Supreme Court Clarifies Scope of Judicial Interference Under Sections 34 and 37 of the Arbitration Act

INTRODUCTION

The Arbitration and Conciliation Act, 1996 (“Act”) is founded on the principle of minimal judicial interference, with Sections 34 and 37 offering limited avenues for courts to intervene in the arbitral awards, primarily through setting them aside or hearing appeals against such decisions. However, a recurring question that has persisted in Indian arbitration jurisprudence is whether these provisions permit modification of arbitral awards and if yes, to what extent. This issue, long marked by judicial divergence, strikes at the balance between finality in arbitration and judicial interference in the interest of justice.
Over the years, Indian courts have adopted conflicting views on this point. Certain landmark decisions, including McDermott International,^[1] Tata Hydro-Electric,^[2] Ssangyong,^[3] and M. Hakeem,^[4] have categorically denied courts the power to modify arbitral awards, emphasising the restricted role courts must play. Conversely, other rulings, such as ONGC v. Western GECO,^[5] and Numaligarh Refinery,^[6] have recognised a limited power to modify awards.
This doctrinal uncertainty is culminated in Gayatri Balasamy v. ISG Novasoft Technologies Ltd.,^[7] where a 5-judge bench of the Supreme Court was tasked with definitively answering whether courts possess any power under Sections 34 or 37 of the Act to modify arbitral awards. The Supreme Court affirmed such a power, albeit cautiously, recognising that while certain forms of limited intervention is permissible, courts must not re-appreciate evidence or review the merits.

BACKGROUND

In 2006, Gayatri Balasamy (“Petitioner”) was appointed as the Vice-President at ISG Novasoft Technologies Ltd. (“Respondent”). Her employment contract contained an arbitration clause with the seat in Chennai. Shortly after her appointment, the Petitioner resigned. Her resignation remained unaccepted till 2007. However, later that year, she was served with 3 termination notices. The Petitioner then filed a criminal complaint against two officers of the Respondent. The Respondent also initiated criminal proceedings against the Petitioner for defamation and extortion. Eventually, both the Petitioner and the Respondent reached the Supreme Court, which referred them to resolve their disputes via arbitration.
In the arbitration, an award of INR 2 crores was granted in favour of the Petitioner. Dissatisfied with the award, the Petitioner filed a challenge under Section 34 of the Act before the Madras High Court. The ground for the challenge was that the arbitrator failed to consider the key aspects of her claims.
The single bench of the Madras High Court modified the arbitral award, granting an additional INR 1.6 crores to the Petitioner. This was appealed by the Respondent. The division bench upheld the judgement but reduced the amount of interest from INR 1.6 crores to INR 50 thousand. The division bench’s judgement was then appealed in the Supreme Court. It was referred to a 3-judge bench. The question before the Supreme Court was whether the courts under Sections 34 and 37 of the Act have the power to modify an arbitral award. The 3-judge bench referred the same to a 5-judge bench.

PARTIES’ SUBMISSIONS

Arguments in favour of modification

First, that the Model Law, permits a broader scope of judicial intervention. Several signatory jurisdictions to the Model Law, such as Singapore, the UK, and the US, have enacted provisions for domestic awards that permit modification and/ or variation of arbitral awards.
Second, that since Section 34 of the Act allows for the setting aside of an award, applying the maxim “omne majus continent in se minus”, i.e., the greater contains the lesser, Section 34 inherently includes the ability to modify an arbitral award. Further, the term “recourse”, as used in Section 34, is to be interpreted broadly such that it permits any action to enforce a right. Thus, the recourse to set aside an award includes within its ambit the recourse to modify or vary it.
Third, that the power to grant, reduce, or increase interest should be read into Section 34 of the Act without requiring the parties to go through a fresh arbitration process, as the granting of interest does not necessitate an elaborate inquiry that justifies a need for fresh arbitration.

Arguments against modification

First, that during the drafting of the Model Law, it was decided that the courts should not have the power to modify awards. This was because if courts had such a power, it might result in a court order or decree replacing the arbitral award. This may affect the enforceability of the arbitral award under the New York Convention because only arbitral awards are recognised under it and not court orders or decrees. Moreover, the jurisdictions that grant their courts specific power to modify or vary an award do so under their statutory provisions, which is not the case in India.
Second, that the principle – greater contains the lesser – does not apply in the present case because the power to set aside an arbitral award is a sui generis power, which is intrinsically different from the modification power. Further, set-aside leads to annulment of an award, meaning the award no longer exists. An award that no longer exists cannot be modified or altered. It was also argued that the arbitral tribunal, after rendering the award, becomes functus officio. Thus, by modifying an award, the courts will be adopting appellate powers.
Third, any modification or variation made by the courts to the arbitral award would not be subsumed into the arbitral award, i.e., the doctrine of merger does not apply. Thus, if a court modifies the rate of interest decided by an arbitral tribunal, the original award will not be deemed to be amended to reflect the new interest rate. This also may cause an issue in enforcement under the New York Convention.

