This article has been authored by Motaqueef Alam Khan and Swayam Sambhab Mohanty, 4th year students at National Law University Odisha

Introduction

The recent ruling by the Supreme Court of India (“SC”) in J Ganapatha v N Selvarajalou Chetty Trust (“Chetty Trust”) has clarified the position regarding the role of the courts in molding relief part of civil proceedings, and confirmed that where a party has not made a specific relief request, or a different relief would more strictly achieve the ends of justice, the courts can ‘mould the relief’ rather than dismiss the claim. This judgement has settled the previously uncertain area of civil litigation with respect to the doctrine of molding relief; however, the position in the context of arbitration remains uncertain. This blog discusses the application of the doctrine in arbitral proceedings, and the changing direction of the courts.

Moulding of Relief in Arbitral Proceedings: The Concept

The role of moulding relief in arbitration is the authority of a tribunal to award remedies other than those originally claimed by the parties or by transcending the boundaries of predetermined contractual stipulation. This allows arbitrators to work around rigid procedural constraints and achieve justice through relief on a case-by-case basis, and advance the interests of justice if the relief sought is part of the pleadings of the parties.

Consider a construction contract with a liquidated damages clause where Party A (contractor) owes ₹10 lakhs for delays to Party B (employer). However, Party A’s breach causes ₹50 lakhs in business losses due to third-party commitments. If the arbitral tribunal finds evidence supporting damages beyond contractual contemplation, it may award compensation exceeding the stipulated ₹10 lakhs, treating the contractual sum as one factor rather than an absolute ceiling.

The principle of molding relief is premised on the idea that no contract, regardless of how deftly drafted, can consider every circumstance. Liquidated damages clauses serve an important purpose in providing some certainty in contractual performance and avoiding undue delay in proving a loss. However, where the fixed compensation amount is blatantly deficient in addressing the loss or is excessively punitive, strict application of the clause can defeat the purpose of the arbitral process. By contrast, a molded award looks beyond the contractual figure to the actual harm suffered.

Impact of The Recent Supreme Court Ruling

On April 30, 2025, the SC’s Constitution Bench inGayatri Balasamy v. ISG Novasoft Technologies Ltd (“Balasamy”) finally settled the issue of whether Indian courts possess power to modify arbitral awards under Section 34 of the Arbitration and Conciliation Act, 1996 (“the Act”) by carving out four limited grounds for moulding of arbitral award:

1. Severability of invalid portions – If a part of the award pertains to a non-arbitrable dispute or contravenes public policy under Section 34(2)(b) of the Act, courts may excise that portion while upholding the remainder.
2. Correction of patent errors – Courts may rectify typographical, clerical, or computational errors in the award where such mistakes are self-evident and do not require reappreciation of evidence.
3. Variation of post-award interest – Invoking equitable jurisdiction, courts may recalibrate interest awarded under Section 31(7)(b) of the Act where the rate is found to be manifestly arbitrary or unconscionable.
4. Exercise of constitutional powers – In the rarest of rare cases, the SC may invoke Article 142 of the Indian Constitution to do complete justice by moulding an award, particularly where procedural defects threaten to undermine substantial justice.

While the Balasamy judgment clarifies the authority of the Indian Courts to modify arbitral awards under Section 34 based on the four limited grounds, it has not provided clarification on the point whether the tribunals or the courts are empowered to modify the relief sought by parties.

Evolution of Judicial Stance

In Associated Engineering Co. v. Govt. of A.P. (“Associated Engineering”), the SC held that an arbitrator cannot act ‘ultra fines compromissi’ or award any relief beyond the scope of the contract. The Court emphasized that arbitrators cannot rewrite contracts in the guise of equity. Subsequently, in  Rajasthan State Mines & Minerals Ltd. v. Eastern Engg. Enterprises, the court reiterated that the arbitrator is required to decide the claims referred to the tribunal with respect to the terms of the contract.

