Modification of Arbitral Awards in India – The Dust Finally Settles?

Arbitration is rooted in principles of party autonomy and limited interference by courts. Yet, legislators and judges across jurisdictions struggle with the issue of judicial interference in arbitral awards. The Indian Arbitration and Conciliation Act, 1996 (the “Act”) borrows heavily from the UNCITRAL Model Law and does not contain any provision enabling a court to modify an award, unlike other jurisdictions such as Singapore and the United Kingdom where statute permits variation.

Sections 34 and 37 of the Act restrict recourse to the setting aside of awards. Despite this, Indian courts have, at times, opted to modify awards instead of scrapping them entirely to fulfil the ultimate objective of achieving complete justice. The most prominent apprehension around this practice has been that recognising a power of modification is inconsistent with the framework of the Act since it will inevitably require detailed judicial scrutiny of the merits of the dispute.

India’s Supreme Court constituted a five-judge Constitution Bench to determine whether Indian courts are jurisdictionally empowered to modify awards under Sections 34 and 37 of the Act. And if so, what is the extent of their supervisory powers to modify arbitral awards? The Supreme Court delivered its judgment on 30 April 2025 in Gayatri Balasamy v ISG Novasoft Technologies Limited.

The majority judgment (authored by Chief Justice Sanjiv Khanna and concurred by Justices B.R. Gavai, Sanjay Kumar, and Augustine George Masih) held that courts have limited power to modify awards in very limited situations within the confines of Section 34 of the Act. The majority view has attempted to navigate the conflict between limited judicial interference under the Act and the necessity of doing complete justice by recognising four exceptions:

First, Indian courts have the power to sever and partially set aside an award. The majority held that power to sever the “invalid” portion of an arbitral award from the “valid” portion within the narrow confines of Section 34, is inherent in the court’s jurisdiction when setting aside an award. The majority reasoned that power to set aside an arbitral award necessarily encompasses the power to set it aside in part, rather than in its entirety. This exception comes with a caveat that courts should not set aside an award partially when the “valid” and “invalid” portions are legally and practically inseparable. This is a practical and pragmatic approach which reemphasises the legislative intent and existing jurisprudence.

Second, a court reviewing an award under Section 34 possesses the power to rectify computational, clerical, or typographical errors, as well as other manifest errors, provided that such modification does not necessitate a merits-based evaluation. This exception is premised on the inherent powers of courts, even if they are not expressly granted in the statute. The majority has emphasised that this exception can be exercised only when the error is apparent on the face of the award and this exception does not enable courts to exercise appellate review over awards. However, while computational and clerical errors are fairly limited in scope and clear, the inclusion of manifest errors may result in cases where courts entertain a more detailed review of awards than mere clerical errors. For instance, will the incorrect interpretation of a statutory provision or a contractual term amount to manifest error enabling courts to modify an award? While such an exercise may entail a merits-based review by the court, this exception invites the possibility of expanding the scope and protracting proceedings under Sections 34 and 37 of the Act.

Third, courts have the power to declare or modify the post-award interest rate. The majority, relying on the distinction within Sections 31(7)(a) and 31(7)(b), has held that courts have different powers for pendente lite interest and post-award interest. For pendente lite interest, courts can either set aside the rate of interest or remand the issue to the tribunal under Section 34(4) of the Act. For post-award interest, courts have the power to modify the interest rate, which includes the power to increase or decrease the rate of interest awarded. The majority has reasoned that this limited power of modification of post-award interest enables courts to consider post-award circumstances to ensure that the ultimate result of an arbitration is future-proofed.

Fourth, the Supreme Court’s power to do complete justice under Article 142 of the Indian Constitution includes the power to modify awards. Such a specific carve out is unprecedented. The majority has emphasised the Supreme Court’s unfettered constitutional power to do complete justice. This exception comes with stringent caveats emphasising that the Supreme Court should exercise this power with extreme caution and in consonance with the objectives underlying the Act. The majority has also held that this power should not be exercised if it would result in the Supreme Court rewriting the award or modifying the award on merits. This power to deliver complete justice will entail a highly fact-specific exercise, which effectively introduces a new ground at the final stage of challenge before the Supreme Court. This may encourage parties to continue challenging the award up to the Supreme Court in order to finally attempt modification of the award under Article 142 of the Constitution of India. Courts will have to be very strict in applying this exception as any laxity may enable the award debtor to extend the challenge and delay ultimate resolution.

The dissenting minority judgment (authored by Justice K.V. Viswanathan) placed stronger fidelity on legislative intent and the limitations under Section 34 of the Act. The dissenting judge agreed with the majority’s view that courts have the power to sever parts of the award within the confines of Section 34. He held that courts do not have any power to modify awards under Section 34 and, accordingly, disagreed with the majority’s decision on the following three issues:

The Supreme Court, particularly the majority view, has certainly attempted to increase the reliability and enforceability of Indian arbitral awards while largely limiting the powers of courts to do so to the confines of Section 34 of the Act. This is a positive step for the Indian arbitration regime as it brings pro-arbitration finality to critical issues that regularly arise in the challenge and enforcement of arbitration awards. Permitting clerical errors or minor adjustments which are connected to the merits of an award, such as the modification of interest rates, accords with pragmatic necessity. Similarly, the power to sever awards, to the extent legally and practically permissible, is within the confines of Section 34 of the Act. It will be interesting to observe how courts interpret the exception involving manifest errors on the face of an arbitration’s record. The Supreme Court’s restrain in exercising powers under Article 142 in the future will surely guide other courts and keep the supervisory jurisdiction of courts in check.

The debate over a court’s power to modify an award is now over. As the dust settles on this critical issue, a new gust of wind may even unsettle the gravel if the four exceptions are not strictly and cautiously applied.