Judicial Power to Modify Arbitral Awards in India: A Critical Analysis of Sections 34 and 37 Arbitration and Conciliation Act, 1996 under Litigation

Authored By: Shubham Sil

Bharati Vidyapeeth New Law College Pune

Abstract: This article analyses the significant 2025 Supreme Court ruling in Gayatri Balasamy v. ISG Novasoft Technologies Ltd., which marked a shift in the ambit of judicial intervention under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996. Indian courts were conventionally free to intervene in arbitral awards only on limited statutory grounds, keeping judicial interference to the barest minimum. The case originated from a sexual harassment case at the workplace that culminated in arbitration, in which Ms. Balasamy was granted ₹2 crores. Unhappy with the partial consideration of her suit, she approached the judiciary, resulting in successive amendments by single and division benches of the Madras High Court and an appeal to the Supreme Court. A bench of five judges, by 4:1 majority, held that courts possess limited jurisdiction to alter arbitral awards—namely, to sever invalid parts, remove patent errors, and reformulate excessive post‑award interest—without making a complete merits review. The majority drew upon Article 142 of the Constitution to the extent necessary to provide “complete justice.” The dissent of Justice K.V. Viswanathan focused on rigid observance of legislative intent, cautioning against judicial encroachment and destruction of arbitral finality. This choice is a milestone in Indian arbitration law, harmonizing arbitral freedom with narrowly defined powers of judicial correction.

Introduction:

The Section 34 and 37 of Arbitration and Conciliation Act 1996 states the process for filling application of arbitral award and the appellant order. This Sections can be modified as per the recent judgment in the case of Gayatri Balasamy V ISG Novasoft Technologies Ltd in 2025. This case revolves around statutes such as Tamil Nadu Prohibition of Harassment of Women Act,1998, Indian Penal Code 1860, Constitution of India and Arbitration and Conciliation Act 1996. The majority of the case was revolving around Arbitration and Conciliation Act 1996 because of appoint of a Arbitrator. Arbitration is generally regarded as an effective form of alternative dispute resolution that delegates limited court involvement to allow for rewards to be final, by getting disputes resolved. In India, the Arbitration and Conciliation Act, 1996 regulates domestic and international arbitration. Historically, Indian courts have approached the issue of judicial interference post arbitral award very conservatively, with courts essentially only able to set aside the arbitral reward under limited circumstances. This case deals with modification of arbitral award through litigation or the judiciary power to make changes or modifying arbitral award.

Gayatri Balsamy Case:

Ms. Gayatri Balasamy was an employee at ISG Novasoft Technologies Ltd and was promoted to Vice President (M&A Integrated Strategy) ISG. She was Sexually Harassed by the Chief Executive Officer (CEO) Mr. Krishna Srinivasan. She resigned her position as a Vice President of ISG but the CEO rejected her resignation application and after a year she received three termination letters. She filed an Criminal Complaint against the CEO Krishna Srinivasan and ISG Novasoft Technologies Ltd for sexually harassing her on provisions of Indian Penal Code 1860 and Tamil Nadu Prohibition of Harassment of Women Act 1998. The Counter filed a Criminal Complaint against the plaintiff for defamation and extortion. Eventually both the parties reached Supreme Court but Supreme Court passes an order for both the parties to go arbitration and appoint a arbitrator. The proceeding was held in arbitral tribunal and the arbitrator held that Ms. Gayatri will receive compensation of ₹2 crores as a arbitral award from the company as per Section 31(7)(b) of the Arbitration and Conciliation Act 1996. She was not satisfied as only a part of her complaint was heard by the arbitrator and rest of the complaint was never heard. So she moved to the Madras High Court to set aside the award as per Section 34 of Arbitration and Conciliation Act 1996, reasoning that the tribunal had not considered several of her issues. On 2 September 2014, a single-judge bench of the Madras High Court made some modifications to the arbitral tribunal to award Balasamy a compensation of ₹1.6 crore in addition to the ₹2 crore awarded to her by the arbitral tribunal. After 5 years later, on 8 August 2019, a Division Bench of the Madras High Court further made modification to the order of the single-judge bench. They held that while the single judge was right in awarding additional compensation to Balasamy, the amount granted did not have an computational logic and shall be changed under Section 33(1)(a) of the Arbitration and Conciliation Act 1996. The Division Bench viewed that the amount of compensation granted by the subordinate bench to Balsamy was too “unreasonable and heavy.” Therefore, they reduced the amount of additional compensation from ₹1.6 crore to ₹ 50,000. Balasamy then moved the Supreme Court through a Special Leave Petition (SLP) under Section 37(1)(c) of Arbitration and Conciliation Act 1996.[1]