Building on its interpretation of Section 28(3) of the Act, the SC in the case of ONGC Ltd. v. Saw Pipes Ltd. (“Saw Pipes”) introduced ‘public policy’ as an independent ground under Section 34 of the Act to quash the arbitral awards passed either in ignorance of or in contradiction to the terms of the contract. This judgment was widely followed until the 246^th Law Commission report (“Law Commission Report”). It took note of the problems with the rigid and narrow interpretation of Section 28(3) of the Act in the year 2014, following which, the section was amended in 2015. This amendment, among other things, was brought in to overrule the effect of the Saw Pipes judgment to the tune that mere contravening of the contractual terms would not make the award violative of Section 28 of the Act.

The amended section brought a major shift in the position of law by replacing the key terms in the statute. While earlier, the tribunals did not have much scope to exercise a liberal interpretation and were obligated to decide the disputes in line with the clauses of the contract and trade usage, now they have a lesser duty to only ‘take into account’ the terms and conditions and not necessarily restrict the decision just based on such terms or trade usages.

The amendments following the Law Commission Report were aimed at preserving the independence of the arbitrators by amending Sections 28 and 34 of the Act and narrowing the grounds of challenge. In tandem with the amendments, the SC in Renusagar Power Co. Ltd. v. General Electric Co imported two considerations under public policy, namely ‘justice or morality’ and ‘fundamental policy of Indian law’to restrict the scope of challenges based on public policy.

Since the introduction of the aforementioned amendments, the High Courts have expounded upon the scope and application of the amended provisions. In Astonfield Renewables Pvt. Ltd. v. Ravinder Raina, the Hon’ble Delhi High Court observed that the construction of contractual terms falls squarely within the domain of the arbitrator. The Court categorically observed that ‘the construction of the terms of the contract is primarily for an arbitrator to decide, unless the arbitrator construed the contract in such a manner that no fair-minded or reasonable person could do.’

Similarly, in the case of Eastern Coalfields Ltd. and Ors. v. Rungta Projects Ltd. and Ors., the Hon’ble High Court of Calcutta addressed the dispute between the parties regarding the premature termination of a coal transportation contract. The core issue was whether the termination was lawful and whether the respondent was entitled to claims beyond the value of the actual work executed and accepted by the petitioner as satisfactory. Despite the existence of a termination clause in the contract, the court dismissed the petition to set aside the award and upheld the award by the Arbitrator granting the respondent a sum inclusive of interest for the reason that the arbitrator had adopted a ‘practical, commercial approach’ rather than a narrow contractual interpretation, and had ‘meticulously weighed each claim against the actual expenses incurred,’ in light of trade usages and commercial practices applicable to cases of similar nature.

Conclusion

The evolution of the doctrine of moulding relief in Indian arbitration regime reflects a fundamental tension between contractual sanctity and substantive justice. While the SC’s ruling in Gayatri Balasamy has definitively addressed the courts’ limited power to modify arbitral awards, the broader question of arbitrators’ authority to mould relief during proceedings remains nuanced and context-dependent.

The journey from the restrictive Associated Engineering and Saw Pipes era to the more liberal post-2015 amendments demonstrates India’s commitment to strengthening arbitration as an effective dispute resolution mechanism. The amended Section 28(3) has transformed arbitrators from mere mechanical enforcers of contractual terms to adjudicators empowered to consider the broader commercial realities and equitable considerations that govern business relationships.

This expanded discretion, which the doctrine grants, however, comes with corresponding responsibility. Arbitrators must navigate carefully between respecting party autonomy and ensuring that rigid adherence to contractual provisions does not result in manifest injustice. As Indian arbitration matures, the doctrine of moulding relief will likely continue to evolve, guided by the twin imperatives of commercial pragmatism and procedural integrity. The ultimate test will be whether this approach enhances India’s position as a preferred seat for international arbitration while maintaining the trust and confidence of parties in the arbitral process.