Project on Arbitration and Conciliation Act, 1996 – Arbitral Award

Contents
Introduction ............................................................................................................................................................ 2
Definition of Arbitral Award .................................................................................................................................. 3
“Arbitral Award” – Form and Contents of ......................................................................................................... 4
Terms and Contents of Arbitral Award .............................................................................................................. 4
(i) Arbitral Award operates as res judicata ..................................................................................................... 5
(ii) Essentials of Arbitral Award ..................................................................................................................... 5
(iii) Arbitral award may be final or interim .................................................................................................... 5
(iv) Time limit for making the arbitral award ................................................................................................. 6
(v) Arbitral award by consent ......................................................................................................................... 6
(vi) Contents of the arbitral award .................................................................................................................. 6
(vii) Arbitral award to be made by majority ................................................................................................... 6
(viii) Arbitral award shall be final and binding on the parties ........................................................................ 6
(ix) Law of Limitation Applicable to Arbitral Award .................................................................................... 7
(x) Whether stamp duty payable on arbitral award ......................................................................................... 7
(xii) Whether arbitrator can award interest ..................................................................................................... 7
(xiii) An Interim award is a part of final award .............................................................................................. 8
(xiv) An arbitral award treated as a decree of a court ..................................................................................... 8
(xv) Foreign arbitral awards ........................................................................................................................... 8
(xvi) Arbitral Award under Act, 1996 distinguished from the Arbitral Award under old Arbitration Act,
1940 ................................................................................................................................................................ 8
Making Of Arbitral Award ..................................................................................................................................... 9
Section 28 to 33 of the Act deals with the Award by arbitrators and termination of proceedings. ..................... 9
a) Rules Applicable To Substance Of Dispute ................................................................................................... 9
b) Decision Of The Arbitral Tribunal-{ Section 29) ......................................................................................... 10
c) Settlement (Section 30) ................................................................................................................................ 10
d) Forms and Contents Of Arbitral Award (Section 31) ................................................................................... 10
e) Termination Of Proceedings {Section 32) .................................................................................................... 11
f) Additional Award (Section 33) ..................................................................................................................... 11
Setting Aside of Arbitration Award (Section 34} ................................................................................................. 12
Application for Setting Aside A. Award .......................................................................................................... 15
Enforcement of Awards ........................................................................................................................................ 16
Bibliography ......................................................................................................................................................... 17

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 Project on Arbitration and Conciliation Act, 1996 – Arbitral Award

Introduction

Arbitration is a legal process, which takes place outside the courts, but still results in a final
and legally binding decision similar to a court judgment. Arbitration is a flexible method of
dispute resolution, which can give a quick, inexpensive, confidential, fair and final solution to
a dispute. It involves the determination of the dispute by one or more independent third
parties rather than by a court. The third parties, called arbitrators, are appointed by or on
behalf of the parties in dispute. The arbitration is conducted in accordance with the terms of
the parties' arbitration agreement, which is usually found in the provisions of a commercial
contract between the parties.

For an arbitration to take place, the disputing parties must agree to take their dispute to
arbitration. In practice, this agreement is often made before the dispute arises and is included
as a clause in their commercial contract. In signing a contract with an arbitration clause, the
parties are agreeing that their dispute will not be heard by a court but by a private individual
or a panel of several private individuals. If parties have agreed to arbitration, they will
generally have to go to arbitration rather than court as the courts will normally refuse to hear
their case by staying it to force the reluctant party to honour their agreement to arbitrate.

Arbitration Award is a determination on the merits by an arbitration tribunal in arbitration,

and is analogous to the judgment in the Court of Law. Arbitration is particularly a means of
dispute resolution in the commercial sphere. One of the reasons for doing so is that in
international trade it is often easier to enforce a foreign arbitral award than to enforce a
judgment of the Court. The closing decades of the twentieth century saw arbitration gain
worldwide acceptance as the normal means of resolving commercial disputes. National laws
on arbitration have been modernized on all continents. The Arbitration & Conciliation Act,
1996 is one such step by India to make the arbitration law more responsive to contemporary
requirements, taking into account the Model law and Rules adopted by the United Nations
Commission on International Trade Law (UNCITRAL). International treaties on arbitration
have been signed or adhered to with impressive success. With the gradual removal of
political and trade barriers and the rapid globalization of the world economy, new challenges
have been created for arbitration institutions in response to the growing demand of parties for
certainty and predictability, greater rapidity and flexibility as well as neutrality and efficacy
in the resolution of disputes.

