Allowing Modification of Arbitral Award by Court — A Retrograde Step?

In recent times, India has witnessed a significant shift towards alternative dispute resolution (ADR) as a favoured mode of dispute resolution not only by businesses and private individuals but also the government agencies, owing to its autonomy, flexibility, informality, speedy disposal, cost-efficiency and confidentiality. The overburdened judiciary with pendency of about 5 crore cases as of 2025,¹ has also prompted parties to lean in favour of the ADR methods rather than court litigation. ADR complements the formal judiciary by offering faster, cost-effective, and amicable dispute resolution, particularly in commercial and civil matters, both domestic and cross-border. The growing acceptance of ADR at national and international levels, marks a positive development in the justice delivery system.

Arbitration is an alternative to court litigation, particularly suitable for commercial disputes. Businesses having international presence prefer arbitration due to enforceability under treaties like the New York Convention². Arbitration at its core prioritises and respects party autonomy, starting from choice to arbitrate, selecting seat or venue of arbitration, appointing any arbitrator/s or arbitral institution to conduct arbitration, and also deciding the procedure of arbitration, limiting judicial intervention only for its effective implementation. The agreement of parties to resolve by way of arbitration even though ousts the jurisdiction of court, is not an agreement in restraint of legal proceedings, and a specific exception is carved out for it under Section 28³ of the Contract Act, 1872⁴; and also, the arbitral award is directly enforceable as decree of a civil court.

The Arbitration and Conciliation Act, 1996⁵ (the Act) currently governs arbitration in India and Part I of the Act is applicable to both domestic and international commercial arbitrations where the seat of arbitration is in India. Section 5⁶ of the Act explicitly limits judicial intervention in arbitration to “except where so provided” in the Act, and the decision of arbitrator by way of arbitral award is final and binding on parties to arbitration and is directly enforceable as decree of a civil court as per Sections 35⁷ and 36⁸ of the Act. Also, an aggrieved party may approach the appropriate court by an application under Section 34⁹ of the Act, “for setting aside such award” only on limited grounds contained therein, and an appeal from such decision is provided under Section 37(1)(c)¹⁰ to the appellate court. Further, there is no second appeal, but there is right to appeal to the Supreme Court as per Section 37(3). It is pertinent to note that where the arbitral award is set aside: (a) if it is on ground of non-existence or invalidity of arbitration agreement, then the parties are free to adopt any other legal remedy that may be available to them; and (b) if it is on any other ground, parties are entitled to recommence the arbitral process. Further, Section 43(4)¹¹ stipulates that the period between commencement of arbitration and date of order of the Court shall be excluded in computing the limitation, for commencement of such proceedings after setting aside of arbitral award. As such, the legislation envisages arbitration afresh, when an arbitral award is set aside, and does not envisage judicial oversight after the award is given.

Earlier, the Arbitration Act, 1940¹² dealt with Arbitration in India stipulated that an award could not be enforced without approval of the Court, and by securing a judgment in terms of the award. Section 15¹³ of the Arbitration Act, 1940 provided for a power in the Court to modify the award and Section 16¹⁴ reserved an express power to remit the award. Lamenting on the state of arbitration under the Arbitration Act, 1940, in Guru Nanak Foundation v. Rattan Singh and Sons¹⁵, the Supreme Court had remarked that:

1. Interminable, time-consuming, complex and expensive court procedures impelled jurists to search for an alternative forum, less formal, more effective and speedy for resolution of disputes avoiding procedural claptrap and this led them to the Arbitration Act, 1940. However, the way in which the proceedings under the Act are conducted and without an exception challenged in courts, has made lawyers laugh and legal philosophers weep.

The present Arbitration and Conciliation Act, 1996 is modelled on the United Nations Commission on International Trade Law (UNCITRAL) Model Law¹⁶ and is aimed at removing the defects of the Arbitration Act, 1940.

In light of earlier conflicting decisions by the Supreme Court regarding power of Indian courts to modify the arbitral award when deciding challenges under Sections 34 and 37 of the Act, the special leave petition (SLP) dealing with this fundamental question of arbitration law was referred to the 5-Judge Bench in Gayatri Balasamy v. ISG Novasoft Technologies Ltd.¹⁷ (Gayatri Balasamy). In a 4:1 split judgment, the Supreme Court through the Chief Justice Sanjiv Khanna and three other Judges held that Court has limited power to modify an arbitral award; while justice K.V. Vishwanathan has penned the dissenting opinion.

The majority judgment in Gayatri Balasamy¹⁸ agrees that the Court’s role under Sections 34 and 37 is not that of an appellate authority reviewing the merits of the Arbitral Tribunal’s decision and has concurred on two aspects. Firstly, that power of court to partially set aside is considered inherent in the Court’s jurisdiction under Sections 34 and 37 of the Act, and is supported by the doctrine omne majus continet in se minus (the greater power includes the lesser). Doctrine of severability may be applied when the award is severable i.e. parts of the award are legally and practically separable but not intertwined, allowing the “invalid” portion to be separated from the “valid” portion, thereby setting aside only the invalid portion of the award, which is considered for its modification. Secondly, the correction of clear clerical, computational, or typographical errors that are apparent on the face of the record is considered a limited power that courts can exercise, distinct from a review of the merits, based on inherent powers and the principle of actus curiae neminem gravabit (an act of the court shall prejudice no man).

