In a landmark ruling by a five-judge1 Constitution Bench of the Supreme Court of India ("Supreme Court") in the matter of Gayatri Balaswamy vs. M/s ISG Novasoft Technologies Limited2, answered a crucial point of determination with respect to the power of the court to modify an award under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996 ("Act"). The referral to the Constitution Bench was necessitated by conflicting judicial interpretations on this issue by various courts.
The Supreme Court's Ruling: Modification Permissible in Limited Circumstances
The Supreme Court, by a 4:1 majority, held that courts may, in limited and clearly defined circumstances, modify arbitral awards while adjudicating proceedings under Sections 34 and 37 of the Act. The decision significantly redefines the scope of judicial intervention by Indian courts in arbitral proceedings. This represents a calibrated shift from the previously rigid "all-or-nothing" approach when the courts were adjudicating setting aside applications and related appeals under Sections 34 and 37 of the Act. As long as the modification is minor, severable, and does not entail reappraisal of evidence or merits, courts may intervene to correct manifest errors without violating the arbitral framework.
The authors summarise the majority ruling by outlining the following key principles that were considered by the Supreme Court in arriving at the decision:
- Interpreting Section 34: Purposive Reading and the Doctrine of Severability
The Supreme Court has taken a purposive interpretation of Section 34 of the Act. It noted that although the text of Section 34 expressly mentions "setting aside" of award as the remedy, there was no explicit bar on the court's power to undertake limited correction or modification. The Court interpreted the proviso to Section 34(2)(a)(iv) to hold that it outlines the concept of "severability of awards," as it permits severance of the "invalid" part of the award from the "valid" part in the context of an award which determines issues beyond the scope of those submitted to a tribunal. The Supreme Court applied the maxim omne majus continet in se minus to hold that to set aside an arbitral award necessarily encompasses the power to set it aside in part, rather than in its entirety.
- Modification vs. Setting Aside: Two Distinct Judicial Functions
The Supreme Court distinguished between the concepts of "modification" and "setting aside," recognizing them as distinct judicial actions. However, the Supreme Court noted that the ability to modify in certain situations flows naturally from the broader power to annul.
The Court clarified that it possesses the power to set aside an arbitral award in part, rather than only in its entirety, provided the valid and invalid portions are separable and not intrinsically intertwined. This approach prevents unnecessary nullification of valid determinations and aligns with the statutory framework.
The Supreme Court, though conscious of the prescribed limited judicial intervention under the Act, held that judicial intervention by way of modification of award is legitimate and necessary when it furthers the ends of justice. The majority emphasized that restricting courts to an all-or-nothing approach of either setting aside or upholding awards often leads to unnecessary re-arbitration, increased costs, and delays. The Supreme Court endorses the fact that modification represents a more limited and nuanced power in comparison to annulment of the award.
- Power of Tribunal to rectify/pass additional award does not restrict court from modifying the award
The majority ruling justified the power of the courts to modify an award despite the provisions of Sections 33(4) and 34(4), which allow the arbitral tribunal to rectify the award and/or pass an additional award in certain circumstances. The Supreme Court decided that remand is appropriate when the defect in the award cannot be resolved without further fact-finding or clarification from the arbitral tribunal. In contrast, modification may be employed when the error is manifest and does not require additional adjudicatory input.
- Courts Empowered to modify the post-award interest decided under arbitral award
The Supreme Court, while extending the powers of modification of arbitral awards, categorically included within its domain the power of courts to vary the post-award interest granted under the arbitral award. Section 31(7)(b) provides a default rate, but courts retain the power to ensure that the award is equitable and does not impose a disproportionate financial burden on either party. Therefore, the Supreme Court has held that in appropriate cases, courts may intervene to modify, increase, or rationalize post-award interest.
- Modified awards remain enforceable under New York Convention
Addressing concerns about enforceability of modified awards, the Supreme Court held that as long as the seat of arbitration—i.e., Indian law—recognizes the award (even as modified), it remains valid and enforceable under the New York Convention. The Court dismissed the notion that minor judicial corrections would undermine international recognition of arbitral awards.
- Supreme Court under Article 142 can exercise discretion for modification of award to do 'complete justice'
The majority acknowledged the Supreme Court's wide discretionary powers under Article 142 of the Constitution of India but cautioned that it must be exercised with restraint in arbitration cases. The Court clarified that while Article 142 may be used to bring closure to protracted disputes and prevent injustice, it cannot serve as a backdoor to re-litigate merits or circumvent statutory limits under the Act.
Practical Impact: Solutions or Challenges?