An arbitration award (or arbitral award) is a determination on the merits by an arbitration

tribunal in arbitration, and is analogous to a judgment in a court of law. It is referred to as an
'award' even where the entire claimant's claims fail (and thus no money needs to be paid by
either party), or the award is of a non-monetary nature. Arbitration is particularly popular as a
means of dispute resolution in the commercial sphere (for a summary of the various arenas in
which arbitration is usually generally, see the specific article on "arbitration"). One of the
reasons for doing so is that, in international trade, it is often easier to enforce an arbitration
award in a foreign country than it is to enforce a judgment of the court.

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Under the New York Convention 1958, an award issued a contracting state can generally be
freely enforced in any other contracting state. Virtually every significant commercial country
in the world is a party to the Convention, but relatively few countries have a comprehensive
network for cross-border enforcement of judgments of the court. Hence in many countries,
particularly in emerging markets, a foreign arbitration award is much easier to enforce than
an award of the court.

The other characteristic of cross-border enforcement of arbitration awards that makes them
appealing to commercial parties is that they are not limited to awards of damages. Whereas in
most countries only monetary judgments are enforceable in the cross-border context, no such
restrictions are imposed on arbitration awards and so it is theoretically possible (although
unusual in practice) to obtain an injunction or an order for specific performance in an
arbitration proceeding which could then be enforced in another New York Convention
contracting state.

The New York Convention is not actually the only treaty dealing with cross-border
enforcement of arbitration awards. The earlier Geneva Convention on the Execution of
Foreign Arbitral Awards 1927 remains in force, but the success of the New York Convention
means that the Geneva Convention is rarely utilised in practice.

The Arbitration and Conciliation Act, 1996 of India recognizes and provides for statutory
enforcement mechanisms and shall form the base for our study in the following pages.

Definition of Arbitral Award

Under Section 2 (1)(c) the word “Arbitral Award” is not defined but it states that the Arbitral
Award includes an interim award. Although Section 31(6) submits explanation in this regard
as under “The Arbitral Tribunal” may, at any time during the arbitral proceeding, make an
interim arbitral award on any matter with respect to which it may make a final arbitral award.
Thus, an interim award may be the Arbitral Award. So, an interim award may be a final
award.

According to H. Lexicon – “It is an instrument which embodies a decision of an arbitrator or

arbitrators as regards matters referred to him or them.”

Although, according to Russell – “An award in order to be valid, must be final, certain,
consistent and possible and must decide matters to be submitted and no more than the matters
submitted.”

An arbitral award is not a contract but the decision determined out of the contract. An award,
whether it is arbitral or interim award is a decision of the arbitrator or arbitrators which is
determined after contentions of the parties are considered and an arbitrator or the arbitrators
put his or their opinion in the form of decision. The consent of the parties may not be present

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in a decision. An arbitral award decided by the Arbitral Institution judicially will have
binding effect in respect of the parties in dispute.

The contents of an arbitral award must be in writing, not oral. An arbitral award is like a
decree which comes into effect from the date on which it has been signed and right of the
related parties come into effect from that date onward.1

Any agent on behalf f the parties to dispute if authorised by the parties may refer the matter o
arbitration for settlement of dispute.

In Kishan Lal v. Ram Swaroop,2the Allahabad High Court held that the Vakalatnama
submitted by the parties differ in respect of their contents. The Vakalatnama submitted by the
plaintiff authorised the counsel to compromise the suit or proceeding. In another aspect the
Vakalatnama on record, authorises the counsel to refer the matter to arbitration which
includes power to compromise in arbitration. Therefore, if an agent in authorised to
compromise the dispute it is deemed that he has power to refer the matter for arbitration.

It is expected that the arbitrator has accepted all claims and counter-claims and considered
them all in quasi-judicial manner before it could arrive at the final award.

“Arbitral Award” – Form and Contents of – It is to be noted that the definition of

“arbitral award” in Section 2(1) (c) of the Arbitration and Conciliation Act, 1996 is not an
exhaustive definition. However, every arbitral award must contain the following five things:

1. Factual aspect of disputed matter;

2. Submission of the parties;
3. Contention of parties to rival submission;
4. Arbitrator’s view;
5. Delivery of an arbitral award.

There is no prescribed form of arbitral award. However, Section 31 of the Act, 1996 provides
certain criteria, which is to be followed by the arbitrator while delivering the arbitral award.3

Terms and Contents of Arbitral Award – The following terms and contents are
required to be mentioned in the arbitral award:

1. The arbitral award must be in writing and signed by the arbitrator/s.

2. The arbitral award must be based on reasoning. It must be a speaking award.
3. The arbitral award must show date and place of arbitration.
4. A certified copy of arbitral award is required to be delivered to each party.

1
Lal Das v. Bai Lal, 11 Bom LR 20
2
!965 ALJ 698 at 705
3
Charan Sharan Khemka v. Achint Chemicals, 2005 (2) Raj 465 (Raj)

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5. If the arbitral award is for payment of money, the arbitral award may include interest
at such rate as the arbitral tribunal deems reasonable.
6. The costs of the arbitration shall be fixed by the arbitral award.
7. The language used in passing the arbitral award must free from any ambiguity.

