SETTING ASIDE OF ARBITRAL AWARD UNDER SECTION

34 OF ARBITRATION AND CONCILIATION ACT 1996

SUBMITTED BY

PRAGYA KOMAL, ROLL NO-1349, 6th SEMESTER, B.A.LLB

SUBMITTED TO

Mr. HRISHILESH MANU, ASSISTANT PROFESSOR OF LAW

FINAL DRAFT SUBMITTED IN FULFILLMENT OF THE COURSE OF ADR FOR

THE COMPLETION OF THE B.A.LLB. (Hons) COURSE

APRIL, 2018

CHANAKYA NATIONAL LAW UNIVERSITY

NYAYA NAGAR, MITHAPUR PATNA-800001, BIHAR

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 TABLE OF CONTENTS

ACKNOWLEDGEMENT.........................................................................................................3

DECLARATION.......................................................................................................................4

CONCEPT..................................................................................................................................5

AIMS AND OBJECTIVE…………………………………………………………………......5

RESEARCH QUESTIONS……………………………………………………………………5

RESEARCH METHODOLOGY...............................................................................................6

SOURCES OF DATA:..............................................................................................................6

SURVEY OF DATA..................................................................................................................6

LIMITATIONS..........................................................................................................................6

CHAPTER 1: INTRODUCTION..............................................................................................7

CHAPTER 2: SALIENT FEATURES OF SECTION 34..........................................................9

CHAPTER 3: GROUNDS FOR SETTING ASIDE THE ARBITRATION AWARD...........12

CHAPTER 4: PUBLIC POLICY.............................................................................................16

CHAPTER 5: LIMITATION...................................................................................................20

CHAPTER 6: CASE ILLUSTRATIONS ...............................................................................22

CHAPTER 7: CONCLUSION……………………………………………………………….26

BIBLIOGRAPHY…………………………………………………………………………....27
.

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 ACKNOWLEDGEMENT

The researcher takes this opportunity to express her profound gratitude and deep regards to
her guide Mr. HRISHIKESH MANU for his exemplary guidance, monitoring and constant
encouragement throughout the course of this thesis. The blessing, help and guidance given by
him time to time shall carry the researcher a long way in the journey of life on which the
researcher is about to embark. Lastly, the researcher would like to thank almighty, her
parents, brother, sisters and friends for their constant encouragement without which this
assignment would not be possible.

THANK YOU,
PRAGYA KOMAL

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 DECLARATION

I hereby declare that the work reported in the B.A.LL. B (Hons.) Project Report entitled

“SETTING ASIDE OF ARBITRAL AWARD UNDER SEC 34 OF ARBITRATION

AND CONCILIATION ACT, 1996 submitted at Chanakya National Law University,

Patna is an authentic record of my work carried under the supervision of Mr.

HRISHIKESH MANU. I have not submitted this work elsewhere for any other degree or

diploma. I am fully responsible for the contents of our project report.

PRAGYA KOMAL

CHANAKYA NATIONAL LAW UNIVERSITY, PATNA

APRIL, 2018

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 CONCEPT
Arbitration is a process of dispute resolution between the parties through arbitral tribunal
appointed by parties to the dispute or by the Court at the request by a party. In other words, it
is an alternative to litigation as a method of dispute resolution. The Indian arbitration law is
based on the United Nations Commission on International Trade Law (UNCITRAL Model
Law). The law of arbitration is based on the principle of withdrawing the dispute from the
ordinary court and enabling the parties to substitute a domestic tribunal consisting persons of
their own choice called as arbitrators. The Parliament enacted the Arbitration and
Conciliation Act, 1996 which not only removed many serious defects of the earlier arbitration
law but also incorporated modern concepts of arbitration which are internationally accepted.
The arbitral award has been treated at par with the decree of the Court. The arbitral award is
enforceable in the same manner as a decree of a law court. There is no provision for appeal
against an arbitral award and it is final and binding between the parties. However, an
aggrieved party may take recourse to law court for setting aside the arbitration award on
certain grounds specified in Section 34 of the Arbitration and Conciliation Act, 1996.

AIMS AND OBJECTIVES

The researcher intended to find out the following:

i) To know the salient features of sec 34 of Arbitration and conciliation Act, 1996.
ii) To know the reasons behind setting aside the arbitral awards under sec 34.
iii) To know the time limitation in setting aside the arbitral awards.
iv) To know the procedure of setting aside the arbitral awards.

HYPOTHESIS: the researcher has presumed the following, the validity of which has been
tested in the course of research:

i) Where the parties have acted upon the arbitral award during the pendency of the
application challenging its validity, it would amount to estoppel against attacking the
award.
ii) No application for setting aside the award can be entertained by the court after the
expiry of three months.

