In Gayatri Balasamy (“Appellant”) vs. ISG Novasoft Technologies Limited (“Respondent”)1, a five-judge constitution bench of the Hon'ble SupremeCourt of India (“SC”) in a 4:1 majority inter alia held that courts have a limitedpower to modify an arbitral award under Sections 34 and 37 of theArbitration and Conciliation Act, 1996 (“Arbitration Act”).
FACTS
The case arose from conflicting judgments of the SC on whether courts canmodify arbitral awards when hearing challenges under Section 34 of theArbitration Act. A three-judge bench had referred the matter to a largerbench to determine the correctness of the SC's earlier judgment in Project Director, NHAI v. M. Hakeem2, which held that courts cannot modify awardsunder Section 34 of the Arbitration Act.
ISSUES
- Whether the powers of the Court under Sections 34 and 37 of theArbitration Act include the power to modify an arbitral award?
- If courts have the power to modify an arbitral award, to what extent can itbe exercised?
FINDINGS
At the outset, the SC concluded that courts possess limited power to modifyarbitral awards. In this regard, the SC rejected arguments that the power toset aside an award inherently includes a broader power to modify an award,emphasizing that modification and setting aside are distinct powers. The SCheld that the power to modify exists within the confines of Section 34 of theArbitration Act but is not derived from a broader power to set aside awards.Modification is permissible only in certain specific circumstances.
Firstly, modification is allowed when an award is severable, allowing for theseparation of valid and invalid portions of the award. The SC emphasized thatthis power of partial setting aside should be exercised only when the validand invalid parts of the award can be clearly segregated—particularly inrelation to liability and quantum and without any correlation between validand invalid parts.
Lastly, the SC may exceptionally use its power under Article 142 of theConstitution of India, 1950 to modify awards, but only to do complete justiceand not to rewrite the award. The SC emphasized that this power must beexercised with great care and caution.
CONCLUSION
This judgment significantly impacts arbitration law in India by affirming thecorrectness of the judgment in Project Director, NHAI v. M. Hakeem, withcertain exceptions noted in this judgment. It provides clarity on the limitedcircumstances where courts can modify arbitral awards and emphasizes theimportance of party autonomy in arbitration proceedings.
However, although the ruling aims to avoid redundant arbitration andenhance efficiency, its broad interpretation could ironically trigger new legaldisputes over the precise meaning of a 'limited' modification. This is exactlywhy the dissenting opinion emphasizes that altering awards under Section 34of the Arbitration Act undermines the fundamental principles of thearbitration process. Therefore, without strict judicial restraint, the presentjudgment could invite the very judicial interference the Arbitration Act wasdesigned to prevent.
Footnotes
1. 2025 SCC OnLine SC 986
2. (2021) 9 SCC 112
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