Courts Have Limited Power to Modify Arbitral Awards Under Sections 34 and 37 of Arbitration Act: Supreme Court

In a landmark Constitution Bench judgment delivered on 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 courts exercising jurisdiction under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996, possess a limited and narrowly defined power to modify arbitral awards. The Bench, led by Chief Justice Sanjiv Khanna and comprising Justices B.R. Gavai, Sanjay Kumar, and Augustine George Masih, clarified that while the Act does not expressly grant courts the authority to modify awards, such power may be exercised in specific and confined circumstances without transgressing the statutory framework.

Background of the Case
The reference arose from a series of conflicting decisions on the scope of judicial intervention in arbitral awards under Section 34 of the Arbitration Act. Notably, in Project Director, NHAI v. M. Hakeem [(2021) 9 SCC 1], the Court had held that Section 34 does not confer any power to modify awards. However, other benches had taken a different view and permitted modifications in awards, particularly in relation to interest rates or severable portions of awards.

To resolve this divergence, a three-judge Bench had referred the matter to a larger bench to examine five key questions, including whether the courts under Sections 34 and 37 can modify an arbitral award, and if so, to what extent.

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Legal Issues
The Supreme Court addressed the following central questions:

1. Whether the power to set aside an award under Section 34 includes the power to modify it;
   
2. Whether modification is permissible only in cases where the award is severable;
   
3. Whether Indian courts can modify awards despite the absence of express provision in the 1996 Act;
   
4. Whether post-award interest and clerical errors fall within the scope of judicial modification;
   
5. Whether the decision in M. Hakeem lays down the correct law.
   

Court’s Analysis

The Court undertook a detailed comparative and purposive interpretation of the Arbitration and Conciliation Act, 1996, along with international arbitration principles. The Bench held that:

• Modification vs. Setting Aside: Setting aside and modification are conceptually distinct. While the former annuls the award, the latter alters parts of it. However, the Court clarified that partial setting aside of an award—where valid and invalid portions are severable—is effectively a form of modification.
  
• Severability Principle: The Court invoked the proviso to Section 34(2)(a)(iv) to hold that courts can sever and set aside only the invalid portion of an award, preserving the rest. This power is inherent and does not amount to appellate re-evaluation.
  
• Limited Power of Modification Recognised: A limited power of modification was read into Sections 34 and 37, in four specific contexts:
  
  1. Severable Awards – Courts can set aside only the invalid portion.
     
  2. Clerical, Typographical or Computational Errors – Errors apparent on the face of the award may be corrected without reappraising evidence.
     
  3. Post-Award Interest – Courts may modify or grant interest where justified, especially under Section 31(7)(b).
     
  4. Article 142 of the Constitution – The Supreme Court retains residual power to do complete justice, but this must be exercised with great restraint.
     
• No Appellate Power: The Court was clear that this limited power does not convert courts into appellate bodies. Courts cannot reassess factual findings or legal interpretations rendered by the arbitral tribunal.
  
• Section 34(4) and Remand Power: While acknowledging the remand power under Section 34(4), the Court noted that modification and remand are distinct remedies. Remand is appropriate where defects are curable and factual clarity is needed; modification may be appropriate where correction is straightforward and evident.
  
• No Expansion for Statutory Arbitration: The Court rejected arguments seeking an expansive interpretation of Section 34 in the context of statutory arbitrations under the National Highways Act. It ruled that the same limitations on judicial intervention apply regardless of the arbitration’s statutory or consensual nature.
  

Key Observations

“The authority to set aside an arbitral award necessarily encompasses the power to set it aside in part… a contrary interpretation would not only be inconsistent with the statutory framework but may also result in valid determinations being unnecessarily nullified.”

“Post-award interest is inherently future-oriented… It would be unreasonable to suggest that the arbitrator, as a soothsayer, could have anticipated future events with certainty.”

“To deny courts the authority to modify an award—particularly when such a denial would impose significant hardships, escalate costs, and lead to unnecessary delays—would defeat the raison d’être of arbitration.”

Conclusion of the Court
The Constitution Bench concluded by affirming:

“The Court has a limited power under Sections 34 and 37 of the 1996 Act to modify the arbitral award.”

This limited power can be exercised in the following cases:

• Severing the invalid portion from a severable award;
  
• Correcting manifest clerical, computational, or typographical errors;
  
• Modifying or granting post-award interest under Section 31(7)(b); and
  
• When necessary to do complete justice under Article 142 of the Constitution.