Rule On Courts Power to Modify Arbitral Awards – Through Analysis of Recent Judgement by Supreme Court of India

INTRODUCTION:

“Finality is good, but justice is betterṅ[1]. “

In India, arbitration is celebrated as an efficient, party-driven alternative to the lengthy processes of traditional litigation. However, the finality of arbitral awards often clashes with the interventionist powers of the judiciary. A recent landmark decision by the Hon’ble Supreme Court has once again brought to the forefront an essential question- To what extent can Indian courts interfere with or modify arbitral awards? While arbitration is premised on party autonomy and minimal court interference, the boundaries of judicial oversight are often tested especially when awards appear flawed or unjust. This blog examines the scope and limits of the judiciary’s powers to modify arbitral awards through an in-depth analysis of the judgment of Gayatri Balasamy v. M/s ISG Novasoft Technologies Ltd[2] shedding light on its implications for arbitration law in India.

STATUTORY BACKBONE OF THE CASE:

This case is grounded in the interpretation of the sectionsa 34[3] and 37[4] of  Arbitration and Conciliation Act, 1996.

 Section 34 governs the power of a court to set aside an arbitral award, while Section 37 provides for appealable orders including decisions passed under Section 34. The main question was whether courts possess the power to modify arbitral awards, despite the absence of such express provision under the 1996 Act. Other relevant provisions include Section 31(7) which deals with pre- and post-award interest and Section 33 relating to correction and interpretation by the arbitral tribunal, Section 34(4) remanding back to tribunal, and Article 142[5] of the Constitution. The judgment required harmonizing these provisions with the broader objective of arbitration law to ensure minimal court intervention and swift resolution.

FACTS:

Gayatri Balasamy challenged the arbitral award passed in favor of M/s ISG Novasoft Technologies Ltd. The core issue revolved around whether the civil court, under Section 34 or 37 of the 1996 Act, could modify an arbitral award instead of merely setting it aside. Given previous inconsistent judicial decisions, some modifying awards, others stating courts lacked such powers a reference was made to a larger Bench to resolve this conflict.

ISSUES:

1. Whether Sections 34 and 37 of the 1996 Act confer power on courts to modify arbitral awards?
2. If so, then under what circumstances can such modification be carried out?
3. Can courts remand matters back to tribunals or should they directly modify?

ARGUMENTS:

In Favour of Modification

1. It was argued that the power to set aside inherently includes the lesser power to modify (legal maxim: omne majus continet in se minus).
2. Several past decisions, including Vedanta Ltd. v. Shenzhen Shandong and Tata Hydro-Electric, involved modification of awards.
3. For clerical, typographical, and interest-related errors, courts should not be compelled to annul the entire award.
4. Re-arbitration would be costly and delay justice.

Against Modification

1. Section 34 of the 1996 Act expressly provides only for setting aside, not modification.
2. Allowing modifications would make courts quasi-appellate authorities, violating the finality and minimal interference principle of arbitration.
3. The UNCITRAL Model Law and the New York Convention (which govern India’s arbitration framework) do not allow court-modified awards to be enforced internationally.
4. Modifying an award would amount to rewriting the arbitrator’s decision, which courts are not equipped or empowered to do.

JUDGEMENT:

The court held that while the Arbitration Act does not explicitly empower courts to “modify” an award, such power can be impliedly read into Section 34, under specific and narrow circumstances.

CIRCUMSTANCES WHERE MODIFICATION IS PERMITTED

According to the judgment, courts may modify an arbitral award only in the following cases:

WHAT COURTS CANNOT DO ?

1. Reassess Merits or Evidence:
2. Modify the Substance of an Award on Disputed Issues:

• Reinterpreting contracts

1. Revisiting factual findings
2. Substituting the arbitrator’s conclusions with the court’s view

 Modification adjusts limited elements of the award without disturbing its core findings. Courts are not appellate forums over arbitral awards and cannot re-evaluate facts or law merely because a different view is possible. If the proposed modification requires a merits-based review or raises genuine doubt or the award is flawed but not fatally or irreparably, the court can remand it under Section 34(4) for the tribunal to correct it. If the error is simple and obvious (like wrong interest) the court can modify directly.

PREVIOUS INSTANCES WHERE COURTS HAVE MODIFIED ARBITRAL AWARDS:

1. McDermott International Inc. v. Burn Standard Co. Ltd [6]

Nature of modification: Interest rate reduced from 10% to 7.5% per annum, Legal basis-Article 142. The Court held that it could not modify the award under Section 34, but invoked Article 142 to reduce the interest rate, citing excessive delay and ends of justice.

1. Mukand Ltd. v. Hindustan Petroleum Corp. Ltd.[7]

 Nature of modification: Interest rate reduced. Legal basis- Article 142. Like McDermott, the Court adjusted interest awarded in light of fairness and delay, exercising its Article 142 powers.

Therefore, Article 142 should not be used to rewrite the award on merits, but only to “do complete justice” where procedural technicalities or minor legal issues cause disproportionate hardship.

However, J. KV Viswanathan, had given his dissenting opinion stating that 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 and, as held hereinabove, the power to set aside and power to modify do not emanate from the same genus and are qualitatively different powers in the context of the Act, 1996.
SIGNIFICANCE OF THIS CASE IN REALM OF ARBITRATION AWARDS:

This ruling is a watershed moment in Indian arbitration law. It strikes a delicate balance between the finality of arbitral awards and the need for judicial safeguards. By recognizing a narrow window for modification, the Court preserves arbitration’s core principles while ensuring justice is not sacrificed at the altar of rigid textualism. The judgment provides a clear framework for practitioners and courts on when and how to correct arbitral awards. It also sends a message to arbitrators to exercise greater diligence, particularly on interest awards and severability of claims. Most importantly, it curtails unwarranted re-arbitration, saving costs, time, and judicial resources.

CONCLUSSION:

“Justice is not served by rigid silence, but by reasoned correction.”

Therefore, Gayatri Balasamy judgment is a foundational ruling in Indian arbitration jurisprudence. It resolves years of judicial ambiguity by affirming that courts may modify arbitral awards but only minimally and purposefully. By doing so, the Court has preserved the autonomy of arbitration while ensuring that courts are not helpless in the face of obvious or severable errors. The judgment smartly redraws the boundary that courts may now refine, not rewrite. It transforms the narrative from hands-off to hands-just-enough, granting courts a surgical role in correcting arbitral awards where justice demands.

[1] By Lord Atkin, quoted in Sir Hartley Shawcross, The Law and the Lawyers 13 (Stevens & Sons 1952).

[2] 2025 INSC 605

[3] Application for setting aside arbitral award; Arbitration & Conciliation Act, 1996

[4] Appealable orders; Arbitration & Conciliation Act, 1996

[5] Supreme Court’s power to do complete justice

[6]  (2006) 11 SCC 181

[7] (2006) 9 SCC 383.