The Corporate & Commercial Law Society Blog, HNLU

Tag: politics

  • Expanding The Meaning of Sufficient Cause under Section 58 (1)

    Expanding The Meaning of Sufficient Cause under Section 58 (1)

    BY PRIYAM MITRA, THIRD- YEAR STUDENT AT NLSIU, BANGALORE

    INTRODUCTION

    Through judicial pronouncements and legislative clarifications, the seemingly unbridled power of free transferability of public companies is constrained by two clauses: one stating that any contract between two or more persons would be enforceable as a contract (proviso to Section 58(2)) and; secondly, the public company may refuse to register this transfer of shares by showing sufficient cause (Section 58(4)).

    There is considerable literature on why employee stock option schemes are introduced in various different ways. Specifically in firms where there are capital constraints, which is often the case in unlisted public companies, these strategies are often deployed for the purposes of “employee retention and sorting”. It is also well established that after the lock-in period of these schemes, these shares are to be treated in the same way as other equity shares; this means that for public companies this would lead to principles of free transferability being applicable thereon upon such shares given to employees.

    It is the argument of the paper that in this context, the meaning given to the term “sufficient cause” under section 58(4) must be read in an expansive manner so as to cover instances where allowing further transfer of these allotted shares would be perverse to the interests of the company. To do this, the NCLAT judgement of Synthite Industries Limited v. M/s Plant Lipids Ltd. (2018), which emphasises directors’ duties under Section 166(2) would be relied on.

    FOUNDATIONS OF EMPLOYEE STOCK OPTION PROGRAMS AND POSSIBLE ROADBLOCKS

    A. Reasons for ESOP Schemes

    As mentioned before, there has been a growing trend in industries where rather than providing incentives to employees to work, ESOPs are used for sorting and selection of those who are optimistic about the future of the company. This is why it makes sense for even public companies to get the benefit of ESOPs even though traditionally there should have been no restrictions on the transferability of public company shares. However, what is often overlooked in analysis is then how do those who receive these options exercise them and whether these transactions can be restricted in view of other important consideration as out lined later (namely whether there is sufficient cause to believe that the transfer would result in harming the interest of all shareholders).

    B. Nominee Directors

    Before the enactment of the Company Act 2013, there had been academic concerns expressed with respect to independent directors receiving stock options. The reason for this was rooted in the fact that independent directors, by the nature of their role, had to be independent of any pecuniary interest in order to perform their function. Stock options in this context would dampen this independence and rightfully, Indian law averted this error through the SEBI (Share Based Employee Benefits) Regulations, 2014. The rules define “employees” as explicitly not including “independent directors” (Rule 2(1)(f)(ii)).

    However, inadvertently, the category of nominee directors has been categorically excluded from the category of independent directors under Section 149(6) of the Companies Act, 2013, and this means that they are covered under the definition of employee for the purpose of stock option schemes. To understand why this is a possible roadblock to achieving the purpose of stock option schemes, the peculiar role of nominee directors has to be analysed.

    Nominee directors have become a regular part in corporate structures in India. Due to them owing their duty to the nominator but sitting on the board of directors. There is always a speckle of concerns related to conflict of interest. Indeed, it has been observed in decisions that in a situation where these two interests are at conflict, they would be placed in an “impossible position”. Coming back to why this is an issue in the context of ESOPs, it must be understood that while the ESOPs cannot be transferred to any third party (the option to buy (Rule 9)), the shares issued to nominee directors pursuant to ESOPs, however, may be transferred to the nominating institutions. This conspicuously places the nominee directors in such a position where the nominating institutions may meddle in the functioning of these directors pushing for transfer of these lucrative shares.

    There could be an argument that there is a solution already implicit in the rules. That is, the companies may choose any period as the lock-in period (the period during which these shares cannot be transferred). However, unlike the provisions on sweat equity (3 years), there is no such minimum lock-in period prescribed. It is difficult for companies to deploy one single lock-in period for all kinds of employee and having such a strict period would be prejudicial to the employees’ interests. Therefore, it is argued, in exceptional circumstances Section 58(4) must be used to restrict transactions on a case-to-case basis.

    SUFFICIENT CAUSE UNDER 58(4)

    To solve the issues identified in the previous section, this paper proposes an expansive reading of sufficient cause under Section 58(4) as a possible solution. To understand the contemporary legal position, analysis must start from before the introduction of the Companies Act in 2013. Section 58(4) of the 2013 Act clarifies the position established by Section 111A of the Companies Act, 1956. Section 111A (3) provided an exhaustive list of instances (contravention of and law in India) wherein such refusal would be upheld. It was consistently held by the Courts that sufficient cause had to be read in this narrow manner.

