Supreme Court Delineates Judicial Powers to Modify Arbitral Awards
(Five-Judge Constitution Bench Decision in Gayatri Balasamy v. ISG Novasoft Technologies Ltd.)
Executive Summary
In a landmark judgment, the Supreme Court of India’s five-judge Constitution Bench has clarified that courts possess a limited power to modify arbitral awards under the Arbitration and Conciliation Act, 1996. This includes corrections in cases of severable errors and post-award interest, without undermining arbitral finality. The decision is expected to reduce prolonged litigation, especially in land acquisition cases under the NHAI Act, and ease the burden on overworked civil courts and High Courts. It marks a significant step toward making arbitration a more effective and accessible mode of dispute resolution in both commercial and personal matters.
Scope of Judicial Interference in Arbitration Awards
In a significant evolution of arbitration jurisprudence in India, the Supreme Court, through a five-judge Constitution Bench, delivered a pathbreaking judgment on April 30, 2025, in Gayatri Balasamy v. ISG Novasoft Technologies Ltd. (2025 INSC 605). By a 4:1 majority, the Court held that Indian courts possess a limited but defined power to modify arbitral awards under the Arbitration and Conciliation Act, 1996. The ruling addresses long-standing doctrinal uncertainty, reinforcing the balance between party autonomy and judicial oversight.
The Constitution Bench and the Legal Questions Framed
The Bench, comprising Chief Justice Sanjiv Khanna and Justices B.R. Gavai, P.V. Sanjay Kumar, K.V. Viswanathan, and Augustine George Masih, considered five core legal questions:
Whether Sections 34 and 37 of the Arbitration Act confer power upon courts to modify arbitral awards.
Whether any such power depends on the severability of the award.
Whether the power to set aside an award includes the incidental power to modify it.
Whether such power may be inferred from the legislative scheme of Section 34.
Whether previous rulings—particularly Project Director, NHAI v. M. Hakeem—correctly stated the law.
These questions go to the heart of India's arbitration framework and the scope of permissible judicial review.
Factual Background
The dispute arose from a sexual harassment complaint filed by Gayatri Balasamy, then Vice President at ISG Novasoft Technologies. After resigning and initiating legal action, the matter was referred to arbitration. The arbitrator awarded her ₹2 crore in damages. Subsequent proceedings before the Madras High Court led to a modification of the award—first increased by ₹1.6 crore, then reduced on appeal to ₹50,000. The matter eventually reached the Supreme Court for authoritative determination on the limits of judicial power under the Arbitration Act.
The Majority Opinion: Recognising a Limited Power to Modify
In the majority judgment authored by Chief Justice Khanna and supported by Justices Gavai, Sanjay Kumar, and Masih, the Court recognised a limited, structured power in courts to modify arbitral awards under Sections 34 and 37.
1. Severability of the Award
The majority held that courts may intervene to modify awards only when the invalid portion of the award is clearly severable from the valid portion—both legally and practically. The severed part must stand independently without disturbing the overall integrity of the award.
2. Distinction Between Judicial Powers
The ruling clearly distinguishes between the following judicial capacities:
Setting aside an award under Section 34(2),
Arbitrator-led corrections or interpretations under Section 33,
Remanding matters for reconsideration under Section 34(4), and
Court-initiated modifications when justice so demands.
Each remedy operates in a distinct doctrinal space, and the Court discouraged their conflation.
3. Correction of Inadvertent Errors
Courts, the majority held, may rectify errors such as clerical or typographical mistakes under Section 34. However, this power is narrowly confined and must not serve as a disguised appellate review of the arbitral award.
4. Post-Award Interest
Importantly, the majority held that courts could intervene to modify the rate or nature of post-award interest where circumstances justify it. Such intervention must be applied with judicial restraint and in rare cases to prevent manifest injustice.
The Dissenting Opinion of Justice Viswanathan
Justice K.V. Viswanathan, in a robust 129-page dissent, firmly opposed the majority view. He asserted that:
The statutory framework under the Arbitration Act does not empower courts to modify awards.
Article 142 of the Constitution cannot be used to rewrite or alter arbitral decisions.
Even post-award interest, once granted by the arbitrator, lies beyond judicial modification unless specifically appealed or remanded.
His dissent reflects a strict constructionist reading of arbitral finality and legislative intent.
Legal Representation and Stakeholders
The matter drew participation from senior counsel representing both private and institutional parties:
For Gayatri Balasamy: Senior Advocate Arvind Datar led with M.V. Mukunda and Hina Shaheen.
For ISG Novasoft Technologies: Senior Advocate Siddharth Bhatnagar appeared with Debmalya Banerjee and Manmeet Kaur.
For the Union of India: Solicitor General Tushar Mehta represented the government's views, supporting a balanced interpretation of judicial authority.
