INTRODUCTION: THE JUDICIAL CROSSROADS IN INDIAN ARBITRATION
A. The Evolution of Judicial Intervention under the 1996 Act
The legal framework governing arbitration in India has historically oscillated between judicial deference and heavy-handed intervention. The Arbitration and Conciliation Act, 1996 (the Act), modelled largely on the UNCITRAL Model Law on International Commercial Arbitration, was designed to foster a globally competitive arbitration regime by minimizing judicial involvement. The legislative intent behind the 1996 Act was a decisive move away from the overly interventionist Arbitration Act of 1940, which contained explicit provisions (Sections 15 and 16) granting courts the power to modify or remit awards.
The cornerstone of the 1996 Act is the foundational principle of Minimal Judicial Intervention, enshrined in Section 5. This provision stipulates that judicial intervention is permitted only to the extent explicitly provided within Part I of the Act. Consequently, courts were traditionally restricted in setting aside proceedings under Section 34 to either upholding or completely rejecting an award, but not altering its substance. This strict limitation was seen as essential to upholding the finality of the arbitral award and preserving party autonomy, the two critical differentiating factors between arbitration and traditional litigation.
B. The Genesis of Conflict: Pre-Balasamy Doctrinal Inconsistency
Prior to the landmark 2025 ruling, Indian jurisprudence regarding modification was highly fragmented, plagued by a significant “doctrinal inconsistency”. One stream of judgments, exemplified by decisions such as Project Director, NHAI v. M. Hakeem (2021), rigorously adhered to the text of the 1996 Act, holding that Section 34 restricted courts strictly to setting aside awards, affirming that the power to modify was consciously excluded by the legislature.
However, a counter-stream of judicial decisions sought pragmatic solutions by invoking the Supreme Court’s extraordinary constitutional powers. These judgments, including Hindustan Zinc Ltd. v. Friends Coal Carbonisation (2006), occasionally employed Article 142 of the Indian Constitution to achieve “complete justice,” thereby creating an early, albeit inconsistent, path for modification, particularly concerning issues of interest or quantum. This tension meant that the limits of judicial intervention remained ambiguous, forcing the issue to a Constitution Bench for definitive resolution.
C. The Catalyst Case: Gayatri Balasamy v. M/S ISGNovasoft Technologies Limited (2025)
The specific facts of the case provided the necessary context for the Supreme Court to formally articulate the modification doctrine. The dispute originated from an employment conflict between Gayatri Balasamy, Vice President (M&A Integration Strategy), and ISGNovasoft Technologies Ltd. Following her resignation on July 24, 2006, Balasamy filed criminal complaints alleging sexual harassment by the CEO, while the company counter-filed complaints of defamation and extortion.
The matter was ultimately referred to arbitration, where the tribunal awarded Balasamy ₹2 crore as compensation. Balasamy later moved the Madras High Court under Section 34, arguing that the tribunal had overlooked several of her claims. Crucially, the appellate history showed judicial discomfort with the quantum: the Madras High Court first altered the compensation and, subsequently, a Division Bench further reduced the additional compensation granted by the single judge from ₹1.6 crore to ₹50,000, deeming the initial amount “excessive and onerous”. This appellate focus on balancing fairness in the quantum of damages, rather than strictly reviewing procedural integrity, clearly demonstrated a judicial willingness to act as an appellate body on damages. This underlying discomfort with the specific monetary award, stemming from a sensitive, non-commercial personal dispute, provided the Supreme Court with the necessary context to rationalize equitable intervention through the formal creation of the modification doctrine, irrespective of the long-term impact on commercial finality.