On 18th February 2025, a five-judge Constitution Bench led by Chief Justice Sanjiv Khanna heard arguments of Respondents that Section 34 of the Arbitration and Conciliation act implies Inherent Modification Powers.
BACKGROUND OF THE CASE
Gayatri Balasamy, an employee at ISG Novasoft Technologies Limited, was appointed as Vice President (M&A Integration Strategy) on April 27, 2006. A few months later, on July 24, 2006, she tendered her resignation, citing allegations of sexual harassment against ISG’s CEO, Krishna Srinivasan. However, her resignation did not take effect, and over the next year, she received three termination letters.
She subsequently filed a criminal complaint against Srinivasan and the company’s Vice President, while ISG initiated criminal proceedings against her for defamation and extortion. When the dispute reached the Supreme Court, the matter was referred to arbitration, where the tribunal awarded her ₹2 crore.
Dissatisfied with the award, Balasamy approached the Madras High Court, arguing that the tribunal had failed to consider key aspects of her claims.
Madras High Court’s Rulings
- Single-Judge Bench Order (September 2, 2014)
- The Court modified the arbitral award, granting Balasamy an additional compensation of ₹1.6 crore in addition to the ₹2 crore already awarded by the tribunal.
- Division Bench Order (August 8, 2019)
- While the Division Bench upheld the single-judge ruling that additional compensation was warranted, it found the amount excessive and without logical justification.
- Consequently, it reduced the additional compensation from ₹1.6 crore to ₹50,000.
Unhappy with the decision, Balasamy approached the Supreme Court through a Special Leave Petition (SLP).
Reference to a Larger Bench
The case was initially heard by a Supreme Court bench comprising former Chief Justice N.V. Ramana and Justices Surya Kant and Hima Kohli on October 1, 2021. After being listed before multiple benches over the years, it was finally heard in 2024 by a bench comprising Justices Dipankar Datta, K.V. Viswanathan, and Sandeep Mehta.
On February 20, 2024, the Division Bench observed that the case raised a significant legal question—
“Can a court modify an arbitral award under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996?”
Legal Provisions in Question
- Section 34 of the Act allows a party to apply to the court to set aside an arbitral award under specific circumstances, such as when:
- A party lacked legal capacity;
- The arbitration agreement was invalid under the applicable law;
- Proper notice regarding the appointment of the arbitrator was not given.
- Section 37 grants appellate jurisdiction to courts over orders passed under Section 34. Specifically, Section 37(1)(c) permits appeals against orders that either set aside or refuse to set aside an arbitral award.
Key Issues
- Does a court’s power to set aside an arbitral award under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996, also include the authority to modify the award?
- If courts do possess the power to modify an arbitral award, what are the permissible limits of such modification?
Day 2: Respondents and Intervenors Argue That Section 34 Implies Inherent Modification Powers
On 18th February, a five-judge Constitution Bench led by Chief Justice Sanjiv Khanna resumed hearings on whether courts can modify an arbitral award under Section 34 of the Arbitration Act, 1996.
Senior Advocates Arvind Datar, Darius Khambata, Ritin Rai, and others contended that courts possess the authority to modify an award to ensure the Arbitration Act’s core objective—swift and effective dispute resolution.
Previously, Solicitor General Tushar Mehta, representing the Union, had asserted that
“Courts could only Set aside or remit an award under Section 34, arguing that Parliament had deliberately excluded modification powers in the 1996 Act. “
The Court had then asked counsel to explore international judgments defining “modification,” though this was not discussed in the latest hearing.
Datar: Section 34 Must Be Interpreted Flexibly
Continuing his arguments from the previous session, Datar emphasized that Section 34 should not be interpreted rigidly. He argued that the term “set aside” must be read flexibly, incorporating the “smaller” power to modify within the broader power to annul an award.
Datar asserted that
“Courts inherently possess modification powers under Section 34, with limitations set by the explanations in sub-section 2 and the authority to remit under sub-section 4.
- “Explanation 1 of sub-section 2 outlines grounds for conflict with public policy, including:
- Fraud, corruption, or violations of Sections 75 and 81.
- Contravention of fundamental Indian legal policy.
- Conflict with fundamental morality or justice.
- Explanation 2 clarifies that courts cannot conduct a merits review while assessing an award’s legality.
- Section 34(4) allows courts to remit an award upon a party’s request, implying that modification is permissible within these boundaries.”
Datar further argued that
The term “court” under Section 34 could also encompass Civil Courts, which in some states handle arbitration matters.
He highlighted that under Section 151 of the Civil Procedure Code (CPC), Civil Courts wield broad inherent jurisdiction, reinforcing his stance.
Quoting Lord Denning’s remarks in Seaford Court Estates Ltd. v. Asher (1949), Datar emphasized that
“Judges must interpret statutes with a constructive approach, rather than rigidly adhering to textual deficiencies“
Khambata: Restricting Courts to Setting Aside an Award Undermines the Act’s Purpose
Khambata built his argument around the Arbitration Act’s primary objective—ensuring fast, efficient, and final dispute resolution. He contended that
“Limiting courts to setting aside or remitting an award contradicts this goal by prolonging litigation”
Relying on the doctrines of moulding relief and implied power, he echoed Datar’s argument that the power to modify is inherently included within the power to annul.