    The recent line of cases starting from Mackintosh Burns v. Sarkar and Chowdhury Enterprises, recognise the wider ambit of sufficient cause under the Companies Act 2013. Mackintosh’s reasoning was based on simple facts of a competitor trying to buy shares in a company, a simple case of conflict of interest, hence, the Supreme Court concluded that at least in such cases, sufficient cause would entail something more than mere contravention of law. Synthite goes further and provides more robust reasoning even though the fact scenario here was very similar to Mackintosh. The court accepts the appellants arguments and holds the wisdom of the Board of Directors in high regard by forming a link between their fiduciary duty (Section 166(2)) to act in a bonafide manner and advance the company’s interests, to their refusal of registration of transfer (under Section 58(4)) (paras [10],[16],[22]). This effectively means that their refusal to register shares in this case was deemed reasonable because the board acted in a bonafide manner to advance the interests of the shareholders.

    In fact, a recent case heard by the Delhi High Court in Phenil Sugars Ltd. v Laxmi Gupta, was decided in a similar vein as that of Synthite (though the NCLT decision is not cited) wherein the Court held that registration of shares can be restricted where:

    “[27]There is an apprehension that the transfer is not in the best interest of the company and all its stakeholders including the shareholders;

    ii. The said apprehension is reasonable and there is material on record to support the apprehension.”

    The case is a monumental step forward. Till now, the cases primarily dealt with the transfer being done to a competing company, however, in this case, the court considered the refusal to be reasonable as the transferees had a history of meddling in the corporate affairs of the company through constant complaints. On the twin test laid down, the High Court considered the cause to be sufficient.                                                                                           

    CONCLUSION: RESTRICTING TRANSFER OF ESOP SHARES THROUGH SECTION 58(4)

    Realising the purpose behind ESOPs, that is, rewarding and more importantly retaining employees and shares within the company, leads to the conclusion that the board must be given the power to refuse registration of transfer. This is solidified by the emerging jurisprudence in India with respect to the ambit of sufficient cause under Section 58. It is argued that this determination would vary greatly with the unique facts and circumstances of each case.

    In case of nominee directors transferring the shares to their nominating institutions, one must look at the standard put forth by Synthite (invoking the directors’ fiduciary duty in making this decision)and the courts should not be constrained by the restrictive interpretation that sufficient cause would exist only when shares are transferred to competing companies (Phenil Sugars). It must be accepted that “deferring to the Board’s wisdom” would surely encompass such situations where a transfer would defeat the purpose of ESOPs and indirectly derogate the interests of all stakeholders. If nominee directors transfer shares to their nominating company, then they would be put in a precarious situation caught in between conflicts on interests.

    However, this does not mean that all ESOP receivers would be estopped from transferring their shares, this determination has to be made considering all the terms of the ESOP and the relationship that the company shares with the employee. What this paper has argued is that sufficient clause has to be interpreted in a wide way so as to restrict any transaction that would be prejudicial to the interests of all shareholders. Transfer of ESOP shares (usually) at a lower price needs to be maintained within the company and its employees, specifically when it is at a nascent stage; this should surely constitute sufficient cause.

  • Misplaced Reliance on CPC in Arbitration: From the lens of Ravi Ranjan Developers vs Aditya Kumar Chatterjee

    Misplaced Reliance on CPC in Arbitration: From the lens of Ravi Ranjan Developers vs Aditya Kumar Chatterjee

    BY SHOUBHIT DAFTAUR AND AROHI MALPANI, THIRD – YEAR STUDENT AT MNLU, MUMBAI

    INTRODUCTION

    The interplay between domestic arbitration and the Code of Civil Procedure, 1908 (‘CPC’) has long been fraught with tension. While certain CPC principles, such as the doctrine of res judicata under Section 11, have constructively contributed to arbitral practice by ensuring finality in dispute resolution, the indiscriminate imposition of procedural rules designed for civil litigation into arbitration has often been erroneous and misplaced. Arbitration, by its very design, prioritises party autonomy, procedural flexibility, and efficiency, and these objectives are frequently compromised when courts rely too heavily on civil procedure doctrines.

    The Supreme Court’s decision in Ravi Ranjan Developers Pvt. Ltd. v. Aditya Kumar Chatterjee (‘Ravi Ranjan’) exemplifies this difficulty. In the case, despite the arbitration agreement specifying Kolkata as the seat, the Respondent approached the Muzaffarpur District Court post-termination and later filed a petition under Section 11 before the Calcutta High Court. Ravi Ranjan Developers challenged the Court’s jurisdiction, citing a lack of cause of action, while the Respondent argued jurisdiction based on the arbitration clause. However, the Supreme Court problematically held that an arbitration agreement cannot confer jurisdiction on a court that inherently lacks it, applying a principle rooted in the CPC that negates autonomy and efficiency.

