2026 | Vol 2(5) | May

INTRODUCTION

The Gayatri Balasamy vs. ISG Novasoft Technologies Ltd. case is a landmark ruling in the history of arbitration jurisprudence in India. For several decades, the Indian judiciary was faced with a high degree of doctrinal uncertainty regarding the scope of judicial intervention in arbitral awards, particularly as to whether Section 34 of the Arbitration and Conciliation Act, 1996 (A&C Act) allowed the courts to not only set aside awards but also to modify them. This has led to conflicting precedents in various High Courts in the country, thereby rendering the Indian arbitration regime uncertain and thus affecting the country's status as an international arbitration destination.

The Constitution Bench was formed to answer this basic question after conflicting decisions, particularly in the wake of the strict decision in Project Director, NHAI vs. M. Hakeem, which stated that courts could only set aside awards. The majority decision, authored by Chief Justice Sanjiv Khanna, states that courts have a limited power to modify arbitral awards, which is based on the doctrine of severability and exceptional circumstances.

FACTS OF THE CASE

Ms. Gayatri Balasamy became a part of ISG Novasoft Technologies Ltd., a technology firm, as the Vice President of M&A Integration Strategy on April 27, 2006. Her contract of employment included an arbitration agreement for resolving disputes. However, within three months of joining the firm, on July 24, 2006, Balasamy put in her resignation, claiming that she was being sexually harassed by the CEO of the company, Mr. Srinivas Krishna. Her resignation was rejected, and soon she started receiving termination letters from the company. This further took a turn when Balasamy filed criminal charges against the CEO and other employees of the company, and in response, ISG Novasoft filed cases of defamation and extortion against her.

After the intervention of the judiciary, the case was referred to arbitration. The Arbitral Tribunal held that Ms. Balasamy should receive compensation of INR 2 crore (INR 20 million). Dissatisfied with the arbitral tribunal's decision, Balasamy filed a case in the Madras High Court, relying on Section 34 of the A&C Act, claiming that the arbitral tribunal had erred in not considering or properly addressing some of the claims. The single judge of the Madras High Court, relying on an expansive interpretation of Section 34, increased the compensation by a further INR 1.6 crore (INR 16 million), holding that the arbitral tribunal had committed a manifest and separable error in the calculation of compensation.

On appeal, the Division Bench of the Madras High Court substantially reduced the additional amount of compensation awarded by the single judge to a paltry sum of INR 50,000, on account of computational mistakes. This inconsistent judicial behavior set the stage for the escalation of the dispute to the Supreme Court, where Special Leave Petitions were filed, ultimately resulting in the Constitution Bench reference.

ISSUES BEFORE THE COURT

The following questions of law arose for determination before the Constitution Bench:

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

2. Whether, if the power to modify the award is available, the power can be exercised only if the award is severable and a part of it can be modified.

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

4. Whether the power to modify an award can be implied in the powers conferred under Section 34 of the Act, or if it has to be inferred from Article 142 of the Constitution of India (Author, 2026).

ARGUMENTS OF THE PARTIES

Petitioner's Arguments (Gayatri Balasamy):

Ms. Balasamy argued that courts should have the authority to modify arbitral awards in exceptional situations where the award is replete with manifest errors or is severable. She also argued that courts should not be required to set aside the entire award for trivial errors, which would result in remittal proceedings, resulting in delays and increased costs. She cited precedents such as McDermott International Inc v. Burn Standard Co Ltd and ONGC v. Saw Pipes Limited, which had held that courts had limited modification powers. She also submitted that Article 142 of the Constitution gives the Supreme Court the power to grant complete justice, which would include the power to modify awards to avoid patent injustice.

Respondent's Arguments (ISG Novasoft Technologies Ltd):

ISG argued that Section 34 of the A&C Act was based on the UNCITRAL Model Law and limited the courts to setting aside awards on narrowly specified grounds. The respondent argued that allowing modification would affect the finality of arbitral awards, a fundamental principle, and would transform the application under Section 34 into a merits assessment. They argued that the legal regime clearly carves out a distinction between "setting aside" and "modifying," indicating that the legislative intent was not to allow modification.

