SETTING ASIDE AN ARBITRAL AWARD IN INDIA UNDER SECTION 34 OF THE ARBITRATION ACT
I. INTRODUCTION
The very essence of Arbitration and Conciliation Act, 1996 (hereinafter ‘Arbitration Act’), is to boil down the supervisory role of courts in the arbitral process. The Arbitration Act intended to reduce the scope of judicial interference with an arbitral award as well. The ambit of courts power is merely restricted to set aside the arbitral award on certain grounds specified in the Arbitration Act. It is blasphemous to use other enactments or rules to set aside the arbitral award. The court cannot act as an appellate authority over and above interfere on merits of an arbitral award (except ‘public policy’ issues). The arbitral award can ‘only’ be set aside by filing an application for setting aside the arbitral award in accordance with sub-sections (2), (2A) and (3) of Section 34 of the Arbitration Act. The application of setting aside arbitral award (including interim award) is dealt in chapter VII of the Arbitration Act under the head ‘Recourse Against Arbitral Award’. A court can also set aside an arbitral award on the grounds specified under Section 28(1)(a) or 28(3) read with Section 34(2)(b)(ii), Section 13(5) and Section 16(6) of the Arbitration Act. Once the arbitral award is set aside, the parties will be back to square one to begin arbitration again, if so desired. This write-up is about arbitral tribunal having seat in India. A foreign award can be challenged/set aside during the enforcement of foreign awards under Sec. 48 of the Arbitration Act.
-- Supreme Court appointed arbitrator still the application u/s 34 is filed before the principal civil court of original jurisdiction. [See National Aluminium Co. Ltd. v. Pressteel & fabrications, (2004) 1 SCC 540.]
II. PROCEDURE FOR SETTING ASIDE AN AWARD UNDER SECTION 34 OF THE ARBITRATION ACT
The application for setting aside arbitral award u/s. 34 of the Arbitration Act is in the nature of the summary proceeding. The party can furnish proof in accordance with Sec. 34(2)(a) to set aside arbitral award by way of an affidavit. The court cannot suo moto intervene or set aside arbitral award (u/s. 34(2)(b)) until and unless an application for setting aside an arbitral award is made before the court. While adjudicating the application the court ordinarily should not go beyond the records before the arbitrator that resulted in the arbitral award. ‘However, if there are matters not contained in such record, and are relevant to the determination of issues arising under Section 34(2)(a), they may be brought to the notice of the Court by way of affidavits filed by both parties.’[M/S Emkay Global Financial Service Ltd. v. Girdhar Sondhi Civil Appeal No. 8367 0f 2018]. The Apex court has held that ‘Sec. 34(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’ is only directive in nature.[The State of Bihar & Ors. v. Bihar Rajya Bhumi Vikas Bank Samiti Civil Appeal No. 7314 of 2018].
III. JURISDICTION OF SECTION 34 OF THE ARBITRATION ACT
The term ‘court’ mentioned under Section 34 of the Arbitration Act refers to the principal civil court of the original jurisdiction in a district, or the High Court [See Section 2(1)(e)]. On perusal of the plethora of judgment, the jurisdiction u/s. S. 34 will depend upon the subject-matter of the dispute. Only the chartered high courts exercising the civil original jurisdiction will fall under the category of 2(1)(e). Other High Courts do not have the concurrent jurisdiction with district courts hence, they cannot entertain an application to set aside an arbitral award.
-- Supreme Court appointed arbitrator still the application u/s 34 is filed before the principal civil court of original jurisdiction. [See National Aluminium Co. Ltd. v. Pressteel & fabrications, (2004) 1 SCC 540.]
-- Subject Matter of Suit. [See Fountain Head Developers v Maria Arcangela Sequeira (2007) Bom. HC]
[See also, Hindustan Copper Ltd. v. Nicco Corporation (2009) 6 SCC 69; Executive Engineer, Road Development v. Atlanta Ltd. (2014) SC; Apparel Export Promotion Council v. Prabharti Patni (2005) Delhi HC; GE Countryside Consumer Financial Services Ltd. v. Surjit Singh (2006) Delhi HC; Upendra Kantilal Thanawal v. Shree Ram Builders (2013) Bom. HC]
IV. GROUNDS FOR SETTING ASIDE AN ARBITRAL AWARD [Section 34(2) AND Section 34(3) of the Arbitration Act]
Section 34 is bifurcated in two broad categories i.e., (i) A party has to file an application and furnish proof in conformity with any of the five grounds enumerated below in the figure and, (ii) The other part impose a paramount responsibility on court to ensure the validity of the arbitral award on the touchstone of remaining three grounds. However, the court solely on its own volition cannot set aside an award referring Section 34(2)(b). Sub-section(2)(a) and (2)(b) of Section 34 has to germinate from an application/pleadings.
