Supreme Court: In a 4:1 majority ruling, a five-judge Bench comprising Sanjiv Khanna*, CJI., B.R. Gavai, Sanjay Kumar, Augustine George Masih, and K.V. Viswanathan**, JJ. held that the Appellate Courts may exercise limited powers to modify arbitral awards under certain specific circumstances:
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Severability — When the invalid portion of the award can be separated from the valid part.
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Apparent Errors — To correct clerical, computational, or typographical errors evident on the face of the record.
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Post-Award Interest — To modify post-award interest where appropriate.
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Article 142 Powers — The Supreme Court may exercise its special powers under Article 142 of the Constitution to modify awards, but such powers must be used sparingly and with great caution, in accordance with constitutional limits.
Justice K.V. Viswanathan delivered the dissenting opinion.
Background
A three-Judge Bench of this Court, vide order dated 20-02-2024, directed that the Special Leave Petitions in Gayatri Balasamy v. ISG Novasoft Technologies Limited, 2024 SCC OnLine SC 1681. be placed before the Chief Justice of India for an appropriate order. The matter was referred to a larger Bench.
Issues
1. Whether the powers of the Court under Sections 34 and 37 of the Arbitration and Conciliation Act 1996 will include the power to modify an arbitral award?
2. If the power to modify the award is available, whether such power can be exercised only where the award is severable, and a part thereof can be modified?
3. Whether the power to set aside an award under Section 34 of the Act, being a larger power, will include the power to modify an arbitral award and if so, to what extent?
4. Whether the power to modify an award can be read into the power to set aside an award under Section 34 of the Act?
5. Whether the judgment of this Court in Project Director NHAI v. M. Hakeem, (2021) 9 SCC 1. followed in Larsen Air Conditioning and Refrigeration Company v. Union of India, (2023) 15 SCC 472 and SV Samudram v. State of Karnataka, 4 (2024) 3 SCC 623. lay down the correct law, as other benches of two Judges (in Vedanta Limited v. Shenzden Shandong Nuclear Power Construction Company Limited, (2019) 11 SSC 465. Oriental Structural Engineers Pvt. Ltd. v. State of Kerala, (2021) 6 SCC 150. and M.P. Power Generation Co. Ltd. v. Ansaldo Energia Spa, (2018) 16 SCC 661.) and three Judges (in J.C. Budhraja v. Chairman, Orissa Mining Corporation Ltd., (2008) 2 SCC 444. Tata Hydroelectric Power Supply Co. Ltd. v. Union of India, (2003) 4 SCC 172 and Shakti Nath v. Alpha Tiger Cyprus Investment No.3 Ltd., (2020) 11 SCC 685) of this Court have either modified or accepted modification of the arbitral awards under consideration?
Analysis and Decision:
The Court remarked that the present controversy arose because the Arbitration and Conciliation Act, 1996, (‘Act, 1996’) does not expressly empower courts to modify or vary an arbitral award. Section 34 of the 1996 Act only confers upon courts the power to set aside an award.
The Court examined the Judicial divergence on modification powers, and the scope and ambit of the power of ‘recourse’ under Section 34 of the 1996 Act.
The Court emphasized that Section 5 of the Arbitration and Conciliation Act, 1996, strictly limits judicial intervention in arbitral proceedings to instances expressly permitted under Part I of the Act. Under Section 34(1), a court may challenge an arbitral award only through an application for setting it aside, and only on the grounds specified in Sections 34(2) and 34(3).
Section 34(2)(a) outlines specific and limited grounds on which an award can be set aside. These include:
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the incapacity of a party;
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the arbitration agreement being invalid under applicable law;
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improper notice regarding the appointment of an arbitrator or the arbitral proceedings;
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denial of a party’s opportunity to present their case;
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the award dealing with issues beyond the scope of the arbitration agreement; and
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the arbitral tribunal’s composition or procedure not being in accordance with the agreement of the parties, in certain cases.
The proviso to Section 34(2)(a)(iv) introduces the concept of “severability of awards,” allowing the court to set aside only the part of the award affected by such grounds, if it is separable from the rest.
