The Balasamy judgment: the fading principle of finality in arbitration?

The litigation stemmed from the termination of employment of Ms Gayatri Balasamy by ISG Novasoft Technologies Ltd following her complaints of workplace sexual harassment. The arbitral tribunal awarded her compensation of INR20m. Dissatisfied that certain of her claims were overlooked, Balasamy approached the Madras High Court under section 34 of the A&C Act.

The single judge of the High Court, expansively interpreting ‘recourse to a court’ under section 34, enhanced the compensation by INR16m, relying on precedents such as McDermott International Inc v Burn Standard Co Ltd and ONGC v Saw Pipes Limited. On appeal, a Division Bench drastically reduced the additional compensation to INR50,000, branding the modification excessive and arbitrary.

Balasamy then approached the Supreme Court by way of a special leave petition. A three-judge Bench noted the divergent strands of jurisprudence: recognising the need for a definitive pronouncement, the matter was referred to a five-judge Constitution Bench.

The statutory framework

Section 34 of the A&C Act provides limited and specific grounds for setting aside an arbitral award. These include:

• incapacity of a party;
• invalidity of the arbitration agreement;
• violation of principles of natural justice;
• excess of jurisdiction;
• patent illegality; and
• conflict with public policy.

Importantly, the provision does not contemplate any form of modification or alteration of the award by a court. It merely permits either annulment or affirmation of the award.

Section 37 allows appeals against orders passed under section 34 but does not expand the appellate court’s jurisdiction to include modification powers. Judicial scrutiny under section 37 is similarly confined to ensuring that the grounds under section 34 were correctly applied, without re-evaluating the merits of the case or altering the award itself. The legislative intent, guided by the United Nations Commission on International Trade Law (UNCITRAL) Model Law, is to uphold arbitral finality and minimal judicial interference.

The A&C Act reflects a legislative intent to minimise judicial intervention in arbitral proceedings, marking a departure from the broader supervisory powers conferred upon courts under the Arbitration Act, 1940 (the ‘1940 Act’). Under sections 15 and 16 of the 1940 Act, courts were expressly empowered to modify an arbitral award and remit it to the arbitral tribunal upon satisfaction of specified conditions. In contrast, the A&C Act limits judicial recourse to an application for setting aside an award under section 34, thereby reinforcing the principle of minimal judicial interference in arbitration.

Thus, on a plain reading, courts may only annul or uphold awards. The key question before the Constitution Bench was whether section 34 implicitly permitted modification, despite the deliberate legislative omission.

The majority’s reasoning

The four circumstances for modification

The majority identified four scenarios where courts may modify arbitral awards:

1. Severability: Courts may strike down invalid portions of an award while upholding the valid remainder.
2. Clerical and computational errors: Courts may correct any clerical, computational or typographical errors (ie, obvious errors apparent on the face of the record).
3. Post-award interest: Courts may modify interest rates to ensure fairness.
4. Article 142: The Supreme Court may, in rare cases, exercise its constitutional power to ‘do complete justice.’

Interpretation of section 34 of the A&C Act

The majority held that while section 34(1) of the A&C Act states that recourse to courts may be made ‘only by an application for setting aside,’ the provision does not necessarily restrict the forms of relief that may be granted. They invoked the principle omne majus continet in se minus – the greater power to annul includes the lesser power to modify.

The proviso to section 34(2)(a)(iv), which permits severance of non-arbitrable matters, was cited as indicative of a legislative intent that courts can tailor relief rather than simply annul. Modification, in this view, is merely a practical extension of the severability principle.

Reliance on Article 142 of the Constitution of India

The majority also relied heavily on Article 142 of the Constitution, which empowers the Supreme Court to pass orders to do ‘complete justice.’ They held that Article 142 could be used to correct manifest errors, adjust post-award interest, or prevent outcomes that undermine the arbitral process.

Efficiency considerations

The majority was motivated by concerns of efficiency. They criticised reliance on section 34(4) of the A&C Act, which remits matters back to tribunals, as impractical given tribunal unavailability, time bars or logistical constraints. Modification, they reasoned, avoids the costs and delays of re-arbitration.

