New Delhi: The Supreme Court on Wednesday held that courts can modify arbitral awards under the Arbitration and Conciliation Act, 1996, under certain circumstances.
The ruling is based on the legal doctrine that “the greater power to set aside includes the lesser authority to modify” an arbitral award. This judgment will have a significant impact on both domestic and international arbitral awards in commercial disputes.
In a 4:1 majority decision, Chief Justice Sanjiv Khanna, writing the 61-page verdict on behalf of Justices B.R. Gavai, Sanjay Kumar, and Augustine George Masih, held that the broader power to set aside an arbitral award under the Act includes the authority to partially modify it.
Justice K.V. Viswanathan was the sole dissenting judge on the five-judge Constitution Bench.
The apex court stated: “...the doctrine of omne majus continet in se minus — ‘the greater power includes the lesser’ — applies squarely. The authority to set aside an arbitral award necessarily encompasses the power to set it aside in part, rather than in its entirety.”
The court added: “This interpretation is practical and pragmatic. It would be incongruous to hold that the power to set aside means only the power to annul the entire award and not a part of it. A contrary interpretation would not only be inconsistent with the statutory framework but may also result in valid determinations being unnecessarily nullified.”
The Supreme Court held that courts have limited power under Sections 34 and 37 of the 1996 Act to modify arbitral awards.
“This limited power may be exercised in the following circumstances: when the award is severable, by removing the 'invalid' portion from the 'valid' portion, as held in Part II of our analysis,” the court said.
CJI Khanna noted that this power could also be used to correct clerical, computational, or typographical errors that are apparent on the face of the record. Additionally, it could be used to modify post-award interest in specific situations.
The bench also stated: “Article 142 of the Constitution applies, though this power must be exercised with great care, caution, and within constitutional limits.”
Article 142 empowers the Supreme Court to pass any order necessary for “doing complete justice” in any matter.
The Chief Justice clarified that while the law does not explicitly grant the power to modify arbitral awards, such power can be inferred in limited cases where the award is severable — allowing the removal of the invalid portion while retaining the valid part.
This verdict arose from a reference made by a three-judge bench on February 20, 2024, in the case titled Gayatri Balasamy v. ISG Novasoft Technologies Limited.
One of the key questions before the court was whether the powers granted under Sections 34 and 37 of the Act include the power to modify an arbitral award.
Section 34 lists specific grounds on which an award can be set aside. The bench held that the power to set aside an award does include the power to partially set it aside.
However, the court also added a caveat: “Partial setting aside may not be feasible when the ‘valid’ and ‘invalid’ portions are legally and practically inseparable. In simpler terms, the valid and invalid components must not be interdependent or intrinsically intertwined. If they are, the award cannot be modified in part.”
The bench acknowledged that modification and setting aside have distinct consequences — the former alters, while the latter annuls an award.
It concluded: “To deny courts the authority to modify an award — especially when such denial imposes significant hardships, escalates costs, and leads to unnecessary delays — would be counterproductive. This concern is particularly relevant in India, where applications under Section 34 and appeals under Section 37 often take years to resolve.”
