BETWEEN FINALITY AND FAIRNESS: THE SUPREME COURT’S RULING IN GAYATRI BALASAMY

 "Undoubtedly, India stands as a reservoir of untapped potential, poised to ascend as a premier destination for commercial arbitration and mediation on the international level." -Justice Hima Kohli, March 2024

This century, as observed by former Supreme Court judge Justice Hima Kohli, is set to define India’s ascent as a global arbitration leader.

With an ever-increasing caseload burdening the Indian judicial system, from trial courts to the Supreme Court of India, alternative dispute resolution (ADR) mechanisms are not merely desirable; they have become an urgent institutional necessity. The magnitude of this challenge is evident from the fact that in 2025 alone, more than seventy thousand cases were instituted before the Supreme Court.

Concerns regarding judicial backlog have been consistently acknowledged across policy forums, judicial pronouncements, and legal discourse. In this backdrop, arbitration has emerged as a preferred dispute resolution mechanism, frequently projected as a solution to judicial delay, a facilitator of ease of doing business, and a key driver for attracting foreign investment. Its appeal lies in party autonomy, procedural flexibility, confidentiality, and the potential for faster dispute resolution, features particularly attractive to commercial actors operating in a globalized economy.

Over the past twenty-nine years, India’s arbitration framework has undergone three significant legislative amendments, with another amendment, the 2024 bill still in pipeline. Through these reforms, India has sought to align itself with global best practices and emulate successful arbitration hubs such as Singapore, widely regarded as the arbitration capital of the world. Singapore’s success can be attributed to its strong emphasis on institutional arbitration, a diverse and internationally reputed pool of arbitrators, and, most critically, the swift finality of arbitral awards, factors that collectively enhance commercial certainty and investor confidence.

In contrast, arbitration in India has largely been dominated by ad-hoc proceedings, often followed by prolonged and contentious enforcement battles. Despite multiple amendments to the Arbitration and Conciliation Act, the ground reality reflects persistent, largely systemic challenges that continue to hinder India’s emergence as a competitive arbitration jurisdiction.

Ironically, although arbitration was conceived as a mechanism to minimize judicial intervention, Indian courts remain deeply involved, ranging from frequent challenges under Section 34 to interventions at almost every stage of the arbitral process. This excessive judicial oversight has, in practice, diluted arbitration’s promise of speed, finality, and efficiency.

As far as judicial interference in arbitration is concerned, there has long been a tug of war between two competing ends: the finality of arbitral awards on the one hand, and the pursuit of justice through judicial correction of errors on the other. This tension has significantly shaped India’s arbitration jurisprudence.

Judicial decisions from ONGC v. Saw Pipes Ltd. (2003) 5 SCC 705, to ONGC v. Western Geco International Ltd. (2014) 9 SCC 263, are widely regarded as representing a pro-interventionist era. During this phase, courts substantially expanded the scope of interference under Section 34 of the Arbitration and Conciliation Act. The expression “public policy of India” was interpreted to include “patent illegality”, a judicially created ground. It was held that if an arbitral award was contrary to the substantive provisions of Indian law or the terms of the contract, it would amount to patent illegality and could be set aside. This interpretation effectively opened the floodgates for courts to examine the merits of arbitral awards, transforming Section 34 proceedings into something akin to appellate review.

As a consequence, arbitral awards were frequently set aside, with courts re-appreciating evidence and revisiting merits. Arbitration, which was intended to be a swift and final alternative to court litigation, increasingly began to resemble conventional civil proceedings. The objective of promoting economic efficiency, commercial certainty, and foreign investment through quick and effective dispute resolution was steadily undermined. The Government eventually recognized that such expansive judicial intervention was rendering India an unattractive seat for arbitration.

In response, the 2015 Amendment to the A&C Act was enacted to narrow the scope of “public policy”. It expressly clarified that an arbitral award shall not be set aside merely on the ground of an erroneous application of law or by re-appreciation of evidence. Further, the ground of patent illegality was confined strictly to domestic arbitrations and expressly excluded from international commercial arbitrations, signaling a clear legislative intent to reduce judicial interference.

