Court’s power to modify an arbitral award

In Gayatri Balaswamy v. M/S. ISG Novasoft Technologies Limited

Bench: Chief Justice Sanjiv Khanna, Justice B.R. Gavai, Justice P.V. Sanjay Kumar, Justice A.G. Masih, Justice K.V. Viswanathan.

Date of Judgement: 30/04/2025

INTRODUCTION

In a recent ruling in Gayatri Balaswamy vs. M/S. ISG Novasoft Technologies Ltd[1], a Constitution Bench of five judges of the Supreme Court considered a reference made by a three-judge Bench to determine whether a court has the authority to modify an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996. By a 4:1 majority, the Bench, headed by the Chief Justice, held that while such modification is not generally permitted, it can be allowed in certain “limited” scenarios.

The dispute arose in the backdrop that the Act, does not specifically empowers the Courts to ‘alter’ or ‘modify’ an arbitral award Instead, Section 34 of the Act explicitly outlines the Court’s authority to set aside an arbitral award on specific, limited grounds. In this backdrop the Court framed the issue for consideration inter-alia: “Are Indian courts jurisdictionally empowered to modify an arbitral award? If so, to what extent?”

Greater contains the Lesser:
Deliberating on the issue, the Court considered the maxim “omne majus continent in se minus” (i.e. the greater contains the lesser), to arrive at the conclusion that the power to set aside an award includes the power to modify or partially set aside an award. In reaching this conclusion, the Court analyzed the proviso to Section 34(2)(a)(iv) and observed that it empowers the Court to sever parts of an arbitral award that pertain to issues not referred to the arbitral tribunal for adjudication. Holding thus, the Court observed that the authority to severe the invalid portion of the award from valid portions, is inherent, within the narrow jurisdiction under Section 34 of the Act, which prescribes for power to set aside an award. The Court further issued a cautionary note, emphasizing that the power of severability can only be exercised in cases where the valid and invalid parts of the award are both legally and practically separable, and where these portions are not interdependent. If such portions are not legally and practically separable then there cannot be partial setting aside of the award.

Annulment v/s Modification:
In this regard, the Court examined the difference between ‘modification’ and ‘setting aside’ of an arbitral award, highlighting that they lead to fundamentally different legal outcomes. Modification involves altering the terms of the award, whereas setting aside leads to its complete annulment. It was then highlighted that ‘modification’ signifies exercise of a limited power, whereas ‘setting-aside’ results in a severe consequence of cancellation of the award all together. It was thus emphasized that court can use the law of severability and can modify the award keeping the valid portion and setting aside the invalid portion. In this context the Court declined to concur with the argument that the exercise of modification of award will result into examination of the award on the merits of dispute.

Power of Modification is in consonance with objectives of Arbitration:
Justifying the Court’s power to modify the arbitral award, the Supreme Court highlighted that such power of modification signifies the objectives of arbitration, i.e. avoidance of delay and cost escalation. Indeed, the Court observed that restricting courts to merely setting aside an arbitral award—without the option to modify it—would impose unnecessary hardship and financial burden on the parties, as they would have to recommence the dispute resolution process from the beginning. This would ultimately make arbitration more burdensome and time-consuming than conventional litigation. Pertinently, while emphasizing that Section 34 does not restrict the range of reliefs to be granted by the Court, the Supreme Court observed that mere silence in the Act should not be read as complete prohibition with respect to grant of any relief.

In fact, the Court went to the extent of examining and upholding the Court’s power to modify the award, despite existence of Section 33 of the Act, which empowers the arbitrator, to correct and issue additional award, on limited grounds. The Court held that, notwithstanding the provisions of Section 33, it retains inherent powers to modify an arbitral award, depending on the nature of the jurisdiction involved—be it appellate, reference-based, or the limited scope under Section 34. It further observed that these powers are intrinsically linked to the Court’s overall jurisdiction and form an integral part of its authority in such matters.

