Courts have limited power to modify arbitral awards, Supreme Court says
The Supreme Court has on April 30, 2025 held that the court has a limited power under Sections 34 and 37 of the Arbitration and Conciliation Act 1996 to modify the arbitral award, which may be exercised when the award is severable, by severing the “invalid” portion from the “valid” portion, and by correcting any clerical, computational or typographical errors which appear erroneous on the face of the record.
A five-judge Constitution bench led by Chief Justice of India Sanjiv Khanna by a majority view of 4:1 also said the court can modify the post award interest in some circumstances and use Article 142 of the Constitution, albeit, with great care and caution.
The judgement authored by the CJI was also endorsed by Justices B R Gavai, Sanjay Kumar and Augustine George Masih.
In his separate differing view, Justice K V Vishwanathan, however, held while exercising power under Section 34 of the Act and consequently the courts in the appellate hierarchy do not have the power to modify the arbitral award. He said, modification and severance are two different concepts while modification is not permitted under Section 34, severance of the award falling foul of Section 34 is permissible in exercise of powers under Section 34. Such a power of severance is also available to the courts in the appellate hierarchy to the Section 34 court.
In his dissent, Justice Vishwanathan said, the power to set aside will not include the power to modify since the power to modify is not a lesser power subsumed in the power to set aside and, as held hereinabove, the power to set aside and power to modify do not emanate from the same genus and are qualitatively different powers in the context of the A&C Act.
A three-Judge bench on February 20, 2024 made a reference in the special leave petitions in Gayatri Balasamy Vs ISG Novasoft Technologies Limited.
The fulcrum of the legal controversy was on questions if Indian courts are jurisdictionally empowered to modify an arbitral award if so, to what extent?
The controversy arose because the Arbitration and Conciliation Act, 1996, does not expressly empower courts to modify or vary an arbitral award. Section 34 of the 1996 Act only confers upon courts the power to set aside an award.
The apex court, on several instances, has been compelled to modify arbitral awards, seeking to minimize protracted litigation and foster the ends of justice. In contrast, some judgments have posited that Indian courts cannot modify awards, due to the narrowly defined scope of Section 34. Therefore, divergent and contrasting judicial opinions existed on this question, the court noted.
Those in favour of modification argued this court has also upheld the modification of awards by the High Courts or District Courts on other occasions. Second, it is claimed that the Model Law, based on the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958, permits a broader scope of judicial intervention. Several signatory countries to the Model Law have enacted provisions for domestic awards that permit modification and/or variation, in addition to allowing for the setting aside of awards. This international perspective, it was argued, reflects a broader understanding of the court’s powers in arbitrations.
Since Section 34 allows for the setting aside of an award, it was argued that this power inherently included the ability to modify the award, as modification was seen as a lesser form of intervention than annulment.
Those against the power of modification argued that the Model Law was the result of a collective effort by several countries to establish a uniform and cohesive legal framework. During discussions, it was decided that courts should not have the power to modify awards. If courts had such power, it could result in a situation where a court order or decree replaces the arbitral award, which in arbitration jurisprudence is unacceptable. It may carry international repercussions when awards are sought to be enforced under foreign conventions.
They also said unless Indian law legislatively empowers courts to modify awards, this power cannot be assumed from the power to set aside an award under Section 34. While some countries have granted courts the specific power to modify or vary an award under their domestic laws, Indian law does not permit the same. They also submitted that the arbitral tribunal after rendering an award, becomes functus officio. Thus, the exercise of any modification, would lead to the courts adopting appellate powers. Without appellate powers, which the court does not possess, an award cannot be modified. Therefore, assuming modification powers would be contrary to both the express language and the intent behind Section 34 of the 1996 Act.
In its judgment, the majority view said, "We recognize that the legal controversy carries significant implications. The arguments canvassed symbolize the longstanding conflict between equity and justice, on the one hand, and the fetters imposed by the court’s jurisdictional limits, on the other. Therefore, in addressing the questions referred, it is crucial to adopt a balanced approach. While we may favour an equitable and pragmatic view, our interpretation must not be at odds with the express or implied legislative intent underlying the 1996 Act."
