Partial Setting Aside And Limited Modification under Section 34: Insights from Gayatri Balasamy Judgment

Introduction

Arbitration plays an important role in the legal landscape and the Indian economy. Businesses in India increasingly use arbitration clauses in their contracts. This practice serves as a way to resolve disputes. It offers parties a binding, efficient, private, and cost-effective alternative to traditional court proceedings. This makes it attractive for complex business and corporate deals.

The legislation follows the UNCITRAL Model Law on International Commercial Arbitration,^[i] which ensures that India meets global standards. The Act aims to reduce judicial review while keeping the independence and finality of arbitration awards. This is clear from the reading of Section 34 of the Arbitration & Conciliation Act 1996, which outlines specific reasons a court may overturn an arbitration award.

Whether courts can change (modify) or correct awards has arisen over time. The Hon’ble Supreme Court ruled until April 2025 that Section 34 gives courts the exclusive power to revoke an award, either completely or partially, if it can be separated legally, but not to change it. The recent judgment in Gayatri Balasamy v. M/S. ISG Novasoft Technologies Limited (30 April 2025) clarifies this issue. The Constitution Bench stated that while Section 34 does not permit changes based on merit, it does allow courts to rectify clear clerical or computational mistakes in the award.^[ii]

Understanding the Statutory Framework of Section 34

Section 34 of the Act 1996, modelled on the UNCITRAL Model Law (1985), states the grounds for the court to intervene in an arbitral award. An application to set aside must be made within three months of receipt (extendable by 30 days upon showing sufficient cause).^[iii] Section 34(2)(a) confines interference to five grounds:

• A party’s incapacity or the arbitration agreement’s invalidity under the chosen law (or, absent choice, Indian law);
• Improper notice of the arbitrator’s appointment or of the arbitral proceedings, or denial of a party’s opportunity to present its case;
• The award’s decision on matters beyond the scope of submission to arbitration;
• Tribunal composition or procedure departing from the parties’ agreement; and
• Conflict with India’s public policy.^[iv]

Section 34(2)(b) also permits annulment where the subject matter is non-arbitrable or the award is not in the interest of public policy. Section 34(2-A) adds a domestic-only ground of patent illegality, requiring no further factual or legal inquiry.^[v] Section 37(1)(c) allows an appeal against any order setting aside or refusing to set aside under Section 34.

Early Case Law Emphasizing Non-Intervention in Award Modification

The McDermott International Inc. v. Burn Standard Co. Ltd & Ors. (2006) ruling by the Hon’ble Supreme Court was a landmark judgment on this matter. The Court held that if one of the listed flaws existed, courts could either uphold an award or set it aside in its entirety. The court also observed that courts cannot change or correct an award, as this would go against the legislative aim of limiting judicial interference.^[vi]

In The Project Director, N.H.A.I v. M. Hakeem & Anr. (2021), the court observed that the 1940 Act specifically conferred the power to correct awards; however, the 1996 Act shifted legislation toward maintaining arbitral finality by purposefully excluding any language giving such interpretation. The court concluded that Section 34 of the 1996 Act does not give the court authority to modify or alter the ruling of an arbitral award.^[vii]

The Emergence of Partial Setting Aside through Severability

Although Section 34 does not explicitly mention partial setting aside, the language of Section 34(2)(a)(iv) implies a limited form of severance: if an arbitral tribunal decides on matters both within and beyond the scope of submission, only the part of the award concerning not valid issues may be set aside. The Hon’ble Supreme Court noted in M/S. J.G.Engineers Pvt. Ltd v. Union Of India & Anr., (2011) that the severability theory allows courts to declare and set aside the invalid part of an award void, while keeping the valid parts untouched.

Delineating Partial Setting Aside from Modification

The decision in M/S Larsen Air Conditioning And Refrigeration Co. v. Union of India underlines that courts cannot change arbitral awards. Instead, courts can only set aside these awards, either in whole or partially, under Section 34. In National Highways Authority Of India v. Trichy Thanjavur Expressway Ltd. (2022), the Delhi High Court explained the difference between partial setting aside and modification. Partial setting aside means invalidating or setting aside a specific part of the award, while leaving the other parts unchanged. On the other hand, Section 34 forbids modification since it would entail changing the tribunal’s substantive reasoning or conclusions.

In the 2025 Case: Gayatri Balasamy v. M/S ISG Novasoft Technologies Ltd.

The power under Section 34 regarding modification, and whether the power to set aside an award includes the power to set aside the award partially, was explained in the recent April 30, 2025 judgment. By a majority, the Constitution Bench of the Hon’ble Supreme Court looked into the uncertainty about the courts’ power to change awards. The Bench stated that partial setting aside is part of Section 34(2)(a)(iv), which involves separating decisions on issues not submitted to arbitration. The Court held that the severance of invalid findings is a “clarificatory” exercise: a court need only annul that portion of the award without disturbing the valid findings. Relying on the principle that “the greater power includes the lesser,” it concluded that the power to set aside an award includes the power to do so in part.

