Can Indian Courts Modify Arbitral Awards? The Supreme Court Finally Settles the Debate

One of the most contested questions in Indian arbitration law has been whether courts exercising supervisory jurisdiction under the Arbitration and Conciliation Act, 1996 have the power to modify an arbitral award, or whether they are limited to setting it aside in its entirety. In Gayatri Balasamy v. M/s ISG Novasoft Technologies Limited [2025 INSC 1057], a five-judge Constitution Bench of the Supreme Court resolved this long-standing debate. The ruling has significant implications for how arbitration awards are challenged and enforced across India.

The Legal Controversy: Modification Versus Setting Aside

Under the Arbitration and Conciliation Act, 1996, Section 34 permits a court to set aside an arbitral award on specified grounds, including patent illegality on the face of the award, conflict with public policy, and fraud or corruption. Section 37 provides a right of appeal against orders made under Section 34. The Act does not expressly confer a power to modify awards. However, over the years, various High Courts and even Supreme Court benches had taken differing views: some held that modification is entirely outside the statutory scheme, while others held that partial set-aside, which effectively modifies the outcome, is permissible where the defective part of an award is severable from the rest.

What the Constitution Bench Decided

The Constitution Bench in Gayatri Balasamy held that courts do not have a freestanding power to modify arbitral awards under Sections 34 or 37 of the 1996 Act. The Court held that the Act is founded on the principle of minimal court intervention, and introducing a broad modification power would undermine the finality and independence of the arbitral process. However, the Bench recognised that courts may partially set aside a severable portion of an award, which has a similar practical effect in cases where the defective component can be cleanly separated from the rest. The Court also held that the power under Section 34 to set aside includes the power to remit the matter back to the arbitral tribunal for fresh consideration of specific issues.

Severability as the Operative Principle

The Bench's approach places severability at the centre of post-award proceedings. Where a party challenges an award on the ground that one specific finding or quantification is vitiated by patent illegality or perversity, the court must first assess whether that portion is genuinely severable from the rest of the award. If it is severable, the court may set aside that portion alone, leaving the remainder intact. If it is not severable, the court must set aside the entire award. In both cases, the court retains discretion to remit the severed issue to the original tribunal rather than resolve it independently. This approach preserves arbitral autonomy while providing a practical safety valve.

Practical Consequences for Commercial Arbitration in India

India has been working to establish itself as a preferred arbitration seat for domestic and international commercial disputes. The Gayatri Balasamy ruling strengthens that positioning by confirming that courts will not exercise a roving power to rewrite awards, which is a concern that has historically made parties wary of Indian-seated arbitration. Parties challenging awards must now carefully frame their Section 34 petitions to identify the specific severable ground of challenge, rather than seeking a wholesale reconsideration of the merits. Arbitral tribunals should ensure that their awards address each claim separately and with distinct reasoning, making the award more defensible against severability arguments.

Practical Takeaways

Parties filing Section 34 petitions should identify precisely which portion of the award is being challenged and make a clear argument for severability where relevant. Arbitral tribunals drafting awards should structure their reasoning claim by claim, with separate findings on liability and quantum, to enable clean severance if a challenge arises. Parties seeking enforcement of awards that have been only partially challenged should rely on Gayatri Balasamy to resist attempts to stay enforcement of the unchallenged portion. Companies with pending arbitration matters should review their dispute resolution clauses to ensure the arbitration seat and governing law are clearly specified.