Gayatri Balasamy v. ISG Novasoft: Analyzing the Role of Courts in Arbitral Award Making

Introduction

One of the most contentious issues in Indian arbitration has been whether, in the exercise of their supervisory authority under Section 34 of the Arbitration and Conciliation Act, 1996, Indian courts have the authority to modify an arbitral award. This question has been the subject matter of intense doctrinal debate, resulting in a “mosaic of decisions” from various Benches of the Supreme Court and various High Courts. However, in Gayatri Balasamy v. M/S ISG Novasoft Technologies Limited [2025 INSC 605], the Supreme Court is set to finally resolve this question once and for all.

The Historical and Legal Context of the Controversy

The Arbitration and Conciliation Act, 1996, was drafted with the aim of simplifying and modernizing the rules of domestic and international commercial arbitration. One of its objectives, as stated in its Statement of Objects and Reasons, was to minimize judicial involvement in the arbitration process. Unlike the 1940 Act, which granted courts wide powers to “modify or correct” an award, Section 34 of the 1996 Act merely refers to the “setting aside” of an award.

This has led to a judicial debate on whether courts can modify an award, with some judgments arguing that they can, while others contend that they can only set aside an award. In Project Director, NHAI v. M. Hakeem, the Supreme Court’s verdict in 2021 stated that Section 34 of the 1996 Act merely follows the UNCITRAL Model Law, which does not permit the modification of an award.

Contrary to this, various benches of the Supreme Court, as evident in the judgments of Vedanta Limited and Oriental Structural Engineers, have modified awards, especially with regard to the grant of interest, to avoid a “gross miscarriage of justice.”

The Reference to the Five-Judge Bench 

Realizing the depth of this dispute, the issue has been referred to a Constitution Bench. The questions that arose for the five-judge bench are:

• Do Sections 34 and 37 vest courts with the jurisdiction to modify the award?• Does the jurisdiction to modify the award form part of the jurisdiction to “set aside”?

• Was the decision in M. Hakeem correctly laid down?• Does the modification facility become available only if the award can be severed?

Arguments For and Against Modification 

Both sides have presented their case, and it is now necessary to weigh the arguments. Supporters of modification have stated that if a higher power is given the right to “set aside,” it is only natural that the lesser power to “modify” should also exist. It would impose hardship on parties to undergo another round of arbitration for minor breaches, and such a requirement would not be conducive to the swift resolution of disputes.

Opponents of modification have argued that the 1996 Act is based on party autonomy and finality. They have cited the New York Convention, which only allows arbitration awards to be enforced. If an award is “set aside,” it is effectively annulled, and therefore does not exist to be “modified.”

The Court's Detailed Analysis and Findings 

A. The Scope of Section 34

The Supreme Court has drawn attention to the fact that, in accordance with Section 5, “any interference is limited to what is permitted by Part I itself.” It was stated in Section 34(1) that an award can only be challenged by an application for it to be set aside. The Supreme Court explained that “recourse” refers to the manner by which a right is enforced, and if the right itself is limited, then the manner of its enforcement must also remain limited.

B. The Principle of Severability (Partial Setting Aside)

One of the major issues on which the Court focused its attention was the proviso to Section 34(2)(a)(iv), which states that a judge can strike out parts of the award that deal with issues not referred to arbitration, provided that such parts can be clearly separated from the rest.

Severance was described as both inherent and clarificatory, and the conclusions were as follows:

1. Partial Setting Aside is Permissible: The power to set aside an award includes the power to strike out parts of it. 

2. The Caveat of Interdependence: Partial setting aside is possible only if the “valid” and “invalid” parts are not intrinsically linked or so interwoven that they cannot be clearly separated. If liability and quantum are so interwoven that they cannot be clearly separated, then the award must stand (or fall) as a whole. 

C. Modification vs. Setting Aside

The Court also clearly distinguished between modification and setting aside. The difference between the two is that modification entails change, while setting aside entails annulment. The Court reaffirmed the ruling in M. Hakeem that, generally, a Section 34 court has no power to modify the award on its merits. Such a power is clearly prohibited by the 1996 Act, as it would effectively turn the court into an appellate body, which is impermissible.

D. The Exception: Clerical Errors and Interest

The Court established a limited exception based on the principle actus curiae neminem gravabit—that is, no one should be harmed by the act of the Court. This allows for the correction of:

• “Computational, clerical or typographical errors.”

• “Post-award interest, which is often incurred on account of the time taken in the judicial review process and does not necessarily involve any review of the merits of the dispute.”

E. The Role of Article 142

The Supreme Court reaffirmed that its jurisdiction under Article 142 to “do complete justice” remains available. However, this jurisdiction must be exercised with great care and caution and cannot be exercised in contravention of fundamental principles that are non-derogable. This jurisdiction is applicable only in the Supreme Court and not in High Courts or District Courts hearing applications under Section 34.

F. Statutory vs. Consensual Arbitration

The Court rejected the contention that statutory arbitration (for example, under the National Highways Act) warrants a broader jurisdiction for modification. It held that “Section 34 must be interpreted uniformly in respect of all types of arbitration governed by the 1996 Act.”

Implications for Future Arbitration Practice 

A practical guide for dealing with issues related to arbitration awards is provided in the Gayatri Balasamy judgment as follows:

• For the Parties: If only a part of the award is clearly flawed but can be separated from the rest, seek a partial setting aside rather than an override or wholesale modification.

• For the Courts: Resist the temptation to review the award on its merits. Instead, examine whether any of the conditions in Section 34(2) are met, and if so, set aside the award in its entirety or strike out the flawed parts.

• The “Carousel” Issue: The Court acknowledges that setting aside an award may result in a fresh arbitration. However, it considers this to be a legislative choice motivated by the desire to preserve the integrity of arbitration.

Conclusion

In Gayatri Balasamy v. ISG Novasoft, the Supreme Court appears to strike a balance between fairness and due process. It holds that, in Section 34 cases, courts are not empowered to modify or amend arbitration awards, though they may remove parts that are patently erroneous. This appears to be a workable solution to what has long been a complex issue. The judgment stands as a reaffirmation of the UNCITRAL Model Law by Indian courts and provides assurance to the international arbitration community that India respects the sanctity of arbitral awards. As India continues to refine its arbitration framework, this decision remains an important benchmark of judicial restraint, reinforcing arbitration rather than obstructing it.

Author: Medha Banta and Monika Singh, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney.

Citations/References

• Gayatri Balasamy v. M/S ISG Novasoft Technologies Limited, 2025 INSC 605.

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

• McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181.

• Ssangyong Engineering and Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131.

• Vedanta Limited v. Shenzhen Shandong Nuclear Power Construction Co. Ltd., (2019) 11 SCC 465.

• Oriental Structural Engineers Pvt. Ltd. v. State of Kerala, (2021) 6 SCC 150.

• Pratap Chamaria v. Durga Prasad Chamaria, AIR 1925 PC 293.

• I-Pay Clearing Services (P) Ltd. v. ICICI Bank Ltd., (2022) 3 SCC 121.

• Dyna Technologies Private Limited v. Crompton Greaves Limited, (2019) 20 SCC 1.

• Arbitration and Conciliation Act, 1996, Sections 5, 31, 33, 34, 37, 43, and 48.

• Constitution of India, Article 142.

• UNCITRAL Model Law on International Commercial Arbitration, 1985.