GAYATRI BALASAMY vs M/S ISG NOVASOFT TECHNOLOGIES LIMITED, 2025
Case Title and Citation: GAYATRI BALASAMY V. M/S ISG NOVASOFT TECHNOLOGIES LIMITED 2025 INSC 605 (30 April 2025)
Factual Background
The Appellant, Gayatri Balasamy, was an employee who initiated a criminal complaint against senior company officers concerning sexual harassment. In response, the company (ISG Novasoft Technologies Ltd.) filed criminal complaints alleging defamation and extortion against her. The dispute was subsequently referred to arbitration by the Supreme Court. The Arbitral Tribunal issued an award granting the Appellant ₹2 crores. Dissatisfied with the amount, the Appellant sought to set aside the award under Section 34 of the Arbitration and Conciliation Act, 1996 (“the 1996 Act”), before the Madras High Court. The High Court subsequently modified the award, increasing the compensation by ₹1.6 crores. On appeal under Section 37 of the 1996 Act, a Division Bench of the High Court reduced this additional compensation to ₹50,000, viewing the original award as excessive. The Appellant then challenged the Division Bench’s judgment before the Supreme Court. A three-Judge Bench of the Supreme Court recognized the existence of conflicting judicial opinions regarding the power of courts to modify arbitral awards and referred the matter to a larger bench for an authoritative pronouncement.
Issue(s)
- Whether Indian Courts have the jurisdictional authority to modify an arbitral award under the scheme of the Arbitration and Conciliation Act, 1996.
- Whether the power to set aside an award under Section 34 of the 1996 Act, being characterized as a larger power, inherently includes the power to modify the award, and if so, to what extent.
- Whether the Supreme Court can use its extraordinary power under Article 142 of the Constitution to modify an arbitral award.
Decision of the Supreme Court
The Supreme Court, constituted as a Constitution Bench of five judges, held by a 4:1 majority that courts possess a limited power to modify an arbitral award under Sections 34 and 37 of the 1996 Act. The Court also affirmed the power to modify post-award interest when circumstances warrant it. The majority opinion was authored by Chief Justice Sanjiv Khanna. The Court ordered that possession of the premises be restored to the Appellant.
Justice K.V. Viswanathan authored a dissenting opinion, concluding that courts cannot modify awards.
Reason for the decision
The majority opinion supported a limited power of modification for the following principal reasons:
- Severability (Partial Setting Aside): The power to set aside an arbitral award necessarily encompasses the power to partially set it aside. The proviso to Section 34(2)(a)(iv) recognizes the doctrine of severability, allowing courts to separate the invalid parts of an award (e.g., those dealing with matters beyond the scope of arbitration) from the valid parts, provided the portions are clearly segregable and not intrinsically intertwined. The partial setting aside is deemed to be the practical effect of modifying the award.
- Statutory Interpretation and Legislative Intent: Denying courts the power to modify, which is a more limited, nuanced power compared to total annulment, would defeat the goal of arbitration as a quick and cost-effective method of dispute resolution. Since proceedings under Sections 34 and 37 often take years, restricting the court solely to setting aside would force parties into an additional round of arbitration merely to affirm a decision the court could easily reach, rendering the process more cumbersome than traditional litigation. The Court must adopt a purposive interpretation that aligns with the legislative object of the 1996 Act.
- Inherent/Implied Powers for Curative Justice: Courts exercising power under Section 34 inherently possess the authority to rectify clear computational, clerical, or typographical errors, as well as other manifest errors, provided such rectification does not require an evaluation of the merits. This is founded on the maxim actus curiae neminem gravabit (an act of court shall prejudice no man).
- Post-Award Interest: Courts retain the authority to modify post-award interest mandated under Section 31(7)(b) of the 1996 Act, especially since the arbitrator cannot foresee future issues or delays that may justify an adjustment.
- Article 142 (Limited Scope): While generally cautioning against its use to rewrite or modify an award on merits, the Supreme Court’s power under Article 142 of the Constitution can be exercised in arbitration matters to ensure complete justice, end protracted litigation, and save resources, provided it aligns with the fundamental principles of the 1996 Act.
Conclusion
The Supreme Court established that the Indian judiciary has a limited, inherent power to modify arbitral awards, primarily through the exercise of severability (partial setting aside) and the correction of obvious errors (clerical, computational). The modification power is deemed essential to prevent absurdity, undue delay, and additional costs associated with unnecessary re-arbitration, thereby upholding the legislative intent of the 1996 Act. The Court also confirmed that post-award interest rates are subject to judicial modification where justified. The earlier restrictive view that courts could only set aside an award was thus partially rejected, allowing limited intervention to ensure efficient and just outcomes.
Case Materials
Day 1 of Arguments: 13 February 2025 (Argument Transcript ) | (Video Recording)
Day 2 of Arguments: 18 February 2025 (Argument Transcript) | (Video Recording)
Day 3 of Arguments: 19 February 2025 (Argument Transcripts) | (Video Recording)