    This reasoning represents a significant departure from India’s recent pro-arbitration jurisprudence. Importing CPC-based jurisdictional tests into arbitration alters the centrality of party autonomy and threatens to dilute the efficiency and autonomy that arbitration seeks to achieve. Against this backdrop, this blog critiques the misplaced reliance that courts often place on CPC in arbitration and advocates for a clearer demarcation between the two frameworks, so as to preserve the foundations on which the arbitral process rests.

    THE RAVI RANJAN DEVELOPERS JUDGEMENT: A DEPARTURE FROM EFFICIENCY AND AUTONOMY

    The division bench in Ravi Ranjan Developers held that an arbitration agreement cannot confer jurisdiction upon a court that inherently lacks it. The crux of the controversy lies in the fact that this interpretation departs from the Supreme Court’s precedents as well as party autonomy and procedural efficiency, the pillars of arbitration. Party autonomy permits parties to designate either the seat or the venue of arbitration. In the BALCO case, the Supreme Court held that the term subject-matter of the arbitration under Section 2(1)(e) of the Act refers to the juridical seat, not the location of the cause of action or subject-matter of the suit. Once a seat is chosen under Section 20, the courts at that seat alone have supervisory jurisdiction. The Court has further ruled that parties may select a neutral seat of arbitration, and that a narrow construction of Section 20 would render this autonomy nugatory.    

    Building on this principle, BGS SOMA JV v. NHPC (Ltd..) clarified that when a venue is expressly designated and the arbitration proceedings are anchored to it, with no contrary indications,      it must be treated as the juridical seat. Applying this, the reference to Kolkata satisfies all conditions, making it the legal seat and conferring exclusive jurisdiction on its courts. Despite this clarity, the court erred in concluding that an agreement cannot confer jurisdiction on a place that otherwise lacks it, overlooking that such autonomy is not only consistent in the judicial precedents, but also it forms a statutory right.

    Fair, speedy, and inexpensive resolution is the essence of arbitration, but in Ravi Ranjan Developers, the Supreme Court undermined this principle by disregarding the parties’ express choice of Kolkata as the juridical seat. By reverting to a cause-of-action-based analysis under the CPC, the Court imposed delay, expense, and uncertainty, eroding the efficiency and autonomy that arbitration is meant to safeguard. This reasoning marks a troubling departure from India’s pro-arbitration jurisprudence, threatening to dilute party autonomy, compromise finality, and undo the progress made in fostering arbitration as an alternative to litigation

    MISPLACED RELIANCE ON THE CODE OF CIVIL PROCEDURE

    The Statement of Objects and Reasons of the Arbitration and Conciliation Bill, 1995, makes it clear that the Act was intended to comprehensively govern arbitration, reduce court interference, and simplify the enforcement of arbitral awards. This intention is further firmly set out in Section 5 of the Act. The meaning of this provision is straightforward- laws like the CPC, are not meant to apply to arbitration proceedings unless the Act itself refers to them. The Act is a complete and self-sustained code, and any procedure to be followed must arise from the Act itself rather than external sources.

    Indian courts have on several occasions supported this understanding. One such instance was the Court’s ruling in Essar House Pvt. Ltd. v. Arcellor Mittal Nippon Steel India Ltd. (‘     Essar’     ). The Supreme Court held that while courts must keep in mind the basic principles of CPC, they are not bound to apply every procedural requirement strictly when deciding an application for interim relief under Section 9 of the Act. The Court, therefore, clarified that procedural technicalities under the CPC should not prevent courts from doing justice, upholding the separation between CPC rules and dispute resolution via arbitration.

    However, Sanghi Industries Ltd. v. Ravin Cables Ltd. appears to narrow the scope of the court’s powers under Section 9 by requiring that the conditions under Order XXXVIII Rule 5 of CPC be met before interim relief can be granted. This decision seems to go against the broader and more flexible interpretation adopted in Essar, and arguably compromises the independent and self-contained nature of the Act by drawing it back to the procedural framework of CPC.

    A similar borrowing can be seen in the debate around impleadment. The power to implead parties stems from Order I Rule 10 of the CPC. While this principle is well established in civil and commercial disputes, its extension into arbitration through reliance on the Group of Companies doctrine in Cox and Kings II in the absence of a clear statutory provision raises concerns. Particularly criticised for weakening the consensual foundation of arbitration by substituting implied consent for the express consent mandated under Section 7 of the Act, this inclusion has nonetheless found some support. What is clear, however, is that a procedural device rooted in the CPC has been read into a framework intended to be autonomous and self-contained. It is against this background of contested application and creeping CPC influence that the reasoning in Ravi Ranjan Developers must be understood.

