Award Modification under Section 34: The Precedential Value of Gayatri Balasamy

[Sidhanth is a student at National Law University Odisha.]

In Gayatri Balasamy v. ISG Novasoft Technologies Ltd. (Gayatri Balasamy), the Supreme Court dealt with an employment dispute that led to arbitration. Balasamy, a Vice President at ISG Novasoft, resigned in 2006 alleging sexual harassment by the CEO. The company rejected her resignation and terminated her, prompting criminal complaints from both sides.

A sole arbitrator awarded her INR 2 crore in 2012 as contractual severance, rejecting most other claims, including INR 9.07 crore sought as exemplary damages for failure to constitute an internal committee (IC). Challenging the award under Section 34 of the Arbitration and Conciliation Act 1996 (Act), Balasamy secured an additional INR 1.68 crore from a single judge of the Madras High Court in 2014 for breach of the employer’s duty to provide a safe workplace. However, a Division Bench reduced this to INR 50,000 in 2019.

On appeal, a three-judge bench of the Supreme Court referred the matter to a Constitution Bench due to conflicting precedents on whether courts can modify arbitral awards under Section 34. In April 2025, the court held (4:1) that courts have limited powers to modify awards. Justice Viswanathan dissented, holding that no such power exists under the Act.

Arbitrability of Sexual Harassment and Statutory Claims

A striking aspect of this case is that a claim arising from alleged sexual harassment at the workplace was adjudicated in private arbitration. Sexual harassment of women at work is not just a contractual issue – it implicates fundamental rights (to equality, dignity, and a safe environment) and statutory duties of the employer under the law (originating in the Vishaka Guidelines and now the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act 2013.). Indian law mandates employers to investigate and redress sexual harassment through a prescribed statutory framework.

In Gayatri Balasamy, the parties, chose to submit all disputes (including the sexual harassment-related grievances) to arbitration. The arbitrator did entertain Balasamy’s claim that the company had breached its legal obligations by failing to form an IC as required by Vishaka but they also stated that failure to constitute an inquiry committee “cannot be the basis for compensation,” especially since the claimant had other remedies (she had not complained to the existing grievance committee and had the option to resign). The Madras High Court soundly disapproved this reasoning. It emphasized that every employee has a natural right to a safe working environment.

Notably, neither the Division Bench nor the Supreme Court reversed the High Court on the principle that such a claim could be arbitrated and compensated. The Division Bench explicitly held the single judge was right to award additional compensation, only that the amount was disproportionate. The Supreme Court, in turn, upheld that courts may sever “non-arbitrable” portions from an award and modify accordingly. The Constitution Bench majority essentially found that if part of an arbitral award deals with an issue that is outside the arbitrator’s jurisdiction or contrary to public policy, the court can excise or correct that portion while saving the rest. By endorsing this severability, the Supreme Court implies that even if the sexual harassment aspect were considered “non-arbitrable” in theory, the court could simply carve it out or adjust it.

However, the fact that the court did not hold the issue to be non-arbitrable as such (and indeed allowed the compensation for it to stand, only subject to proper quantification) is significant. It suggests that statutory claims embedded in an employment relationship can be resolved through arbitration, provided the arbitral award adheres to the law and public policy. Balasamy’s claim for damages due to the employer’s statutory breach was essentially treated as a contractual/personal dispute which is inter partes and hence arbitrable, even though the underlying statutory obligation (to investigate sexual harassment) has public law overtones. The Supreme Court’s approach signals that an arbitration clause in an employment contract can cover even such sensitive statutory-based claims, but the award will be scrutinized on public policy grounds.

The Supreme Court in Booz Allen & Hamilton Inc. v. SBI Home Finance Limited famously listed categories of disputes that cannot be referred to arbitration. Sexual harassment claims per se did not figure in that list, nor does any Indian statute expressly bar arbitration of such claims. Thus, by traditional tests (rights in personam vs in rem, absence of third-party effects, etc.), Balasamy’s claim for compensation was arbitrable, even if the fact of sexual harassment could also give rise to separate criminal or regulatory proceedings.

That said, one could argue there is a strong public policy interest in how sexual harassment allegations are handled. Indian courts might view an arbitration agreement that potentially bypasses the statutory redress mechanisms with some skepticism. In Vidya Drolia v. Durga Trading Corp. (2020), the Supreme Court’s broader test for arbitrability included asking whether the subject-matter of a dispute is “expressly or by necessary implication” non-arbitrable under a statute. Here, the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act 2013 (PoSH Act) provides a mandatory mechanism (internal inquiry, etc.) and even penalties for non-compliance, which could imply the legislature’s intent for such matters to be handled in a certain way (at least at first instance). The Gayatri Balasamy case, however, pre-dated the PoSH Act (her claims arose in 2006-07, and she relied on the Vishaka-mandated process), and by the time of arbitration, both parties voluntarily submitted to that forum.

In the end, the Supreme Court in Gayatri Balasamy appears to have accepted that arbitration can resolve even disputes stemming from statutory rights, so long as the arbitrator grants relief consistent with the statute’s purpose. If not, the courts’ public policy review under Section 34 is the safety valve. In practical terms, this means an employer cannot escape liability for, say, a proven sexual harassment claim simply because the matter went to arbitration; arbitrators are expected to uphold such rights, and courts will correct them if they do not. The upshot is a nuanced stance: employment claims involving statutory issues are not off-limits to arbitration, but neither are they beyond the protective oversight of the judiciary.

