Modification of Arbitral Awards After Gayatri Balasamy: Does Bhupesh Bhayana Walk the Line or Cross It?

Modification of Arbitral Awards After Gayatri Balasamy: Does Bhupesh Bhayana Walk the Line or Cross It?

In the recent judgment in Bhupesh Bhayana v. Kunal Seth (Bhupesh Bhayana), a two-judge bench of the Supreme Court of India (“Supreme Court”) modified an award that was vitiated by patent illegality, bringing a fourteen-year-old dispute to an end. The Supreme Court based its decision on Article 142 of the Constitution of India, 1950 (“Constitution”), which vests the Court with extraordinary constitutional powers to grant any such relief as may be necessary to do “complete justice”.

This decision comes close on the heels of the landmark judgment of a five-judge bench of the Supreme Court in Gayatri Balasamy v. ISG Novasoft Technologies Limited, which settled one of the most contested questions in Indian arbitration law that has been covered here and here, namely: whether Indian courts possess the power to modify awards under the Arbitration and Conciliation Act, 1996 (“Arbitration Act”)?

The Supreme Court answered that question in the affirmative. It recognised that Indian courts possess limited power to modify awards, and delineated certain specific circumstances in which that power may be exercised. However, the Supreme Court cautioned that the power of modification was not to be treated as a disguised appellate power and is not to be used as a vehicle for rewriting awards or as an avenue for judicial review.

Against this backdrop, Bhupesh Bhayana merits closer scrutiny – the central question being whether the Supreme Court stayed within the guardrails laid down in Gayatri Balasamy, or quietly pushed past them.    

The Framework in Gayatri Balasamy

In Gayatri Balasamy, the Supreme Court identified four situations in which modification may be permissible: First, where the invalid portion of an award is severable; second, to correct clerical, computational or typographical errors and other manifest mistakes apparent on the face of the record; third, to modify post-award interest; and fourth, in the exercise of the Supreme Court’s powers under Article 142 of the Constitution, albeit with great care and only where necessary to meet the ends of justice.

At the same time, the Supreme Court carefully delineated the limits of this power. It clarified that the power of modification must not dilute the limited grounds on which an award may be set aside under Section 34 of the Arbitration Act or the similarly restricted appellate jurisdiction under Section 37 of the Arbitration Act, which governs appeals from orders issued under Section 34. 

The Supreme Court further observed that modification is permissible only where there is no uncertainty regarding the correction sought. If uncertainty exists, the appropriate course is to remit the award to the arbitral tribunal under Section 34(4) of the Arbitration Act. This provision is modelled on the ‘remission’ mechanism set out under Article 34(4) of the UNCITRAL Model Law. Upon remittal, the court temporarily restores jurisdiction to the arbitral tribunal for the limited purpose of curing identified legal or procedural defects in the award, without reopening the merits of the dispute.

Finally, the Supreme Court made it clear that Article 142 of the Constitution cannot be invoked to rewrite an award or modify it on its merits. By the same token, even the exercise of the Supreme Court’s extraordinary constitutional powers under Article 142 of the Constitution must remain within the guardrails laid down in Gayatri Balasamy.

The operation of the above legal framework is put to test in the Supreme Court’s decision in Bhupesh Bhayana.

The Dispute in Bhupesh Bhayana

The dispute arose from a construction contract under which the builder was required to reconstruct the owners’ building and, upon completion, was entitled to retain the second floor. In consideration, the builder agreed to pay INR 64,00,000 (approx. USD 66,500).

Under the agreed timeline, the construction was to be completed within twelve months from the date vacant land was made available, with a two-month grace period, failing which a penalty of INR 10,000 (approx. USD 100) per day became payable. While the builder paid part of the consideration, he abandoned construction in August 2011, prompting the owners to terminate the contract. What followed was a prolonged dispute that travelled through arbitration and proceedings under Section 34 and Section 37, ultimately reaching the Supreme Court more than fourteen years later.

Before the Supreme Court, the award was held to be vitiated by patent illegality because the sole arbitrator had incorrectly computed the contractual period. This error substantially inflated the period of delay and, consequently, the penalty payable by the builder. While such a finding would ordinarily have warranted setting aside the award or remitting it to the arbitral tribunal in terms of Section 34 of the Arbitration Act, the Supreme Court invoked Article 142 of the Constitution and re-calculated the penalty itself.

