From Finality to Flexibility: The Supreme Court’s Evolving Stance on Arbitral Award Modification

A five-judge bench of the Supreme Court (SC), in the case of Gayatri Balasamy v. ISG Novasoft Technologies Limited, delivered a landmark judgment resolving a long-standing debate over the scope of modification of arbitral award under the Arbitration and Conciliation Act, 1996 (A&C Act). The ruling provides much-needed clarity on the limits of court oversight, reinforcing the autonomy of arbitral tribunals while outlining specific circumstances under which judicial modification is permissible.

The reference to the Bench arose from conflicting decisions of the SC including Project Director, NHAI v. M. Hakeem (2021), on whether courts have the power to modify arbitral awards while exercising jurisdiction under Sections 34 and 37 of the A&C Act.

The primary question of law posed to the five-judge bench was whether a court has the power to modify an arbitral award, and the SC decided this question in the affirmative, by a 4:1 majority, while circumscribing the limits for such modification.

The majority opinion, CJI Sanjiv Khanna, laid down four specific circumstances, when such modification of an arbitral award can be warranted –

1. Severability: The portions of the award that are held to be “invalid” should be severable and not intertwined with the portions of the award that are held to be “valid”. This principle has stemmed from the proviso to Section 34(2)(a)(iv) which allows partial setting aside of such portions of the award which are not submitted to arbitration. The SC has held that this is an inherent power of the Court under Section 34 and while it acknowledged the distinction between setting aside and modification.
2. Clerical errors: Courts can correct clerical, computational or typographical errors that appear erroneous on the face of the record. The SC held that since such issues would not require a review on merits, and rather a procedural review, which is a power inherent in every court or tribunal. The SC further explained that while modifying an error apparent on the face of the record, there should be no doubt or uncertainty regarding such error.
3. Post-Award interest: Courts may modify post-award interest provided in an arbitral award. The rationale given by the SC is that post-award interest is a “future-oriented issue”, that would largely depend on the developments between the parties after the passing of the arbitral award. Thus, the Section 34 court should be allowed the power to interfere and modify the post-award interest if situation demands the same.
4. Powers under Article 142: The SC may use its constitutional powers under Article 142 to modify awards, albeit with great care and caution. The SC stated that such powers may only be exercised by it in order to serve the ends of justice and bring an end to a protracted litigation, rather than rewriting the arbitral award.

This judgment marks a welcome addition to the existing jurisprudence on arbitration, offering clarity and balance on an issue that has been subject to considerable judicial scrutiny. The allowance of such limited power to modify arbitral awards would contribute to upholding the primary objective of arbitration i.e. reducing litigation cost and time. At the same time, the majority opinion has struck the right balance between maintaining the finality of an arbitration and ensuring that the award remains enforceable for the parties.

However, the dissenting opinion written by J. K.V. Viswanathan, has raised a few valid points regarding grant of the power of a Section 34 court to modify arbitral awards. He stated that the wording of the provision is not broad enough to allow for modification of an arbitral award and only grants powers for setting aside such award. He further pointed that Section 34(4) allows the court to remit the award to the arbitral tribunal for correction of any such defects that warrant the setting aside of such an award. Given that parties have recourse to initiate fresh arbitration proceedings, he opines that the statute does not extend to allowing modifications of arbitral awards. Such reasoning is supported with the law under Section 43(4) which excluded the time period between the commencement of arbitration and the order setting aside the award while calculating the limitation period.

Furthermore, he noted that a consequence of such powers of modification would pose a challenge to international enforceability of modified award. He noted that if a Section 34 court in India were to alter an award, enforcement abroad could be jeopardized, as foreign jurisdictions might view the modified award, not as the original arbitral award, but as a domestic court judgment. In support of his view, he cites jurisdictions such as the United Kingdom and Singapore, that recognize court ordered modifications as part of the arbitral award itself—unlike the position under the A&C Act, which do not permit such modifications.

In this regard, the majority opinion has, however, clarified that since the New York Convention recognizes the supremacy of domestic law in determining whether an award is binding. Thus, the interpretation of Section 34 so as to include limited modification powers would not conflict with international enforcement mechanisms effecting in the arbitral award being read as modified by the judgment/order.

It would be interesting to see how such international enforcement of arbitral awards would pan out, given that Section 34 courts would now have limited powers of modification. It is also to be seen as to whether the legislature takes a step in this direction and amends the A&C Act to incorporate such powers of modification into Section 34.

By outlining specific grounds – severability, clerical errors, post-award interest, and constitutional authority – the SC has struck a balance between finality and enforceability. This approach streamlines arbitration by avoiding unnecessary re-arbitration while upholding minimal judicial interference. As this jurisprudence develops, courts must apply this power judiciously to reinforce India’s arbitration-friendly stance.