For years, the settled understanding was that a court hearing a challenge to an arbitral award could do one of two things: uphold the award or set it aside. It could not rewrite it. A recent Constitution Bench decision of the Supreme Court has unsettled that binary. In Gayatri Balasamy v. ISG Novasoft Technologies Limited, the Court held by a 4:1 majority that courts possess a limited power to modify an arbitral award under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996. This article explains what the Court decided, the four narrow situations in which modification is now permitted, the earlier position it displaces, and the forceful dissent that accompanied it.
The decision
The Supreme Court delivered its judgment on 30 April 2025. The majority, authored by Chief Justice Sanjiv Khanna and joined by Justices B.R. Gavai, Sanjay Kumar and Augustine George Masih, held that courts do possess a limited power to modify arbitral awards under Sections 34 and 37. Justice K.V. Viswanathan dissented.
"We are of the opinion that modification represents a more limited, nuanced power in comparison to the annulment of an award, as the latter entails a more severe consequence of the award being voided in toto. 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. It will be wrong to argue that silence in the 1996 Act, as projected, should be read as a complete prohibition."
The majority distinguished between setting aside, which renders an award a nullity, and modification, which alters a specific part of it. It reasoned from the proviso to Section 34(2)(a)(iv), which already permits a court to set aside only the severable part of an award, and applied the maxim omne majus continet in se minus (the greater power includes the lesser): if a court can excise part of an award, it can also, in defined circumstances, vary it. The Court was explicit that the statute's silence on modification is not a prohibition:
"Section 34 does not restrict the range of reliefs that the court can grant, while remaining within the contours of the statute. A different relief can be fashioned as long as it does not violate the guardrails of the power provided under Section 34."
The dispute itself arose from a claim by a former Vice President of the respondent company alleging wrongful termination, in which an arbitral tribunal had awarded compensation. On challenge, a single judge of the Madras High Court enhanced the award, and a Division Bench then reduced that enhancement. The conflicting treatment fed directly into the question the Constitution Bench was convened to resolve.
The four situations where modification is permitted
The majority confined the modification power to four categories. Anything beyond them is not available as "modification" and must be dealt with through the ordinary mechanisms of the Act.
1. Severable awards
Where an award contains both valid and invalid parts, a court may sever the invalid portion, but only where the two can be cleanly separated:
"Thus, the power of partial setting aside should be exercised only when the valid and invalid parts of the award can be clearly segregated - particularly in relation to liability and quantum and without any corelation between valid and invalid parts."
If valid and invalid matters are inextricably bound up, the award cannot be set aside in part; the Court drew on the Privy Council decision in Pratap Chamaria v. Durga Prasad Chamaria to make the point.
2. Correction of manifest errors
A court reviewing an award may correct clerical, computational, typographical and other manifest errors on the face of the record, provided no merits evaluation is required:
"Notwithstanding Section 33, we affirm that a court reviewing an award under Section 34 possesses the authority to rectify computational, clerical, or typographical errors, as well as other manifest errors, provided that such modification does not necessitate a merits-based evaluation."
The dividing line is certainty. The Court stressed that under Section 34 it must have no doubt when correcting an award; if the error is debatable or not apparent on the face of the record, the court cannot proceed and the party should instead seek recourse before the tribunal under Section 33 or seek a remittal under Section 34(4).
3. Modification of post-award interest
Because the Indian Act, unlike the UNCITRAL Model Law on which it is based, contains detailed interest provisions in Section 31(7), the majority held that courts may modify post-award interest where the facts justify it:
"The standard rate stipulated in clause (b) applies when the award itself does not specify the applicable post award interest. There can be a situation where the party to be paid money is at fault and is guilty of delay which may require a modification in the rate of interest. In the absence of grant of post award interest in the award, the court also possesses the power to grant post award interest."
The power runs in both directions - it may increase as well as decrease the rate - because post-award interest is future-oriented and turns on circumstances the arbitrator could not foresee. The Court cautioned, however, that this power must be used sparingly, "not acting in an appellate capacity, but rather under limited authority," and only where there are compelling and well-founded reasons.
4. Article 142 of the Constitution
Finally, the Supreme Court retains its power under Article 142 to do "complete justice," but the majority hedged it tightly:
"In our opinion, the power should not be exercised where the effect of the order passed by the court would be to rewrite the award or modify the award on merits. However, the power can be exercised where it is required and necessary to bring the litigation or dispute to an end."
The Article 142 power must be exercised consistently with the fundamental objectives of the 1996 Act, and not in derogation of them.
The position it displaces: M. Hakeem
Before this decision, the dominant view was that courts had no power to modify an award at all. That position was established in Project Director, National Highways No. 45 E and 220, NHAI v. M. Hakeem (2021) 9 SCC 1, decided on 20 July 2021, which held that the power under Section 34 to "set aside" an award includes the power to set aside a severable part, but does not extend to modifying it:
"the power of the court under Section 34 of the Arbitration and Conciliation Act, 1996 ... to 'set aside' an award ... would include the power to set aside an award which is severable, to the extent it is severable and not to the extent of the whole award; however, such power would not include the power to 'Modify' the Award."
The M. Hakeem Bench relied on the Model Law foundation of Section 34 and on the deliberate omission from the 1996 Act of the modification power that the earlier 1940 Act had contained, reasoning that expanding Section 34 to include modification would require a legislative amendment rather than judicial interpretation. That reasoning had been reinforced by later decisions such as Larsen Air Conditioning and Refrigeration Company v. Union of India (2023) 15 SCC 472 and S.V. Samudram v. State of Karnataka (2024) 3 SCC 623.