Following this amendment, judicial interpretation of Section 34 underwent a marked shift towards the principle of minimal judicial interference. In Associate Builders v. DDA (2015) 3 SCC 49, the Supreme Court clarified that a court exercising jurisdiction under Section 34 does not act as a court of appeal. It reaffirmed that the arbitrator is the sole judge of the quality and quantity of evidence. This approach was further strengthened in the landmark judgment of Ssangyong Engg. & Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131, where the Supreme Court categorically held that the 2015 Amendment had done away with the expansive interpretations laid down in Saw Pipes (supra) and Western Geco (supra). The Court clarified that patent illegality must be an error that goes to the root of the matter, and not a mere legal or factual mistake.

The judicial trend towards restraint was taken a step further in NHAI v. M. Hakeem (2021) 9 SCC 1, where the Supreme Court ruled that Section 34 empowers courts only to set aside or uphold an arbitral award. Courts do not have the power to modify or vary the award, including altering the amount of compensation or interest. If an award is found to be unsustainable, it must be set aside in its entirety, leaving the parties to recommence the process if they so choose.

However, this near-complete prohibition on judicial modification of arbitral awards also began to generate its own set of practical difficulties. While minimizing judicial interference is a cornerstone of modern arbitration law, confining courts to only two rigid options, either upholding the award in toto or setting it aside entirely, was seen to produce inequitable outcomes.

For instance, where an arbitral award was substantially correct but suffered from a minor and apparent defect, such as an arithmetical error in interest calculation or the inclusion of a single untenable claim, the court was nonetheless compelled to set aside the entire award, forcing the parties to recommence arbitration from scratch. Such outcomes undermined efficiency, increased costs, and ran counter to the very objective of arbitration as an expeditious dispute resolution mechanism.

It is against this backdrop that the recent judgment of the Supreme Court of India in Gayatri Balasamy v. ISG Novasoft Technologies Ltd. 2025 SCC OnLine SC 986 assumes significance. The decision represents a calibrated attempt to strike a balance between the principles of finality and minimal judicial interference, on the one hand, and the need to address practical and equitable concerns, on the other. The judgment reflects a growing judicial awareness that excessive formalism may itself defeat the ends of justice. Viewed in this light, the ruling marks another incremental towards making India’s arbitration regime more pragmatic, efficient, and commercially credible.

In the Gayatri Balasamy, (an employment dispute involving sexual harassment claims), the apex court was dealing with a case where the litigation had already dragged on for nearly 20 years. The litigation began after Gayatri Balasamy resigned from her position as Vice President in 2006, alleging workplace sexual harassment, which led to a series of termination letters and criminal cross-complaints. After the Supreme Court referred the matter to arbitration, the tribunal awarded her ₹2 crore as compensation. She challenged this award at the Madras High Court, where a Single Judge increased the compensation by an additional ₹1.6 crore; however, a Division Bench later slashed that extra amount to just ₹50,000.

By the time the case reached the Apex Court, a stark judicial divide had emerged: on one hand, the restrictive view established in M. Hakeem (2021) strictly prohibited courts from modifying awards, limiting their power to a binary "set aside or uphold" choice under Section 34. On the other hand, an expansive/pragmatic view existed through precedents like Vedanta Ltd. v. Shenzhen Shandong Nuclear Power Construction Co. (2019) 11 SCC 465, and Oriental Structural Engineers Pvt. Ltd. v. State of Kerala(2021) 6 SCC 150, where the Supreme Court had frequently modified awards to ensure "complete justice" and avoid endless rounds of litigation. This conflict forced the referral to a 5-judge Constitution Bench to decide whether the "greater power" to annul an award inherently included the "lesser power" to surgically modify it.

