Indian Supreme Court rules on judicial powers to modify arbitral awards

Recently, in Gayatri Balasamy v. M/S. ISG Novasoft Technologies 2025 INSC 605, the Indian Supreme Court held that courts may modify arbitral awards in set aside proceedings under the (Indian) Arbitration and Conciliation Act, 1996 (IACA) in limited circumstances .

Background

A party may apply to the relevant Indian court under s34 IACA to set aside an arbitral award on certain grounds including validity of the arbitration agreement and conflict with Indian public policy. However, s34 IACA does not expressly grant courts the power to “modify” awards.

In Gayatri Balasamy, the proceedings before the Indian Supreme Court, related to (among other things), an employment termination dispute that arose from an arbitration between an individual (Gayatri Balasamy) and her employer (ISG Novasoft Technologies Limited). Balasamy was dissatisfied with the arbitral tribunal’s award for compensation and applied to the High Court under s34 IACA, arguing that some of her claims had been overlooked by the tribunal.

The High Court altered the compensation granted by the tribunal rather than setting aside the award. On appeal, the key question before the Indian Supreme Court was whether courts could make such modifications to arbitral awards in proceedings to set aside awards under the IACA.

The Indian Supreme Court’s judgment

Scope of set aside proceedings

It was argued that Indian courts could not modify awards in set aside proceedings because: (1) the IACA (based on the UNCITRAL Model Law) does not envisage courts ‘modifying’ awards; (2) courts do not have “appellate” powers to review the underlying merits of an award and modify it; and (3) a court modified award may be unenforceable under the New York Convention (NYC) [21-23].

The majority decision of the Indian Supreme Court rejected these arguments for the following key reasons:

First, the court’s “greater power” to set aside an award under s34 IACA includes the “lesser power” to modify the award [34, 44] and exercising such a power would not “inevitably lead to an examination of the merits of a dispute” determined by a tribunal [39].

Second, if the court could not modify an award that was erroneous in some respects, it would have to set aside the award. Consequently, parties would be compelled to re-arbitrate the dispute [42]. Therefore, allowing the court to modify an award in proceedings to set it aside would “reduce costs and delays” [46].

Third, along the lines of the NYC, the IACA provides for certain conditions for refusing the enforcement of an award i.e., the award is not binding on the parties or has been set aside (s48). The modification of an award would not impact the binding nature of the award and accordingly, allowing courts to modify the award would not impact enforcement [66-67].

When can Indian courts modify an award?

The Indian Supreme Court held that courts may modify awards in the following circumstances:

• If “the error is apparent” and not when “a doubt arises regarding its appropriateness” [54]. In the latter scenario, the Court recommended remitting the award to the tribunal for reconsideration [55]
• When the award is severable (by severing the valid portion from the invalid portion of the award).
• To correct computational, clerical, or typographical errors which are apparent and any “manifest errors” that do not “necessitate a merits based evaluation” [49, 85].
• To modifying any post award interest awarded by an arbitral tribunal (albeit this power is broadly restricted to aligning the interest rate awarded to the statutory Indian interest rate applicable) [77-79, 85].

Dissenting opinion

One of the five judges hearing the case disagreed with the majority opinion and held that s.34 IACA  does not include the power to modify arbitral awards save for in cases of “computational errors, clerical or typographical errors or any other errors of similar nature without modifying, altering or adding to the original award” [157, dissenting opinion].

The dissenting judge explained that: (1) the IACA did not specifically give courts powers to modify awards unlike other jurisdictions such as England and Singapore that had included limited provisions in their arbitration statutes [92-94, dissenting opinion]; and (2) an Indian court modified award may encounter enforcement issues in other jurisdictions because award debtors may object that an Indian court’s judgment with the modified award rather than a tribunal’s award is being enforced [123, dissenting opinion)].

Comment

While the Indian Supreme Court may have been well intentioned to save parties’ time and costs in re-arbitrating disputes in certain cases, allowing courts to modify awards in certain circumstances (e.g., where “manifest errors” are involved) may likely lead to an additional round of litigation over whether any modifications need to be made by courts before an award is enforced.

Further, it seems the Indian Supreme Court did not have faith in the existing mechanisms under: (1) the IACA to facilitate correction of awards by arbitral tribunals (s33) or by allowing courts to remit awards to arbitral tribunals for reconsideration (s34); and (2) institutional arbitration rules to facilitate correction of errors in awards by the tribunal.

Consequently, this judgment may inadvertently increase the time it takes to enforce an India seated award and increase the potential for Indian awards to be challenged in NYC member states, insofar as they have been ‘court modified.’

Click here for the judgment.