At the same time, several benches had in practice modified awards - most often interest - creating the very inconsistency the reference sought to cure. The memo notes decisions such as Vedanta Limited v. Shenzhen Shandong Nuclear Power Construction Company Limited (2019) 11 SCC 465, where the Court adjusted interest rates across currency components, and Oriental Structural Engineers Private Limited v. State of Kerala (2021) 6 SCC 150, where it reduced an interest rate, alongside earlier decisions like Tata Hydroelectric Power Supply Co. Ltd. v. Union of India (2003) 4 SCC 172. Faced with this divergence, a three-judge bench on 20 February 2024 referred the question to a larger bench, asking in terms whether the powers under Sections 34 and 37 include the power to modify an award and whether M. Hakeem laid down the correct law.
The dissent
Justice K.V. Viswanathan dissented at length, holding that Section 34 confers no power of modification. His central proposition was that severance and modification are different in kind:
"Modification and severance are two different concepts. While modification is not permitted under Section 34, severance of the award falling foul of Section 34 is permissible in exercise of powers under Section 34 ... The power to set aside will not include the power to modify since the power to modify is not a lesser power subsumed in the power to set aside ... the power to set aside and power to modify do not emanate from the same genus and are qualitatively different powers."
He rejected the majority's use of the "greater includes the lesser" maxim, treated the omission of modification from the 1996 Act as a conscious legislative choice, and considered that Article 142 "cannot override substantive law." In his view, the remedy for any inefficiency lay in legislative reform, not judicial innovation. He accepted M. Hakeem as correct on the absence of a modification power, subject only to the narrow ability to correct computational errors.
Modify or remit? The role of Section 34(4)
The judgment carefully separates the limited power to modify from the power to remit under Section 34(4), which allows a court to adjourn the challenge and give the tribunal an opportunity to cure a defect. The governing test is certainty:
"If a fog of uncertainty obscures the exercise of modification powers, the courts must not modify the award. Instead, they should avail their remedial power and remand the award to the tribunal under Section 34(4)."
On remittal, the tribunal may take corrective measures - record further evidence, cure the identified defect, and even vary the award - but it cannot rewrite the award on the merits or set it aside. The majority also clarified the earlier decision in Kinnari Mullick v. Ghanshyam Das Damani (2018) 11 SCC 328, holding that a request to remit may be made orally (if recorded), and that an appellate court under Section 37 also possesses the remittal power.
Enforcement and the New York Convention
A recurring objection to modification was that a modified award might cease to be an "arbitral award" and so fall outside the New York Convention and Section 48. The majority rejected this. Under Section 48(1)(e), mirroring Article V of the Convention, an award must have become binding under the law of the seat before enforcement, which means the domestic law of the seat governs finality. If Indian law permits modification under Section 34, the modified award is what becomes binding under Indian law; the award "would be read as modified by the judgment/order." The memo notes that several Model Law jurisdictions have since legislated limited modification powers, listing the United Kingdom, Australia, Singapore, Canada and Kenya by way of comparison.
How settled is this?
The decision is recent and was decided by a 4:1 majority. The memo itself flags that the split, and Justice Viswanathan's detailed dissent, mean the issue may be revisited, and that boundaries such as what counts as a "manifest error" as opposed to a debatable one, and the precise limits of the Article 142 power, will require further clarification through case-by-case application. High Courts and District Courts may also apply the modification power unevenly until the position is further settled. The holding is authoritative and binding; but it is new law, and the memo's caution about its evolving contours should be read alongside it.
Practical Takeaways
- When challenging an award, plead the specific category relied on - severability, manifest error, interest, or Article 142 - rather than assuming a court will either uphold or set aside in whole.
- For interest challenges, tie the argument to the statutory benchmark in Section 31(7) or to the contract, and document post-award facts (delay, changed circumstances); the court may adjust interest up or down.
- Where the correct outcome is not beyond doubt, seek remittal under Section 34(4) rather than direct modification; a request to remit may now be made orally if recorded.
- An appellate court under Section 37 has the same modification and remittal powers as the Section 34 court.
- Do not assume enforceability concerns under the New York Convention preclude modification, but link any modification to clear statutory grounds to aid recognition.
- Treat the Article 142 route as a last resort; the dissent's objections make it the most vulnerable basis on appeal.
Key Authorities
- Gayatri Balasamy v. ISG Novasoft Technologies Limited, 2025 INSC 605, judgment dated 30 April 2025 (Supreme Court, Constitution Bench, 4:1) - courts have a limited power to modify arbitral awards under Sections 34 and 37 in four defined situations. Source
- Project Director, NHAI v. M. Hakeem, (2021) 9 SCC 1, decided 20 July 2021 - the (now displaced) rule that Section 34 permits setting aside but not modification. Source
- Vedanta Limited v. Shenzhen Shandong Nuclear Power Construction Company Limited, (2019) 11 SCC 465 - court adjusted interest rates across currency components.
- Oriental Structural Engineers Private Limited v. State of Kerala, (2021) 6 SCC 150 - court reduced an awarded interest rate.
- Kinnari Mullick v. Ghanshyam Das Damani, (2018) 11 SCC 328 - clarified in Gayatri Balasamy on oral remittal requests and appellate remittal.
- Arbitration and Conciliation Act, 1996, Sections 31(7), 33, 34 and 37 - the statutory provisions on interest, correction, setting aside and appeals. Source
This analysis reflects the law as at May 2026. It is published for general information and does not constitute legal advice.