Provisions regarding setting aside an Arbitral Award [Sec 34 of A&C Act,1996]

Table of Content :

  1. Abstract
  2. Introduction
  3. Meaning of Arbitration
  4. Benefits of an Arbitration proceeding
  5. Application to Set aside an arbitral award.
  6. Grounds
  7. Limitation
  8. Amendments
  9. Conclusion

Abstract

Arbitration is a process where parties to an agreement settle any dispute amongst them outside the court through Arbitral Tribunal. Arbitration is one of the most used processes of Dispute Resolution in India. The arbitration law in India was adopted through  English Law and then eventually evolved through various amendment over the past decades. The Arbitration Act was first introduced in the year 1940, then a better and profound version of it was amended and the Act has been completely changed with new set of provisions in the 1996. The amendments and changes made under the year 1996 has given this act a new prospective altogether.

Down below we will be discussion the section 34 [Application for setting aside Arbitral Award] in the light of the Arbitration and Conciliation Act, 1996.

Introduction

Arbitration is a process of dispute resolution between the parties through arbitral tribunal appointed by parties to the dispute or by the Court at the request by a party. In other words, it is an alternative to litigation as a method of dispute resolution. The law relating to arbitration n India is based on the English Arbitration Law. In 1940 the Indian Law on arbitration was drafted in the form of Arbitration Act, 1940 and remained in force until it was replaced by the new Arbitration and Conciliation Act, 1996.

The Indian arbitration law is based on the United Nations Commission on International Trade Law (UNCITRAL Model Law). The law of arbitration is based on the principle of withdrawing the dispute from the ordinary court and enabling the parties to substitute a domestic tribunal consisting persons of their own choice called as arbitrators. The Parliament enacted the Arbitration and Conciliation Act, 1996 which not only removed many serious defects of the earlier arbitration law but also incorporated modern concepts of arbitration which are internationally accepted. The arbitral award has been treated at par with the decree of the Court. The arbitral award is enforceable in the same manner as a decree of a law court. This change has enabled the reduction of litigation in some areas of arbitration. Earlier an award could not be executed in its own right unless the court ordered that award is filed and a decree issued in terms thereof.

There is no provision for appeal against an arbitral award and it is final and binding between the parties. However, an aggrieved party may take recourse to law court for setting aside the arbitration award on certain grounds specified in Section 34 of the Arbitration and Conciliation Act, 1996.

Meaning of Arbitration[1]

  • Arbitration is a process in which the parties resolve their dispute out of the court through the Arbitral Tribunal.
  • An Arbitral Tribunal can be either appointed by parties to the dispute or by the court sometimes at the request of the party.
  • We can also say that arbitration is a substitute for the litigation for the dispute resolution.
  • The United Nations Commission on International Trade Law is considered as the basis of the Indian Arbitration Law.
  • The decision of the arbitrator is considered to be as legally binding and enforceable by the court unless all the parties set forth that the arbitration process and decisions are non-binding.

