Arbitration Under Review: SC Grants Courts Broader Authority

Case Name: GAYATRI BALASAMY VS MS ISG NOVASOFT TECHNOLOGIES LIMITED

Case Number: 2025 INSC 605 

Quorum: Five-Judge Bench  

Date of Judgment: April 30, 2025

 

FACTUAL BACKGROUND

Gayatri Balasamy, the appellant, challenged arbitral awards passed in favour of ISG Novasoft Technologies Ltd. (the respondent). The key legal issue concerned the power of Indian courts under the Arbitration and Conciliation Act, 1996 to modify arbitral awards — a power not explicitly granted by the Act. Over time, contradictory rulings from different benches of the Supreme Court and High Courts had created judicial confusion.

The Supreme Court constituted a five-judge bench to resolve this controversy once and for all, particularly in light of its earlier decision in Project Director, NHAI v. M. Hakeem (2021), which had denied courts any power to modify arbitral awards.

 

ISSUES FOR DETERMINATION

 Whether courts under Sections 34 and 37 of the 1996 Act have the power to modify an arbitral award. 

If modification is permissible, whether such power is limited to cases where the award is severable, allowing partial modification. 

Whether the power to set aside an award under Section 34, being a broader power, includes the power to modify an arbitral award, and if so, to what extent. 

Whether the power to modify can be read into the power to set aside under Section 34. 

Whether the judgment in M. Hakeem, followed in Larsen Air Conditioning & SV Samudram, correctly holds that courts cannot modify awards, especially in light of other judgments (e.g., Vedanta Ltd. , Oriental Structural Engineers, J.C. Budhraja ) that modified or upheld modifications of arbitral awards.

 

LEGAL PROVISIONS

The key provisions of the Arbitration and Conciliation Act, 1996, relevant to the case are:

• Section 5: Limits judicial intervention in arbitration to what is expressly provided in Part I of the Act.
• Section 31: Governs the form and contents of an arbitral award, including requirements for reasoning, signatures, and interest.
• Section 33: Empowers the arbitral tribunal to correct computational, clerical, or typographical errors, reinterpret the award, or issue additional awards for omitted claims.
• Section 34: Provides for recourse to a court to set aside an arbitral award on specific grounds, such as: 
  • Incapacity of a party, invalid arbitration agreement, improper notice, or denial of opportunity to present a case (Section 34(2)(a)).
  • Non-arbitrable subject matter or conflict with public policy (Section 34(2)(b)).
  • Patent illegality for domestic awards (Section 34(2A)).
  • The proviso to Section 34(2)(a)(iv) allows severing non-arbitrable portions of an award.
  • Section 34(4) allows courts to remand the award to the tribunal to eliminate grounds for setting aside.
• Section 37: Provides for appeals against orders under Section 34.
• Section 48: Governs enforcement of foreign awards under the New York Convention, allowing refusal if the award is not binding or has been set aside in the seat country.

Additionally, Section 152 of the Code of Civil Procedure, 1908 (CPC), was referenced for correcting clerical or arithmetical errors in judgments or decrees, and the UNCITRAL Model Law on International Commercial Arbitration, 1985, was considered as the basis for the 1996 Act.

 

APPELLANT’S CONTENTIONS

The appellant (and others in favour of modification) argued:

1. Conflict with Precedents: The decision in M. Hakeem conflicts with several Supreme Court judgments (e.g., Vedanta Ltd., Oriental Structural Engineers, J.C. Budhraja) where awards were modified or modifications were upheld, necessitating reconsideration.
2. International Perspective: The UNCITRAL Model Law and New York Convention permit broader judicial intervention in some signatory countries, where domestic laws allow modification of awards (e.g., UK, Singapore). This supports a broader interpretation of Section 34.
3. Doctrine of Greater Includes Lesser: The power to set aside an award (a greater power) inherently includes the power to modify (a lesser power), as per the maxim omne majus continet in se minus (the greater contains the lesser), citing Ahmedabad St. Xavier College Society (1974).
4. Broad Scope of ‘Recourse’: The term “recourse” in Section 34 is broad enough to include modification or variation, not just setting aside.
5. Public Law and Statutory Arbitrations: In statutory arbitrations (e.g., under the National Highways Act, 1956), denying modification power causes hardship, as these are compulsory, not consensual, arbitrations. Courts should have the power to enhance compensation or adjust interest.
6. Interest Adjustments: Modifying interest rates does not require re-arbitration and should be within Section 34’s scope to avoid protracted litigation.