    Parties cannot be compelled to enter arbitration, and by the same logic, cannot be made to follow procedural laws they did not agree to. In Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd., the C     ourt held that parties must give their consent before being referred to arbitration under Section 89 of CPC. A clear example of non-application of CPC principles in practice can be found in Emkay Global Financial Services Ltd. v. Girdhar Sondhi, where the Supreme Court reaffirmed that, unlike CPC, arbitration treats the concept of seat as central. It held that the seat chosen by the parties acts as a neutral location for the arbitration, and even if no part of the cause of action arises there, the seat alone confers exclusive jurisdiction on the courts of that place to oversee the arbitral process. This position affirms that once the seat is determined, for instance, Mumbai, the Mumbai courts alone have the authority to regulate the proceedings arising from that agreement, regardless of any connection to the cause of action. Thus, this clarity leaves no room for importing jurisdictional doctrines from the CPC and places the control of arbitration squarely in the hands of the parties. 

    As established, the Court in Ravi Ranjan Developers runs counter to the legislative scheme of the Act, eroding the core tenets that distinguish arbitration from traditional litigation. If India is to affirm its commitment to an arbitration-friendly regime, it must resist the temptation to fall back on outdated procedural frameworks. Upholding party autonomy and ensuring the non-applicability of CPC-based tests is not merely desirable; it is essential.

    CONCLUSION AND WAY FORWARD: THE PATH TO A TRULY PRO-ARBITRATION INDIA

    Party autonomy and procedural efficiency in international arbitration are not loose ideals but have been firmly established in the UNCITRAL Model Law and widely followed in both common law and civil law countries. Leading arbitral institutions such as the International Chamber of Commerce and London Court of International Arbitration structure their procedural frameworks around these principles, enabling parties to shape proceedings on their terms while ensuring the expeditious resolution of disputes. This reflects a trend across many arbitration-friendly countries that value clarity in commercial disputes, which is diluted by antithetical reliance on CPC principles. If India wants to be seen as a reliable arbitration hub, these principles cannot be selectively applied. 

    The Supreme Court’s reasoning in Ravi Ranjan brings forth the perils of conflating arbitration with civil procedure. The CPC has been designed to regulate adversarial litigation in courts and is inherently different to arbitration. Importing CPC principles in arbitration dilutes the very principles that make arbitration a preferred method for dispute resolution. When courts superimpose civil procedural frameworks upon arbitral proceedings, they risk collapsing arbitration back into the litigation model it was intended to replace. India has made serious efforts to promote itself as a pro-arbitration jurisdiction. Landmark rulings like BALCO and BGS SOMA JV v. NHPC Ltd. have moved the law closer to international norms. However, when judgments like Ravi Ranjan Developers are passed, it slows down progress and creates confusion.

    The takeaway is clear- for India to maintain credibility as a pro-arbitration regime, the judiciary must resist the tendency to borrow from the CPC, and instead reaffirm arbitration as a distinct legal framework governed by its own statute and international principles. Only by safeguarding this separation can India strengthen its arbitration ecosystem and align itself with global best practices. By reviving a cause-of-action test rooted in the CPC, the Supreme Court in Ravi Ranjan Developers didn’t just misread party autonomy, it set Indian arbitration back by reinforcing judicial overreach over consensual dispute resolution. Unless courts resist the temptation to read CPC into arbitration, India risks reducing arbitration to nothing more than litigation in disguise.

  • Fixing What’s Final? The Gayatri Balasamy Dilemma

    Fixing What’s Final? The Gayatri Balasamy Dilemma

    BY Arnav Kaushik and Saloni Kaushik, THIRD and FIFTH- YEAR studentS AT Dr. Ram Manohar Lohiya National Law University, Lucknow And MahArashtra NaTIONAL LAW UNIVERSITY, NagPUR

    INTRODUCTION

    On 30 April 2025, in Gayatri Balasamy v. ISG Novasoft Technologies Ltd. (‘Gayatri Balasamy’), a Constitution Bench of the Hon’ble Supreme Court by a 4:1 majority, held that courts possess a limited power to modify arbitral awards. This power was interpreted as falling within courts’ express powers under Section 34 of the Arbitration and Conciliation Act, 1996 (‘1996 Act’). The judgment departs from Project Director, National Highway v. M. Hakeem (‘M. Hakeem’), where such powers were expressly denied. The Court identified three limited circumstances permitting modification: (1) severance of invalid portions of award, (2) alteration of post-award interest, and (3) correction of inadvertent errors or manifest errors. Justice Vishwanathan dissented, arguing that modification cannot be read into Section 34, except to rectify inadvertent errors. While the majority sought to resolve a legal impasse, it arguably introduced new interpretative ambiguities.

