From Set-Aside to Modification: Shifting Frontiers Under Section 34 of The Arbitration & Conciliation Act

Introduction : Speed, affordability and finality are supposed to be the bedrock of commercial arbitration. When companies choose alternative dispute resolution over traditional litigation, they do so mainly to avoid the slow pace of the court system. In India however, a critical flaw in the statutory scheme often undermines this exact purpose.

For instance, a situation where an arbitral tribunal issues a well-researched commercial award that happened to contain small, easily fixable calculation mistakes. Under the rigid framework of the Arbitration and Conciliation Act , 1996 a court reviewing that award under Section 34 finds its hands tied. Rather than just by fixing the obvious numerical oversight , the court is essentially left with an all or nothing choice , either to throw out the whole award or leave it completely as is. This , therefore, creates a massive issue for businesses . Why should an enterprise be made to suffer three to five years of a fresh arbitration cycle just because the judiciary does not have the power to correct a minor error ?

This drawback severely damages the appeal of domestic arbitration in India, thereby turning what ought to be a swift resolution process into a tedious cycle of endless litigation.

Judicial Boundary - The Hakeem Doctrine

For years , the High Courts across India split over how far they could intervene under Part I of the Act , with several judges altering awards to deliver justice . The Supreme Court tried to settle the issue once and for all in Project Director NHAI v. M. Hakeem . In that decision the court drew a strict line ruling that any attempt to modify or weaken an arbitral award under Section 34 goes well beyond the court’s statutory mandates.

The bench rooted its logic in legislative intent and international practice. It pointed out that Section 34 mirrors the UNCITRAL Model Law (1985) which expressly let judges modify awards , the court reasoned for this that Parliament made a deliberate decision to drop that power altogether.

Justice Rohinton Fali Nariman stressed that Section 34 courts do not act as appellate bodies. Letting judges adjust the terms or payouts of an award would undercut party autonomy and violates Section 5’s mandate for minimal court interference . As a result the Hakeem doctrine set up a strict all or nothing rule , as Section 34 can only uphold an award to throw it out entirely , with zero room for modification.

Recent Shift - Gayatri Balasamy & The severability Doctrine

The rigid binary set by Hakeem eventually brought domestic arbitration to a breaking point, trapping corporate litigants in wasteful cycles of re-arbitration. Addressing this , a five-judges Constitutional Bench of the Supreme court fundamentally recast Section 34’s boundaries in Gyatri Balasamy v. M/s ISG Novasoft Technologies Ltd. in a 4:1 majority opinion authority by Chief Justice Sanjiv Kanna, the Court relaxed the Hakeem blockade by ruling that Indian courts possess an implied restricted authority to alter arbitral awards under Section 34 and 37.

This Doctrine shifts rests on two primary principles:

• Omne Majus Continet in Se Minus: The majority applied this maxim which means that the greater power include the lesser , to hold that a court’s power to set aside an award naturally carries the lesser power to modify it . The Bench noted that a rigid all or nothing approach causes severe delays that defeat the statutes ' core purpose .

• Structural Severability: The Court tied modification to Section 34(2)(a)(iv) which allows non -arbitral matters to be separated from valid portions. Under this view , the alteration of an award is not a review of the merits on appeal but an extension of severability that lets judges identify the patently illegal parts while preserving the rest of the award .

Hence, in order to avoid judicial overreach , the modification power was confined to four specific situations :

1. Severability : Striking down an invalid part i.e. the patently illegal part of the award while leaving the sound and enforceable part of the award intact.

2. Clerical and Computational Errors: Fixing obvious typographic , mathematical or clerical slips on the face of the record without re-evaluating merits .

3. Post Award Interest: Adjusting interest rates to prevent unjust windfalls and align with current economic realities .

4. Article 142 Intervention: Reserving the Supreme Court’s extraordinary constitutional authority to modify awards when necessary to do complete justice .

