Supreme Court Clarifies Limited Judicial Power to Modify Arbitral Awards, Balancing Finality and Justice

The Supreme Court of India, in its judgment dated April 30, 2025, in Gayatri Balasamy v. ISG Novasoft Technologies Limited (Civil Appeal Nos. arising out of S.L.P.(C) Nos. 15336-15337 of 2021), addressed a critical legal issue concerning the scope of judicial intervention under the Arbitration and Conciliation Act, 1996 (“1996 Act”). The case stemmed from a reference by a three-judge bench on February 20, 2024, to a five-judge Constitution Bench to resolve conflicting judicial precedents on whether courts, under Section 34 of the 1996 Act, have the authority to modify arbitral awards. This issue arose due to earlier rulings, particularly Project Director, NHAI v. M. Hakeem (2021), which held that courts lack the power to modify awards, prompting the need to settle divergent judicial interpretations and ensure clarity in arbitration law.

The primary question of law was whether the power to set aside an arbitral award under Section 34 includes the power to modify or vary it, and if so, to what extent. The appellants argued that the power to set aside inherently encompasses the lesser power to modify, invoking the maxim omne majus continet in se minus (the greater includes the lesser). They contended that denying modification could prolong litigation, especially in statutory arbitrations like those under the National Highways Act, 1956, and that courts should have flexibility to correct awards to achieve justice without necessitating fresh arbitration. The respondents, however, argued that Section 34, aligned with the UNCITRAL Model Law, restricts judicial intervention to setting aside or remitting awards, emphasizing the Act’s intent to minimize court interference and uphold party autonomy. They cautioned that allowing modification could lead to merits-based reviews and complicate enforcement under the New York Convention.

The Supreme Court delivered a split judgment, offering a nuanced interpretation of Section 34. The majority opinion recognized a limited power to modify awards, restricted to correcting clerical, computational, or typographical errors, adjusting post-award interest rates in exceptional circumstances, or invoking Article 142 of the Constitution with restraint to ensure justice. This approach aimed to balance arbitral finality with minimal judicial correction. The concurring opinion, however, held that Section 34 does not permit modification except for minor corrections under the principle actus curiae neminem gravabit (an act of the court shall prejudice no one), arguing that modification exceeds the statutory framework and risks undermining arbitration’s autonomy. Both opinions affirmed the court’s power under Section 34(2)(a)(iv) to sever separable parts of an award, reinforcing the doctrine of severability. The Court clarified that Hakeem correctly limited modification but allowed minor corrections to prevent injustice. This judgment is significant for delineating the boundaries of judicial intervention in arbitration, promoting a balance between finality of arbitral awards and limited judicial oversight, thereby strengthening India’s arbitration framework.