A precise understanding of the above mentioned eight grounds are as follows:
A. PARTY FURNISHES PROOF
B. COURT FINDS (EX-OFFICIO GROUNDS)
For instance, non-arbitrable disputes are;
(i) Criminal offences
(1) Incapacity of Party [Section 34(2)(a)(i) of the Arbitration Act]
The phrase 'incapacity of party' defence, is related to the contractual agreement. The parties entering into arbitration agreement must have 'capacity' to enter, for instance, a minor, or a person of unsound mind has no capacity to enter into a contract on their own. Thus, the incapacity of a party during the time of an arbitration agreement would vitiate the entire arbitral proceedings.
(2) Invalid Agreement Under Law [Section 34(2)(a)(ii) of the Arbitration Act]
An arbitral tribunal emanates from an arbitration agreement. The arbitral tribunal's award passes the test of validity only when the arbitration agreement is in adherence with the governing law of the contract, or the law in force. If the arbitration agreement is invalid inevitably the arbitral award becomes nugatory. Hence, liable to be set aside.(3) Lack of Proper Notice of Appointment (i) arbitrator, (ii) arbitral proceeding and; otherwise unable to present case [Section 34(2)(a)(iii) of the Arbitration Act]
This ground bestows the minimum desideratum of natural justice. The language of this sub-section discourse non-compliance of procedural due process. Clearly, this section mandates procedural requisites on 'the party appointing the arbitrator' and on 'the arbitrator'. Firstly, the party appointing arbitrator has to give proper notice of the appointment of the arbitrator to the other party. Secondly, the responsibility lies on the arbitrator to give proper notice specifying the sine quonons for arbitral proceedings. 'Otherwise unable to present his case' is aimed to maintain the concept of equality between the parties. It is the paramount duty of the arbitrator to ensure that each party shall be given full opportunity to present his case. Otherwise, it will amount to unfair treatment hence, liable to be set aside.(4) Lack/Excess of Jurisdiction [Section 34(2)(a)(iv) of the Arbitration Act]
This section is divided into two parts, (i) Lack of jurisdiction (extra petita) (ii) Excess of jurisdiction (ultra petita). If the arbitrator travels outside the sphere of, (i) dispute submitted to arbitration agreement or, (ii) claim submitted to the arbitral tribunal, then the award shall be set aside. The proviso to the section states the "separability of an award". See Upper Ganges Valley Electricity Supply v. Uttar Pradesh Electricity Board[(1973) 1 SCC 254], the Hon'ble Apex court said that if a part of the award is invalid and the invalid part is separable from the rest of award, there is no justification for setting aside the whole award.
(5) Beyond Arbitration agreement (i) Composition of tribunal (ii) arbitral proceeding and, agreement not according Part-I should be disregarded. [Section 34(2)(a)(v) of the Arbitration Act]
If the arbitration agreement is contrary to the Part-I then it should be disregarded. The composition of arbitral tribunal and procedure incorporated in arbitral proceedings should be in accordance with the arbitration agreement. If fails to follow the procedural requirement then the award will be liable to set aside. [Certain provisions are mandatory in Part-I that's why read https://indianlawlab.blogspot.com/2019/01/guide-draft-sample-arbitration-agreement-india.html]
B. COURT FINDS (EX-OFFICIO GROUNDS)
(6) Dispute Not Arbitrable [Section 34(2)(b)(i) of the Arbitration Act]
Right in rem, or a public right dispute cannot be adjudicated by a private tribunal. These disputes are reserved for a court of law (prerogative of municipal law). The, disputes which cannot be lawfully referred to a private tribunal are non-arbitrable disputes. Hence, non-arbitrable disputes are incapable of being resolved through arbitration and, liable to be set aside.
For instance, non-arbitrable disputes are;
(i) Criminal offences
(ii) Testamentary matters
(iii) Insolvency and winding up
(iv) Matrimonial disputes, etc.
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
From the date of delivery - 3 MONTHS
Condonation of Delay - 30 DAYS
Section Referred:
---Section 34. Application for setting aside arbitral award.—(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—
2[(2A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court if the Court finds that the award is vitiated by patent illegality appearing on the face of the award:
Provided that an award shall not be set aside merely on the ggroundofan erroneous application of the law or by re-appreciation of evidence.]
(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.
1[(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.
[(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.]
---Section 13(5). Where an arbitral award is made under sub-section (4), the party challenging the arbitrator may make an application for setting aside such an arbitral award in accordance with section 34
---Section 16(6). A party aggrieved by such an arbitral award may make an application forgetting aside such an arbitral award in accordance with section 34
---Section 28. Rules applicable to substance of dispute.