As litigants adapt to this judicial evolution where Courts can now modify awards in setting aside proceedings, its true impact will become clearer with the development of jurisprudence in this area. However, the authors are of the view that this judgement will certainly impact the setting aside and execution proceedings:
- Interpreting the 'Severable' and 'Manifest' Errors
Going forward, the interpretation of what qualifies as a "severable" or "manifest" defect will be central to determining the scope of permissible judicial modification. The majority, while allowing courts to modify the award by allowing rectification of computational, clerical, or typographical errors, also included the phrase "as well as other manifest errors"—a term left undefined in the judgment. This open-ended formulation leaves room for evolving jurisprudence, and courts will no doubt be called upon to interpret its boundaries in the near future.
- Recalibrating Litigation Strategy under Section 34
Practically, the judgment introduces a significant shift in how challenges under Section 34 of the Act are to be framed and argued. A party seeking to set aside an award will now need to conduct a more nuanced analysis of the awards, particularly in assessing whether the defect they aim to rely on could be considered as capable of modification by the court without destabilising the entirety of the award. The party defending the setting aside proceedings is most likely to take the position that the error in the award, if any, should and can be modified in the interest of justice. This recalibration in legal strategy will require parties to structure their pleadings with greater precision, including framing reliefs that acknowledge the possibility of partial correction, modification, or severance.
- Judicial Evolution under Sections 34 and 37
From a legal standpoint, the Supreme Court's decision marks a procedural evolution in the remedial framework under Sections 34 and 37 of the Act. It replaces the historically rigid binary of "set aside or uphold" with a more refined, commercially attuned model of judicial intervention. By recognising the court's authority to excise clearly identifiable errors—such as computational or clerical mistakes, disproportionate interest awards, or severable invalid components—the judgment realigns judicial oversight with the broader goals of efficiency, fairness, and is aimed to assist with the goal of finality in arbitration.
- Procedural Consequences and Appellate Trends
However, this expansion of judicial power is not without procedural consequences. As courts begin to entertain modification requests, the adjudication timelines under Sections 34 and 37 may lengthen and become more discretionary. The suggestive timelines for conclusion of the Section 34 proceedings under the Act were not practical to begin with, but now can genuinely be considered to be deleted in subsequent amendments to the Act. Parties are now likely to advance arguments not only about the invalidity of awards but also persuade the court that in case of award is not set aside it can be modified to certain extent. In this process there may be increased factual scrutiny. Further, with the modification powers recognised at various levels would also mean that the parties would exhaust all possible remedies and opt for more frequent appellate review by way of Section 37 appeals as well as appeal before the Supreme Court, thereby undermining the time- and cost-efficiencies traditionally associated with arbitration.
- Risks of Judicial Overreach under Article 142
The Supreme Court reserving its discretion under Article 142 to do "complete justice" in appropriate cases may be viewed as a risk of judicial overreach. While there is no doubt that the Supreme Court has cautioned in applying Article 142 in regular course, its very availability as a remedial fallback could inject uncertainty into proceedings during the pendency of challenge or appeal. Whether a balance between judicial restraint and necessary intervention is maintained—or whether this discretion leads to prolonged litigation—will depend on how courts operationalise the principles laid down in this landmark ruling.
In large part, any fears on this count arise from the recent decision of the Supreme Court in the Delhi Metro Rail Corporation case ("DMRC case")3. The curative petition was 5th level of review after all measures under the Act in form of Section 35 and 37 proceedings, special level petition, and review petition were exhausted. Under such a scenario, the Supreme Court exercised its powers under Article 142 of the Constitution to set aside an earlier order that had reinstated an arbitral award imposing a heavy and unfair financial burden on a public utility. The Court found that the earlier decision had failed to address fundamental issues going to the root of the matter. It ultimately held that this amounted to a grave miscarriage of justice, warranting the use of its curative jurisdiction.
That said, the express liberty reserved by the majority ruling for modification even under Article 142 is likely to encourage more parties to approach the Supreme Court, raising questions of law to seek its intervention where a refusal to modify an award is perceived to have resulted in manifest injustice.
Conclusion
The Model Law promotes minimal judicial interference, and the majority ruling emphasises that the power to modify should be used sparingly. This power by courts—if exercised prudently—can align India's arbitration regime with modern jurisdictions such as Singapore and the UK.
However, this judgment is also likely to give rise to a series of decisions on what constitutes a "severable" or "manifest" error. It will not be surprising if this issue is also ultimately required to be settled by the Supreme Court a few years from now. Ultimately, the success of this doctrinal shift will depend on its mindful implementation of judicial activism, so that the core objective of arbitration—as a swift and effective dispute resolution mechanism—is not compromised.
Footnotes
1 Chief Justice of India, Justice Sanjiv Khanna, joined by Justices B.R. Gavai, PV Sanjay Kumar, KV Viswanathan and Augustine George
2 SLP (c) No. 15336-15337 of 2021, decided vide judgement dated 30 April 2025.
3 Delhi Metro Rail Corporation Ltd. vs. Delhi Airport Metro Express Pvt. Ltd. (2024 SCC OnLine SC 522)
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