- 26 Jun 2025
Can Indian Courts Modify Arbitral Awards? A Landmark Shift in Arbitration Law
Introduction: The Growing Role of Arbitration
Arbitration has become a preferred dispute resolution mechanism in India, especially in commercial matters like infrastructure contracts, loan defaults, shareholder disputes, and cross-border business disagreements. It offers speed, flexibility, and relative finality compared to conventional litigation. Central to arbitration is the arbitral award—a binding decision rendered by an arbitral tribunal.
But what happens if the arbitral award contains errors or rules on issues it wasn’t supposed to? Can Indian courts intervene and modify such awards, or are they strictly limited to either setting them aside or upholding them entirely?
This question, lingering for decades, was finally addressed in a Constitution Bench decision of the Supreme Court in Gayatri Balaswamy v. M/S. ISG Novasoft Technologies Ltd. in 2025. The verdict marks a significant evolution in Indian arbitration jurisprudence.
Legal Background: Understanding the Framework
The Arbitration and Conciliation Act, 1996, governs the conduct of arbitration proceedings in India. Section 34 of the Act provides for setting aside an arbitral award under specific grounds such as lack of jurisdiction, procedural unfairness, or conflict with Indian public policy.
However, notably, the Act does not explicitly mention any power of courts to modify an award. Courts can either uphold it or set it aside in whole or in part. This binary structure raised practical concerns—what if only a small portion of the award was defective? Must the entire award be set aside, forcing parties to re-arbitrate everything?
This concern led to judicial debate, culminating in the Supreme Court’s 2025 ruling.
The Supreme Court's Ruling: Modification Is Possible in Limited Situations
In the Gayatri Balaswamy judgment, the Supreme Court ruled by majority that Indian courts can modify an arbitral award, but only in limited and legally permissible circumstances.
The Court interpreted Section 34 of the Act using a foundational legal maxim:
Omne majus continent in se minus — "The greater includes the lesser."
This means that if a court has the power to set aside (annul) an entire award, it inherently also possesses the lesser power to strike down only a part of it—provided the invalid portion is severable from the rest of the award.
Severability: The Key Condition for Modification
The concept of severability became central to the ruling. According to the Court, modification is legally permissible only if the defective part of the award can be clearly separated from the valid portion.
This distinction must be:
- Legal — the invalid portion must deal with a separate legal issue or claim.
- Practical — the remainder of the award must still make sense and function independently.
If the award is so interlinked that separating parts would distort the meaning or make the rest unenforceable, then courts must resort to annulment rather than modification.
Modification vs. Annulment vs. Remand: Distinguishing the Remedies
The judgment also clarified the difference between three judicial remedies available under the Arbitration Act:
- Annulment (Setting Aside): This means the award (or its part) is declared void and unenforceable. It is as though the award never existed.
- Modification: Involves trimming or altering parts of the award that are invalid, while preserving and enforcing the rest.
- Remand/Remittance: Under Section 33(4), courts can send the matter back to the arbitral tribunal for clarification or correction. However, the tribunal is not allowed to reopen the merits of the case unless expressly permitted.
Each remedy serves a different purpose, and courts must carefully evaluate which applies based on the nature and severity of the defect in the award.
Objectives of Arbitration and the Need for Pragmatism
One of the strongest arguments for allowing limited modification is the fundamental philosophy of arbitration itself. Arbitration is intended to be:
- Speedy
- Cost-effective
- Final and binding
The Court emphasized that if courts were restricted only to setting aside an award, even for minor errors, it would undermine these objectives. Parties would have to re-arbitrate from scratch, causing delay and expense.
Therefore, modification allows courts to uphold the valid portion of the tribunal’s findings while surgically removing the defective part—striking a practical balance between judicial oversight and arbitration autonomy.
International Context: What the New York Convention Says
The judgment also considered whether such modification powers would affect the enforcement of arbitral awards under international law—specifically the New York Convention, to which India is a signatory.
Section 48 of the Arbitration Act deals with refusal of enforcement of foreign awards. The Court held that as long as the modification is based on jurisdictional grounds or matters outside the tribunal’s scope, it does not violate the principles of the Convention. Thus, the decision does not impact India’s obligations under international arbitration treaties.
Article 142 and the Dissenting Opinion
The majority judgment also acknowledged the role of Article 142 of the Indian Constitution, which allows the Supreme Court to do "complete justice" in any matter before it.
However, it cautioned that Article 142 cannot be used to rewrite the substantive findings of the arbitral tribunal or override statutory limitations. Judicial restraint is essential.
Justice K.V. Viswanathan dissented, expressing concern that the majority had effectively created a new power for courts without statutory backing. He pointed out that other countries—like the UK and Singapore—explicitly mention modification powers in their arbitration statutes. Indian law does not. Therefore, in his view, the courts should not read into the law what the legislature has not provided.
Legal Impact and Way Forward
The Gayatri Balaswamy decision has introduced a significant development in Indian arbitration law. For the first time, courts have been held to possess a limited power of modification under Section 34, subject to the severability principle.
This ruling will likely:
- Increase judicial engagement with arbitral awards.
- Encourage careful drafting of awards by arbitral tribunals.
- Impact future amendments to the Arbitration Act.
- Influence how parties approach arbitration clauses and post-award remedies.
However, the Court has also laid down strict boundaries to ensure that such intervention remains narrow, structured, and consistent with arbitration's core philosophy
Conclusion
The Supreme Court’s decision in Gayatri Balaswamy strikes a delicate balance between maintaining the finality of arbitral awards and ensuring that injustice does not result from procedural or jurisdictional errors. By introducing the concept of judicial modification in limited scenarios, the judgment has aligned arbitration law more closely with the evolving needs of commercial justice in India.
Legal practitioners, arbitrators, and contracting parties must now adapt to this expanded yet carefully regulated judicial role. The arbitration landscape in India has shifted—and with it, so has the dialogue between courts and arbitral tribunals.
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