Modification of Legislative Intent? Unpacking the Court's Power to Modify Award

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

On 30 April 2025, a 5-judge bench of the Supreme Court of India (SC) held that arbitral awards could be modified within the limited contour set out by the court in the case of Gayatri Balasamy v. ISG Novasoft Technologies Limited (Gayatri Balasamy). 

Background

The question of modification of an arbitral award has haunted the halls of multiple courtrooms, with even SC benches taking differing approaches. The lack of statutory clarity became visible initially when a single bench of the Madras High Court decided to modify the award between Ms Balaswamy and Novasoft, providing additional compensation to the appellant. On an appeal, a Division Bench of the Madras High Court upheld the modification, on the ground of the award by the tribunal lacking “arithmetic logic”. It went ahead to apply its own mind to the compensation sum, and reduced it; further modifying the award. Following this, a special leave petition was preferred, moving the matter to the SC. The division bench took up the question of whether a court is empowered to modify arbitral awards under Section 34 or 37 of the Arbitration and Conciliation Act 1996 (Act). 

This became a crucial question to answer, as the SC had taken diverging views in the past in multiple occasions. In a stream of cases such as McDermott International Inc. v. Burn Standard Company Limited (2006), Ssangyong Construction Limited v. National Highway Authority of India (2019), and National Highway Authority of India v. M Hakeem (2021) (Hakeem), the court had held that the power of modification of an award was differentiated from the ability of the court to set aside an award under Section 34 of the Act. 

However, in Vedanta Limited v. Shenzden Shandong Nuclear Power Construction Company Limited (2018), Oriental Structural Engineers v. State of Kerala (2011), and Tata Hydroelectric Power Supply Company Limited v. Union of India (2003), the courts have modified awards themselves or upheld modified awards. 

The reference order was primarily to check the correctness of the latest decision of Hakeem in 2021. 

The Gayathri Balaswamy Judgement

The 5-judge bench analyzed the rationale of the courts in the previous judgements and looked at the confines of the law set out in Section 34 and 37 of the Act. They further compared it with the legislatures of multiple countries such as Singapore, United Kingdom, United States of America, France and Australia among other countries. 

The court ultimately answered the questions posed before it by holding that it has a limited power under the said sections to modify an arbitral award. It set out 4 conditions under which modifications could take place. They are:

1. Where the principle of severability can apply, such that the invalid part of the award can be severed from the valid part of the award;

2. To correct any errors which seem to be erroneous on the face of it if they are of clerical, computational or typographical nature;

3. Post award interest may be modified in some circumstances; and

4. The power of the SC to do complete justice under Article 142 of the Constitution would apply in this scenario, and awards could be modified under this law. However, this power must be exercised with great care and caution. 

   
   

Analysis

While the intention of the bench was to expediate arbitration proceedings in India, this decision breaches the fine line between judicial activism and overreach. While it does try to limit the instances where an award can be modified, it fails to tie up lose ends with its phrasing of the limitations.

First, the golden rule of interpretation holds that words should be given their plain and literal meaning. The dissent of Justice Vishwanathan elucidates rightly, that modification refers to “varying, altering or changing” while severing means to “separate or disjoint an award from the rest’. It cannot be argued that modification can be subsumed by the phrase severed because they serve different purposes. The legislative intent behind allowing courts to set aside award across jurisdictions is to quash an unjust decision rather than giving them the power to apply their mind to the merits of the case. Modification of an award cannot be done without an application of mind, as elucidates by the division bench of the Madras High Court where they reduced the compensation provided because they felt that it was disproportionate to the damage faced. Dealing with facts of the dispute does not fall under the power of setting aside of the award conferred by Section 34 of the Act. 

Second, Section 5 of the Act titled Extent of Judicial Intervention specifically prohibits judicial intervention except where provided by the act. The legislative intent clearly indicates separating this alternative dispute resolution process from the walls of traditional litigation. Wherever modifications to functioning of the Act is necessary, it shall be the prerogative of the legislation to provide such changes. The court drew inspiration from Singapore, the UK, the USA and other countries in holding that modification should be allowed in some sense, while failing to notice that the legislations of these countries explicitly provide for the same. The UNCITRAL Model Law only permits setting aside of awards, and for these countries to have derogated from the same, the power has been explicitly provided by the courts to them. While the court gave weight to equity by avoiding fresh arbitrations and reducing costs, it fails to note that these end up falling in matters of policy. Such matters must be decided by the legislature, as they are the true representation of the will of the people. This situation differs from that of Vishaka v. State of Rajasthan wherein the there was a lacuna in terms of governmental involvement, as there has been a strong push to make India a global hub for arbitration.  

It must be noted that the Arbitration and Conciliation Act of 1940 had expressly provided for modification of awards, which was then discontinued in the Act. The 2024 proposed draft amendment goes as far as allowing the court to set aside an award partially, as Section 34(2A) uses the phrase “award may be set aside in whole or in part”. However, it still does not allow modification of awards, and recommends remitting the award to the tribunal for the issues on which it was set aside. This elucidates the legislative intent to not allow modifications even more clearly as the Expert Committee’s proposal (led by Dr TK Vishwanathan) of permitting courts to allow modifications in exceptional circumstances to meet the ends of justice was not adopted. 

Third, arbitration is a deliberate contractual ouster of the traditional judicial process. Allowing modification, especially for post award interests, strikes at the fundamental principle of arbitration of party autonomy. The parties had decided to rest their dispute in the hands of the tribunal, formed by arbitrators of their choice. Allowing a traditional judge to override the decisions of this party appointed tribunal is contrary to the ethos of arbitration. Further, this judgement would allow an award debtor to challenge the award even on the limited grounds set out, taking away the finality and binding nature of the award, an aspect which is crucial to arbitration.  

Finally, the power of Article 142 being granted in this manner leads to uncertainties and ambiguities.  The ambit laid out in this judgement is ‘with great care and caution’. This phrasing fails to raise any real guardrails for the court, providing a painfully subjective criteria for the SC. Uncertainty in this scenario would lead to an increase in Section 34 appeals, with further appeals being pushed to the SC just to avail this unrestricted power to modify an award. Not only does this increase the burden of the judicial system significantly, but it also ends up hurting the finality of an award, going against the foundational principle of arbitration of speedy dispute resolution. 

This also means that Article 142 of the Constitution of India can be used to set aside an award on any consideration, as opposed to the contours set out in Section 34 which the other courts are bound by. This provides the SC with disproportionately higher powers than the lower courts, which means not only wastes the time of the apex court of India, but also provides greater recourse to economically better off award debtors, who can visit the SC more frequently.  

Conclusion

While the judgement intended to expedite arbitration proceedings and reconcile the Indian arbitration system with that of its peers in other countries, it fails to look at what the legislative intent behind modification of awards has been. Not only does it overstep its power in interpreting the law, it also increases the uncertainty in the minds of the parties while impeding the finality of the awards. It also strikes against the fundamental principle of arbitration of party autonomy. It becomes important for the legislature to clarify its position on the law and streamline it with its vision of making India a global hub of arbitration.