Supreme Court Review 2025: Arbitration and the limits of judicial repair

In 2025, the Supreme Court’s arbitration decisions unfolded against an open acknowledgement by the Court that the existing arbitration framework continues to generate delay and uncertainty. In ASF Buildtech v Shapoorji Pallonji and Company., a Bench of Justices J.B. Pardiwala and R. Mahadevan explicitly urged the Union Government to “take a serious look” at the arbitration regime and move forward with the proposed Arbitration and Conciliation (Amendment) Bill, 2024.

Across benches, the Court was repeatedly required to decide how far judicial correction can go without reopening arbitral merits. It was also called to consider whether restraint alone always secures finality.

Modifying awards without reopening the merits

The most important arbitration decision of the year came from a five-judge Constitution Bench in Gayatri Balasamy v ISG Novasoft Technologies comprising the then Chief Justice Sanjiv Khanna and Justices B.R. Gavai, P.V. Sanjay Kumar, K.V. Viswanathan and A.G. Masih. The Bench considered whether a court hearing a challenge under Section 34 of the Arbitration and Conciliation Act, 1996 has the power to modify an arbitral award.

The majority rejected the submission that courts are confined to a choice between setting aside an award in its entirety or upholding it without correction. Such an approach, they observed, could force outcomes not mandated by the statute. At the same time, the Bench noted that proceedings under Section 34 do not create appellate jurisdiction. Courts cannot reassess evidence, re-appreciate facts or substitute their own interpretation for that of the tribunal.

The Court confined modification to limited situations. These included cases where the award is severable, where clerical or computational errors are apparent, where post-award interest requires adjustment and where Article 142 may be invoked to do “complete justice.”

Justice Viswanathan authored a dissenting opinion and held that the Arbitration Act enables courts to set aside awards but does not confer a power of modification. He found that the two powers operate in distinct statutory spheres and maintained that Article 142 cannot override statutory limitations. Relying on Project Director, NHAI v M. Hakeem (2021), he observed that modification violates the UNCITRAL Model Law.

Courts cannot rewrite contracts

While Gayatri Balasamy addressed the limits of legal jurisdiction with regard to arbitral awards, several other benches in 2025 focused on limits with regard to contracts.

In Somdatt Builders NCC–NEC (JV) v National Highways Authority of India, a Bench of Justices A.S. Oka and Ujjal Bhuyan overturned a Delhi High Court decision that had reinterpreted contractual clauses while exercising appellate jurisdiction under Section 37. The Court held that where the Dispute Review Board, the arbitral tribunal and the Single Judge had all arrived at the same interpretation of the contract, the Division Bench could not upset those concurrent findings. It found that the tribunal’s interpretation was not only a plausible view, but the correct one, and held that the High Court committed a manifest error in reinterpreting clauses of the contract.

In Sepco Electric Power Construction Corporation v GMR Kamalanga Energy, a Bench of Justices Gavai and Masih adhered to the same principle.  The Court reiterated that an arbitral tribunal derives its authority from the contract and is bound by its express terms. Referring to Section 28(3), the Court noted that where the tribunal grants reliefs in disregard of specific and binding contractual clauses, it acts beyond the scope of its mandate. The Court held that the tribunal, by recognising claims contrary to the contract, had travelled outside the contract and thereby committed an error that goes to jurisdiction. Such an award, the Court held, is open to interference as being vitiated by patent illegality.

The interest component

In Ferro Concrete Construction (India) v State of Rajasthan, a Bench of Justices P.S. Narasimha and Joymalya Bagchi examined a contractual clause that barred the contractor from claiming interest upon any payment, arrears or balance. They held that while an arbitrator’s power is subject to terms of the contract, a bar on the arbitrator’s power to grant pendente lite interest cannot be “readily inferred” unless expressly restricted by the contract.

A similar issue arose in Oil and Natural Gas Corporation v  G & T Beckfield Drilling Services. A Bench of Justices Narasimha and Manoj Misra considered whether the contract proscribed interest for the period “between the date on which the cause of action arose and the date on which the award is made.” Relying on precedent from 1991, 2007 and 2018, they observed that an arbitral tribunal can be denuded of its power to grant pendente lite interest only where such a bar is explicit or arises by necessary implication.

