Gayatri Balasamy v. ISG Novasoft Technologies Ltd. (2025 INSC 605)
INTRODUCTION
This landmark ruling resolves a significant legal dispute about Indian courts’ ability to alter arbitral awards under the Arbitration and Conciliation Act, 1996 (henceforth referred to as the “1996 Act”), which resulted from Civil Appeal Nos. of 2025 (which was based on S.L.P.(C) Nos. 15336-15337 of 2021 and related cases). The question before the Supreme Court’s five-judge panel was whether or not courts have the authority to change an arbitral award and, if so, how much of that authority they could use.
FACTS
In 2011, ISG Novasoft Technologies Ltd. senior executive Gayatri Balasamy quit, citing a hostile work environment and sexual harassment at work. She initiated legal proceedings after resigning, bringing both civil and criminal charges. In accordance with the conditions of her employment contract, the disagreement over her resignation, pay, and mistreatment at work was ultimately sent to arbitration.
After considering the evidence and hearing both sides, the arbitral tribunal decided in her favour and awarded her ₹2 crores in compensation. However, Gayatri requested an increase in the award amount, claiming that the damages were insufficient in light of the mental agony and missed career opportunities.
In accordance with Section 34 of the Arbitration and Conciliation Act of 1996, she filed an appeal with the Madras High Court. The arbitral award was increased by ₹1.6 crores by the High Court’s Single Judge Bench. After the employer filed an appeal, a Division Bench drastically lowered the enhancement to ₹50,000, citing the court’s limited authority to either set aside or leave unaltered an arbitral award.
Disappointed with the contradictory rulings and wide range of relief, Gayatri filed a Special Leave Petition (SLP (C) Nos. 15336–15337 of 2021, Diary No. 20788 of 2021) with the Supreme Court. Given the recurring controversy on the powers of courts under Sections 34 and 37, the matter was placed before a Constitution Bench to determine the legal correctness of judicial modification of arbitral awards.
ISSUES
- 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?
- 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?
- 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?
- Whether the power to modify an award can be read into the power to set aside an award under Section 34 of the Act?
CONTENTIONS
Proponents of modification argued that the principle established in M. Hakeem merited reconsideration in light of numerous other Supreme Court decisions permitting modification, including instances where High Courts and District Courts had modified awards Citing international arbitration practice, they noted that parties to the New York Convention and the UNCITRAL Model Law have clauses expressly allowing courts to alter awards made domestically, thereby promoting judicial authority beyond simple setback. It was logically argued that the power to annul an award includes the lesser power to modify it, highlighting the adage omne majus continet in se minus. Additionally, under Sections 34(2)(b)(ii) and 34(2A), the proponents argued that awards that violate public policy or entail patent illegality must be modified; similar jurisdictions like the UK, Australia, and Singapore support this view.
Additionally, it was argued that Section 34’s definition of “recourse” is sufficiently inclusive to cover requests for change or variation. Rigid commercial arbitration principles may not apply in certain special contexts, such as land acquisition under the National Highways Act, where arbitration involves public law issues. As a result, it is important to recognise the judicial power to enhance compensation or adjust interest. Furthermore, it was argued that changing interest rates under Section 34 was a practical necessity that could prevent needless and drawn-out additional arbitrations.
On the other hand, opponents emphasised that the Model Law purposefully limits judicial intervention to setting aside alone. By replacing arbitral awards with court-decreed outcomes, a judicial power to modify runs the risk of undermining the New York Convention’s international enforceability and finality. Unauthorised modifications are not enforceable overseas because, from the perspective of enforcement, only arbitral awards—not court-modified versions—are eligible for recognition.
Since setting aside completely annihilates an award and what is no longer there cannot be changed, the adage “omne majus continet in se minus” was rejected as being unapplicable. In order to warn against courts assuming unlawful appellate powers, the functus officio doctrine—which emphasises that the arbitral tribunal’s authority ends upon pronouncing the award—was invoked. Lastly, the merger doctrine was brought up, warning that court changes do not incorporate into or replace the original award, creating uncertainty about enforcement, which is especially problematic under the New York Convention regime. These clashing perspectives fashioned a complex legal battleground between equitable imperatives and statutory constraints.
