Gayatri Balasamy vs ISG Novasoft Technologies Limited 2025 INSC 605 - Arbitration Act - Courts' Power To Modify Awards

Majority Judgment (4:1) - Court has a limited power under Sections 34 and 37 of the 1996 Act to modify the arbitral award. This limited power may be exercised under the following circumstances:

1. When the award is severable, by severing the “invalid” portion from the “valid” portion of the award.
2. By correcting any clerical, computational or typographical errors which appear erroneous on the face of the record- A court reviewing an award under Section 34 possesses the authority to rectify computational, clerical, or typographical errors, as well as other manifest errors, provided that such modification does not necessitate a merits-based evaluation (Para 49) - If the modification is debatable or a doubt arises regarding its appropriateness, i.e., if the error is not apparent on the face of the record, the court will be left unable to proceed, its hands bound by the uncertainty. In such instances, it would be more appropriate for the party to seek recourse under Section 33 before the tribunal or under Section 34(4). (Para 54)
3. Post award interest may be modified in some circumstances (Para 85) Section 34 court to have the authority to intervene and modify the post-award interest if the facts and circumstances justify such a change -Court's power to both increase or decrease the post-award interest rate - However, the court, while exercising this power, must be cautious and mindful not to overstep its role by altering the interest rate unless there are compelling and well-founded reasons to do so. (Para 76-78)

Dissenting opinion by Viswanathan J: While exercising power under Section 34 of the A&C Act and consequently the Courts in the appellate hierarchy do not have the power to modify the arbitral award. (Para 157)

Majority (4:1): Section 34 court can apply the doctrine of severability and modify a portion of the award while retaining the rest. This is subject to parts of the award being separable, legally and practically.

Dissenting opinion: Modification and severance are two different concepts while modification is not permitted under Section 34, severance of the award falling foul of Section 34 is permissible in exercise of powers under Section 34. Such a power of severance is also available to the courts in the appellate hierarchy to the Section 34 Court. (Para 157)

Majority (4:1): Power of judicial review under Section 34, and the setting aside of an award, should be read as inherently including a limited power to modify the award within the confines of Section 34 (Para 46)

Dissenting opinion: The power to set aside will not include the power to modify since the power to modify is not a lesser power subsumed in the power to set aside and the power to set aside and power to modify do not emanate from the same genus and are qualitatively different powers in the context of the A&C Act.(Para 157)

Majority (4:1): The power should not be exercised where the effect of the order passed by the court would be to rewrite the award or modify the award on merits. However, the power can be exercised where it is required and necessary to bring the litigation or dispute to an end. Not only would this end protracted litigation, but it would also save parties’ money and time. (Para 84)

Dissenting opinion: Article 142 of the Constitution of India will not be exercised by this Court to modify awards passed by arbitrators as it is well settled that the Article 142 power cannot be used to give a go by to the substantive statutory provision. (Para 156)

Majority Judgment: It is appropriate for the Section 34 court to have the authority to intervene and modify the post-award interest if the facts and circumstances justify such a change -court's power to both increase or decrease the post-award interest rate. It would be incorrect to state that the court's power to interfere with this interest rate is limited solely to decreasing the interest rate. Situations may arise where the rate should be increased due to delays or obstructions in the execution of the award. Interest rates may also fluctuate over time. However, the court, while exercising this power, must be cautious and mindful not to overstep its role by altering the interest rate unless there are compelling and well-founded reasons to do so. In exercising this power, the court is not acting in an appellate capacity, but rather under limited authority. For instance, the 1996 Act stipulates a standard post-award interest rate. When the statute itself benchmarks a standard, unless there are special and specific reasons, the rate of interest stipulated by the statute should be applied. Nevertheless, this limited power is significant, as it can help avoid further rounds of litigation. Without it, the court may be forced to set aside the entire award or order a fresh round of arbitration because of an erroneous interest rate rather than simply adjusting this rate. (Para 76-78)

Dissenting opinion: Interest awarded also cannot be modified in exercise of powers of setting aside and the course of action under Section 34(4) will have to be adopted. (Para 156)

CJI Judgment: The request may be oral. Nevertheless, there should be a request which is recorded by the court. (Para 62)

Viswanathan J: Even an oral request under Section 34(4) can be entertained by the Court. (Para 156)

CJI Judgment: No discussion on this aspect.

