Gayatri Balasamy v. M/S ISG Novasoft Technologies Limited

CASE CITATION AND BASIC INFORMATION

Full Case Name: Gayatri Balasamy v. M/S ISG Novasoft Technologies Limited

Citation: 2025 INSC 605; Civil Appeal Nos. arising out of S.L.P.(C) Nos. 15336–15337 of 2021, together with connected Special Leave Petitions

Court: Supreme Court of India — Constitution Bench (five Judges)

Date of Judgment: 30 April 2025 (matter referred to the Constitution Bench by a three-Judge Bench order dated 20 February 2024)

Bench Composition: Sanjiv Khanna, C.J.I., B.R. Gavai, J., P.V. Sanjay Kumar, J., K.V. Viswanathan, J., and Augustine George Masih, J. The majority opinion (4:1) was authored by Sanjiv Khanna, C.J.I., on behalf of himself and Gavai, Sanjay Kumar and Masih, JJ.; K.V. Viswanathan, J. delivered a separate dissenting opinion.

Parties: Gayatri Balasamy (Appellant/Employee) v. M/S ISG Novasoft Technologies Limited (Respondent/Employer)

Statute in Issue: Sections 34 and 37 of the Arbitration and Conciliation Act, 1996

INTRODUCTION

In “Gayatri Balasamy v. ISG Novasoft Technologies Ltd.”, one of the most discussed questions in Indian Arbitration Law was resolved namely whether a court having jurisdiction under Section 34 of Arbitration and Conciliation Act, 1996 (ACA) can set aside a foreign award or if its powers are limited to setting aside the arbitral award in its entirety. The case took it on importance because there were divergent lines of authority, as presented in cases of expansive and restrictive ideology, like that McDermott and ONGC v. Saw Pipes and Project Director, NHAI v. M. Hakeem respectively, before the High courts and litigants. The Constitution Bench restores the balance between “minimal” interference and further avoidance of wasteful re-arbitration over minor or severable defects in the Act of 1996, by resolving this conflict.

FACTS OF THE CASE

Appellant was the Senior Executive of the respondent, ISG Novasoft Technologies Limited. Her career ended with issues resulting from the issues she had been dealing with during her work which involved sexual harassment and ultimately her dismissal. As stipulated in the arbitration clause for the relation between them, these conflicts were submitted for arbitration.

The arbitral tribunal considered the claims and in its award, gave compensation to Ms. Balasamy of the order of approximately ₹2 crore; however, denied compensation for some of her other claims. Displeased with the fact that some heads of the claim were not addressed, or awarded an appropriate compensation, she challenged the award in the High Court of Madras under Section 34 of the Arbitration and Conciliation Act, 1996.

Sharing and applying the rationale of earlier decisions like McDermott International Inc. v. Burn Standard Co. Ltd. and ONGC v. Saw Pipes Ltd., the Single Judge of the Madras High Court increased the amount claimed by the tribunal by nearly ₹1.6 crore on top of it. ISG Novasoft had challenged this enhancement before a division bench which had found that the additional compensation has no arithmetical or evidentiary basis and is excessive, and thereby scaled down the same drastically to a nominal sum of ₹50,000.

Ms. Balasamy was not happy with this and filed special leave petitions in the Supreme Court of India. Taking note of the controversy in judicial thinking whether modification of the award is permissible under Section 34 of the 1996 Act, particularly in the backdrop of the recent order by a restrictive three-Judge Bench of the Supreme Court in Project Director, NHAI v. M. Hakeem, in favour of Project Director, NHAI, the court, in its order dated 20 February 2024, directed the appointment of a larger Bench headed by the Chief Justice of India to issue a definite opinion on the scope of the jurisdiction of the court under the 1996 Act under Sections 34 and 37. Theretofore the Special Leave Petitions were heard and decided on by a five-Judge Constitution Bench along with the related cases wherein the question of law was identical.

LEGAL ISSUES

• Whether the powers of a court under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996 include the power to modify an arbitral award.
• If such a power exists, whether it may be exercised only where the offending part of the award is severable from the rest.
• Whether the power to set aside an award under Section 34, being the larger power, subsumes within it a lesser power to modify the award, and if so, to what extent.
• Whether a power of modification can properly be read into Section 34 despite the section’s language speaking only of setting aside an award.
• Whether, and to what extent, the Supreme Court’s power under Article 142 of the Constitution of India may be invoked to modify an arbitral award, including as to post-award interest.

ARGUMENTS PRESENTED

APPELLANT (GAYATRI BALASAMY’S) ARGUMENTS:

For the appellant, who, generally speaking, took part in the submissions which supported a power of modification, the obvious answer is that a power of annulment would result in absurd and wasteful consequences – Merktor made a “whole” award, but only a “part”” is wrong – why make them arbitrate another complete cabinet if they could save on costs, delay, and brevity while also avoiding a potentially undesirable outcome? The proviso to sub-para (iv) of para (a) of clause 34(2) implies with the order of its execution, the further power to adjust or modify an award, which is valid, but from which an invalid part may be severed. Ways were insisted upon by relying on the principle that although the purpose of an annulment was destroyed, the means of annulment (modification) were also destroyed, and on pre-Hakeem precedents where limited annulment of part was allowed, such as in McDermott or Saw Pipes. The Supreme Court, in any case, could make use of its plenary powers in the Article 142 of the Constitution for doing justice to the complainant by doing justice to the compensation amount, as it was contended.