    PARTY AUTONOMY AND JUDICIAL NON-INTERVENTION

    To discern the implications of this ruling, one must consider the foundational principles of arbitration law—party autonomy and minimal judicial intervention. The 1996 Act, modelled on the UNCITRAL Model Law (‘Model Law’), enshrines these core principles. Party autonomy, the grundnorm of arbitration, allows parties procedural freedom, as contemplated in Article 19(1) of the Model Law and Section 19(2) of the 1996 Act.  Complementing party autonomy, the Model Law’s non-interventionist approach is adopted by the 1996 Act, emphasizing minimal judicial interference and finality of awards. The Statement of Objects and Reasons of the 1996 Act clearly reveals the legislative intent to limit courts’ intervention, with sub-point (v) of Point 4 expressly aiming to minimize courts’ supervisory role. Section 5’s non obstante clause confines the scope of judicial intervention to matters governed by Part I of the 1996 Act, while Section 35 ensures finality of awards, highlighting the legislative intent of minimal judicial interference.

    NO POWER TO MODIFY ARBITRAL AWARD?

    There is no express provision in the 1996 Act, which recognizes the power to modify or vary arbitral award. The majority in Gayatri Balasamy invoked the maxim omne majus continet in se minus, arguing that the bigger power to set aside an arbitral award inherently subsumes the lesser power to modify. In contrast the minority, relying on Shamnsaheb M. Multtani v. State of Karnataka, argued that this maxim, rooted in criminal law, applies only when two offences are ‘cognate’— sharing common essential elements. Since modification and setting aside differ fundamentally in their legal consequence, the former results in alteration whereas the latter leads to annulment, therefore, the power to modify cannot be subsumed within power to set aside. Nonetheless, the application of this maxim violates the cardinal rule of statutory interpretation. According to this rule, where the language is unambiguous, it must be given plain and ordinary meaning. Notably, the majority held that Section 34 does not restrict the range of ‘reliefs’ the court can grant.  However, in our opinion, the plain text of Section 34 limits the recourse to ‘only’ setting aside an award. This deliberate restriction, supported by expressio unius est exclusio alterius, and upheld in M. Hakeem signifies the legislative intent to exclude other remedies such as modification.  Unlike foreign jurisdictions such as the U.K., U.S.A, and Singapore, and Section 15 of the erstwhile 1940 Act, the 1996 Act does not expressly provide for modification powers. Despite Vishwanathan Committee’s recommendation, the legislature has not evinced any intent to incorporate an express provision, as is evident from the Draft (Amendment) Bill 2024. Therefore, imputing a power of modification would amount to the courts engaging in a merit-based review of the arbitral award, a course of action unauthorized by law.

    MODIFICATION V. SEVERANCE

    As discussed in the preceding section of this blog, the powers to modify and to set aside an award are fundamentally distinct in their legal consequences. This raises the question: can the powers to partially set aside an award, that is to sever certain portions, be equated with the powers to modify? The minority view relies on the definition of “sever as to separate” to justify the power to set aside an arbitral award partly. Section 34(2)(a)(iv) contemplates severance, allowing partial setting aside of an award where the invalid portion is separable, in variability and quantum, to preserve the valid portion. Severance is possible where claims are structurally independent. As held in J.G Engineers Pvt. Ltd. v. Union of India , distinct claims—separate in subject-matter, facts, and obligations can be severed without altering award’s substance. A decision on a particular claim is an independent award in itself, capable of surviving despite invalidity of another claim, as endorsed in NHAI v. Trichy. While power to partial setting aside is recognised, this does not equate to a power to modify. Essentially, severance entails elimination of invalid portions without examining the merits, whereas modification entails a pro-active alteration which may or may not require a merit-based review. Furthermore, the majority view remained silent on a pertinent question: whether modification can fill the gap where severance fails due to structural dependence of claims, as with composite awards? With respect to invalid portions, Section 34 contemplates the initiation of fresh proceedings which re-affirms that severance is not an alternative to setting aside of an award but an ‘exception’ within it.

    BUILT-IN FIXES: SECTION 33 & 34(4) OF 1996 ACT

    Despite express provisions under Section 33, the Supreme Court held that courts may also rectify errors in arbitral awards by invoking inherent powers under Section 151 of the Code of Civil Procedure (‘CPC’). However, it is our considered view that inherent powers cannot override express statutory provisions, even under the pretext of serving justice. This is because it is presumed that procedure specifically laid down by the legislature, including under Section 34 of 1996 Act, is guided by the notions of justice.