The Court explained the limited power to change under Section 34 and provided the distinction between “setting aside” and “modifying” an award. The Court stated that minor changes, such as clerical, typographical, or computational errors, can be addressed immediately by the court if the error is obvious. This power is not barred by Section 33, which allows the tribunal to correct such errors, or Section 34(4), which permits the court to adjourn proceedings and remit the matter back to the tribunal for clarification. Instead, the Court recognized that such corrective power is inherent in the judicial function under Section 34. The change must come from the award itself and should not threaten the final decision of the arbitral award. This reduces unfairness from small technical mistakes and keeps Section 34 from turning into a place for appeals or re-evaluations of the merits.

Use of Article 142 as a Residual Constitutional Power in Arbitration

The Hon’ble Supreme Court has the power under Article 142 of the Constitution to issue any order necessary to deliver “complete justice” and is reserved for exceptional circumstances in which neither rectification nor partial setting aside can provide complete justice. Although Article 142 has seldom been used in arbitration, its presence demonstrates that legislative remedies must not result in manifest injustice. In Pure Helium India Pvt. Ltd v. Oil & Natural Gas Commission, the Supreme Court applied Article 142 to reduce an 18% interest award to 6%, a fairer amount. In Ssangyong Engineering and Construction Co. Ltd. v. National Highways Authority of India, it invoked its jurisdiction under Article 142 to secure full justice, upholding the minority award and setting aside the majority one, since Section 34 does not provide the authority to make such modifications. In Gayatri Balasamy, the Court highlighted that the power under Article 142 should only be exercised after all other legislative remedies, such as severance or revision under Section 34, have been exhausted to serve justice.

Section 34: Limited Correction and Enforceability

The scope of remedy under Section 34 has expanded. Earlier, the concept of patent illegality appeared in Oil and & Natural Gas Corporation Ltd v. Saw Pipes Ltd. The Supreme Court said that an award can be set aside under Section 34(2-A) if it involves patent illegality. The 2025 Constitution Bench ruling in Gayatri Balasamy clarified the limits of judicial review. The Court stressed that changes should be minor and not change the award’s core meaning. Section 33 allows the arbitral tribunal to correct clerical or typographical errors. Section 34 permits courts to fix small but clear mistakes only when needed to ensure justice. The impacted party may first seek remedies under Section 33, and then under Section 34(4). It also found that limited judicial adjustments under Section 34 did not impact the enforcement of awards under the New York Convention. It dismissed merger-related arguments, determining that the modified decision is enforceable under Section 48 as long as it complies with the laws of the seat of arbitration and its jurisdiction.

Conclusion

While Section 34 of the Arbitration and Conciliation Act, 1996, allows setting aside arbitral awards, judicial interpretation by the Hon’ble Supreme Court in Gayatri Balasamy v. ISG Novasoft Technologies Ltd. has clarified that this includes partial setting aside and limited modification. Courts cannot fundamentally change arbitral awards, but they can remove invalid parts if they are separable. They can also correct clerical or calculation mistakes. This changing legal framework shows balance: Courts support minimal interference while ensuring justice is served. Through a broader interpretation, the judiciary upholds arbitral finality alongside constitutional responsibility. The Gayatri Balasamy decision marks an important development in affirming arbitral independence and defining judicial boundaries.

End Notes:

1. Delhi Airport Metro Express Pvt. Ltd. v. Delhi Metro Rail Corp. Ltd., 2021 SCC OnLine SC 1076
2. Gayatri Balasamy v. ISG Novasoft Technologies Ltd., 2025 SCC OnLine SC 986
3. M/S. Saptarishi Hotels Pvt. Ltd., v. National Institute of Tourism and Hospitality Management, 2021 SCC OnLine TS 1765
4. Associate Builders v. Delhi Development Authority., 2014 SCC OnLine SC 937
5. Gayatri Balasamy, supra note 2, ¶ 30
6. McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181
7. Project Director, National Highways No. 45 E and 220 National Highways Authority of India v M. Hakeem, 2021 SCC OnLine SC 473
8. M/S. J.G. Engineers Pvt. Ltd v. Union of India & Anr., 2011 SCC (5) 758
9. Larsen Air Conditioning & Refrigeration Co. v. Union of India., 2023 SCC OnLine SC 982
10. NHAI v. Trichy Thanjavur Expressway Ltd., 2023 SCC OnLine Del 5183
11. Gayatri Balasamy, supra note 2, ¶ 33
12. Gayatri Balasamy, supra note 2, ¶ 34
13. Gayatri Balasamy, supra note 2, ¶ 49
14. Shilpa Sailesh v. Varun Sreenivasan, 2023 SCC OnLine SC 544
15. Pure Helium India (P) Ltd. v. Oil & Natural Gas Commission, 2003 SCC OnLine SC 3257
16. Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India (NHAI), 2019 SCC OnLine SC 677
17. Gayatri Balasamy, supra note 2, ¶ 83
18. ONGC v. Saw Pipes Ltd., (2003) 5 SCC 705
19. Gayatri Balasamy, supra note 2, ¶ 54
20. Gayatri Balasamy, supra note 2, ¶ 67