Citation: 2025 SCC OnLine SC 986
Court: Supreme Court of India
Bench: Sanjiv Khanna CJI, B.R. Gavai J, P.V. Sanjay Kumar J, K.V. Vishwanathan J, A.G. Masih J
Date of Judgement: April 30, 2025
- Introduction
As the number of cases in arbitration evolve, so does the arbitration landscape in India. Where efficiency, minimal court intervention and the autonomy of the party is central, the judgement in Gayatri Balasamy v. M/S. ISG Novasoft Technologies Limited guides our attention to the tension between procedural fairness and the role of court under section 34 of the Arbitration and Conciliation Act, 1996. The case deals with a challenge to an arbitral award, alleging the denial of opportunity to present one’s case, which is a ground under 34(2)(a)(iii) of the Act. While the pendulum of opinions differs according to different court judgements, this judgement tries to put an end to the confusion once and for all.
- Facts
Gayatri Balasamy joined ISG Novasoft Technologies Ltd., a technology firm, as Vice President of M&A on April 27, 2006. She quit just three months later, accusing the CEO of sexual harassment. Her resignation was not accepted, although later she received three termination letters the following year.
The issue heightened, and Balasamy filed criminal complaints against the CEO and other company personnel, while ISG retaliated with defamation and extortion cases.
Later, the Supreme Court sent the case to arbitration, and it gave a verdict of ₹2 crore to Balasamy.
Not being content with the decision, the appellant went to the Madras High Court under Section 34 of the Arbitration and Conciliation Act, stating that the arbitration tribunal did not take into account significant points of her claims.
A single judge bench increased the award by an additional ₹1.6 crore, but a subsequent Division Bench cut that to ₹50,000 on the grounds of faulty calculation.
Balasamy took the issue to the Supreme Court in 2021 through a Special Leave Petition. Seeing an issue of general legal importance, that is, whether or not courts can in fact alter arbitral awards other than just setting them aside, the case was sent to a larger bench for adjudication.
- Issues Raised
- Whether the provisions of Section 34 can be interpreted as reading into the power to modify an arbitral award?
- Whether modification is only allowed when the award is severable?
- Whether earlier rulings, like NHAI v. M. Hakeem, declaring that courts are powerless to alter awards, remain as binding law?
More important questions specific to the case were posed:
- Whether the arbitral tribunal did not adequately address Ms. Gayatri Balasamy’s wrongful termination and workplace harassment claims?
- Whether Ms. Madras High Court’s enhancement of compensation granted constituted an illegal amendment of the arbitral award?
- Whether the courts, as per Sections 34 and 37 of the Arbitration and Conciliation Act, 1996, are entitled to alter an arbitral award or are bound to set it aside?
- Contentions
Arguments by the Petitioner (Gayatri Balasamy):
- Modification is Necessary for Justice
The petitioner argued that in cases where an arbitral award is legally sound in part, but contains errors or inadequacies in specific components, courts should have the power to modify those parts without needing to fully set aside the award. - Doctrine of Severability
They relied on the severability principle, which means that if an award is divisible, then courts should be allowed to correct or enhance specific elements (e.g., compensation) rather than scrap the entire decision. - Existing Precedent Supports Modification
The petitioner cited previous decisions (like Vedanta Ltd. v. Shenzen Shandong Nuclear Power Construction Co.) where courts had modified awards or accepted partial awards even after challenge under Section 34. - Doctrine of Effective Remedy
It was argued that setting aside an award entirely and requiring parties to re-initiate arbitration is inefficient and costly, especially when the flaw is only in the quantum or interpretation.
Arguments by the Respondent (ISG Novasoft Technologies):
- No Statutory Power to Modify Under Section 34
The respondent strongly relied on Project Director, NHAI v. M. Hakeem, where the Supreme Court held that Section 34 of the Arbitration and Conciliation Act, 1996, only allows courts to set aside an award and does not permit modification. - Judicial Interference Undermines Arbitration
They argued that allowing modification would be contrary to the legislative intent of minimal court interference in arbitration proceedings. Giving courts wide powers to tweak awards risks making arbitration redundant. - No Basis in Text or Intention
According to respondents, there is no textual support in the Act to justify modification, nor any express or implied intention by the legislature to allow courts to rewrite awards. - Finality of Arbitration Must Be Respected
Allowing courts to edit awards at will could seriously harm the finality and sanctity of arbitration, a foundational principle of the Act.
- Judgment / Rational Of The Case
It was held that courts have limited power to modify an arbitral award under section 34 in a 4:1 majority. With the majority opinion authored by CJI Khanna and the dissenting opinion penned by Justice K.V. Vishwanathan.
Majority Opinion
- Limited Power to Modify
The majority held that courts have a limited power to modify arbitral awards under Section 34 of the Arbitration and Conciliation Act, 1996, even though the word “modify” isn’t explicitly used. This power is inferred, particularly where a complete setting aside of the award would be disproportionate or unjust. - Modification Must Be Narrow and Severable
Modifications can only be made when the part to be changed is severable from the rest of the award. The Court explained that this avoids unnecessary interference with the rest of the arbitral findings. - No Review on Merits
Courts should not conduct a reappraisal of evidence or revisit legal conclusions. Modification cannot become an indirect appeal, and must only correct evident and narrow errors. - Correction of Post-Award Interest
Courts are allowed to modify interest-related portions of awards, especially under Section 31(7), if the interest is excessive or unreasonable. - Constitutional Power Under Article 142
In exceptional cases, the Supreme Court can also modify awards under Article 142 to do “complete justice.” However, this is reserved for extraordinary circumstances and must not undermine arbitration’s finality.