RATIONALE
In an effort to reconcile legislative intent with equitable justice, the Supreme Court took a nuanced and balanced stance. It underlined that the term “recourse” in Section 34, when interpreted in conjunction with Section 5, strictly limits judicial intervention to that which the statute permits. Courts cannot apply Section 34’s language to modification in the absence of clear legislative mandate because it only permits “recourse” in the form of setting aside for specific reasons.
The well-known proviso to Section 34(2)(a)(iv), which allows courts to set aside only the portion of an award that contains decisions on matters not submitted to arbitration when those parts are severable from the valid portions, was acknowledged by the Court. The Court determined that, in cases where segregation is feasible, the authority to set aside an entire award inevitably includes the authority to set aside it partially by applying the maxim omne majus continet in se minus. However, this right is limited because it can only be partially set aside when the valid and invalid parts are practically and legally independent of one another. The entire award must be revoked if the components are inherently linked. This clarifies that while partial setting aside functions somewhat like modification, it is legally distinct—it is still an act of annulment confined to a portion of the award.
The Court emphasised that while annulment ends an award’s existence, modification alters its content. It rejected the idea that acknowledging any modification power inevitably necessitates reevaluating the merits, pointing out that any partial setting aside that would be allowed would be limited.
In the end, the Court rejected reading additional powers into Section 34, even though it acknowledged the difficulty of denying courts limited modification, particularly in light of Indian litigation delays and the possibility of repeated arbitration. The Court rejected suggested textual insertions like “or modified” as virtual legislative overreach, emphasising the need to preserve the statute’s plain meaning.
Additionally, the Court made a distinction between the remand power under Section 34(4), which permits courts to adjourn and give the tribunal an opportunity to correct defects, and the limited correction power under Section 33, which is reserved for the arbitrator to correct clerical, computational, or omission errors. Neither of these powers gives courts substantive modification authority.
The Supreme Court reiterated its authority to ensure full justice in relation to Article 142 constitutional powers, but it made clear that these powers could not supersede the 1996 Act’s statutory provisions. The application of Article 142 must be consistent with the core goals of the Act without granting authority that is prohibited by law. Article 142 modification cases in the past were regarded as exceptional rather than typical.
DEFECTS OF LAW
Long-standing flaws in the law were found and fixed by the ruling, primarily the contradictory Supreme Court rulings allowing or prohibiting change, the vague meaning of “recourse,” and the uneven application of omne majus continet in se minus. Instead of a broad judicial power to modify, it clarified the more limited application of that maxim to severability claims.
By emphasising that modification is neither an arbitrator’s remedy nor a court’s authority under Sections 33 or 34(4), the Court cleared up any misunderstandings regarding the arbitrators’ correction power, tribunals’ remedial opportunities, and courts’ jurisdiction. Any attempt to use Article 142 as a backdoor to judicial modification that was in conflict with specific statutory provisions was firmly curbed.
INFERENCE
The five-judge panel came to the conclusion that Indian courts typically do not have the authority to change arbitral awards under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996. According to the wording of the statute, judges can only invalidate awards for specific reasons.
However, when an award contains legally separate invalid portions that can be separated from valid ones, courts have the limited authority to partially set aside the award. This remedy is based on severability and the common understanding that the greater power to annul includes partial annulment. This authority does not equate to or permit significant or wide-ranging award modifications.
The ruling reaffirmed that substantive judicial modification is against legislative intent and could jeopardise the New York Convention’s international enforceability and finality of arbitration. Section 33 corrections and Section 34(4) remands remain distinct processes that empower arbitrators and tribunals, not courts, to rectify errors or remedy procedural defects.
While Article 142 empowers the Supreme Court to do complete justice, it cannot override explicit statutory limitations or be routinely employed to create a general judicial power of modification in arbitration matters.
This authoritative pronouncement aligns Indian arbitration law with international norms favouring minimal judicial interference, preserving arbitration’s expediency and finality. It affirms the principle of confined, supervised court intervention—allowing partial setting aside prudently but foregoing the court’s role as appellate decision-maker revising arbitral awards.
The judgment thus closes the longstanding debate, providing clarity and certainty for arbitration practitioners and disputing parties alike, reinforcing the limited, supervisory judicial role envisaged by the Arbitration and Conciliation Act, 1996.
NAME: Apoorv Vikram Singh
COLLEGE: Presidency University, Bangalore