Intervene only when necessary, modify only when strictly permissible and always defer to the arbitral tribunal’s role as the final adjudicator of facts..!!

                                                               ABSTRACT

The Supreme Court’s Constitution Bench decision in Gayatri Balasamy marks a turning point in Indian arbitration law. Departing from the traditional view that courts cannot modify arbitral awards under Section 34 of the Arbitration and Conciliation Act, 1996, the majority by a 4:1 decision has held that limited modifications are permissible under certain circumstances. This article analyses the Court’s rationale, examines its implications for party autonomy, finality of awards and international enforceability, while evaluating the prudence of relying on judicially implied powers.

BACKGROUND

In Gayatri Balasamy v. ISG Novasoft Technologies Ltd.^[1] (“SC Judgment”), a five-judge Constitution Bench of the Hon’ble Supreme Court of India (“Supreme Court”) by a 4:1 majority has settled a major issue that divided judges for the last few years- whether courts can modify arbitral awards under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”).

The Arbitration Act, crafted in alignment with the UNCITRAL Model Law on International Commercial Arbitration, 1985 (“Model Law”), restricts judicial intervention in arbitral awards to narrowly defined grounds for setting aside under Section 34(2) and (2A) of the Arbitration Act. However, divergent judicial interpretations created uncertainty about the court’s power to modify arbitral awards. Two distinct lines of precedent emerged. On one hand, decisions such as Project Director, NHAI v. M. Hakeem^[2], Larsen Air Conditioning and Refrigeration Company v. Union of India^[3], and SV Samudram v. State of Karnataka^[4] held that courts have no power to modify arbitral awards under Sections 34 or 37 of the Arbitration Act. On the other hand, three-judge bench decisions in J.C. Budhraja v. Chairman, Orissa Mining Corporation Ltd.^[5], Tata Hydro-Electric Power Supply Co. Ltd. v. Union of India^[6], and Shakti Nath v. Alpha Tiger Cyprus Investment No. 3 Ltd.^[7] acknowledged a limited power, often in specific contexts like adjusting interest rates or severing parts of an award. This conflict necessitated a referral to a larger bench to address five foundational questions:

1. whether courts can modify awards under Sections 34 and 37; if so,
2. whether such power is limited to severable parts;
3. whether the power to set aside includes modification and to what extent;
4. whether modification can be read into Section 34; and
5. whether Hakeem and its progeny^[8] correctly interpret the law.

The SC Judgment reconciles this jurisprudential divergence and attempts to introduce a more pragmatic and purposive framework with limited judicial oversight of arbitral awards in India.

IMPLIED POWER FOR MODIFICATION OF AWARD EXISTS UNDER SECTION 34

The majority held that the proviso to Section 34(2)(a)(iv) of the Arbitration Act clarifies the court’s inherent power to sever invalid parts of an arbitral award from valid ones when setting aside an award. Invoking the Latin maxim omne majus continet in se minus i.e., the greater power includes the lesser – the Supreme Court reasoned that the authority to set aside an entire award encompasses the power to set aside only separable parts. Since modification is a more limited power than setting aside, the majority concluded that the ‘limited and restricted’ power of ‘severing’ an award “implies” a power to ‘vary or modify’ the award, provided such changes do not involve a substantive reassessment of the arbitral tribunal’s findings.

However, Justice K.V. Viswanathan, in his dissenting opinion, rejected the premise that the power to modify is a subset of the power to set aside. He opined that the two powers operate in distinct spheres and are not of the same genus. According to him, modification entails a substitution of the arbitral tribunal’s reasoning and outcome with that of the court’s, which runs contrary to the statutory policy of minimal judicial interference. Therefore, reading a power to modify into Section 34 would, in his view, impermissibly expand the scope of judicial review beyond what the legislation contemplates.

IMPLIED POWER TO MODIFY AN AWARD DOES NOT CONFLICT WITH THE SECTION 33 AND 34(4)

When asked whether courts can imply a power to modify awards given the arbitral tribunal’s express powers under Section 33 and 34(4) of the Arbitration Act, the majority held that courts under Section 34 possesses the authority to rectify computational, clerical, or typographical errors, as well as other manifest errors, provided such modification does not necessitate a merits-based evaluation. However, the Supreme Court laid down safeguards to ensure this limited modification power is exercised cautiously, namely:

1. The court must have no uncertainty or doubt when modifying an award;
2. If the modification is debatable or a doubt arises regarding its appropriateness, i.e., if the error is not apparent on the face of the record, it is inappropriate for the court to proceed with any modification; instead, party may to seek recourse under Section 33 before the arbitral tribunal or under Section 34(4).

