Challenges of an Arbitral Award under section 34 of the Arbitration and Conciliation Act, 1996

Section 34 of the Arbitration and Conciliation Act, 1996 gives an overview of procedure for setting aside an arbitral award provided by the Arbitral tribunal which includes intervention of courts for setting aside the arbitral award. Court’s assistance is needed for the proper working of the arbitration system. But access interference of courts must be avoided in case of setting aside the arbitral award as this causes unnecessary delay in the arbitral proceedings. The Arbitration and Conciliation Act, 1996 with amendments in 2015 and 2019, resolve some issues relating to setting aside the arbitral award and their grounds which previous Arbitration act of 1940 had failed to resolve these issues. This research paper specifically deals with the grounds and challenges faced in setting aside the arbitral award.

1.     Introduction:

No proper meaning of arbitration is provided in any law in India. Arbitration is an alternative process to the courts proceedings. Arbitration is also defined as a confidential consensual dispute process[1] where parties in disputes in view to resolve such dispute present their disputes in front of arbitral tribunal which gives final decision known as Arbitral Award. Arbitral award is binding on both the parties. It is one of the major drawbacks of the arbitration process that decision given by arbitral tribunal is binding and the parties cannot appeal against this decision. Section 34 of Arbitration and Conciliation Act, 1996 plays an important role to save the award receiver to challenge the award and allows the interference of courts for setting aside the arbitral awards.

2.     Stages of an Arbitration process:

  1. Intimation of request of arbitration which starts the arbitration clause.
  2.  Appointment of an arbitrator.
  3. Claim statement and its response.
  4. Presentations and inspection of the documents.
  5. Evidences and their examinations.
  6. Legal submissions 
  7. Final arguments
  8. Issuance of an arbitral award.

3.     Setting Aside the Arbitral Award:

Section 34 of the Arbitration and Conciliation Act, 1996 provides certain special powers to the courts or judiciary to interfere in the process of arbitration for setting aside the arbitral award given by the arbitration tribunal. Section 34 deals with the process of application for arbitral award. However, there is a limitation period to apply for setting aside the arbitral awards before the court.

4.     Grounds for Setting Aside the Arbitral Award:

The parties can files the application to set aside the arbitral award on the basis of following grounds:

  1. Incapacity of parties to arbitration.
  2. The invalidity of the arbitration agreement.
  3. No notice for the appointment of arbitration is given to the party.
  4. When the dispute files under section 34 of the Arbitration and Conciliation Act, 1996 falls beyond the scope of arbitration agreement.
  5. The composition of the arbitral tribunal was not in accordance with the agreement between the parties.

5.     Key Highlights of Arbitration and Conciliation Amendment Act, 2015 and 2019:

5.1  Public Policy in India:

The Arbitration and Conciliation Act, 1996 does not provide proper definition of the term “Public Policy” which provides freedom to the courts to explain the dispute according to them and this freedom become the topic of discussion among the lawyers. The amendment in 2015 inserts the specific definition of “Public Policy” in the act which restricts the courts to interfere in the arbitration process which is used to speed up the process of dispute resolution and also reduces the pendency and cost of parties. This amendment also inserts Explanation 2 to section 34(2) of Arbitration and Conciliation Act, 1996 w.r.t. which when  the aggrieved party applies for setting aside the arbitral award on the basis of basic policies of Indian Law. The courts are now restricted to go into worth of the case.

5.2  Patently illegal:

Patent illegality is considered as an additional ground for setting aside the arbitral award which is provided by section 2A inserted by the amendment to the Arbitration and Conciliation Act, 1996. This ground is not applicable to the international commercial arbitrations. It is only applicable to the arbitrations taking place in India. In the arbitration process, if an arbitral award is in derogation with any provisions of the Arbitration and Conciliation Act, then it will be considered as patent error. This type of arbitral award is null and void and do not any have any effect in law and hence will be considered as void. Moreover, this type of award has opposite impact on the administration of justice and it can be set aside as patently illegal on the basis of following grounds:

  1. If it is contrary to the fundamental policies of India.
  2. If it is contrary to the interest of India.
  3. If it is contrary to the justice or morality.
  4. If it is patently illegal.

