Gayatri Balasamy vs ISG Novasoft: Supreme Court's Constitution Bench Ruling on Modification of Arbitral Awards
Introduction
A Constitution Bench of the Supreme Court of India has delivered what is arguably one of the most consequential rulings in the domain of Indian arbitration law in recent years. The case — Gayatri Balasamy vs M/s ISG Novasoft Technologies Limited, Special Leave Petition (Civil) No. 15336-15337/2021 — was decided by a five-judge bench led by Former Chief Justice of India, Justice Sanjiv Khanna, with a majority verdict of 4:1. The ruling directly confronts a question that had divided courts, arbitration practitioners, and legal scholars for decades: can an Indian court modify an arbitral award, and if so, to what extent?
The answer, as now settled by the majority, is a carefully qualified yes — recognizing an implied but tightly circumscribed power under Section 34 of the Arbitration and Conciliation Act, 1996, vesting in the seat court, as well as an inherent power under Article 142 of the Constitution of India, available exclusively to the Supreme Court.
Background: Why This Question Arose
The Traditional Position
For a considerable period, Indian courts operated under a well-established principle: their role under Section 34 of the Arbitration and Conciliation Act, 1996 was confined strictly to either upholding or setting aside an arbitral award. There was no recognized middle path of modification.
This position found its clearest expression in McDermott International Inc. v. Burn Standard Co. Ltd, (2006) 11 SCC 181, where the Supreme Court unequivocally held that courts do not possess the authority to alter or rewrite arbitral awards under Section 34. The consequence of a flawed award, under this framework, was a complete set-aside, which would then necessitate fresh arbitration proceedings — a time-consuming and expensive outcome for all parties involved.
This restrictive approach was reaffirmed, with equal clarity, in National Highway Authority of India v. M. Hakeem, (2021) 9 SCC 1, where the Supreme Court explicitly denied the existence of any modification power in the hands of courts exercising jurisdiction under Section 34. The Delhi High Court and several other High Courts further drew a distinction between partial setting aside of an award — which they acknowledged as permissible where separable portions of an award were independently enforceable — and modification, which remained outside the court's competence.
Why Courts Occasionally Deviated
Despite this settled legal position, Indian courts did not always follow an entirely hands-off approach. In select matters involving overriding considerations of justice or equity, courts stepped in to alter specific components of arbitral awards — most notably, interest rates and compensation figures.
For instance, in Tata Hydro-Electric Power Supply Co. Ltd. v. Union of India, (2003) 4 SCC 172, and subsequently in Krishna Bhagya Jala Nigam Ltd. v. Harischandra Reddy, (2007) 2 SCC 720, the Supreme Court modified elements of arbitral awards in pursuit of complete justice. These interventions, though arguably inconsistent with the strict legal position, reflected a judicial instinct that wholesale annulment — followed by re-arbitration — was not always a proportionate or practical remedy.
Additionally, the Supreme Court periodically invoked its extraordinary constitutional powers under Article 142 to achieve just outcomes, further muddying the waters regarding the permissible extent of judicial intervention in arbitration.