APPLICATION FOR SETTING ASIDE ARBITRAL AWARD

(SECTION 34)

BRIEF OUTLINE

Application to set aside the arbitral award shall be filed before the Court.
– S.34(1)

Grounds to be proved by the party making an application for setting

aside the award: - S.34(2)(a)
 Incapacity;
 Invalid law;
 Notice;
 Award beyond the scope of submissions/agreement;
 Part decision can be set aside;
 Not in accordance with procedure or composition.

Court’s findings – S.2(b)

 Subject matter not capable of being settled by arbitration;
 Award against the public policy of India.
 Corruption
 Fundamental policy of Indian Law;
 Basic notions of morality.

Patent illegality appearing on the face of record – S.34(2A)

 only applicable in cases of domestic arbitration.

Limitation to challenge the award and Condonation of delay – S.34(3)

 The award shall be challenged within three months of the date when the
award is received by the arbitral award.
 If there is a valid reason/sufficient cause for not challenging the award within
the limitation period, then the delay can be condoned.

Adjournment of proceedings – S.34(4)

 Upon a request by the party;
 The court can adjourn the proceedings for a period of time as it may deem fit.

Prior Notice – S.34(5)

 Application under section 34 shall be filed along with a prior notice to the
other party.
 The application shall be accompanied by an affidavit.

Disposal – S.34(6)
 The application filed under section 34 shall be disposed of within a period of
one year.

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IMPORTANT POINTS
 Scope
 Objectives
 Principles/grounds enshrined u/s. 34
 ‘Application’ to set aside award – s.34(1)
 Advance Copy of application/Prior notice – S.34(5)
 Disposal of Application within One Year – S.34(6)
 Jurisdiction of the Court
 Who may apply for setting aside the Award
 ‘Objections’ to the Award
 Presumption in favour of the Award
 Powers of Court while hearing an application u/s. 34
 Incapacity of Party
 Public Policy
 Illegality and/or Error of Law
 Limitation & Condonation of delay

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SCOPE
 The scope of section 34 is restricted to the grounds mentioned under the
bare provisions i.e., the award can only be challenged if the party is able to
prove existence of such grounds or the Court finds existence of the same.
 While hearing the application for setting aside the award the Court may have
to deal with the following questions:
 Question of law;
 Question of fact;
 Mixed question of law & fact.
 The Court must ensure that regardless of the errors in application of the law,
the entire arbitration process resulted from a legitimate process.
 Provision of CPC do not apply in their entirety to the proceedings filed under
section 34.
 The Court only has the power to either dismiss the application or set aside
the awards and leave it as it is without giving any decision on the merits.
 Thus, scope of interference is limited to the grounds mentioned u/s. 34.
 Section 34 only applies to domestic arbitration.

OBJECTIVES
 To ensure that arbitral tribunal assigns reasons for its award;
 To ensure that arbitral tribunal remains within the limits of its jurisdiction;
 To minimize role of Courts;
 To provide for enforcement of arbitral awards as a decree of the Court;
 To ensure fair, efficient and specific arbitration.

PRINCIPLES/GROUNDS ENSHRINED U/S. 34

The following principles and exhaustive grounds appear from a bare perusal of
section 34:
 On such an award is open to interference by the Court which is:
a) Contrary to substantive provisions of law;
b) Contrary to provisions of the 1996 Act;
c) Against the terms of the contract;
d) Patently illegal;
e) Prejudicial to the rights of the parties.
 Further an Award can be set if it is contrary to:
a) Fundamental policy of India;
b) Interest of India;
c) Justice or Morality.
d) Unfair and unreasonable;
e) Shocks the conscience of the Court
f) Opposed to the public policy of India.

‘APPLICATION’ TO SET ASIDE AWARD – S.34(1)

 A challenge to the validity of the award passed by the arbitral tribunal is
inadmissible without an application.
 The Court cannot act suo moto in order to challenge the award.
 All challenges or objections to the award shall be made by way of an
application.
 A written application and payment of court fees is a pre-requisite for
applying to the Court for setting aside the award.
 There is no specific form of making the application, which is prescribed, for
setting aside an award.

