The Supreme Court will determine a crucial legal question about the scope of judicial intervention in arbitral awards under Sections 34 and 37 of the Arbitration and Conciliation Act.
NEW DELHI : On February 13, 2025, a five-judge bench headed by Chief Justice Sanjiv Khanna convened to hear a crucial case concerning the scope of judicial intervention in arbitration proceedings. This case marks both the first Constitution Bench case of 2025 and the first five-judge bench formed by Chief Justice Khanna comprising of Judges: Sanjiv Khanna CJI, B.R. Gavai J, P.V. Sanjay Kumar J, K.V. Viswanathan J, A.G. Masih J, highlighting its significance in shaping the future of arbitration law in India.
The key legal issue before the Court revolves around the interpretation of Section 34 of the Arbitration and Conciliation Act, 1996. This provision, inspired by Article 34 of the UNCITRAL Model Law (1985), permits courts to set aside an arbitral award on limited grounds, such as “patent illegality” or a conflict with public policy. The critical question in this case is:
“Whether the power to set aside an award under Section 34 includes the power to modify it”
During the proceedings, Solicitor General Tushar Mehta, representing the Union government, firmly opposed granting courts the authority to modify arbitral awards. He argued that
“Parliament intentionally chose not to empower courts with such a power in the 1996 Arbitration Act, in contrast to the predecessor legislation from 1940, which did allow modifications.”
While Mehta acknowledged that there may be circumstances where modifying an award could be justifiable, he contended that such a power is not granted by the current legal framework.
In contrast, Senior Advocate Arvind Datar, representing the opposing view, argued that Section 34’s allowance for the partial setting aside of awards implicitly supports the idea that courts should also have the ability to modify awards.
Datar used the logic of “the larger includes the smaller,” suggesting that the authority to partially set aside an award logically extends to the authority to modify it.
This issue has seen conflicting rulings from the Supreme Court in the past, with some decisions taking a restrictive view on judicial intervention under Section 34.
Cases such as Burn Standard (2006), Hakeem (2019), and Ssangyong Constructions (2019) have upheld a narrow interpretation, limiting courts’ powers to intervene in arbitral decisions.
However, other rulings, such as Vedanta Ltd. (2018) and Oriental Structural Engineers (2021), have shown a broader interpretation, where the Court has exercised its discretion to modify awards. On occasion, the Supreme Court has also invoked its inherent powers under Article 142 of the Constitution to modify arbitral awards in the interest of achieving “complete justice.”
In 2024, the Viswanathan Committee Report suggested that:
“Section 34 be amended to allow courts to modify awards only in exceptional circumstances to meet the ends of justice.“
Given the frequent reference of cases involving arbitration to the Court, Chief Justice Khanna noted that this matter was being expedited. The Court has been confronted with a growing number of arbitration-related cases every week, and it is essential to find clarity and resolution on this issue, particularly considering the high costs of arbitration.
Legislative measures, including the 2015 and 2019 amendments to the Arbitration Act, have aimed at aligning India’s arbitration framework with global practices. However, the question of whether Indian courts should be granted the authority to modify arbitral awards remains a contentious issue.
Jurisdictions like the UK, Singapore, and Australia have specific provisions that allow courts to modify awards under exceptional circumstances. This presents a compelling question for the Indian judiciary, which must carefully consider foreign precedents and frameworks in crafting its decision.
In light of these international perspectives, the Court has instructed the counsels involved to provide judgments from foreign jurisdictions on the interpretation of “modification” and the scope of a court’s power to vary an arbitral award. This will help the Court navigate the legal complexities of modifying arbitral awards and ensure that its ruling aligns with global arbitration practices while taking into account India’s unique legal context.
BACKGROUND OF THE CASE
Gayatri Balasamy’s Case
Gayatri Balasamy was employed as the Vice President (M&A Integration Strategy) at ISG Novasoft Technologies Limited (ISG), an IT company, beginning on 27 April 2006. Just a few months later, on 24 July 2006, she resigned, alleging sexual harassment by ISG’s CEO, Krishna Srinivasan. However, her resignation was not processed, and a year later, she received three termination letters.
Balasamy then filed a criminal complaint against Srinivasan and the company’s Vice President under the Indian Penal Code, 1860, and the Tamil Nadu Prohibition of Harassment of Women Act, 1998. In return, the company filed criminal charges of defamation and extortion against her. Eventually, the dispute was brought before the Supreme Court, which referred the case to arbitration. The arbitral tribunal awarded Balasamy ₹2 crore.
Balasamy challenged this award in the Madras High Court, claiming that the tribunal had not addressed all of her issues.
Madras High Court Orders
On 2 September 2014, a single-judge bench of the Madras High Court modified the arbitral award, granting Balasamy an additional ₹1.6 crore on top of the ₹2 crore. However, on 8 August 2019, a Division Bench of the Madras High Court revised this order. While agreeing with the single judge on the additional compensation, the Division Bench found the amount excessive and reduced it to ₹50,000.
Balasamy then approached the Supreme Court with a Special Leave Petition (SLP).
Reference to a Larger Bench
Key Issues
- If courts possess the power to modify an arbitral award, what are the limits to its exercise?
- Does the court’s authority to set aside an arbitral award under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996, also encompass the power to modify the award?
The Supreme Court first heard the case on 1 October 2021, with a bench comprising former Chief Justice N.V. Ramana, Justices Surya Kant, and Hima Kohli. After several hearings, the case was finally listed before a bench of Justices Dipankar Datta, K.V. Viswanathan, and Sandeep Mehta in 2024.
On 20 February 2024, the Division Bench noted that the case raised an important legal question:
“Whether a court can modify an arbitral award under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996 (the Act)”
Section 34 allows parties to file an application in court to set aside an arbitral award under specific conditions, such as the incapacity of a party or an invalid arbitration agreement. Section 37 allows appeals against court orders that refuse to set aside or that set aside an arbitral award.
The Bench observed conflicting opinions in two streams of cases. In some cases, such as McDermott International Inc. v Burn Standard Co. Ltd. (2006) and Project Director, NHAI v M Hakeem (2019), the Court held that the power to set aside an award was limited and did not extend to modifying it. In contrast, cases like Vedanta Limited v Shenzden Shandong Nuclear Power Construction Company Limited (2018) and Oriental Structural Engineers Pvt. Ltd. v State of Kerala (2011) were more open to modified orders.
On the first day of hearing , The bench emphasized the need to clearly define “modification” and establish its boundaries. As the hearings concluded, Datar pointed out the lack of a clear definition for “partially setting aside” an award. CJI Khanna encouraged the counsel to explore foreign jurisdictions to find relevant judgments that define the scope of modifying an award, outlining the Court’s authority and the parameters for such modifications.
The arguments will resume on Tuesday, 18 February 2025.
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
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