Background
For many years, Indian courts have been engaged in a judicial debate over their jurisdiction to modify arbitral awards under Section 34 of the Arbitration and Conciliation Act, 1996 ("the Act"). This uncertainty has led to inconsistent judicial rulings: some courts have restricted or outright denied the power to modify awards, aiming to limit judicial interference, whereas others have exercised such powers, primarily to correct clerical errors or adjust interest rates.
Section 34 of the 1996 Act limits judicial intervention to specific, enumerated grounds and does not explicitly authorize the modification or variation of arbitral awards. Additionally, Section 37 allows for appeals against certain orders, including those setting aside or refusing to set aside an award under Section 34. Despite this, courts have occasionally modified awards primarily with respect to interest rates or severable parts leading to legal uncertainty and inconsistency.
This discrepancy drew the Supreme Court's attention in cases such as Project Director, NHAI v. M. Hakeem ( 2021 ) 9 SCC 1, wherein it was held that courts lack the authority to modify awards under Section 34. However, this stance was not uniformly adopted, as some benches either modified awards or upheld such modifications.
This debate has been finally settled by the Supreme Court's Constitution Bench in its landmark judgment dated April 30, 2025, in Gayatri Balasamy v. M/s ISG Novasoft Technologies Limited [2025 INSC 605]. In a decisive 4:1 majority verdict, the Court clarified the scope of judicial powers under Sections 34 and 37 of the Act, providing clear guidance on the circumstances and limits of judicial intervention in arbitral awards.
The Court has laid down that judicial bodies possess not only the authority to set aside awards but also to modify them in specific, limited scenarios. This ruling signifies a major development in Indian arbitration law by balancing the need to prevent excessive judicial interference with the imperative of delivering just and timely resolutions. It delineates the boundaries within which courts can exercise modification powers, thus offering much-needed clarity to legal practitioners and parties involved in arbitration.
Prior Judicial Perspectives
Historically, the Supreme Court has emphasized thatarbitral tribunals are the sole masters of evidence andmerits, with courts' role under Section 34 limited tothe enumerated grounds such as patent illegality orprocedural irregularities. Courts have traditionallyrefrained from correcting factual mistakes orreevaluating substantive issues, confining themselvesto either setting aside or remanding awards. Thisapproach, however, often resulted in harshconsequences for parties, especially where minorerrors led to complete annulment of awards, causingsignificant hardship for the successful party.
Rationale behind the Present Ruling
The majority judgment, authored by Chief JusticeSanjiv Khanna, recognized that Section 34 confers abroader scope of power than previouslyacknowledged. It held that the power to set aside anaward inherently includes the authority to modify it inlimited circumstances. The Court reasoned that theAct's silence on modification should not beinterpreted as a prohibition rather, such power isimplied and necessary to prevent undue hardship,costs, and delays.
PerspectivesThe Court clarified that modification is distinct from an appeal; it should only be invoked when the intendedcorrection is clear and unambiguous. The Court outlined specific conditions under which modification ispermissible:
- To prevent significant hardship, excessive costs, or delays that would arise if awards are entirely annulled.
- To avoid forcing parties into new arbitration proceedings for minor, corrigible errors that the court canrectify.The Court also upheld the
authority of courts to modify post-award interest under Section 31(7), a uniquely Indian provision, allowing courts to adjust interest rates based on the facts of each case. Additionally, theCourt underlined that the discretion to remand an award should be exercised cautiously, especially whereserious misconduct, substantial injustice, or legal illegality is involved, to avoid unnecessary delays and costs.
Finally, the Court recognized that under Article 142 of the Constitution, the Supreme Court has the authority tomodify awards, but such intervention must be exercised with restraint, avoiding rewriting awards orundermining their integrity.
In his dissenting opinion, Justice K.V. Viswanathan held that the Arbitration and Conciliation Act, 1996 doesnot empower courts under Section 34 to modify an arbitral award. He emphasised that the statute only permitssetting aside or remitting an award, not altering its terms. Justice Viswanathan drew a clear distinctionbetween severance and modification, stating that these concepts operate in different spheres and are not ofthe same genus. While "severance" involves separating or removing an offending portion of an award,"modification" entails changing, qualifying, or reducing its content, which the Act does not allow.
