Supreme Court could reshape arbitration. Businesses are watching.

For businesses, the decision could bring much-needed efficiency—or complicate arbitration in a country where courts are saddled with 46 million pending cases. The case, Gayatri Balasamy vs ISG Novasoft Technologies Ltd, is poised to set a major precedent on the extent of judicial intervention in arbitration, a system companies rely on for faster, cost-effective dispute resolution.

Read this | Law ministry to discuss SC rulings for Arbitration Act amendment as costs issue persists

The case dates back to 2006, when Gayatri Balasamy, then vice president at IT firm ISG Novasoft Technologies, resigned, citing sexual harassment by chief executive Krishna Srinivasan. Her resignation did not take effect, and she later received three termination letters. She filed criminal complaints against company executives, while ISG countered with defamation and extortion charges.

The dispute was referred to arbitration, which awarded Balasamy ₹2 crore. Unhappy with the decision, she approached the Madras high court, arguing that key aspects of her claims had been overlooked. In 2014, a single-judge bench modified the award, increasing it by ₹1.6 crore. However, in 2019, a division bench slashed the total award to just ₹50,000, calling the earlier increase excessive.

Balasamy then moved the Supreme Court, challenging the reduction. In February 2024, a three-judge bench comprising justices Dipankar Datta, K.V. Viswanathan, and Sandeep Mehta framed key legal questions and referred the case to a larger five-judge bench.

A five-judge constitution bench, led by chief justice Sanjiv Khanna and including justices B.R. Gavai, Sanjay Kumar, K.V. Viswanathan, and Augustine George Masih, reserved its judgment on 19 February. The court will now examine whether any power to modify awards exists under the 1996 Arbitration and Conciliation Act.

With chief justice Khanna set to retire on 13 May, a judgement is expected soon.

A ruling allowing courts to adjust awards could eliminate the need for businesses to re-arbitrate disputes from scratch, reducing costs and delays. But some warn it could open the floodgates to more litigation—undermining arbitration’s role as an alternative to court battles.

Can courts modify arbitral awards?

Currently, Indian courts can only affirm or set aside arbitral awards, with no power to make targeted corrections. This means that if an award is struck down, businesses often have to restart the arbitration process—a time-consuming and expensive ordeal.

Granting courts the ability to modify awards “would enhance efficiency, reduce costs, and streamline the dispute resolution mechanism," said Sanjay Jain, former additional solicitor general. “This would prevent unnecessary re-arbitration, ensuring quicker enforcement and fast-track finality in commercial disputes." 

He added that such a development would bolster investor confidence, as businesses seek legal certainty while allowing flexibility in rectifying errors.

Senior advocates Arvind Datar and Darius Khambata argued before the court that allowing modification would be a logical extension of existing judicial review. 

If courts can set aside an award, they should also be able to make smaller changes to it, Datar said. 

Khambata added that the 1996 Arbitration and Conciliation Act was designed for quick and effective dispute resolution, and limiting courts to merely setting aside awards could cause unnecessary delays.

"A balanced approach—upholding arbitral autonomy while enabling minimal judicial oversight—would reinforce India’s position as an arbitration-friendly jurisdiction, attracting foreign investors by ensuring a more predictable and business-conducive dispute resolution mechanism," said Jain.

Some arbitral awards suffer from deficiencies in reasoning and legal analysis, noted Anjali Anchayil, partner at JSA Advocates & Solicitors. If the Supreme Court allows modification, she said, parties could seek judicial intervention to correct limited errors rather than having to restart arbitration entirely. “This may allow some errors to be rectified without setting aside the award. Parties may get necessary relief more quickly," she said.

The arbitration tightrope

While modifying awards could create a more efficient system, some legal experts fear that it risks undermining arbitration’s core purpose—keeping disputes out of the courts.

“Permitting modification of an award to overcome lengthy and additional delays in re-arbitration is not the answer," said Shaneen Parikh, head of international arbitration at Cyril Amarchand Mangaldas. “A court cannot conceivably modify an award without going into the merits, and therein lies a problem that will be far worse than the cure." 

Read this | India takes early steps towards becoming a global arbitration hub. And cut costs for its biggest litigant.

Parikh warned that expanding judicial intervention in arbitration could lead to further litigation, acrimony, and frustration, ultimately defeating the purpose of arbitration itself.

If the Supreme Court does grant courts the power to modify arbitral awards, it should not be a blanket, overarching power, as that would trigger a second round of litigation, said Shiv Sapra, partner at Kochhar & Co. Instead, Sapra argued, any modification powers should be narrowly defined to prevent excessive court interference.

The Union government has strongly opposed giving courts modification powers. Solicitor General Tushar Mehta argued that Section 34 of the Arbitration Act was intentionally designed to only allow courts to set aside awards—not modify them. He cautioned that the 1996 law was a carefully structured system, and allowing courts to edit awards would go beyond its intended scope.

Global precedents

Several arbitration-friendly jurisdictions—including the UK, US, Australia, and Singapore—allow courts to modify arbitral awards, but typically only in domestic arbitration. Singapore, for instance, permits modifications under its domestic arbitration law but not for international disputes. India does not differentiate between domestic and international arbitration in its legal framework.

Read this | Government vs Government: New litigation policy to target costly disputes among public sector firms

The ruling comes as the law ministry considers amendments to the Arbitration and Conciliation Act. Public consultations on a draft bill closed last November, and legal experts say any expansion of judicial power to modify awards should ideally come through legislative reform, not judicial precedent.

If courts do get the power to modify awards, it would be best implemented through the legislature, not through a judicial ruling, said Alok Prasanna, co-founder of the Vidhi Centre for Legal Policy. He suggested that lawmakers should define specific limitations on modifications, such as whether courts could only tweak damages awarded or make broader changes to an award’s reasoning.

Implications for businesses

If the ruling grants courts greater power over arbitration outcomes, businesses may adjust their dispute resolution strategies, potentially favouring arbitration hubs such as Singapore, London, or Dubai over India to minimize legal uncertainty.

Also read | Mint Explainer: Why the ban on WhatsApp's data-sharing practices has been stayed

For now, businesses are watching closely. Whether the ruling enhances efficiency or adds another layer of legal complexity will have long-term implications for India’s business climate.