(i) Arbitral Award operates as res judicata – In Shashi Sekhareswar v. Lalit Mohan, 4the Privy
Council, inter alia observed that a decree passed on the foundation of arbitral award would
have the same effect as an ordinary judgment of a court and on the question which has
already been decided by the arbitrators it operates as res judicata. But, where a claim in
question has not been included as a subject-matter of reference to arbitration, it was held that
principle of res judicata will n ot applied in respect of the claim.5

In the view of the Apex Court an arbitral award is to be treated as a decree passed by the
Civil Court, and it is binding on the parties.6

It is submitted that an arbitral award is not a contract but a decision given on the basis of
terms of a contract. An arbitral award must be in writing because it is like a decree of the
Civil Court.

(ii) Essentials of Arbitral Award– It is well settled legal position that a valid, proper and
enforceable arbitral award must have the following essential ingredients, which are as follows
–

1. An arbitral award must be in writing and signed.

2. The parties must be competent to initiate arbitral proceedings.
3. A sustainable arbitral award must be reasoned one – Section 31 (3) of the Arbitration
and Conciliation Act, 1996.
4. There must be arbitration clause to assign disputes or differences before arbitral
tribunal.
5. The contents of an arbitral award must be connected with the subject-matter of the
dispute arbitrated.
6. An arbitral award must be founded on the principle of mutuality.

Where the arbitral award is based on mutual settlement of the dispute by the parties, no
reason need be given.7

– An arbitral award may be a final award or an

(iii) Arbitral award may be final or interim
“interim award” unless there is an agreement to the contrary between the parties and
depending upon the nature of the dispute, the arbitrator could make an interim award. An

4
AIR 1925 PC 34
5
Damoder Engineering Construction Co., In Re, (1994) 1 Arb. LT 133
6
Satish Kumar v. Surendra Kumar, AIR 1970 SC 833
7
Section 30(3)of the Arbitration and Conciliation Act, 1996

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interim award has the same sanctity as final award. If it was not complied with, it could
not be enforced through the court by the same procedure as in the case of final award.8

(iv) Time limit for making the arbitral award – The Arbitration and Conciliation Act, 1996
does not provide any time limit as such for completing the arbitration. However, mandate
of an arbitrator can be terminated if he fails to act without undue delay “which means in
fact if he is guilty of undue delay.”9

(v) Arbitral award by consent – The Arbitration and Conciliation Act, 1996 recognizes the
liberty of the parties to come to a settlement. The arbitrator, if satisfied about the
genuineness and validity of the settlement has to give an award in terms of the settlement
has to give an award in terms of the settlement. The Act further envisages that the
arbitrator may encourage efforts at settlement.10 It is to be noted that the Arbitration Act,
1940 was silent on this point.

(vi) Contents of the arbitral award – The requirements of the content and form of arbitral
11
award are as under -

1. “An arbitral award shall be made in writing and shall be signed by the member of
the arbitral tribunal.
2. For the purpose of Section 31(1), in arbitral proceedings with more than one
arbitrator, the signatures of the majority of all the members of the arbitral tribunal
shall be sufficient so long as the reason for any omitted signature is stated.
3. The arbitral award shall state its date and the place of arbitration as determined in
accordance with Section 20 and the award shall be deemed to have been made at
that place.

(vii) Arbitral award to be made by majority – It is mandate of Section 29(1) of the Arbitration
and Conciliation Act, 1996 that the decision of the arbitral tribunal shall be made by the
majority of all its members. An arbitral award was required to be signed by the arbitrator to
give it validity. Where there were more than two arbitrators, then unless the arbitration
agreement provided for a unanimous decision, the award would have to be the decision of the
majority. In case an arbitrator dissented from the majority decision, he could append his
dissenting opinion to the majority decision, though it is not obligatory.12

– As provided under Section 35 of

(viii) Arbitral award shall be final and binding on the parties
the Arbitration and Conciliation Act, 1996 an arbitral award shall be final and binding on the
parties and persons claiming under them. Where the time for making the application to set
aside an arbitral award has expired or where such application has been refused by the court,
the award shall be enforced as if it were the decree of the court.13

8
Section 27 of the Arbitration and Conciliation Act, 1996
9
Section 14 of the Arbitration and Conciliation Act, 1996
10
Section 30 of the Arbitration and Conciliation Act, 1996
11
Section 31 of the Arbitration and Conciliation Act, 1996
12
Section 2(1)(c) and 29(1) of the Arbitration and Conciliation Act, 1996
13
Section 36 of the Arbitration and Conciliation Act, 1996

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It is to be noted that under the present Act it will not be necessary to make the award a rule of
the court and to pass a decree in terms of the award, as is mandatory under the repealed law.