Dissenting Opinion
- No Power to Modify Under Section 34
Justice Viswanathan strongly disagreed with the majority. He held that Section 34 only allows courts to set aside an award, not to modify it. Since the statute does not mention “modification,” reading it in would go against the legislative intent. - Risk of Judicial Overreach
Allowing courts to modify arbitral awards could lead to excessive judicial interference, undermining the autonomy and purpose of arbitration. - Finality of Arbitral Awards Must Be Respected
He emphasized the principle that courts must respect the finality of arbitral awards, and that any dissatisfaction with an award should be addressed through proper statutory remedies, like remand or challenge, not judicial re-writing. - Appellate Substitution Is Not Permitted
The dissent cautioned against courts substituting their view for that of the arbitral tribunal, as it would violate the intention behind minimal judicial intervention under the Arbitration Act.
- Defects In The Law
Despite the evolution brought by this judgment, certain flaws in the legal framework surrounding Section 34 of the Arbitration and Conciliation Act, 1996, became evident:
- Ambiguity in Section 34’s Language
The provision lacks explicit clarity on whether courts can modify awards. It only mentions “setting aside” an award, not “altering” or “modifying” it.
This legislative silence led to contradictory judicial interpretations, as seen in NHAI v. M. Hakeem (no modification allowed) and now Gayatri Balasamy (modification allowed in limited cases).
- Judicial Confusion and Inconsistency
Until this ruling, various benches of the Supreme Court and High Courts had taken divergent stands on whether courts can modify awards.
The lack of uniformity created uncertainty in enforcement, undermining predictability for parties relying on arbitration.
- Risk of Judicial Overreach
Critics argue that permitting courts to “correct” awards blurs the line between the judiciary and arbitral tribunals.
There’s a fear this could lead to backdoor appeals, which go against the arbitration principle of finality.
- Lack of Legislative Intervention
Despite multiple judgments highlighting the issue, Parliament hasn’t amended Section 34 to address or clarify the scope of judicial power.
This leads to an over-reliance on judicial discretion, which may vary from case to case, undermining the stability of arbitration law.
- Impact on Party Autonomy
One of arbitration’s pillars is party autonomy and minimal court interference.
The power to modify, if misused, can dilute the arbitrator’s role, potentially discouraging parties from choosing arbitration as a dispute resolution mechanism.
- INFERENCES
The Supreme Court’s judgment in Gayatri Balasamy v. ISG Novasoft Technologies Ltd. has sparked divided opinions across legal circles. While it closes a long-standing debate, it also opens new dialogues on the limits of judicial oversight in arbitration.
- A Shift Towards Corrective Justice
Many legal analysts view this ruling as a pragmatic shift. By allowing courts to modify awards in specific scenarios (especially where the error is evident, and the issue is severable), the Court emphasizes substantive justice over procedural rigidity.
“This marks a step towards correcting clear injustices in arbitral awards without forcing litigants to restart proceedings from scratch.”
— IBCLaw article by Kanchan Sharma
- Risk of Undermining Finality
Some experts argue the judgment dilutes the finality of arbitral awards, which is one of arbitration’s strongest appeals. The fear is that parties may now use Section 34 as an alternative appeal route, burdening courts and prolonging litigation.
“By opening the door to judicial modification, the decision may indirectly incentivise challenges under Section 34, defeating the speed and efficiency arbitration offers.”
— Global Arbitration Review
- Correcting Past Inconsistencies
The judgment also helps resolve conflicting case law, especially post-NHAI v. M. Hakeem. It acknowledges that previous benches had already permitted modifications, thus aligning doctrine with practice.
“It’s not a radical shift, but a formal recognition of what courts were already doing in many cases.”
— Argus Partners commentary
- Need for Legislative Action
Across the board, experts agree on the need for legislative clarity. Section 34 remains ambiguous, and unless Parliament steps in with amendments, much will continue to depend on judicial interpretation.
“The ruling puts the ball back in the legislature’s court to codify when and how modification can occur.”
— SUO Law analysis
- Balance Between Efficiency and Fairness
Ultimately, the judgment attempts to balance the sanctity of arbitration with judicial responsibility. It affirms that courts are not rubber stamps, especially when awards are irrational or unjust, but also that such power must be exercised narrowly.
- PERSONAL COMMENTARY
The Supreme Court’s majority view stems from a practical concern that restarting the arbitration process can be both time consuming and inefficient. However, the same can be said for modification proceedings in the court. Ironically, this case itself has been ongoing since 2006, undercutting the argument that court intervention guarantees efficiency.
Parties choose arbitration not just because of minimal judicial interference or reduced costs, but also because of the promise of swift justice. But if parties eventually find themselves back in court, with extended proceedings and a series of multi-level appeals, the benefits of arbitration are completely diluted.
Though intervention may be necessary in rare cases of injustice, routinely modifying awards could blur the line between arbitration and regular court trials, undermining the whole essence of the arbitration process.
Thus, the supreme court’s judgement is well intentioned, but the power to modify arbitral awards should be used sparingly and only in exceptional cases, much like the application of article 142. Without clear limitations, this precedent could weaken the core purpose of arbitration, discouraging the parties from choosing it a reliable dispute resolution mechanism.
Ananya Shandil
Army Institute of Law, Mohali