In its landmark 2025 ruling, the five-judge Constitution Bench settled the long-standing debate on judicial interference by holding, in a 4:1 majority, that courts possess a limited but essential power to modify arbitral awards under Sections 34 and 37 of the Act. Premised on the legal maxim that the greater power to set aside necessarily encompasses the lesser power to modify, the Court identified four specific surgical interventions designed to prevent the ‘litigation merry-go-round.’ These include the severability of illegal claims from valid ones, the correction of manifest clerical or computational errors that are apparent on the face of the record, and the adjustment of post-award interest to align with statutory benchmarks. Furthermore, the Court affirmed that the Supreme Court could invoke Article 142 to modify awards to achieve ‘complete justice’ in cases of extreme delay. To prevent this from becoming a backdoor for merit-based appeals, the Court also established strict ‘guardrails, ’i.e. judges are strictly prohibited from re-weighing evidence or substituting the arbitrator's logic with their own. If an error is debatable or requires a fresh look at the facts, the court’s only recourse remains to set the award aside or remand it, ensuring that the sanctity of the arbitrator’s role as the primary finder of fact remains undisturbed.

While the Gayatri Balasamy verdict has been hailed as a pragmatic solution to the ‘litigation merry-go-round,’ it is essential to consider the detailed dissent of Justice K.V. Viswanathan, which brings to light concerns that are far more than academic. He argued that allowing courts to modify awards directly contravenes legislative intent, noting that the 1996 Act, unlike its 1940 predecessor, deliberately omitted the power to modify to ensure finality. The dissent highlights that the A&C Act already provides statutory safety valves, such as Section 33 for arbitrators to fix errors and Section 34(4) for courts to adjourn proceedings and allow the tribunal to eliminate grounds for setting aside. Crucially, Justice Viswanathan rejected the ‘greater power includes the lesser’ logic, asserting that while annulling an award is a passive act of invalidation, modifying it is an active act of rewriting, making them qualitatively different functions. Finally, he cautioned against using Article 142 to bypass statutory limitations, maintaining that the Supreme Court's power to do complete justice should not be used to confer powers that Parliament specifically chose to deny.

In my humble opinion, a well-reasoned dissent, though in the minority, acts as an eye-opener to the varied aspects of a complex issue. As seen in the Gayatri Balasamy case, the will of the legislature, unless found contrary to the Constitution, must be treated with the utmost respect, as, inter alia, the primary objective of the A&C Act is the finality of the arbitral award. In India, there is a persistent habit of challenging every order and judgment until every legal avenue has been exhausted. While justice must be done with no stone left unturned, such practices have historically increased the case load and impaired the efficiency of the justice delivery system.

When Parliament enacts a special law, as for arbitration to ensure the quick resolution of disputes, which is a vital component for any nation aspiring to be a global arbitration hub, allowing courts to modify awards could prove counterproductive. Despite the guardrails established in Gayatri Balasamy, the power to rectify manifest errors remains a concern; the term is highly subjective, and what one judge perceives as a manifest error, another might view as a plausible interpretation by the arbitrator. This ambiguity risks inviting judges to re-examine the merits of a case under the guise of fixing an error.

The global leaders in arbitration provide a cautionary example. In Singapore, the International Arbitration Act and the Arbitration Act 2001 both emphasize that the only recourse against an award is to set it aside. The grounds are exhaustive, and the court has no power to investigate the merits or review decisions of law or fact. In England, the principle of finality of arbitral awards is strongly preserved. Under Section 69 of the Arbitration Act 1996, a limited right of appeal on a point of law is available only by leave of the court or with the agreement of the parties. Significantly, this statutory right can be, and in practice is often, expressly excluded by party agreement, thereby reinforcing finality and minimising post-award judicial intervention.This is the trajectory of the world’s most successful arbitration seats. As India looks forward, it will be interesting to see what the 2024 bill has in store and whether the legislature will choose to codify this surgical power or reinforce the strict boundaries of judicial non-interference to align with international best practices.