Case Summary: Gayatri Balasamy Vs ISG Novasoft Technologies Limited (Supreme Court)

Gayatri Balasamy Vs ISG Novasoft Technologies Limited (Supreme Court of India) – Citation- 2025 INSC 605

Overview of the Facts-

The case of Gayatri Balasamy v. ISG Novasoft Technologies Ltd. evolved from a singular workplace grievance into a definitive legal precedent regarding the boundaries of judicial intervention in arbitration. The history traces back to 2006, when Gayatri Balasamy, an executive at ISG Novasoft, resigned from her position and subsequently filed complaints of sexual harassment against the company’s leadership. The ensuing legal battle was long and complex, involving both criminal proceedings and civil litigation. Eventually, the Supreme Court of India intervened and, with the consent of both parties, referred the matter to a sole arbitrator to resolve all outstanding disputes. In 2012, the arbitrator issued an award granting Balasamy ₹2 Crore in compensation. However, Balasamy challenged this award under Section 34 of the Arbitration and Conciliation Act, 1996, seeking a higher amount on the grounds that the compensation was inadequate given the severity of the grievances. A Single Judge of the Madras High Court agreed and modified the award, increasing the compensation by an additional ₹1.6 Crore. This modification was later challenged by the company before a Division Bench of the High Court, which took a different view; it not only questioned the power of the court to increase the award but ultimately reduced the additional compensation to a nominal ₹50,000.

This back-and-forth created a fundamental legal crisis: for years, Indian courts had operated under the strict precedent set in NHAI v. M. Hakeem, which dictated that a court’s role under Section 34 was strictly “supervisory” and not “appellate.” This meant a judge could only set aside (annul) an award or uphold it, but they were forbidden from “modifying” it—a restriction intended to protect the autonomy of the arbitration process. However, this rigid stance often led to cycle of litigation,” where any award with a minor error would be set aside entirely, forcing the parties to start theyear arbitration process all over again. Noticing this inefficiency of this system, the matter was referred to a five-judge Constitution Bench. The history of this case reached its climax in April 2025, when the Supreme Court acknowledged that the power to set aside an award must logically include the power to modify it in limited circumstances to prevent a miscarriage of justice. This decision effectively ended the decade-long debate by ruling that while courts cannot rewrite an entire award, they can and should fix severable errors, interest rates, or manifest injustices to ensure finality for the litigants.

Bench-

A three-Judge Bench of this Court, by order dated 20th February 2024, directed that the Special Leave Petitions in Gayatri Balasamy v. ISG Nova soft Technologies Limited to CJI to establish a larger bench to broom over the issues.Five judge benches were created lead by CJI Sanjiv Khanna who wrote judgment for majority and KV Viswanathan sole dissenter of judgment opined differently.

Key issues

There were following three main issues that this bench was requested to resolves-

(i) Whether the Indian Courts are jurisdictionally empowered to modify an arbitral award.

(ii) Whether the power to set aside an award under Section 34 of the Arbitration and Conciliation Act 1996 being a larger power, will include the power to modify an arbitral award and if so, to what extent.

(iii) Whether an arbitral award can be modified by using Article 142 of the Constitution.

The case posed a great question before the bench on the power of courts in matter of arbitral award, as to whether it could bring some changes in the award as finalized by the arbitral tribunal or not. Question secondly asked was if it could bring some modification in the award, what shall be the extent to that power of modification, meaning can it modify specific part, the compensatory amount,rate or the whole award itself.

Arguments presented-

Both the parties contended  that the judgment be in their plead by laying out various sources proving their propagation. The party which was in its favor of modificationfirstly referred to the Model Law, based on the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958, that various international organizations and countries accepted and ratified, claiming itpermitted broader scope for courts to interfere in matter of arbitration. Secondly it contended that the judgement renderd in the case of NHAI V M. Hakim should be reconsidered as  it conflicts with several decisions rendered by Benches of two and three Judges of this Court, in which awards were modified and varied,MoresoThis Court has also upheld the modification of awards by the High Courts or District Courts on other occasions. Simply saying this contention of the parties wasrevisiting of this court over the ‘hand off’ policy dictated in the M hakim case, accordingly which the court could not even remove a comma in the arbitral award, because there were various matters where the court itself had modified the arbitral award going as well upheld various decisions by high courts and district courts which were contradictory to the rule set by the NHAI vs M Hakim. Thirdly Reference was made to Ahmedabad St. Xavier College Society and Another v. State of Gujarat and Another, where a nine-Judge Bench of this Court applied the maxim “omne majus continent in se minus” – the greater contains the lesser. Applying to this maxim, it is contended that the power to set aside will include power to modify or partially set aside an award.

