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To modify or not - Supreme Court resolves quandary faced by 34 courts

The Hon’ble Supreme Court of India, on 30 April 2025, in a landmark judgment in Gayatri Balasamy v. M/s ISG Novasoft Technologies Limited,[1] addressed questions surrounding the power of courts to modify arbitral awards under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996 (“Act”).

In the arbitral proceedings arising out of the dispute between Gayatri Balasamy (“Balasamy”)and her employer ISG Novasoft Technologies Limited, the arbitral tribunal awarded Balasamy an amount of INR 2 crore. Aggrieved by the quantum of the amount awarded, Balasamy filed an application under Section 34 of the Act in the Hon’ble Madras High Court[2] challenging the rejection of her claims. Reading the powers of modification to be inherent in Section 34 of the Act, the single judge of the Hon’ble Madras High Court modified the award by increasing the amount awarded by the arbitrator. The division bench of the Hon’ble Madras High Court confirmed the single-judge decision with a slight modification in the amount awarded and held that a court under Section 34 was empowered to vary or modify the amount awarded by the arbitral tribunal without disturbing the factual finding.

The judgment of the division bench was challenged in the Hon’ble Supreme Court of India, which, in February 2024, referred the case to a larger bench considering the various prior conflicting decisions on the scope of powers to a court under Section 34. The question before the Hon’ble Supreme Court in the present reference was to address whether Indian courts were jurisdictionally empowered to modify an arbitral award and, if so, to what extent?

The majority opinion, authored by the Hon’ble Chief Justice of India Justice Sanjiv Khanna, held that the judicial power granted to the court under Section 34 of the Act inherently includes a limited power to modify the award. In contrast, the dissenting opinion, authored by Hon’ble Justice K.V. Viswanathan, held that the power to set aside an award under Section 34 does not include the power to modify the award.

Majority Opinion

Severability

The majority opinion firmly establishes that the power to sever parts of an arbitral award is intrinsically recognised under Section 34 of the Act. The power is specifically mentioned in the proviso to Section 34(2)(a)(iv), which states that if decisions on matters submitted to arbitration can be separated from those not submitted, only the part containing decisions on matters not submitted may be set aside. Applying the doctrine of omne majus continet in se minus— the greater power includes the lesser—the Hon’ble Supreme Court of India found that the authority to sever the invalid portion of an award from the valid portion was inherent within the court’s jurisdiction under Section 34 of the Act. Since the power to set aside an award would include the power to set it aside in part, the majority judgment held that Section 34 allows the courts to sever the non-arbitrable portion of an award from arbitrable ones.

The Hon’ble Supreme Court of India outlined clear prerequisites for applying the principle of severability:

  • The portion to be severed should not be inseparably intertwined with other portions.
  • The portions should not be interdependent.
  • The valid part of the award should be separately identifiable in terms of liability and quantum without correlation to the invalid parts.
  • Severability cannot apply if good parts are intermingled with bad parts in a manner making severance impossible.

Modification

While recognising that modification and setting aside have different consequences—modification alters the award and setting aside annuls it—the Hon’ble Supreme Court of India found that Section 34 of the Act affords courts a limited power of modification. However, this authority does not involve a merits-based evaluation and could be exercised in the following circumstances enumerated:

  • By severing the invalid portion of a severable award.
  • By correcting any clerical, computational, or typographical errors that appear erroneous on the face of the record.
  • By modifying the post-award interest in certain circumstances.
  • By exercising great care and caution while utilising the powers under Article 142 of the Constitution, within its constitutional limits. 

The reasoning behind recognising that a court under Section 34 of the Act can exercise this aformentioned limited power of modification was based on various factors.  A court, when exercising its power under Section 34, can apply the doctrine of severability, modifying a portion of the award while retaining the rest. The court relied on Mustill and Boyd to hold that an order varying an award was not equivalent to an appellate process.

