In a Constitution Bench decision dated 30 April 2025, the Supreme Court of India in Gayatri Balasamy vs. ISG Novasoft Technologies Limited [Civil Appeal Nos. of 2025 (@ SLP (C) Nos. 15336–15337 of 2021)] held that the power to set aside an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996, also includes a limited power to modify it. The Court ruled that such modification is permissible only in restricted scenarios such as when the award is severable, or when there are clerical, computational, or typographical errors, or when adjusting post-award interest.
Background of the Case:
The case arose from divergent judicial views on whether Indian courts have the power to modify arbitral awards under Section 34 of the Arbitration and Conciliation Act, 1996. While some benches had allowed modification of awards, others held that courts could only set them aside. The three-Judge Bench in Gayatri Balasamy referred five legal questions to a larger Bench for authoritative determination. The principal question was whether the power to set aside an arbitral award inherently includes the power to modify it.
Arguments of the Parties:
In Favour of Modification:
The petitioners argued that the power to set aside an award should include the lesser power to modify it, invoking the legal maxim omne majus continet in se minus. It was submitted that several judgments of the Supreme Court had in practice modified arbitral awards, and international jurisdictions under the UNCITRAL Model Law also recognise limited court powers of modification. It was further argued that denying such power would cause delay, increase costs, and undermine the efficiency of the arbitration process.
Against Modification:
Opposing counsel contended that Section 34 allows only for setting aside, not modification, of awards. It was argued that allowing modification would exceed the limited scope of judicial interference envisaged by the 1996 Act and would conflict with the principle that courts cannot substitute their judgment for that of the arbitral tribunal. They further submitted that allowing courts to modify arbitral awards would violate the uniform framework of the UNCITRAL Model Law and could have adverse implications for enforcement under the New York Convention.
Supreme Court’s Analysis:
The Constitution Bench, led by Chief Justice Sanjiv Khanna and comprising Justices B.R. Gavai, Sanjay Kumar, and Augustine George Masih, examined the legislative framework of the 1996 Act and international practice.
- Section 34 – Scope and Interpretation:
The Court observed that while Section 34 refers to an application for “setting aside” an award, it does not expressly exclude the power to modify. The Court held that such modification can be permitted provided it does not amount to a substantive review on merits and remains within the strict contours of judicial interference under the Act. - Severability and Partial Setting Aside:
The Court noted that Section 34(2)(a)(iv) permits courts to set aside only the non-arbitrable portion of an award if severable. It held that partial setting aside is a form of limited modification and therefore permissible when the valid and invalid parts are legally and practically separable.
“The authority to set aside an arbitral award necessarily encompasses the power to set it aside in part… A contrary interpretation… may also result in valid determinations being unnecessarily nullified.”
- Difference Between Setting Aside and Modification:
The Court acknowledged the conceptual difference between annulment and modification. However, it ruled that a restricted power of modification, confined to separable and facially erroneous aspects, can be located within the framework of Section 34 without violating its object. - Court’s Power to Correct Errors:
The Court affirmed that courts may correct computational, clerical, or typographical errors visible on the face of the record. This does not involve reappreciation of facts or evidence and falls within the Court’s ancillary powers to prevent injustice. - Post-Award Interest:
Under Section 31(7)(b), courts may alter the rate of post-award interest if it causes manifest injustice. The Court clarified that both increases and reductions in post-award interest are permissible. - Remand vs Modification:
The judgment distinguished between remanding matters to the arbitral tribunal under Section 34(4) and exercising modification powers. Modification can be used where the award is severable or correction is straightforward; otherwise, remand is appropriate. - No Conflict with New York Convention:
The Court rejected the argument that modification violates the New York Convention, stating that the enforcement of modified awards remains valid under Section 48 of the Act, which aligns with the Convention.
Decision and Conclusion:
Answering the key legal question, the Court held:
“The Court has a limited power under Sections 34 and 37 of the 1996 Act to modify the arbitral award. This limited power may be exercised… when the award is severable… [or to] correct any clerical, computational or typographical errors… [or] modify post award interest… [and] under Article 142 of the Constitution.”
Thus, the Supreme Court clarified that while the power to set aside an arbitral award does not automatically entail a full power of modification, a narrow and principled power to modify exists and may be exercised in exceptional and legally justified circumstances.
