Examining the sanctity of arbitral awards through the Supreme Court’s rejection of modification under Section 34

This article is a continuation of a prior discussion exploring the potential stance of the Supreme Court on the power of Indian courts to modify arbitral awards under the Arbitration and Conciliation Act, 1996. On 30 April 2025, the Supreme Court’s Constitution Bench, comprising Chief Justice Sanjiv Khanna and Justices B.R. Gavai, Sanjay Kumar, Augustine George Masih, and K.V. Viswanathan, delivered the much-awaited judgment in Gayatri Balasamy v. ISG Novasoft Technologies Limited¹ with a 4:1 majority, holding that Indian courts, while empowered to scrutinize arbitral awards, cannot generally modify them under the existing framework of the Arbitration and Conciliation Act, 1996.

So, the question that now begs exploration is: How did the Court arrive at this seemingly restrictive position? What are the nuances and exceptions embedded within this ruling? Buckle up, dear reader, as we delve into the intricate reasoning of the apex court, unearthing the delicate balance it seeks to maintain between judicial oversight and the sanctity of the arbitral process.

The Statutory Straitjacket: Decoding Section 34

The Court’s analysis anchors itself firmly in the  of Section 34 of the 1996 Act. This section, titled “Application for setting aside arbitral award,” meticulously enumerates the grounds upon which a court can interfere with an arbitral tribunal’s decision. These grounds, as highlighted in the judgment, range from the incapacity of a party to the award conflicting with the public policy of India.

Here’s a crucial question: Noticeably absent from this list of grounds for intervention is the explicit power to modify the award. Could this silence be interpreted as a deliberate exclusion by the legislature? The Supreme Court certainly seems to lean towards this interpretation. It posits that the very language of Section 34, focusing solely on “setting aside,” indicates a conscious decision to limit judicial intervention to annulment rather than alteration.

Think of it this way: Imagine a game where the rules clearly state the reasons for disqualifying a player. If “modifying a player’s score” isn’t listed as a permissible action, can the referee simply change the score instead of disqualifying the player? The Court, in essence, views the Arbitration Act similarly – the rules (the statute) define the permissible actions of the court, and modification isn’t one of them.

Severability: A Glimmer of Adjustment, Not Modification

Interestingly, the judgment discusses the proviso to Section 34(2)(a)(iv), which permits courts to set aside only that part of the award containing decisions on matters not submitted to arbitration, provided these matters can be separated from those that were submitted. The Court clarifies that this power of “severability” is clarificatory in nature and inherent in the court’s jurisdiction to set aside an award

But here’s a vital distinction: Is severing a part of the award equivalent to modifying the remaining part? The Court emphatically says no. Severability is about excising the impermissible portions, leaving the valid parts untouched. Modification, on the other hand, implies altering the content or substance of the validly decided portions. The principle of omne majus continet in se minus (the greater power includes the lesser) is invoked to support partial setting aside, arguing that the power to annul an entire award necessarily encompasses the power to annul only a part of it

However, the Court cautions that this power of partial setting aside is not unfettered. When are the “valid” and “invalid” portions inseparable? Drawing upon the Privy Council’s observation in Pratap Chamaria v. Durga Prasad Chamaria, the Court underscores that if the extraneous matters are inextricably bound up with the matters within the scope of arbitration, such that the decision on the latter has been “affected and coloured” by the former, then partial setting aside becomes impossible. In such scenarios, the entire award might have to be set aside.

The Spectre of Appellate Review: A Line in the Sand

The core concern articulated by the Court against recognizing a broad power of modification is the fear of inviting judicial interference with the merits of the dispute. The 1996 Act, founded on principles of party autonomy and minimal judicial intervention, aims to provide a speedy and effective alternative to traditional litigation.³ Allowing courts to modify awards, the judgment suggests, could inadvertently transform the setting aside proceedings into an appellate review, where courts re-examine the arbitrator’s findings on facts and law.

Consider this: If a court could freely change the quantum of damages awarded or re-interpret a contractual clause based on its own assessment, wouldn’t that undermine the arbitrator’s role as the primary adjudicator chosen by the parties? The Court believes this would be a dangerous path, potentially leading to delays and increased litigation, thereby defeating the very purpose of arbitration.

Limited Inherent Powers: Rectifying the Obvious

Despite its firm stance against general modification, the Court acknowledges the existence of inherent powers in courts to rectify certain types of errors in an arbitral award.⁴ These include computational, clerical, or typographical errors that are apparent on the face of the record. The rationale here lies in the need to ensure justice and prevent the enforcement of awards riddled with obvious mistakes.

However, the Court is quick to emphasize the limited nature of these inherent powers. When can a court exercise this power? Only when the error is manifest and its correction does not necessitate a re-evaluation of the merits of the case. If the modification is debatable or raises doubts, the court must refrain from exercising this power. In such instances, the parties should either approach the arbitral tribunal under Section 33 for correction or the court may consider remanding the award under Section 34(4).

