From Finality To Flexibility: Post-Gayatri Balasamy Jurisprudence In Indian Arbitration (2025)

The Hon'ble Justice M.N. Venkatachaliah in his speech “Keeping the Spirit of the Common Law Alive”, once said that “Flexibility is the prime virtue of common law. The genius of common law lies in its capacity for evolution and adaptability, as well as its resilience to cope with the demands of the times.”[1] This statement fits well within Indian arbitration jurisprudence. Last year, a constitutional bench of the Supreme Court pronounced the decision of Gayatri Balasamy v. ISG Novasoft Technologies Ltd.,[2] which deals with the powers of the court under Section 34 and 37 of the Arbitration and Conciliation Act, 1996 (“Act”) in modification of Arbitral awards. However, any action by the Courts to modify or alter an arbitral award may amount to judicial overreach and jeopardize the principles of limited judicial interference and finality of the arbitral award. The Apex court in the Balasamy Judgment dealt with this delicate issue. This article undertakes a doctrinal review of judicial decisions delivered in 2025 which have relied upon the ratio of Balasamy. Position before BalasamySection 34 of the Act is derived from Article 34 of the UNCITRAL Model Law on International Commercial Arbitration of 1985[3] which states that setting aside is the only recourse against an arbitral award. Indian law before the Balasamy Judgment was that Section 34 of the Act does not constitute an appeal and solely offers the recourse of setting aside.In NHAI v. M. Hakeem[4] the Hon'ble Supreme Court stated that no power to modify an award could be derived from Section 34 of the Act. Modification would mean exercising appellate authority beyond the Act's limited scope, and only the legislature could grant such powers.[5] The Court adopted a literal textual interpretation determining that the express authorization to “set aside” excludes implied authority to modify. Actions under Section 34 of the Act do not permit a challenge regarding the merits of the award.[6]Thereafter, judgments clarified that even in the absence of authority to alter an award, a court could partially set aside severable portions of an award.[7]Doctrinal Shift after BalasamyIn Balasamy[8] the Hon'ble Supreme Court held that Appellate Courts have limited powers to modify arbitral awards under Section 34 or 37 of the Act in the following circumstances:When the award is severable by separating the invalid portion from the valid portion;To correct clerical, computational, or typographical mistakes apparent on the face of the record;To modify post-award interest where appropriate;The Supreme Court may exercise powers under Article 142 of the Constitution, but with great care and caution.[9]An award could be partially modified to the extent the invalid portion can be separated (doctrine of severability), clearly acknowledged in Section 34(2)(a)(iv) of the Act.[10] Computational/clerical errors and not adjudicatory errors can be rectified.The majority held that in relation to pendente lite interest courts cannot exercise power of modification. However, courts can modify post-award interest where facts justify such modification, as arbitrators cannot predict future events. This power may lower or raise the interest rate. Section 31(7)(b)[11] of the Act was intended to guide the arbitrator's judgment regarding post-award interest and may be reviewed by Courts.Contours of Judicial Review: The 2025 JurisprudenceSupreme CourtOn limitation by way of demurrer, the Court held that party autonomy is not expansive enough to strike at basic principles of limitation law under Section 3 of the Limitation Act. Section 43 of the Act falls within “Subject to this Part” under Section 19(2) of the Act. Relying on the dissenting opinion in Balasamy, the finding that claims were within limitation and forever foreclosed was severable and offended basic notions of justice, and therefore had to be set aside, while the remaining award remained intact.[12]On modification of contractual terms and discriminatory treatment, the Court held that where the Arbitral Tribunal awarded claims neither pleaded nor argued, modified express contractual terms, and meted out discriminatory treatment in violation of Section 18, the award was in conflict with public policy and could not be severed. The entire award was set aside.[13]On Article 142, the Court held that where an award is perverse, opposed to public policy or patently illegal, and setting aside would relegate parties to prolonged litigation after 16 years, jurisdiction under Article 142 may be exercised.[14] Equities would be served by moulding relief rather than remanding.Delhi High CourtWhere counterclaims were rejected without foundational reasoning or consideration of contractual provisions, the Award to that extent was in contravention of public policy. Counterclaims 1 to 3 were severable from 4 and 5; hence partial setting aside was permissible.[15]On pre-suit/pre-reference interest, the Court observed that Balasamy did not mention it...

From Finality To Flexibility: Post-Gayatri Balasamy Jurisprudence In Indian Arbitration (2025)

Shivendra Nath Mishra

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