New Delhi: In a significant ruling on April 30, 2025, the Supreme Court of India, in a 4:1 majority judgment, clarified the scope of judicial intervention in arbitral awards under the Arbitration and Conciliation Act, 1996. The decision, delivered by a five-judge Constitution Bench led by Chief Justice of India Sanjiv Khanna, establishes that courts possess “limited power” to modify arbitral awards under specific circumstances. This landmark verdict in the case of Gayatri Balasamy v. ISG Novasoft Technologies Limited has far-reaching implications for arbitration in India, balancing judicial oversight with the autonomy of the arbitration process.
Background of the Case
The Supreme Court was tasked with answering a reference made by a three-judge bench in February 2024, which sought clarity on whether courts could modify arbitral awards under the 1996 Act. The issue arose from conflicting interpretations of the powers granted to courts under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996. Section 34 allows parties to apply to a court to set aside an arbitral award on limited grounds, such as patent illegality, conflict with public policy, or inducement by fraud or corruption. Section 37 outlines circumstances under which an appeal may lie against orders in arbitral disputes.
The case of Gayatri Balasamy v. ISG Novasoft Technologies Limited became the focal point for resolving this question, prompting the Constitution Bench—comprising Chief Justice Sanjiv Khanna, Justices B.R. Gavai, P.V. Sanjay Kumar, K.V. Viswanathan, and Augustine George Masih—to examine the extent of judicial authority in modifying arbitral awards.
Majority Opinion: Limited Power to Modify Arbitral Awards
Chief Justice Sanjiv Khanna, authoring the majority opinion on behalf of himself and Justices B.R. Gavai, P.V. Sanjay Kumar, and Augustine George Masih, held that courts have the authority to modify arbitral awards under Sections 34 and 37 of the 1996 Act, but only in restricted circumstances. The majority relied on the doctrine of omne majus continet in se minus (the greater power includes the lesser), asserting that the power to set aside an arbitral award inherently includes the power to set it aside in part or modify it under specific conditions.
The majority outlined the following scenarios where courts may exercise this limited power to modify arbitral awards:
- Severability of the Award: Courts can modify an award when it is severable, allowing the invalid portion to be separated from the valid portion. This ensures that only the defective part is addressed without nullifying the entire award.
- Correction of Errors: Courts may correct clerical, computational, or typographical errors that are evident on the face of the record. This provision addresses obvious mistakes without delving into the merits of the award.
- Modification of Post-Award Interest: In certain circumstances, courts can modify the interest awarded post-arbitration, as detailed in the judgment.
- Exercise of Article 142 Powers: The Supreme Court may invoke its inherent powers under Article 142 of the Constitution to modify awards to achieve “complete justice.” However, the majority emphasized that this power must be exercised with “great care and caution” and in consonance with the fundamental principles of the 1996 Act.
The majority judgment underscored that the scope of judicial intervention under Section 34 is strictly confined to the grounds expressly provided in the Act. Courts cannot correct errors of fact, reconsider costs, or review the merits of the arbitral award. Chief Justice Khanna noted, “The scope of judicial intervention under Section 34 is confined to the limited grounds expressly provided. The court does not possess the power to correct errors of fact, reconsider costs or engage in a review of the merits of the arbitral award.”
Regarding Article 142, the majority cautioned that its use must align with the objectives of the 1996 Act and not undermine its principles. “As far as Article 142 of the Constitution is concerned, the exercise of this power has to be in consonance with the fundamental principles and objectives behind the 1996 Act and not in derogation or in suppression thereof,” Chief Justice Khanna observed.
Dissenting Opinion: No Power to Modify Unless Statutorily Conferred
Justice K.V. Viswanathan, in his dissenting opinion, took a contrasting stance, arguing that courts lack the power to modify arbitral awards under Section 34 unless expressly authorized by the 1996 Act. He emphasized that Section 34 only permits courts to set aside an award, either in part or in full, and does not encompass the power to modify, vary, or alter it.
Justice Viswanathan distinguished between severance and modification. He explained that severance involves separating and disjointing a part of the award from the rest, a process unanimously accepted under Section 34 within the rules of severability. Modification, however, involves changing or altering the award, which he argued is not a lesser power subsumed under the power to set aside. “The power to set aside will not include the power to modify since the power to modify is not a lesser power subsumed in the power to set aside,” he observed.
Justice Viswanathan’s opinion aligned with the Union government’s submissions, represented by Solicitor General Tushar Mehta, which argued that the power to modify must be statutorily conferred by Parliament through an amendment to the 1996 Act. The dissent rejected the argument that denying courts the power to modify would lead to absurd results, citing Section 43(4) of the Act. This provision excludes the period between the commencement of arbitration and a court’s order setting aside an award when calculating the limitation period for initiating fresh proceedings, thus mitigating potential hardships.
Justice Viswanathan further argued that parties opting for arbitration contractually agree to an alternative dispute resolution mechanism governed by the 1996 Act, effectively ousting the normal judicial process. He cautioned that reading the power to modify into Section 34 would undermine the “core and ethos” of the arbitration process. He also expressed concerns about using Article 142 to modify awards, stating that it would introduce “uncertainties” and contravene substantive statutory provisions.