Viswanathan J: The power under Section 34(4) can be exercised by the Court Suo Moto (Para 156) If it arrives at an opinion that the award is vulnerable and the threat of setting aside is looming large and if within the parameters laid down in Section 34(4) the grounds for setting aside can be eliminated - the case is appropriate and time is ripe for exercise of power under Section 34(4). The need for an application oral or in writing is really directory and does not militate against the exercise of Suo Moto powers in given cases by the Court. (Para 136)

Majority Judgment: The authority to set aside an arbitral award necessarily encompasses the power to set it aside in part, rather than in its entirety.- Not all awards can be severed or segregated into separate silos. Partial setting aside may not be feasible when the “valid” and “invalid” portions are legally and practically inseparable. In simpler words, the “valid” and “invalid” portions must not be inter-dependent or intrinsically intertwined. If they are, the award cannot be set aside in part - the power of partial setting aside should be exercised only when the valid and invalid parts of the award can be clearly segregated—particularly in relation to liability and quantum and without any corelation between valid and invalid parts. (Para 34-36)

Majority Judgment: Modification and setting aside have different consequences: the former alters the award, while the latter annuls it. However, we do not concur with the view that recognizing any modification power will inevitably lead to an examination of the merits of the dispute. (Para 39)

Arbitration and Conciliation Act 1996- Section 34(4) - the power of remand permits the court only to send the award to the tribunal for reconsideration of specific aspects. It is not an open-ended process; rather, it is a limited power, confined to limited circumstances and issues identified by the court. Upon remand, the arbitral tribunal may proceed in a manner warranted by the situation – including recording additional evidence, affording a party an opportunity to present its case if previously denied, or taking any other corrective measures necessary to cure the defect.(Para 56) An order of remand should not be passed when such order would place the arbitral tribunal in an invidious or embarrassing position. Additionally, remand may be inappropriate when it does not serve the interests of the parties, particularly in time-sensitive matters or where it would lead to undue costs and inefficiencies. Once an order of remand is granted, the arbitral tribunal has the authority to vary, correct, review, add to, or modify the award. Notably, under Section 34(4), the tribunal’s powers, though confined, remain nonetheless substantial. (Para 60)

Arbitration and Conciliation Act 1996- Section 34(4) - SC disagreed the view taken in Kinnari Mullick (supra), which insists that an application or request under Section 34(4) must be made by a party in writing. The request may be oral.oral. Nevertheless, there should be a request which is recorded by the court. (Para 62)

Arbitration and Conciliation Act 1996- Section 34(4),37-Section 37 court still possesses the power of remand stipulated in Section 34(4). Of course, the appellate court, while exercising power under Section 37, should be mindful when the award has been upheld by the Section 34 court. But the Section 37 court still possesses the jurisdiction to remand the matter to the arbitral tribunal. (Para 62)

Arbitration and Conciliation Act 1996- Section 34, 37-Section 37 (Annexure A) permits an appeal against any order setting aside or refusing to set aside an arbitral award under Section 34. To this extent, the appellate jurisdiction under Section 37 is coterminous with, and as broad as, the jurisdiction of the court deciding objections under Section 34. (Para 62)

Arbitration and Conciliation Act 1996- Section 34- The jurisdiction conferred under Section 34 does not distinguish between statutory and non-statutory arbitration in terms of the scope of courts’ power of review. (Para 70)

Arbitration and Conciliation Act 1996- Section 34 - Post Award Settlements - The parties are entitled to enter into an agreement or settlement even after an award is pronounced. Such a settlement should be in accordance with the provisions of Order XXIII of the Code. The law of the land does not bar the parties from entering into a post award or post decree settlement. The only legal requirement is that such settlement must be verifiable and in accordance with law i.e., the settlement is not a result of undue influence, force, fraud, coercion, etc. (Para 80)

Arbitration and Conciliation Act 1996- Section 43(4) - Section 43(4) provides liberty for the parties to invoke either arbitration or court proceedings, as applicable, following the annulment of the award- the period between the commencement of arbitration and the Court’s order setting aside the award is excluded for the purposes of calculating the limitation period under the Limitation Act, 1963. In essence, the time during which the award is in force is not counted. (Para 81)

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