Convenience Over Code: SC’s Misstep in Modifying Arbitral Awards in Gayatri Balasamy

[Ayush and Akash are students at National Law School of India University.]

Recently, in Gayatri Balasamy v. M/s. ISG Novasoft Technologies Limited (Gayatri), the Supreme Court of India (SC) settled a long-standing dispute in Indian arbitration law: whether a court deciding a Section 34 application can modify an arbitral award. Under the Arbitration and Conciliation Act 1996 (Act), once an award is made, the tribunal’s role typically ends, except in narrow circumstances under Sections 33 and 34(4).

While the Act provides for setting aside an award under Section 34 of the Act, and appealing that decision, courts across India had taken divergent views on whether modification was permissible. The five-judge bench has now ruled that such power does exist under Section 34. This piece critiques that conclusion, arguing that the Court’s reasoning overlooks key statutory constraints and improperly invokes Article 142 of the Indian Constitution, undermining the foundational principles of arbitration.

Unpacking the Judgment

In Gayatri, the court traced the power of modification under Section 34 on the basis of the following rationale: that one of the core principles of arbitration was to provide a quicker and cost-effective alternative to litigation (paragraph 40). Therefore, according to the court, denying the courts the power to modify the award “would defeat the raison d'être of arbitration” (paragraph 41). So, to justify the power of modification under Section 34, rather than beginning by attempting to ground such a power in the statute, court first invoked an abstract principle stating that the non-compliance with such a principle would defeat the objective of arbitration. Additionally, to provide more credibility to its reasoning, the court subsequently attempted to locate this power in Section 34 through two ways: first, by observing that Section 34 does not restrict the range of reliefs that the court can grant (paragraph 43); and second, by reasoning that the power to modify is implied in the power that the Act vests on the court to sever the invalid portions of an award. It, therefore, held that the court can apply the doctrine of severability and modify a portion of the award while retaining the rest (paragraph 45).  Further, the court also affirmed the power of Article 142 and stated that it can be applied to the Act to grant relief beyond the scope of the statutory provisions, though there must be caution and restraint in the same (paragraph 85).

Flaws in the Court’s Reasoning

The court’s reasoning in this case undermines India’s reputation as an arbitration-friendly jurisdiction. Despite being a five-judge bench with the opportunity for a thorough statutory interpretation, the majority prioritized convenience over legal substance. The following paragraphs highlight these flaws.

At the outset, the court fails to engage with the legislative history of the Act, which makes clear that the power to “modify” an award was consciously withheld from courts under Section 34. The Arbitration Act 1940 contained Section 15 which empowered the courts to “modify” awards, Section 16 empowered the courts to remit awards, and Section 30 empowered the courts to set them aside. Further, Section 13(b) allowed arbitrators to state “a special case for the opinion of the court on any question of law invoked, or state the award, in the form of a special case of such question for the opinion of the court,” thereby enabling merits review even at the stage of enforcement of the award. Courts thus had express powers to modify, remit, or set aside awards. In contrast, the Act deliberately stripped courts of these broad powers, vesting only the power to set aside. This shift reflects a legislative intent to curtail judicial intervention. Notably, while the Vishwanathan Committee Report 2024 recommended allowing modification, the legislature chose not to accept this. Arbitration and Conciliation (Amendment) Bill 2024, reinforces this position: it omits any provision for modification and instead tightens remittance by imposing a time limit for a cured award. Section 34, therefore, consciously greatly reduces the extent of possible challenges to an award.

The primary aim of arbitration is to ensure finality and promote resolution of disputes through a tribunal with consensual jurisdiction. Courts are not meant to reassess evidence or act as appellate bodies over arbitral awards. The purpose of a challenge under Section 34 is to determine whether an award should be set aside, not to review it on merits. If an award is set aside, it becomes a nullity and unenforceable under Section 36. Allowing courts to re-evaluate awards would erode arbitration’s efficiency and finality, reducing it to a mere procedural step before prolonged litigation.

To avoid this, Section 34 imposes narrow, clearly defined grounds for setting aside an award, aligning with the UNCITRAL Model Law. Article 34 of the Model Law, which Section 34 is based on, does not allow courts to modify awards. Its purpose is solely to confirm or annul the award. Authorities like Redfern and Hunter emphasize that under the Model Law, courts cannot alter an award’s terms but can only confirm whether it is final and binding. India’s adherence to this framework reflects a legislative intent to make the country an arbitration-friendly jurisdiction. The almost uniform adoption of the major parts of Article 34 is a confirmation of the success of the Model Law in this respect. Similarly, after an award has been made, the New York Convention allows only 3 outcomes for an arbitral award: recognition and enforcement (Article III), refusal (Article V), or suspension/set-aside (Article VI). 

Therefore, for the SC to now state that in India, awards can even be modified at section 34 stage is in stark contrast to the body of international instruments. This divergence in India’s approach might potentially hamper India’s aspirations of being seen as a pro-arbitration jurisdiction. Therefore, the conscious departure from the earlier pro-interventionist regime to Section 34 is an indication of the Parliament’s intent to minimize the supervisory role of the courts in the arbitral process, a feature recognized by the SC itself in Food Corporation of India v. Indian Council of Arbitration.