Application to Land Acquisition and NHAI Arbitrations
The significance of this judgment extends beyond typical commercial disputes. One notable area of application is arbitration arising out of land acquisition under the National Highways Authority of India Act, 1988. In states such as Punjab, Sub-Divisional Magistrates (SDMs) often function as the Competent Authority for Land Acquisition (CALA), issuing initial compensation awards. These awards require subsequent approvals by the NHAI and at times the Central Government, before formal announcement.
Disputes frequently emerge over the valuation of land, classification of usage, and quantum of solatium and interest. More complex still are disputes over apportionment of compensation among multiple claimants, such as co-owners, tenants, or successors-in-title. These often result in arbitration proceedings before Divisional Commissioners, whose awards become the subject of prolonged and multi-tiered litigation. The same applies even where retired IAS officers have been engaged as such arbitrators.
By allowing limited judicial modification—especially in cases involving post-award interest or evidently severable errors—this Supreme Court ruling offers a path toward quicker resolution. It has the potential to reduce the endless cycle of counterclaims, remands, and appeals that plague land acquisition cases, thereby improving legal finality even after the land has long been utilized for public infrastructure. This will greatly benefit both landowners and government agencies by saving time, cost, and uncertainty.
Arbitration in Consumer Disputes: Scope and Limitations
While arbitration is increasingly adopted as a dispute resolution mechanism across various sectors, including interpersonal matters, petty property deals, business and commercial contracts, government tenders for civil works, matrimonial issues, and employment contracts, the Supreme Court has delineated clear boundaries regarding its applicability in consumer disputes.
In the landmark case of M. Hemalatha Devi & Ors. v. B. Udayasri, the Supreme Court held that consumer disputes are inherently non-arbitrable. The Court emphasized that the Consumer Protection Act, 2019, being a welfare legislation, provides special remedies that cannot be ousted by arbitration clauses in agreements. Consequently, even if a contract contains an arbitration clause, consumers retain the right to approach consumer forums for redressal, and cannot be compelled to resolve disputes solely through arbitration.
This principle was further reinforced in Emaar MGF Land Ltd. v. Aftab Singh, where the Supreme Court affirmed that the existence of an arbitration agreement does not bar the jurisdiction of consumer forums. The Apex Court clarified that consumers have the exclusive choice to opt for arbitration, and service providers cannot enforce arbitration unilaterally.
These judgments underscore that while arbitration serves as an effective alternative dispute resolution mechanism, its applicability is limited in the realm of consumer disputes, ensuring that consumers are not deprived of the protective framework established under the Consumer Protection Act.
Scope of Judicial Intervention Under the Act
Section 5 of the Arbitration and Conciliation Act strictly limits court intervention, permitting it only where expressly provided. Section 34 allows challenges to awards only on specific, limited grounds. The Court reaffirmed that the remedy of modification exists in rare circumstances, primarily where the award is severable, or where post-award interest warrants rectification.
Crucially, the judgment partially departs from the precedent in Project Director, NHAI v. M. Hakeem (2021), which had categorically held that courts could set aside but not modify arbitral awards. The Constitution Bench has now carved out a judicially manageable standard for exceptions.
A Cornerstone Judgment for Judicial Efficiency and Commercial Clarity
The five-judge Constitution Bench of the Supreme Court has now settled a deeply contested issue in Indian arbitration law. Courts may, in limited and clearly defined situations, modify arbitral awards. This evolution preserves the finality and autonomy of arbitration while injecting a measure of corrective justice when procedural anomalies or post-award inequities arise.
Importantly, the judgment is not merely of academic value—it will hopefully expedite the settlement of disputes, unburden or unclog the already overloaded civil courts and High Courts, and promote judicial economy. In doing so, it strengthens arbitration as a truly alternative mode of dispute resolution.
For businessmen and entrepreneurs, this provides a significant boost: they can now focus on their core commercial and operational objectives without being distracted or drained by prolonged legal battles. Time, energy, and resources that would otherwise be consumed in litigation spanning years—if not decades—can now be preserved through a more efficient arbitral process backed by measured judicial support.
This landmark ruling will thus serve as a cornerstone for both legal scholarship and practical litigation strategy, especially in contexts where arbitration intersects with public infrastructure, private rights, and complex stakeholder interests. It reaffirms India’s commitment to making arbitration a robust, reliable, and respected system of justice.
Note: The Supreme Court judgments referenced include:
M. Hemalatha Devi & Ors. v. B. Udayasri, affirming that consumer disputes are non-arbitrable and consumers cannot be compelled to arbitrate disputes solely based on arbitration clauses in agreements.
Emaar MGF Land Ltd. v. Aftab Singh, reinforcing that the existence of an arbitration agreement does not bar the jurisdiction of consumer forums, and consumers have the exclusive choice to opt for arbitration.