Introduction

For Japanese companies entering into contracts with Indian counterparties, or investing in joint ventures and projects in India, and agreeing for India to be the seat of arbitration, the recent Supreme Court of India judgment in Gayatri Balasamy v. ISG Novasoft Technologies Ltd (*2025 SCC Online SC 986.), marks a significant turning point in India’s arbitration landscape.

Until now, Indian courts were understood to have only a limited power to set aside arbitral awards under Section 34 of the Arbitration and Conciliation Act, 1996 (“the Indian Arbitration Act”). The Gayatri Balasamy ruling, however, expands this understanding by holding that courts can, in certain circumstances, “modify” an arbitral award instead of merely setting it aside or remitting it to the tribunal.

This shift is critical from a negotiation and contract-drafting perspective. Many cross-border agreements between Japanese and Indian companies choose India as the seat of arbitration or apply Indian procedural law (Part I of the Act), sometimes inadvertently, by using boilerplate arbitration language or failing to expressly exclude Part I when designating a foreign seat.

If Part I of the Indian Arbitration Act is not excluded, the Indian courts’ expanded jurisdiction under Gayatri Balasamy could apply, allowing the Indian judiciary to intervene post-award, including to modify the quantum or interest, or sever parts of the award. This potentially alters the finality and predictability that foreign parties, such as Japanese corporations, typically seek when opting for arbitration.

For Japanese companies, therefore, this decision underscores the importance of precise drafting by:

• clearly stating the seat of arbitration (not merely the venue),

• explicitly excluding the application of Part I of the Indian Arbitration Act when choosing a foreign seat, and

• ensuring that the arbitration clause and governing law clause are aligned to avoid inadvertent Indian court oversight.

Failure to do so could result in the arbitration falling within the purview of Gayatri Balasamy, exposing the parties to possible modification or judicial intervention in the arbitral award even where the intent was to have a final and binding resolution through arbitration.

Key findings of the judgement:

• The SC held (by a 4:1 majority) that courts under Section 34 and the appellate route under Section 37 may have a limited power to modify arbitral awards.

• The Court identified certain situations where modification is permissible:
  >　when an award contains a part that is severable (i.e., some portion is beyond the arbitral tribunal’s mandate) and thus only the invalid part may be severed while leaving the remainder intact.
  >　where there are obvious clerical, typographical, or computational errors (manifest errors) in the award that don’t require merits-based review.
  >　where post-award interest (or other such ancillary quantum) is manifestly unreasonable or out of line with contract/statutory norms, and hence the court may adjust the interest portion.
  >　in extraordinary cases, under the court’s constitutional power (Article 142 of the Indian Constitution) to do “complete justice” the SC may intervene to modify awards, though this is stated to be very limited and cautionary.

• The Court stressed that this is not a general appellate power to re-decide the merits of the award or re-evaluate factual findings.

What does this mean for Japanese companies in India / Japan-India cross-border contracts?

• For Japanese companies contracting with Indian counterparts (or Indian affiliate JVs) using Indian law and Indian seat arbitration, this means to ensure your dispute-resolution clauses anticipate this judicial development, carefully manage your arbitration strategy including whether to accept Indian seat or international seat, and review whether your contract addresses interest rates, severability of claims, and clear framing of issues submitted to arbitration (to reduce risk of severability issues).

• Particularly for supply, service, JV, or EPC and construction contracts where Indian parties may challenge quantum or interest, this decision suggests courts may be more willing to correct obvious errors rather than force re-arbitration. That may reduce some cost/time in certain circumstances, but also creates uncertainty over “final” quantum. A counterbalance strategy could be choosing the arbitral institution and/or seat of arbitration where the relevant institution rules, and/or arbitration law of the seat allow for correction of obvious typographical and calculation errors, such that Japanese companies do not need to have these errors addressed or corrected at the first instance in Indian courts, saving incurring further legal costs for these companies.

• Japanese companies should account for the change when assessing arbitration risk in India. The time to enforcement may lengthen slightly, the need for careful drafting of jurisdiction, seat, choice of law, interest clause, severability clause is now even more important, and monitoring of Section 34 filings (and potential modification applications) is prudent.

• For those relying on enforcement of Indian awards (or enforcement of Indian seated awards abroad under the New York Convention), there is now a potential additional risk: the enforcement opponent may argue that the award is subject to modification or may seek to stay enforcement.

Conclusion

For Japan based companies with Indian operations or Indian partner businesses, this decision signals that India’s arbitration law remains evolving. Japanese in-house teams should review arbitration strategy in light of this additional dimension of possible judicial intervention. The Gayatri Balasamy ruling represents a meaningful development in Indian arbitration jurisprudence. It means that while arbitration still remains a robust mechanism, the notion of finality of a tribunal’s award is no longer absolutely sacrosanct in India. Courts now have a narrowly defined power to modify awards.
The key takeaway for Japanese businesses is to anticipate this shift, review contract terms, keep arbitral awards clean, manage challenge/enforcement strategy, and factor this into risk assessments. In doing so, Japanese companies can minimize exposure and maximize predictability when disputes arise in India.

（Written by: Imran Khan, Contributed by: Earl Rivera-Dolera, Ranjini Gogoi, Ryotaro Kasuya）

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