Analysing The Scope Of Modification Of Arbitral Awards Through Judicial Intervention

One of the core principles of arbitration is minimal Court intervention, allowing for efficient dispute resolution. The Arbitration and Conciliation Act, 1996 (Act) reinforces this by empowering the parties' chosen arbitrator to decide all aspects of the dispute, leaving only limited grounds under Sections 34 and 37 of the Act for Courts to set aside an arbitral award. Despite this narrow scope, Courts have, through various decisions, incrementally carved out a power to modify arbitral awards – a controversial development involving divergent judicial views on its conflict with party autonomy and the principle of non-interference. In a recent decision in Gayatri Balasamy v. ISG Novasoft Technologies Ltd,¹ the Supreme Court had the occasion to settle this long-standing issue.

In this matter, the Court, through a 4:1 majority ruling, held that while the primary remedy remains to set aside or remand an award to the arbitral tribunal, Courts do possess limited power to modify arbitral awards, subject to strict conditions. This note discusses the contours of the limited power of Courts to modify arbitral awards and its implications for arbitration practice in India.

Prior to the instant decision, a series of decisions from divergent High Court views and previous Supreme Court precedents led to an inconsistency in judicial standing on the power of Courts to modify an arbitral award. While Section 34 of the Act outlines specific grounds for setting aside arbitral awards, it does not expressly confer any power to 'modify' or 'vary' an award (Section 34(4) permits remand to the tribunal for clarifying issues, and Section 33 empowers the tribunal itself to correct clerical errors). Some of the pertinent decisions that clarify the limits of this judicial power to modify awards are summarised below:

• McDermott International Inc v. Burn Standard Co Ltd:² The Supreme Court held that Courts under Section 34 of the Act cannot correct the arbitrator's mistakes, whether factual or legal. Rather, their role is confined to setting aside the award, leaving the parties with the option to initiate fresh arbitration proceedings if they wish. However, when it came to the rate of interest, the Supreme Court invoked its extraordinary jurisdiction under Article 142 of the Constitution to vary the award as there was a significant lapse of time, reducing the interest rate from 10% per annum to 7.5% per annum.
• ONGC v. Western GECO International Ltd:³ The Supreme Court held that when an arbitral tribunal, upon considering the facts presented before it, fails to draw an inference that ought to have been drawn or, conversely, draws an inference that is manifestly untenable, resulting in a gross miscarriage of justice, such an award becomes amenable to challenge. In such circumstances, the award may be set aside or modified, depending on whether the offending part of the award is severable or not.
• Vedanta Ltd v. Shenzhen Shandong Nuclear Power Construction Co Ltd:⁴ In the context of an international award, the Supreme Court highlighted the need to consider the differing impact of interest rates when the parties operate in different currencies. A uniform interest rate for both the INR and EUR components was not justified. While maintaining the interest rate for the INR component, the interest on the EUR component was modified to the London Interbank Offered Rate (LIBOR) rate plus 3 percentage points.
• Oriental Structural Engineers Pvt Ltd v. State of Kerala:⁵ The Supreme Court upheld the award for being in consonance with the contract but intervened to modify the interest rate.
• Project Director, NHAI v. M Hakeem:⁶ The Supreme Court held that Section 34 of the Act allows arbitral awards to be set aside only on the limited grounds specified, thereby limiting the enforceability of Section 34 within those limitations. Hence, the award can either be set aside or remanded to the arbitral tribunal under Section 34(4), providing the tribunal a chance to eliminate the grounds for setting it aside. Here again, the tribunal's opinion is key in determining whether the grounds for setting aside have been resolved. Section 34 of the Act is modelled on the UNCITRAL Model Law on International Commercial Arbitration, which does not allow Courts to modify awards, unlike the broader powers under the Arbitration Act, 1940. Any expansion of Section 34's powers to include modification would require a legislative amendment.

