Gayatri Balasamy: When Can Indian Courts Modify an Arbitral Award Under Section 34?

In Gayatri Balasamy v. M/S ISG Novasoft Technologies Limited, decided on 30 April 2025, a five-judge Constitution Bench of the Supreme Court of India resolved a longstanding controversy: whether a court hearing a challenge under Section 34 of the Arbitration and Conciliation Act, 1996 can modify an arbitral award, or whether its jurisdiction is limited to setting the award aside in whole or in part. By a 4:1 majority, the Bench held that courts possess a limited power to modify awards in carefully defined circumstances. The decision redraws the boundary between arbitral finality and judicial correction, and every party engaged in arbitration in India needs to understand its implications.

Background: The Controversy Over Modification

Section 34 of the 1996 Act permits a court to set aside an arbitral award on grounds such as incapacity of a party, invalidity of the arbitration agreement, breach of natural justice, public policy, or the tribunal's excess of jurisdiction. The Act does not contain an explicit power to modify an award. For years, High Courts were divided: some held that the power to set aside necessarily included the lesser power to modify; others held that modification constituted a wholesale rewriting of the award that Section 34 did not permit. The Supreme Court itself had delivered inconsistent decisions in two-judge benches, making a Constitution Bench reference inevitable.

The Majority Ruling: A Limited Power to Modify

The majority, comprising Chief Justice Sanjiv Khanna and Justices B.R. Gavai, Sanjay Kumar, and A.G. Masih, held that courts do have a limited power to modify arbitral awards, but only in three narrow scenarios. First, a court may sever an invalid portion of an award from a valid portion where the invalid portion is distinct and separable. The authority for this flows from the proviso to Section 34(2)(a)(iv), which expressly acknowledges that if decisions on submitted matters can be separated from those on non-submitted matters, only the latter may be set aside. Applying the principle that the greater power contains the lesser, the majority concluded that severance is inherent in the jurisdiction. Second, a court may rectify manifest clerical or computational errors that are apparent on the face of the award. Third, a court may adjust post-award interest under Section 31(7)(b) of the Act, which vests in the court the power to set the rate of interest on the awarded sum for the period from the date of the award to the date of payment.

The Dissent: Finality Cannot Be Compromised

Justice K.V. Viswanathan, in a detailed dissent spanning over 129 pages, took a fundamentally different view. He argued that the power to set aside and the power to modify do not share the same genus: setting aside removes the award; modifying it rewrites what the tribunal decided. He held that the doctrine of the greater containing the lesser does not operate across logically distinct powers. He also emphasised that the UNCITRAL Model Law, which the 1996 Act is based on, does not contemplate judicial modification of awards, and that importing such a power without legislative amendment would undermine India's stated objective of becoming a preferred seat for international commercial arbitration. The dissent has attracted significant attention from practitioners who share the concern that even a narrow modification power creates a gateway for broader judicial re-examination of awards.

What the Decision Does and Does Not Allow

The majority was careful to confine the modification power to the three scenarios described. Courts cannot re-examine the merits of the dispute, cannot substitute their assessment of the evidence for the tribunal's, and cannot rewrite the substantive findings of the award. The decision also does not affect the grounds for setting aside under Section 34: those remain unchanged. In effect, the ruling creates a narrow surgical tool for courts to correct limited categories of error or adjust interest, without opening the door to a general appeal on the merits. Importantly, the majority expressly refused to extend the power to situations involving contested questions of fact or law that the tribunal has already resolved.

Practical Takeaways

Parties challenging arbitral awards under Section 34 can now specifically seek partial severance of an invalid portion rather than a full set-aside, which may be a less disruptive outcome in complex multi-issue awards. Where an award contains a computational error that inflates the sum awarded, a court can now correct it directly without remitting the matter. Parties seeking to enforce awards, however, should anticipate that respondents will invoke the modification route to challenge interest calculations or seek severance of specific components. The decision also strengthens the case for legislative action: scholars and practitioners who agree with the dissent have called for Parliament to amend Section 34 to codify or restrict the scope of modification, whichever is the preferred policy choice. Until then, the scope of the majority ruling will be worked out case by case in the High Courts.