Judicial Modification of Arbitral Awards in India: A  Constitutional Innovation or Overreach

Abstract

In April 2025, the Supreme Court of India oversaw an important decision with respect to the  modification of arbitral awards under Sections 34 and 37 of the Arbitration and Conciliation  Act, 1996, holding that in limited circumstances, courts may modify arbitral awards. This  article analyses the implications of this landmark judgment on the arbitration jurisprudence in  India. While the majority judgment celebrates the exercise of judicial powers to rectify errors  and enhance the element of fairness, the dissenting opinion has expressed apprehensions that  it may lead to encroachment upon the legislative intent and undermine the autonomy which  already exists in arbitration. It is submitted by this article that the judgment is a doctrinal shift  from the past decisions and, in practical terms, became a necessity so long as the judicial  intervention will mirror restraint. On a larger scale, this legal development would trigger  debates on reforms visa-vis the outer limit of curial supervision in arbitration.

Introduction

Arbitration has been known to encourage party autonomy, cost efficiency, and some degree of  judicial interference. As the name indicates, passage of the Arbitration and Conciliation Act,  1996, was necessary to bring Indian arbitration laws in line with UNCITRAL Model Law,  explicitly limiting judicial intervention under Section 5¹. In spite of this, Indian courts have  shaped the evolution of arbitration jurisprudence, sometimes supporting the process and other  times disturbing its sanctity.

Another particularly contentious issue within this framework is the power of courts to modify  arbitral awards, a remedy for which no express mention is given in the Act. Until now, judicial  precedents were understood to limit the power of the courts to uphold or set aside an award  under Section 34. However, in Gayatri Balasamy v. ISG Novasoft Technologies Ltd²., a  Constitution Bench of the Supreme Court, by a majority of 4:1, confirmed that courts are  entitled, in limited circumstances, to amend arbitral awards to rid them of evident errors and to  ensure that justice is served in practice. This ruling significantly departs from earlier decisions such as McDermott International Inc. v. Burn Standard Co. Ltd³. and Project Director v. M.  Hakeem⁴.

This paper explores the doctrinal, procedural, and constitutional ramifications of this landmark ruling.

Case Analysis: Gayatri Balasamy v. ISG Novasoft Technologies Ltd.

Background of the Case

The case originated from a dispute between ISG Novasoft Technologies Ltd. and a former  employee named Gayatri Balasamy regarding termination of employment and payment of  debts.

Gayatri Balasamy claimed for wrongful dismissal and a number of financial entitlements,  including the outstanding salary, compensation and interest, under her service agreement  through arbitration. The Arbitral Tribunal passed a partial award in her favour and awarded a  certain sum under separate heads.

Aggrieved by the said award, M/s ISG Novasoft moved to Madras High Court under Section  32 of the Arbitration and Conciliation act, 1996⁵for partial setting aside of the award and  Madras High Court partially set aside the award particularly on the grounds compensation and  interest granted. The employer claimed that several parts of the award were illegal or outside  the arbitrator’s jurisdiction.

The Legal Dilemma

Gayatri Balasamy then appealed the High Court’s ruling to the Supreme Court of India, arguing  that judges could either uphold or set aside an arbitral award made accordance to section 34  and lacked the authority to “modify” it. The appeal raised a critical legal question:

Can courts under section 34 of the arbitration Act modify an arbitral award, or are they  strictly limited to setting it aside?

Referral to Constitutional Bench 

Understanding the complexities and importance of the issue for the India’s arbitration  framework, a three- judge bench of the Supreme Court referred the matter to a Constitution  Bench.

Chief Justice Sanjiv Khanna presided over the five-judge bench that ultimately announced  the landmark 4:1 majority verdict, ruling that courts have a limited and implied power to  modify arbitral awards under Section 34.

A Shift in Arbitration Law That Raises More Questions Than Answers The Supreme Court’s 4:1 majority decision in Gayatri Balasmy v. ISG Novasoft Technoligies  Limited marks a significant advancement in India’s arbitration doctrine. As a legal professional, this ruling has left me with mixed feelings. While the majority opinion makes an attempt to  resolve a long-debated issue, the amount of judicial interference under Section 34 of the  Arbitration and Conciliation Act, it does so by reading into the statute a power that, in my  opinion, the legislature never intended to establish.

A Welcome Clarity, or Is It?

To begin with, I agree that this ruling gives clarity to an area that has long been loaded with  competing opinions. The recognition of a limited competence to alter arbitral awards,  particularly to address clerical, typographical, or prominent errors, appears appropriate. After all, why should a party be obliged to restart arbitration entirely due to a tiny calculation error or post-award interest? From a practical sense, this is inefficient and unfair. However, I begin to disagree with the way this power has been “implied” in Section 34. Courts  have consistently maintained in decisions such as McDermott ⁶and M. Hakeem ⁷that Section  34 only provides for setting aside, not alteration. The Delhi High Court, in NHAI v. Trichy  Thanjavoor Expressway Ltd⁸., drew a narrow distinction between partial set aside and real  modification. That border, in my opinion, is becoming dangerously blurred.

The Problem with “Implied Powers”

I find the notion of implied powers to be problematic in this circumstance. Section 34 was  traditionally interpreted to mean minimal court intervention in a fundamental premise of  arbitration law. Granting courts the authority to “modify” under the cloak of implication risks undermining the very premise. This is especially troubling because what constitutes a “manifest  error” or a “clerical mistake” is inherently subjective. As a result, there may be conflicting  decisions among courts and undue judicial meddling.

Article 142: Necessary Justice or Dangerous Precedent?