The Supreme Court had the occasion to revisit the issue of the power of Courts to modify arbitral awards in the Gayatri Balaswamy matter, which was referred to a Constitution Bench by a 3-Judge Bench. The majority held that Indian Courts possess a narrowly circumscribed power to modify arbitral awards under Section 34 of the Act. This power is confined to specific instances where intervention is necessary to uphold the integrity of the arbitral process and avoid unnecessary nullification of valid outcomes:

• Severability: The Court endorsed the principle of severability, as reflected in the proviso to Section 34(2)(a)(iv): where an award contains decisions on matters not submitted to arbitration, only that portion can be set aside, leaving the rest intact. This implies a limited power to partially annul an award, provided that the invalid and valid portions are clearly separable and do not form a composite or interdependent whole. The power to set aside an award contains within it the power to modify the award, and words can be read into Section 34 to allow the Court to modify the award.
• Correction of clerical oversights: The majority recognised the Court's authority to correct clerical, typographical or computational errors apparent on the face of the record. Such ministerial corrections do not amount to a review on merits and fall within the inherent procedural powers of a Court acting under Section 34.
• Post-award interest: Post-award interest, governed by Section 31(7) of the Act, may be adjusted where the tribunal has either omitted it or awarded it without regard to changed circumstances. Recognising that arbitrators cannot anticipate all future developments, the Court permitted such limited modifications in the interest of fairness and justice.
• Supreme Court's inherent powers: In exceptional cases, the Supreme Court may exercise its power under Article 142 of the Constitution to mould relief and ensure complete justice, including modifying aspects of an award. However, this power must be invoked with great restraint and cannot substitute the statutory framework.

Through this interpretation, the majority sought to balance finality and flexibility, allowing Courts to rectify patent errors or remove severable defects without undermining the arbitral process. The decision does not dilute the principle of minimal judicial interference but rather reinforces it by permitting intervention only in situations where it serves the ends of justice without reopening the merits of the dispute.

The dissenting opinion of Justice KV Viswanathan is noteworthy in that while concurring with the majority on the first aspect, i.e. severability of ultra vires portions under Section 34(2)(a)(iv), which is statutorily grounded, he categorically distinguished and rejected any broader judicial power of modification, which alters the substance of an award. Justice Viswanathan was of the view that the legislative choice to limit recourse under Section 34 to setting aside or remanding must be respected, and the maxim omne majus continet in se minus (the greater includes the lesser) cannot be used to judicially imply textually absent powers. Perceived injustices arising from rigid application must be addressed by legislative amendment, not judicial innovation, and importing appellate functions under the guise of modification would violate party autonomy and blur the line between supervisory and appellate jurisdiction. Importantly, he also flagged the risk of undermining India's obligations under the New York Convention, noting that Court-modified awards may not qualify as 'arbitral awards' for purposes of international enforcement.

While the points raised in the dissenting opinion certainly merit consideration by the legislature, the judgment in Gayatri Balasamy marks a critical inflexion point in Indian arbitration jurisprudence. By affirming that Courts have a limited and carefully confined power to modify arbitral awards, the Supreme Court moved away from an absolutist view of arbitral finality, without undermining the core structure of the Act. This permits Courts to sever invalid components, correct patent clerical mistakes, and address interest-related anomalies, while preserving the sanctity of arbitral reasoning. The invocation of Article 142 further equips the Supreme Court with a constitutional safety valve in extraordinary cases. Crucially, by settling this ever-prevailing divergence, the decision enables uniformity and certainty in final outcomes.

At the same time, the dissent serves as a strong cautionary voice – reminding the judiciary that overreach risks upsetting the delicate balance between finality and fairness that arbitration seeks to achieve. Going forward, Courts must exercise this limited power with restraint, ensuring that it remains a corrective tool rather than an avenue for re-litigation. The ruling underscores the importance of drafting precise arbitration agreements and presenting clear, well-structured and robust claims and evidence, as the scope for post-award judicial correction is now limited but real.

Footnotes

1. (2025) 7 SCC 1:2025 SCC OnLine SC 986

2. (2006) 11 SCC 181

3. (2014) 9 SCC 263

4. (2019) 11 SCC 465

5. (2021) 6 SCC 150

6. (2021) 9 SCC 1

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