The court observed that the power to sever a part of an award under Section 34(2)(a)(iv) implied a broader power to modify it. It further stated that this severability was inherent in the court’s jurisdiction. However, this reading of the statute is fundamentally flawed for three reasons.

One, the power to sever an award is not an inherent jurisdictional authority of the court. Jurisdiction in arbitral matters is entirely conferred by statute. The Act specifies the scope of judicial intervention—for example, Section 9 empowers the court to grant interim measures, Section 11 allows for the appointment of arbitrators, and Section 34 permits setting aside an award. Most importantly, Section 5 categorically prohibits judicial intervention unless expressly provided for under Part I of the Act. These provisions, when read together, make it clear that the court cannot assume jurisdiction on the basis of implication; its powers must be explicitly granted.

Two, even the statutory power to sever an award is narrowly tailored. It arises only when the challenge is brought under Section 34(2)(a)(iv), that is, when the award deals with disputes not submitted to arbitration or includes decisions beyond the scope of the submission. The Act does not contemplate severance in the context of other grounds under Section 34. To extrapolate this limited power and treat it as a general or inherent authority to sever in all cases is plainly inconsistent with the design and structure of the Act.

Three, even assuming arguendo that courts possess a broad power of severance, it does not logically follow that a power to modify exists by implication. The principle that a greater power includes a lesser one does not apply in the domain of arbitral jurisdiction. Judicial authority here is tightly constrained by statute. Extending such logic would lead to untenable outcomes - for instance, under Section 11 of the Act, where courts are empowered only to examine the existence of an arbitration agreement, one might argue they should also be able to determine its validity as the power to determine validity is a lower power implied in the greater power to examine the existence of the agreement. Yet such an approach has already been rejected. The Supreme Court, in In Re: Interplay, overruled Vidya Drolia, which had previously supported that broader interpretation of Section 11.

The court emphasized efficiency by avoiding an additional round of arbitration instead of basing the power of modification on the statute. This approach lacks the judicial depth expected from the SC and has been criticized by it in the past. In Cox and Kings I, the Supreme Court criticized Chloro Controls for adopting the group of companies doctrine based on economic convenience rather than legal principle (paragraph 55, Cox and Kings I), noting that efficiency alone cannot justify binding a party to arbitration without a statutory basis (paragraph 17, Cox and Kings I). The doctrine was formally accepted only after Cox and Kings II located it within Sections 2 and 7 of the Act. Likewise, in the present case, the court should have grounded the power of modification in Section 34, rather than relying on pragmatic considerations.

Article 142 has been invoked in prior cases involving modification, Gayatri was an opportunity for the court to move away from that practice by adhering strictly to Section 34. Yet, the court again invoked Article 142, thereby keeping the door open for future use in similar contexts. Assuming the majority judgment is correct in asserting that Section 34 itself permits limited modification, in that case the need to invoke Article 142 becomes all the more questionable.

If the power to modify, such as altering interest rates, already exists under Section 34, recourse to Article 142 appears redundant and undermines the statutory interpretation advanced by the court itself. Conversely, if Article 142 is seen as authorizing broader modification than Section 34 allows, it contradicts the court’s assertion that the statutory framework already accommodates such power. This creates a troubling overlap between statutory and constitutional authority.

Moreover, in Shilpa Sailesh v. Varun Sreenivasan, a case cited by the majority itself, the court held that Article 142 must not be used to override “specific public policy,” which refers not to ordinary statutory schemes but to core, non-derogable legislative principles. The conscious omission of a modification power in the Act, despite its presence in the 1940 law and its continued exclusion in the 2024 Amendment Bill, makes it clear that such omission reflects deliberate legislative intent. Further, in Assistant Commissioner (Ct) LTU v. Glaxo Smith Kline Consumer Health Care Limited, the court held that Article 142 cannot be used to defeat legislative purpose or render statutes otiose. 

The court’s justification that Section 34 does not restrict the range of reliefs it may grant is untenable. Section 34 is not appellate in nature; it contemplates only two reliefs: first, the setting aside of an award on the narrow grounds in Section 34(2); and second, adjournment under Section 34(4) to allow the tribunal to resume proceedings or take steps to eliminate those grounds. Nothing in the text supports the claim that the reliefs available are unrestricted. Moreover, the marginal note to Section 34 clarifies that the section provides only a limited “recourse” against an award, which is to be pursued strictly through a setting-aside application under sub-sections (2) and (3). As “recourse” refers to a means of enforcing a right, any such enforcement must remain limited where the right itself is narrow (Hakeem, paragraph 14). Thus, the suggestion that Section 34 permits courts to craft unrestricted reliefs is contrary both to its structure and to the principle of minimal judicial interference.

Conclusion

The Supreme Court of India’s recognition of a power to modify arbitral awards under Section 34 marks a significant and controversial departure from the text, structure, and legislative intent of the Act. By prioritizing perceived efficiency over statutory fidelity, and by invoking Article 142 to stretch judicial authority, the court has muddied the waters of India’s arbitration jurisprudence. This judgment risks undermining the finality, minimal judicial intervention, and party autonomy that are central to arbitration, both domestically and internationally. A more restrained and statute-oriented approach would better serve India’s aspiration to become a reliable, arbitration-friendly jurisdiction.