In Associate Builders v. Delhi Development Authority[2], the court held that illegality of patent includes:

  1. Fraud or corruption.
  2. Contrary to substantive law.
  3. Error of law by arbitrator.
  4. Contrary to the Arbitration and Conciliation Act, 1996.
  5. Failure of arbitrator to provide reasoning for his judgment.

6.     Section 34 is not trial but a vigil mechanism:

 In Emkay Global Financial Services Limited v. Giridhar Sondhi[3]an arbitral award was challenged by the party against whom such award was issued under section 34 of the act before the Delhi District Court. In an appeal to the High Court, the court remanded to take back the matter and directs the district judge to first frame the issues and then decide on evidences and cross examination of the witnesses.

7.     Limitation under section 34 of Arbitration and Conciliation Act, 1996:

7.1 Simplex infrastructure Ltd. v. Union of India:[4]

The Arbitration and Conciliation Act, 1996 gives a time period of 3 months to file an application for setting aside an arbitral award under section 34 of the Arbitration and Conciliation Act, 1996 which make clear about the extension period which cannot go beyond thirty days.

7.2 State of Maharashtra v. M/S Tejparas Associates and exports private Limited:[5]

The court held that under section 34(3) of Arbitration and Conciliation Act, limitation period begin only from the date on which signed copy of award is to delivered and received by the party who had filed an application for setting aside the arbitral award under section 34.

7.3 Oriental Insurance Company Limited v. ARK Builders Pvt. Ltd:[6]

In this case, an application for setting aside an arbitral award was filed in jaipur but it is written for proper jurisdiction and then application is filed in proper jurisdiction. The Supreme Court held that section 14 of Limitation Act, 1963 is applicable to all the applications filed under section 34.

8.     Conclusion:

The primary reason for ordering the law of Arbitration is to limit the mediation of courts and gives an elective component to determine the business debates which will decrease time and gives quick redressal framework. The corrections got by method of alteration demonstration of 2015 and consequently by Amendment Act of 2019 have settled all the potential issues. Nonetheless, on one hand, the gatherings consent to determine their questions with the assistance of Arbitrator(s) with no mediation of Court except for then again to guarantee the conveyance of genuine honor, legal vigil is additionally needed to keep mind Arbitrator’s Action and along these lines the Section 34 instrument doesn’t give the total takeoff from the legal apparatus however go inseparably with restricted diaspora of legal executive.

References:

1. A.K. Bansal. International commercial arbitration

2. G.K. Kwatra. The arbitration and conciliation low of india

3. Peter V. Baugher, International commercial arbitration

4. Clifford Larsen, International commercial arbitration

Frequently Asked Questions:

Q.1 How many arbitrators are there on the tribunal?

Ans: The parties are free to agree the number of arbitrators and procedures for appointing such arbitrators. If the parties do not agree the number of arbitrators, the tribunal will consist of three arbitrators. If there is a failure to appoint an arbitrator, such arbitrator may be appointed by the president of the arbitration center and/or the competent court.

Q.2 Is the arbitration agreement valid even through the main contract is void?

Ans: An arbitration agreement shall exist totally independently of the contract. Any modification, extension or rescission of the contract, or invalidity or unenforceability of the contract shall not result in the invalidity of the arbitration agreement. – The consideration of whether the arbitration agreement is valid will be conducted by the arbitral tribunal and the competent court.

Q.3 What can be done if one party ignores the arbitration agreement and commences court proceedings?

Ans: If the court proceedings are commenced, the court will refuse to accept jurisdiction, unless the arbitration agreement is determined by the court as invalid or incapable of being performed. – For disputes between goods and/or service provider [on the one hand] and consumers [on the other hand], a consumer shall have the right to select arbitration or a court to resolve the dispute. A goods and/or service provider shall only have the right to initiate arbitration proceedings if the consumer so consents.

Q.4 What is the duty of the parties to the arbitration? 

Ans: The parties shall comply with any provision of LCA 2010, rules of arbitration centre (in case of institutional arbitration), any decisions, directions of arbitral tribunal and competent court. – The State encourages the parties to voluntarily carry out arbitral awards.


[2] 2014 (4) ARBLR 307(SC)

[4] (2019) 2 SCC 455

[5] (2011) 4 SCC 616.

[6] (2019) 9 SCC 435.

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