Introduction
Litigation is a way for getting justice but why then there is such thing as Arbitration? Arbitration is there to be a fastest and cheapest alternative to court litigation. But what happens when a judicial decision which is known as arbitral award contains errors- can court fix it, or must the entire award gets invalidate? Then the entire purpose of arbitration will get destroyed? These questions remained unaddressed for years in Indian law, with different court benches taking contradictory positions. The Supreme Courts Constitutional Bench decision in Gayatri Balasamy v. ISG Novasoft Technologies1Limited resolved this debate whose judgement was delivered on 30 April 2025 by having a majority of 4:1, expressly overruling modification laid down in NHAI v. M. Hakeem[2].
Facts
The case of Gayatri Balasamy v. ISG Novasoft Technologies limited is the landmark constitutional judgement which originated from the commercial arbitration between Gayatri Balasamy (Appellant) and ISG Novasoft Technologies Ltd. (Respondent). The dispute arose when the employer, ISG Novasoft Technologies Ltd. terminated the employment of Gayatri Balasamy due to her complaints regarding sexual harassment at workplace. The dispute was referred to arbitration, and the arbitral tribunal awarded the appellant a sum of INR 2 Crore as a compensation. But the appellant dissatisfied by the award and aggrieved by the rejection of her certain claims, the appellant filed an application before Madras High Court under Section 34 of The Arbitration and Conciliation Act,1996[3], challenging the award. The single judge of Madras High Court enhanced the compensation by INR 1.6Crore by treating the power of modification as inherent. On appeal by other side, the Division Bench reduced the amount to mere INR 50,000, considering single judges’ modification as excessive and arbitrary. The appellant then approached Supreme Court, where a Three-Judge Bench of supreme Court, vide order dated 20 February,2024 directed that the special leave petition before the matter to be placed before Chief Justice of India seeking judicial opinion on the extent of a court’s power under Sections 34 and 37[4] of the Act. A five-judge Constitution Bench, comprising Chief Justice Sanjiv Khanna, Justices B.R. Gavai, Sanjay Kumar, A.G. Masih, and K.V. Viswanathan, heard the matter and delivered its judgment on April 30, 2025.
Issues Raised
- Whether the power of the court under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996, includes the power to modify an arbitral award, and if so, to what extent and under what circumstances?
- Whether the power to set aside an order under Section 34 of the Arbitration and Conciliation Act,1996, being a large power, inherently include lesser power of modifying the arbitral award, in whole or in part?
- Whether a court can severe an arbitral award and partially set aside or modify only the “invalid” severable portion while preserving the “valid” portion?
- Whether courts possess the power to correct clerical, computational, or typographical errors in an arbitral award under Section 34, regardless of Section 33 of the 1996 Act, which gives such power to Arbitral Tribunal itself?
- Whether courts can modify post-award interest, and whether the power under Article 142 of the Constitution can be invoked to modify arbitral awards?
Contentions
Contentions of the parties favoring the power to modify
It was contended that the power to set aside a power, being broader, must necessarily include within it the lesser or limited power to modify the arbitral award. It is based on the Latin maxim omne majus continent in se minus– the greater power includes the lesser. They argued that if a court can state an award as invalid entirely, it must be able to partially modify it. They further argued that complete bar on modification of arbitral award can lead to injustice, particularly in cases involving clerical or computational errors and can undermine efficiency and cost-effectiveness of arbitration as even to rectify a minor mistake, parties need to initiate fresh arbitration process.
They have relied on McDermott International Inc. v. Burn Standard Co. Ltd.[5] and ONGC Ltd. v. Saw Pipes Ltd[6], in which courts had exercised powers of modification under Section 34. They also stated that Article 142 of the Constitution of India[7] empowers the Supreme Court to pass any decree or order essential to do “complete justice”. It is an inherent constitutional power.
Contentions of the parties not favoring the power to modify
Here it was contended that legislature intentionally omitted the modification power from the 1996 Act. The 1996 Act was replacement of the Arbitration Act,1940. The 1996 Act was enacted to align with the UNCITRAL Model Law on International Commercial Arbitration, which confers no power for modification. Also when Section 34 is read with Section 5[8] of the Act, it mandates minimum judicial interference. Further , they contended that the use of phrases “set aside”, “only if”, and “recourse” in Section 34 of the Act permits minimal judicial interference to set aside or invalidate the award by establishing specific grounds. They have argued that permitting courts to modify awards would undermine foundational principles that distinguishes it from litigation and the dissent held that Article 142 of the Constitution cannot be invoked to override a foundational principle of the statute.
Rationale
The majority of constitutional bench that is 4 judges out of 5 held that the courts have limited power to modify arbitral awards under Section 34 and 37 of the Arbitration and Conciliation Act, 1996. However, this power is restricted to and can be used only few specific conditions:
1. If a particular part of award is illegal and that part can be separated from the rest, the court may remove that defective portion and keep the remaining valid part of the award as it is. This is what the Doctrine of severability about. They could recognised that it would be unfair to set aside the entire award when only a small part is impedimental.
2. Court can rectify mistakes such as clerical, mathematical, computational, typing errors which are visible . However, while doing so, courts cant re-examine the evidence or reconsider the merits of dispute like an appellate court.
3. Court can modify post award interest rate in exceptional cases. For instances: if arbitrator has awarded an unreasonably high interest rate for a particular period, the court make take necessary stance.
