Introduction
When parties choose arbitration, they expect the award to be final. But what happens if the award contains a clear mistake like wrong calculations or an unreasonable rate of interest? Can a court step in and fix it, or is it completely outside its powers under Section 34? This question has been debated for years in Indian arbitration law.
Earlier, the Supreme Court took a strict view that courts cannot modify arbitral awards at all. But the recent decision in Gayatri Balasamy vs. ISG Novasoft Technologies Limited. (2025) has added a fresh layer to the conversation. The judgment suggests that while courts cannot act like appellate authorities, they may correct certain errors in an award in limited situations.
By a 4:1 majority the Constitution Bench of the Apex Court stated that courts do have a limited power to modify arbitral awards. This power can be used while dealing with challenges under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996. The court made it clear that the power is narrow, but it does exist.
This blog breaks down what this shift means, how it fits with earlier precedents, and whether India is moving toward a more balanced approach to reviewing arbitral awards.
What is allowed under Section 34 of Arbitration and Conciliation Act, 1996?
Section 34 of the Arbitration and Conciliation Act, 1996 lays down when a court can step in and cancel an arbitral award. Chapter VII of the Arbitration and Conciliation Act, 1996 gives parties a limited right to challenge an award. In subsection (1) it is stated that the courts can look at such challenges only on the grounds listed in subsections (2) and (3). Subsection (2) clearly states that an award may be set aside only if certain specific situations exist.
These situations fall into two broad groups.
In the first group, the burden is on the party challenging the award. They must show that:
- The party was not legally capable of taking part in the proceedings,
- The arbitration agreement itself was invalid under the law that applied to the parties,
- They were not properly informed about the arbitrator’s appointment or the arbitration hearings,
- They were not given a fair chance to present their case,
- The award contains decisions on issues that were never referred to arbitration, or
- The tribunal or its procedure did not match what the parties had agreed to.
The second group covers issues the court can examine on its own. Here, a court may set aside an award if:
- The kind of dispute involved cannot legally be decided by arbitration, or
- The award goes against India’s public policy.
Section 34 mainly looks at whether the arbitration process treated the parties fairly. This idea comes directly from the UNCITRAL Model Law.
Over the years, Indian courts have repeatedly emphasised that they must not interfere with arbitral awards unless there is a very serious flaw. Even if the award’s reasoning is brief or implied, courts are expected to defer to the tribunal’s views, unless the decision is so unreasonable or perverse that it cannot be accepted under Section 34.
Under this framework, courts can either cancel the whole award or cancel only the part that can be separated from the rest. But they cannot rewrite the award, correct it, or change its terms. This is very different from the position under the old Arbitration Act of 1940.
The 1940 Act allowed courts to modify awards in specific situations. Section 15 clearly gave that power. Section 41 also made the Civil Procedure Code (CPC) applicable to arbitration-related court matters. Because of this, the powers of courts under the 1940 Act were similar to their powers in regular civil cases, including correcting or adjusting awards. This approach flowed from a time when arbitration was closely tied to court procedure.
The new Act is based on the UNCITRAL Model Law and aims to minimise court interference. It works as a stand-alone code. Its object is to make arbitration faster, more efficient, and less dependent on courts. The Supreme Court echoed this reasoning in Pallawi Resources Ltd vs. Protos Engineering Company Pvt.Ltd (2010). It explained that when lawmakers choose particular wording, courts must assume it was deliberate. Since the new Act does not contain a modification power, courts should not read such a power into the law.
In 2023, the government set up an Expert Committee on Arbitration Law, led by Dr. T.K. Viswanathan, to review the Act and propose improvements. One of its suggestions was to amend Section 34 to explicitly allow courts to vary or modify arbitral awards.
Gayatri Balasamy vs. ISG Novasoft Technologies Ltd
Facts of the case
The case came from a dispute called Gayatri Balasamy vs. ISG Novasoft Technologies Ltd (2025). Earlier, a three-judge Bench of the Supreme Court looked at the matter and realised that it raised an important legal question. So, on 20 February 2024, they sent the case to the Chief Justice of India, asking that a larger Bench decide it.
A five-judge Constitution Bench was then formed to settle the issue. The main problem was that under the Arbitration and Conciliation Act, 1996, courts are only allowed to set aside an arbitral award. The law does not clearly say that courts can change or modify an award.
But earlier Supreme Court judgments were not consistent.
- Some cases said courts cannot modify awards.
- Other decisions allowed courts to modify or accept modified awards in special situations.
Because different benches had taken different views, the Supreme Court needed to give a final, clear answer on whether courts can modify an arbitral award or not.
Issues raised in the case
- Do courts have the power to change or modify an arbitral award under Sections 34 and 37 of the Arbitration Act, 1996?
- If such a power exists, can it be used only when the award can be split, so that only the problematic part is changed without affecting the rest?
- Does the greater power to set aside an award under Section 34 automatically include a smaller power to modify it?
- Can courts read or imply a power to modify an award into Section 34 even though the law does not mention it?
Arguments made by the parties
Arguments for allowing courts to modify an award
- Some awards contain very obvious mistakes like typing errors, wrong calculations, or interest that has been wrongly added. In such situations, it seems unreasonable to cancel the entire award just because of a small mistake.
- While it was also pointed out that Section 34 already talks about severability, meaning courts can remove only the faulty part of an award while keeping the rest intact.
- It was argued that fixing small errors or adjusting interest is not the same as rewriting the award or re-deciding the case.
- Supreme Court judgments where the court had accepted or approved modified awards in special situations were also referred to.