The Hon’ble Supreme Court of India also held that modification of an award constitutes a relief that a court may grant to a party seeking recourse under Section 34. This diverged from the judgment of NHAI v. M Hakeem,[3] which held that the recourse under Section 34 of the Act was limited to filing an application to set aside the award.

Despite the existence of Section 33, which empowers an arbitrator to correct the award on limited grounds, the majority opinion found that Section 34 contains an implied power to rectify computational, clerical, or typographical errors. This ancillary or incidental power inherent in Section 34—although not explicitly granted by the legislature—has been considered necessary for the court to discharge its functions effectively. The Hon’ble Supreme Court of India relied on Grindlays Bank Ltd. v. Central Government Industrial Tribunal and Others[4] to hold that every court has an inherent power to undertake a procedural review, which differs from a review on the merits of the dispute. The majority opinion expressed a view that recognising this implied power aligns with the objective of the Act and does not contravene its provisions. However, it warned against conflating the implied power of modification with the appellate jurisdiction conferred on a higher court to review the judgment of a lower court.

The appellate jurisdiction under Section 37 is aligned with the jurisdiction under Section 34, including the power to remand the award to the arbitral tribunal under Section 34(4). However, the coterminous nature of the powers under Section 34 and 37 differs from the power of the appellate court in civil proceedings, which is as broad as that of a trial court.

The majority opinion, while delineating the limits of the power of modification, held that during uncertainty about the exercise of the power, the court should avail its remedial authority under Section 34(4) and remand the award to the tribunal. However, the power to seek recourse via Section 34(4) has been considered a secondary opportunity for the parties to address curable defects. The power of remand is broad in that it allows the tribunal to record additional evidence, affords parties the opportunity to present their case effectively or take any corrective measures, unlike the power of modification. The power of modification, on the other hand, is limited and thus different from the pre-existing power of remand under Section 34(4). To highlight the difference between the powers of modification and remand, the minority opinion relied on Kinnari Mullick and Anr. V. Ghanashyam Das Damani,[5] which held that a court under Section 34 cannot exercise the power of remand suo moto, unless one of the parties make an oral or a written request.

The majority opinion rejected the argument on the unenforceability of a modified award under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 10 June 1958) (“New York Convention”). The majority opinion held that reinterpreting Section 34 as including the power of modification ensures the enforceability of the award as modified by the order of the court. Therefore, the non-recognition of judgments of the court under the New York Convention would not impede the recognition of such a modified award.

Furthermore, the majority opinion did not find the power of modification to be violative of the principle of party autonomy. Under Section 34, the power of modification extends to post-award interest, provided there are compelling and well-founded reasons for such modifications.

The majority opinion held that the power to vary an award Article 142 of the Constitution should be exercised with great care and caution. While the power granted under Article 142 can be exercised where necessary, it cannot extend to rewriting or modifying the award on merits.

Dissenting Opinion

Justice Viswanathan, in the dissenting opinion, relied on Sections 5, 13(5), 16(5), and 33 of the Act to state that judicial authority to intervene with an award is limited to the provisions in Part I of the Act. This highlights the acutely circumscribed nature of the power granted to a court under Section 34 of the Act.

The dissenting opinion highlighted that the Act, unlike the Arbitration Act 1940, does not confer the power to modify an award which is indicative of the legislative intent to not grant such power. Accordingly, Justice Viswanathan refused to read in the power of modification in Section 34 of the Act by adding in terms as argued by the parties, beyond the provision’s plain and clear language, which must be read as such by the court. It was held that the only manner of interfering with the award—as permitted in the Act and as reinforced by Section 5—was through an application to set aside or annul the award.

The dissenting opinion found that not reading the power to modify in Section 34 would not cause any hardship to parties choosing arbitration, citing the following two reasons:

  1. Section 43(4) of the Act provides the parties the right to recommence arbitration proceedings if the award is set aside.
  2. Parties submitting to arbitration contractually opt out of their right to access the normal judicial process and are aware that their rights and liabilities would be governed by the Act.

