On 19th February,2025 five-judge Constitution Bench of the Supreme court , headed by Chief Justice Sanjiv Khanna, has reserved its judgment on the issue of whether courts possess the authority to modify an arbitral award.
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?
FINAL DAY OF HEARING
A five-judge Constitution Bench, led by Chief Justice Sanjiv Khanna, has reserved judgment in a case concerning whether courts have the authority to modify an arbitral award. The key issue before the bench was the interpretation of Section 34 of the Arbitration and Conciliation Act, 1996, which empowers courts to set aside an award but does not explicitly grant the power to modify it.
Final Round of Arguments
During the hearing, after senior counsel representing the respondents had concluded their submissions, the Court allowed those petitioners’ counsel who had not spoken on the first day to present their arguments. Senior Advocates Saurabh Kirpal, Gourab Banerji, and Gaurav Pachnanda, among others, argued that modification powers could not be read into Section 34, as such an expansion of judicial authority falls within the legislature’s domain.
Following their arguments, Solicitor General Tushar Mehta delivered his rejoinder submissions, after which Senior Advocates Arvind Datar and Darius Khambata responded on behalf of the respondents.
Respondents: Courts Have Inherent Powers to Modify Awards
The respondents contended that courts inherently possess the power to modify an arbitral award under Section 34. One counsel argued that Section 5 of the Act— which limits judicial intervention except as provided under Part 1— was not a restriction but rather a gateway that enables courts to intervene in arbitration matters. He cited three instances where this power could be exercised:
- Non-discretionary aspects, such as contractual or statutory rights.
- Modification of interest in an award.
- Correction of calculation errors.
Advocate Amit George cited the case of National Highways Authority of India v. IRB Pathankot Amritsar Toll Road (2023) to argue that courts could modify awards as long as they did not reopen the merits of the case. He also invoked the doctrine of useless formality, stating that courts could set aside an unworkable dictum and make it functional.
Other respondent counsel reiterated that modification powers would improve efficiency, reduce costs, and align with the objectives of arbitration.
Kirpal: Setting Aside and Modification Are Distinct Concepts
Senior Advocate Saurabh Kirpal countered that modification and setting aside are separate legal concepts. He argued that courts cannot interpret “setting aside” in a manner that includes modification, as such an interpretation would amount to judicial lawmaking.
Kirpal dismissed claims that modification would make arbitration more efficient. He noted that allowing modification would lead to prolonged litigation, as parties would frequently approach courts citing “curable defects,” thereby undermining the Act’s goal of minimal judicial intervention and speedy dispute resolution.
He also emphasized the importance of finality and predictability in commercial arbitration, arguing that uncertainty in court interventions would be detrimental to business confidence. Chief Justice Khanna, however, questioned whether predictability in litigation outcomes should also be considered equally important.
Banerji: Annulment Is Not the Same as Modification
Senior Advocate Gourab Banerji argued that once an award is issued, the tribunal becomes functus officio (ceasing to have further authority), and courts have five potential responses:
- Confirming the award.
- Varying the award.
- Correcting the award.
- Remitting the award to the tribunal.
- Annuling (setting aside) the award.
He stressed that “variation” is not the same as “partial setting aside”, as the latter is an annulment power while the former falls under appellate jurisdiction. Banerji cited Redfern & Hunter on Arbitration to emphasize that finality is a key principle in arbitration, warning that court modifications would compromise this principle.
He also refuted the argument that India’s Arbitration Act should have explicitly prohibited modification (as Singapore’s law does), noting that India’s Act governs both domestic and international arbitration, unlike Singapore, which has separate laws for each.
Although Banerji personally supported granting courts the power to modify awards—having been part of the Viswanathan Committee, which recommended such a power—he maintained that the current statute does not allow it.
Pachnanda: A Modified Award May Be Unenforceable Internationally
Senior Advocate Gaurav Pachnanda warned that allowing modification could create enforceability issues for international arbitration awards. Since the Arbitration Act does not provide for merging a modified award with the original, foreign jurisdictions may refuse to recognize and enforce the modified award.
Mehta: Judicial Pronouncements Cannot Grant Modification Powers
Solicitor General Tushar Mehta rebutted the respondents’ arguments by asserting that the Arbitration Act is a self-contained code, meaning courts cannot invoke external principles—such as inherent powers under Section 151 of the CPC—to read in a modification power. Section 5 of the Act strictly limits judicial intervention to what is expressly provided.
He also rejected the argument that courts could simply “iron out the creases” in an award, stating that modification would amount to creating a new award, which is beyond the judiciary’s role. Quoting from Bharat Aluminium Co. v. Kaiser Aluminium Technical (2012), he emphasized that:
“Where the meaning of statutory words is plain and unambiguous, it is not for judges to invent fancied ambiguities as an excuse for failing to give effect to their plain meaning.”
Final Submissions and Conclusion
Before the hearing concluded, Senior Advocate Darius Khambata reiterated that modified awards were enforceable and that the doctrine of merger was flexible enough to allow for enforcement on a case-by-case basis.
The bench reserved judgment, concluding a significant hearing that could have wide-ranging implications for arbitration law in India. The decision is highly anticipated, as it will clarify whether Indian courts can modify arbitral awards—an issue that affects numerous pending cases.
- 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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