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Law Relating To Setting Aside of Arbitral Award by Courts Arbitration Dispute Resolution India
Law Relating To Setting Aside of Arbitral Award by Courts Arbitration Dispute Resolution India
CONTRIBUTOR
The Arbitration and Conciliation Act 1996 (hereinafter referred to as ‘the Act') was enacted to consolidate and
amend the law governing Domestic Arbitration, International Commercial Arbitration, and the enforcement of
Foreign Arbitral Awards and other similar matters. The Act has two fundamental provisions that make any act
governing arbitration efficient and effective i.e. Minimum Judicial Interference1 and, Finality2 and
Enforcement3 of Award. The importance of these two in the Act cannot be understated as they are the
foundation behind every successful Arbitration Proceedings. However, there are instance when the Court has
to interfere like Appointment of Arbitrator when parties fail to appoint one themselves, Interim Measures,
Setting Aside of Arbitral Award, etc.
The Courts in India have always maintained and accepted that Section 5 of the Act has very clear
interpretation that there should be minimal judicial interference in Arbitral Proceedings, this extends to the
Arbitral Award granted with respect to its finality and enforcement. The Supreme Court even went as far as to
say that the courts are not justified in replacing its views with that of Arbitrator, and once an Arbitrator has
applied its mind given an out an award, the court cannot reappraise the matter as if it were an appeal4.
Therefore, this Article sheds some light on the scope of Section 34 of the Act and the grounds on which the
Arbitral Award can be set aside.
The proviso under this Section states that if the Court is satisfied that the applicant was prevented by
sufficient cause from making the application within the prescribed time, it may extend the application
submission time for a period of 30 days only. The grounds for setting aside an arbitral award under Section 34
of the Arbitration and Conciliation Act, 1996 have been discussed below:
1. Award Set Aside due to failing to constitute Arbitral Tribunal as per Agreement The Hon'ble Supreme
Court in the case Narayan Prasad Lohia vs. Nikunj Kumar Lohia & Ors5, held that in the presence of an
agreement wherein the composition/procedure of the Arbitral Tribunal are provided and the
composition of such tribunal is not in compliance with the agreement however is in accordance with
provisions of the Act then the award cannot be challenged before the Court. The Court further observed
that when there is no clause for composition/procedure of the Arbitral Tribunal and the composition of
Arbitral tribunal is also not in compliance with the provision of the Act, then the Arbitral Award can be
challenged. “19….In other words, even if the composition of the arbitral tribunal or the arbitral
procedure is not in accordance with the agreement of the parties but if such composition or procedure
is in accordance with the provisions of the said Act, then the party cannot challenge the award. The
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words "failing such agreement" have reference to an agreement providing for the composition of the
ARTICLE
arbitral tribunal or the arbitral procedure. They would come into play only if there is no agreement
providing for the composition of the arbitral tribunal or the arbitral procedure. If there is no agreement
providing for the composition of the arbitral tribunal or the arbitral procedure and the composition of
the arbitral tribunal or the arbitral procedure was not in accordance with Part I of the said Act then also
a challenge to the award would be available. Thus so long as the composition of the arbitral tribunal or
the arbitral procedure are in accordance with the agreement of the parties, Section 34 does not permit
challenge to an award merely on the ground that the composition of the arbitral tribunal was in conflict
with the provisions of Part I of the said Act. This also indicates that Section 10 is a derogable provision”
2. Award Set Aside due to Unilateral Appointment of Arbitrator As per Section 11(2) of the Act the
parties to Arbitration Proceedings are free to choose the procedure for appointment of Arbitrator/s
however, for one party to claim the absolute right to appoint an Arbitrator while the other party having
no say is bad in law and against the very essence of Alternate Dispute Resolution. The Hon'ble Supreme
Court's decision in Perkins Eastman Architects DPC and Ors. vs. HSCC (India) Ltd.6, deliberates over the
equal power of parties to appoint the arbitrator. The Court further observed that the exclusive right to
appoint an Arbitrator would ultimately introduce an element of partiality and bias which will spill over to
the Arbitral Award granted by that Arbitrator.