Benefits of An Arbitration Proceeding

  1. Efficient and Flexible: Quicker Resolution, Easier to schedule
    The dispute will normally be resolved much sooner. It may take several years to procure a court trial date, while an arbitration date can usually be obtained within a few months. Also, trials must be scheduled into court calendars, which are usually backlogged without hundreds, if not thousands of cases in front of you. On the other hand, arbitration hearings can conveniently be scheduled based on the availability of parties and the arbitrator.
  2. Less Complicated: Simplified rules of evidence and procedure
    Litigation inevitably leads down a long path of filing papers and motions, and attending court processes such as motion hearings. The normal rules of evidence used in court may not be strictly applied in arbitration proceedings, making it much easier to admit evidence. Discovery, the time-consuming and expensive procedure that involves taking and answering interrogatories, depositions, and requests to produce documents, maybe largely reduced in arbitration. Instead, most matters, such as who will be called as a witness and what documents must be produced, are handled with simple phone calls with the arbitrator.
  3. Privacy: Keep it out of the public eye
    Unlike a trial, arbitration leads to a private resolution, so the information brought up in the dispute and resolution can be kept confidential. This could be enticing for well-known public figures or clients in business disputes because all evidence, statements, and arguments will be completely confidential. On the other hand, in court, even if certain records will not be released, there is still a risk of some public access to potentially sensitive business information.
  4. Impartiality: Choosing the “judge”
    The parties to the dispute usually pick the arbitrator together, so the arbitrator will be someone that both sides have confidence will be impartial and unbiased.
  5. Usually less expensive
    Most of the time, but not always the case, arbitration is a lot less expensive than litigation. Arbitration is often resolved much more quickly than court proceedings, so attorney fees are reduced. Also, there are lower costs in preparing for the arbitration than there are in preparing for a jury trial.
  6. Finality: The end of the dispute
    For binding arbitration, there are limited opportunities for appeal. That gives finality to the arbitration that is not often available with a trial decision, which maybe subject to appeals, new trials and further appeals.
  7. For employers, class action waiver
    Recently in 2018, the Supreme Court of the United States confirmed that valid arbitration agreements can include a class action waiver. Therefore, many employers became more interested in including a class action waiver in the employment agreement in order to limit risk exposure.

Application to Set Aside Arbitral Award

An arbitral award is the award is the award granted in the decision made by the arbitral tribunal in an arbitration proceeding.

An arbitral award can be monetary or non-monetary. It can be monetary which is made for payment of a sum of money from one party to the other and it can be non-monetary when no money needs to be paid but it includes decisions like stopping a certain business practice or increasing unemployment perks and incentives.

Two conditions are provided under the Arbitration Act,1996[2], for an award to be valid –

  • It must be certain ; and
  • It must contain the decision.

The award which was passed by the Arbitral Tribunal has to be signed by the arbitrator and it must contain the reasons for passing of such award in the particular case.

The arbitral award should clearly state the duties and liabilities imposed on the parties to the dispute and it should not leave any aspect pending of the dispute for the future discussion.

It should be very much clear and final in the context of the issues and claims of the dispute concerned. In the case of Union of India V. Punjab Communications[3], the amount which was payable by one party to the other was not specified in the award and also the decision was unclear and incapable of being enforced. Therefore the arbitral award was set aside.

Now, for the judgement-debtor (against whom an award is passed) the court has laid down remedies through which the judgement-debtor can also challenge a passed award to set it aside.  Under section 34 of the mentioned act, there are provisions to be followed to set aside the award.

  • Grounds

Section 34 of the Arbitration and Conciliation Act provides the provisions of certain specific grounds on the basis of which an arbitral award rendered in India can be set aside. They are-

  1. Incapacity of a party while making an application to enter the agreement.
  2. Arbitration agreement not being valid under the law.
  3. Parties were not given proper notice of the appointed Arbitrators or the Arbitral Tribunal. (Dulal podda V. Executive Engineer, Dona Canal Division)[4]
  4. Nature of dispute not capable of settlement by arbitration. (Rajendra Krishan Kumar V. Union of India)[5]
  5. Composition of the arbitral award was not in accordance with the agreement of parties.(State Trading Corporation V. Molasses Co. the Bengal Chamber of Commerce)[6] & (ONGC Ltd V. Saw Pipe Ltd)[7]
  6. The Arbitral award is in the violation of the public policy of a state.
  7. The Arbitral award deals with a dispute not falling within the terms of submissions to an arbitration. (Venture Global Engineering V. Satyam Computer Services Ltd.)[8]
  • Limitation

Section 34(3) states regarding the limitation period for filing an application that an appeal to set aside an arbitration order by an aggrieved party has to be strictly made within the period of 3 months from the date of receipt of the same. The importance of this is set out by Section 36 which asserts that the award becomes enforceable as soon as the limitation period under Section 34 expires. Under section 33, the Court may, however, allow a delay of 30 days on request made by the aggrieved party if the court is satisfied on the evidence of the sufficient cause. In Case of National Aluminum Co Ltd v. Presteel Fabrication (P) Ltd[9], proceedings were instituted before the Supreme Court under the disbelief that it had jurisdiction in the matter of setting aside the arbitral award passed by Arbitral Tribunal. Time consumed on a bona fide prosecution of an application in a wrong forum was held by the Supreme Court to be a sufficient cause for condonation of delay.

