On 13th February 2025, a five-judge Constitution Bench led by Chief Justice Sanjiv Khanna heard arguments on whether courts can modify an arbitral award under Sections 34 and 37 of the Arbitration Act, 1996.
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 1: Constitution Bench Examines Jurisdiction to Set Aside an Award
A five-judge Constitution Bench, led by Chief Justice Sanjiv Khanna, was convened on 13th Feb 2025 to address a pivotal question:
“whether courts have the authority to modify an arbitral award under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996“
This issue carries significant implications for arbitration jurisprudence in India, particularly in the context of judicial intervention in arbitral awards.
Under Section 34 of the Act, courts may set aside an arbitral award on specified grounds, such as patent illegality, violation of public policy, or procedural inconsistencies. Section 37 provides for appeals against orders passed under Section 34. The key question before the bench is whether the power to set aside an award, in whole or in part, implicitly includes the authority to modify it.
Mehta: The Power to Remit an Award Exists Because Setting Aside is the Only Other Option
Solicitor General Tushar Mehta, representing the Union government, opened his submissions by underscoring the fundamental structure of Section 34. He argued that
“While the provision grants courts the power to either set aside or remit an award, it does not confer any authority to modify it”
This limitation, he asserted, is deliberate and aligns with the legislative intent behind the Arbitration and Conciliation Act, 1996.
Mehta pointed out that subsection (4) of Section 34, mirroring Article 34(4) of the UNCITRAL Model Law,
“Allows courts to remit an arbitral award under specific circumstances, thereby preventing the need to set it aside entirely. The provision states that a court may remit an award to the arbitral tribunal for reconsideration, provided such reconsideration can eliminate the grounds for setting it aside.”
He emphasized the importance of the word “resume” within this provision. Since an arbitral tribunal ceases to exist once it renders an award, it can only reassemble if a court remits the matter back to it. This, he argued, is distinct from modification, which involves altering an existing award—an action courts are not empowered to undertake. He succinctly summed up his argument:
“If you can save it, save it. My emphasis is that the power of remitting exists because there is no other power under Section 34, other than setting aside.”
Mehta: Justification to Modify an Award Does Not Confer Jurisdiction
Mehta acknowledged that there could be practical justifications for modifying an arbitral award in certain cases. However, he contended that such justifications do not equate to legal authority. Judicial oversight, while essential in arbitration, must remain within the contours prescribed by the Act.
He firmly maintained that
“justification does not confer jurisdiction” and that reading a power of modification into Section 34 would be tantamount to judicial lawmaking—an encroachment upon the legislative domain.
To illustrate his point, Mehta drew an analogy to the Vishaka ruling, where the Supreme Court formulated guidelines to prevent workplace sexual harassment in the absence of legislation. However, in the present case, the Arbitration and Conciliation Act already exists and defines the scope of judicial intervention.
Unlike in Vishaka, where the Court was filling a legal vacuum, here it would be amending existing legislation—an act that falls within Parliament’s purview, not the judiciary’s.
“If words need to be added, I will take it to Parliament,”
he stated, reinforcing the position that any expansion of judicial powers must come through legislative amendment, not judicial interpretation.
Datar: Section 34 Was Hastily Inserted into the Arbitration Act
Senior Advocate Arvind Datar, representing the opposing view, presented a critique of the Arbitration and Conciliation Act, 1996, arguing that:
“Section 34 was introduced without adequate modifications to suit domestic arbitration. He pointed to paragraph 3 of the Statement of Objects and Reasons of the Act, which acknowledges that while the UNCITRAL Model Law was designed primarily for international arbitration, it could serve as a foundation for domestic arbitration “with appropriate modifications.”
Datar asserted that such modifications were never made, resulting in an incongruous application of Section 34 to domestic disputes.
He highlighted that signatories of the Model Law, including several other jurisdictions, had enacted separate legislation explicitly granting courts the power to modify arbitral awards. India, by contrast, simply replicated the Model Law’s provisions without accounting for the nuances of domestic arbitration.
He further noted that the:
“Insertion of Section 34(2A) via the 2015 Amendment Act, which allows courts to set aside domestic arbitration awards on the ground of patent illegality, indicates that Section 34 was initially intended for international arbitration”
Datar: If a Provision is Begging for Change, We Cannot Wait for the Legislature
Datar illustrated his argument with a hypothetical scenario:
If the Supreme Court had ruled that a + b = c, but an arbitral tribunal issued an award declaring that a + b = d, would it not be cumbersome for the court to set aside the entire award and send it back for reconsideration, instead of simply modifying it to correct the error?
Citing Lord Denning, he argued that:
“When an award is unconscionable or patently incorrect, the Court should have the power to modify it rather than merely setting it aside. He proposed a minor yet impactful amendment to Section 34(2A)—adding the phrases “and to the extent” and “wholly or partially”—to explicitly incorporate the power to modify an award.”
While the bench acknowledged the potential merits of his argument, it also noted that such an addition would amount to amending the statute, a function reserved for the legislature.
Datar: The Larger Power Includes the Smaller Power
Datar further contended that
“The authority to modify an award can be inferred from the power to partially set it aside.”
He posited that since partial setting aside effectively alters an award, it is, in essence, a form of modification.
“The larger includes the smaller,”
he remarked, suggesting that modification is a subset of setting aside and should therefore be considered implicit in Section 34.
This argument directly countered Mehta’s assertion that setting aside an award merely eliminates parts of it without altering its substance.
To support his view,
Datar referred to a single-judge decision of the Madras High Court in the present case. While acknowledging that the Constitution Bench was not bound by a High Court ruling, he emphasized that
“The decision had provided a reasoned analysis of why modification could be read into Section 34”
As the day’s hearings concluded, the bench stressed the necessity of defining “modification” and clarifying its limits.
Chief Justice Khanna urged counsel to
“Examine judgments from foreign jurisdictions that explicitly outline what modification entails, how courts may exercise it, and what constraints exist in this regard“
The next round of arguments is expected to explore international precedents and their relevance to the Indian arbitration framework.
- 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.
READ MORE REPORTS ON ARBITRAL AWARDS
FOR MORE LEGAL UPDATES FOLLOW US ON YOUTUBE