August 8, 2025

Whether Indian Courts can modify Domestic Arbitral Award? – Ananya Pratap Singh

Amit Kapoor021 mins
Whether a dispute raised by an Insured after giving a Full and Final Discharge Voucher to the Insurer can be referred to Arbitration – Ananya Pratap Singh

Whether Indian Courts can modify Domestic Arbitral Award? – Ananya Pratap Singh 2

Supreme Court of India: Whether Indian Courts can modify Domestic Arbitral Award?

In Gayatri Balasamy v. ISG Novasoft Technologies Limited 2025 INSC 605, a Five-Judge Constitution bench of the Supreme Court of India inter alia decided the issue of whether the powers of the Indian Courts under Sections 34 (Application to set aside an award) and Section 37 (Appeal against Court’s decision under Section 34 application) of the Indian Arbitration and Conciliation Act 1996 (‘Arbitration Act’) will include the power to modify a domestic arbitral award.

Background

This issue arises because Section 34 of the Arbitration Act only provides a remedy of either setting aside a domestic award or remanding it back to the Arbitral Tribunal and it does not expressly empowers the Court to modify the award. This was further amplified by conflicting judgments from the Supreme Court itself wherein courts have either modified the award or refrained from modifying the award.

Parties Contentions

Parties who are in favour of empowering the courts to modify the award inter alia contended that many of the countries following Model Law of arbitration and signatories to New York Convention allows the courts to modify / vary the domestic award in addition to allowing it to set it aside signifying it as a broader understanding of the court’s powers in arbitrations. It was also contended that applying the maxim of “omne majus continent in se minus” greater power to set aside an award includes lesser power of modifying the same.

There were three ancillary arguments which were made by those favouring modification of award. First, the expression used in Section 34 of the Arbitration Act is ‘recourse’ against the award which is contended to include recourse to modify or vary it. Secondly, in statutory arbitrations to which Section 34 also applies, the Court should have power to enhance compensation which can only be done if court has modification powers. Thirdly, the Courts should have power to modify interest component in the interest of justice which again can only be done if the court has power of modification.

Per contra those who were against allowing the modification power to the court inter alia argued that modification will lead to court orders or decrees replacing awards whereas under international treaties like New York Conventions only awards are enforceable and not court orders / decrees. Further, till the time the legislature in the statute expressly provides for such power to the court, it cannot be assumed as such.

The maxim of “omne majus continent in se minus” cannot be applied here because the power to set aside is unique sui generis power which is different from power of modification. It was further contended that once an award is set aside it leads to its annulment and an annulled award cannot be modified or altered. In the similar vein, once an award is passed, the arbitral tribunal becomes functus officio and thus if modification power is given to court then it will lead to courts adopting appellate powers which are not provided by the legislature in the statute. Lastly, it was contended that doctrine of merger does not apply courts modification of the award and thus any modification by the court to the award passed by the tribunal will not be subsumed in the award which can lead to problems at the enforcement stage as the New York Convention allows only awards to be enforced and not court order / decree.

Observations

While answering the issue at hand, the Court made following pertinent observations

Power of Section 34/37 Court to sever the invalid portion of the Award

  • Power conferred under the proviso to Section 34(2)(a)(iv) permitting courts to sever the non-arbitrable portions of an award from arbitrable ones while remaining within the narrow confines of Section 34, is inherent in the court’s jurisdiction when setting aside an award.
  • The authority to set aside an arbitral award necessarily encompasses the power to set it aside in part, rather than in its entirety. However, if the “valid” and “invalid” portions are inter-dependent or intrinsically intertwined, the award cannot be set aside in part.
  • To deny courts the authority to modify an award—particularly when such a denial would impose significant hardships, escalate costs, and lead to unnecessary delays—would defeat the raison d’être of arbitration.
  • Section 34 court can apply the doctrine of severability and modify a portion of the award while retaining the rest. This is subject to parts of the award being separable, legally and practically.
  • Power of judicial review under Section 34, and the setting aside of an award, should be read as inherently including a limited power to modify the award within the confines of Section 34.

Power of Section 34/37 Court to rectify computational, clerical, or typographical errors

  • In spite of the power of tribunal to rectify computational, clerical or typographical errors provided under Section 33 of the Arbitration Act, 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. This is within the doctrine of implied power of the court wherein the courts are inherently empowered with certain powers to discharge its functions effectively for the purpose of doing justice even when such powers are not explicitly granted by the legislature.
  • However, such power of rectifying computational, clerical, or typographical errors, as well as other manifest errors under Section 34 must not be conflated with the appellate jurisdiction of a higher court or the power to review a judgment of a lower court. The court must only rectify such errors if there are no uncertainty or doubt about them.