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ADVANCE COPY OF APPLICATION/PRIOR NOTICE – S.34(5)
 Section 34(5) requires that the other party shall be served an advance copy
of the application, thereby notifying him of the fact that the award has been
challenged.
 The objective of this provision is primarily to comply with the principles of
natural justice.
 Secondly, S.36 of the act requires that along with the application u/s. 34 the
party shall file an application seeking stay of operation of the arbitral award.
 Therefore, it is important that the other party shall be at caveat i.e., present
when the application for stay of the award is heard.
 The object is to ensure that the stay is not granted without hearing both the
sides and that the other party is represented when the issue of stay of the
operation of the arbitral ward is considered by the Court.

DISPOSAL OF APPLICATION WITHIN ONE YEAR – S.34(6)

 The application shall be disposed of expeditiously and within a upper limit of
one year.

JURISDICTION OF THE COURT

Court
 In view of the definition of ‘Court’ in the Arbitration Act, the competent court
to hear a challenge to a domestic arbitral award must have jurisdiction to
decide the questions forming the subject-matter of the arbitration, had the
same been the subject-matter of a suit.
 The Code of Civil Procedure, 1908 specifies the jurisdiction of civil courts in
India. Section 20 of the CPC allows a suit to be instituted in a court within the
local limits of whose jurisdiction:
(a) the defendant or each of defendants, where more than one, at the
time of commencement of the suit actually and voluntarily resides, or
carries on business, or personally works for gain; or
(b) any of the defendants (in case of more than one defendant), at the
time of commencement of the suit actually and voluntarily resides, or
carries on business, or personally works for gain, provided that either the
leave of the court is taken or the such other defendants acquiesce; or
(c) the cause of action, wholly or part arises.
 On a combined reading of Section 34 and Section 2(1)(e) of the Arbitration
Act along with Section 20 of the CPC, it appears that a challenge to an
arbitral award may be instituted in a court which satisfies any of the criteria
specified in Section 20 of CPC, stated above.
 In case the properties in dispute are situated within the jurisdiction of two
courts at different places, either of the two courts will have the jurisdiction to
decide an application for setting aside the arbitral award, irrespective of the
extent of the property.
 A writ petition challenging the award is not maintainable under article
226/227 of the Constitution. The proper remedy is to file an application u/s.
34.

Illustration – If a construction work was done at station ‘A’, the Court at ‘A’ has
the jurisdiction to entertain such petition against the award, though passed by the
Arbitrators with the consent of the parties by holding meetings in Mumbai.

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WHO MAY APPLY FOR SETTING ASIDE THE AWARD
 An application u/s. 34 can only be filed a party who has suffered an injury by
the error in the arbitral award.
 Objections made by a third party against the award cannot be allowed to be
entertained by the Court.
 Therefore, a non- party to the arbitration cannot prefer objection under this
section.

‘OBJECTIONS’ TO THE AWARD

Objection must be specific

 Specific averments and grounds for setting aside an award have to be stated
to enable the Court to set aside an award.
 The objections must disclose the basis on which the arbitrator is stated to
have misconducted himself.
 Therefore, the particulars of the misconduct should be specific.
 The Court will reject any objection if it general or vague.
 For example, where the petitioner had simply stated that the award is
against the principles of natural justice or equity or in violation, it would not
be possible for the Court to take notice of the stereo-typed objection.

Procedure to be followed by the Court hearing Objections

 It is the duty of the Court to ensure that the objections are disposed
expeditiously.
 it is not necessary to hear the objections as per the full-fledged procedure
prescribed under the CPC.
 The Court while dealing with objections u/s. 34 may permit the parties to
produce affidavits in proof rather than having oral evidence.

PRESUMPTION IN FAVOUR OF THE AWARD

 The Court shall not merely set aside the award if the arbitrator has not
expressed his conclusion in the correct legal language.
 The Court shall not be astute to look for defects in the award.
 It should construe or interpret an award in a way that makes it valid rather
than invalid.
 The Court shall exercise extra caution while setting aside an award passed
by the Arbitrator.
 Therefore, the Court shall derive a presumption in favour of the award and
bear in mind the following propositions:
a. The Court shall approach the award with a desire to support it;
b. If the agreement does not require the arbitrator to deal with each
claim separately, the Court shall also consider the consolidated award
as valid in such a case;
c. The Court will presume that the award finally disposes of all the
matters in dispute, unless contrary appears on the face of record;
d. Where the award is made concerning all the matters in dispute, the
presumption is that the arbitrator intended to dispose of all the matter
in dispute or difference i.e., de praemissis.