In Srilakshmi Hotel v  Shriram City Union Finance, a Bench of Justices Pardiwala and Viswanathan dealt with the issue of whether high interest rates in commercial agreements violate public policy. They held that disputes involving the rate of interest fall outside the scope of challenge on the ground of conflict under the public policy of India, unless the interest awarded is so perverse and so unreasonable as to shock the conscience of the Court. The Court observed that after the 2015 amendments, the expression “public policy of India” must be accorded a restricted meaning and does not permit re-appreciation of evidence or reassessment of contractual terms.

The seat-jurisdiction conundrum

Jurisdictional issues also formed a consistent part of the Court’s arbitration jurisprudence in 2025, particularly in cases where parties attempted to invoke Part I of the Arbitration Act despite having agreed to a foreign seat. Part I provides recourse to courts where the place of arbitration is in India.

In Disortho S.A.S. v Meril Life Sciences, a three-judge Bench of Justices Khanna, Sanjay Kumar and Vishwanathan examined a petition filed under Section 11(6) despite provision in the arbitration clause for arbitration to take place in Bogota. The Court held that once the parties designate a foreign seat, Part I of the Act stands excluded by virtue of Section 2(2), and Indian courts lack jurisdiction to appoint arbitrators under Section 11. Relying on Bharat Aluminium v Kaiser Aluminium (BALCO) (2012) and Mankastu Impex v Airvisual (2020) it noted that the foreign seat has juridical significance and determines jurisdiction over the arbitral process and cannot be overridden by domestic law of contract.

In Balaji Steel Trade v Fludor Benin S.A, the Court elaborated this position. A Bench of Justices Narasimha and A.S. Chandurkar held that the Buyer–Seller Agreement constituted the principal or “mother agreement” between parties. They found that its arbitration clause read with the Addendum left no scope for doubt that Benin was the juridical seat. The Court rejected the contention that arbitration clauses in subsequent agreements could override or novate the principal agreement without express intention to do so.

Delay and unworkable awards

While the Court maintained restraint on merits, it adopted a firmer approach when delay threatened the usefulness of arbitration.

In Lancor Holdings v Prem Kumar Menon, a Bench of Justices Sanjay Kumar and S.C. Sharma considered the effect of an arbitral award that was reserved in 2012 but pronounced only in March 2016 with no explanation offered for the delay. They clarified at the outset that delay in the pronouncement of an arbitral award is not a ground for setting aside an award under Section 34. However, the Bench held that when the “negative effect” of undue and unexplained delay is explicit in the award, it may render the award patently illegal or in conflict with the public policy of India. It clarified that in such cases, the aggrieved party would not need to invoke failure or inability on part of the appointed arbitrator under Section 14(2) in order to file a challenge under Section 34. Applying these principles, the Court found that the award failed to give a quietus to the disputes between the parties and instead left their positions irreversibly altered while relegating them to further rounds of litigation. It set aside the award, holding that the arbitrator failed to live up to the minimal expectation of finality.

Statutory arbitration under the MSMED Act

In Tamil Nadu Cements Corporation v Micro and Small Enterprises Facilitation Council, a three-judge Bench comprising Justices Khanna, Sanjay Kumar and Manmohan examined whether a writ petition under Article 226 is maintainable against orders passed under the Micro, Small And Medium Enterprises Development Act, 2006 (MSMED Act). The Court held that while Section 18 of the Act provides a statutory mechanism for conciliation and arbitration, the exercise of writ jurisdiction cannot be circumscribed by a statute. It noted that writ jurisdiction may still be invoked where an order is “wholly without jurisdiction”, results in a nullity, violates mandatory statutory provisions or where the vires of the legislation is under challenge. Taking note of conflicting opinions in earlier decisions, the Court found the issue unresolved and referred the matter to a larger Bench.

Taken together, these decisions demonstrate that the Supreme Court did not abandon the principle of minimal judicial interference. It repeatedly refused to re-enter the merits of arbitral disputes or second-guess contractual interpretation. At the same time, the Court also confronted situations where non-intervention would leave parties bound by awards that were unworkable, indeterminate or procedurally compromised.