Date of Judgement: 30th April 2025
Citation: 2025 INSC 605
Area of Law: Court’s Power to modify an Arbitral Award, Section 34 and 37 of the Arbitration and Conciliation Act 1996
Constitutional Bench: CJI Sanjiv Khanna, B.R. Gavai J, P.V. Sanjay Kumar J, K.V. Viswanathan J, A.G. Masih J
Appellant: Gayatri Balasamy
Lawyers: Senior Advocate Arvind Datar, Advocate M.V. Mukunda, Advocate Hina Shaheen, Advocate Mithun Shashank, Advocate Hredai Sriram, Advocate-on-Record Nishanth Patil, Advocate-on-Record K.Parameshwar
Respondent: ISG Novasoft Technologies Limited
Lawyers: Senior Advocate Siddharth Bhatnagar, Advocate Debmalya Banerjee, Advocate Manmeet Kaur, Advocate Rohan Sharma, Advocate Gurtej Pal Singh, Advocate Abhishek Rana, Advocate Ananya Khanna, Advocate Aditya Sidhra, Advocate-on-Record Karanjawala & Co.
Keywords: Arbitration, Arbitration and Conciliation Act 1996, Judicial Review
Facts:
Gayatri Balasamy, an employee at ISG Novasoft Technologies Limited (ISG) was appointed as the Vice President (M&A Integration Strategy) of ISG on 27 April 2006. A few months later, on 24th July 2006, Balasamy filed for resignation, which took effect after an year. Thereafter, she lodged a complaint alleging sexual harassment charges against ISG’s CEO, Krishna Srinivasan and Vice-President of the company under the Indian Penal Code, 1860 and the Tamil Nadu Prohibition of Harassment of Women Act, 1998. The company countered these charges with criminal complaints of defamation and extortion.
When this matter was brought before Supreme court, it referred the issue to Arbitration, where the Appellant was awarded a sum of 2 crore INR, by the Arbitral Tribunal. Balasamy was greatly dissatisfied with the award and approached Madras High Court to set it aside.
A single- judge bench of the Madras High Court in 2014, modified the arbitral award to add another sum of 1.6 crore INR in addition to the previously awarded 2 crore. This decision was met with disagreement in 2019 from a Division Bench of the Madras High Court, stating it as “excessive and onerous.” Thus, the additional amount of 1.6 crore was reduced to 50,000 INR.
The decision gave rise to an appeal to Supreme Court, starting a debate on whether a court has the authority to modify an arbitral award in the first place. The Three-Judge bench of Supreme identified conflicting opinions regarding this issue and consequently, the matter was referred to the Chief Justice of India, and a Constitutional Bench (five judges) was constituted in 2024.
Issues:
– Whether or not do Indian Courts have the authority to modify an arbitral award?
– Whether or not the power to set aside an award under Section 34 of the Arbitration and Conciliation Act 1996 being a larger power, will encompass the power to modify an arbitral award and if so, to what extent?
– Whether an arbitral award can be modified by using Article 142 of the Constitution?
Contentions:
This is a matter of Special Leave Petition (SLP) to the Supreme Court of India, which has been undertaken for the purpose of dissecting the exact powers that Section 34 and 37 of the Act lays out and what jurisdiction do courts have over it.
While the appellant had approached the court for receiving adequate compensation for the mental agony and creation of hostile work environment against the company, and the respondents countered the charge with criminal complaints of defamation and extortion, this case before the Supreme Court rather delves into a significant question of law.
Although the arbitration tribunal has already decided the case in favour of Balasamy, this appeal asks of the court to increase the compensation amount, therefore arising a question of modification.
Judgement/ Decision:
By a 4:1 majority, the Supreme Court held that courts do in fact hold limited power to modify an arbitral award under Section 34 and 37 of the Arbitration and Conciliation Act 1996. It further upheld the modification done to post-award interest, terming it as “justified.” CJI Sanjiv Khanna authored the majority judgement, while Justice Viswanathan wrote a dissenting opinion, stating that courts cannot modify an arbitral award.
Sections of Law:
The whole of the case mainly depends on the interpretation and extent of two sections of the Arbitration and Conciliation Act, 1996- Section 34 and Section 37, Chapter VII- Recourse against arbitral award.