He further observed that the current Act is modelled on the UNCITRAL Model Law, which consciously excludes any power to modify awards. This, he said, marked a deliberate departure from Section 15 of the erstwhile Arbitration Act, 1940, which had allowed such modifications. The omission reflected a legislative choice to minimise judicial intervention and preserve the finality of awards.
Justice Viswanathan rejected the argument that denying the power to modify would cause undue hardship to parties. First, he drew the attention to Section 34(4), which enables the recommencement of proceedings and thereby addresses any genuine hardship. Second, he noted that by opting for arbitration, parties accept a "contractual ouster" of the court's broader powers, submitting instead to the limitations of the arbitral framework.
In his dissent, Justice Vishwanathan observed that the power to set aside an arbitral award does not encompass the power to modify it, as the latter is not a lesser or incidental component of the former. He emphasised that the powers to set aside and to modify are distinct in nature, do not stem from the same source, and are qualitatively different within the framework of the Arbitration Act.
Justice Viswanathan strongly disagreed with the use of Article 142 of the Constitution to modify arbitral awards. He maintained that the Supreme Court cannot override clear statutory limitations by invoking constitutional powers. In his view, applying Article 142 in such a context would directly conflict with the Arbitration Act and undermine its statutory scheme.
He also cautioned that allowing domestic courts to modify awards could jeopardise their enforceability under the New York Convention. Justice Viswanathan explained that countries such as the UK, Singapore, and New Zealand specifically provide that courtdirected variations form part of the arbitral award. Since Indian law contains no such provision, court modifications could raise serious concerns about the integrity and international recognition of India-seated awards.
Finally, Justice Viswanathan described the power to remit an award as a "safety valve" that enables the arbitral tribunal to make necessary corrections before the award is set aside entirely. He noted that this power can be exercised by the court suo motu if it serves the objectives of the Act. In this context, he clarified that the requirement of an application, oral or written, for remittal is merely directory and does not prevent the court from acting on its own in appropriate cases.
Implications of the Judgment
This decision affirms that courts have a limited but significant power to modify arbitral awards. Such modifications may include:
- Severance of Invalid Portions: When an award is severable, courts can set aside the "invalid" portion while preserving the "valid" part, provided the two can be clearly separated.
- Correction of Errors: Courts may correct clerical, computational, or typographical errors that are apparent on the face of the record.
- Adjusting of Post-Award Interest: Courts may adjust the rate of post-award interest in certain justified circumstances.
It was reiterated by the Court that courts in general do not have general appellate powers to review or modify the merits of arbitral awards. Any modification must be strictly within the limited confines outlined above and must not involve a review of the factual or legal merits of the award.
The Court emphasized that corrections should only address errors apparent on the face of the record; if there isany ambiguity or room for debate, the matter must be remitted to the arbitral tribunal rather than being modifiedby the court.
Furthermore, the Court confirmed that the power to partially set aside or sever parts of an award is inherent inthe authority to set aside awards in their entirety. Regarding interest, courts retain the authority to modify post-award interest rates where appropriate, in order to avoid unnecessary litigation and ensure fair outcomes.
The Court also clarified that the Supreme Court's power under Article 142 to modify awards must be exercisedjudiciously, respecting the principles of the Act and avoiding undue interference.
Positive Outcomes and Future Prospects
USThis judgment is a progressive step toward makingarbitration a more efficient and accessible disputeresolution mechanism in India. Allowing courts tocorrect minor errors directly will reduce delays andcosts associated with complete annulments orremands. It will also prevent unjust outcomesresulting from minor mistakes that could be easilyrectified, thereby promoting substantive justice.
Moreover, this approach aligns with India's broaderefforts to reform and promote arbitration, making thecountry more attractive to international parties. Theruling also reinforces India's commitment tointernational standards, such as the New YorkConvention, by facilitating swift and fair resolution ofdisputes.
ProspectsLooking ahead, the practical success of thisframework will depend on the careful, restrainedexercise of courts' powers to modify awards. Strictadherence to the limited scope outlined by the Courtwill be essential to prevent misuse and ensure theintegrity of the arbitral process.
This landmark decision reflects a pragmatic judicialapproach that balances judicial oversight with respectfor arbitration. It signifies a major stride toward amore mature, consistent, and party centric arbitrationregime in India.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