The dissenting opinion found that the provisions of judicial interference with an award under the Act differ from the appellate provisions of the Civil Procedural Code (“CPC”). The appellate court under CPC has co-extensive powers as the original court and can vary a decree; however, such a right is not granted under Section 34 since a court does not sit in appeal over the award.

Therefore, the dissenting opinion held that in the absence of express authority by law, a court under Section 34 cannot modify or vary an award. A court modifying an award would be exercising a power to review the award on merits, which cannot be allowed, especially since the parties to an arbitration agree to arbitrate outside the normal judicial process.  

The dissenting opinion also noted that the parties had contended that the greater power to set aside would include the lesser power to modify an award. It held that the power to modify involves the court entering into an adjudication on the merits of the dispute, which is qualitative of an appellate function, whereas the powers under Section 34 are not appellate powers and do not allow for adjudication of the merits of the case. The dissenting opinion also differentiated between the appellate power to modify a decision and the power to set aside granted to the court under Section 34. Therefore, it held that devoid of the context of Section 34 and the arbitration process, the power to set aside cannot be seen as being larger than the power to modify.

The legislative intent to not grant courts the power of modification of an award is evident from the fact that the Parliament did not incorporate such a power in the 2015, 2019, and 2021 amendments to the Act. On the basis of this, the dissenting opinion found that the legislative intent, as evident from the language of Section 34 and the subsequent amendments to the Act, confirms that the power of modification is not available to the courts.

The dissenting opinion refused to read the power of modification as an inherent power granted to the courts under Section 34, as per Section 151 of the CPC. It emphasised that the inherent powers under CPC cannot be exercised in conflict with the express powers provided by the legislature under Section 34 of the Act.

The dissenting opinion also cautioned courts against exercising power under Article 142 of the Constitution in matters arising out of Section 34 of the Act. Using powers under Article 142 to change, vary, or qualify arbitral award would undermine the arbitration process and contradict the core aspects of the Act. Furthermore, exercise of such a power would lead to grave uncertainty for the parties and reduce the efficacy of the arbitration as an alternative dispute resolution mechanism.

For the enforcement of a modified award under the New York Convention, the dissenting opinion noted that an express provision in the Act was required to recognise the modification of the award by the court as part of the award itself. In the absence of such express provision, as contained in Section 71 of the UK English Arbitration Act, the enforceability of modified awards would remain uncertain. Therefore, it found that the legislature was best placed to include the power of modification and requisite provisions for enforcement of a modified award in the Act.

The dissenting opinion also found that the power of modification was not required since the court’s power to remand the award to the arbitral tribunal under Section 34(4) could be exercised suo moto and that clerical, computational, and typographical errors could be corrected by exercising powers under Section 33. However, if such errors were not raised with the arbitral tribunal or if the arbitral tribunal did not correct it, the court under Section 34 may invoke the power under Section 152 of the CPC to correct such errors without modifying, altering, or adding to the award.

The dissenting opinion also recognised the concept of severability of the award as intrinsic to Section 34. However, since severability and modification powers were different, the dissenting opinion held that courts lacked the power to modify an award under Section 34 of the Act.

Conclusion

The Hon’ble Supreme Court of India, in this landmark judgment clarified that a court under Section 34 has the power to modify an award, but only to the extent of correcting minor errors and modifying post-award interest granted by the arbitral tribunal. The judgment also explicitly recognised the power of the court under Article 142 of the Constitution to modify an award and that the limited power of modification under Section 34 does not violate the principle of party autonomy.  The judgment not only resolved a longstanding debate among courts by holding that modification of an award constituted a relief that could be granted under Section 34, limited to correcting minor errors, but also emphasising that the power was distinct from appellate jurisdiction and should not be misconstrued as allowing a merits-based review of an award.

[1] SLP (C) Nos. 15336-15337 of 2021.

[2] 2014 SCC OnLine Mad 6568.

[3] (2021) 9 SCC 1.

[4] 1980 Supp SCC 420.

[5] (2018) 11 SCC 328.