Disagreeing with the majority opinion, Justice K.V. Viswanathan stated that interpreting the implied power to modify would contravene with the Act’s intent. The clear omission of the court’s modification powers from the 1996 Act, in contrast to the 1940 Act’s express provisions, reflects the legislative intent of restricting judicial intervention. Statutorily, the Act explicitly provides for setting aside and correcting errors, not a general power of modification. Therefore, there were no implied powers of modification.

REMAND UNDER SECTION 34(4): A REMEDIAL TOOL

Building on its discussion of modification powers, the majority acknowledged that courts may face uncertainty about when to remand an award under Section 34(4) versus modifying it. To address this and ensure clarity for parties, the majority clarified that courts should avoid modifying the award when the use of modification powers is unclear, prioritizing remand to maintain arbitration’s integrity.

To address potential uncertainty in applying modification powers, the majority acknowledged that setting rigid rules for using Section 34(4) of the Arbitration Act is not appropriate. To guide courts and address practical implications, the majority clarified several safeguards:

1. Courts can accept oral requests for remand under Section 34(4)^[9] even after a Section 34(1) decision;
2. A court may remand awards with inherently irreparable defects;
3. Courts must consider proportionality between the defect’s harm and the remedy;
4. An order of remand should not be passed when such order would place the arbitral tribunal in an invidious or embarrassing position; and
5. The remand is unsuitable when it does not serve the interests of the parties, particularly in time-sensitive cases or when doing so would cause undue costs and inefficiency.

Justice K.V. Viswanathan, on the other hand, asserted that Section 34(4) serves as a “safety valve” for tribunals to rectify curable defects. Courts cannot be allowed to modify the substantive findings of the award. However, courts are suo-moto empowered to invoke their powers of remand even without a party’s request if it deems it appropriate.

ENFORCEABILITY OF A “MODIFIED” AWARD UNDER THE NEW YORK CONVENTION^[10]

In paragraphs 66–69 of the SC judgment, the majority addresses enforcement challenges under the New York Convention, rejecting the argument that modified awards are unenforceable as court decrees due to the inapplicability of the doctrine of merger. Section 48(1)(e) of the Arbitration Act, mirroring Article V(1)(e) of the New York Convention, prioritizes the award’s binding status under the seat’s law, and the majority argues that Section 34 modifications align with this. Citing Brace Transport Corporation of Monrovia, Bermuda v. Orient Middle East Lines Limited, Saudi Arabia and Others^[11], the majority distinguishes recognition from enforcement, noting that modified awards will continue to retain arbitral character for recognition.

However, Justice K.V. Viswanathan recognized India’s lack of express statutory provisions which treated modifications as part of the tribunal’s award, unlike its foreign counterparts such as the UK and Singapore. Considering the Court’s decision in Kunhayammed & Others Vs. State of Kerala and Another^[12] which held that the doctrine of merger did not have a universal or unlimited application, he considered it unnecessary to delve into the applicability of the Doctrine of merger.

POWER TO MODIFY INTEREST AWARDED BY THE ARBITRAL TRIBUNAL?

The majority has clarified that in exercise of its powers under Section 31(7)(a) of the Arbitration Act and for pendente lite interest, the courts do not have the power to modify the award. The court can either set aside the rate of interest or recourse may be had to the powers of remand under Section 34(4).

In contrast, in a detailed examination of Section 31(7)(b) of the Arbitration Act, the majority has affirmed that courts are empowered to modify (increase or decrease) or award post-award interest in appropriate cases. The majority observed that since post-award interest concerns future circumstances that may not be foreseeable at the time of the award, courts must have the ability to intervene where warranted.

Paragraphs 72 to 79 of the SC Judgment outlines various scenarios where such intervention may be justified e.g., where the arbitrator has failed to specify interest, or where applying the statutory default rate would lead to manifest injustice. The majority emphasized that this power, though limited, is critical to avoid setting aside entire awards solely due to errors in interest calculations.

In his dissent, Justice K.V. Viswanathan did not explicitly distinguish between pre-award and post-award interest. He rather emphasized on the general rule of minimal judicial intervention. He was of the opinion that if although the whole exercise of arbitration would have to be undertaken again, in matter of interest, the correct recourse would be to remit the matter back to the arbitrator. If subsequently the matter resurfaced before the Court and it felt that the grounds for setting aside were not eliminated, the only recourse would be to set it aside.