Section 34- It gives parties subjected to arbitration the option to set aside the arbitral award by filing an application to the Court. The clearance of this claim is subjected to various circumstances, including, incapacity of a party during proceedings, question as to validity of the agreement under the law, and absence of proper notice w.r.t different stages of the arbitration process.
Section 37- It empowers and gives authority to a Court to hear appeals against an original order setting aside or refusing to set aside an arbitral award.
Conflicting opinions (Precedents):
These cases were of the opinion that the power to set aside an arbitral award was a limited power of the court and did not include in itself the power to ‘modify.’
– McDermott International Inc. v. Burn Standard Co. Ltd. (2006)
– Project Director, NHAI v. M Hakeem (2021)
– MMTC Ltd. Sangyoung Construction Ltd. v. NHAI
This other set of cases upheld and reinforced modification to the arbitral award.
– Vedanta Limited v. Shenzden Shandong Nuclear Power Construction Company Limited (2018)
– Oriental Structural Engineers Pvt. Ltd. v. State of Kerala (2011)
– Tata Hydroelectric Power Supply Co. Ltd. v. Union of India (2003)
Rationale behind the Decision:
1. Severability of Arbitral Awards
Majority- It is to be noted that the Doctrine of Severability is embedded in Section 34(2)(a)(iv) and allows the court to set aside the invalid parts of the award while upholding the valid parts, only if they are separable. The legal maxim “omne majus continent in se minus” is further applied, meaning that the larger power of setting aside an award includes the lesser power of partially setting it aside.
Dissent- Was of the opinion that there is a clear distinction between severability and modification and inseparable intertwined parts must lead to full dismissal of the award.
2. Limited power of modification can be included within the meaning of Section 34
Majority- Reasoned that limited power of modification is inherent and denying it would cause delays, hardships, and unnecessary retrials. Corrections to post-award interests and judicial overreach were held in two distinct lights.
Dissent- As judicial modification lacks express power, post-award interest too must be remanded for correction.
3. Modification is different from Remand
Majority- Recognized remand under Section 34(4) to allow courts to cure defects like inadequate reasoning. It also disagreed with the restrictive view in case of remand and stated that certain situations call for suo motu remand.
Dissent- Stated that one cannot supply new findings under the ambit of curing curable defects.
4. Supreme Court’s power to do complete justice under Article 142 of the Constitution
Majority- Held that Article 142 can be used to prevent prolonged litigation in arbitration cases but not to write awards based on merit.
Dissent- Argued that modifying arbitral awards vis Article 142 would contradict the Act’s core principles, breach party autonomy, and amount to judicial overreach.
Defects of Law:
While this judgement highlights noticeable loopholes and potential for future reforms, it contains legal defects in its present form.
– The dissenting opinion presses on conception of justice and the major takeaway is that a law should not be stretched to unrecognizable extents to make it applicable. This questions the essence of justice, fairness and equality.
– Bending the law in certain circumstances prove to be different from going outside its ambit, such in the case of modification of an arbitral award, where only severability is allowed. While partial severability is a viable option given to the courts, courts lack the express authority of modification and such action calls for legislative reforms. If not, it takes the form of judicial overreach.
– The judgement undermines the core feature of arbitration, which is its binding decisions, opening it up to constant and unlimited change by the judiciary. It weakens the standing of arbitration as a legitimate alternative, setting the precedent for easy modifications in case of unsatisfaction.
Inference:
The case of Gayatri Balasamy v. M/S ISG Novasoft Technologies Limited brings to light many areas in the field of arbitration law that require future legislative actions in order to provide greater clarity. This includes the long-standing debate of severability versus modification. Court has also acknowledged certain errors, also based on precedents, and calls for judicial correction in a way that does not overstep the essence of arbitration. Furthermore, it highlights the possibility of an extended meaning of Section 34 of the Arbitration Act, which could be referred for it’s plausibility in future cases. Nonetheless, the case proves to be an exemplary remark on the multi-facet approach to arbitration law and gives a new dimension to the court’s power of Judicial Review.
Bibliography:
– Gayatri Balasamy vs M/S ISG Novasoft Technologies Limited, C.A. No. 6178-6179/2025, Landmark Judgement Summaries, Supreme Court of India
– Court’s Power to Modify an Arbitral Award, Supreme Court Observer
– The Arbitration and Conciliations Act, 1996 (Bare act), India Code
Ananya Shandil
Army Institute of Law, Mohali