Power to Modify vis-à-vis Power to Remand

  • If there is any uncertainty, the courts must not modify the award and instead, they should avail their remedial power and remand the award to the tribunal under Section 34(4).
  • A court may not grant a remand if the award suffers from serious acts of omission, commission, substantial injustice, or patent illegality. Additionally, remand may be inappropriate when it does not serve the interests of the parties, particularly in time-sensitive matters or where it would lead to undue costs and inefficiencies.
  • The power of remand is exercisable when the arbitral tribunal has failed to give any reasoning or the award exhibits gaps in reasoning and these defects can be cured, thereby preventing unnecessary challenges. The underlying intent is to provide an effective, expeditious forum for addressing curable defects, which the power of remand under Section 34(4) facilitates.
  • Power of remand does not grant the authority to review or reconsider previous findings or conclusions.
  • The scope of the power of remand is not to be restricted to a rigid, straitjacket formula. Rather, it depends on the specific facts and circumstances of each case. Being a discretionary power, it is to be exercised by the Court judiciously, keeping in mind the grounds raised in the application under Section 34(1).
  • The Court should be prima facie satisfied that the wrong and illegality in the award are curable. While doing so, the Court need not record the final finding on the contentious issue at hand; however, not every request for such relief is warranted.
  • The discretion must be exercised with caution, and only when it is evident that an adjournment will allow the arbitral tribunal to resolve the issues and remove the grounds for setting aside the award.
  • However, Section 34(4) which provides for remand is an enabling provision—it does not compel the tribunal to take corrective action, leaving it free to either amend or refuse to amend the award.

Does an order of the Section 34/37 Court modifying the award merges with the award making it unenforceable under the New York Convention?

  • Doctrine of merger merging the award with the order of court modifying the award will not affect the international commercial arbitration regime or the enforcement of foreign awards.
  • Under Section 48 applicable to foreign awards, the foreign award must become “binding on the parties” in terms of the law of the seat before enforcement. Sub-clause (e) therefore recognizes that, for enforcement, the domestic law of the country where the award is made shall prevail and have supremacy. Thus, Indian Supreme Court’s interpretation, reading modification powers into Section 34, would not be at loggerheads with the New York Convention.
  • In any case, the New York Convention speaks of “recognition and enforcement” of an award. An award may be recognized without being enforced; but if it is enforced, then it is necessarily recognized. Recognition may act as a shield against re-agitation of issues which the award deals with. A party successful in arbitration, may seek and rely upon recognition, if proceedings are brought against him on issues already dealt with by an award.

Power to modify an award passed under Statutory Arbitration

  • As far as statutory arbitrations are concerned, the jurisdiction conferred under Section 34 does not distinguish between statutory and non-statutory arbitration in terms of the scope of courts’ power of review.

Can the Section 34/37 Court modify Pendente Lite and Post Award interests?

  • In respect of pendente lite interest, the Indian Arbitration Act under Section 31(7)(a) provides discretion to the Tribunal to award such interest. However, there can be instances of violation of Section 31(7)(a) and the pendente lite interest awarded may be contrary to the contractual provision. In such cases, the court while examining objections under Section 34 of the Indian Arbitration Act will have two options. First is to set aside the rate of interest or second, recourse may be had to the powers of remand under Section 34(4).
  • In respect of the post award interest, the Indian Arbitration Act under Section 31(7)(b) provides that subject to any contrary agreement between the parties, such interest will be 2% higher rate than the current rate of interest prevalent on the date of the award from the date of the award till the date of the payment. For post award interest, the courts will retain the power to modify the interest where the facts justify such modification. Thus, as there is a standard prescribed by the legislature, the post-award interest awarded can be scrutinized by courts against the standards prescribed.
  • Further, since the future is unpredictable and unknown to the arbitrator at the time of the award, it would be unreasonable to suggest that the arbitrator, as a soothsayer, could have anticipated or predicted future events with certainty. Therefore, it is appropriate for the Section 34 court to have the authority to intervene and modify the post-award interest if the facts and circumstances justify such a change.
  • However, the court, while exercising this power, must be cautious and mindful not to overstep its role by altering the interest rate unless there are compelling and well-founded reasons to do so. In exercising this power, the court is not acting in an appellate capacity, but rather under limited authority.

Settlement and Arbitral Award

  • Parties are entitled to enter into an agreement or settlement even after an award is pronounced. The only legal requirement is that such settlement must be verifiable and in accordance with law i.e., the settlement is not a result of undue influence, force, fraud, coercion, etc.

Limitation Period to file fresh arbitration in case an award is set aside

  • As far as the issue of limitation period within which the fresh arbitration or court proceedings are to be commenced is concerned, the period between the commencement of arbitration and the Court’s order setting aside the award is excluded for the purposes of calculating the limitation period under the Indian Limitation Act, 1963.

Discretionary power of the Indian Supreme Court under Article 142 of the Indian Constitution to do complete justice

  • As far as Supreme Court’s discretionary power to do complete justice under Article 142 of the Indian Constitution is concerned, 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. Not only would this end protracted litigation, but it would also save parties’ money and time.

Conclusions

Accordingly, the Constitution Bench by majority held the Court has a limited power under Sections 34 and 37 of the Indian Arbitration Act to modify the arbitral award. This limited power may be exercised under the following circumstances:

  • When the award is severable, by severing the “invalid” portion from the “valid” portion of the award.
  • 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.
  • Article 142 of the Indian Constitution applies, albeit, the power must be exercised with great care and caution and within the limits of the constitutional power