In addition, an arbitral award to be set aside if it is in conflict with the public policy of India, or when it is vitiated by patent illegality appearing on the face of the award.
The Court held that the power conferred under the proviso to Section 34(2)(a)(iv) is clarificatory in nature. The authority to sever the “invalid” portion of an arbitral award from the “valid” portion, while remaining within the narrow confines of Section 34, is inherent in the court’s jurisdiction when setting aside an award.
The Court clarified that the authority to set aside an arbitral award inherently includes the power to set it aside in part, rather than only in its entirety. This interpretation, the Court noted, is both practical and pragmatic. It would be illogical to assume that the power to set aside an award refers only to setting aside the whole award and not a severable portion of it. A contrary view would not only contradict the statutory scheme but could also lead to the unnecessary invalidation of otherwise sound and legally valid determinations.
However, the Court added an important caveat: not all arbitral awards are capable of being severed or divided into independent parts. Partial setting aside is only appropriate when the “valid” and “invalid” portions of the award are clearly distinct and can stand independently, both legally and practically. If the valid and invalid portions are interdependent or intrinsically linked, the award must be dealt with as a whole and cannot be partially set aside.
The Court examined the permissibility and scope of a court’s power to modify an arbitral award within the framework of Section 34 of the Act, 1996. In doing so, it clarified the distinction between the power to modify an award and three other related powers:
(i) the court’s power to set aside an arbitral award under Section 34(2);
(ii) the arbitrator’s power under Section 33 to correct, interpret, or issue an additional award; and
(iii) the court’s power under Section 34(4) to remand the matter to the arbitral tribunal for curing specific defects without setting aside the entire award.
The Court held that inadvertent errors, such as typographical or clerical mistakes, may be corrected by the court in an application under Section 34 of the Act, 1996. However, it cautioned that this limited power of correction should not be confused with the appellate jurisdiction of a higher court or the review powers of a lower court.
The Court emphasized a crucial distinction between Section 33 and Section 34: under Section 34, the court can only make modifications where there is no ambiguity or doubt. If the error is not obvious, the court lacks the authority to intervene under Section 34. In such cases, the appropriate course of action would be for the party to either approach the arbitral tribunal under Section 33 or request a limited remand under Section 34(4) for correction.
The Court highlighted that violations of Section 31(7)(a) of the Act, 1996 can arise, particularly when pendente lite interest (interest awarded for the period during the pendency of proceedings) was granted contrary to the terms of the contract. In such cases, while considering objections under Section 34, the Court identified two options:
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Set aside the rate of interest awarded, or
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Remand the matter to the arbitral tribunal under Section 34(4) for reconsideration.
Regarding post-award interest under Section 31(7)(b), the Court clarified that courts retain the power to modify the rate of interest if the circumstances warrant such intervention. Clause (b) provides for a standard rate of interest when the award does not specifically mention one. However, where the payee is found to be at fault or has caused delays, this could justify a reduced interest rate. Furthermore, in cases where no post-award interest has been granted by the arbitrator, the court is empowered to award it, reaffirming that this authority was not exclusively vested in the arbitrator, but also lies with the court under the statutory framework.
The Court noted that arbitral tribunals, when determining post-award interest, could not reasonably predict future events or circumstances. Since post-award interest was inherently forward-looking and dependent on developments occurring after the issuance of the award, it would have been unrealistic to expect arbitrators to foresee future contingencies with certainty. Therefore, the Court held that it was appropriate for courts under Section 34 to possess the authority to intervene and modify the post-award interest where subsequent facts or circumstances justified such intervention.
The Court clarified that this power was not limited to reducing the interest rate. Courts could also increase post-award interest where warranted—such as in situations involving delays or obstruction in the execution of the award. However, the Court cautioned that such power must be exercised cautiously and with restraint. It emphasized that modifications should be based on compelling and well-reasoned grounds, as courts did not act in an appellate role under Section 34 but operated under limited supervisory jurisdiction.
The Court further pointed out that the 1996 Act stipulated a standard post-award interest rate, which should generally apply unless exceptional and specific reasons warranted a deviation. This limited yet important power allowed courts to correct errors in the interest awarded without setting aside the entire award or necessitating a fresh round of arbitration, thus preventing undue litigation.
