The Supreme Court of India Clarifies the Scope of Section 34 of the Arbitration and Conciliation Act, 1996

In April 2025, the Hon’ble Supreme Court of India, through a five-judge Constitution Bench, pronounced a landmark judgement Gayatri Balasamy v. ISG Novasoft Technologies Limited[1], resolving a long-standing legal dispute on whether courts possess the jurisdiction to modify arbitral awards under the Arbitration and Conciliation Act, 1996 (“the Act”). The ruling has far reaching consequences for arbitration in India, the international recognition and enforcement of awards, and the principle of judicial restraint.

     I.         Legal Background

In 2024, a three-judge bench of the Hon’ble Supreme Court of India directed that the Special Leave Petitions in the present case be placed before the Chief Justice of India for an appropriate order. Accordingly, following are the main questions which have been addressed:

• Do the powers of the Court under Sections 34 and 37 of the Act extend to modifying an arbitral award?

• If the Court has the power to modify an award, is such power limited to cases where the award is partly severable?

• Does the wider power to set aside an award under Section 34 of the Act also include the power to modify the arbitral award, and if so, what is the scope of that power?

• Can the power to modify an award be inferred from the power to set aside an award under Section 34 of the Act?

Previously, judges were only empowered to set aside awards on limited grounds as per Sections 34 and 37 of the Act. The Act is silent on whether these provisions conferred any authority upon judiciary to modify an arbitral award. Regarding this, the courts have taken different stands on the possibility and extent of modification of an arbitral award. Some of the key judgements which have been cited in the present case are as follows:

·      McDermott International Inc. v. Burn Standard Co. Ltd. (2006) 11 SCC 181It was held that Court intervention in an award is permissible only in limited situations, such as instances involving fraud, bias on the part of the arbitrators, or when there is a breach of natural justice. Otherwise, the court only has a supervisory role and the authority to rectify errors made by the arbitrators; it may only set aside the award, allowing the parties the option to restart arbitration proceedings if they so choose.

·      ONGC Ltd. v. Western GECO International Ltd. (2014) 9 SCC 263It was observed by a three-judge bench that where an arbitral tribunal draws manifestly unreasonable inferences in a specific case resulting in the miscarriage of justice, such awards may be set aside, modified or the flawed part the award may be removed. The Court thus acknowledged that modification may be appropriate in limited circumstances where the offending portion of the award can be separated from the remaining award. 

·      Project Director, NHAI v. M. Hakeem (2021) 9 SCC 1The Court unequivocally held that Section 34 of the Act does not confer jurisdiction upon courts to modify arbitral awards; it only allows courts to set them aside on enumerated statutory grounds. It emphasized that any expansion of this power would require legislative directive and intervention and cannot be carried out by the judiciary at its discretion.

   II.         Main Arguments from Both Sides

In favour of modification (Appellant): The Appellant advocated for a purposive and functional interpretation of Section 34, invoking the maxim ‘omne majus continet in se minus’ (the greater includes the lesser), arguing that if a court has the power to annul an award, it should also have the authority to modify it.

Against modification (Respondent): The Respondent contended that Section 34 explicitly authorizes courts only to "set aside" an award and not to modify it. It was argued that if courts had the power to modify, it could lead to a replacement of court orders or decrees with arbitral awards, which in arbitration jurisprudence is unacceptable. Modifications carry international repercussions when awards are sought to be enforced under foreign conventions, and so the principle of ‘omne majus continet in se minus’ should not be applied to this case.

 III.         Observations and Ruling of the Supreme Court

In a 4:1 majority decision, the Hon’ble Supreme Court held that courts do possess a limited power to modify arbitral awards under Section 34 of the Act.  However, before declaring the scope of modification, the Court cited the case of ‘Shilpa Sailesh v. Varun Sreenivasan’[2] to clarify the extent of the applicability of Article 142 of the Constitution. The Court categorically stated that the power to do complete justice should be exercised by this Court with great care and caution, and in in consonance with the fundamental principles behind the Act.

In the present case, the majority opined that courts possess a limited authority to modify arbitral awards, especially when the defective portion is severable. Referring to the proviso to Section 34(2)(a)(iv) (which outlines the concept of severability of awards), the Court reasoned that the power to annul inherently includes the lesser power to modify. The majority stressed functional efficiency, noting that denying such power may cause delay and further litigation. On the other hand, allowing modification, as the dissenting minority opined, undermines arbitral autonomy and violates the New York Convention’s enforcement framework. It cautioned that efficiency concerns cannot override legislative intent, and any change to the statutory framework must come from Parliament.

With respect to the power of modification, it was held that in certain circumstances, an arbitral award may be modified, these circumstances are as follows:

• When the award is severable, the invalid part can be separated from the valid portion.

• Correction of clerical, typographical, or calculation errors that are evident on the record.

• Adjustment of post-award interest in specific cases.

• Article 142 may be invoked, but only with utmost care and within constitutional limits.

IV.         Legal Implications of the Judgement

The decision in the present case marks a significant shift in Indian arbitration jurisprudence as prior to this ruling, the prevailing judicial position was that Section 34, being modelled on the UNCITRAL Model Law, conferred no modification power on courts. This strict interpretation often resulted in procedural inefficiencies, compelling parties to recommence arbitration even for minor or severable errors in the award.

The listed circumstances where modification is permitted as an ancillary and incidental power, upholds the principles of equity, cost-efficiency, and finality especially in the background of pendency of cases. Importantly, the ruling clarifies that modification is permissible only when the valid and invalid parts of the award are clearly severable. It does not open the floodgates for judicial re-evaluation of awards passed by arbitrators but empowers courts to deliver complete justice within generous limits. The judgment also harmonizes the Indian position with international practices in jurisdictions like the UK and Singapore, where limited modification powers are statutorily recognized.

While the ruling will help reduce delays and procedural stagnancy, it may potentially lead to increased judicial scrutiny and discretion possibly discouraging members of the public from opting for arbitration in the first place. It has to be noted that the boundaries of what qualifies as “severable” etc. remain undefined, consequently the power to modify may evolve from being exceptionally exercised to into one that that is rampantly invoked to undermine arbitral autonomy.

   V.         Conclusion

It is nonetheless hoped that for future, if modification of arbitral awards is to be considered a remedy and a last resort for parties, its scope must be clearly defined, the extent of permissible intervention standardized, and its application aligned with the overarching intent of the Act. Until the legislature takes further action be it through amendment or issuance of some clarification, courts balance between ensuring fairness and respecting their judicial boundaries.

[1] Gayatri Balasamy v. ISG Novasoft Technologies Limited 2025 SCC OnLine SC 986.

[2] Shilpa Sailesh v. Varun Sreenivasan (2023) 14 SCC 231.