Supreme Court’s Landmark Ruling on Modification of Arbitral Awards: Expert Legal Analysis

Posted On - 16 October, 2025 • By - Smita Paliwal

Abstract

On April 30, 2025, the Supreme Court of India in Gayatri Balasamy v. ISG Novasoft Technologies Ltd. delivered a Constitution Bench decision (4:1 majority) that redefines the judicial power to modify arbitral awards under the Arbitration and Conciliation Act, 1996 (the “Act”). The ruling clarifies that while courts generally cannot rewrite arbitral awards, limited powers to modify them exist under Sections 34 and 37 in narrowly prescribed circumstances. This article analyzes the background, legal reasoning, implications, and likely effects of that decision.

Introduction

Arbitration is a critical tool for dispute resolution, especially in commercial and international contexts. The Arbitration and Conciliation Act, 1996 was designed to promote speedy, less formal, and efficient resolution of disputes with minimal judicial interference. Traditionally, Section 34 provided for setting aside arbitral awards on specific grounds; it did not explicitly authorise courts to modify or vary awards. This uncertainty has produced conflicting case law over time.

The Supreme Court’s decision in Gayatri Balasamy v. ISG Novasoft Technologies Ltd. (2025) (commonly referred to as Balasamy) settles that ambiguity to a large extent: it recognises that courts have limited judicial modification powers in particular situations. This article examines that decision and its impact on arbitration practice in India.

Background: Prior Case Law & Judicial Divergences

Key Precedents Disallowing Modification

  • In Project Director, NHAI v. M. Hakeem (2021)[1], a two-judge bench held that under Section 34 the court does not have power to alter or vary an award.
  • Similar positions were affirmed in Larsen Air Conditioning v. Union of India and S.V. Samudram v. State of Karnataka[2].

Precedents Suggesting or Accepting Modification

  • Some earlier judgments had accepted modifications or variations: Vedanta Ltd. v. Shenzden Shandong Nuclear Power Construction Co. Ltd.; Oriental Structural Engineers Pvt. Ltd. v. State of Kerala; M.P. Power Generation Co. Ltd. v. Ansaldo Energia Spa.
  • These had usually been on narrower issues (computation, interest, etc.) or under exceptional circumstances.

The divergence in jurisprudence led to a reference to a larger bench to authoritatively resolve whether modification powers exist, and if so, to what extent.

The Supreme Court’s Decision in Balasamy

Bench Composition & Majority vs Dissent

  • The Constitution Bench comprised Chief Justice Sanjiv Khanna, Justices B.R. Gavai, Sanjay Kumar, Augustine George Masih, and Justice K.V. Viswanathan (dissenting).
  • The majority (4 judges) authored by CJI Khanna held in favour of recognising limited modification powers. Justice Viswanathan dissented, arguing that Section 34 does not permit modification except possibly for trivial errors.

The majority identified and defined specific, circumscribed situations in which courts may modify arbitral awards under Sections 34 and 37. The rationale rests on:

  1. Severability under Section 34(2)(a)(iv): If part of an award is invalid (beyond the scope of the mandate, for example) but that portion is severable, the court can set aside (or “sever”) the invalid part while upholding the rest.
  2. Correction of Obvious or Manifest Errors: Courts can correct clerical, typographical, or computational errors that are evident on the face of the record. These modifications must not involve a re-appreciation of merits or factual disputes.
  3. Modification of Post-Award Interest: Where an award includes post-award interest, courts may adjust that interest in limited cases, e.g., if the rate is manifestly unreasonable or in conflict with a contract. However, pendente lite interest (interest during arbitration or before award) is treated differently since that may involve merits.
  4. Powers under Article 142 of the Constitution (Supreme Court only): In extraordinary cases where “complete justice” demands, the Supreme Court may modify awards under its constitutional powers, albeit sparingly and while respecting finality and fairness.
  5. Limits to the Modification Power: The majority emphasised that the power to modify is not a routine or general power. Key limits include:
  6. No merits review: Courts must not re-evaluate the facts or substitute their own findings.
  7. Unambiguous error only: Where there is doubt or ambiguity, courts should opt for remitting to the arbitral tribunal under Section 34(4) rather than attempting modification.
  8. Enforceability concerns: Modifications should avoid undermining international enforceability under conventions (e.g., New York Convention).

Dissenting Opinion (Justice K.V. Viswanathan)

Justice Viswanathan maintained that Section 34 does not permit modification of arbitral awards except perhaps in trivial corrections such as clerical errors. He argued:

  • Modification and severance are different; severance (partial invalidation) is permissible but modification (variation) is not under Section 34.
  • Allowing modification amounts to exercising appellate or merits-review powers, which are explicitly prohibited by the structure of the Act.

For Arbitration Practice

  • Contract drafting: Parties may now pay greater attention to clauses on post-award interest and calculation mechanisms, to reduce uncertainty.
  • Strategic challenges: Applications under Section 34 might now include arguments for modification rather than full setting aside, saving time and costs.

For Courts

  • Courts must establish high clarity that an error is manifest, severable, and does not require evaluation of merits before modifying.
  • Greater reliance on Section 34(4) remand when errors are not clear.
  • Exercise of Article 142 powers will be the exception, not the rule.

For Enforceability (Domestic & International)

  • Enforcement of awards will likely be more predictable: fewer entire awards set aside due to minor defects.
  • Care is needed to ensure modifications do not violate obligations under treaties like the New York Convention. Courts may need to justify how a modification preserves the integrity of the award.

Possible Risks

  • Opportunity for increased litigation over whether a purported error is “manifest” or “obvious.”
  • Potential for uncertainty if parties perceive judicial intervention too broadly.
  • Balancing finality with fairness will continue to be delicate.

How This Changes Previous Understanding

AspectPrior UnderstandingNew Position under Balasamy
Modification under Section 34Generally disallowed; only setting aside (full or partial via severance). Hakeem and others insisted no modifying power.Courts have limited power to modify in specific situations (severability, obvious errors, post-award interest, constitutional power).
SeverabilityCourts could, under proviso to Section 34(2)(a)(iv), set aside severable invalid portions.This remains, and now is expressly tied to limited modification power.
Clerical/Arithmetic ErrorsMinimally allowed, but often treated as separate mechanisms (e.g. under Section 33).Now clearly affirmed as modifiable under Section 34 without merit review.
Interest AwardsLimited or ambiguous; often contractual or tribunal’s discretion.Now courts have authority to modify post-award interest in certain prescribed cases.
Article 142Rarely invoked for these issues; exceptional power but constrained.Explicitly recognised as a constitutional floor of “complete justice” in rare scenarios.

Conclusion:

The Supreme Court’s Balasamy decision marks a turning point in Indian arbitration law. It clarifies that while arbitrators retain primary authority, courts under Sections 34 and 37 have narrow, well-defined powers to modify awards in limited circumstances: when portions are severable, errors are manifest and obvious, post-award interest needs adjustment, or in rare cases under Article 142. At the same time, the ruling safeguards core arbitration principles namely party autonomy, finality, and minimal judicial interference, by restricting modification to very specific scenarios and disallowing any re-evaluation of the merits.

For practitioners, arbitrators, and parties alike, the principles laid down in Balasamy will shape litigation strategy, contract design, tribunal awards, and the balance between efficiency and justice.

[1] NHAI v. M. Hakeem, (2021) 9 SCC 1

[2] S.V. Samudram v. State of Karnataka, (2024) 3 SCC 623.