Gayatri Balasamy v. M/S ISG Novasoft Technologies Limited

Gayatri Balasamy v. M/S ISG Novasoft Technologies Limited

Citation: 2025 INSC 605 (30 April 2025)

Bench: Chief Justice Sanjiv Khanna, Justice Bhushan R. Gavai, Justice Sanjay Kumar, Justice Kalpathy V. Viswanathan, Justice Augustine G. Masih.

Questions of Law

1. Whether the powers of the Court under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996 will include the power to modify an arbitral award?

2. If the power to modify the award is available, whether such power can be exercised only where the award is severable, and a part thereof can be modified?

3. Whether the power to set aside an award under Section 34 of the Act, being a larger power, will include the power to modify an arbitral award and, if so, to what extent?

4. Whether the power to modify an award can be read into the power to set aside an award under Section 34 of the Act?

Factual Background

Gayatri Balasamy (“Appellant”), an employee at ISG Novasoft Technologies Ltd., filed a criminal complaint against senior officers of the company for offences relating to sexual harassment, which was met with criminal complaints of defamation and extortion by the company. When the matter reached the Supreme Court, it was referred to arbitration, where the Arbitral Tribunal awarded the Appellant ₹2 crores. Dissatisfied, she sought to set aside the award under Section 34 of the Arbitration and Conciliation Act, 1996 (“1996 Act”) before the Madras High Court. The High Court modified the award, granting an additional ₹1.6 crores. However, a Division Bench on appeal under Section 37 of the 1996 Act reduced this additional award to ₹50,000, deeming the initial compensation excessive. The Appellant then appealed to the Supreme Court.

On February 20, 2024, a Three-Judge Bench of the Supreme Court identified an essential question of law regarding the power of courts to modify an arbitral award under Sections 34 and 37 of the 1996 Act. The Court noted conflicting opinions in two lines of cases. Decisions like McDermott International Inc. v. Burn Standard Co. Ltd. and Others (2006 INSC 325) and Project Director, NHAI v. M. Hakeem (2021 INSC 344) limited judicial intervention under Section 34 to express grounds, disallowing error correction, cost reconsideration, or merit review. Conversely, cases such as Vedanta Limited v. Shenzhen Shandong Nuclear Power Construction Company Ltd. (2018 INSC 959) and Oil and Natural Gas Corporation Ltd. v. Western GECO International Ltd. (2014 INSC 596) suggested setting aside arbitral awards or modification depending on the severability of the offending part. Consequently, the matter was referred to the Chief Justice of India, and a Constitution Bench of five judges was constituted.

Decision of the Supreme Court

The Supreme Court, by a 4:1 majority, held that courts possess a limited power under Sections 34 and 37 of the 1996 Act to modify an arbitral award. This limited power may be exercised under tightly circumscribed conditions without going into the merits of the case. Chief Justice Khanna authored the majority judgment, while Justice Viswanathan wrote a dissenting opinion, holding that courts cannot modify an arbitral award.

Reasons for the Decision

I. Severability of Arbitral Awards under Section 34 of the Arbitration and Conciliation Act, 1996

The majority held that the proviso to Section 34(2)(a)(iv) embodies the doctrine of severability, empowering courts to separate invalid portions of an arbitral award on Section 34(2)(a) grounds while upholding valid parts. This power of severability within the confines of Section 34 was deemed inherent in the Court’s jurisdiction. Applying the doctrine of omne majus continet in se minus (a greater power includes the lesser power) to the proviso of Section 34(2)(a)(iv), the majority held that the power to set aside an award necessarily includes the power to partially set it aside. The majority held that this partial setting aside was only permissible when valid and invalid portions were clearly segregable.

Justice Viswanathan, in his dissenting opinion, largely agreed that Section 34 inherently recognises the power to sever parts of an arbitral award. However, he found a conceptual difference between “modification” and “severance.” He reasoned that Section 34(2)(a)(iv) and its proviso explicitly permit setting aside only the part of an award dealing with disputes not contemplated by or beyond the scope of arbitration, provided such decisions are severable. He found that this concept of severability extends to setting aside standalone claims that violate Section 34, provided they are separable and not intertwined. He further held that the power to set aside includes partial setting aside and severing offending portions, provided the annulled part is independent and its removal does not impact other findings. He held that if a compromise affects only a severable portion, a Section 34 court can give effect to it by severing that part. However, if the compromised aspects are inseparably intertwined, the court must either set aside the award or dismiss the Section 34 application.

Justice Viswanathan, however, held that the power to modify an arbitral award is not a lesser power subsumed within the power to set aside. He reasoned that the legal maxim omne majus continet in se minus does not apply to Section 34 of the 1996 Act because the qualitative nature of appellate power under the Code of Civil Procedure, 1908 fundamentally differs from the power under Section 34, as they operate in distinct spheres. He reasoned that modifying an award — which involves a court adjudicating on merits after the parties had agreed to arbitration — cannot be subsumed within the power to set aside. He found it untenable for the Court to read in the power to modify, given Parliament’s repeated omissions of such a provision.