– (1) Where the place of arbitration is situate in India, -
(a) In an arbitration other than an international commercial arbitration, the arbitral tribunal shall decide the dispute submitted to arbitration in accordance with the substantive law for the time being in force in India;
(b) In international commercial arbitration, -
(i) The arbitrat tribunal shall decide the dispute in accordance with the rules of law designated by the parties as applicable to the substances of the dispute;
(ii) Any designation by the p arties of the law or legal system of a given country shall be construed, unless otherwise expressed, as directly referring to the substantive law of that country and not to its conflict of laws rules;
(iii) Failing any designation of the law under clause (a) by the parties, the arbitrat tribunal shall apply the rules of law it considers to be appropriate, given all the circumstances surrounding the dispute.
(2) The arbitral tribunal shall decide ex aequo et bono or as amiable compositeur only if the parties have expressly authorised it to do so.
(3) In all cases, the arbitral tribunal shall decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction.
(for further details please be my guest at lawyer.akt@gmail.com)
(iii) Insolvency and winding up
(iv) Matrimonial disputes, etc.
(7) Public Policy [Section 34(2)(b)(ii) of the Arbitration Act]
The expression 'public policy' is not easy to define. Public policy depends upon various factors, for instance, fraud, corruption, morals, political perceptions, confidentiality, the basic notion of justice etc. Public policy is an unruly horse because it opens a pandora box of interpretation. Fortunately, after 2015 Amendment, Explanation 1 and Explanation 2 of this section have given a little sense of direction to this unruly horse. [Read these judgments to understand public policy, In order: Renusagar; Saw Pipes; Venture Global; Phulchand Exports; Shri Lal Mahal Ltd. ]
(8) Patent Illegality [Section 34(2A) of the Arbitration Act]
An award which has an error on the face of it or, violation of statutory provision or constitution or, inconsistent with common law- Patent Illegality. After the 2015 Amendment, the proviso of the section makes the position of patent illegality clear by advancing, that an award shall not be set aside merely on the grounds of an erroneous application of the law or by reappreciation of evidence. [See Saw pipes; McDermott; J.G. Engineers v. UOI]
V. LIMITATION [Section 34(3) of the Arbitration Act]
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
From the date of delivery - 3 MONTHS
Condonation of Delay - 30 DAYS
VI. OTHER GROUNDS FOR SETTING ASIDE AN ARBITRAL AWARD
(1) Challenge to an Arbitrator [Section 13(5)]
Section 13(5) provides for the procedure to challenge the independence or impartiality of the arbitrator or, the arbitral tribunal does not possess the requisite qualification mentioned under the arbitration agreement. This challenge can be made by an application made under Section 34 of the Arbitration Act.(2) Section 16(6)
When the tribunal decides its own jurisdiction according with Kompetenz-Kompetenz. After ruling its jurisdiction the tribunal can proceed with arbitral proceedings. The resultant arbitral award from the arbitral proceedings can be challenged under Section 16(6) read with Section 34 of the Arbitration Act.Section Referred:
---Section 34. Application for setting aside arbitral award.—(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 furnishes proof that—
(i) a party was under some incapacity, or
(ii)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
(iii) 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
(iv) 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
(v) 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.
1[Explanation 1—For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,—
(i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or
(ii) it is in contravention with the fundamental policy of Indian law; or
(iii) 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.]
(i) a party was under some incapacity, or
(ii)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
(iii) 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
(iv) 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
(v) 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.
1[Explanation 1—For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,—
(i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or
(ii) it is in contravention with the fundamental policy of Indian law; or
(iii) 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.]
Provided that an award shall not be set aside merely on the ggroundofan erroneous application of the law or by re-appreciation of evidence.]
(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.
1[(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.
[(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.]
---Section 13(5). Where an arbitral award is made under sub-section (4), the party challenging the arbitrator may make an application for setting aside such an arbitral award in accordance with section 34
---Section 16(6). A party aggrieved by such an arbitral award may make an application forgetting aside such an arbitral award in accordance with section 34
---Section 28. Rules applicable to substance of dispute.
– (1) Where the place of arbitration is situate in India, -
(a) In an arbitration other than an international commercial arbitration, the arbitral tribunal shall decide the dispute submitted to arbitration in accordance with the substantive law for the time being in force in India;
(b) In international commercial arbitration, -
(i) The arbitrat tribunal shall decide the dispute in accordance with the rules of law designated by the parties as applicable to the substances of the dispute;
(ii) Any designation by the p arties of the law or legal system of a given country shall be construed, unless otherwise expressed, as directly referring to the substantive law of that country and not to its conflict of laws rules;
(iii) Failing any designation of the law under clause (a) by the parties, the arbitrat tribunal shall apply the rules of law it considers to be appropriate, given all the circumstances surrounding the dispute.
(2) The arbitral tribunal shall decide ex aequo et bono or as amiable compositeur only if the parties have expressly authorised it to do so.
(3) In all cases, the arbitral tribunal shall decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction.
(for further details please be my guest at lawyer.akt@gmail.com)