The dissent

Justice KV Viswanathan delivered a forceful dissent, emphasising fidelity to legislative design:

1. Deliberate omission: The A&C Act, unlike the 1940 Act, intentionally excluded provisions for modification. Courts cannot reintroduce such powers by implication.
2. Distinct powers: The power to annul and the power to modify are conceptually distinct; one cannot be read into the other.
3. Section 33 and section 34(4): Corrections and modifications are the domain of the arbitral tribunal, not the courts.
4. Limits of Article 142: Article 142 cannot be used to override statutory limitations. To permit otherwise would transform it into a residuary source of judicial law-making.
5. Risks of uncertainty: Allowing modification introduces unpredictability, undermining party autonomy and arbitral finality.

In his view, the majority’s approach amounted to judicial legislation and risked compromising India’s credibility as an arbitration-friendly jurisdiction.

Comparative international perspectives

Historically, leading arbitration hubs such as England and Wales, the United States and Singapore have adhered to a predominantly non-interventionalist approach towards arbitral awards, emphasising the finality of arbitration outcomes.

In England and Wales, the Arbitration Act 1996 permits courts to confirm, vary, or set aside an award in part, but only on tightly defined grounds. Section 67 allows for partial relief where the arbitral tribunal lacked substantive jurisdiction, while section 68 enables challenge to the basis of ‘serious irregularity’. In practice, English courts are reluctant to rewrite awards and typically prefer remitting matters to the arbitral tribunal, thereby safeguarding the finality of awards unless a distinct, separable defect is evident.

In the US, under the US Federal Arbitration Act, federal courts are restricted to three limited remedies: confirmation of the award under section 9, vacate it for enumerated missteps, such as arbitrator misconduct or excess of powers under section 10, or correct only clerical or computational errors under section 11. Under US law, courts cannot strike out illegal portions of an arbitral award while enforcing the rest. Instead, they apply an ‘all-or-nothing’ rule, ie, an award is either confirmed or vacated entirely.

Singapore’s judicial approach, reflecting the UNCITRAL Model Law, also imposes strict limits on intervention. Courts may set aside awards for jurisdictional overreach, evident bias or breach of public policy, often directing the arbitral tribunal to clarify or correct the award list. The practice of excising unenforceable portions of an award has been rare, typically confined to exceptional cases such as protecting the interests of minors.

However, in the Balasamy judgment, the Supreme Court charted a new course by adopting a pragmatic approach that permits severance of invalid portions, correction of manifest errors, and adjustment of post-award interest without remand to the tribunal. While this seeks to preserve the enforceability of awards, it also departs from the traditional restraint under section 34, thereby creating unpredictability for foreign investors and stakeholders who rely on arbitral finality.

Conclusion

The Balasamy judgment, though driven with an intent to promote fairness, has introduced significant ambiguity into Indian arbitration law. By recognising a judicially implied power of modification, the Supreme Court has extended its supervisory role beyond the contours clearly laid down in the Act.

At the outset, while the majority attempted to address concerns of delay and escalating costs, it simultaneously blurred the fundamental boundary of arbitral finality. In doing so, the Court has read into the statute what Parliament had deliberately omitted, thereby unsettling the predictability essential for commercial confidence. Phrases such as ‘manifest error’ and ‘apparent on the face of the record’ lack precision: they open the door to inconsistent and expansive judicial interpretation.

Furthermore, by allowing alteration of post-award interest, the judgment risks encouraging speculative section 34 petitions, thereby prolonging disputes. In addition, reliance on Article 142 without defined limits leaves an overly broad discretionary avenue for intervention, eroding certainty at a time when stability is crucial for India’s arbitration framework.

By venturing into a sphere consciously excluded by the legislature, the Supreme Court has effectively created a juridical labyrinth of uncertainty, jeopardising India’s ambition of becoming a trusted global arbitration hub.

Sources

Gayatri Balasamy versus M/S. Isg Novasoft Technologies Limited; see https://api.sci.gov.in/supremecourt/2021/20788/20788_2021_1_1501_61506_Judgement_30-Apr-2025.pdf.

The Arbitration and Conciliation Act, 1996; see www.indiacode.nic.in/bitstream/123456789/1978/3/a1996-26.pdf.

SKV Law Offices, ‘The Indecision in Modification of Awards under section 34 and 37 of the Arbitration and Conciliation Act (Mondaq, 29 April 2025); see www.mondaq.com/india/arbitration-dispute-resolution/1617088/the-indecision-in-modification-of-awards-under-section-34-and-37-of-the-arbitration-and-conciliation-act.