After going through the provisions, the bench held that the power conferred under the proviso to Section 34(2)(a)(iv) is clarificatory in nature. The authority to sever the “invalid” portion of an arbitral award from the “valid” portion, while remaining within the narrow confines of Section 34, is inherent in the court’s jurisdiction when setting aside an award.
The court also said 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, rather than in its entirety. This interpretation is practical and pragmatic. It would be incongruous to hold that power to set aside would only mean power to set aside the award in its entirety and not in part. A contrary interpretation would not only be inconsistent with the statutory framework but may also result in valid determinations being unnecessarily nullified," the bench said.
It is true that modification and setting aside have different consequences: the former alters the award, while the latter annuls it, the court stressed.
"However, we do not concur with the view that recognizing any modification power will inevitably lead to an examination of the merits of the dispute," the bench said.
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. This concern is particularly pronounced in India, where applications under Section 34 and appeals under Section 37 often take years to resolve, the bench said.
The bench said if it were to decide that courts can only set aside and not modify awards, then the parties would be compelled to undergo an extra round of arbitration, adding to the previous four stages: the initial arbitration, Section 34 (setting aside proceedings), Section 37 (appeal proceedings), and Article 136 (SLP proceedings). In effect, this interpretation would force the parties into a new arbitration process merely to affirm a decision that could easily be arrived at by the court. This would render the arbitration process more cumbersome than even traditional litigation.
Equally, Section 34 limits recourse to courts to an application for setting aside the award. However, Section 34 does not restrict the range of reliefs that the court can grant, while remaining within the contours of the statute. A different relief can be fashioned as long as it does not violate the guardrails of the power provided under Section 34, the bench said.
"We are of the opinion that modification represents a more limited, nuanced power in comparison to the annulment of an award, as the latter entails a more severe consequence of the award being voided in toto. Read in this manner, the limited and restricted power of severing an award implies a power of the court to vary or modify the award. It will be wrong to argue that silence in the 1996 Act, as projected, should be read as a complete prohibition," the bench said.
The court opined that the Section 34 court can apply the doctrine of severability and modify a portion of the award while retaining the rest. This is subject to parts of the award being separable, legally and practically, the bench said.
The court affirmed that a court reviewing an award under Section 34 possesses the authority to rectify computational, clerical, or typographical errors, as well as other manifest errors, provided that such modification does not necessitate a merits-based evaluation.
There are certain powers inherent to the court, even when not explicitly granted by the legislature. The scope of these inherent powers depends on the nature of the provision, whether it pertains to appellate, reference, or limited jurisdiction as in the case of Section 34. The powers are intrinsically connected as they are part and parcel of the jurisdiction exercised by the court, the bench said.
The doctrine of implied power is to only effectuate and advance the object of the legislation, i.e., the 1996 Act and to avoid the hardship. It would, therefore, be wrong to say that the view expressed by us falls foul of express provisions of the 1996 Act, the bench said.
The court held that inadvertent errors, including typographical and clerical errors can be modified by the court in an application under Section 34.
The court also found the contention that the tribunal becomes functus officio after the award is set aside is misplaced. The Section 37 court still possesses the power of remand stipulated in Section 34(4). Of course, the appellate court, while exercising power under Section 37, should be mindful when the award has been upheld by the Section 34 court. But the Section 37 court still possesses the jurisdiction to remand the matter to the arbitral tribunal, it said.
In respect of post-award interest, Section 31(7)(b) states that unless an award provides for interest on a sum directed to be paid by it, the sum will carry an interest at a 2% higher rate than the current rate of interest prevalent on the date of the award, from the date of the award till the date of payment. The explanation defines the expression ‘current rate of interest’, the bench said.
The bench said it would be incorrect to state that the court's power to interfere with this interest rate is limited solely to decreasing the interest rate.
The court also held that the power under Article 142 of the Constitution should not be exercised where the effect of the order passed by the court would be to rewrite the award or modify the award on merits. However, the power can be exercised where it is required and necessary to bring the litigation or dispute to an end. Not only would this end protracted litigation, but it would also save parties’ money and time.
Case Title: Gayatri Balasamy Vs M/s ISG Novasoft Technologies Limited