Courts can modify arbitral awards, rules Supreme Court

Courts can modify arbitral awards under limited and rare circumstances, a Constitution Bench of the Supreme Court ruling on Wednesday, a majority ruling that could alter India's arbitration landscape. 

So far, Indian courts could only uphold or set them aside.

The five-judge bench, led by Chief Justice of India Sanjiv Khanna, ruled that courts can modify arbitral awards in accordance with Sections 34 and 37 of the Arbitration and Conciliation Act, 1996. Section 34 allows parties to apply for setting aside an arbitral award, while Section 37 deals with appeals against such orders.

The other four members of the bench hearing Gayatri Balasamy v. ISG Novasoft Technologies Ltd were Justices B.R. Gavai, Sanjay Kumar, K.V. Viswanathan, and Augustine George Masih.

The apex court clarified that courts can do so in rare instances, such as correcting calculation errors, adjusting interest, or making other simple changes, without nullifying the entire award. In exceptional cases, Article 142 of the Constitution can also be invoked, but only in a limited manner.

Viswanathan dissented, expressing concerns about the court’s authority to modify post-award interest and use Article 142 for such modifications. He suggested that any necessary changes should be handled by remitting the matter back to the arbitral tribunal.

The majority ruling can reshape India's arbitration landscape, as it eliminates the need for businesses to re-arbitrate disputes from scratch, reducing costs and delays. 

Also Read: Supreme Court could reshape arbitration. Businesses are watching.

At the same time, the ruling could also lead to more litigation, undermining the utility of arbitration as an alternative to court battles.

The case diary

Tbe case has its origins in Gayatri Balasamy, a senior executive at ISG Novasoft Technologies, who resigned in 2005, alleging sexual harassment by chief executive Krishna Srinivasan. The company did not accept her resignation and instead issued three termination letters. Balasamy filed criminal complaints, while ISG countered with defamation and extortion charges.

The dispute went to arbitration, where the tribunal awarded Balasamy ₹2 crore in compensation. She challenged the award in the Madras high court, claiming it ignored key parts of her case. In 2014, a single judge increased the award by ₹1.6 crore. However, in 2019, a division bench reduced the award drastically to ₹50,000, calling the increase excessive.

Balasamy then appealed to the Supreme Court, which in 2024 referred the issue of judicial power to modify arbitral awards to the five-judge Constitution Bench.

Also Read: India's bid to be arbitration hub hit by mediator council delay

The top court's ruling comes as the Union law ministry considers amendments to the Arbitration and Conciliation Act. Public consultations on a draft bill closed last November. 

Experts believe that granting courts greater power over arbitration outcomes may push businesses to adjust their dispute resolution strategies, potentially favouring arbitration hubs such as Singapore, London, or Dubai over India to minimize legal uncertainty.

Countries like the UK, US, and Singapore already allow courts to adjust domestic arbitration awards, but India's legal framework does not distinguish between domestic and international arbitration, treating both types of cases the same.

Also Read: Govt seeks to amend law to bolster institutional arbitration

The impact of the ruling may push foreign investors to rethink strategy about investing in India, said Manan Shukla, Partner, HSA Advocates. "Foreign investors will regroup and reconsider strategy before venturing into India. The import of Article 142 of the Constitution of India in private commercial disputes allows disputes to be adjudicated on the basis of equity -- to do the complete justice -- and not on the basis of law or apart from law," he said.

Sidharth Kapoor, a Delhi-based advocate practicing in arbitration matters, said he feared the top court's judgement would broaden judicial review of arbitral awards. "I am still concerned about the on-ground impact. As cases move through the judicial hierarchy, from District Courts to the Supreme Court itself, there’s a significant risk that these intended limitations will erode, further prolonging Section 34 and 37 proceedings, which the court in the judgment has acknowledged are already lengthy" he said. The limitations refer to the guardrails set by the court in its judgement on Wednesday.

But there may be new issues and possible litigation related to these guardrails in the coming days, he said. "New disputes will inevitably arise not just about the award itself, but about whether modification was appropriate, whether remand under Section 34(4) should have been ordered, and the correct application of the guardrails. New questions of law with respect to what is the exact narrowed meaning of the guardrails set in the judgment is also bound to arise," he said.

Shaneen Parikh, partner (head - international arbitration) at Cyril Amarchand Mangaldas sided with the dissent by Vishwanath, and highlighted that the scope for modifying arbitral awards was very limited in the judgement pronounced on Wednesday.

The ruling would also give more leverage to award debtors -- parties which have to pay the arbitral award -- to persuade the court to review the award, she said.

"For instance, modification for correcting clerical errors was something that parties were always entitled to approach the arbitral tribunal for," said Parikh. But modifying post-award interest, however, would allow the court to review the basis of awarding interest, effectively delaying proceedings, Parikh added.

Including article 142 of the Constitution, which allows the apex court to provide "complete justice", could signal litigants that there is more licensee to exercise these powers, Parikh said.

Ila Kapoor, partner at Shardul Amarchand Mangaldas, concurred with the view that imbibing the principle of complete justice under article 142 could lead to further litigation. "It will be interesting to see how the Supreme Court exercises this power in future decisions. In keeping with India's aspirations to become a global hub for arbitration, this power must be used sparingly," she said.