualitative Difference: He further highlighted that the concepts of “setting aside” and “modification” are fundamentally different in nature. While the former involves nullifying an award, the latter entails altering its substance. These powers, according to the dissent, operate in distinct domains, and it would be incorrect to assume that the authority to set aside inherently includes the power to modify.
Judicial Legislation: Justice Viswanathan also cautioned against reading such powers into the statute, noting that doing so would effectively amount to judicial law-making. Since Section 34 is clear and unambiguous, introducing a modification power through interpretation would exceed the proper limits of judicial function.
Severability v. Modification: On the issue of severability, he acknowledged that courts may separate and set aside independent portions of an award where appropriate. However, he maintained that this exercise is materially different from modifying the content of a claim, which would involve changing the substance of the arbitral determination itself.
The judgment clarifies that courts may modify arbitral awards only in limited circumstances, such as severing invalid portions, correcting obvious errors, adjusting post-award interest, or exercising powers under Article 142 to ensure complete justice. At the same time, the Court reaffirmed the principle of minimal judicial interference in arbitration. Justice Viswanathan’s dissent emphasized that Sections 34 and 37 permit only setting aside or remitting an award, not modification, and warned that expanding judicial powers could undermine the finality and international enforceability of arbitral awards.