    Both the opinions invoked Section 152 of the CPC, which allows correction of accidental slips in judgments to avoid undue hardship. The minority held that this may apply only where (a) errors were not raised under Section 33; or (b) despite being raised, were not rectified by the arbitral tribunal. The majority, however, broadened this to include “manifest errors” by combining Section 152, the power to recall, and the doctrine of implied powers. Yet, term “manifest errors”lack clear scope: does it refer only to inadvertent errors under Section 33(1)(a), or also to curable procedural defects? We draw a distinction here: inadvertent errors are unintentional and apparent, while curable defects involve procedural irregularities affecting the award’s integrity, such as lack of reasoning, or inadequate award interest. Addressing such defects require discretion, and rightly falls squarely within tribunal’s authority under Section 33. Interestingly, the majority itself conceded that remand, unlike modification, enables tribunal to take corrective measures such as recording additional evidence. This position was further reinforced by the majority’s holding that where any doubt arises as to the propriety of a correction, the appropriate course is to remand the award to the tribunal under Section 34(4). This aligns with judicial pronouncements in I-Pay Clearing Services (P) Ltd. v. ICICI Bank Ltd. and Dyna Technologies Private Ltd. v. Crompton Greaves Ltd., which clarified that courts ought to provide the tribunal an opportunity to rectify curable defects.  Moreover, Sections 33(2) and (3) explicitly empower the tribunal to evaluate whether correction requests are justified, reaffirming its authority over its procedural irregularities. In our view, curable procedural defects, such as post-award interest, should mandatorily be remanded to the tribunal, while courts may independently rectify inadvertent, clerical errors, under Section 152, CPC.

    JUDICIAL OVERREACH AND ARTICLE 142

    The minority view, while referring to the Supreme Court Bar Association v. Union of India and Shilpa Sailesh v. Sreenivasan (‘Shilpa Sailesh’), emphasized that Article 142 should not be invoked to construct a new legal framework in the absence of express provisions, such as modification powers under Section 34 of 1996 Act. In the case of Union Carbide Corporation v. Union of India, the Supreme Court had enunciated that Article 142, while rooted in equity, must conform to statutory prohibitions, especially those grounded on some fundamental principles of general or specific public policy. Citing interpretation of “specific public policy” in the case of Shilpa Sailesh, the minority held that the powers under Article 142 cannot override non-derogable principles central to a statute— in this context party autonomy and minimal judicial interference. 

     While we agree with the minority, the majority opinion warrants a closer scrutiny. While stating that Article 142 powers should not be invoked to modify awards on merit, the majority simultaneously observed that it may be invoked to end litigation, thereby blurring the scope of intervention. The equitable principles under Article 142, such as patent illegality, notions of morality and justice, and principles of natural justice, are already embedded as grounds for setting aside arbitral awards. Interestingly, the Vishwanathan Committee had recommended insertion of an express proviso allowing courts to make consequential orders varying the award only in exceptional circumstances to meet the ends of justice. However, this recommendation  didn’t materialise, thereby indicating that the legislature intended the mechanism of setting aside an award to serve the purpose of ensuring complete justice.

    CONCLUSION

    The Supreme Court’s ruling in Gayatri Balasamy marks a significant shift in Indian arbitration law by permitting courts limited power to modify arbitral awards. Citing legal maxims like omne majus continet in se minus, and inherent powers, the majority blurred the distinction between setting aside and modifying awards, risking judicial overreach and merit-based review.  The issue of modifying arbitral awards is inherently complex and must be approached with restraint. While courts may justifiably correct inadvertent, clerical errors, given that such corrections do not amount to review on merits, any broader exercise of this power must be checked. The vague and undefined use of the term ‘manifest errors’ creates a troubling lacuna, allowing scope for subjective judicial interpretation. The Apex Court must clarify the contours of what constitutes a ‘manifest error’, otherwise the courts risk exceeding the boundaries of minimal intervention. In the pursuit of doing complete justice, the courts must not undermine the legislative intent of excluding modification as a remedy, particularly when such a change can only be brought through a legislative policy decision. To resolve the present ambiguity, the legislature should reconsider the Vishwanathan Committee’s recommendation and expressly delineate the limited circumstances under which courts may vary an award.  Despite being well-intentioned, the judgment introduces new complexities, necessitating legislative intervention to preserve the delicate balance between finality of awards and fairness of outcomes

  • In Dissent Lies the Truth: A Critical Look at the Court’s Power to Modify an Arbitral Award

    In Dissent Lies the Truth: A Critical Look at the Court’s Power to Modify an Arbitral Award

    BY ANMOL TYAGI, THIRD-YEAR STUDENT AT RGNUL, PATIALA.