Remand/remittance v/s modification of Award:
The Supreme Court rejected the contention that the power to remand an arbitral award to the tribunal makes the Court’s power to modify the award redundant. It clarified that these powers are distinct in nature and serve different purposes within the framework of the arbitration process. Supreme Court observed these powers to be distinct and being used for different purposes. The Court observed that Section 33(4) prescribes discretionary power of the Court to remand the award to arbitrator, in case the award is defective in such manner that can lead to its setting aside. Therefore, to prevent the same, the Court may remit the award to arbitrator for limited consideration. The Court cautioned that remand of award under Section 33(4) does not permit the Arbitral Tribunal to re-write the award on its merits or set it aside. Such measure is a curative mechanism made available to the arbitral tribunal by remand exercise of Court. Court held that it is a means to preserve an award, and Court should not remand an award if it is inherently irreparable.

Power of Modification not in derogation of New York Convention:
Supreme Court was not impressed with the arguments against modification on the ground that a modified award gets subsumed/merged in the order of Court in modified form, whereas the structure of New York Convention contemplates for the enforcement of award award and not a court order; therefore, a modified award merged in the court order will be rendered unenforceable as per the Convention. In this regard, referring to Section 48 of the Act, the Supreme Court observed that enforceability of the foreign award shall be decided by the court by examining whether the arbitration’s jurisdiction’s laws have made the award legally binding. Thus, the Court maintained that it has limited authority under Section 34 to alter the award, and that such award shall be will be treated as modified by the Judgment/order.

Other issues:
Apart from above issues, the Court has deliberated on many other issues, including on the issue of grant of post award interest, post award settlement between parties, applicability of limitation under Section 34 read with Section 43(4) and application of SC power under Article 142 of Constitution. In the context of application of power under Article 142, SC held that such power should be exercised with caution and restraint, in appropriate cases and particularly with an objective to bring the litigation to an end. It was cautioned that such powers should not be exercised where it results in rewriting of award or modification of award on merits.

CONCLUSION
The judgement given in this case is a major development in the Alternative Dispute Resolution Jurisprudence particularly in Arbitration law in India. The ruling by the Hon’ble SC provides for spacious judicial intervention to modify the arbitral awards. The Judgment, while rendering prescriptions for modification based only on spacious principles, does not lay down any objective criteria for exercise of such power of modification. So far, the Judgment is likely to have a far-reaching impact in prompting the Courts to intervene into the arbitral awards, while exercising powers under Section 34 of the Act.
In fact, in the dissenting Judgement of Mr. Justice K.V. Viswanathan adheres to literal interpretation of the statute by observing that unlike legislations of other jurisdictions like UK, New Zealand, Singapore, Kenya, the Indian legislation does not have specific prescriptions for modification of awards. He referred to amendments to the Act in the year 2015, 2019, and 2021, to highlight that Parliament had several opportunities to give the Courts the power to modify the awards, but it chose not to do so. Therefore, it would not be justified for the courts to assume such power. Even with respect to exercise of powers by Court under Article 142, the dissenting Judgment observes that such exercise of power is opposed to settled principles of law laid down in Supreme Court Bar Association v. Union of India,[2] where the honourable Court made it clear that Article 142 cannot be used to override or replace existing laws and Shilpa Sailesh v. Varun Sreenivasan,[3] wher the honourable Court again reiterated that powers under Article 142 must be used with caution and should not go against core principles of a law.
Overall, the majority Judgment leaves spacious room for the Courts to intervene with the award stated after the arbitral proceedings in exercise of powers under Section 34 of the said Act. While Indian arbitration eco-system has of late seen a discouraging trend to opt for arbitration, particularly in view of Government’s deliberate act of avoiding arbitration in high value matters, this Judgment permitting Court’s increased power of intervention with the award, may witness further discouragement in promotion of arbitration in the sub-continent.
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[1] Gayatri Balaswamy v. M/S. ISG Novasoft Technologies Limited, (2025) INSC 605
[2] Supreme Court Bar Association vs. Union of India and Another, (1998) 4 SCC 409.
[3] Shilpa Sailesh v. Varun Sreenivasan, (2023) 14 SCC 231.