Supreme Court Holds Limited Power To Modify Arbitral Awards; Permits Severance, Clerical Corrections and Limited Interest Adjustments

A Constitution Bench led by Chief Justice Sanjiv Khanna, with Justices B.R. Gavai, Sanjay Kumar and Augustine George Masih, heard a batch of appeals and special leave petitions arising out of divergent decisions on the scope of judicial intervention under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996. The reference arose from Gayatri Balasamy v. ISG Novasoft Technologies Ltd. and other matters, and the central question was whether Indian courts could modify or vary an arbitral award, and if so, within what limits.

The Court, by a majority, concluded that courts exercising jurisdiction under Sections 34 and 37 possessed only a limited power to modify an arbitral award and set out the circumstances in which such variation could be permitted. The majority emphasised that judicial intervention under the 1996 Act remained narrow and was to be exercised within the statute’s guardrails; it also underscored the statutory primacy of “set aside” proceedings. The Court, in its reasoning, observed: “We are of the opinion that the Section 34 court can apply the doctrine of severability and modify a portion of the award while retaining the rest. … Read in this manner, the limited and restricted power of severing an award implies a power of the court to vary or modify the award.” The Court also reproduced the statutory prescription that “recourse to a Court against an arbitral award may be made only by an application for setting aside such award,” and held that modification could not be used as a substitute for merits review or appellate substitution.

Background The dispute arose from multiple Special Leave Petitions (notably SLP (C) Nos.15336-15337 of 2021) which exposed conflicting precedents: some two- and three-judge benches had modified awards (on interest or other terms) while Project Director, NHAI v. M. Hakeem (2021) had held that Section 34 did not empower courts to modify awards. The Bench was asked to resolve whether power to modify existed, whether it was limited to severable parts of an award, whether Section 34’s setting-aside power implicitly included modification, and whether earlier decisions required reconsideration.

The majority answered that a narrow, situational power to modify existed and listed circumstances when it could be exercised: (i) where an award was severable and the invalid part could be separated from the valid part; (ii) to correct clerical, typographical or computational errors apparent on the face of the award; (iii) in limited cases, to adjust post‑award interest in light of statutory benchmarks and facts; and (iv) in rare and cautious use of Article 142 of the Constitution to do “complete justice,” subject to strict restraint. The Bench stressed that where modification would require reappreciation of evidence or merits review, the proper course remained setting aside or remitting the matter to the arbitral tribunal under Section 34(4). The Court also held that Section 34(4) operated as a statutory safety‑valve permitting remand to the tribunal to cure curable defects and that courts could even, in appropriate cases, suo motu invoke that power.

A separate opinion by Justice K.V. Viswanathan — also on records of the same matters — took the contrary view: he held that courts did not possess power to modify awards under Section 34 and that any expansion of judicial power should be effected by legislative amendment. The record therefore reflected a divided treatment of the precise contours of judicial intervention; the prevailing decision set out the majority’s limited exceptions and procedural safeguards.

The result was that the questions referred were answered in favour of recognising only a narrow and carefully circumscribed modification power, with severability and remand under Section 34(4) as primary devices; clerical corrections and certain post‑award interest adjustments were expressly permitted, while full merits modification remained excluded.

Case Details: Case No.: 2025 INSC 605 (Arising out of SLP(C) Nos.15336-15337 of 2021 and connected matters) Case Title: Gayatri Balasamy v. M/s ISG Novasoft Technologies Limited (and connected appeals) Appearances: For the Petitioner(s): Mr. Arvind Datar, Mr. Darius Khambata, Mr. Shekhar Naphade (Senior Counsel) and other counsels For the Respondent(s): Mr. Tushar Mehta (Solicitor General), Mr. Gaurav Pachnanda, Mr. Saurabh Kirpal, Mr. Gourab Banerji (Senior Counsel) and other counsels