The argument raised against the modification of the arbitral award was firstly it encountered with the claim, that the party in favour had made, byclaiming, that the model law had intention to give broader judicial scope for interference, by saying that Model Law was the result of a collective effort by several countries to establish a uniform and cohesive legal framework and during discussions, it was decided that courts should not have the power to modify awards because If courts had such power, it could result in a situation where a court order or decree replaces the arbitral award, which in arbitration jurisprudence is unacceptable. It may carry international repercussions when awards are sought to be enforced under foreign conventions.

2^nd contention was made by submitting that the maxim omne majus continent in se minus – the greater contains the lesser – should not be applied in the present case. The power to set aside an award is a sui generispower, which is intrinsically different from the modification of power. It further elaborates that the power of modification is only inherited by the appellate court so for doing modification in the award it will have to possess the appellate power which would be contrary to both the express language and the intent behind Section 34 of the 1996 Act.Lastly, it submitted that any modification or variation made by the court to the arbitral award would not be subsumed into the arbitral award.

JUDICIAL DIVERGENCE ON MODIFICATION POWERS

The court first looked at the precedents on this matter and got baffled by numerous distinctjudgments on the same matter which then it realized that matter was to be taken into consideration. In the judgment itself court managed to refer to some case which have divergent views on modification power of the court.

Decisions in favor of modification-

These cases represent a broader interpretation where courts intervened to vary awards-

 Decision against modification-

These cases represent the strict “supervisory” view, arguing that Section 34 only allows a court to set aside (annul) an award, not rewrite it-

Analysis of court-

The court after considering everything above considered That the question question therefore was – to what extent can they weave the principles of equity and justice while not offending the jurisdictional fabric of Section 34?The court analyzed the matter in various parts, which we are going to discuss further-

The first part of the court’s analysis established the strict Contour of Section 34 of the 1996 Act, framing it as a “supervisory” rather than an “appellate” power. The Court emphasized that judicial interference is governed by the principle of minimal intervenes, where a party seeking “recourse” against an award can only do so through an application to set it aside based on the specific, narrow grounds listed in the statute. These grounds include the incapacity of parties, invalidity of the arbitration agreement, or the award dealing with matters beyond the scope of the submission. A significant portion of this analysis was dedicated to the concept of Public Policy, clarifying that an award can only be set aside if it is vitiated by fraud, corruption, or is in conflict with the fundamental policy of Indian law—not simply because the court disagrees with the arbitrator’s view on the merits. Finally, it addressed “patent illegality” as a ground for challenging domestic awards, setting a high threshold where the error must be obvious and go to the root of the matter. This foundational section essentially builds the “legal cage” that limits a judge’s power, serving as the starting point for the Court’s later debate on whether “modification” can exist within these restricted boundaries.

The second part of the court’s analysis focused on the Severability of Awards, examining whether a court can strike down only the “bad” parts of an award while keeping the “good” parts intact. The Court clarifies that Section 34(2)(a)(iv) of the Act already contains a “proviso” that allows for partial setting aside if the decisions on matters not submitted to arbitration can be separated from those that were. Applying the legal maxim omne majus continet in se minus (the greater contains the lesser), the Court reasoned that the power to annul an entire award must logically include the power to annul it in part. The court presented it as a pragmatic necessity; without it, parties would be forced to re-litigate issues that were already decided correctly, leading to a “waste of time, money, and judicial resources.” However, the Court added a crucial warning saying thisseverability is only possible when the valid and invalid portions are legally and factually separable. If the different parts of the award are “inextricably bound up” or interdependent, the court cannot pick them apart and must instead set aside the entire award by referrig to a judgment of privy council in Pratap Chamaria v. Durga Prasad Chamaria. It quoted from the judgment-

“…If, however, the pronouncement of the arbitrators is such that matters beyond the scope of the suit are inextricably bound up with matters falling within the purview of the litigation, in that case, the court would be unable to give effect to the award because of the difficulty that it cannot determine to what extent the decision of the subject-matter of the litigation has been affected and coloured by the decision of the arbitrators in regard to matters beyond the ambit of the suit….”