This begs the question: What is the crucial distinction between permissible correction of manifest errors and impermissible modification? The line, according to the Court, lies in the certainty and obviousness of the error. If the correction is straightforward and undeniable, it might be permissible. But if it involves interpretation, analysis of evidence, or substituting the arbitrator’s judgment with the court’s own, it crosses the line into impermissible modification.

The Unique Case of Post-Award Interest: A Statutory Exception?

Interestingly, the judgment carves out a specific exception regarding post-award interest under Section 31(7)(b) of the Act. The Court opines that courts do retain the power to modify this interest rate if the facts and circumstances warrant such a change.

Why this exception? The Court reasons that arbitral tribunals, when determining post-award interest at the time of making the award, cannot foresee future events that might impact its appropriateness. Factors like delays in execution or fluctuations in interest rates after the award are inherently future-oriented. Since the legislature itself has prescribed a standard rate for post-award interest in Section 31(7)(b), the courts are deemed to have the authority to scrutinize the awarded rate against this statutory benchmark and modify it if necessary to serve the ends of justice.

However, even in this limited context, the Court cautions against overstepping. Modification of post-award interest should be based on “compelling and well-founded reasons” and should not amount to an appellate re-evaluation.

Remand: A Middle Ground, Not a Modification Tool

The judgment also delves into the power of the court to remand the award to the arbitral tribunal under Section 34(4). This provision allows the court to adjourn the proceedings and remit the award back to the tribunal to eliminate the grounds for setting aside the award.

Is remand a form of modification by proxy? The Court clarifies that it is not. Remand is a mechanism to enable the tribunal to rectify defects in the award, potentially saving it from being set aside altogether. The tribunal, upon remand, has the authority to “vary, correct, review, add to, or modify the award.” This power resides with the tribunal, not the court. The court’s role is limited to identifying curable defects and providing an opportunity for the tribunal to address them.

When should a court exercise its power of remand? The Court emphasizes that it should be used when the defects in the award are curable and remitting the matter would serve the interests of justice and efficiency. However, remand is deemed inappropriate when the defects are inherently irreparable or when it would unduly delay the process or cause undue hardship to the parties.

The Long Shadow of Article 142: A Constitutional Override?

Finally, the Court briefly touches upon the applicability of Article 142 of the Constitution, which empowers the Supreme Court to pass orders necessary for doing complete justice in any matter pending before it. While acknowledging this power, the Court cautions that it must be exercised with great care and within the fundamental principles and objectives of the Arbitration Act. Article 142 cannot be used to rewrite or modify an award on merits, but it may be invoked in exceptional circumstances to bring a protracted litigation to an end.

Conclusion: Upholding the Sanctity of Arbitration

The Supreme Court  judgment in Gayatri Balasamy firmly establishes that Indian courts, under the Arbitration and Conciliation Act, 1996, primarily possess the power to set aside arbitral awards on specific statutory grounds, rather than to generally modify their substance. The Court meticulously differentiated setting aside (annulment) from modification (alteration), emphasizing that the Act’s framework focuses on addressing fundamental flaws in the arbitral process or the award itself, not on re-evaluating the merits of the dispute. While acknowledging a limited power of severability to excise decisions on non-arbitrable matters and inherent powers to correct manifest errors, the core holding underscores the legislative intent to minimize judicial intervention and uphold the autonomy of arbitration. A narrow exception was carved out for the modification of post-award interest based on a specific statutory interpretation.

The future implications of this decision are significant. It reinforces the pro-arbitration stance of the Indian judiciary by limiting the scope for courts to interfere with arbitral outcomes. This clarity is likely to promote greater confidence in arbitration as a reliable and efficient dispute resolution mechanism. Parties can expect that, absent fundamental flaws warranting the setting aside of an award, the arbitrator’s decision will generally be final. This may also lead to a greater focus on the competence and conduct of arbitrators during the proceedings, as the scope for judicial correction of substantive errors is now explicitly restricted. However, the limited exceptions, particularly concerning manifest errors and post-award interest, will likely continue to be areas of judicial scrutiny and interpretation.Consider a hypothetical scenario: An arbitral tribunal awards damages based on a miscalculation of a specific contractual formula, a mistake clearly demonstrable from the evidence on record but not a fundamental flaw in the arbitral process itself. Following the Gayatri Balasamy ruling, would the court be empowered to correct this demonstrable miscalculation, or would the aggrieved party be limited to seeking a remand under Section 34(4), potentially leading to further delays and costs? This question highlights the ongoing tension between the need for judicial oversight to prevent injustice and the imperative to respect the finality of arbitral awards within the narrowly defined scope of the Arbitration Act.

1. S.L.P.(C) Nos.15336-15337 of 2021
2. AIR 1925 PC 293