The Supreme Court of India, through a five-judge Constitution Bench, on 30 April 2025 held by a 4:1 majority that courts possess a limited power to modify arbitral awards under Section 34 of the Arbitration and Conciliation Act, 1996. Chief Justice Sanjiv Khanna authored the majority opinion, joined by Justice B.R. Gavai, Justice Sanjay Kumar, and Justice Augustine George Masih. Justice K.V. Viswanathan delivered a dissenting opinion.
Background
The case of Gayatri Balasamy v. ISG Novasoft Technologies Ltd. originated from an employment dispute. Gayatri Balasamy, appointed as Vice President at ISG Novasoft Technologies Limited in April 2006, resigned in July 2006 alleging sexual harassment by the company's CEO. The resulting arbitral proceedings produced an award that was subsequently challenged under Section 34 of the Act.
The reference to the Constitution Bench arose from a longstanding divergence of judicial opinion on whether courts exercising jurisdiction under Section 34 could modify an arbitral award, or whether the only available remedy was to set aside the award in its entirety. Several High Courts and Supreme Court benches had taken conflicting positions, with some holding that Section 34 only permitted complete annulment while others recognised a limited modification power. The question was whether the proviso to Section 34(2)(a)(iv), which permits severance of the invalid portion of an award from its valid portion, impliedly conferred a broader power to vary or modify awards.
Key Holdings
The Constitution Bench majority established the following framework for judicial modification of arbitral awards:
Limited modification power recognised: The majority held that the restricted power of severing an invalid portion from a valid portion of a severable award under the proviso to Section 34(2)(a)(iv) implies a power to vary or modify the award. The Court rejected the view that courts may only set aside awards in toto.
Permissible modifications: Courts may exercise modification powers in the following circumstances:
- Severing the invalid portion from the valid portion of a severable award
- Correcting clerical, computational, and typographical errors
- Correcting other manifest errors that do not require a merits-based evaluation
- Modifying post-award interest (but not pendente lite interest)
Article 142 powers: In exceptional cases, the Supreme Court may exercise its Article 142 jurisdiction to modify awards to do complete justice, though this power must be exercised with great care and caution.
Limits of modification: The modification power does not extend to re-evaluation of the merits of the dispute. Courts cannot substitute their assessment of evidence for that of the arbitral tribunal or re-decide the substantive controversy.
Dissent: Justice K.V. Viswanathan, in his dissenting opinion, maintained that Section 34 permits only annulment of awards and that recognising a modification power would undermine the principle of minimal judicial interference that underpins the Arbitration Act.
Implications for Practitioners
This judgment fundamentally alters the landscape of arbitration litigation in India. The recognition of a modification power, even if limited, provides courts with a proportionate remedy that avoids the all-or-nothing outcome of the previous binary framework where awards could only be upheld or set aside entirely.
For parties challenging arbitral awards, the practical benefit is significant. Where an award contains a computational error or a clearly severable invalid component, Section 34 courts can now correct the specific defect without disturbing the remainder of the award. This reduces the time and cost of complete remand or re-arbitration.
Practitioners drafting arbitration clauses should consider whether to incorporate provisions that explicitly address the scope of judicial modification, potentially limiting it contractually if parties wish to preserve maximum arbitral finality.
The distinction between post-award interest (modifiable) and pendente lite interest (not modifiable) introduces a granular analysis that practitioners must apply when seeking or defending against modification applications. Awards that compute interest incorrectly may now be partially corrected rather than set aside.
The dissenting opinion by Justice Viswanathan will likely be cited by parties seeking to limit the scope of modification in future proceedings, and the tension between the majority and minority views may generate further jurisprudential development.