(ix) Law of Limitation Applicable to Arbitral Award – It is the mandate of the present Act that
the enforcement of an arbitral award shall be subject to Limitation Act, 14 as it is applicable to
“contracts” and thus a suit for specific performance could be filed within the period of
limitation as prescribed under Article 54 of the Limitation Act, 1963. Therefore, after the
expiry of period of limitation an arbitral award cannot be set aside. It would amount to waiver
of rights by the parties.

On the point of limitation for setting of arbitral award, Section 34 of the Act provides that an
application for setting aside the arbitral award may not be made after three months have
elapsed from the date on which the party making that application has received an award on
ground specified in the section.

(x) Whether stamp duty payable on arbitral award – In fact the Arbitration and Conciliation
Act, 1996 contains no provision regarding payment of stamp duty on the arbitral award.
Thus, an arbitral award has to be stamped with requisite stamp duty in accordance with the
Indian stamp Act, 1899. This point is outside the scope of law of arbitration. In case arbitral
award is not adequately stamped or there is insufficiency as to stamp duty, even then the
arbitral award can be admitted in evidence after payment of proper stamp duty together with
the penalty prescribed under the Indian Stamp Act, 1899.

(xi) Evidence admissibility of unstamped arbitral award – In Kodandapami v. Kadidela Raja

Mouli,15it was held that if an unstamped and unregistered arbitral award is admitted in
evidence without objection, it cannot be ignored in view of Section 36 of the Stamp Act. But,
if it is compulsorily registrable as creating a lease for six years in immovable property, it
cannot be relied upon as evidence of acquisition of any right in immovable property. It cannot
be used to resist the claim of the landlord for recovery of possession of the demised premises.

(xii) Whether arbitrator can award interest – Section 31(8) of the Arbitration and Conciliation
Act, 1996 empowers the arbitrator to award interest from the date of submission to arbitration
to the date of the arbitral award. Thus, under this Act the arbitrator’s power extends to the
pre-arbitration period and also to the period for which the arbitration remains pending.

The Apex Court in Secretary to the Government of Orissa v. Raghunath Mahapatra,16has

held that even under the Arbitration Act, 1940, the arbitrator could award interest from the
date of submission to arbitration to the date of the award. Section 31(d) of the Arbitration and
Conciliation Act, 1996 empowers the arbitrator, in a monetary award to include interest on
the amount, unless otherwise agreed by the parties. Thus, the provision under the new Act has
widened the powers of the arbitrator because the power is expressed as “covering the whole

14
257Section 34(3) of the Arbitration and Conciliation Act, 1996
15
AIR 2003 AP
16
(1992) CLA 54

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or any part of the period between the date on which the cause of action arose and the date on
which the arbitral award is made.”

– According to Section 2(1)(c) of the Arbitration

(xiii) An Interim award is a part of final award
and Conciliation Act, 1996 the expression “arbitral award” shall include an interim award
also. Thus, under this provision the arbitrator is empowered to make interim award is it is
sought or it depends upon the nature of dispute. An interim award shall have the same
sanctity as final award. Thus, an interim award, if it is passed, shall be binding on the parties
to arbitration.17

(xiv) An arbitral award treated as a decree of a court – The Apex Court in Satish Kumar v.
18
Surendra Kumar, has held hat an arbitral award is treated as a decree of a court and it does
not matter whether it has passed into decree or not hence it is binding upon the parties.

(xv) Foreign arbitral awards– Under Part II of the Arbitration and Conciliation Act, 1996 the
foreign arbitral awards are enforceable in accordance with the Geneva Convention and New
York Convention and such foreign arbitral awards are considered as a decree of a court.
However, if neither of the convention is adopted, by any country such country shall be
outside scope of Part II of the Act and such foreign arbitral awards cannot be enforced in
India.19

(xvi) Arbitral Award under Act, 1996 distinguished from the Arbitral Award under old Arbitration
Act, 1940 – The Supreme Court in Morgan Securities and Credit (P) Ltd. v. Modi Rubber
Ltd.,20has held that under old Arbitration Act, 1940 an arbitral award was required to be made
by use of Court to make enforceable, but under the new Arbitration and Conciliation Act,
1996, an arbitral award is to be treated to be a decree even without intervention of the court
only for the limited purpose of its enforceability.