Arguments against giving courts the power to modify
Section 34 of the Arbitration Act only lets a court set aside an award. It never states that a court can modify or modify it.
- The 1996 Act follows the UNCITRAL Model Law, which is designed to keep court involvement to a minimum. This means courts should not interfere with arbitral awards except in very limited situations.
- Under the old 1940 Arbitration Act, courts did have the power to modify an award. But when the new 1996 Act was created, that provision was intentionally removed. This shows that Parliament did not want courts to retain that power.
- If courts start modifying awards, they would begin functioning like appellate courts, something the 1996 Act specifically tries to avoid.
- The Supreme Court’s ruling in NHAI vs. Hakeem (2021) clearly said that courts cannot modify an arbitral award. Those opposing modification argued that this is still the correct and consistent interpretation of the law.
What the High Court held?
The Supreme Court, by a 4:1 majority, said that courts can make small changes to an arbitral award, but only in very limited situations. If a part of the award is clearly wrong and can be separated from the rest, the court can correct only that part. Courts can also fix obvious mistakes such as typing errors, clerical errors, or simple calculation slips that anyone can spot from the record.
They can also change the post-award interest if the arbitrator has gone against the contract or if the situation clearly demands a different rate. The Supreme Court also noted that it can use its special powers under Article 142 to modify an award, but only in rare cases to ensure complete justice. The court stressed that these limited corrections do not turn Section 34 into an appeal, courts cannot re-examine the case or rewrite the award. Any modification must be based on clear and straightforward reasons.
Conflict with earlier precedents
Decisions Rejecting Modification
The Project Director National Highways … vs M. Hakeem (2021)
This case was about land that was acquired for national highways. The government fixed very low compensation amounts based on guideline value, not on actual market rates. When the landowners went to the District Court, the court increased the compensation to a fair amount. The High Court agreed with this.
The government argued that under the National Highways Act, once an arbitrator (appointed by the government) gives an award, courts can only set it aside under Section 34 of the Arbitration Act, they cannot change or increase the compensation. They said that allowing modification would go against the limited role of courts in arbitration.
The landowners argued that the arbitration wasn’t fair because the arbitrator was appointed by the government itself, and in many similar cases the NHAI had accepted higher compensation without appealing. They said the court should be allowed to correct unfair awards.
The Supreme Court held that Section 34 does not give courts the power to modify an arbitral award, they can only set it aside, not change the amount. This is how the law is written, and only Parliament can change it.
However, in this particular case, the Supreme Court refused to interfere because:
- The landowners had already waited many years,
- Similar landowners had already been paid higher compensation, and
- Sending the case back to the government-appointed arbitrator would be unfair and pointless.
So, the court dismissed the appeals and let the higher compensation stand, even though it clarified that courts generally cannot modify arbitral awards under Section 34.
McDermott International Inc vs. Burn Standard Co. Ltd & Ors (2006)
The dispute in this case was between McDermott International (MII) and Burn Standard (BSCL) over a contract to build offshore platforms for ONGC. There were issues about payments, delays and how the arbitration clause should be understood. The case eventually reached the Supreme Court.
The Supreme Court used this case to explain how courts should look at arbitral awards under Section 34 of the Arbitration and Conciliation Act, 1996. The court said that when a court reviews an award under Section 34, it does not act like an appellate court. This means the court cannot go through all the facts again or re-check the evidence. Its role is only supervisory and it should interfere as little as possible.
The court also said that interference is allowed only in very limited situations, like when there is a clear and serious illegality that affects the core of the case, or when the award goes against public policy in a way that is extremely unfair or shocking. What falls under “public policy” depends on the type of contract and the parties involved.
The overall message of the judgment is that courts cannot rewrite or modify arbitral awards. They should only step in when there is something seriously wrong with the award.
Decisions Allowing Limited Modification
Vedanta Ltd. vs. Shenzen Shandong Shandong Nuclear Power Construction Co. Ltd (2018)
In the case of Vedanta Ltd. vs. Shenzen Shandong Shandong Nuclear Power Construction Co. Ltd (2018) the court said that other courts are allowed to change the interest awarded in an arbitral award. It explained that courts can reduce the interest rate if it does not match the current economic situation, if it is unreasonable, or if it is not fair in the circumstances.
Oriental Structural Engineers vs. State of Kerala (2011)
In this case, the court stated that courts cannot question an arbitrator’s decision on interest unless the contract clearly says that interest cannot be paid. If the contract leaves the interest rate blank, it does not mean the rate is zero. Under Section 34, a court can step in only when there is a serious legal mistake or something very unfair, not just because the court thinks the arbitrator should have decided differently.
Conclusion
The Supreme Court’s decision brings some much-needed clarity to arbitration law in India. While courts still cannot act like appeal courts, they can now correct clear and limited mistakes in an arbitral award instead of cancelling the whole decision. This keeps the balance between respecting the finality of arbitration and preventing unfair results caused by small errors.
The judgment also shows that arbitration in India is slowly moving toward a more practical and business-friendly approach. Overall, the ruling marks a small but important shift in how courts can support the arbitration process without overstepping their role.
Frequently asked questions? (FAQs)
What is an arbitral award?
An arbitral award is the final decision given by the arbitrator to settle a dispute. It works just like a court judgment, but it comes through arbitration, a private and usually faster way of resolving conflicts instead of going to court.
Why did the Supreme Court allow even limited modification of an arbitral award?
The Supreme Court allowed limited modification because it wanted to prevent parties from going through a fresh round of arbitration just to fix a small mistake. Correcting minor errors directly saves time and money. This helps keep arbitration fast and efficient, which is exactly what the Arbitration Act aims for.