    INTRODUCTION

    With a 4:1 majority decision in Gayatri Balasamy vs. M/S ISG Novasoft Technologies Ltd. (2025), (‘Balasamy’) the Supreme Court fundamentally altered India’s arbitration landscape by recognizing courts’ power to modify arbitral awards under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996 (‘the Act’) to modify an arbitral award. This watershed judgment resolves a decade-long jurisprudential conflict sparked by the Court’s 2021 M. Hakeem ruling, which categorically denied modification powers. By permitting limited judicial corrections from computational errors to compensation adjustments, the majority attempts to balance arbitration’s finality with the practical need for efficient justice. However, Justice K.V. Viswanathan’s dissent warns that this “judicial innovation” risks reviving the very interventionist culture the 1996 Act sought to eradicate. This article, firstly, delves into the controversy and analyses the ratio in its pragmatic context; secondly, it analyses its implications and advocates for how what should have been a unanimous verdict is penned down as a dissenting opinion; and lastly, it tries to explore a way forward.

    THE MAJORITY ON THE POWER TO MODIFY

    The Apex Court, through judicial precedents, proffered minimal judicial intervention in arbitral awards, not extending to correction of errors of fact, reconsideration of costs, or engagement in the review of the arbitral awards.

    For modification of awards, the court held that a modification does not necessarily entail the examination of the merits of the case, thereby allowing limited power of modification within the confines of Section 34 without a merit-based evaluation under certain circumstances including; where severing invalid from the valid, correcting clerical, computational and typographical error, certain post award interest and under Article 142 of the Constitution of India, where it is required and necessary to end litigation.  Progressively, such a decision was held to prevent the hardship of re-filing an arbitration and a manifestation of the objects of the Act.

    To that end, the majority in Balasamy invoked the maxim omne majus continet in se minus (“the greater includes the lesser”) to justify modification as incidental to the power to set aside awards. This reasoning hinges on Section 34(2)(a)(iv), which permits partial annulment if an award exceeds the scope of submission. By framing severability as statutory intent, the Court positioned modification as a natural extension of existing powers rather than a novel judicial innovation.

    For severability of awards, the court held that the greater power to set aside an award under Section 34 also includes the lesser power to sever the invalid portion of an award from the valid portion under Section 34(2)(a)(iv) of the Act, whenever they are legally and practically separable. The court differentiated the power conferred under section 34(4) from the limited power to modify on the ground of flexibility. The court upheld the idea of remittal under Section 34(4) as a remedial mechanism enabling the arbitral tribunal to correct curable defects in the award upon court adjournment. On the other hand, modification involves the court directly changing the award, which is limited and requires certainty.

    ANALYSIS OF THE MAJORITY OPINION

    While the court may have tried to weave the principle of equity and justice without offending the judicial fabric of Section 34 and the legislative intent of the Act, certain shortcomings are still exposed. Justice K.V. Vishwanathan’s dissent helps explore these shortcomings.

    i) Theoretical tensions: Party Autonomy vs. Judicial Paternalism

    Justice K.V. Vishwanathan’s dissent concurs with the idea that the power to modify subsumes the power to set aside under section 34 of the Act is fallacious, since the power to set aside an arbitral award does not inherently include the power to modify it because the two functions serve distinct purposes within the arbitration framework. Similar was the rationale of the court in M. Hakeem. Setting aside an award under Section 34 of the Arbitration and Conciliation Act, 1996, is a corrective measure that allows courts to annul an award if it violates fundamental legal principles, such as public policy or procedural fairness. In contrast, modification implies an active intervention where the court alters the substance of the award, which contradicts the principle of minimal judicial interference in arbitration, as in the Mcdermott International Case.

    The proposition of limited modification of an award in the interest of expeditious dispute resolution may seem attractive at first instance, especially for commercial arbitrations involving public law, where the courts may modify the award to enhance compensation for the land acquisition. However, it points to vital concerns regarding its applicability by the courts in general and arguably, the power of remand under section 34(4), though different from the modification powers, acts as a safety valve and serves a similar purpose as it arrays wide powers upon the arbitral tribunal to modify an arbitral award for an effective enforceability.

    Theoretically, arbitration is a voluntary act of dispute resolution through a third party, different from courts and its legal procedures.  While the judgment provides for modification powers to remove the ‘invalid’ from the ‘valid’ and enforce complete justice under Article 142 of the Constitution, it not only raises concerns as to its applicability and limitation in determining what constitutes ‘invalid’ or complete justice, but also strikes at the core of arbitration. It does so by contradicting the fundamental characteristic and statutory intent of arbitration, i.e., the finality of the award through minimal judicial intervention, as was held in Re: Interplay Between Arbitration Agreements Under the Arbitration and Conciliation Act, 1996, and the Indian Stamp Act, 1899.