In view of the Supreme Court an arbitral award under the Arbitration and Conciliation Act,
1996 indisputable stands on a different footing vis-a-vis an arbitral award made under the
Arbitration Act, 1940. Whereas under the Act, 1940, an arbitral award was required to be
made a rule of the Court to make it enforceable, the Arbitration and Conciliation Act, 199,
however raises a legal fiction. Once an application challenging an award is filed, the remains
under suspension in the sense that it would not be enforceable. Only upon expiry of the
period specified in Section 34 of the Act, 1996 to challenge an award or when such objection
is refused, would the same become enforceable. Section 36 of the Act, 1996 merely specifies
as to how such an award can be enforced by laying down that it can be enforced as if it were
a decree. The legal fiction created under Section 36 of the Act, has therefore, a limited
application. An arbitral award is to be treated to be a decree even without intervention of the
court only for limited purpose of its enforceability.
17
Section 35 of the Arbitration and Conciliation Act, 1996
18
AIR 1970 SC 833
19
Sections 49 and 58 of the Arbitration and Conciliation Act, 1996 read with Section 44-A of the Code of Civil
Procedure, 1908
20
AIR 2007 SC 683

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Making Of Arbitral Award

The document that gives and explains the decision(s) of an arbitrator is called an award. An
award is binding on both parties An arbitrator has authority to issue interim, partial and final
awards Having issued a final award, the arbitrator has no further duty or authority upon the
arbitration, except for the right to correct any minor slips.

Either party can, within a reasonable time may seek to challenge art award in the High Court
However, the court will only interfere on limited grounds relating to the capacity of the
parties, the validity or scope of the arbitration agreement, or unfairness or impropriety in me
conduct of the proceedings for domestic arbitrations, and the court may also, unless otherwise
agreed by the parties, consider an appeal on a question of law arising from the award. In this
case, the court may confirm, vary, set aside the award, or refer it back to the arbitrator for
reconsideration in the light of the court’s opinion on the question of law.

Section 28 to 33 of the Act deals with the Award by arbitrators and

termination of proceedings. Salient features of the same are discussed herewith

a) Rules Applicable To Substance Of Dispute

Generally the Arbitral Tribunal decides the dispute submitted to arbitration in accordance to
the substantive law for the time being in force in India (sec 28 (1) (a)]

For example, dispute between the partners of a firm shall be resolved by application of the
provision of the Indian Partnership Act.

However, In case of International Commercial arbitration, the parties have been allowed
autonomy to designate the Law. Where the parties fail to designate any law, the Arbitral
Tribunal is to apply the law as considered appropriate in the circumstances of dispute.
Section 28(1) (b) lays down that in international commercial arbitration

1) The arbitral tribunal shall decide the dispute in accordance with the rules of law designated
by the parties as applicable to the substance of the dispute.

2) Any designation by the parties 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 its conflict of laws.

3) Failing any designation of the law under clause (a) by the parties the Arbitral Tribunal
shall apply the rules of Law it considers to be appropriate given all the circumstances
surrounding the dispute.

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The parties to the arbitration can authorize the Arbitral Tribunal to decide ‘ex acquo et bono
i.e. ‘based on equity and good conscience’ or as amiable compositeur’ (as friendly
compromiser) i.e. without applying strict legal rules of interpretation as to the obligation of
the parties whether contractual or otherwise [section 28(2)]

In all cases the Arbitral Tribunal is to decade an accordance with the terms ot the contract by
taking into account the usage of the trade applicable to the transaction [section 28(3)]

b) Decision Of The Arbitral Tribunal-{ Section 29)

The decision of the arbitral tribunal is required to be made by majority of all its members
unless the parties have agreed otherwise. For example, the parties may decide that the
decision should be unanimous and not be majority.

The parties or all the member of the arbitral tribunal may agree that the question of procedure
in the arbitration proceedings may be decided by the presiding arbitrator.

c) Settlement (Section 30)

The arbitral tribunal may encourage the parties to settle their dispute at any times during the
arbitration proceedings The tribunal can take initiative and fmd out whether there is an
element of settlement, and for this purpose it may use mediation, conciliation and other
procedures.

If a settlement is reached, the same may be incorporated in an arbitral award and signed by
the arbitrators. However, this can be done only if requested by the parties and not objected to
by the arbitral tribunal.

An arbitral award on agreed terms shall have the same status and effect as an” other arbitral
award on the substance of the dispute. In another words, an arbitral award out of settlement
can also be enforced as a decree of the court

d) Forms and Contents Of Arbitral Award (Section 31)

1) The award shall be made in writing and shall be signed by arbitrators.

2) Where there is more than one arbitrator, the signature of majority of the arbitrators shall be
sufficient. However, in such cases, the reason for any omitted signature must be stated.

