[Shyamal Anand is a Principal Associate at Shardul Amarchand Mangaldas & Co and Pranjal Kushwaha is a 5th Year B.A. LL.B. (Hons.) Student at National Law Institute University, Bhopal]
India’s arbitration regime aspires to position itself as a leading global hub, promising efficiency, finality, and investor trust. Yet, the Supreme Court’s ruling in Gayatri Balasamy v. ISG Novasoft Technologies Ltd. intended to enhance justice, reads a power that has not expressly been written by the legislature: the limited power to modify arbitral awards. This ruling risks forging a not-so-limited power with the potential to fray the delicate fabric of party autonomy, which is at the very core of arbitration, and could disrupt the sanctity of arbitration proceedings.
This two-part post provides a critical analysis of the Supreme Court’s decision in Gayatri Balasamy, focusing on its interpretation of section 34 of the Arbitration and Conciliation Act, 1996, within India’s arbitration framework. The first part covers the introduction, background of the case, and an objective analysis of the majority’s decision. The second part presents a critique of the majority opinion and proposes a way forward to address the identified challenges by aligning with global standards concerning the modification of arbitral awards.
Introduction
On April 30, 2025, the Supreme Court of India delivered a landmark judgement in the case of Gayatri Balasamy, a decision having the potential to reshape the arbitration landscape of India. Chief Justice Sanjiv Khanna led a five-judge bench that dealt with a crucial question: “Are Indian courts jurisdictionally empowered to modify an arbitral award? If so, to what extent?” While Justice K.V. Viswanathan dissented, the majority (in a ratio of 4:1) recognized a limited judicial authority to rectify “inadvertent errors” in awards in order to promote justice.
This decision comes at a time when India is actively positioning itself as a global hub for arbitration and investor-friendly dispute resolution. Arbitration has emerged as a cornerstone of this vision, offering parties crucial advantages over traditional litigation: procedural flexibility, cost-effectiveness, confidentiality, quicker timelines, and the ability to appoint domain-specific experts as arbitrators. Above all, arbitration’s finality provides a vital escape from the delays and uncertainties of prolonged court battles, an aspect especially prized in high-stakes commercial and cross-border disputes. Recognising these benefits, India has made significant strides to reinforce its arbitration regime to streamline processes and the push to align domestic practices with global standards in order to position itself as a global arbitration hub at par with Singapore or London.
However, the decision in Gayatri Balasamy introduces a nuanced challenge. While the majority’s intent to ensure just outcomes by allowing limited modifications is commendable, the absence of clear statutory backing or defined boundaries for the exercise of such power could undermine the effectiveness of arbitration. The decision risks judicial overreach, potentially transforming arbitration into a stepping stone for extended litigation. It also heightens the dangers of forum shopping and inconsistent judicial interpretations, thereby compromising predictability and party autonomy. Such uncertainty could deter foreign investors and commercial parties who value the finality and efficiency of arbitration, thereby affecting India’s credibility as an arbitration-friendly jurisdiction.
Background to the Verdict
The dispute stems from Gayatri Balasamy’s termination by ISG Novasoft after she raised sexual harassment allegations, eventually leading to an arbitral award of INR 2 crore in her favour. Having been dissatisfied that the tribunal overlooked certain claims, Balasamy challenged the award under section 34 of the Act, before the Madras High Court. A Single Judge, expansively interpreting “recourse to a court against an arbitral award” under section 34, modified the award with an additional compensation of INR 1.6 crore, relying on Indian precedents like McDermott International Inc. v. Burn Standard Co. Ltd. and Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd., where courts had paved way for corrections of manifest errors. On appeal, a Division Bench deemed the additional award excessive and arbitrary, reducing it to INR 50,000. Balasamy then filed a Special Leave Petition before the Supreme Court, where a three-judge bench, noted inconsistent judicial approaches to modification – while some cases like Project Director, NHAI v. M. Hakeem permitted courts only to set aside awards, other cases as relied on by the Single Judge of the Madras High Court allowed limited modifications – and referred the matter to the present five-judge constitution bench.
Analysis of the Majority Decision
The majority opinion reaffirmed that courts possess only limited powers to intervene in arbitral awards under section 34 of the Act. Based on a purposive interpretation of the Act, the decision sought to uphold the fundamental objectives of ensuring expeditious and cost-effective dispute resolution while minimising undue hardship to the parties.
Statutory Interpretation and Legislative Purpose
The majority began by comparing the Arbitration Act of 1940, which expressly permitted courts to modify arbitral awards under section 15, with the current Act, which notably omits any such provision. Despite this omission, the majority concluded that courts are not barred from modifying awards under the current Act. They interpreted the phrase “recourse to a court against an arbitral award” in section 34 as not restricting the remedial powers beyond merely setting aside awards. This interpretation, they argued, is consistent with the Act’s overarching objectives of ensuring fairness, expediting resolution, and achieving finality in arbitral proceedings.
An important element of this interpretation is the proviso to section 34(2)(a)(iv) of the Act, which permits courts to sever non-arbitrable matters from an award, preserving its valid components. The majority reasoned that this severability power logically encompasses modification, invoking the principle of omne majus continet in se minus, i.e. the greater power to set aside includes the lesser power to modify. The Court explained that severing invalid portions inherently alters an award’s structure, a process akin to modification. This construction was supported by the Act’s legislative purpose, which the majority viewed as prioritising effective dispute resolution over rigid adherence to textual limits.
The majority opinion also distinguished between the power to modify and to set aside an arbitral award, emphasising their distinct scope and judicial application. Setting aside an award completely nullifies it, often resulting in costly re-arbitration. In contrast, modification is a “limited” and “nuanced” remedy, exercised only to address specific, inadvertent errors. The majority emphasised modification is permissible only when the error is clear and indisputable on the face of the record. If the error is debatable or uncertain, the court lacks the authority to modify, constrained by the absence of clear grounds for intervention.
Constitutional Authority and Practical Efficiency
The majority bolstered the court’s power to modify the awards by invoking article 142 of the Constitution of India,which grants the Supreme Court discretionary power to do complete justice in exceptional circumstances. It held that article 142 of the Constitution empowers the Court to modify awards in limited scenarios, such as correcting disproportionate interest rates, computational errors, or other manifest injustices, when statutory remedies like remission or annulment are inadequate. It underscored that this constitutional provision was a safeguard to prevent outcomes that would undermine the arbitral process’s legitimacy, enabling the Court to tailor remedies to the dispute’s specific needs while preserving the award’s overall integrity.
The Court also observed that practical efficiency served as a cornerstone of the majority’s rationale behind invoking the provision, reflecting the Act’s aim to provide a cost-effective and timely alternative to litigation. The Court critiqued the remission mechanism under section 34(4) of the Act for its practical limitations, noting that tribunals may be unavailable, time-barred, or unable to reconvene due to logistical constraints.
The decision in this case carries profound implications, affecting not just domestic but international arbitral proceedings equally. Beyond a mere interpretive shift, this ruling equips courts with a tool to deliver justice but risks undermining the fragile thread of party autonomy. In its pursuit of justice, the Court might has interpreted the statute in an expansive manner, reading into it something not explicitly written, thus opening a Pandora’s box and potentially jeopardizing India’s aspirations to emerge as a global arbitration hub. Part II delves into these implications, critically examining how the ruling could distort the balance between judicial fairness and legislative restraint.
– Shyamal Anand & Pranjal Kushwaha