Author: Niraj Kumar Seth*
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The Supreme Court of India, in its landmark 4:1 decision in Gayatri Balasamy v. M/S ISG Novasoft Technologies Limited, delivered on April 30, 2025, has sparked fresh debate over judicial overreach in arbitration. Central to the case was a pointed legal question: Do courts have jurisdiction to modify arbitral awards, or are they merely confined to setting them aside? The Constitution bench, comprising Chief Justice of India (CJI) Sanjiv Khanna, Justices BR Gavai, Sanjay Kumar, AG Masih and KV Viswanathan, answered with a cautious affirmation, holding that courts do have limited power to modify arbitral awards under exceptional circumstances such as severing erroneous portions, rectifying manifest errors, or adjusting excessive interest rates. Unfortunately, the decision arbitrarily undermines the statutory framework under the Arbitration and Conciliation Act, 1996, which under section 5, expressly bars judicial intervention beyond what is permitted by the Act. Section 34 permits ‘setting aside’ of an award on limited and specific grounds, like violation of principles of natural justice, procedural unfairness, patent illegality, among others. The UNCITRAL Model Law on International Commercial Arbitration, 1985 – the legislative parent of Section 34 – too excludes modification power. Hence, courts’ powers are limited to only set arbitral awards aside on limited grounds.
The Gayatri Devi decision redraws the boundaries of section 34 by holding that the larger power to set aside an award inherently includes the lesser power to modify it in part, when the award is separable, legally and practically. The Court refused to equate silence regarding modification power in the 1996 Act to prohibition. Instead, they applied the doctrine of implied power to position modification as an ancillary judicial function to rectify manifest errors. The court traced its authority to intervene in Article 142 of the Constitution of India, which enables it to do complete justice in any cause or matter pending before it. However, the provision is meant for rare instances of injustice, and cannot be a panacea to obliterate statutory limitations.
This is not the first time the apex court has reshaped arbitration outcomes. Last year, the Supreme Court invoked its extraordinary curative powers, in the Delhi Metro Rail Corporation (DMRC) v. Delhi Airport Metro Express Private Ltd. (DAMEPL) case, to annul an approximately ₹7,600 crores award that had traversed multiple stages in the legal rollercoaster for over a decade, and had attained finality following the Court’s Special Leave Petition (SLP) judgement in 2023, purportedly, to cure gross miscarriage of justice. Despite endorsing limited judicial scrutiny of arbitral awards at the stage of SLP only a year ago, the apex Court strikingly reversed its stance – from judicial restraint to judicial activism – by indulging in fact-finding, eventually invalidating the award on the ground of patent illegality.
Notably, countries like Singapore and the United Kingdom – though originally following the Model Law – now allow for limited modification as Gayatri Devi. But even these jurisdictions are guided by statutory clarity and stringent conditions through legislative reforms, rather than relying solely on judicial interpretation. Positioning modification as a pragmatic antidote to procedural inefficiency, the judgement laments a scenario in which a litigant may be forced to correct glaring errors through repeated rounds of arbitration, rendering the process more cumbersome than traditional litigation. The Gayatri Devi majority professes to adopt a balanced approach to address the conflict between equity and procedural rigidity. However, such a balancing act tips the scales against the arbitration system itself by dangerously opening the floodgates to judicial second-guessing.
As critics argue, the judgement sets a dangerous precedent by conflating legislative silence with judicial legislation, allowing courts to re-open settled matters under the guise of equity, and thus, violate both the letter and spirit of the law. It betrays the parties’ conscious choice to opt-out of judicial oversight and in preference for a private, expeditious, and final dispute-resolution mechanism with limited scope for judicial review. The vague “exceptional circumstances” standard for what constitutes permissible modification is a judicial invitation to overreach, unsupported by statute, which can fuel further delays in an already burdened judicial system. Without legislative intervention through a statutory amendment, the power of courts to recalibrate arbitral awards remains ultra vires, as modification would effectively rewrite the arbitrator’s decision.
Justice K. V. Viswanathan’s powerful dissent resonates with these concerns, and cautions that even limited judicial modifications encroach on the arbitrator’s exclusive authority to decide the dispute, alter the arbitrator’s intent, disrupt the finality that parties bargained for when choosing arbitration, and risk the transformation of courts into de facto appellate bodies, second guessing the finality of the arbitral award. The dissent notes that Article 142 cannot override the express statutory framework of the Arbitration Act, which deliberately limits judicial interference to ensure the sanctity of the arbitration process.
India’s Arbitration Act mirrors the New York Convention, which does not recognise court-modified awards for enforcement. Besides causing legal chaos, the judgement could have catastrophic economic repercussions, as it risks rendering awards modified by Indian courts unenforceable abroad under international conventions. Moreover, the decision sends a chilling signal to global investors, whose confidence hinges on a swift, certain, predictable, reliable and court-averse arbitration regime. It has the potential to dent India’s reputation as a business-friendly jurisdiction and derail her aspirations to become a preferred global arbitration hub, as foreign investors may begin to perceive India-seated arbitration with scepticism, and may pivot to rival jurisdictions like Singapore or London. In sum, the verdict has perilously blurred the fine line between litigation and arbitration, reducing arbitration into yet another rung of protracted litigation. The responsibility now falls squarely on lawmakers to restore investor trust by reaffirming statutory objectives of the arbitration law —prioritizing arbitral finality over judicial second-guessing.
*Niraj Kumar Seth is a legal consultant based in India. He holds a Bachelor’s degree in Law from the University of Delhi and a Master’s degree in Law from the Maharashtra National Law University Mumbai. He writes on issues concerning international commercial arbitration and its interface with the judicial system in India.