In a Constitution Bench ruling delivered on 30 April 2025 in Gayatri Balasamy vs. ISG Novasoft Technologies Limited [Civil Appeal Nos. of 2025 (@ SLP (C) Nos. 15336-15337 of 2021)], the Supreme Court of India clarified that the power of courts under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996 to modify an arbitral award can be exercised only where the award is severable. The Bench, led by Chief Justice Sanjiv Khanna, held that the ability to modify an award depends on whether the invalid portion of the award can be separated from the valid portion, both legally and practically.
Background
The judgment was delivered in response to a reference made to the Constitution Bench to resolve conflicting decisions on the power of Indian courts to modify arbitral awards. The reference questioned, among other things, whether such power exists at all under Section 34 of the 1996 Act, and if it does, whether it can only be exercised when the arbitral award is severable.
Under the Arbitration and Conciliation Act, 1996, Section 34 allows courts to “set aside” arbitral awards on limited grounds. It does not expressly provide for modification. However, prior judicial decisions had taken varying approaches, with some judgments modifying awards in part or altering the rate of interest awarded.
Legal Issue
One of the central issues before the Constitution Bench was whether modification of an arbitral award under Section 34 can be exercised only when the award is severable—that is, where the invalid portion of the award can be separated from the valid portion without disturbing the integrity of the whole.
Court’s Observations and Reasoning
The Supreme Court answered the question in the affirmative but with specific caveats. The key findings of the Court on the issue of severability were as follows:
- Statutory Basis for Severability: The Court relied on the proviso to Section 34(2)(a)(iv) of the Arbitration and Conciliation Act, which allows the court to set aside only that part of the award which deals with matters not submitted to arbitration, provided such parts can be separated.
- Power Inherent in Section 34: The Court held that the ability to partially set aside an award is inherent in the power to set aside, even if not explicitly stated in the section. This interpretation is also consistent with Section 16 of the Act, which supports the doctrine of kompetenz-kompetenz—the arbitral tribunal’s power to determine its own jurisdiction.
“The authority to set aside an arbitral award necessarily encompasses the power to set it aside in part… It would be incongruous to hold that the power to set aside would only mean power to set aside the award in its entirety.”
- Condition for Severability: However, the Court emphasised that this power is conditional. It can only be exercised when the “valid” and “invalid” parts of the award are not interdependent or intrinsically intertwined. If they are, then partial setting aside is not permissible.
“Partial setting aside may not be feasible when the valid and invalid portions are legally and practically inseparable.”
- Reference to Privy Council: The Court cited the Privy Council decision in Pratap Chamaria v. Durga Prasad Chamaria [AIR 1925 PC 293] to reinforce that when issues are inextricably bound, the entire award may become unenforceable.
- Practical Implication: The Court held that the exercise of this power is pragmatic and aligned with the objective of minimising unnecessary litigation. If a clearly severable portion of the award is invalid, there is no justification for discarding the entire award.
Conclusion of the Court on Severability
The Constitution Bench held:
“The power conferred under the proviso to Section 34(2)(a)(iv) is clarificatory in nature… The doctrine of omne majus continet in se minus—the greater power includes the lesser—applies squarely. The authority to set aside an arbitral award necessarily encompasses the power to set it aside in part.”
However, the Court added a note of caution:
“Not all awards can be severed or segregated into separate silos… The valid and invalid portions must not be inter-dependent or intrinsically intertwined.”
The Supreme Court has affirmed that modification of an arbitral award under the Arbitration and Conciliation Act can be exercised by courts only if the award is severable—that is, when the part that is invalid can be surgically removed without impairing the integrity of the rest of the award. This nuanced interpretation ensures both respect for arbitral autonomy and judicial efficiency in upholding valid components of an award without necessitating a complete re-arbitration.
