The question whether courts in India possess the power to modify an arbitral award has long remained unsettled under the Arbitration and Conciliation Act, 1996. In line with the UNCITRAL Model Law, the Act seeks to minimize judicial intervention and preserve party autonomy and the finality of arbitral awards. Section 34 permits courts to set aside an award only on limited grounds, while Section 37 allows appeals against specific orders, including those passed under Section 34. Significantly, neither provision expressly authorises courts to modify or vary arbitral awards. This statutory silence, combined with inconsistent judicial practice, led to doctrinal confusion and conflicting precedents, ultimately necessitating authoritative resolution by a five-judge Constitution Bench of the Supreme Court in Gayatri Balasamy v. ISG Novasoft Technologies Ltd., decided on 30 April 2025. The judgment constitutes a significant development in Indian arbitration jurisprudence, as it reiterates the permissible limits of judicial intervention while attempting to balance efficiency with finality.
Prior to the case of Gayatri Balasamy, the dominant judicial position was that courts lacked any power to modify arbitral awards. This view was articulated in McDermott International Inc. v. Burn Standard Co. Ltd. and reaffirmed in Project Director, NHAI v. M. Hakeem, where the Supreme Court held that Section 34 does not permit courts to correct or vary arbitral awards and confines them to either setting aside or upholding the award. Nevertheless, judicial practice frequently departed from this rigid position. Courts often severed invalid portions of awards, corrected patent errors, or altered interest components, although without expressly acknowledging a modification power. As noted in several commentaries, this divergence between doctrinal orthodoxy and pragmatic adjudication resulted in unpredictability and prolonged litigation, undermining the efficiency of arbitration as a dispute resolution mechanism.¹
The factual matrix of Gayatri Balasamy vividly illustrates this issue. The dispute arose from an employment relationship involving allegations of sexual harassment, which the Supreme Court had earlier referred to arbitration. The arbitral tribunal awarded compensation to the claimant. When the award was challenged under Section 34, a Single Judge of the Madras High Court not only entertained the challenge but also enhanced the compensation. On appeal, a Division Bench partially reversed this enhancement, reducing the modified amount. These conflicting judicial approaches exposed the absence of clarity on whether courts could, at all, modify arbitral awards, prompting the Supreme Court to refer the issue to a Constitution Bench.²
By a majority of 4:1, the Constitution Bench held that courts do possess a limited power to modify arbitral awards, though such power is neither general nor appellate in nature. The majority clarified that modification cannot extend to re-appreciation of evidence, reassessment of findings of fact, or substitution of the court’s reasoning for that of the arbitral tribunal. Instead, modification is permissible only in narrowly limited circumstances where it does not trench upon the merits of the dispute. The Court identified specific situations where limited modification may be justified, including severance of invalid or unenforceable portions of an award where such portions are separable from the valid remainder, correction of clerical, typographical, or computational errors apparent on the face of the record, and limited adjustment of post-award interest where the interest granted is contrary to law.³
An important element in the majority’s reasoning was the doctrine of severability. The Court explained that arbitral awards often consist of distinct and independent components, and where only a specific portion is legally flawed, courts need not strike down the award in its entirety. Instead, they may divide the invalid part, so long as doing so does not disturb the core reasoning or the ultimate outcome of the award. This, the Court noted, avoids harsh and disproportionate consequences, particularly in cases where minor or technical defects would otherwise compel parties to recommence arbitration proceedings. By permitting such limited intervention, the Court sought to ensure that arbitration remains an efficient and final dispute resolution mechanism rather than a procedural trap leading to endless litigation. The majority also recognised that, in rare and exceptional cases, the Supreme Court may invoke its powers under Article 142 of the Constitution to modify an arbitral award in order to do complete justice and bring long-drawn disputes to a close. Crucially, however, the Court cautioned that this power cannot be exercised routinely and must never be used as a means to undertake a review on the merits of the arbitral decision.
This approach reflects a purposive reading of the Arbitration and Conciliation Act, 1996. Rather than viewing the absence of an express statutory provision on modification as an absolute prohibition, the majority treated limited modification as an ancillary power that supports the broader objectives of arbitration – efficiency, finality, and minimal judicial interference. As several academic and professional commentaries have observed, the judgment represents an attempt to strike a careful balance between correcting manifest injustice on the one hand and preserving the autonomy and integrity of the arbitral process on the other.
Justice K.V. Viswanathan, however, offered a sharply contrasting view in his dissent. He categorically rejected the idea that courts possess any power to modify arbitral awards under the existing statutory framework. Emphasising that Section 34 constitutes a complete and self-contained code for challenging arbitral awards, he argued that the deliberate absence of a modification power reflects clear legislative intent. In his view, even a narrowly tailored power of modification carries the risk of diluting party autonomy, weakening the finality of arbitral awards, and blurring the conceptual boundary between arbitration and traditional litigation. According to the dissent, expanding judicial powers in this manner would undermine the very rationale for choosing arbitration as an alternative dispute resolution mechanism. Justice Viswanathan also cautioned against reliance on Article 142 to fill perceived statutory gaps, stressing that constitutional powers cannot be used to override the legislative framework governing arbitration.
The significance of Gayatri Balasamy lies in its attempt to harmonise competing values within arbitration law. While the recognition of limited modification powers marks a departure from earlier rigid positions, the judgment simultaneously reinforces that courts are not appellate forums over arbitral tribunals. The ruling provides much-needed clarity and is likely to reduce unnecessary annulment of awards for technical or severable defects. At the same time, it places a heavy responsibility on courts to exercise restraint and ensure that modification does not become a disguised merits review.
In conclusion, the Constitution Bench has authoritatively settled that Indian courts may modify arbitral awards, but only in narrowly defined and exceptional circumstances. The decision strengthens arbitration by preventing procedural injustice while preserving its foundational principles of finality, autonomy, and minimal judicial interference. Its long-term impact will depend on the fidelity with which lower courts adhere to the strict limits articulated by the Supreme Court.