Supreme Courts Judgement:

The arbitration case was first heard by the Supreme Court on October 1, 2021, before a bench consisting of Justice Surya Kant, Justice Hima Kohli, and former Chief Justice N.V. Ramana. Since then, it was listed before multiple benches until, in 2024, it came before this bench consisting of Justice Dipankar Datta, Justice K.V. Viswanathan, and Justice Sandeep Mehta. This Division Bench hypothesized on 20 February 2024, that the case raised an important question of law: whether the court can modify an arbitral award in terms of the Arbitration and Conciliation Act, 1996 (Act) Sections 34 and 37. In a number of circumstances, the parties to an arbitration may bring an application to court to have an arbitral award set aside as per section 34 of the Act. Section 37 of the Act allows which a court may hear appeals from the original decree of the court making the order. The more specifically Section 37(1)(c) then allows a Court to take appeals under this section in an order of the Court refusing to set aside or setting aside an arbitral award under section 34 that means this is a court making an order concerning continuing enforcement of an arbitral award. The Bench took the view that the Court had adopted proven cases of conflicting opinions in the two streams of cases. In Bhavani Construction v. Union of India (2023) and McDermott International Inc. v. Burn Standard Co. Ltd (2006); Project Director, National Highway Authority of India v. M Hakeem (2021); MMTC Limited Sangyoung Construction Limited v. National Highway Authority; the Court found its power to “set-aside” an arbitral award under Sections 34 and 37, very limited. The Court then stated that this power did not confer a power to “modify” an Arbitral Award. In contrast, in Vedanta Limited v. Shenzhen Shandong Nuclear Power Construction Company Limited, (2018); Oriental Structural Engineers Pvt. Ltd. v. State of Kerala (2011); Tata Hydroelectric Power Supply Company Limited v. Union of India (2003), the Court was more accepting of cases involving modified orders. In our view, a larger bench needs to clarify the legal standing regarding the Court’s power to revise arbitral awards once and for all. On 13 February 2025, a five-judge bench led by Chief Justice Sanjiv Khanna commenced its hearings in the case. After three days of arguments, the bench reserved judgment in the case on 19 February 2025. On 30 April 2025, by a 4:1 majority passes an order as per Article 142 of Indian Constitution, the five-judge bench held that courts have a limited power under Section 34 to revise an arbitral award. CJI Khanna and a dissenting opinion, Justice K.V. Viswanathan wrote the majority opinion. [2]

Judicial Review on the case:

The Supreme Court delivered a split decision 4:1. Here’s what the majority said:

The First Principle of Severability: The severability principle contemplates the salvage of an award that is imperfect in part. Take for example arbitral award contains ten elements. If a Court permits seven of those elements and finds that part of two elements to be invalid (maybe grounds of public policy or that the arbitrator lacked jurisdiction), the Court may simply, “sever” the invalid parts and allow the seven remaining parts to stand as valid. This is a more sensible and expedient solution, and negates the parties from going back through the entire arbitral process. The idea is to ensure the maximum number of aspects of the original arbitral award are upheld, as long as the remaining valid components are capable of standing alone.
Correction of Obvious Errors: This gives Courts their practical, and common-sense authority. The Court is not second-guessing the decisions made by the arbitrator, but correcting simple and verifiable mistakes. Think of this like a proofreader. If the award states “Rs. 1,00,000” when the simple calculation from the arbitrator clearly reads Rs. 10,00,00,000, the Court can correct that. This also goes for misaligned names, or anything that can be checked. This allows parties to avoid having to undertake a complicated legal process to rectify something that is in the nature of a mistake or typo. What we are talking about is an error that is “obvious” and also “clerical or typographical.” What is important to note, is that even if a non-obvious error is made that creates an incorrect reasoning or outcome in the award, the Arbitrator cannot be interfered with, as the type of error just discussed can be rectified to a greater extent if the award is found to be wrong.
Modification of Interest: Most of the time, Arbitrators will award interest, for compensation for delay to a party who did not receive their money when they should. The law on interest, namely Section 31(7) (b) of the Arbitration and Conciliation Act, 1996, deals with post-award interest. The court decision clarifies that while the language of the statute does not wholly bar or restrict the ability of a court to modify the type or amount of interest that arises post-award, if the arbitrator makes an award of an excessively high post-award interest rate of 25% per annum, the court can reduce that to something reasonable, where otherwise the arbitrator’s decision is intact and unassailable. The court is expressly barred from changing the pendente lite interest (the interest that is awarded for the period between the dispute arising and the actual award being made), so it is important to understand that the courts can only change the part of interest originated from that proceeding. The interest period on the earlier regime is unchanged because it is rooted in damages for delay, as it relates to delay before the award was made.
Usage of Article 142 for Complete Justice: Article 142 of the Indian Constitution provides the Supreme Court with discretional powers to pass an order or decree it deems necessary for “doing complete justice.” The Supreme Court has stated that this discretional power has application in respect of arbitral awards but that it can only be invoked in rare and exceptional circumstances. In addition, this is not a power which should apply in all disputes. The Supreme Court can step in to correct a fundamental injustice that no other legal recourse can address, but the Supreme Court was adamant that this power could not be used to reassess the facts of a case or to second guess an arbitrator’s observations. It would only be appropriate for the Supreme Court to apply its power as a last resort or in circumstances where a strict application of the law would lead to a manifest injustice.
Not Equal to Appeal: This is probably the most important point to a full understanding of the case. The Court makes it abundantly clear that the powers mentioned above do not transform the Court into a body capable of appellate review of arbitral awards. Appeal implies a full consideration of the facts and the law, where the appellate court takes the place of the lower court in selecting the best outcome. The court cannot say, “I would have awarded less money,” or, “The arbitrator mis-assessed the evidence.” It can only limit itself to doing the limited things that it was allowed to do – sever invalid parts, amend obvious errors, and convert post-award interest on certain grounds. The court has an oversight and correction function, and doesn’t have a total review function. This principle reinforces arbitral finality and efficiency, which are the hallmarks of arbitration.[3]

Contrary Opinion – Justice K.V. Viswanathan:

Justice Viswanathan disagreed with the majority. According to him:

Sections 34 and 37 Present an Allowance to set aside not Modifying:

Justice Viswanathan could not have said it more clearly- it all comes down to a plain and literal construction of the Arbitration and Conciliation Act, 1996. She explained in detail, how Sections 34 and 37 in fact, only allow a court to “set aside” an award on discrete and limited grounds, and that the law does not explicitly mention “modifying” or “altering” an award in either section. Justice Viswanathan explained that there is a fundamental difference in a power exercised to call something an end, and erase all existence from it, and a power, to act on something by changing a term or two- substitution, repurposing, rewriting comes to mind. Since the legislature could have given the power to modify, it was right there in the 1940 Act, the courts should not have it read into the text of the legislation.

The 1996 Act Was Intended to Minimize Court Interference:

In this point, Justice Viswanathan focused on the legislative history, and intent of the law. From the 1940 Act to the current law on arbitration, the earlier statute, gave courts wide breadth to intervene in arbitration proceedings. The current 1996 Act was based on the UNCITRAL Model Law and used at least locally, is the recognized law of arbitration that minimizes judicial involvement in arbitration. Justice Viswanathan underscored the fact that the legislature’s deliberate decision to not incorporate the “modification” power and replace the 1940 Act modification provision, was a choice that the legislature contemplated to minimize court involvement as per the Model Law approach. Permitting courts to modify awards would represent a regression to the prior imposition-of-will regime, and effectively defeat the purpose of the new law altogether.