If courts can set aside an award, they should also have the narrower power to modify it. He emphasized that
“Severability itself is a form of modification.”
Khambata argued that
“Courts do not need to add new language to Section 34 to recognize modification powers”
He reasoned that
“When courts set aside an award due to an error, they already determine the correct position and should be able to modify the award accordingly instead of remitting it back to the tribunal.”
Addressing concerns about excessive litigation, he asserted that Section 34’s built-in restrictions prevent misuse. When the Bench inquired about defining limits on judicial intervention, he suggested confining modifications to cases of patent illegality.
Referring to Oil & Natural Gas Corp. Ltd. v. Western Geco International Ltd. (2014), Khambata pointed out that the Supreme Court had previously ruled that an award conflicting with Indian legal policy could be either “cast away or modified” depending on the severability of the offending portion.
He also noted that
“If the legislature had intended to prohibit courts from modifying an award, it would have explicitly stated so—similar to how Singapore’s arbitration framework includes a specific exclusion.“
He concluded that the :
“Power to modify under Section 34 is a “recourse” against an award, not merely the authority to annul it.”
Rai: Tribunal’s Authority Under Section 34(4) Differs from the Court’s Power to Modify
Addressing the bench post-lunch, Rai argued that while the:
“Supreme Court, in The Project Director, National Highways v. M. Hakeem (2021), held that an arbitral award could not be modified, it had still upheld a modification in that case“
He countered the argument that courts lack modification powers because tribunals can amend an award when it is remitted under Section 34(4).
Rai asserted that
“This reasoning was flawed, as it incorrectly attributed modification authority to the tribunal. He clarified that a tribunal’s role upon remittance was limited to rectifying defects in reasoning and not altering the final outcome of the award”
To support his stance, Rai cited I Pay Clearing Services Private Limited v. ICICI Bank (2022), which held that the
“Scope of Section 34(4) is restricted to addressing gaps in reasoning or providing additional justification for existing findings—not revising the award itself“
He further emphasized that the
Court’s power to modify an award under Section 34 would be constrained. Modification would be permissible only when the Court is not assuming the role of the arbitrator, ensuring that a review on merits remains beyond its purview.
Naphade: A Strict Interpretation of Section 34 Violates Article 14
Senior Advocate Shekhar Naphade underscored the diverse forms of arbitration—including voluntary, involuntary, statutory, commercial, domestic, and international arbitration. He highlighted
Statutory arbitration under Section 3G(5) of the National Highways Act, which governs land acquisition for highway construction, contrasting it with commercial arbitration governed by the Arbitration Act.
He argued that treating both forms of arbitration identically was unreasonable and necessitated a flexible interpretation of Section 34. If courts were barred from modifying awards across all arbitration types, it would lead to an illogical and discriminatory outcome, violating Article 14 by treating fundamentally different cases alike.
To illustrate, he presented the hypothetical case of two landowners whose properties were acquired for highway construction but were awarded different compensation amounts. If courts lacked modification powers, an aggrieved party would be forced into prolonged litigation, repeatedly shuttling between the tribunal and the courts—undermining the very objective of speedy dispute resolution.
Like other respondent counsels, Naphade maintained that courts inherently possess modification powers under Section 34 unless expressly restricted by the statute. He argued that in the absence of such limitations, courts must be empowered to issue necessary orders to uphold justice.
Other Arguments
Advocate Vaibhav Dane, representing one of the intervenors, argued that the process of remitting an award under Section 34(4) was both time-consuming and costly. He emphasized that:
“Granting courts the power to modify an award was essential to fulfilling the objectives of the Arbitration Act, ensuring efficiency and expediency in dispute resolution”
Senior Advocates Sumeet Pushkarna and Prashanto Chandra Sen also briefly presented arguments in support of the respondents. However, the bench declined to consider Pushkarna’s contention that the Court’s authority under Section 37 of the Arbitration Act was broader than its power under Section 34.
- CASE NAME: Gayatri Balasamy v ISG Novasoft Technologies Limited
- CASE CITATION: SLP (C) Nos.15336-15337/2021
- JUDGES: Sanjiv Khanna CJI, B.R. Gavai J, P.V. Sanjay Kumar J, K.V. Viswanathan J, A.G. Masih J
- PARTIES :
- Appellant: Gayatri Balasamy
- Lawyers: Senior Advocate Arvind Datar, Advocate M.V Mukunda, Advocate Hina Shaheen, Advocate Mithun Shashank, Advocate Hredai Sriram, Advocate-on-Record Nishanth Patil, Advocate-on-Record K.Parameshwar
- Respondent: ISG Novasoft Technologies Limited
- Lawyers: Senior Advocate Siddharth Bhatnagar, Advocate Debmalya Banerjee, Advocate Manmeet Kaur, Advocate Rohan Sharma, Advocate Gurtej Pal Singh, Advocate Abhishek Rana, Advocate Ananya Khanna, Advocate Aditya Sidhra, Advocate-on-Record Karanjawala & Co.
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