3) The award shall be reasoned one subject to the following exceptions:

1. The parties have agreed that reasons are not to be given

2. The award is the outcome of settlement and on agreed terms as mentioned in section 30.

3. The award shall state its date and the place of arbitration.

4. A signed copy of the award shall be delivered to each party.

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5. The arbitrators may make an interim award, In practice, a request for interim award by a
party is entertained by arbitrators, when there are numerous subject matters in the same
dispute arid each one of them is separate and distinct from the other

6 The arbitrators have power to award interest for the whole or part of the period between the
date on which cause of action arose and the date on which the award is made.

However, the parties can by their agreement take away the power of the arbitrators to award
interest.

The rate of interest may be such as may be considered reasonable by the arbitrators.
However, the rate of interest, for the period from the date of award to the date of payment,
shall be lS. pa. unless the arbitrators decide otherwise.

Termination of Proceedings (Section 32) and Enforcement of Award

e) Termination Of Proceedings {Section 32)

This section contains the provisions regarding conditions and procedure for termination of
arbitral proceedings. The same is summarized in the following paragraphs.

1. The arbitration proceeding is terminated as soon as the final arbitral award is made by the
arbitrators.

2. The proceedings stand terminated by an order of the arbitral tribunal where: -

a) The claimant withdraws his claims

b) Both the parties agree on the termination of the proceedings.

c) The tribunal finds that the continuation of the proceedings has for any other reason became
unnecessary or impossible.

However, within 30 days of the receipt of the arbitral award, any of the parties may move the
Arbitral tribunal for correction of any computation errors, any clerical or typographical error.
The party may also require the tribunal to give interpretation of any specific point or part of
the award. The tribunal may correct the error and give interpretation after notice to the other
party.

f) Additional Award (Section 33)

A party with notice to the other party may request the arbitral tribunal to make an additional
award as to claim presented in the arbitral proceedings but omitted from the arbitral award.
The party can do so within 30 days from the receipt of the award unless the tribunal extends
the time. The arbitral tribunal shall make the additional award within sixty days of the receipt
of the request provided it considers the request to be justified.

g) Finality And Enforcement Of Awards(Section 35 & 36)

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An arbitral award is considered final and binding on both the parties. However, an unsatisfied
party has the right to make an application to the court for setting aside the order. Therefore. in
real sense, an arbitral award shall be considered final only after the time limit to apply for
setting it aside has elapsed. In case, a party has made such application, the award will not be
final and binding till the application is refused by the court

Once the award becomes final as mentioned above, it shall be enforced as if it were a decree
of the court.

Setting Aside of Arbitration Award (Section 34}

The grounds for setting aside an award rendered in India (in a domestic or international
arbitration) are provided for under Section 34 of the Act. These are materially the same as in
Article 34 of the Model Law for challenging an enforcement application. An award can be set
aside if:
a) a party was under some incapacity; or
b) the arbitration agreement was not valid under the governing law; or
c) a party was not given proper notice of the appointment of the arbitrator or on the
arbitral proceedings; or
d) the award deals with a dispute not contemplated by or not falling within the terms of
submissions to arbitration or it contains decisions beyond the scope of the submissions; or
e) the composition of the arbitral tribunal or the arbitral procedure was not in
accordance with the agreement of the parties; or
f) the subject matter of the dispute is not capable of settlement by arbitration; or
g) the arbitral award is in conflict with the public policy of India.

A challenge to an award is to be made within three months from the date of receipt of the
same. The courts may, however, condone a delay of maximum 30 days on evidence of
sufficient cause. Subject to any challenge to an award, the same is final and binding on the
parties and enforceable as a decree of the Court.
Considerable controversy has been generated as to whether an award is liable to be
challenged under Section 34 on merits. The earlier view, as expounded by the Supreme Court
in RenuSagar Power Co. Ltd. v. General Electric Co.21 was that an award could be set side if
it is contrary to the public policy of India or the interests of India or to justice or morality –
but not on the grounds that it is based on an error of law or fact. The Supreme Court in that
case was faced with the issue to determine the scope of public policy in relation to
proceedings for enforcement of a foreign award under the Foreign Awards (Recognition and
Enforcement) Act, 1961. The Court also held that in proceedings for enforcement of a foreign
award the scope of enquiry before the court in which the award is sought to be enforced
would not entitle a party to the said proceedings to impeach the award on merits.

