Abstract

The Constitution Bench decision of the Supreme Court in Gayatri Balasamy v. ISG Novasoft Technologies Ltd., (2025) 7 SCC 1, represents decisive moment in the jurisprudence of Arbitration in India. Addressing the longstanding controversy over the scope of judicial intervention in arbitral awards under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996, the Court with a 4:1 majority established a limited power to sever and set aside portions of an award where such portions are clearly separable. However, it rejected any general appellate authority to re-adjudicate or rewrite arbitral awards. This analysis will explore the majority along with the dissent, analyse its relationship with prior precedents such as McDermott International and M. Hakeem, and assess the current trends of judicial developments after this judgement. It will contend that the judgment is a re-calibration rather than an expansion of judicial power and that its long-term success is contingent on judicial conscience and legislative clarification.

Introduction

The Arbitration and Conciliation Act, 1996 (“A&C Act”) was introduced to make the Indian law on arbitration conform to the UNCITRAL Model Law and ensure efficiency, finality, and minimal judicial intervention. Section 34 provides limited grounds upon which an arbitral award may be set aside, while Section 37 tells about the appeals against certain orders passed under Section 34 in certain circumstances. The scheme of the Act is supervisory and not appellate.

Despite this clarity of the act, the judiciary has been grappling with a recurring question for many years: what is to be done when an arbitral award is partly valid and partly legally unsustainable? Is the entire award to be set aside, thus mandating a new arbitration, or can a court salvage the valid award and set aside only the unsustainable part?

This question came to a head in the Constitution Bench decision in Gayatri Balasamy v. ISG Novasoft Technologies Ltd[1]. This judgment clears up a doctrinal ambiguity and establishes a rational doctrine of severability under Section 34. This decision is a landmark in the development of Indian arbitration law, and several key questions about finality, party autonomy, and the limits of judicial review.

The Statutory Framework and Pre-2025 Jurisprudence

Section 34(2) of the Arbitration & Conciliation Act sets out the limited grounds upon which an arbitral award may be challenged. These include: incapacity of a party; invalidity of the arbitration agreement; a failure to provide proper notice; a decision being made on a matter that was not submitted to arbitration; and a decision on a matter that is contrary to public policy. Of these, the scope limitation set forth under Section 34(2)(a)(iv) is particularly relevant in situations where the arbitrators intended to rule on an issue outside the scope of the submission to arbitration, but it is possible to separate some or all of that ruling from the ruling on an issue that was properly submitted, then only those portions that were not intended to be ruled upon may be set aside; additionally, Section 34(4) gives courts the discretion to suspend proceedings and send the matter back to the arbitral tribunal to enable the tribunal to remedy the reasons for setting aside the award.

The statute does not specifically authorize courts to “modify” or “vary” an award, and this lack of statutory authority contributed to early case law development. In McDermott International Inc. v. Burn Standard Co. Ltd.,[2], the Supreme Court took the position that a court exercising its powers under Section 34 may set aside an arbitral award, but may not attempt to correct any errors of fact or law. Thus, parties to an arbitration agreement are agreeing to be bound by the findings of the tribunal, except in very limited circumstances, and this concept is based on the consensual nature of arbitration.

In Project Director, NHAI v. M. Hakeem, [3]. the Supreme Court reaffirmed its strict view that Section 34 does not authorize modification of arbitral awards. It came to this conclusion based on the premise that courts’ ability to change these types of awards would render Section 34 an appellate provision and be contrary to the legislature's intent and inconsistent with the UNCITRAL Model Law. After Hakeem, the prevailing viewpoint was that courts had the discretion to uphold or set aside awards, but would not have the authority to modify those awards.

However, practical difficulties still existed as there were times when the judiciary would correct computational errors or disrupt interest components; therefore litigants would continue arguing about the ability to partially modify an arbitral award when defects were clearly distinct from each other. This dearth of authoritative clarity warranted an expanded bench review.

The Majority Judgment in Gayatri Balasamy

The Constitution Bench in Gayatri Balasamy undertook a comprehensive analysis of the statutory scheme, comparative law, and prior precedent. They also confirmed that while there is no power to set aside a portion of an Award that relates to an issue beyond the scope of the arbitration agreement, they may nevertheless set aside those portions of the Award that do not have any basis in law as long as they are also clearly severable.

Further to this, the majority decision also articulated three distinct rights available to a party in a mismatch case - including

1) The right of the parties to have their disputes settled by a single Arbitral Tribunal without any judicial intervention;2) The right to an Award that is not inconsistent with the terms of the arbitration agreement; 3) The right to appeal the Award to the Courts and to seek a stay of the execution of the Award pending the outcome of the appeal. In light of the majority's finding that as there are currently limited circumstances in which the Courts may intervene in an Arbitral Award, this means that the Courts will have the same powers available to them as a party to an arbitration, e.g. to make a direct application for clarification of the meaning of the terms of the Award, to challenge the validity of the Award through the usual routes available to parties before the Courts, and to seek an order from the Courts to enforce the terms of the Award.

This rationale is based on a pragmatic approach. As stated, requiring parties to begin arbitration anew simply because of minor legal defects would impose additional costs, delay enforcement, and reduce the efficiency of arbitration as a method of resolving disputes. The majority emphasised that any intervention that would require a re-examination of evidence would exceed the statutory limitations of the statutory framework.

There was also recognition in the judgement that clerical, typographical and mathematical errors that are evident on the surface of the award can be but will not be, and that the Supreme Court has the authority to provide complete justice to a party under Article 142 of the Constitution. However, no such authority to do so could exist because there can never be any “general modification of the law.”

