When Final Isn’t FinaL: Supreme Court Interprets Power to Modify Awards

Introduction

On April 30, 2025, a five-judge bench of the Hon’ble Supreme Court, in a 4:1 majority ruling in Gayatri Balasamy v. ISG Novasoft Technologies Ltd (“Gayatri Balasamy”), examined whether the powers of a court under Section 34 and Section 37 of the Arbitration and Conciliation Act, 1996 (“the Act”), include the authority to modify an arbitral award. The Court further addressed the extent of this authority and considered whether it could be construed as inherent in the power to set aside an arbitral award. Section 34 of the Act, confers upon the Court the authority to set aside an arbitral award if one or more of the limited grounds stipulated in the provisions are present. However, the section fails to expressly confer the power to modify, vary or revise an arbitral award. Moreover, Section 37 provides for an appeal against an order issued under Section 34; consequently, enabling further judicial examination of such decisions.

In contrast to the confined scope of Section 34, Hon’ble Supreme Court in Gayatri Balasamy, held that the power to modify an arbitral award can be exercised under certain limited circumstances. First, if the award is severable, the “invalid” portions can be separated from the “valid” portions and modified. Second, modification can be made by rectifying any clerical, computational or typographic errors in the award. Third, the modification can be made by altering the post-award interest. Lastly, the Supreme Court can invoke its power under Article 142 of the Constitution to modify an arbitral award, and achieve complete justice in any issue pending before it. The post aims to discuss the key findings on court’s limited power to modify arbitral awards and reflect on the future challenges, unpacked by the decision.

Factual Background

The backdrop to the present ruling lies in an earlier decision by a single-judge bench of the Madras High Court in the Gayatri Balasamy case, wherein modification of the arbitral award was made by granting an additional amount towards compensation to the petitioner. The single-judge bench, after referring to the decisions of the Supreme Court in Tata Hydro-Electric Power Supply Co. Ltd. v. Union of India andUnion of India v. Modern Laminators Ltd., while distinguishing from the position laid down in McDermott International Inc. v. Burnt Standard Co Ltd, amongst other cases, recognised the authority of courts to modify or vary the arbitral award. The judge opined that the expression “recourse to a Court against an arbitral award” under section 34 of the Act, inherently provides the power of modifying, enhancing, varying, or revising the award.

Subsequently, an appeal was filed, wherein the division bench of the Madras High Court upheld the decision of the single judge and further modified the award by lowering the amount of compensation granted. A Special Leave Petition (“SLP”) challenging the decision of the division bench was thereafter filed, wherein a three-Judge bench of the Supreme Court directed that the SLP be placed before a larger bench, citing the seminal importance of the issues arising in the case.

Key Findings

Severability of the arbitral award

The Supreme Court reaffirmed the doctrine of severability in arbitral awards, observing that the proviso to Section 34(2)(a)(iv) recognises the authority of courts to partially set aside the arbitral awards that are clearly severable into independent parts. However, the Court emphasized that severing an arbitral award is not feasible if its “valid” and “invalid” portions are interlinked and cannot be separated. In such a scenario, the award must either be kept or completely discarded. Subsequently, the differing consequences of modification and setting aside of an arbitral award, were duly noted by the court; however, in its opinion, setting aside would compel the parties to recommence the proceedings, resulting in considerable struggles. The Court relying on the doctrine of “omne majus continet in se minus” which essentially means “the greater power includes the lesser” held that the authority to set aside an arbitral award fundamentally constitutes the power to set aside in part, instead of the whole.

Acknowledging the same stance, all judges unanimously, in Para 36 came to the consensus that the courts possess the authority to sever the portions under Section 34 of the 1996 Act. However, Justice Viswanathan specifically clarified in Para 155 that severance is only permissible if the “invalid” portion of the arbitral award is set aside and not modified.

Computational and other similar errors

Addressing the rectification of inadvertent errors in the arbitral award, the Supreme Court in Para 54 asserted that Section 33 of the Act comprehensively allows the arbitral tribunal to correct computational, clerical, typographic, and similar inadvertent errors either upon an application made by the party or by suo moto action. However, in the rare event that such an error is objected to, and where a reference to the tribunal under Section 33 is either not made, or if referred, is not acted upon by the tribunal, in that scenario, courts can invoke the power under Section 34 and modify such errors, when they are apparent on the face of it, without revising the original award.