21
(1994) Supp (1) SCC 644

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However, in a later Supreme Court of India decision in Oil and Natural Gas Corporation vs.
Saw Pipes22 the Court added an additional ground of “patent illegality”, thereby considerably
widening the scope of judicial review on the merits of the decision. In Saw Pipes case the
court accepted that the scheme of Section 34 which dealt with setting aside the domestic
arbitral award and Section 48 which dealt with enforcement of foreign award were not
identical. The court also accepted that in foreign arbitration, the award would be subject to
being set aside or suspended by the competent authority under the relevant law of that
country whereas in domestic arbitration the only recourse is to Section 34. The Supreme
Court observed:

“But in a case where the judgment and decree is challenged before the Appellate Court
or the Court exercising revisional jurisdiction, the jurisdiction of such Court would be
wider. Therefore, in a case where the validity of award is challenged there is no necessity
of giving a narrower meaning to the term 'public policy of India'. On the contrary, wider
meaning is required to be given so that the 'patently illegal award' passed by the arbitral
tribunal could be set aside.
……….. Similarly, if the award is patently against the statutory provisions of substantive
law which is in force in India or is passed without giving an opportunity of hearing to the
parties as provided under Section 24 or without giving any reason in a case where
parties have not agreed that no reasons are to be recorded, it would be against the
statutory provisions. In all such cases, the award is required to be set aside on the
ground of 'patent illegality'.”

The court in Saw Pipes case although adopted the wider meaning to the term ‘public policy’
but limited its application to domestic awards alone. The Saw Pipes case has generated some
controversy, and it remains to be seen if it will stand the test of time. The position of a
foreign award has also undergone some recent controversy. A foreign award is enforceable
under Part II of the Act if it is rendered in a country that is a signatory to the New York
Convention or Geneva Convention and that territory is notified by the Central Government of
India. Once an award is held to be enforceable it is deemed to be a decree of the court and
can be executed as such. Under the Act there is no procedure for setting aside a foreign
award. A foreign award can only be enforced or refused to be enforced but it cannot be set
aside.

This fundamental distinction between a foreign and a domestic award has been altered by the
Supreme Court in the recent case of Venture Global Engineering v. Satyam Computer
Services Ltd.23 (Venture Global). Here the Supreme Court was concerned with a situation
where a foreign award rendered in London under the Rules of the LCIA was sought to be
enforced by the successful party (an Indian company) in the District Court, Michigan, USA.
The dispute arose out of a joint venture agreement between the parties. The respondent
alleged that the appellant had committed an “event of default” under the shareholders

22
(2003) 5 SCC 705
23
(2008) 4 SCC 190.

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agreement and as per the said agreement exercised its option to purchase the appellant’s
shares in the joint venture company at book value. The sole arbitrator appointed by the LCIA
passed an award directing the appellant to transfer its shares to the respondent. The
respondent sought to enforce this award in the USA.

The appellant filed a civil suit in an Indian District Court seeking to set aside the award. The
District Court, followed by the High Court, in appeal, dismissed the suit holding that there
was no such procedure envisaged under Indian law. However, the Supreme Court in appeal,
following its earlier decision in the case of Bhatia International v. Bulk Trading24 held that
even though there was no provision in Part II of the Act providing for challenge to a foreign
award, a petition to set aside the same would lie under Section 34 Part I of the Act (i.e. it
applied the domestic award provisions to foreign awards). The Court held that the property in
question (shares in an Indian company) are situated in India and necessarily Indian law would
need to be followed to execute the award. In such a situation the award must be validated on
the touchstone of public policy of India and the Indian public policy cannot be given a go by
through the device of the award being enforced on foreign shores. Going further the Court
held that a challenge to a foreign award in India would have to meet the expanded scope of
public policy as laid down in Saw Pipes (supra) (i.e. meet a challenge on merits contending
that the award is “patently illegal”).

The Venture Global case is far reaching for it creates a new procedure and a new ground for
challenge to a foreign award (not envisaged under the Act). The new procedure is that a
person seeking to enforce a foreign award has not only to file an application for enforcement
under Section 48 of the Act, it has to meet an application under Section 34 of the Act seeking
to set aside the award. The new ground is that not only must the award pass the New York
Convention grounds incorporated in Section 48, it must pass the expanded “public policy”
ground created under Section 34 of the Act. In practice, the statutorily enacted procedure for
enforcement of a foreign award would be rendered superfluous till the application for setting
aside the same (under Section 34) is decided. The statutorily envisaged grounds for challenge
to the award would also be rendered superfluous as notwithstanding the success of the
applicant on the New York Convention grounds, the award would still have to meet the
expanded “public policy” ground (and virtually have to meet a challenge to the award on
merits). The Venture Global case thus largely renders superfluous the statutorily envisaged
mechanism for enforcement of foreign awards and substitutes it with a judge made law. The
Judgement thus is erroneous. Moreover, in so far as the Judgment permits a challenge to a
foreign award on the expanded interpretation of public policy it is per incuriam as a larger,
three Bench decision in the case of Renu Sagar
holds to the contrary. Further Saw Pipes (on which Venture Global relies for this proposition)
had clearly confined its expanded interpretation of public policy to domestic awards alone
(lest it fall foul of the Renu Sagar case which had interpreted the expression narrowly).