USE OF ARTICLE 142: A TOOL FOR CLOSURE, NOT CORRECTION

While the SC Judgment affirms that the Supreme Court can invoke Article 142 of the Constitution of India, 1950 (“Constitution”) to do ‘complete justice’, the majority underscored that this power must be exercised sparingly and within the structural confines of the Arbitration Act. Article 142, the majority held, cannot be used to rewrite or re-evaluate the merits of an arbitral award.

Instead, it may be used to bring finality to litigation—particularly when prolonged proceedings would otherwise ensue. As explained in paragraphs 82 to 84, the majority clarified that Article 142 can serve as a tool to resolve lingering disputes, but cannot be invoked to supplant the statutory scheme governing arbitration.

While the majority departed from the traditionalist approach, Justice K.V. Viswanathan stuck to the Arbitration Act’s express provisions which permit courts to either set aside or remand the award to the arbitral tribunal. He held that Article 142 of the Constitution cannot be invoked to modify arbitral awards, as doing so would effectively override the express legislative framework governing arbitration. Relying on settled precedent, he observed that Article 142 cannot be employed to bypass substantive statutory provisions, and allowing such usage would erode the finality and autonomy of arbitral proceedings envisaged under the Arbitration Act.

CONCLUSION

The SC Judgment marks a significant and measured clarification in the Indian arbitration jurisprudence where rather than outright denying courts the power to modify arbitral awards, the Court affirms that such a power exists — but in a limited and carefully circumscribed manner. This approach represents a judicious middle path. It respects the autonomy and finality of arbitral awards, while still preserving the court’s role as a constitutional safeguard against glaring errors that render an award legally unsustainable. The SC Judgment acknowledges the practical realities faced by litigants and courts alike, particularly in cases where a complete setting aside of the award would be disproportionate or inefficient. Yet, it refuses to permit courts to recast awards merely on grounds of perceived fairness or quantum.

By laying down a principled framework for when and how modification may be permitted, the Court has brought much-needed clarity to a previously unsettled area. It sets a clear benchmark for courts going forward, intervene only when necessary, modify only when strictly permissible and always defer to the arbitral tribunal’s role as the final adjudicator of facts. This decision reinforces India’s commitment to minimal judicial interference while ensuring that arbitral awards do not become immune to correction in rare but deserving cases.

In the context of India’s arbitration landscape, which already grapples with uneven judicial intervention on issues ranging from public policy exceptions to overbroad review of arbitration clauses, the real test of this ruling lies not in its text but in its implementation. The key to preserving its utility will be judicial restraint, clarity of standard and fidelity to the principle of minimal interference.

The Gayatri Balasamy decision undeniably reshapes the contours of arbitral intervention in India.  Going forward, courts must tread cautiously, developing robust thresholds for modification and ensuring that the decisions does not morph into a tool for relitigation among parties. Legislators too, must consider codifying safeguards if this doctrine is to evolve into a workable procedural standard without undermining the sanctity of arbitral awards which the authors hope may be the case once the 2024 amendments come into existence.

Footnotes:

* Dr. Abhimanyu Chopra (Partner), Ambareen Mujawar and Aman Chaudhary (Senior Associates) are members of the Disputes team. They actively practice before courts across India and represent clients in both domestic and international arbitrations across multiple jurisdictions in diverse sectors. The authors would also like to thank Sharmishtha Poundrik for her assistance in writing the present piece.

[1] 2025 INSC 605

[2] (2021) 9 SCC 1

[3] (2023) 15 SCC 472

[4] (2024) 3 SCC 623

[5] (2008) 2 SCC 444

[6] (2003) 4 SCC 172

[7] (2020) 11 SCC 685

[8] Larsen Air Conditioning and Refrigeration Company vs. Union of India, (2023) 15 SCC 472; and SV Samudram vs. State of Karnataka, (2024) 3 SCC 623; Vedanta Limited vs. Shenzden Shandong Nuclear Power Construction Company Limited, (2019) 11 SSC 465; Oriental Structural Engineers Pvt. Ltd. vs. State of Kerala, (2021) 6 SCC 150; and M.P. Power Generation Co. Ltd. vs. Ansaldo Energia Spa) (2018) 16 SCC 661; J.C. Budhraja vs. Chairman, Orissa Mining Corporation Ltd., (2008) 2 SCC 444; Tata Hydroelectric Power Supply Co. Ltd. vs. Union of India, (2003) 4 SCC 172; and Shakti Nath vs. Alpha Tiger Cyprus Investment No.3 Ltd. (2020) 11 SCC 685

[9] The decision in Kinnari Mullick and Another v. Ghanshyam Das Damani (2018) 11 SCC 328 on this point has been expressly overruled by the majority.

[10] United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958

[11] 1995 Supp (2) SCC 280.

[12] (2000) 6 SCC 359