RESPONDENT’S (ISG NOVASOFT’S) ARGUMENTS :

In line with the dissent, ISG Novasoft submitted that Section 34 does not give any express or implied power of modification and is a self-contained clause that only allows for the basis of setting aside an award as stated in the sub-section (2) and (3) of that section. The Act of 1996, unlike its predecessor Act of 1940, intentionally refrained from including any power to modify or amend awards, by keeping it in line with Model Law of the UNCITRAL and lowering down judicial intervention as is evident from Section 5 of the Act. Section 34 has been heavily relied upon by the Project Director, NHAI v. M. Hakeem in truth, who had determined that the courts were not empowered to modify awards under that provision. The suggestion was that allowing for modification would eliminate the difference between an appeal and a challenge procedure, would be an improper merits review and would create significant uncertainty in the cross-border enforcement of awards under the New York Convention, given that a modified award may not be accepted as the award of the tribunal in the enforcement process in other countries.

COURT’S REASONING AND ANALYSIS

In the beginning writing for the majority, Sanjiv Khanna, C.J.I. noted that Section 34, which is known by its name as the “setting aside” provision does not have to be read literally to take no account of the structure of the proviso to Section 34(2)(a)(iv) which explicitly presupposes “severability”, that is, the cancellation of the “invalid” part and the retaining of the “valid” part. The majority approved of the phrase, omne majus continet in se minus, which meant that, in logical terms, the power to cancel an award in full logically included the power to cancel or modify a separable portion of the award, and thus every award must be considered as divisible. On that premise, all five Judges – including Judge Stanley’s dissenting opinion – found that a court may sever an invalid award.

Most extended beyond just severance to say it’s also part of the court’s power to fix patent mistakes, albeit a limited “non-appellate” authority. The Bench relied on the principle of judicial economy of the bench as provided in Dyna Technologies Pvt. Ltd. (supra) to suggest that in cases of a clerical/computational/typographical errors and errors manifest on the record, the court has the power to remediate this without remiting the matter to the tribunal under Section 34(4) as such proceedings can be rendered impractical and demand more disproportionate costs on re-arbitration in the event of a trivial error. Many also agreed that under “appropriate circumstances these courts have the power to alter the interest rate awarded by the tribunal because it is more of a judicial determination rather than something that has been determined in the merits stage of the proceedings.

As to Article 142, the majority ruled that, “in rare and appropriate cases, the power of the Supreme court to do a “complete justice”” will be invoked to modify an award only with great care and caution, cannot be “used” to do a “merits” review of an award or rewrite the award order of the tribunal and must be “bound to remain confined to within the limits recognised in Shilpa Sailesh v. Varun Sreenivasan” wherein the court noted that “it is not possible to invoke Article 142 to set aside a fundamental non-derogable principle of a legislation” The majority disagreed with the reasoning in Hakeem to the extent that it eliminated any power of correction and explained that the holding of Hakeem was limited to these four categories and not a power of general re-appraisal of the merits of the award.

In a detailed dissenting opinion, Justice K.V. Viswanathan disagreed with the majority’s extension beyond severability. He gave the reason as follows: The power to set aside is conceptually different from the power to modify and they do not share the same genus because modification is not a subset of the power to annul. He made the point that the 1996 Act carefully excluded the modification power that is available under Section 15 of the 1940 Act and other provisions of the Act, particularly Sections 5, 13(5), 16(5) and 33 of the Act, which make it clear that judges have only the narrowest of powers the statute gives. Arguably, the ordinary jurisdiction under Section 34 of the Act and the extraordinary jurisdiction under Article 142 cannot be invoked to set aside the award as it would lead to repudiation of arbitral finality, endorse non-autonomy, and pose uncertainty for enforcing the award under the New York Convention – through lack of any Indian statutory version of clause 71 of the English Arbitration Act, which expressly provides that an award modified by the court for enforcement is deemed as the award of the tribunal.

JUDGMENT AND RATIO DECIDENDI

The Constitution Bench in the case referred to it, took a view that by a majority of 4:1, it possesses a specific jurisdiction under Sections 34, 37 of the Arbitration and Conciliation Act, 1996, which validates its power to modify the arbitral award. It can be restricted only in the following limited ways: (i) where the award is severable, by separating out the valid portion from the invalid portion; (ii) by correcting clerical, computational or typographical errors or other obvious errors; (iii) by adjusting the award post-award interest rate on suitable occasions; (iv) under certain conditions of Article 142 of the Constitution which can be exercised very wisely and judiciously and within constitutional limits but never in the context of a merits review of the award.