The Court’s decision to acknowledge its own competence to amend arbitral verdicts under  Article 142 is not surprising; it has used this power previously. However, formalizing it raises red flags. Article 142 is intended to be unusual, not normal. Using it to rewrite portions of an arbitral award, especially when subordinate courts are expressly prohibited from doing so  under Section 34, establishes a problematic hierarchy and undermines the finality of arbitral  awards.

Why I Agree with Justice Vishwanathan

Justice K.V. Vishwanathan’s dissent strikes me as more legally consistent and principled. He  correctly pointed out that the term “modify” was purposefully deleted from the 1996 Act,  despite its existence in the 1940 Act. If Parliament wanted courts to have such power, it would  have stated so. His concern that the verdict will lead to further court intervention is reasonable  and merits attention, especially if we want India to be perceived as an arbitration-friendly  environment. 

His analysis of comparable international frameworks, such as the United Kingdom and  Singapore, are particularly interesting. Both jurisdictions only permit modifications under  specified statutory restrictions. India’s current Arbitration Act does not provide for it, and  importing that power through judicial interpretation generates more doubt than clarity.

Comparative Jurisprudence

United Kingdom

According to the UK Arbitration Act, courts issue awards of remittance or setting aside only  under specified grounds. Modification is not permitted without party consent⁹. 4.2 Singapore

The Singapore International Arbitration Act restricts the context of judicial powers to setting  aside awards on account of procedural and jurisdictional defects. No power to modify exists.¹⁰

United States

The Federal Arbitration Act permits modification only in cases of evident material  miscalculation or some similar kind of error. This very limited scope is that now recognized by  the Indian Supreme Court.¹¹

Critical Evaluation

Practical Merits

On a practical level, the ability to correct clerical or computational mistakes without nullifying  the entire award is welcome. It saves costs, time, and ensures fairness. Parties should not be  compelled to relitigate for a minor error in numbers.

Constitutional Dimensions

It’s not the first time that Article 142 has been used to justify the Court’s involvement, but it  does raise some concerns. It makes a strange hierarchy by giving only the Supreme Court this  jurisdiction and taking it away from High Courts and subordinate courts. This could break up  the structure of arbitration law.

Recommendations

6. Legislative Clarification: The scope of judicial modification should be explicitly defined in the Arbitration Act.
7. Judicial Restraint Guidelines: Courts must establish consistent guidelines for permissible modifications, which are limited to non-substantive issues such as typographical and computational errors.
8. Institutional Mechanisms: Arbitral institutions should implement internal correction protocols, such as those outlined in the ICC and SIAC Rules.
9. Caution with Article 142: The Supreme Court must continue to treat Article 142 as an exception rather than a precedent-setting device.

Conclusion: A Risky Precedent

To me, this decision, while aiming to serve justice and decrease procedural delays, risks  eroding the predictability and finality that make arbitration appealing in the first place. The  Supreme Court may have unwittingly opened the door to more judicial scrutiny of arbitral  verdicts by authorizing modification under an “implied” power, as outlined in Article 142.  The ruling appears to prefer convenience over adherence to the legislative structure. As  someone who loves both justice and judicial restraint, I see this as a slippery slope. For India  to truly become an arbitration hotspot, it must maintain finality and little court interference,  rather than diluting them in the sake of pragmatism.

Reference(S):

1. Arbitration and Conciliation Act, 1996, sec.5, No. 26, Acts of Parliament, 1996 (India).
2. Gayatri Balasamy v. ISG Novasoft Techs. Ltd., 2024 SCC OnLine SC 456. 3. McDermott Int’l Inc. v. Burn Standard Co. Ltd., (2006) 11 S.C.C. 181 (India). 4. Project Director, NHAI v. M. Hakeem, (2021) 9 S.C.C. 1 (India). 5. Arbitration and Conciliation Act, No. 26 of 1996, S.32, India Code. 6. McDermott Int’l Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181. 7. Project Director, NHAI v. M. Hakeem, (2021) 9 SCC 1.
3. NHAI v. Trichy Thanjavoor Expressway Ltd., 2023 SCC Online Del 4675. 9. Arbitration Act 1996, c. 23, section 67–70 (U.K.).
4. Singapore Int’l Arbitration Act, Cap. 143A, s. 24(b), read with UNCITRAL Model Law art. 34.
5. Federal Arbitration Act, 9 U.S.C. s 11 (1925) (U.S.).

¹ The Arbitration and Conciliation Act, No. 26 of 1996, s.5, Acts of Parliament, 1996 (India).

² Gayatri Balasamy v. ISG Novasoft Techs. Ltd., 2024 SCC OnLine SC 456.

³ McDermott Int’l Inc. v. Burn Standard Co. Ltd., (2006) 11 S.C.C. 181 (India).

⁴ Project Director, NHAI v. M. Hakeem, (2021) 9 S.C.C. 1 (India).

⁵ Arbitration and Conciliation Act, No. 26 of 1996, S.32, India Code.

⁶ McDermott Int’l Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181.

⁷ Project Director, NHAI v. M. Hakeem, (2021) 9 SCC 1.

⁸ NHAI v. Trichy Thanjavoor Expressway Ltd., 2023 SCC Online Del 4675.

⁹ Arbitration Act 1996, c. 23, section 67–70 (U.K.).

¹⁰ Singapore Int’l Arbitration Act, Cap. 143A, s. 24(b), read with UNCITRAL Model Law art. 34.

¹¹ Federal Arbitration Act, 9 U.S.C. s 11 (1925) (U.S.).