JUDGMENT / DECISION

Under a majority of 4:1, the Supreme Court asserted that courts have a limited power of modification of arbitral awards under Section 34 of the Arbitration and Conciliation Act, 1996. The majority decision, written by Chief Justice Sanjiv Khanna, identified the following as permissible grounds for modification:

1. Erroneous clerical, computational, or typographical errors intrinsic to the award.

2. Adjustment of post-award interest rates in exceptional cases where the award specifies interest but the tribunal's calculation is patently wrong.

3. Exercise of powers under Article 142 with judicial restraint in narrowly circumscribed instances to avoid manifest injustice.

The Court also clarified that modification shall be permissible only if the award is severable, meaning that the invalid part of the award can be surgically excised without affecting the validity and enforceability of the award. The decision reaffirmed that partial setting aside is constitutionally valid when issues are separate and severable.

The concurring decision (minority) given by one judge took a more conservative approach and held that Section 34 does not allow modification except in the most trivial of cases based on the maxim "actus curiae neminem gravabit" (an act of the court shall prejudice no one).

REASONING OF THE COURT (RATIO DECIDENDI)

The majority's reasoning rested on several foundational pillars:

A. The Doctrine of Severability

The Chief Justice Khanna based the judicial power of modification on the doctrine of severability. The Court held that since the judicial power of setting aside an arbitral award is recognized (and this power is recognized by the proviso to Section 34), it logically follows that the judicial power of modifying the same award should also be recognized. While setting aside requires "surgical excision" of the offending part of the award, modification requires judicial correction of the tribunal's fallacious reasoning by substituting appropriate reasoning for the fallacious one.

B. Interpretation of "Recourse" Under Section 34

The Court broadly interpreted the term "recourse" used in Section 34. Instead of limiting the provision to a non-exhaustive list of judicial powers, the majority held that the provision was capable of incorporating implied powers necessary for doing complete justice. The Court held that although the A&C Act was based on the UNCITRAL Model Law, the Indian judiciary was free to evolve a body of precedents that would be in consonance with the Indian constitutional ethos and commitment to complete justice.

C. Constitutional Imperative of Article 142

Justice Khanna emphasized the provision of Article 142 of the Indian Constitution, which gives the Supreme Court the power to issue orders as necessary to accomplish "complete justice" in any matter. Although warning against the indiscriminate use of Article 142 to circumvent the limitation of statutes, the Court declared that in matters where modification avoids manifest injustice and is consistent with the intent of the A&C Act, partial modification through Article 142 is constitutionally valid.

D. Efficiency and Pragmatism

The Court was aware of the inefficiency of courts being required to set aside awards in their entirety for trivial mistakes, requiring remittal to the tribunal and thereby extending the dispute. The decision also recognized that the core strength of arbitration is efficiency and finality. However, the Court was also aware that where the mistakes are limited to the non-material parts, courts can quickly cure them without setting aside awards in their entirety.

E. Precedent Analysis

The majority critically analyzed precedents. Although the majority acknowledged Hakeem's strict precedent, they distinguished it by pointing out that Hakeem was a merits challenge, not a severable computational mistake. The Court also cited international precedents, in which courts in various countries have acknowledged the limited powers of modification, especially in computational mistakes and interest rates.

F. Distinction Between Setting Aside and Modification

The Court explained that the power of setting aside is a power of rejection, but the power of modification is a power of surgical correction. The majority disagreed with the respondent's contention that the distinction between "setting aside" and "modifying" in the statute necessarily foreclosed the latter. Rather, it held that modification is a subset of the general power of setting aside—a refinement that was permissible under well-established principles of statutory construction.

OBITER DICTA

The decision has made several significant observations aside from the principal holding:

1. Regarding Invocation of Article 142: The Court stated that the invocation of Article 142 must be done "with considerable circumspection" in the context of arbitral awards, as it should never be used as a tool to circumvent statutory limitations that are intended to safeguard arbitral autonomy.

2. Regarding Compliance with the New York Convention: The Court held that improper use of modification may potentially vitiate the recognition and enforcement of arbitral awards under the New York Convention. Nevertheless, it was also held that surgical modifications based on clerical mistakes or mathematical errors would not affect the award's status as an "arbitral award" under the Convention.

3. Regarding Finality as a Guiding Principle: The decision reiterated that the principle of finality remains fundamental in arbitration and that courts should not overstep into merits review under the guise of modification.

