Overview:

In a recent landmark judgment by the Hon’ble Supreme Court of India in the case of Gayatri Balasamy v. M/s. ISG Novasoft Technologies Limited and other connected appeals, the Court addressed the contentious issue of whether courts exercising jurisdiction under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996 ("Arbitration Act") have the power to modify arbitral awards. This decision resolves conflicting judicial precedents and clarifies the scope of judicial intervention in arbitration, emphasising the balance between limited judicial oversight and the need to prevent protracted litigation while adhering to the legislative framework of the Arbitration Act.

Brief Background of the Case:

The case arose from multiple appeals challenging the scope of judicial powers under Section 34 of the Arbitration Act, which provides for setting aside arbitral awards on specified grounds but is silent on modification. A three-judge Bench referred the matter to a five-judge Constitution Bench to resolve inconsistencies in prior judgments, such as Project Director, NHAI v. M. Hakeem (2021), which held that courts lack modification powers, and others like Vedanta Limited v. Shenzhen Shandong Nuclear Power (2019), where awards were modified. The core issue was whether courts could modify awards to achieve justice without overstepping the statutory limits of Section 34.

Issues:

The Supreme Court framed the following questions for consideration:

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

ii. If modification is permissible, whether such power is limited to cases where the award is severable, and only a part can be modified?

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

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

v. Whether the judgment in M. Hakeem (2021), followed in subsequent cases, lays down the correct law, given conflicting decisions where awards were modified?

Ruling:

The Supreme Court, in a detailed judgment, held that courts under Section 34 do not have a general power to modify arbitral awards, except in limited circumstances. The key findings are:

1. No General Power to Modify:

The Court reaffirmed that Section 34 restricts judicial intervention to setting aside awards on specified grounds, such as incapacity, invalid arbitration agreements, procedural irregularities, or violations of public policy. Modification, except in specific cases, would amount to exercising appellate powers, which is contrary to the Arbitration Act’s framework and the UNCITRAL Model Law.

2. Severability and Partial Setting Aside:

The Court recognised the power to partially set aside awards under the proviso to Section 34(2)(a)(iv), where decisions on non-arbitrable matters can be severed from arbitrable ones, provided the valid and invalid portions are legally and practically separable. This power is inherent in the authority to set aside and does not extend to modifying the substance of the award.

3. Limited Exception for Errors:

Courts can correct computational, clerical, typographical, or similar errors under Section 34, based on the principle of actus curiae neminem gravabit (an act of the court shall prejudice no one). Such corrections do not involve merit-based evaluation and are akin to powers under Section 152 of the Code of Civil Procedure, 1908.

4. Remand as an Alternative:

Where modification is inappropriate due to uncertainty or complexity, courts may remand the matter to the arbitral tribunal under Section 34(4) to cure defects, such as inadequate reasoning or procedural issues, provided the defect is curable and does not require rewriting the award.

5. Interest Awards:

The Court held that interest rates cannot be modified by Section 34 courts. If interest awards are excessive, inadequate, or beyond the agreement, the matter must be remanded to the tribunal under Section 34(4) for reconsideration.

6. Suo Moto Exercise of Section 34(4):

The Court clarified that the power to remand under Section 34(4) can be exercised suo motu or on an oral request, overruling Kinnari Mullick v. Ghanshyam Das Damani (2018), which required a written application.

7. New York Convention and Doctrine of Merger:

The Court rejected arguments that modifications would complicate enforcement under the New York Convention, noting that domestic law governs the validity of awards at the seat of arbitration. The doctrine of merger was deemed inapplicable, as modifications do not merge with the original award.

8. Hakeem Upheld with Exception:

The Court upheld M. Hakeem (2021) as correctly interpreting Section 34, except for the limited exception allowing correction of computational, clerical, or typographical errors. The judgment was not per incuriam, as it aligned with the statutory framework and distinguished prior cases like Oil and Natural Gas Corporation v. Western GECO (2014).

Highlights of the Judgment:

1. Limited Judicial Role:

The Court emphasized the Arbitration Act’s intent to minimize judicial interference, restricting courts to setting aside awards or remanding them for correction, except for minor error corrections.

2. Severability Principle:

The power to sever invalid portions of an award is inherent and applies when claims are independent, ensuring valid parts are preserved without affecting the award’s integrity.

3. Error Correction:

Courts can rectify manifest errors (e.g., computational or typographical) without engaging in merits review, aligning with the principle that court actions should not prejudice parties.

4. Remand Mechanism:

Section 34(4) serves as a “safety valve” to preserve awards by allowing tribunals to address curable defects, exercisable suo motu or on request, enhancing arbitration efficiency.

5. Uniform Interpretation:

The Court rejected differential interpretations for statutory or commercial arbitrations, ensuring a consistent application of Section 34 across all cases.

6. International Compliance:

The ruling aligns with the New York Convention, as modifications are limited and do not affect the enforceability of awards abroad.

MHCO Comments

The Hon’ble Supreme Court’s judgment is a significant step toward clarifying the scope of judicial intervention in arbitration under the Arbitration Act. By upholding the restrictive framework of Section 34 while allowing limited error corrections and severability, the Court strikes a balance between arbitration’s autonomy and the need for equitable outcomes. The emphasis on remand under Section 34(4) as a primary remedy for curable defects promotes efficiency and reduces litigation costs, reinforcing arbitration as a viable alternative dispute resolution mechanism.

This update was released on 06 May 2025.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.com for any assistance.

Legal Update Team
MANSUKHLAL HIRALAL & COMPANY
Advocates, Solicitors and Notaries
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