There has been a long-standing debate surrounding whether courts under Section 34 of the Arbitration and Conciliation Act, 1996 (“the Act”) could only set aside an arbitral award or if a limited power to modify existed. Previously, the courts have taken differential views on the exercise of this power under Section 34. In some cases, the courts have denied the power to modify the arbitral awards as it would invite judicial intervention, while in other cases, the courts have modified the awards either by way of altering the rate of interest awarded or by correcting the patent errors.

Interestingly, the Supreme Court on April 30, 2025, in Gayatri Balasamy vs M/s ISG Novasoft Technologies Limited [2025 INSC 605], passed a landmark judgment by a 4:1 majority, which provides the much-needed clarity on the aforesaid tussle and proves to be a watershed moment in the Indian arbitration ecosystem. The apex court dealt with the question of whether the power vested with courts under Sections 34 and 37 of the Act includes the power to modify the arbitral award and, if yes, to what extent this power could be exercised. The Constitution Bench, addressing this longstanding quandary, ruled that courts possess not only the power to set aside an arbitral award, but in circumscribed situations, the power of modification as well.

This landmark clarification is a positive development, judiciously balancing the principle of minimal judicial intervention with the imperatives of justice, efficiency, and preventing the wastage of resources that often accompanies a complete setting aside of awards by the courts.

In a catena of judgments, it has been consistently held by the Supreme Court that the arbitral tribunal is the master of evidence. The scope of judicial intervention under Section 34 of the Act is confined to the limited grounds expressly provided therein. Therefore, the court is not empowered to correct errors of facts, reconsider costs, or engage in a review of the merits of the arbitral award.

In 2021, the Division Bench of the Supreme Court in The Project Director, National Highways No. 45E and 220 National Highways Authority of India v. M. Hakeem and Anr. [2021 INSC 344], conclusively observed that while exercising powers under Section 34, a court hearing the application had no power to “modify” the award. The award can either be set aside or be remanded to the arbitral tribunal. The same would prevent courts from stepping into the shoes of the arbitrator and rewriting the award on merits.

However, this view paves the way for multiple challenges for the disputing parties. It promoted an “all or nothing” approach, i.e., the courts can either completely set aside the arbitral award or remand it to the arbitral tribunal. The correctable, severable, or patent errors often faced complete annulment, leading to immense hardship and injustice for the parties, especially the winning party, which had successfully secured a favourable award after following due procedure.

The apex court recognized the need to resolve the longstanding legal controversy and its significant implications. While analysing the arguments canvassed in the longstanding conflict between pursuit of equity and justice, on one hand, and the fetters imposed by the court’s jurisdictional limits, on the other, the Hon’ble Supreme Court conclusively held that courts do have a limited power under Sections 34 and 37 of the Act to modify the arbitral awards. This limited power may be exercised – (1) when the award is severable, by severing the “invalid” portion from the “valid” portion of the award, or (2) by correcting any clerical, computational or typographical errors which appear erroneous on the face of the record or (3) by modifying the post award interest in certain circumstances.

Typographical and clerical errors or manifest errors

The Supreme Court reiterated that the power of modification includes correcting inadvertent errors, including “typographical and clerical errors” and the “errors apparent on the face of the award”, while hearing an application under Section 34. However, such a power must not be conflated with appellate jurisdiction of a higher court or the power to review a judgment of a lower court. It is to be noted that if the modification is debatable or doubt arises regarding its appropriateness, i.e., if the error is not apparent on the face of the record, then the courts must refrain from modifying such an award and remit the same to the arbitral tribunal under Section 34(4) of the Act.

The power of severance

The apex court also analyzed the power of severance, recognized under the proviso to Section 34(2)(a)(iv) ACA, authorizing the court to sever the “invalid” portion of an arbitral award from the “valid” portion, while acting within the narrow confines of Section 34. Such power is inherent in the court’s jurisdiction when setting aside an award. Further, applying the doctrine of omne majus continet in se minus—the greater power includes the lesser, the Court held that the authority to set aside an arbitral award necessarily encompasses the power to set it aside in part.

Modification of Post-Award Interest

The Supreme Court further held that courts retain the power to modify post-award interest in certain circumstances. Section 31(7)(b) of the Act, which deals with post-award interest, is a unique legislative provision establishing a standard rate. Since the arbitrators cannot foresee all future events impacting such interest, and to avoid fresh litigation solely on this ground, courts are empowered to intervene if facts and circumstances warrant a change.

Exercise of Power under Article 142 of the Constitution

The majority decision further clarified that the Supreme Court itself can exercise its powers under Article 142 of the Constitution to modify an award, but the same must be used with great care and caution, without rewriting the award on its merits or contravening the fundamental principles of the Act.

The Supreme Court, in its majority judgment, justified the rationale behind acknowledging the power of modification by stating:

“To deny courts the authority to modify an award—particularly when such a denial would impose significant hardships, escalate costs, and lead to unnecessary delays—would defeat the raison d’être of arbitration. This concern is particularly pronounced in India, where applications under Section 34 and appeals under Section 37 often take years to resolve.”

The majority decision also clarified procedural aspects concerning Section 34(4) of the Act, emphasizing that a request for remittal by a party need not be in writing, and that an appellate court under Section 37 retains the power to remand. This effectively refines the understanding previously laid down in Kinnari Mullick and Anr. v. Ghanshyam Das Damani [2017 INSC 1281].

The majority decision appears to be a positive and significant development for ensuring enhanced efficiency and effective resolution of disputes. Accepting the power of modification by courts under Section 34 of the Act will significantly cut down delays by allowing courts to rectify specific correctable errors directly or by severing the invalid portions on their own, rather than remitting or forcing new arbitrations for such minor issues. It will also save time and cut unnecessary costs for litigants in going through arbitration proceedings again just to correct the obvious errors which could have easily been rectified by the courts at the Section 34 stage, ensuring greater and substantive justice to the parties. With the majority decision affirming that such limited modification does not conflict with the New York Convention, 1958, the same should reinforce international confidence, indicating the focus on effective resolution. This approach will also free up arbitral tribunals from having to rehear matters for minor corrections once they have already become functous officio. This decision is consistent with India’s broader pro-arbitration reforms as well, making it a potentially more attractive destination for parties for the effective resolution of their disputes.

As we welcome this new decision as a significant step in the Indian arbitration landscape, it will be interesting to see how effective it proves for the litigants and other stakeholders in the effective resolution of their disputes - the primary objective and rationale behind this judgment. By granting the limited power to modify the awards wherever necessary, the courts have been empowered under Section 34 to do complete justice. However, its success hinges on the cautious and judicious exercise of this power in practice. The courts must strictly adhere to the limited criteria set by the apex court for modifying awards to prevent routine interference in arbitral awards and ensure that this power is not misused to open floodgates for more litigation.

This balanced approach by the Supreme Court, in the majority decision, is a landmark step in the right direction, reflecting judicial pragmatism and a commitment to effective justice, ultimately contributing to a more mature, stable, and user-friendly arbitration regime in India.

About the author: Harmeet Grover is the Founder of Aayati Legal.

Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.

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