In a long-awaited verdict that revisits the doctrinal rigidity of Section 34 of the Arbitration and Conciliation Act, 1996 (Act), a five-judge bench of the Supreme Court in Gayatri Balasamy v. ISG Novasoft Technologies Ltd. (2025 INSC 605) has pronounced that Indian courts do possess a limited power to modify arbitral awards. The judgment, which departs from the restrictive interpretation in Project Director, NHAI v. M. Hakeem (2021), deserves both praise and scrutiny for the implications it carries on party autonomy, finality of awards, and the sanctity of arbitration itself.
The Crux of the Verdict
Chief Justice Sanjiv Khanna (writing for the majority, joined by Justices Gavai, Sanjay Kumar, and Masih) held that:
- Courts under Sections 34 and 37 of the Act can modify arbitral
awards in four limited circumstances:
(i) where the award is severable,
(ii) to correct clerical/computational errors,
(iii) to vary post-award interest, and
(iv) under Article 142 for complete justice. - This power does not amount to appellate review and must avoid merits-based reappraisal.
- The court also relaxed the interpretation in Kinnari Mullick to allow even appellate courts to remand matters under Section 34(4).
Justice S. Ravindra Bhat dissented, cautioning that judicial creativity should not trespass into legislative intent or the structural finality of arbitration.
Breaking Down the Legal Pivot:
Historically, Section 34 only allowed courts to set aside awards on limited grounds, primarily public policy or patent illegality. The M. Hakeem ruling (supra) denied courts any power to modify, citing strict fidelity to the UNCITRAL Model Law.
The present judgment reframes partial setting aside as a functional modification and leans on doctrines such as severability and implied powers. It even draws from international practice to legitimize this interpretive shift.
Strengths of the Majority's Approach:
- By avoiding re-arbitration for correctable errors, the judgment cuts cost and delay.
- It harmonizes implied judicial powers (like under Section 152 CPC) with arbitral efficiency.
- Finality Preserved: The court makes clear that this is not backdoor appellate review.
Where the Majority Falters:
1. Legislative Overreach? Modification is not textually authorized under Section 34. 2. Risks to Party Autonomy: Judicial discretion, if unchecked, may dilute arbitral sanctity. 3. Cross-Border Enforcement Concerns: Modified awards may fall foul of the New York Convention framework.Conclusion:
The Gayatri Balasamy ruling is a landmark in Indian arbitration law. It treads a fine line between equity and excess, offering relief from procedural rigidity while raising concerns about future judicial adventurism. Parliament may now have to step in to codify the boundaries of this new power before courts begin testing its elasticity. The arbitral community must also now grapple with a dual challenge: leveraging this newfound flexibility while guarding against its misuse.
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