It is pertinent to note that Justice K.V. Viswanathan concurred with the majority view on this aspect in Para 141, holding that an unintentional error of the tribunal which might undermine the cause of any party, ought to be modified by the court, thereby upholding the maxim “actus curiae neminem gravabit,” which essentially means “an act of court shall prejudice no man.”

Pendente lite interest & Post- award interest

Adjudicating upon the question of interest modification, the Court distinguished between pendente lite interest and post-award interest. The former represents the accrued interest during the proceedings, provided under Section 31(7)(a) of the Act, while the latter pertains to the interest granted after the award is made. The court maintained its stance that it possesses the authority under Section 34 to revise the post-award interest when necessitated by the circumstances. In arriving at its decision, the court noted that post-award interest is future-oriented, and the arbitrators at the time of deciding the interest rate cannot anticipate future conditions. As a result, it was held in Para 76 that courts should possess the power to modify, i.e., increase or decrease the post-award interest, lacking which the parties would be compelled to start de novo arbitration proceedings due to an erroneous interest rate. However, the court in Para 73 determined that pendente lite interest cannot be modified, and the only recourse under Section 34 of the Act is either to set aside the award or to remit it to the tribunal.

Diverging from the majority view, Justice K.V. Viswanathan in Para 156 did not agree with the stance of the Court and maintained that Section 34 does not allow the modification of post-award interest; rather, the appropriate course of action to be adopted would be to remit the matter to the arbitrator.

Power to modify under Article 142 of the Indian Constitution

Lastly, the Court, while delineating the scope of Article 142 of the Constitution, observed that it confers upon the Supreme Court the power to do complete justice in any cause or matter pending before it. The court thereafter in Para 84 held that Article 142 may be invoked in circumstances where such an action is essential to secure the conclusiveness of an arbitration or litigation, inter alia, by reducing the monetary hardships on the litigants and preserving the purity of the process. However, it should not be invoked as a tool to modify the  arbitral award on merits.

Justice K.V. Viswanathan dissented from the majority view in Para 156, holding that the power under Article 142 cannot be exercised if it violates a non-derogable principle at the root of a statute. Therefore, Article 142 should not be exercised to modify an arbitral award as it contravenes the fundamental principle under Section 34 of the Act.

Future Implications

The much-awaited decision of the Supreme Court allowing courts to modify arbitral awards on limited grounds is a seminal breakthrough for Indian arbitration jurisprudence. While the judgement is backed by a pragmatic and equity-oriented stance, it ushers in a dichotomy of reactions, ranging from optimism to apprehension about the wide judicial intervention by courts in the finality of arbitration.

The court’s decision to allow rectification of computational, typographic or other clerical errors is a welcome move. However, its inclusion of the phrase “other manifest errors” in Para 49 of the judgement opens a window for ambiguity that can be exploited by ingenious litigants, seeking a review of the arbitral award in the guise of error rectification, which would defeat the finality of arbitration. Additionally, in para 45 of the judgement, the Court held that, “court can apply the doctrine of severability and modify a portion of the award while retaining the rest.” The use of the word “modify”, as opposed to “set aside”, may further result in litigants inadvertently seeking modification of an invalid portion of the award, fundamentally involving consideration of the merits of the case. Remarkably, Section 5 of the Act envisage minimal judicial intervention, reiterated by Supreme Court’s decision in Food Corpn. of India v. Indian Council of Arbitration and Union of India v. Popular Construction Co. Therefore, it is pertinent that the judiciary limits the scope of its interpretation of the term ‘manifest errors’ and ‘modify.’

Moreover, the court’s decision to invoke Article 142 of the Constitution to modify arbitral awards voices further wide discretionary powers. Arguably, it gives the Supreme Court the power to do complete justice in cases where a minor error could otherwise derail the entire process, which would compel the parties to start afresh. This discretion, however must be practiced with utmost caution, as it can lead to opening of floodgates to dissatisfied litigants seeking a camouflaged review of the arbitral award on its merits, defeating its purpose of being an expeditious and cost effective alternate to litigation.

To sum up, the Gayatri Balasamy judgement, while framed as a reaffirmation of the principle  of limited judicial interference by courts, it might inadvertently serve as a ‘trojan horse’. While, on the surface, the decision pragmatically seeks to limit the adversities of litigants, by saving costs and time, intrinsically, it disrupts the conclusiveness of arbitration by allowing modification of arbitral awards on the grounds identified in the judgment.

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