In Contract Justice K.V. Viswanathan’s sole dissent sounded a strong warning, that reading an implied modification power into a statute based on the UNCITRAL Model Law creates serious commercial risks. Departing from a strict textual reading risks introducing uncertainty and turning Section 34 into another round of appellate litigation which could undermine the finality of Indian arbitral awards internationality .

Commercial And Corporate Litigation Impact

For companies and institutional clients the absence of an explicit statutory power to modify awards under Section 34 has long been a primary driver of litigation fatigue. Commercial arbitration is supposed to provide a definitive end to disputes , letting business manage financial exposure and protect liquidity. Yet under a rigid all or nothing review scheme , that advantage vanishes.

When courts cannot fix minor, isolated flaws , it creates bad incentives. Losing parties are effectively encouraged to weaponize minor technicalities or calculation slips . Instead of accepting the core outcome of an adverse high-stakes, litigants routinely lodge Section 34 challenges to exploit these non-material mistakes, deliberately aiming to force a total reset.

This  situation bottleneck causes carousel effect, where setting aside an award over a minor flaw drags claimants straight back to square one . For the prevailing party, a hard fought tribunal victory is immediately undermined by the prospect  of entering another multi year arbitration process. Ultimately this cycle of repetitive litigation drains corporate capital, ties up funds in judicial escrow and severely reduces the commercial appeal of choosing India as an arbitral seat .

Conclusion

While the Supreme Court’s judgement in Gayatri Balasamy provides needed relief by letting judges excise patently flawed segments of an award , addressing systemic friction through judicial interpretation remains fundamentally unstable. Expecting courts to read an unwritten , implied power of modification into Section 34 risks subjective application which threatens the core principle of minimal court intervention set out in Section 5.

In order to maintain , long term stability there is a requirement of statutory amendments , the remedy ultimately for ordinary commercial disputes rests in the hands of the parliament , while the private dispute mechanisms which include appellate arbitration clauses aim to safeguard party autonomy by resolving the merit based reviews internally.

Hence , such amendments for achieving the objective of structural stability must be passed by the legislature. India , therefore needs a very narrow change to Section 34 of the Arbitration Act . This change should let judges step in only under very specific conditions like fixing or correcting wrong interest rates. Therefore , relying on the Supreme Court to correct broken awards using its special powers under Article 142 is an exception . It simply cannot handle the massive volume of daily business realities.

Author: Hardik Gupta in case of any queries please contact/write back to us via email to content@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney.

Reference

1. Gayatri Balasamy v. ISG Novasoft: Analyzing the Role of Courts in Arbitral Award Making, Khurana & Khurana Insights (2025), https://www.khuranaandkhurana.com/gayatri-balasamy-v-isg-novasoft-analyzing-the-role-of-courts-in-arbitral-award-making (Last accessed 09th Aug, 2026).

2. Two-Tier Arbitration in India, Khurana & Khurana Insights (Oct. 8, 2024), https://www.khuranaandkhurana.com/2024/10/08/two-tier-arbitration-in-india (Last accessed 10th Aug, 2026).

3. National Highways Authority of India v. M. Hakeem & Anr., IBC Laws (July 20, 2021), https://ibclaw.in/the-project-director-national-highways-no-45-e-and-220-national-highways-authority-of-india-vs-m-hakeem-anr-sc/ (Last accessed 03st Aug, 2026).

4. The Arbitration and Conciliation Act, No. 26 of 1996, India Code (1996).

5. Project Director, NHAI v. M. Hakeem, (2021) 9 SCC 1.

6. Gayatri Balasamy v. M/s. ISG Novasoft Technologies Limited, 2024 SCC OnLine SC 1681.

7. United Nations Commission on International Trade Law, UNCITRAL Model Law on International Commercial Arbitration 1985: with amendments as adopted in 2006, U.N. Sales No. E.08.V.4 (2008), https://uncitral.un.org/en/texts/arbitration/modellaw/commercial_arbitration (Last accessed 08nd Aug, 2026).