The Dissent by Justice Viswanathan

Justice Viswanathan’s dissent in Gayatri Balasamy stands out for its emphatic reaffirmation of arbitral finality and legislative supremacy. He draws a clear distinction between the powers to “set aside” and “modify” an award, arguing that the Act unlike its 1940 predecessor consciously omits any express power of modification, signaling Parliament’s intent to limit judicial interference. Viswanathan J anchors his view in Section 5’s non-obstante bar on judicial intervention and maintains that only the arbitral tribunal may “correct” or “remand” under Sections 33 and 34(4), while courts must resist any temptation to insert powers by implication. He cautions that permitting courts to modify awards amounts to rewriting the statute, undermines party autonomy, and risks enforcement uncertainty under the New York Convention. His principled stance, while perhaps rigid in outcome, reinforces the sanctity of arbitral process and reminds us that the power to recalibrate arbitral remedies lies with Parliament, not the bench.

Within the Fabric of Indian Arbitration Jurisprudence

The Gayatri Balasamy judgment situates itself at the intersection of two evolving threads of Indian arbitration law: judicial review of awards and the scope of arbitrable subject-matter. On the first thread (judicial intervention), the Constitution Bench resolved a split in precedent. Earlier cases like McDermott Intl. v. Burn Standard (2006) and Project Director, NHAI v. M. Hakeem (2021) had held that Section 34 is a strictly limited remedy – courts can only set aside awards on specified grounds, not modify or improve them. On the other hand, some decisions had indirectly permitted tweaking an award (e.g. by severing invalid parts or adjusting interest). By holding that “set aside” can in rare cases include “modify”, the Supreme Court aligned India with the practice in countries like the UK and Singapore which allow limited corrections to domestic awards. This reduces the need for a complete re-arbitration if only a part of the award is flawed. The Balasamy case itself is a prime example: the High Court did not scrap the entire award – it only added compensation under one head (and the Division Bench further adjusted that). The Supreme Court’s recognition of this approach prevented a decade-old dispute from being sent back to square one. It also invoked Article 142 to signal that in truly exceptional scenarios, the Supreme Court may step in to do justice even if statutory powers fall short.

The second thread is arbitrability. Indian jurisprudence has gradually expanded what is considered arbitrable, while clarifying what remains non-arbitrable. Booz Allen (2011) gave the classic list of non-arbitrable matters rooted in rights in rem or sovereign functions. Vimal Kishor Shah v. Jayesh Shah (2016) added disputes under trust deeds to that list. A. Ayyasamy v. A. Paramasivam (2016) held that serious allegations of fraud might be non-arbitrable on public policy grounds, though later in Vidya Drolia the Court disagreed, observing even fraud can be arbitrated as it is not a judgment in rem. Ultimately, Vidya Drolia (2020) articulated a four-fold test. Under this test, most employment disputes are arbitrable in principle, unless a specific law bars it or the dispute involves a matter of public interest or criminality.

Thus, the Supreme Court’s treatment of Gayatri Balasamy case aligns with the modern trend: keep the arbitration option open, intervene only to ensure legal compliance. It essentially said: the arbitrator could decide this dispute, but when the arbitrator did so in a manner inconsistent with the law’s requirements (by denying any remedy for the harassment aspect), the court was justified in stepping in to correct that. 

A Critical Assessment

From a critical standpoint, Gayatri Balasamy is a double-edged development for arbitration law. On one side, it bolsters the legitimacy of arbitration in resolving even complex employment disputes by demonstrating that the judiciary can intervene to uphold statutory rights when needed without entirely derailing the arbitral process. The Supreme Court managed to protect an employee’s right to a safe workplace while respecting the arbitration agreement between the parties. This measured intervention assuages fears that arbitration might enable a “private justice” that is at odds with public norms. It sends a message to lower courts that not every legal or statutory issue requires dragging the dispute out of arbitration.

On the other side, one might argue the judgment does not go far enough in safeguarding vulnerable employees. By allowing sexual harassment disputes to be subject to private arbitration in the first place, there is a concern that many employees could be forced (via arbitration agreements in standard form contracts) to waive their right to approach a public tribunal. The scenario in Gayatri Balasamy was somewhat unique since she had the resources to fight through the courts for a decade. A less fortunate individual might have given up, and an unjust arbitration award might have stood. The Supreme Court in Gayatri Balasamy did not explicitly grapple with the question of whether certain rights cannot be waived to arbitration.

Another critique is the potential increase in litigation that the Gayatri Balasamy ruling on award modifications might invite. By acknowledging a power to modify, the court may have opened Pandora’s box with parties in many arbitration cases now adding contentions for “limited modification” of awards. The majority tried to cabin this power with “rare circumstances” and clear examples (arithmetical errors, separable decisions beyond jurisdiction, etc.). This could paradoxically prolong disputes – the opposite of what arbitration aims for. The Supreme Court was aware of this risk, which is why it emphasized caution and noted that Section 34/37 proceedings are already lengthy. How the lower courts implement these guardrails will determine whether Gayatri Balasamy ultimately streamlines arbitration or invites more court intervention.