Did Bhupesh Bhayana Apply Gayatri Balasamy as Intended?

At first glance, the Supreme Court’s decision in Bhupesh Bhayana appears consistent with Gayatri Balasamy, which recognised that denying courts the ability to modify awards could cause hardship, increased costs and prolonged delays.  Bhupesh Bhayana presented precisely such a situation: the parties had litigated for over fourteen years and both original disputants had passed away. The Supreme Court, therefore, invoked Article 142 to avoid compelling the parties to begin afresh. The Supreme Court’s finding of patent illegality is also difficult to fault. The contract linked the commencement of the twelve-month construction period to the date vacant land was made available, whereas the sole arbitrator calculated it from the date of the contract, thereby inflating the delay period and the resulting penalty payable by the builder.

The real controversy begins after the finding of patent illegality. Gayatri Balasamy permits courts to correct clerical, computational and other manifest errors, provided such correction does not require a merits-based evaluation. More importantly, where the proposed correction admits of doubt or uncertainty, courts are to refrain from modifying the award and instead consider remission under Section 34(4).

Viewed against these principles, Bhupesh Bhayana arguably went beyond correcting a manifest error. In calculating the penalty, the Supreme Court examined the factual record, determined when vacant land was made available, and independently calculated the penalty period. This was not merely a case of correcting an arithmetic or typographical mistake – it involved interpreting the contractual timeline and applying that interpretation to the facts. While the Supreme Court’s interpretation of the contract may have been correct, its determination of the relevant delay period and recalculation of the penalty appears to constitute fresh adjudication.    

This concern is further reinforced by the complete absence of any discussion of Section 34(4) of the Arbitration Act. Gayatri Balasamy makes clear that where the proposed correction is uncertain, the matter should be remitted to the tribunal. Bhupesh Bhayana, however, moved directly from finding patent illegality to invoking Article 142 of the Constitution. Since the dispute had remained unresolved for over fourteen years, the Supreme Court’s approach is understandable as a matter of practicality. But the absence of any discussion or application of Section 34(4) leaves unanswered how that statutory mechanism is intended to operate within the framework and guardrails laid down in Gayatri Balasamy.    

Most significantly, the judgment turns on the Supreme Court’s reliance on Article 142 of the Constitution. Having concluded that the award was patently illegal and deserved to be set aside under Section 34(2A), the Supreme Court nevertheless declined to do so on the ground that the parties had already been litigating since 2012 and that setting aside the award would only compel them to start afresh. It was for this reason that the Supreme Court invoked Article 142 and modified the award in order to “give a quietus” to the dispute.    

However, even the majority in Gayatri Balasamy cautioned that Article 142 cannot be used to rewrite an arbitral award or modify it on merits, and must remain an exceptional power rather than a substitute for the limited review under Section 34 and Section 37 of the Arbitration Act. Justice Viswanathan’s concurring opinion went further, warning against using Article 142 to bypass statutory limitations on modification. The practical difficulty is that prolonged litigation, significant costs and exhausted litigants are common to arbitration disputes that reach the Supreme Court. If such considerations suffice to invoke Article 142, the exception risks becoming the norm, expanding the narrowly circumscribed modification power in Gayatri Balasamy into a broader merits review.    

More recently, Justice R.F. Nariman endorsed Justice Viswanathan’s opinion and criticised the majority in Gayatri Balasamy for failing to bring sufficient clarity or any real forward advance to the law on modification of arbitral awards.

The Road Ahead    

Bhupesh Bhayana exposes the practical difficulty in applying the Gayatri Balasamy guardrails where prolonged litigation and manifest error converge.  Going forward, greater clarity on the relationship between modification, remission under Section 34(4) of the Arbitration Act, and Article 142 of the Constitution is necessary to ensure that the limited power of modification remains an exception rather than gradually evolving into a broader merits review. Whether such clarity comes through judicial development or legislative intervention remains open for consideration.                               

The issue also carries significant commercial implications. Businesses choose arbitration because it promises finality, efficiency and certainty. A modification power extending beyond narrow limits may create uncertainty regarding the conclusiveness of arbitral awards and affect how parties assess dispute risk and structure commercial arrangements. The challenge for future courts will be to prevent manifest injustice without diluting the finality that makes arbitration attractive.