 

RESPONDENT’S CONTENTIONS

The respondent (and others opposing modification) argued:

1. Model Law and New York Convention: The UNCITRAL Model Law deliberately excludes modification powers to maintain uniformity, and the New York Convention recognizes only arbitral awards, not court-modified decrees, for enforcement. Modification could complicate enforcement abroad.
2. Limited Scope of Section 34: Section 34 explicitly limits courts to setting aside awards on specific grounds, and modification exceeds this jurisdiction, effectively conferring appellate powers, which is contrary to the 1996 Act’s intent.
3. Sui Generis Nature of Setting Aside: The power to set aside is distinct from modification. Setting aside annuls the award, leaving nothing to modify, and modification involves altering the award’s substance, which courts lack authority to do.
4. Functus Officio: Once an arbitral tribunal renders an award, it becomes functus officio, and courts cannot assume its role by modifying the award.
5. Doctrine of Merger: Court modifications do not merge with the original award, creating enforcement issues under the New York Convention, as foreign courts may not recognize a modified award as an arbitral award.
6. Statutory Arbitrations: Any issues with statutory arbitrations should be addressed by amending relevant statutes, not by altering the uniform interpretation of the 1996 Act.

ANALYSIS

The Supreme Court, through a majority opinion by Justice K.V. Viswanathan (with a partially concurring opinion by Chief Justice Sanjiv Khanna), analyzed the issues as follows:

1. Scope of Section 34: 
   • Section 34 restricts judicial intervention to setting aside awards on specified grounds (e.g., procedural irregularities, public policy violations, patent illegality). It does not expressly authorize modification.
   • The term “recourse” in Section 34(1) is limited to applications for setting aside, but the court can fashion relief within the statute’s contours without exercising appellate powers.
2. Severability of Awards: 
   • The proviso to Section 34(2)(a)(iv) explicitly allows severing non-arbitrable portions of an award, preserving valid parts. This power is clarificatory and inherent in the court’s jurisdiction to set aside awards.
   • The doctrine of omne majus continet in se minus applies to partial setting aside, as the power to set aside in entirety includes the power to set aside in part, provided the valid and invalid portions are separable and not interdependent.
   • Severability is not feasible if the valid and invalid parts are legally or practically intertwined, as per Pratap Chamaria v. Durga Prasad Chamaria (1925).
3. Modification vs. Setting Aside: 
   • Modification (altering the award) and setting aside (annulling the award) are distinct powers. Modification risks judicial interference with the merits, which is inconsistent with the 1996 Act’s limited supervisory role.
   • However, a limited modification power can be inferred from Section 34 to correct manifest errors (e.g., computational, clerical, or typographical errors) without merits-based evaluation, based on the principle actus curiae neminem gravabit (an act of the court shall prejudice no one).
4. Section 33 and Inherent Powers: 
   • Section 33 allows arbitrators to correct errors or issue additional awards, but courts under Section 34 can also correct manifest errors (e.g., typographical, clerical) if the arbitrator fails to do so, drawing from Section 152 CPC and cases like Grindlays Bank Ltd. (1980).
   • Courts have inherent powers to correct inadvertent errors to prevent injustice, without reviewing the merits, as per U.P.SRTC v. Imtiaz Hussain (2006).
5. Remand under Section 34(4): 
   • Section 34(4) allows courts to adjourn proceedings and remand the award to the tribunal to eliminate grounds for setting aside (e.g., lack of reasoning, procedural defects).
   • Remand is discretionary and limited to curable defects, not for rewriting the award or reviewing merits. It differs from modification, which requires certainty and precision.
   • The court overruled Kinnari Mullick (2018) to hold that a request under Section 34(4) need not be in writing and can be made orally, and courts can exercise this power suo motu if appropriate.
6. New York Convention and Doctrine of Merger: 
   • Concerns about enforcement under the New York Convention were dismissed, as Section 48 recognizes the domestic law of the seat country. A limited modification power under Section 34 would not conflict with the Convention.
   • The doctrine of merger does not apply, as court modifications do not replace the arbitral award but operate within the statutory framework.
7. Statutory Arbitrations: 
   • The court rejected differential interpretations for statutory arbitrations (e.g., under the National Highways Act), emphasizing a uniform application of the 1996 Act. Issues in statutory arbitrations should be addressed through legislative amendments.
8. Interest Awards: 
   • The majority held that courts cannot modify interest rates under Section 34, as this involves merits-based evaluation. Instead, courts should remand the matter under Section 34(4) for the tribunal to reconsider interest.
   • The Chief Justice’s opinion (dissenting on this point) allowed modification of post-award interest in exceptional cases, using Article 142 powers cautiously.
9. Is M. Hakeem Per Incuriam?: 
   • The court held that M. Hakeem is not per incuriam, as it correctly interpreted Section 34’s limited scope. Prior judgments (e.g., Western GECO) mentioning modification were in the context of severability, not general modification powers.
10. Severability and Compromises: 
    • Courts can sever standalone claims that violate Section 34, provided they are not intertwined with valid portions, as per J.G. Engineers (2011) and R.S. Jiwani (2009).
    • If parties compromise or abandon claims, courts can sever standalone portions or dismiss Section 34 applications if the settlement is not severable.