The Supreme Court in Venture Global did not notice this self-created limitation in Saw Pipes
nor did it notice the narrower interpretation of public policy in Renu Sagar and therefore
24
2002) 4 SCC 105.

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application of the expanded interpretation of public policy to foreign awards is clearly per
incuriam. The decision thus needs to be reviewed.

Application for Setting Aside A. Award

A dissatisfied party may take recourse section 34(1) and make an application to the court for
setting aside the Arbitration award. There is no special form of drafting required for an
application to the cowl However the High Courts may lay down procedures to be complied
with under Section 82 of the Act

Conditions for Setting Aside Award

Section 34(2) of the Act provides that an Arbitral award may set aside by the court only

a) The party making the application furnishes proof that—

1. A party was under some incapacity, or

ii. The arbitration agreement is not valid under law to which the panics 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;

iv. The arbitral award deals with disputes not contemplated by or not falling whether the
terms of the submission to arbitration, or it contains decisions on matters beyond the scope of
the submission to arbitration

v. The composition of the arbitral tribunal or the arbitral procedure was not in accordance
with the agreement of the panics, 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:

. a party making the application furnishes proof that.

ii. the arbitration agreement is not 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.

iv. The arbitral award deals with a dispute not contemplated by or not failing within the terms
of the submission to arbitration or it contains decisions on matters beyond the

v. The composition of the arbitral tribunal or the arbitral procedure was not in accordance
with the agreement of the panics, unless such agreement was in conflict with a provision of
this pan from which the panics cannot derogate, or, failing such agreement was not in
accordance with this Pan; or

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b) the court finds that the subject matter of the dispute is not capable of settlement by
arbitration under the law for the time being in force, or if the arbitration under the law fix the
time being in force,

Time limit for making a application for setting aside award

Section 34(3) lays do that the maximum permissible period for an application to set aside the
award is a period of three months. One month’s condonation can be allowed. There is no
special form prescribed for making an application

Enforcement of Awards

One of the factors for determining arbitration as an effective legal institution is the efficiency
and efficacy of its award enforcement regime. Under Section 36 of the 1996 Act, an arbitral
award is enforceable as a decree of the court, and could be executed like a decree in a suit
under the provisions of the Civil Procedure Code, 1908.25

An award resulting from an international commercial arbitration is enforced according to the

international treaties and conventions, which stipulate the recognition and enforcement of
arbitral awards.

Enforcement of foreign awards in India is governed by the 1958 New York Convention and
the 1927 Geneva Convention, which are incorporated in Chapter II, Part I and Part II,
respectively, in the 1996 Act.26

The provisions of enforcement are the same under the 1940 Act and the 1996 Act. Any party
interested in foreign awards must apply in writing to a court having jurisdiction over the
subject matter of the award. The decree holder must file the award, the agreement on which
it is based and evidence to establish that the award comes under the category of foreign award
under the 1996 Act.27

The rate of enforcement of arbitral awards is high. Under the 1996 Act, the Supreme Court of
India declined to enforce or recognize awards in only two out of twenty four cases relating to
enforcement of arbitral awards (Section 36 of the 1996 Act) that came before it. Both cases
involved Indian parties and Indian law.28

25
Section 36 of the Arbitration and Conciliation Act, 1996 – Enforcement - Where the time for making an
application to set aside the award under Section 34 has expired, or such application having been made, it
has been refused, the award shall be enforced under the Code of Civil Procedure, 1908 (5 of 1908) in the same
manner as if it were a decree of the court.
26
Chapter I, Part II of the Arbitration and Conciliation Act, 1996, deals with enforcement of foreign awards
pursuant to New York Convention, while Chapter II, Part II of the said Act deals with foreign awards
pursuant to the Geneva Convention
27
Sections 37 and 56 of the Arbitration and Conciliation Act, 1996, contain provisions relating to the documents
to be produced before a Court executing a foreign award.
28
S.K. Dholakia, ‘Analytical Appraisal of the Arbitration and Conciliation (Amendment) Bill, 2003’, ICA’s
Arbitration Quarterly, ICA, 2005, vol. XXXIX/No.4 at p 23.

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Bibliography

1. O P Malhotra, ‘The Law and Practice of Arbitration and Conciliation’,New Delhi

Lexis Nexis-Butterworths: 1sted., 2002.
2. P C Markanda, ‘Law relating to Arbitration and Conciliation’,Nagpur: Wadhwa and
Co.: 6th ed., 2006.

are: Rajinder Krishan Khanna vs. Union of India (1998) 7 SCC 129; and Oil and Natural Gas Corporation
vs. Saw Pipes (2003) 5 SCC 705. The data given here is from the Supreme Court Cases Journal. Dholakia is
a member of ICC International Court of Arbitration & is a Senior Advocate, Supreme Court of India.

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