3. Award Set Aside due to being in conflict with the Public Policy of India After the amendment in 2015
clarified that an award is in conflict with the public policy of India, only if, the making of the award was
induced or affected by fraud or corruption or was in violation of Section 75 or Section 81, or it is in
contravention with the fundamental policy of Indian law, or it is in conflict with the most basic notions of
morality or justice. It was further emphasised that the test as to whether there is a contravention with
the fundamental policy of Indian law shall not entail a review on the merits of the dispute. The Apex
Court stated that it does not matter that the principle of unjust enrichment is a part of the public policy
of India or not, since plaintiff cannot succeed because the unjust enrichment must relate to the
enforcement of the award and not to its merits.7 The relevant excerpt of the decision given in
Renusagar Power Co. Ltd vs. General Electric Co. are as follows:“100. We do not consider it necessary to
go into the question whether the principle of unjust enrichment is a part of the public policy of India
since we are of the opinion that even if it be assumed that unjust enrichment is contrary to public policy
of India, Renusagar cannot succeed because the unjust enrichment must relate to the enforcement of
the award and not to its merits in view of the limited scope of enquiry in proceedings for the
enforcement of a foreign award under the Foreign Awards Act.”The Hon'ble Supreme Court in its recent
judgement also reiterated that it is settled position of law as laid down by the various decisions of the
Apex Court that an award can be set aside only if the award is against the public policy of India. The
Arbitral award can be set aside under Sections 34 and 37 of the Act, if the award is found to be contrary
to, (a) fundamental policy of Indian Law, or (b) the interest of India, or (c) justice or morality, or (d) if it is
patently illegal.8“8. As per settled position of law laid down by this Court in a catena of decisions, an
award can be set aside only if the award is against the public policy of India. The award can be set aside
under Sections 34/37 of the Arbitration Act, if the award is found to be contrary to, (a) fundamental
policy of Indian Law; or (b) the interest of India; or (c) justice or morality; or (d) if it is patently illegal……”
4. Award Set Aside due to Patent Illegality The Hon'ble Supreme Court in the case of Ssangyong
Engineering & Construction Co. Ltd. vs. National Highways Authority of India (NHAI)9, observed that
when an Arbitrator strays and deals with issues that are outside the contract between parties,
correction of such jurisdiction error would be a ground for Award to be set aside under Section 34 of
the Act. However, this principle would not apply on International Commercial Arbitrations that are
decided under Part II of the Act.“43. ……If an arbitrator is alleged to have wandered outside the contract
and dealt with matters not allotted to him, this would be a jurisdictional error which could be corrected
on the ground of “patent illegality”, which, as we have seen, would not apply to international commercial
arbitrations that are decided under Part II of the 1996 Act.”
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Audi Alteram Partem The Kerala High Court in the case of Impex Corporation And Ors. vs.
Elenjikal Aquamarine Exports11, observed that the opportunity of fair hearing was denied to the
party as no proper and sufficient notice was given to appellants by arbitrator before they were
declared ex parte. The basic principle ‘audi alteram partem' i.e. hear the other side, is
fundamental to fair proceedings and principles of natural justice. Natural justice is the essence of
fair adjudication and to be ranked as fundamental. The purpose of following the principles of
natural justice is the prevention of miscarriage of justice. Therefore, even though under the Act,
Court has only a limited power to interfere i.e. only on the grounds specified in Section 34, the
arbitration award was set aside by the Court under Section 34(2)(iii) for violation of principles of
natural justice and not on merit.“8. Apart from the violation of basic principles of natural justice,
here is violation of statutory provisions covered in Sections 18 and 24 of the Act. It is true that
under the 1996 Act Court has only a limited power to interfere in the arbitration awarded only on
the grounds specified in Section 34. Here impugned arbitration award is liable to be set aside
under Section 34(2)(iii). Accordingly we set aside the award only for violation of principles of
natural justice and not on merit…”
Conclusion
It is once again reiterated that Section 34 of the Arbitration and Conciliation Act, 1996 has a narrow scope i.e.,
the grounds on which the award can be set aside is limited. The legislative intent is to maintain and preserve
the sanctity of the Arbitration Proceedings and restrict judicial interference in the same. The Recent
judgements are progressive and have shown that if Section 34 does not have narrow scope, the whole object
of the Arbitration and Conciliation Act would be defeated. The legislative intent behind Section 34 is also
reflected in decisions of High Courts and Supreme Court. The guiding and brooding spirit of arbitration, i.e,
party autonomy and minimum interference of the courts are manifested under Section 34 of the Act.
Footnotes
4. M/s. Navodaya Mass Entertainment Ltd. vs. M/s. J.M. Combines Civil Appeal Nos. 7128-7129 of 2011
7. Renusagar Power Co. Ltd vs. General Electric Co. (1994) AIR 860
8. Haryana Tourism Limited vs. M/S Kandhari Beverages Limited Civil Appeal No. 266 of 2022
The content of this article is intended to provide a general guide to the subject matter. Specialist advice
should be sought about your specific circumstances.
AUTHOR(S)
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