JUDGMENT

The Supreme Court, by a majority, held:

1. No General Power to Modify: Courts under Section 34 and 37 lack the power to modify arbitral awards, except in limited cases involving corrections of computational, clerical, typographical, or similar errors, based on the principle actus curiae neminem gravabit.
2. Severability Permitted: Courts can sever and set aside portions of an award that violate Section 34 (e.g., non-arbitrable claims), provided the invalid parts are separable and not interdependent with valid parts.
3. Setting Aside vs. Modification: The power to set aside does not include the power to modify, as they are qualitatively different and not of the same genus. Modification involves altering the award’s substance, which exceeds Section 34’s scope.
4. Exception for Errors: Courts can correct manifest errors (e.g., computational, clerical) under Section 34, akin to Section 152 CPC, without reviewing merits, if the arbitrator fails to act under Section 33.
5. Remand under Section 34(4): Courts can remand awards to the tribunal to cure defects, even suo motu or on oral requests, overruling Kinnari Mullick’s requirement for written applications.
6. Interest Awards: Courts cannot modify interest rates but can remand the issue to the tribunal under Section 34(4).
7. Article 142: The majority rejected using Article 142 to modify awards, as it bypasses statutory provisions. The Chief Justice allowed limited use of Article 142 for interest modifications in exceptional cases.
8. M. Hakeem Upheld: M. Hakeem correctly holds that Section 34 does not permit modification, except for the limited error-correction exception recognized in this judgment.
9. Severability and Compromises: Courts can sever standalone claims or give effect to compromises, provided they are not intertwined with other parts of the award.

CONCLUSION

The Supreme Court answered the reference as follows:

• Question 1: Courts under Section 34 and appellate courts lack the power to modify arbitral awards, except for correcting computational, clerical, typographical, or similar errors.
• Question 2: Severance of invalid portions is permissible under Section 34, distinct from modification, and is available to both Section 34 and appellate courts.
• Questions 3 & 4: The power to set aside does not include modification, as they are distinct powers, and modification is not a lesser power subsumed within setting aside.
• Question 5: M. Hakeem lays down the correct law, with the limited exception for correcting manifest errors based on actus curiae neminem gravabit.

The court disposed of the reference, affirming the limited scope of judicial intervention under the 1996 Act, emphasizing severability and remand as alternatives to modification, and ensuring compliance with the New York Convention and the Act’s intent to minimize judicial interference.

 

“PRIME LEGAL is a full-service law firm that has won a National Award and has more than 20 years of experience in an array of sectors and practice areas. Prime legal falls into the category of best law firm, best lawyer, best family lawyer, best divorce lawyer, best divorce law firm, best criminal lawyer, best criminal law firm, best consumer lawyer, best civil lawyer.”

WRITTEN BY RAMITA MAITI