The third part of the court’s analysis addressed distinction between the power to “Set Aside” an award versus the power to “Modify” it. The court acknowledged the argument from the M. Hakeem perspective, which suggests that since the word “modify” is absent from Section 34, judges lack the authority to vary an award’s terms. However, the court countered this by explaining that the power to “partially set aside” an award—which is legally recognized in provision, makes it de facto modification. By removing an invalid, severable portion, the court is inherently altering the original award. The analysis emphasizes a “purposive interpretation,” arguing that the law should not be held hostage if by only a minor intervention dispute can be resolved .Ultimately, the court concludes that while the two actions have different legal consequences—annulment versus variation—the practical outcome of saving the valid parts of an award serves the core objective of the Arbitration Act by providing finality and preventing litigation and waste of time.

In the fourth part of analysis, the court said that a limited power of modification is essential to prevent the cycle of litigation that occurs when an award is entirely set aside for minor or fixable issues. The court argues that forcing parties back into fresh arbitration after years of legal battle defeats the purpose of arbitration as a quick, cost-effective alternative to litigation. While Section 34 provides specific grounds for challenging an award, the court maintaind it does not forbid fashioing a relief that modifies the award, provided the intervention remains within the statutory guardrails. Ultimately, the court held that the power to annul inherently includes the lesser power to vary, allowing judges to conserve the valid parts of an award and bring the dispute to a final resolution.

Next, addressed was the necessity of correcting clerical, computational, and typographical errors in the arbitral award. The Court argued that these slips or accidental omissions do not represent the arbitrator’s actual intent and therefore should not be grounds for setting aside an entire award. By recognizing the court’s authority to rectify these trivial errors, the bench soughtto protect the integrity of the award.

Parts VI and VII contended that modification and remand are different powers. While modification requires absolute certainty and precision, remand serves as a discretionary “second opportunity” for the tribunal to fix defects and prevent total annulment. The Court emphasized that these powers do not violate the New York Convention, as international enforcement specifically respects the domestic laws of the “seat” of arbitration.

The analysis in parts eight, nine, and ten of the judgment navigated the boundaries of judicial modification, focusing on statutory arbitration, financial interests, and party autonomy. In Part VIII, the Court addressed the National Highways Act (NHAI Act), rejecting the argument of party in favourthat land acquisition cases deserve a more “expansive” power of modification simply because they involve public interest. The Court clarified that Section 34 jurisdictionremains uniform; whether an arbitration is commercial or statutory, the judge cannot act as an appellate authority to rewrite compensation amounts. Part IX provided a critical exception regarding Post-Award Interest, where the Court ruled that interest is a “matter of detail” rather than the core “substance” of the dispute. It established that while pendente lite interest (pre-award) is usually tied to the contract, courts have the specific authority to modify or grant post-award interest to ensure fairness, especially when standard rates are ignored or when one party’s conduct causes undue delay. Finally, Part X upheld the principle of Post-Award Settlements, confirming that even after a final award is issued, parties retain the freedom to reach a private agreement to end their dispute. The Court noted that as long as such settlements are verifiable and comply with procedural laws, the judicial system must respect the parties’ choice to settle rather than forcing them to continue with the execution of the original award.

Judgment-

The Supreme Court ruled that while the primary role of the court remains supervisory, it possesses a limited power under Sections 34 and 37 of the 1996 Act to modify an arbitral award, effectively refining the “all-or-nothing” approach established in previous cases like M. Hakeem. This limited power may be exercised under the following circumstances:

1. when the award is severable, by severing the “invalid” portion from the “valid” portion of the award, as held in Part II of court’s Analysis.
2. by correcting any clerical, computational or typographical errors which appear erroneous on the face of the record, as held in Part IV and V of court’s Analysis.
3. post award interest may be modified in some circumstances as held in Part IX of court’s Analysis;
4. Article 142 of the Constitution applies, albeit, the power must be exercised with great care and caution and within the limits of the constitutional power as outlined in Part XII of court’s Analysis.