The Court opined that parties were entitled to enter into a settlement or agreement even after an arbitral award had been pronounced. It held that such post-award settlements were permissible under the law, provided they complied with the provisions of Order XXIII of the Code of Civil Procedure, 1908. The Court clarified that there was no legal bar against parties arriving at a post-award or post-decree settlement. However, the only legal requirement was that such a settlement must be verifiable and must conform to the law, specifically, it must not be the result of undue influence, coercion, fraud, or force.
The Court held that while exercising its powers under Article 142 of the Constitution, it must remain mindful of the guiding principles laid down in prior decisions. It observed that such power should not be used to rewrite or modify an arbitral award on its merits. However, the Court clarified that it could invoke Article 142 where doing so was necessary to bring finality to the dispute or litigation. The Court reasoned that this approach would not only help in ending prolonged litigation but would also save the parties considerable time and expense.
Justice Viswanathan dissented from the majority view on key issues, holding that:
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While exercising power under Section 34 of the Act 1996, and consequently the Courts in the appellate hierarchy do not have the power to modify the arbitral award.
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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.
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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, as held hereinabove, 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 Act,1996.
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The judgment in Hakeem (supra), insofar as it holds that a Section 34 Court has no power to modify the award, lays down the correct law. The only exception made in this judgment is with regard to the power to carry out corrections in computational errors, clerical errors or typographical errors and any other errors of similar nature. This is based on the principle of actus curiae neminem gravabit (act of court shall prejudice no one).
[Gayatri Balasamy v. ISG Novasoft Technologies Ltd., 2025 SCC OnLine SC 986 decided on 30-04-2025]
*Majority Judgment Authored by: Chief Justice Sanjiv Khanna
**Dissenting Opinion by: KV Viswanathan
Advocates who appeared in this case:
For Petitioner(s) : Mr. Debmalya Banerjee, Adv. Mr. Rohan Sharma, Adv. Mr. Vikas Gogne, Adv. Mr. Satyam Chaturvedi, Adv. Mr. Agastya Shelat, Adv. Ms. Tanvi Seth, Adv. M/s. Karanjawala & Co., AOR Mr. Tushar Mehta, SG Mr. Sudarshan Lamba, AOR Mr. Kanu Agarwal, Adv. Mr. Ashwin Shanker, Adv. Mr. Sanjay Grover, Adv. Ms. Ridhi Nyati, Adv. Ms. Vanshika Jain, Adv. Mr. Shivlal Singh, Adv. Mr. K.V. Mohan, AOR Mr. Vaibhav Dang, Adv. Mr. Amrendra Kumar Mehta, AOR Ms. Anita Mahapatra, Adv. Ms. Gunjan Kumari, Adv. Mr. Jinendra Jain, AOR Mr. Ajay Jain, Adv. Mr. Krishna Sharma, Adv. Ms. Bijay Lakshmi, Adv. Mr. M.N. Mishra, Adv. Mr. Manoj Gautam, Adv. Mr. Kunaal Sharma, Adv. Mr. Akul Chalia, Adv. Mr. Harshit Batra, Adv. Mr. Mitika Choudhary, Adv. Ms. Shreya Jain, Adv. Mr. Akshat Jain, Adv. Mr. R.C. Bansal, Adv. Mr. T. Harish Kumar, AOR Mr. Bharathi Subramanian, Adv. Mr. Shubham P. Chopra, Adv. Mr. Arvind Datar, Sr. Adv., Mr. Nishanth Patil, AOR Mr. M.V. Mukunda, Adv. Mr. Mithun Shashank, Adv. Mr. M.V. Swaroop, Adv. Ms. Payal Chawla, Adv. Ms. Hina Shaheen, Adv. Mr. Arijit Dey, Adv. Mr. Manish K. Bishnoi, AOR Mr. Khubaib Shakeel, Adv.