    Justice K.V. Viswanathan’s dissent highlights a critical tension: the 1996 Act deliberately omitted modification powers present in its predecessor, the 1940 Arbitration Act. The legislature’s conscious choice to limit courts to setting aside or remitting awards reflects a policy decision to prioritize finality over granular corrections. Noting that the Parliament intentionally omitted the ‘powers to modify’ from the repealed Arbitration Act, 1940, the majority’s interpretation risks judicial overreach by reading into the Act what the Parliament excluded, a point underscored by the dissent’s warning that using Article 142 to modify awards subverts legislative authority.

    To that end, arbitration’s legitimacy stems from its contractual nature. By allowing courts to “improve” awards, Balasamy subtly shifts arbitration from a party-driven process to one subject to judicial paternalism. This contravenes the kompetenz-kompetenz principle, which reserves jurisdictional decisions for tribunals. Notably, the UNCITRAL Model Law emphasizes tribunal autonomy in rectifying awards (Article 33), a responsibility now partially appropriated by Indian courts

    ii. Impact on Arbitral decision making

    The threat of post-hoc judicial adjustments may incentivize arbitrators to over-explain conclusions or avoid innovative remedies. For instance, tribunals awarding compensation in land acquisition cases might default to conservative valuations to pre-empt judicial reduction. Conversely, the power to correct clerical errors (e.g., miscalculated interest rates) could save parties from unnecessary remands.

    iii. Enforcement Challenges

    While the Court envisions modification as a time-saving measure, practical realities suggest otherwise. District courts lacking commercial arbitration expertise may struggle to apply the “severability” test, leading to inconsistent rulings and appeals. The Madras High Court’s conflicting orders in Balasamy (first increasing compensation, then slashing it) illustrate how modification powers can prolong litigation.

    Arguably, with the possibility of modification, the judgment practically creates uncertainty and opens Pandora’s box, thereby exposing every arbitration being challenged under some pretext or other. The effect of the judgment might extend to various PSUs, companies, and individuals opting out of arbitration, fearing the non-finality of the award.

    The majority’s reliance on Article 142 to justify modifications creates a constitutional paradox.

    While the provision gives the Supreme Court the power to do “complete justice,” applying it to an arbitral mechanism of private dispute settlement blurs the line between public law exceptionalism and the enforcement of private contracts, which arguably would render Article 142 a “universal fix” for disenchanted arbitral awards.

    For land acquisition cases and corporate disputes both, this poses a paradox: courts acquire efficiency tools at the risk of sacrificing arbitration’s fundamental promise of expert-driven finality. As Justice Viswanathan warns, the distinction between “severance” and appellate review remains precariously thin. With ₹1.3 trillion in ongoing arbitrations at stake, Balasamy’s real test lies in whether lower courts use this power with the “great caution” prescribed inadvertently to revive India’s reputation for boundless arbitration litigation

    COMPARITIVE INTERNATIONAL PERSPECTIVES

    Leading arbitration hubs strictly reserve judicial modification. Singapore’s International Arbitration Act only allows setting aside on grounds of procedure and not on a substantive basis. The UK Arbitration Act 1996 can correct only clerical errors or clarifications (Section 57), whereas Hong Kong’s 2024 rules authorize tribunals-not courts-to correct awards. India’s new “limited modification” system varies by allowing courts to modify compensation values and interest rates, which amounts to re-introducing appellate-style review.

    The UNCITRAL Model Law that influenced the Act limits courts to setting aside awards (Article 34). More than 30 Model Law jurisdictions, such as Germany and Canada, allow modifications by way of tailormade legislative provisions. The Balasamy judgment establishes a hybrid model where there is judicial modification without an express statutory authority, raising concerns in enforcement under the New York Convention. As Gary Born observes, effective jurisdictions identify procedural predictability as a core value threatened by unfettered judicial discretion.

    THE WAY FORWARD: ENSURING EQUILIBRIUM

    The decision permitting limited alteration of the arbitral award represents a paradigm shift in the jurisprudence. The decision demonstrates a genuine effort to balance efficiency with fairness. However, its success depends on responsible judicial application. In the absence of strict adherence to the “limited circumstances” paradigm, India stands the risk of undermining arbitration’s essential strengths: speed, finality, and autonomy. As Justice Viswanathan warned, the distinction between correction and appellate review remains hair-thin. What is relevant here is how the courts apply the new interpretation to amend arbitral awards. Objectively, the courts have to be careful not to exercise the powers of amendment in exceptional situations to that extent, refraining from any impact on the finality of the arbitral award as well as the faith of the citizenry and other institutions within it.

    To avoid abuse, parliament has to enact modification grounds by amending Section 34, in line with Section 57 of the UK Arbitration Act, specifically allowing for corrections confined to reasons specified, promoting clarity and accountability. The Supreme Court would need to direct guidelines to the lower courts for arbitral award modification only when the errors are patent and indisputable, refrain from re-assessing evidence or re-iterating legal principles, and give preference to remission to tribunals under Section 34(4) where possible.