DECISION

The Supreme Court, in principle, agreed that recognising a power to modify an arbitral award by the courts may invite judicial interference with the merits of the dispute, which is inconsistent with the framework of the Act. However, the Supreme Court noted that modification would not always inevitably lead to an examination of the merits of the dispute, thereby recognising a limited power of modification.^[8]
The Supreme Court justified its exercise of limited power in relation to arbitral awards by emphasizing that a fundamental objective of arbitration is to provide a speedier, cost-effective alternative to traditional litigation, with minimal judicial interference. Nonetheless, courts play a supportive role in facilitating the arbitration process and ensuring efficient dispute resolution. Judicial intervention is thus warranted when it serves the ends of justice. Denying such power to the courts may impose significant hardships, escalate costs, and lead to unnecessary delays, especially in India, where applications under Section 34 and appeals under Section 37 often take years to resolve. Further, if the courts only had the power to set aside and not modify, it would force the parties to a new arbitration process merely to affirm a decision that could easily be arrived at by the court, and it would also make arbitration more cumbersome than litigation.^[9]
In interpreting the scope of Section 34 of the Act, the Supreme Court noted that although this section limits recourse to courts to an application for setting aside the award, but does not restrict the range of reliefs that the court can grant. The Supreme Court also recognised that the court’s power of judicial review, to sever an arbitral award, and to set aside an arbitral award under Section 34 implies a power to vary or modify the award.^[10]
The Supreme Court also invoked the doctrine of implied power to note that, notwithstanding the arbitral tribunal’s power under Section 33, the court under Section 34 can exercise the power to rectify computational, clerical or typographical errors as well as other manifest errors, given that they do not necessitate a merits-based analysis.^[11] For the same, the Supreme Court also drew a parallel with Section 152 of the CPC. The Supreme Court clarified that the main difference between Section 33 and Section 34 is that the court must have no uncertainty or doubt when modifying an award. If the error is not apparent on the face of the record, the court’s hands will be tied, and the parties can only have recourse to Sections 33 or 33(4).^[12]
Addressing concerns regarding the doctrine of merger and potential enforcement issues under the New York Convention, the Supreme Court held such apprehensions to be unfounded and rejected as misconceived. It emphasised that Section 48 of the Act (which is similarly worded as Article V of the New York Convention) provides that the award must become binding on the parties as per the law of the seat before enforcement. This affirms the primacy of the domestic law of the country where the award is made. Thus, the Supreme Court’s interpretation of Section 34 would not be at loggerheads with the New York Convention. Consequently, a court-modified award will be enforceable as it would be read as an award modified by the judgement/ order.^[13]
On the issue of modifying the rate of interest, the Supreme Court held that for pendente lite interest, it may either set aside the rate of interest or exercise the power of remand under Section 34(4) of the Act. However, with respect to the post-award interest, the court can modify the award where the facts justify such modification. The rationale provided by the Supreme Court is that when considering post-award interest, the arbitral tribunals cannot foresee future issues that may arise. Accordingly, judicial intervention may be appropriate in such cases, though courts must exercise this power cautiously and be mindful not to overstep its role by altering the interest rate unless compelling and well-founded reasons exist.^[14]
The Supreme Court further added that the courts can also modify an arbitral award pursuant to the powers under Article 142 of the Constitution of India. However, the power must be exercised with great care and caution and in limited circumstances such as to bring the litigation or dispute to an end.^[15]
To sum-up, the limited power to modify an arbitral award under Sections 34 and 37 can be exercised when the invalid portion of the arbitral award is severable from the valid portion of the arbitral award;^[16] by correcting any clerical, computational or typographical errors which appear erroneous on the face of the record; post award interest may be modified in some circumstances; and/ or when Article 142 of the Constitution of India applies.

ANALYSIS & CONCLUSION

The Supreme Court’s decision marks a pivotal development in Indian arbitration law by resolving a long-standing judicial divide over the scope of court powers under Sections 34 and 37 of the Act. By recognising a limited power to modify arbitral awards, the Supreme Court has attempted to balance two competing objectives, preserving the finality and autonomy of arbitral proceedings and ensuring that justice is not derailed by procedural rigidity or technical errors.
However, while the judgment carves out specific exceptions, it does not provide an exhaustive list. These exceptions, are susceptible to broad interpretation and may become a gateway for further judicial scrutiny. This ambiguity leaves room for courts to develop additional exceptions over time, thereby introducing unpredictability and diluting the principle of minimal judicial interference.
From a comparative perspective, the ruling underscores India’s continued divergence from established arbitration jurisdictions, where legislative frameworks clearly define and limit judicial intervention. Without statutory guardrails, India risks sending mixed signals to the arbitration community. To restore certainty and credibility, it would be prudent for the Indian legislature to amend the Act in line with global practices, possibly drawing from the jurisdictions listed in Annexure B of the judgment, to clearly delineate the scope of permissible judicial interference with arbitral awards

^[1]McDermott International Inc. v Burn Standard Co. Ltd., (2006) 11 SCC 181

^[2]Tata Hydro-Electric Power Supply Co. Ltd.& Ors. v Union of India, (2003) 4 SCC 172

^[3]Ssangyyong Engineering and Construction Co. Ltd. v National Highways Authority of India, (2019) 15 SCC 131

^[4]Project Director, National Highways No. 45 E and 220 National Highways Authority of India v M. Hakeem, (2021) 9 SCC 1

^[5]Oil and Natural Gas Corporation Limited v Western GECO International Limited, (2014) 9 SCC 263

^[6]Numaligarh Refinery Ltd. v Daelim Industrial Co. Ltd., (2007) 8 SCC 466

^[7]Gayatri Balasamy v ISG Novasoft Technologies Ltd., 2025 INSC 605

^[8][39], Gayatri Balasamy

^[9][40] – [42], Gayatri Balasamy

^[10] [43], Gayatri Balasamy

^[11][49], Gayatri Balasamy

^[12] [52] & [54], Gayatri Balasamy

^[13][67], Gayatri Balasamy

^[14] [76], Gayatri Balasamy

^[15] [84], Gayatri Balasamy

^[16] [45], Gayatri Balasamy

Author: Lakshay Arora

Supreme Court Clarifies Scope of Judicial Interference Under Sections 34 and 37 of the Arbitration Act

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