II. A Limited Power of Modification Is Located within the Meaning of Section 34 of the Arbitration and Conciliation Act, 1996

The majority found that the 1996 Act aimed to expedite dispute resolution through a quicker, cost-effective alternative to litigation. It held that denying courts the power to modify would lead to absurd outcomes, impose hardships, increase costs, and cause delays, as Section 34 and 37 appeals often take years. The majority reasoned that if courts could only set aside awards, parties would endure an extra round of arbitration to affirm a decision easily reached by the court. Thus, the majority held that the power of judicial review under Sections 34 and 37 and the setting aside of an arbitral award inherently include a limited power to modify the arbitral award.

Justice Viswanathan held that courts lack the power to modify arbitral awards under Section 34 of the 1996 Act. He reasoned that the 1996 Act’s focus on minimal judicial intervention, the absence of an express modification power (unlike the 1940 Act), and the plain language of Section 34 — which only permits setting aside — establish this limitation. He rejected “reading in” the power to modify, deeming it unwarranted judicial overreach that contradicts clear legislative intent.

Justice Viswanathan further held that setting aside an award does not lead to an absurd outcome, as the 1996 Act allows for recommencement of proceedings, including arbitration, upon setting aside an award under Section 43(4). He reasoned that parties entering arbitration consciously agree to step out of the normal judicial process, and a Section 34 court, unless expressly authorised, cannot modify or vary an award.

III. Power of Modification Is Different from Remand

The majority found that under Section 34(4) of the 1996 Act, courts are empowered to remit issues back to the arbitral tribunal for specific determinations. Upon remand, the tribunal can vary, correct, review, add, or modify the award. However, the majority held that Section 34(4) does not authorise the tribunal to rewrite or set aside the award on merits; rather, it acts as a curative mechanism available when permitted by the court. The majority held that computational, clerical, and typographical errors not requiring a merits evaluation can be modified by the Court in a Section 34 application.

The Supreme Court discarded the view in Kinnari Mullick v. Ghanshyam Das Damani (2017 INSC 1281), which required only a written application for remand under Section 34(4), holding that under Section 37 of the 1996 Act, the Court still possesses jurisdiction to remand the matter suo motu.

Justice Viswanathan found that Section 33 allows the Arbitral Tribunal to correct computational, clerical, or similar errors and make additional awards for unadjudicated claims. He held that the power to adjourn proceedings and remit the matter to the Arbitral Tribunal under Section 34(4) can be exercised to undo curable defects. He found that this power is to cure defects such as inadequate reasoning or filling gaps in existing findings, but not for supplying findings on contentious issues absent from the original award. He held that a limited exception based on the actus curiae neminem gravabit principle allows the court under Section 34 to correct obvious computational, clerical, or typographical errors without modifying the original award’s terms, even if the arbitrator has not exercised its power under Section 33.

IV. Modification Does Not Render the Amended Award Unenforceable under the New York Convention

The majority held that interpreting Section 34 to include a limited power to modify awards will not affect the enforcement of foreign awards under international commercial arbitration. The majority reasoned that Article V of the New York Convention and Section 46 of the 1996 Act, which are similarly worded, recognise the supremacy of the domestic law of the country where the award is made for enforcement purposes.

However, Justice Viswanathan held that modifying New York Convention awards in India would complicate foreign enforcement due to the lack of statutory provisions — unlike the United Kingdom and Singapore — that treat a modified award as part of the tribunal’s award. He pointed out that this issue warrants legislative intervention.

V. Court Can Modify Post-Award Interest but Not Pendente Lite Interest

The majority held that the Court cannot modify pendente lite interest granted during arbitration. Where the interest awarded contradicts the contractual position, the court, when examining objections under Section 34, can either set aside the interest rate or remand the matter to the arbitral tribunal under Section 34(4). The majority observed that post-award interest under Section 37(1)(b) is an additional compensation for unpaid arbitral awards after the due date. In cases where this post-award interest appears unjustified — given the unpredictability of future circumstances unknown to the arbitrator — it is necessary for the Court to have the authority to modify it for the dispensation of justice.

Justice Viswanathan, in his dissenting opinion, held that a court cannot modify interest, including post-award interest, and the proper course is to remit the matter to the arbitrator for correction under Section 34(4). He also held that the Court may suo motu exercise this Section 34(4) power if it finds grounds to set aside the award, as its purpose is to allow the tribunal to cure defects and make the award enforceable.

VI. Supreme Court’s Power to Do Complete Justice under Article 142 of the Constitution

The majority held that the Supreme Court’s power under Article 142 of the Constitution must be exercised in consonance with the fundamental principles and objectives of the 1996 Act. The majority reasoned that this power can be used in arbitration proceedings to end protracted litigation and save parties’ time and money. However, it should not be used to rewrite or modify the award on merits.

Justice Viswanathan, in his dissenting opinion, held that the Supreme Court’s powers under Article 142 of the Constitution cannot be exercised to modify an arbitral award when the matter arises from Section 34 of the 1996 Act. He reasoned that established jurisprudence on Article 142 clearly states it cannot be used to “supplant” substantive law, achieve indirectly what cannot be achieved directly, or contradict express statutory provisions. He held that modifying an arbitral award under Article 142 strikes at the core ethos of the arbitration process, breaching a pre-eminent prohibition within the 1996 Act. He found that such intervention would create grave uncertainties for contracting parties and be antithetical to arbitration as an effective dispute resolution mechanism.