For Respondent(s) : Mr. Saurabh Kirpal, Sr. Adv. Ms. Manmeet Kaur, Adv. Mr. Debmalya Banerjee, Adv. Mr. Rohan Sharma, Adv. Mr. Gurtej Pal Singh, Adv. Mr. Rohan Anand, Adv. Mr. Jai Dogra, Adv. Ms. Liza Vohra, Adv. Mr. Dhruv, Adv. M/s. Karanjawala & Co., AOR Mr. Naresh Markanda, Sr. Adv. Mr. Rohan Markanda, Adv. Mrs. Harsheen Madan Palli, Adv. Mr. Chritarth Palli, AOR Mr. Ritin Rai, Sr. Adv. Mr. Benny P. Thomas, Sr. Adv. Mr. Abel Tom Benny, Adv. Mr. Abhishek Kshetarpal, Adv. Ms. Ritika Sinha, Adv. Ms. Ankita Gupta, Adv. Mr. Dhiliban Varadarajan, Adv. Mr. Debasis Jena, Adv. Mr. Prakash Ranjan Nayak, AOR Mr. Tushar Mehta, S.G. Mr. Surjendu Sankar Das, AOR Ms. Annie Mittal, Adv. Mr. Tushar Mehta, S.G. Mr. Nikilesh Ramachandran, AOR Mr. Lovekesh Aggarwal, Adv. Ms. Neelam Rathore, Adv. Mr. Shubham Seth, Adv. Ms. Prakruti Malhotra, Adv. Mr. Abhinav Sharma, Adv. Mr. Alok Tripathi, AOR, Mr. Vikramjit Banerjee, ASG Mr. Sudarshan Lamba, AOR Mr. Rahul G. Tanwani, Adv. Mr. Anantha Narayana M.G., AOR Mr. Shubhendu Anand, Adv. Mr. Tadimalla Bhaskar Gowtham, Adv. Mr. Ayush Anand, Adv. Mr. Sudipto Sircar, Adv. Mr. Aditya Shekhar, Adv. Mr. Rishi Ashok, Adv. Mr. P.D.V. Srikar, Adv. Mr. Aman Shukla, Adv. Mr. Alabhya Dhamija, Adv. Mr. Aditya Kashyap, Adv. Mr. Neeleshwar Pavani, Adv. Mr. M. Chandrakanth Reddy, Adv. Mr. Suvigya Awasthy, Adv. Mr. Sameer Jain, Adv. Mr. Vivek Joshi, Adv. Mr. Rohan Gulati, Adv. Mr. Deepesh Raj, Adv. Mr. Soayib Qureshi, AOR Mr. Tushar Mehta, S.G. Mr. Ankur Mittal, Adv. Mr. Abhay Gupta, Adv. Ms. Nidhi Mittal, Adv. Mr. U.C. Mittal, Adv. Ms. Ikshita Parihar, Adv. Mr. Sanjivan Chakraborty, Adv. Mr. Rakshit Ranjan, Adv. Mr. Ankur Saboo, Adv. Mr. Aviraj Pandey, Adv. Mr. Kaustubh Prakash, AOR Ms. Hita Sharma, Adv. Ms. Tanya Singh, Adv. Mr. Gourab Banerji, Sr. Adv. Mr. George Pothan Poothicote, Adv. Ms. Manisha Singh, Adv. Ms. Jyoti Singh, Adv. Mr. Prakarsh Kumar, Adv. Mr. Rakesh Talukdar, Adv. Mr. T.S. Sundaram, Adv. Mr. Subhro Mukherjee, Adv. Mr. Mohit Pandey, Adv. Ms. Raka Chatterjee, Adv. Ms. Venkata Supreeth, Adv., Mr. Arunava Mukherjee, AOR Mr. Abhishek Kumar Rao, Adv. Mr. Shailesh Suman, AOR Mr. Shekhar Naphade, Sr. Adv. Mr. Aniruddha Joshi, Sr. Adv. Mr. Shashibhushan P. Adgaonkar, AOR Ms. Salonee Paranjape, Adv. Mrs. Pradnya S. Adgaonkar, Adv. Mr. Kiran Bishnoi, Adv. Mr. A.S. Jamuna, Adv. Mr. Anoop