The Dissent and the Textualist Objection

A stricter textual approach was the basis of the dissenting opinion. The dissent concluded that the lack of an express power to modify in Section 34 reveals a deliberate design choice by the Legislature. The dissent argues that the ability to vacate does not include the power to excise or alter awards. The dissent asserted that there are remedies sufficient to remedy any minor defect through existing statutory mechanisms, including correction under Section 33 and remission under Section 34(4).

The dissent expressed concern that even limited severability will lead to a continuing increase in the power of the Courts. If courts begin to excise portions of awards from an award, then the distinction between a venue's authority and appellate authority is at risk. This concern emphasizes the very importance of balancing judicial practicality with strict text fidelity in these matters.

Post-2025 Judicial and Doctrinal Developments

Since the 2025 ruling, Indian arbitration discourse has shifted noticeably. While there have not yet been any significant Supreme Court decisions extending the application of this doctrine, both the High Courts and those commenting on arbitration are now beginning to interact with the concepts set forth in Gayatri Balasamy.

In Jagdish Kaur v. Jasbir Singh Sandhu[4], the Delhi High Court referred to the Supreme Court’s rulings set out in Gayatri Balasamy in determining the limits of appellate review under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996. The issue before them was whether a clear computational error in an arbitral award could be corrected by the Court on appeal, without violating its prohibition against adjusting merits. Specifically, the High Court considered the implications of the Constitution Bench ruling in Gayatri Balasamy regarding its distinction between an impermissible merits-based modification vs. a permissible correction of an apparent error on the face of the award. The High Court followed and applied the majority of the observations in the decision finding that there would be judicial recourse in cases where a defect is purely arithmetic in nature; thus, there would be no need for any re-evaluation of either the evidence or terms of the contract. The High Court framed the correction as a limited supervisory alteration to the arbitral award consistent with the principle of severability between the judicial and arbitral jurisdictions developed by the Supreme Court. As such, the decision represents an early judicial endorsement of the structured limitations on appellate review established by Gayatri Balasamy, and clarifies that computational corrections may be made, so long as they do not disrupt the underlying substantive analysis undertaken by the arbitral tribunal or change the fundamental adjudicative conclusions.

The court's recognition of the correction of clerical and/or computational manifest errors has also come under scrutiny from commentators. This clarification is considered to be a limited acknowledgment of the Court's authority to correct obvious injustice without reopening the evidence and is not considered an expansive power of modification by the Court.

The early post-October 2023 trends are demonstrating a methodical rather than expansive application of the Court's discretion in determining the appropriateness of modification. The apparent trend among higher courts may be to proceed cautiously with the expiration of time frames allowed for the reassessment of evidence. Thus, the question surrounding modification is now more an issue of how narrowly the severability of modification is to be defined as opposed to whether or not there can be a modification made at all.

Finality Versus Judicial Intervention

The Gayatri Balasamy decision recalibrates the doctrine of finality for arbitration in India has been recalibrated. Finality does not equal complete immunity from being overturned via the process of the court; it restricts the ability of courts to replace the findings of arbitrators with their own.

An example where this theory applies would be for portions of an award that the court found to have been legally unsustainable; that is, to allow portions of the original contract to be severed, while still enforcing valid determinations made by the arbitrators.

The court’s ruling provides what could be called functional finality and would appear to inhibit the possibility of annulment and duplicate actions in multiple jurisdictions, strengthening arbitration, but also creates potential for discretionary interpretation of whether a portion of an award is truly severable, leading to litigation regarding whether a portion is severable. The court attempted to mitigate the risk of this gap developing by requiring strict judicial restraint. Whether or not the doctrine strengthens or weakens arbitration will depend on how consistently the courts adhere to these limits on their authority.

Proposed Reforms

To clarify doctrinal issues and control the extent to which Courts can extend the meaning of legislation beyond the intention of Parliament, some improvements to the law need to be considered. First, Parliament may want to amend Section 34 to provide specific recognition of partial invalidity in the case of legal severability and to also prohibit re-testing of evidence or quantum. This would assist in establishing greater clarity of interpretation. A second area where improvement is possible is with the creation of a structured legal test for determining severability. The court’s test should require that the legally invalid part of the coordinates be legally invalidated, identifiable, and removed as a basis for the tribunal’s reasoning. Third, there should be an increasing use of remission under section 34(4) to preserve the autonomy of arbitrators to cure procedural defects through tribunal action.

Finally, courts must continue to interpret public policy grounds narrowly, consistent with earlier jurisprudence such as Associate Builders [5] and Ssangyong Engineering[6], to prevent expansion of review under the guise of severability.

Conclusion

The Supreme Court’s decision in Gayatri Balasamy represents a careful recalibration of judicial power under the Arbitration and Conciliation Act, 1996. The Court did not create a general power to modify arbitral awards. Instead, it recognised a limited doctrine of severability grounded in statutory language and pragmatic necessity.

The ruling balances party autonomy with judicial responsibility to prevent jurisdictional excess and legal invalidity. Its long-term impact will depend upon disciplined judicial application and possible legislative refinement. If confined strictly to clearly separable legal defects, the doctrine strengthens arbitration. If expanded into merit-based reassessment, it risks eroding the finality that arbitration seeks to secure.

*The author is Abhimanyu Saxena, 4th year student at Institue of Law, Nirma University. View expressed are personal.