4. Under Article 142, Supreme Court can use it special power to modify an arbitral award in order to ensure justice.
The majority further stated that just because the Arbitration act does not mention a power of modification , doesn’t mean that such power is prohibited. The bench also broadened the use of sec 34(4) by allowing appellate courts under Section 37 to send matters back to the arbitral tribunal .
However, Justice KV Vishwanathan disagreed to this. He argued that parliament intentionally didn’t gave power to modify the arbitral award. He believed, allowing modification in limited manner could gradually lead courts to reevaluate the merits of disputes which could undermine the India’s credibility as a pro arbitration jurisdiction.
5. Notably, both majority and dissent agreement regarding remand under Section 34(4)[9] extends to appellate courts under Section 37 reflects shared commitment to preserving arbitral autonomy.
Defects of Law
The judgement delivered by majority have practical objectives but still it raises several doctrinal concerns.
Firstly, the court came to conclusion that modification of an arbitral award is lesser power included within the power to set aside. It is open to criticism as modification and setting aside operate in fundamentally different spheres. While modifications talks about courts power to alter invalid portion of the award, setting aside directly invalidates the entire award and then parties are required to re-arbitrate.
Secondly, legislative history of 1996 Act weakens the reasoning by majority. The Arbitration and Conciliation Act,1996 is a replacement of the Arbitration Act, 1940[10], in which there was explicit mention about power of court to modify the award, but 1996 Act omitted it. Subsequently, the Act was amended in 2015, 2019, and 2021 without introducing any modification power, which shows legislative intent to restrict judicial intervention. So by reading inherent power of modification in Section 34, the judgement deviates from principle of minimal judicial interference given in Section 5 of the Act.
Thirdly. concern is about correcting the “manifest errors”. The judgement does not clearly define scope of this expression, creating confusion regarding the extent of judicial intervention permissible under Section 34.
Lastly, the reliance on Article 142 of the constitution is also debatable. Article 142 intends to do “complete justice” in exceptional circumstances. But using this provision for modification of arbitral awards may undermine statutory limits placed on judiciary. Also, it insufficiently addresses concerns arising under the New York Convention[11], particularly regarding the enforceability of modified awards abroad. India is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (the New York Convention). The decision may create uncertainty for International Commercial Arbitration and can affect the aspiration of India to be the global arbitration hub.
Inference
The case “Gayatri Balasamy v. ISG Novasoft Technologies Limited is the landmark constitutional judgement which addresses a long-standing significant question in Indian arbitration law. The consideration by majority regarding the limited modification power reflects the acknowledgement that re-arbitration, even to rectify minor mistakes would destroy the very objective of arbitration (Cost-effectiveness, reducing delays, etc.) and can lead to injustice and efficiency. It avoids injustice arising from partly invalid awards.
However, the judgement has certain weaknesses. The court may exercise greater discretion that extended due to courts reliance on implied powers, its broad interpretation of Article 142, and unclear meaning of “manifest errors”. Judicial interference in arbitral awards may increase, if it is not applied carefully which would weaken the principle of finality that the 1996 Act seeks to preserve.
Even the dissent by Justice Viswanathan though in minority has sought of significance. The concerns he raised about the UNCITRAL Model Law’s architecture, party autonomy, and Indias international arbitration credibility represent a coherent and textually defensible position.
One of the important aspects of judgment is that both the majority and the dissent agreed on broader use of Section 34(4) remand. They agreed that defective arbitral awards should be corrected by sending the matter back to arbitral tribunal instead of allowing court intervention. This reduces unnecessary court interference and preserves the autonomy of the arbitration process.
Ultimately, the judgement highlights that appropriate solution regarding modification lies in legislative intervention and not in judicial intervention. Parliament should amend the Arbitration and Conciliation Act,1996, by taking into consideration the modification of awards, by expressly codifying grounds and conditions for modification and laying clear procedural safeguards.
Also, the significance of case lies beyond arbitration law. The case was linked to complaints of sexual harassment at workplace. While the Constitutional Bench didn’t examine this aspect, but the constitutional question has taken central stage. This shows that behind every technical legal question lies a human dispute and that affects the justice seeking people.
Conclusion
The Gayatri Balasamy v. ISG Novasoft Technologies Limited is a significant judgement but not the final word as it has some major problems like what qualifies “manifest error” and what is the scope of “Article 142 of Indian Constitution”. The case essentially highlighted the need of legislative intervention in Indias arbitration framework. Parliament must expressly define terms and conditions regarding modifications under Section 34 of 1996 Act, rather than leaving it for judicial interpretation. Until then, the challenge is how lower court apply thus limited power- caution will determine whether Indian arbitration strengthens or suffers.
– Srushti Prashant Sawalakhe (Indian Law Society (ILS), Pune).
[1] Gayatri Balasamy v. ISG Novasoft Technologies limited, (2025)7 SCC 1.
[2] NHAI v. M. Hakeem, (2021) 9 SCC 1.
[3] The Arbitration and Conciliation Act, 1996 , § 34 (India).
[4] The Arbitration and Conciliation Act, 1996, § 37 (India).
[5] McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181.
[6] ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705.
[7] Indian Constitution Article 142.
[8] The Arbitration and Conciliation Act, 1996, § 5 (India).
[9] The Arbitration and Conciliation Act, 1996 , § 34(4)(India).
[10] The Arbitration Act, 1940 (Act 10 of 1940), § 15.
[11] Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), June 10, 1958, 330 U.N.T.S. 38.