Supreme Court Settles the Extent of Courts’ Power to Modify Arbitral Awards under Sections 34 & 37 of the Arbitration and Conciliation Act, 1996: Gayatri Balasamy vs. ISG Novasoft Technologies Limited (30 April 2025)

Introduction

Date of the Judgment: April 30, 2025
Citation: 2025 INSC 605
Judges: Sanjiv Khanna, CJI; B.R. Gavai, J.; Sanjay Kumar, J.; Augustine George Masih, J.; K.V. Viswanathan, J. (authored a separate judgment)

Can Indian courts modify an arbitral award, or are they limited to setting it aside? The Supreme Court of India addressed this critical question concerning the scope of judicial intervention in arbitration matters. This judgment clarifies the powers of courts under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996, specifically focusing on whether courts can modify arbitral awards.
The five-judge bench, presided over by Chief Justice Sanjiv Khanna, delivered a nuanced verdict, clarifying the extent to which courts can interfere with arbitral awards. Justice K.V. Viswanathan delivered a separate judgment, partly dissenting with the majority.

Case Background

The case arose from a referral by a three-judge bench regarding conflicting interpretations of Section 34 of the Arbitration and Conciliation Act, 1996. The core issue was whether Indian courts have the jurisdiction to modify an arbitral award, given that the Act does not explicitly grant such power.

The genesis of the legal controversy was a special leave petition in Gayatri Balasamy v. ISG Novasoft Technologies Limited, where the court was prompted to examine the need to reconcile differing judicial opinions on the extent of permissible intervention in arbitral awards.

Timeline

Legal Framework

The judgment extensively refers to key sections of the Arbitration and Conciliation Act, 1996, including:

• Section 5: Limits judicial intervention to only what is authorized by Part I of the Act.
• Section 34: Specifies the grounds on which an arbitral award can be set aside. This section is central to the entire discussion. “Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).”
• Section 37: Provides for appeals against orders setting aside or refusing to set aside arbitral awards.
• Section 43: Deals with limitations, stating that the Limitation Act, 1963, applies to arbitrations.
• Section 48: Delineates conditions for the enforcement of foreign awards.

Arguments

Arguments in Favor of Modification:

• It was contended that the judgment in M. Hakeem warrants reconsideration due to conflicts with other decisions where awards were modified.
• The Model Law permits a broader scope of judicial intervention, as reflected in the laws of several signatory countries.
• The principle that a greater power includes a lesser power was invoked, arguing that the power to set aside an award inherently includes the ability to modify it.

Arguments Against Modification:

• The Model Law was intentionally designed to exclude the power of courts to modify awards.
• Setting aside an award annuls it, making modification impossible.
• The doctrine of merger does not apply to court modifications of an arbitral award.

Issues Framed by the Supreme Court

1. Whether the powers of the Court under Sections 34 and 37 of the Arbitration and Conciliation Act 1996 will include the power to modify an arbitral award?
2. If the power to modify the award is available, whether such power can be exercised only where the award is severable, and a part thereof can be modified?
3. Whether the power to set aside an award under Section 34 of the Act, being a larger power, will include the power to modify an arbitral award and if so, to what extent?
4. Whether the power to modify an award can be read into the power to set aside an award under Section 34 of the Act?
5. Whether the judgment of this Court in Project Director NHAI vs. M. Hakeem, followed in Larsen Air Conditioning and Refrigeration Company vs. Union of India, and SV Samudram vs. State of Karnataka, lay down the correct law, as other benches of two Judges (in Vedanta Limited vs. Shenzden Shandong Nuclear Power Construction Company Limited, Oriental Structural Engineers Pvt. Ltd. vs. State of Kerala, and M.P. Power Generation Co. Ltd. vs. Ansaldo Energia Spa) and three Judges (in J.C. Budhraja vs. Chairman, Orissa Mining Corporation Ltd., Tata Hydroelectric Power Supply Co. Ltd. vs. Union of India, and Shakti Nath vs. Alpha Tiger Cyprus Investment No.3 Ltd.) of this Court have either modified or accepted modification of the arbitral awards under consideration?

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The court considered various cases and legal provisions, including:

• Ahmedabad St. Xavier College Society and Another v. State of Gujarat and Another, (1974) 1 SCC 717: Referenced for the maxim “omne majus continent in se minus” (the greater contains the lesser).
• Project Director, National Highways No. 45 E and 220 National Highways Authority of India v. M. Hakeem and Another, (2021) 9 SCC 1: The central judgment under review, which initially restricted the power of courts to modify awards.
• UNCITRAL Model Law on International Commercial Arbitration, 1985: The basis for the Arbitration and Conciliation Act, 1996, which does not explicitly allow courts to modify awards.
• New York Convention: United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958.

Table of Authorities Considered by the Court

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

✓ Project Director, National Highways No. 45 E and 220 National Highways Authority of India v. M. Hakeem and Another [CITATION]: Affirmed with clarifications regarding severability and correction of errors.

What Weighed in the Mind of the Court?

The Supreme Court’s decision was influenced by several factors, including the legislative intent behind the Arbitration and Conciliation Act, 1996, the need to balance party autonomy with judicial oversight, and the potential implications for the enforcement of foreign awards.

Sentiment Analysis of Reasons Given by the Supreme Court

Ratio Table: Fact:Law

Logical Reasoning

[ISSUE]: Whether courts have the power to modify arbitral awards under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996.

[Flowchart]

Start → Analyze Section 34 → Determine if modification is explicitly allowed → If yes, follow explicit provisions → If no, consider implied powers → Check for conflict with legislative intent → If conflict exists, reject modification → If no conflict, allow limited modification (severability, error correction) → Final Decision

Key Takeaways

• Indian courts have limited power to modify arbitral awards under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996.
• Modifications are permissible only in cases of severability, correction of clerical errors, and adjustments to post-award interest.
• The judgment affirms the principle of minimal judicial intervention in arbitration matters.

Development of Law

The judgment clarifies and reaffirms the limited scope of judicial intervention in arbitral awards, emphasizing the importance of party autonomy and the legislative intent behind the Arbitration and Conciliation Act, 1996. It also provides specific guidance on the circumstances under which courts can modify awards.

Conclusion

The Supreme Court’s judgment in Gayatri Balasamy vs. ISG Novasoft Technologies Limited provides much-needed clarity on the powers of courts to modify arbitral awards in India. By affirming the principle of minimal judicial intervention and outlining specific exceptions, the court has struck a balance between party autonomy and the need for judicial oversight.

Category

• Arbitration and Conciliation Act, 1996
  • Section 34, Arbitration and Conciliation Act, 1996
  • Section 37, Arbitration and Conciliation Act, 1996
• Arbitration Law
  • Arbitral Awards
  • Judicial Intervention

FAQ

1. Can a court change an arbitral award?
   
   Indian courts have limited power to modify arbitral awards, primarily only to correct clerical errors or sever invalid parts.
2. What happens if an arbitral award has a mistake?
   
   The court may send the award back to the arbitral tribunal to correct the mistake or allow for severability of the invalid parts.
3. What is the main principle behind this judgment?
   
   The judgment reinforces the principle of minimal judicial intervention in arbitration, respecting the parties’ choice to resolve disputes outside traditional courts.