Legal Framework of Arbitration in India
Arbitration in India is a form of Alternative Dispute Resolution (ADR), alongside conciliation and mediation, designed to resolve disputes outside the national judicial system through a consensual, private adjudication process. Its significance lies in its less adversarial nature, flexibility, and quicker resolution compared to traditional litigation. The Arbitration and Conciliation Act, 1996, modeled on the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, 1985, provides the legal framework for arbitration in India.
Section 34(1) of the Act stipulates that recourse to a court is limited to an application for setting aside an arbitral award on grounds such as conflict with public policy, patent illegality, or inducement by fraud or corruption. Section 37 outlines the circumstances under which an appeal may lie against orders in arbitral disputes.
Implications of the Ruling
The Supreme Court’s ruling has significant implications for arbitration in India, particularly in the context of commercial disputes:
- Increased Judicial Power: Granting courts limited power to modify arbitral awards may prompt businesses to favor overseas arbitration hubs, as the 1996 Act does not distinguish between domestic and international arbitration. This could impact India’s position as a preferred arbitration destination.
- Equity Through Article 142: The invocation of Article 142 introduces an element of equity in commercial disputes, allowing the Supreme Court to address injustices that might otherwise persist due to rigid statutory constraints.
- Reduced Costs and Delays: By allowing modifications in specific cases, the ruling eliminates the need to re-arbitrate disputes from scratch, thereby reducing costs and delays for parties involved.
However, concerns were raised during the hearings by lawyers opposing the court’s power to modify awards. They argued that allowing courts to alter arbitral awards could have international repercussions, particularly when awards are enforced under foreign conventions. They contended that a court decree cannot substitute an arbitral award, especially given the limited jurisdiction under Section 34.
Respondents’ and Intervenors’ Arguments
During the hearings in February 2024, respondents and intervenors argued that recognizing courts’ power to modify arbitral awards would expedite the arbitration process. They contended that modification is a lesser power subsumed under the broader power to set aside, aligning with the doctrine of omne majus continet in se minus. These arguments were partially upheld by the majority, which recognized the practical benefits of limited modifications in minimizing protracted litigation and fostering justice.
Conclusion
The Supreme Court’s 4:1 ruling on April 30, 2025, marks a pivotal moment in the evolution of arbitration law in India. By affirming courts’ limited power to modify arbitral awards under Sections 34 and 37 of the 1996 Act, as well as through the cautious application of Article 142, the majority judgment strikes a balance between judicial oversight and the autonomy of the arbitration process. However, Justice Viswanathan’s dissent highlights the potential risks of judicial overreach and underscores the need for statutory clarity.
This decision is likely to shape the future of arbitration in India, influencing how businesses approach dispute resolution and how courts navigate their role in arbitral proceedings. As India continues to position itself as a global hub for arbitration, the ruling underscores the importance of aligning judicial practices with the principles of efficiency, fairness, and legal certainty.
Frequently Asked Questions (FAQs)
1.What did the Supreme Court rule regarding the modification of arbitral awards?
On April 30, 2025, the Supreme Court, in a 4:1 majority decision in Gayatri Balasamy v. ISG Novasoft Technologies Limited, held that courts have “limited power” to modify arbitral awards under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996. Modifications are permitted when the award is severable, to correct clerical, computational, or typographical errors, to adjust post-award interest in certain cases, or by exercising powers under Article 142 of the Constitution to achieve complete justice, provided it aligns with the Act’s principles.
2.What are the grounds under Section 34 for setting aside an arbitral award?
Section 34 of the Arbitration and Conciliation Act, 1996, allows a party to apply to a court to set aside an arbitral award if it is against public policy, conflicts with the fundamental policy of Indian law, is induced by fraud or corruption, or violates basic notions of morality and justice. The court’s intervention is restricted to these specific grounds, and it cannot review the merits or correct factual errors.
3.Why did Justice K.V. Viswanathan dissent from the majority opinion?
Justice K.V. Viswanathan dissented, arguing that courts lack the power to modify arbitral awards under Section 34 unless expressly authorized by the 1996 Act. He distinguished between severing (separating parts of an award) and modifying (altering or changing it), asserting that modification is not a lesser power included in the power to set aside. He also cautioned that using Article 142 to modify awards could introduce uncertainties and contravene statutory provisions.
4.How does Article 142 of the Constitution apply to this ruling?
Article 142 empowers the Supreme Court to pass orders necessary for “complete justice.” The majority ruling held that this power can be used to modify arbitral awards, but only with great care and in consonance with the fundamental principles of the 1996 Act. This ensures that modifications do not undermine the arbitration process’s autonomy and objectives.
5.What are the implications of this ruling for arbitration in India?
The ruling grants courts limited authority to modify arbitral awards, which may lead businesses to prefer overseas arbitration hubs, as the 1996 Act applies to both domestic and international arbitration. It introduces equity through Article 142, reduces the need for re-arbitration, and minimizes costs and delays. However, concerns remain about international enforcement of modified awards and the potential for increased judicial intervention in arbitration.