As in the Code of Civil Procedure, 1908[10], there is a general rule that an executing Court can execute the decree if there is no stay by the appellate court. In the same way, in Arbitration Act, once an application of setting aside the arbitral award is done under section 34, the executing Court has no power or authority to effectuate the award until and unless the application gets dismissed/refused under section 34.

As per section 34, a party to the arbitration agreement has to make an application for setting aside the award. But a legal representative in a case of any such party can also apply for it because he is a person claiming under that. An award which is set aside no longer remains applicable by law. Setting aside means that it is rejected as invalid. The parties get back to their former position in regard to their claims in the dispute and the matter becomes open again for decision. The parties have the option after setting aside an order to either again go for arbitration or to have the matter decided by the court of law.

  • Amendments of the section 34.

In the year 1996 the section 34 has been dedicatedly included under the act where a total of 6 provisions has been mentioned under the section 34 of 1996 Act.

Under the 1940 Act, section 30 of such act had grounds to set aside an arbitral award. They are :

Grounds for setting aside award. An award shall not be set aside except on one or more of the following grounds, namely:-

(a) that an arbitrator or umpire has misconducted himself or the proceedings

(b) that an award has been made after the issue of an order by the Court superseding the arbitration or after arbitration proceedings have become invalid under section 35;

(c) that an award has been improperly procured or is other- wise invalid.

Now this section was completely changes in the 1996 act, as mentioned earlier. In the 1996 act section 34 has provisions for application to set aside an Arbitral Award.

They are : (1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3). (2) An arbitral award may be set aside by the Court only if—

 (a) the party making the application 1 [establishes on the basis of the record of the arbitral tribunal that]—

  • a party was under some incapacity, or
    • the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
    • the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
    • the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
    • the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or

(b) the Court finds that—  (i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or (ii) the arbitral award is in conflict with the public policy of India.

[Explanation : Without prejudice to the generality of sub-clause (ii), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced by or affected by fraud or corruption or was in violation of Section 75 or section 81]

(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal:

Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.

 (4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award.

After the new revolutionary changes in the 1996 Act, section 34 has gone through some major amendment changes in the year  2015.

Where clause 2, sub-clause (b) was introduced to some extra added provisions like :

[11][Explanation I : —For the avoidance of any doubt, it is 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.

 Explanation 2.—For the avoidance of doubt, 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.]

Other than amending clause 2, sub-clause (b), two absolutely new provisions were added to this act in the year 2015.

[12][Clause (5) An Application under this section shall be filed by a party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement.

Clause (6) An application under this section shall be disposed of expeditiously, and in any event, within a period of one year from the date on which the notice referred to in sub-section (5) is served upon the other party]

Conclusion

India has a modern and efficient Arbitration Act. Section 34 and 37 provides for recourse against an arbitral award which may be set aside by a court on certain specified grounds. All these Grounds are common to both domestic as well as international arbitral awards. The ground of public policy should only be interpreted as far as it aims towards broadening the public interest and not violating the basic notions of Indian laws. The judicial intervention should also be minimal for success and further promotion of Arbitration in India.


[1] https://blog.ipleaders.in/what-is-the-application-for-setting-aside-the-arbitral-awards/

[2] https://www.indiacode.nic.in/bitstream/123456789/1978/1/AAA1996__26.pdf

[3] https://indiankanoon.org/doc/1346523/

[4] https://indiankanoon.org/doc/895738/

[5] https://indiankanoon.org/doc/97475/

[6] https://indiankanoon.org/doc/680406/

[7] https://indiankanoon.org/doc/919241/

[8] https://indiankanoon.org/doc/867675/

[9] https://indiankanoon.org/doc/434621/

[10] https://www.indiacode.nic.in/handle/123456789/2191?locale=en

[11] Amended in 2015

[12] Inserted through 2015 Amendment.

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