Raj, Adv. Mr. Prashanto Chandra Sen, Sr. Adv. Mr. Sudiep Shrivastava, Adv. Mr. Pranav Sachdeva, AOR Ms. Rashi Goswami, Adv. Mr. Jatin Bhardwaj, Adv. Mr. Tanmay Yadav, Adv. Ms. Sirithi Sreekumar, Adv. Mr. Pallav Mongia, AOR Mr. Shashank Dwivedi, Adv. Mr. Anubhav Mishra, Adv. Ms. Sunanda Chowdhury, Adv. Mr. Saket Sikri, Adv. Mr. Naman Joshi, Adv. Ms. Ritika Vohra, Adv. Mr. Ajay P. Singh, Adv. Ms. Charu Ambwani, Adv. Mr. Guneet Sidhu, Adv. Mr. Priyal Goyal, Adv. Mr. Rahul, Adv. Ms. Amber Tickoo, Adv. Mr. Shivam Gera, Adv. Mr. Akashdeep Singh, Adv. Mr. Verdaan Jain, Adv. Ms. Manisha Ambwani, AOR Ms. Sukanya Lal, AOR Mr. Saurav Agrawal, Adv. Ms. Sonali Jaitley Bakhshi, Adv. Mr. Jaiyesh Bakhshi, Adv. Mr. Ravi Tyagi, AOR Mr. Mayank Mishra, Adv. Ms. Manmilan Sidhu, Adv. Mr. Manish Bhatt, Adv. Mr. Atharva Koppal, Adv., Ms. Neetu Devrani, Adv. Mr. Abhijay Basu, Adv. Mr. Babit Jamwal, Adv. Ms. Prachi Dubey, Adv. Mr. Anshuman Chowdhury, Adv. Mr. Ajay Sharma, Adv. Ms. Mahek Upadhaya, Adv. Mr. Arya Bhatt, Adv. Ms. Soloni Paliwal, Adv. Mr. Harsh Khabar, Adv. Mr. Sarthak Nayak, Adv. Ms. Anushruti, Adv. Mr. Darius J. Khambata, Sr. Adv. Mr. Aditya Mehta, Adv. Mr. C. Rashmikant, Adv. Mr. Mahesh Agarwal, Adv. Mr. Ankur Saigal, Adv. Ms. S. Lakshmi Iyer, Adv. Mr. Rohan Dakshini, Adv. Ms. Namrata Shah, Adv. Ms. Suprriya Lopes, Adv. Ms. Sailee Dhayalkar, Adv. Mr. Shashwat Singh, Adv. Mr. Jai Sanyal, Adv. Ms. Vidhi Shah, Adv. Mr. E.C. Agrawala, AOR Mr. Gaurav Pachnanda, Sr. Adv. Ms. Garima Bajaj, AOR Mr. Mohit Goel, Adv. Mr. Sidharth Goel, Adv. Mr. Raghavendra Mohan Bajaj, Adv. Ms. Karmanya Dev Sharma, Adv. Ms. Aishna Jain, Adv. Mr. Shashwat Mukherjee, Adv. Mr. Ishaan Pratap Singh, Adv. Ms. Nikita Jaitly, Adv. Mr. Siddharth Kapoor, Adv. Ms. Shreya Bansal, Adv. Mr. Sumeet Pushkarna, Sr. Adv. Mr. Nikhilesh Krishnan, Adv. Mr. Gaurav Varma, AOR Mr. Varun Chugh, Adv. Mr. Sudeep Vijayan, Adv. Mr. Abhishek Bhushan Singh, Adv. Mr. Swapnil Joshi, Adv. Ms. Aishwarya Mishra, Adv. Dr. Amit George, Adv., Mr. Dhiraj Abraham Philip, AOR Mr. Febin Mathew Varghese, Adv. Ms. Chand Chopra, Adv. Ms. Namrata Mohapatra, Adv. Ms. Achalika Ahuja, Adv. Mr. Arkaneil Bhaumik, Adv. Mr. Adhishwar Suri, Adv. Ms. Suparna Jain, Adv. Ms. Ibansara Syiemlieh, Adv. Mr. Dushyant Kishna Kaul, Adv. Ms. Rupam Jha, Adv. Ms. Medhavi Bhatia, Adv. Mr. Maniesh Gandhi, Adv. Mr. Naveen Richard, Adv