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POWERS OF COURT WHILE HEARING AN APPLICATION U/S. 34

Power of Court to Examine Award

 The Court can only entertain a challenge against the award on the limited
grounds mentioned u/s. 34.
 Therefore, a challenge to an award can only be successful if the party
challenging it is able to prove the existence of the grounds mentioned u/s.
34.

Court not to examine merits of Award

 Explanation to S.34(2)(b) clearly provides that while ascertaining as to
whether there exists a contravention of the fundamental policy of Indian law,
the Court shall not enter upon a review of the matter upon its merits.
 The object of the same is to ensure that the functions which are entrusted to
an arbitral tribunal are usurped by the Courts.
 Thus, if the Courts start reviewing the matter on merits, in such case the
entire objective behind the speedy disposal of disputes via arbitration will be
defeated.

Court not to look into the reasonableness of reasons

 The Court cannot question the reasoning given by the Arbitrator.
 The arbitrator is not obliged to write a reasoned award.
 The conclusion may vary as per the circumstances, time and the way of
thinking of the arbitrator.
 In absence of detailed reasons, it cannot be said that there were no reasons.
 Insufficiency of reasons cannot be a ground for setting aside the award.

Court not to re-appraise and re-examine the entire evidence

 The cannot re-evaluate the evidence, unless it shocks the conscience of the
Court.
 For instance, where the Arbitrator had compared the two signatures on the
documents and held that the same were not forged and fabricated, it would
be impermissible on the part of the Court to interfere with such findings of
the Court.

Court not to act as an appellant forum

 In proceeding to set aside an award, the Court cannot sit in appeal over the
conclusion of the arbitrator.
 The scope of judicial review is akin to that under article 226, which means
only the decision-making process can be reviewed and the not the decision
on merits itself.
 Mere erroneous or wrong findings of fact by arbitral tribunal or even an
erroneous interpretation of document cannot be interfered with u/s. 34 by
the Courts.

Court not to interfere if the arbitrator acts fairly

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INCAPACITY OF PARTY
 An award which is invalid under the law governing minors ought to be set
aside.
 If the guardian of the minor has acted with gross neglect and fraudulently, in
such case it is open for the minor to impeach to the award by a suit upon
attaining majority.

ILLEGALITY AND/OR ERROR OF LAW

 Only such an illegality/error can form basis for challenging an award, which is
apparent on the face of record.
 The error of law shall appear from the award itself or from any document or
note incorporated in it or appended to it.
 Illegality in an award must go to the root of the matter.
 Any illegality of a trivial nature cannot be held to be an award against the
public policy.
 Arbitrariness, irrationality or a perverse understanding or misreading of the
materials placed before the arbitrator, the award must be held to be in utter
disregard of law.
 For instance, where the arbitrator did not apply the correct principles of
valuations to determine the value of the property and also did not rely upon
the relevant evidence, it was held that the award was liable to be set aside.

PUBLIC POLICY

Meaning
 The law commission of India in its 246 th Report has stated that the scope of
words ‘public policy’ should be limited so that interference by the Court’s in
arbitration awards is reduced.
 It means the principles and standards constituting the general or
fundamental policy of the State established by the Constitution and existing
laws of the Country.
 It also means the principles of morality and justice.
 Public policy would mean something that concerns public good and public
interest.
 It is to be noted that what would be injurious or harmful to public good has
varied from time to time.
 An award which is patently in violation of the statutory provisions cannot e
said to be in public interest.

Setting aside award on Public Policy

An award can be said aside on ground of public policy if it is contrary to:
a. Fundamental policy of Indian Laws;
b. The interest of India;
c. Justice or Morality;
d. Patently illegal;
e. Shocks the conscience of the Court.
Illegality must go into the root of the matter/case/award.

Fundamental policy of Indian Law

 All such fundamental principles providing basis for administration of justice
and enforcement of laws in the country.

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LIMITATION & CONDONATION OF DELAY

Limitation
 The aggrieved party shall raise objections within a period of 3 months from
the date of receipt of a signed copy of the award from the arbitral tribunal.
 Further a period of 30 days can be provided in addition to the 3 months
period, which may be condoned by the Court if there is a sufficient cause is
shown.
 The delay cannot be condoned after providing the period 30 days, as per the
limitation act it amounts to express exclusion.

Condonation of Delay
 The Court has a very limited discretion of extending the period of upto 30
days and that too, on grounds which are beyond the control of the party
filing the objections or if some other strong grounds can be made out to
seek the indulgence of the Court.
 The delay cannot be condoned for more than 30 days i.e., after the 3
months statutory period gets over.