The Focus on Modifying Awards Resolves the Line Between Review and Appeal:

This is a vital point about the function of arbitration. Arbitration is a process of dispute resolution where parties agree to submit to a binding decision by a private arbitrator in exchange for opting out of the traditional court system. Under Section 34, the court’s role is to conduct a supervisory “review” of the arbitration, ensuring the award is not a nullity for a reason such as lack of jurisdiction or contravention of public policy. The court is not performing an “appeal,” which would mean trying the case again on its merits, including evidence and potentially the rationale of the arbitrators. If courts are allowed to modify because of difficulties in maintaining the finality and some level of cost-efficiency, then, as Justice Viswanathan warned, we are inevitably headed in the direction of the courts then engaging in a review of the merits of the arbitration process: and would turn arbitration (through the prospect of modifying an award) back into simply another stage of litigation. What made arbitration attractive was the desire for finality and cost-efficient engagement (parties also knew it was “fairly costly” but within the limits of cost-benefit).

Article 142 Should Not Be Able to Use to Avoid What Law Prevents:

Article 142 of the Constitution is a wide authority given to the Supreme Court to do “complete justice”. However, Justice Viswanathan is not persuaded that this extraordinary power can trump the express and clear limitations on the courts’ powers set out in a statutory law such as the Arbitration Act. He observed that the use of Article 142 to amend an award was a disregard of the legislative intention and would create chaos and uncertainty to arbitration law. He argued that if a power to amend an award is required, it is a matter for Parliament to insert upon an amendment, not for the Supreme Court to create through judicial interpretation.[4]

Suggestions:

As per the above case the decision is that the Judiciary can modify an arbitral award if there is any computation errors, any clerical or typographical errors or any other errors of a similar nature occurring in the award can be modified by the Courts.
There should essentials to be provided that which arbitral award needs to be modified as the case of Gayatri Balasamy and ISG Novasoft ltd, it was clear that this case is serious as a women has faced sexual harassment at workplace and her complaint was not heard completely as an intent to deceive justice which can be delivered by an appeal to Courts of higher jurisdiction as per Section 37 of Arbitration and Conciliation Act 1996 and Article 142 of Indian Constitution 1950.
Only the cases which are involved heinous crimes and having an compensatory amount of above ₹50 Lakhs should be entertained in the higher Courts which will ultimately limits the Courts interference as Arbitral Tribunal or Arbitration has established with a sole purpose to limit the Court interference becoming an type of Alternative Dispute Resolution.
As per the Sections of Arbitration and Conciliation Act 1996, the arbitral award can set aside but cannot be modified which clearly reviewed by Justice K.V.Viswanathan. Because of Article 142 of Indian Constitution 1950 that is to provide complete the arbitral award was modified and such modification can only be done in few or rare cases.

Conclusion:

The Gayatri Balasamy v. ISG Novasoft Technologies Ltd. case is a watershed moment in Indian arbitration jurisprudence and resolves one of the most controversial issues under the Arbitration and Conciliation Act, 1996 — whether and to what extent courts have jurisdiction to alter an arbitral award under Sections 34 and 37. The Supreme Court’s 2025 majority decision established a restricted judicial power to intervene in the interests of severing invalid portions, correcting blatant clerical mistakes, and tempering excessive post‑award interest, and in doing so, achieved a realistic middle ground between automatic annulment and unchallenged finality. The acknowledgment of the severability principle and invocation of Article 142 in exceptional instances of “complete justice” demonstrates an intention to maintain the efficiency of arbitration while ensuring fairness. But Justice K.V. Viswanathan’s dissent heralds a strong counterargument — that the legislative purpose behind the 1996 Act, drawing upon the UNCITRAL Model Law, was to sharply restrict court intervention and that any widening of powers is judicial overreach more properly reserved for parliamentary amendment. The difference in viewpoint points to a fundamental philosophical chasm between judicial pragmatism and rigid statutory adherence.

In the future, the judgment has redefined the balance between judicial intervention and arbitral independence in India. Although the majority’s solution provides real relief in certain cases, it at the same time creates a subtle precedent that could encourage more litigation regarding the boundaries permissible for “modification.” In the final analysis, the ruling is at once an evolutionary leap in arbitration law and a reminder that its ultimate shape will be determined by how future benches will interpret and apply these principles.

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