The power to set aside an arbitral award under Section 34 is a more powerful act and is, therefore, not necessarily contained in a wider power of re-assessment, or set substitution, of the merits of a dispute, than it is contained in a narrow power of modification that can be exercised only within the four categories enumerated above. While agreeing with the main’ and ‘power to modify’, Justice K.V. Viswanathan added that the 1996 Act “clearly did not grant any power to modify beyond the power of severance” and “no other powers of modification” can be read into Section 34, either due to the errors of the main entries or on the ground that the entire application was awarded in favour of the transferee. Having so done, while not finally determining the quantum, the Bench remitted it to the deponent/defendant Ms. Balasamy for reconsideration in the spirit of the principles established.

CRITICAL ANALYSIS

SIGNIFICANCE

The order is important because it is the first formal, constitution bench judgment on the issue that was split between High Courts and even among concurrent Benches of the Supreme Court for the past nearly 20 years. It is an alternative to the blanket “no modification” stance adopted by the Project Director in the case of M. Hakeem, and now provides a clear, albeit evolving, approach for lower courts to determine, in four categories, when corrective rather than cancellatory action is warranted.

IMPLICATIONS AND IMPACT

The decision will consequently diminish the number of times arguments over trivial, minor or typographical errors would occur as a result of wholesale re-arbitration, which should save time and expense for disputing parties in domestic ongoing proceeding arbitrations. Paralleling this, by allowing for post award interest to be modified and by providing for the existence of a residual Article 142 power, the decision also establishes a basis for a losing party to attempt to re-open a Section 34 or Section 37 proceeding – adding to the docket of modification challenges. It also has implications for the enforcement of Indian-seated awards overseas as the enforcement regime in the New York Convention is based on recognising an award, which may give rise to novel issues when an award has been modified by the court; the absence of such statutory provisions in other jurisdictions (such as England, which expressly provide that an award that has been modified by a court shall be ‘the award’ of the foruma for enforcement purposes) is highlighted in the dissent and is important.

CRITICAL EVALUATION

The majority’s application of the principle that the greater power does include the lesser is more persuasive in the context of severance, and these gives the court enough force to overrule the tribunal’s assessment, but is less so in the context of correction of errors and post-award interest, where the court is substituting its own assessment for that of the tribunal, not just vanishing a defective portion, and in the context of Article 142 modification. The dissent’s textually and structurally-based argument — that the 1996 Act’s clear repudiation of the express language limited on the 1940 Act to modify a sensegauge stems from a considered choice by the legislature — is one that cannot be easily ignored, and the majority’s own recognition that the power “must be used with great care and caution” tacitly gives in to the fragility of its statutory foundation. The lack of definition of what constitutes a “manifest error,” as left unqualified by the majority, increases the likelihood of fresh conflicts than certainties; and the citation of Article 142 without clear limits may, as commentators have pointed out, leave room for uncertainty precisely when it is necessary most – namely when it comes to the final appeal.

CONCLUSION

Gayatri Balasamy v ISG Novasoft Technologies Ltd. upsets the binary world of the ‘set aside’ or ‘uphold’ approach of NHAI v M. Hakeem which prevailed in Indian arbitration law and brings it to a more refined, yet not so clearly defined, judgmental power of ‘limited modification’ within Section 34 and 37 of the Arbitration and Conciliation Act, 1996. The ruling provides for efficiency savings because of avoidance of unjustified re-arbitration due to severable or clerical errors, but does at the same time raise questions about the finality of arbitral awards, which has always been an important ingredient in the benchmark value proposition of arbitration. The strong objections voiced by Justice K.V Viswanathan create a textualist dissent which would perhaps help shape the future of legislative modifications, such as when India is mulling changes to its arbitration laws. In the end, it will be the rule and practice of lower courts that will shape the success or failure of the judgment.

REFERENCE(S):

Arbitration and Conciliation Act, No. 26 of 1996, India Code (1996).

Arbitration Act, No. 10 of 1940, India Code (1940) (repealed 1996).

Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 330 U.N.T.S. 38.

Gayatri Balasamy v. M/S ISG Novasoft Techs. Ltd., 2025 INSC 605 (India).

Project Director, NHAI v. M. Hakeem, (2021) 9 S.C.C. 1 (India).

McDermott Int’l Inc. v. Burn Standard Co., (2006) 11 S.C.C. 181 (India).

Oil & Nat. Gas Corp. v. Saw Pipes Ltd., (2003) 5 S.C.C. 705 (India).

Dyna Techs. Priv. Ltd. v. Crompton Greaves Ltd., (2019) 20 S.C.C. 1 (India).

Shilpa Sailesh v. Varun Sreenivasan, (2023) 14 S.C.C. 231 (India).

I-Pay Clearing Servs. Priv. Ltd. v. ICICI Bank Ltd., (2022) 3 S.C.C. 121 (India).

Kanchan Sharma, Setting Aside or Modifying? Understanding Gayatri Balasamy v. ISG Novasoft Technologies Limited, IBC Laws (2025).

The Balasamy Judgment: The Fading Principle of Finality in Arbitration?, Int’l Bar Ass’n (2025).

The Article 142 Blackhole: Is Gayatri Balasamy the Much-Needed Push to Finally Trigger Legislative Intervention?, Kluwer Arb. Blog (2025).