The majority in Gayatri Balasamy¹⁹ asserting that “the setting aside of an award, should be read as inherently including a limited power to modify the award” held that Court has power to modify arbitral award under Sections 34 and 37 in the following manner: (i) when the award is severable, allowing the “invalid” portion to be separated from the “valid” portion; (ii) for correcting any clerical, computational or typographical errors; (iii) to declare or modify post-award interest; and (iv) to apply Article 142²⁰ of the Constitution where it is required and necessary to bring the litigation or dispute to an end. However, the dissenting justice K.V. Vishwanathan, staunchly proclaiming that “the power to modify is not a lesser power subsumed in the power to set aside” and states his disagreement on two specific points: (i) the Court cannot modify or grant post-award interest; and (ii) Article 142 cannot be invoked by the court to modify the award.

The majority in Gayatri Balasamy²¹ has adopted a broader interpretation of Sections 34 and 37 of the Act, finding that power of modification exists in set aside, by applying the doctrine of implied powers; and the dissent adhering to a strict interpretation holds that such power is absent as the same is not expressly provided by the statute under the Act. The decision in NHAI v. M. Hakeem²², by B.R. Gavai, J. and R.F. Nariman, J. wherein it was laid down that modification of award by Court would contradict the legislative framework of the Act, was held to be per incuriam by the majority, but the dissent observed that the same as the correct law. On the aspect of application of Article 142, Justice K.V. Vishwanathan argues that as per the Constitutional Bench judgment in Shilpa Sailesh v. Varun Sreenivasan²³, although seemingly unhindered, the exercise of power under Article 142:

112. … is to be tempered or bounded by restraint based on fundamental considerations of general and specific public policy….

113. … Such an exercise of power (for modifying the award) will derogate from the core aspects of the Act and will breach a pre-eminent prohibition in the said Act.²⁴

Further, it is argued that Section 34(4) is the safety valve provided in the Act to prevent awards being set aside and to offer a chance to the Arbitral Tribunal to adopt a course correction, and also post-award interest may be left to discretion of the Tribunal by remitting the case to it.

It is pertinent to note that, the 76th Law Commission Report²⁵ on the Arbitration Act, 1940 did not recommend for power to modify the award to be given to the Court. The 246th Law Commission Report²⁶ on Amendments to the Arbitration and Conciliation Act, 1996 and the following amendments to the Act in 2015 emphatically provide for greater autonomy in the arbitral process to both parties and the arbitrator, and limit judicial intervention to a narrower circumference. The High-Level Committee to Review the Institutionalisation of Arbitration Mechanism in India under B.N. Srikrishna, J. (2017), in its Report²⁷ remarked that courts in India are generally interventionist when it comes to regulating arbitration proceedings, with inconsistent judicial precedents on arbitration, and leading to India being viewed largely as an arbitration-unfriendly jurisdiction. The Committee recommended for improving the overall quality and performance of arbitral institutions in India, and improving India’s perception as a seat of arbitration, and in its suggestions for amendments to the Act, it did not recommend for power of modifying the award being granted to the Court. The Dr T.K. Viswanathan Expert Committee on the working of Arbitration Law (2024)²⁸ even though recommends for grant of power to modify the award to Court, the legislature has not enacted a provision to modify awards under the Act. All these aim at achieving the sole object to resolve the dispute by way of arbitration as expeditiously as possible, with the minimum court intervention, so that the trade and commerce is not affected on account of court litigation.

Gayatri Balasamy²⁹ decision does not differentiate between judicial intervention in the case of a purely domestic award between Indian parties, and a domestic award in an international commercial arbitration which is seated in India. Hence, allowing for modification under Sections 34 and 37 of the Act, even in case of an award arising out of India seated international commercial arbitration, that may in all likelihood dissuade foreign parties from choosing India as the seat of arbitration and thereby also hinder the spirit of shaping India as an arbitration hub. “Modification of an award” by court is not in line with international practice, and domestic arbitration in India is already beset with multiple levels of appeals consuming substantial time for disposal. Therefore, modification of the award ultimately leads to frustration of the objective of time and cost efficiency.

The development of specialised Bar for arbitration practice, having of a pool of trained arbitrators, arbitral institutions with better infrastructure, appointing specialised Judges for arbitration matters, and show of confidence by the judiciary in the competence of arbitration and arbitrator, by exercising judicial restraint in cases of arbitration would go a long way in promoting India as a favoured seat for international commercial arbitration, and also safeguarding party autonomy which is at the core of arbitration. It has to be seen whether the window of equity opened in Gayatri Balasamy³⁰ through Article 142 in order to do complete justice, has opened a pandora’s box to be misused as rear door entry for court litigation by vicious, rancorous litigants, disturbing the fine balance between judicial intervention and restraint.

The judicial omnipresence in the form of modifying the arbitral award by court, after invoking the arbitration mechanism, not only affects the party autonomy, delays finality of decision, but will also lead to docket explosion. The judiciary has to shun the court-centric approach to the dispute resolution. The adage that there should be an end to litigation in the interest of the State, will be defeated if the Supreme Court or other courts modify the awards rendered by the arbitrators. The ease of doing business (EODB) ranking of India³¹ may be adversely affected if the country is seen as unfriendly to arbitration, thus impacting foreign direct investments (FDI) in India. Therefore, there is a need to revisit Gayatri Balasamy³² decision of the Supreme Court regarding the Courts’ power to modify the arbitral awards.