4. Regarding the Role of Judicial Restraint: The Court held that the doctrine of modification must be applied with "considerable restraint" and only in "truly exceptional" situations where the failure to modify would result in the perpetuation of injustice.

CRITICAL ANALYSIS

A. Strengths of the Judgment

1. Practical Pragmatism: The judgment achieves a pragmatic middle ground between the finality of arbitration and the justice of courts. A strict requirement of setting aside the entire award for trivial mathematical errors would certainly extend the litigation process and thus undermine the efficiency aim of arbitration. The pragmatic solution offered by the majority reduces this problem by allowing the surgical correction of severable errors.

2. Doctrinal Coherence: The Court's linkage of the modification power with the doctrine of severability has ensured doctrinal consistency. If partial setting aside is possible, the power to modify that part necessarily follows.

3. Constitutional Alignment: The judgment maintains alignment with the Indian Constitution's provision for complete justice (Article 142) while at the same time upholding the statutory scheme of the A&C Act. This is a demonstration of constitutional maturity.

4. Global Competitiveness: The judgment improves India's position as an arbitration-friendly forum by providing a middle course that is neither as harsh as Hakeem nor as liberal as some High Court decisions. This makes India an attractive arbitration destination among international arbitration forums.

B. Weaknesses and Concerns

1. Conceptual Tension: As has been observed in the scholarly literature, there is a "subtle but important tension" between the initial reliance on narrow legal logic and the subsequent shift to a more open-ended structural test based on severability. This tension is likely to create a situation where the test for modification, unless further clarified, may tend to obscure the distinction between error correction and merits review.

2. Vagueness in Application: The phrases "computational error," "manifest error," and "severable award" are still a bit fuzzy. Subsequent benches may be tempted to apply these phrases liberally, thereby opening the doors to merits review through modification. The present case itself is a good example of this—while the single judge enhanced compensation by INR 1.6 crores (a whopping 80% increase), the Division Bench reduced the enhancement to a paltry sum of INR 50,000, demonstrating the degree of variability.

3. Finality Erosion: Although the decision holds the finality of arbitration, allowing modifications, albeit limited, adds another judicial layer of review. This could encourage parties to attack awards more boldly, leading to increased litigation.

4. New York Convention Ambiguity: Although the decision holds that limited modifications will not affect the enforceability of the New York Convention, this claim is textually unsupported. Foreign tribunals may adopt a more restricted approach, especially if the modification is not merely de minimis but also involves non-trivial errors. The decision fails to offer a clear insight into this highly important area.

5. Minority's Legitimate Concerns: The minority's stand also has its justification. By limiting modifications to minor corrections on the principle of actus curiae neminem gravabit, the minority was more careful about upholding the statutory limits. While the majority's approach is certainly more pragmatic, it does suffer from a slight loss of doctrinal clarity.

C. Comparative Perspective

In most common law systems (such as England and Australia), there are limited powers of modification in their arbitration laws. But in most civil law systems, courts are strictly limited to setting aside or remitting awards. The Gayatri Balasamy decision brings India more in line with the common law system, which is in keeping with India's mixed legal system.

D. Policy Implications

1. Impact on Arbitrator Behavior: The presence of modification powers may encourage arbitrators to be less detail-oriented in preparing awards, since the court can be relied upon to make corrections. This could paradoxically weaken award quality.

2. Litigation Dynamics: The decision may change settlement dynamics. Disputants who are unhappy with awards may now pursue litigation more vigorously, hoping for judicial modification.

3. Institutional Development: The decision places the judiciary on the side of ensuring procedural propriety in arbitration, and is in keeping with India's rule-of-law obligations.

CONCLUSION

Gayatri Balasamy v. ISG Novasoft Technologies Ltd. is a landmark decision that radically shifts the court-arbitral award dynamic in India. In recognizing a narrowly circumscribed power to modify awards based on severability and in extraordinary situations, the Constitution Bench has finally settled a long-standing doctrinal debate and made India an even more attractive destination for arbitration. This decision demonstrates constitutional maturity in carefully weighing statutory deference with constitutional imperatives of complete justice.

Reference

1. 2025 INSC 605 / 2025 SCC Online SC 986

Manan Jhamb, Chandigarh University, Mohali, Punjab