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RESEARCH QUESTIONS:

The researcher had formulated the following research questions:

i) Whether the arbitral awards can be set aside under the Arbitration and Conciliation
Act, 1996?
ii) What are the salient features of sec 34 of Arbitration and Conciliation Act, 1996?
iii) What are the reasons behind setting aside the arbitral awards?
iv) What are the procedures related with the setting aside the arbitral awards?
v) What is the time limit in setting aside the arbitral awards?

Research Methodology
The researcher has used only doctrinal method of research.

Sources of Data:
Secondary Sources - Books, magazines, journals and websites.

Survey of data
Library of CNLU, Patna.

Limitations
The researchers lack monetary and other resources. The research will be confined to a time-
limit of three months. The research will be only doctrinal. For the doctrinal work the
researcher will be confined to library of CNLU and internet sources.

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CH-1: INTRODUCTION

Setting a dispute by referring it to a third person was well known in ancient and medieval
India. If any of the parties of the dispute was not satisfied with the decision, he can go on
appeal to the court of law and ultimately to the king itself. The modern law of arbitration
evolved in the form of regulations framed by the East India Company whereby the courts
were empowered to refer the suits to arbitration.

The first Indian Arbitration act of 1899 was based on the English Arbitration Act of 1889.
Then came the Indian arbitration act, 1940, and finally the Arbitration and conciliation Act,
1996 (the “act”) was enacted by Parliament based on the UNCITRAL model law on
International Commercial Arbitration 1985.

Prior to the enactment of 1996 act, section 30 of the Indian Arbitration Act, 1940, contained
rather broad grounds for setting aside an arbitral award. In contrast, Section 34(2) of the act
sought to restrict the grounds for challenging an award. Setting asides the procedures are
provided so as to act as a check on the powers of the arbitrators, to prevent them from going
beyond their scope of authority. However, there is another school of thought which advocates
that provisions for setting aside an arbitral awards should never be envisaged. The parties
should stick to their award and any mistake, however inflated it may be and an award
however unreasonable it may be, should be treated as same as final judgement. Court has no
jurisdiction to substitute its own valuation of conclusion on law/fact. It cannot sit in appeal
over the conclusion of the arbitrator and re-examine or reappraise evidence which had been
already considered by the arbitrator. To investigate the misconduct, court may see simply the
record before the arbitrator but not examine it. It is further stated by the proponents of this
school that arbitrators are judges of fact as well as law and has jurisdiction and authority to
decide wrong as well as right, and thus if they reach a decision fairly after hearing both sides,
their award cannot be attacked. However erroneous its decision may be, it cannot be
interfered with by any court.

But it may be noted that total absence of evidence or total failure to consider material
documents or admission of parties in arriving at a conclusions are good grounds for challenge
since these amount to judicial misconduct. Even though recourse to arbitration was made to
keep the dispute resolution system simple and less technical, arbitration was never meant to
be unresponsive to the canons of justice and fair play. Therefore if the arbitrator does not

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follow the principles of natural justice, the aggrieved party must be provided with recourse,
for justice should not only be done swiftly, but it must appear to have been done. The
argument on finality of final decree does not hold water. There are provisions in the Civil

Procedure Code for review and revision. Similarly, the notion that by providing for setting
aside procedures arbitration is subjugated by the adjudication is erroneous. Arbitration and
adjudication are nothing but various means of seeking justice. So if one method fails to
provide for justice then other means should be resorted to. Both should be seen as
contemplating each other rather than fighting for supremacy over each other.

So, whenever an arbitral award goes against one of the parties to the dispute, he seeks ways
of setting it aside. An award can be set aside only on the grounds mentioned in Section 34 of
the Act. The purpose of setting aside is to modify in some way the award in part or in wholly.
The provision of the act makes it abundantly clear that a challenge to the validity of the
award is inadmissible without an application. The court can act only on an application by a
party. It cannot act Suo motu even when the application by the party is time barred. All
objections to set aside arbitration awards or challenge arbitration agreements should be made
by the means of an application to the court.1

CH-2 SALIENT FEATURES OF SECTION 34

1
Dr PC Markanda, Naresh Markanda & Rajesh Markanda, LAW RELATING TO ARBITRATION AND
CONCILIATION 1008 (9th ed. 2016)

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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 subsection (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; or2

(b) the Court finds that—

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the
law for the time being in force, or

(ii) the arbitral award is in conflict with the public policy of India.

[Explanation 1—For the avoidance of any doubt, it is clarified that an award is in conflict
with the public policy of India, only if, —
2
http://icadr.nic.in/file.php?123?12:1461580854 retrieved on 14th April, 2018

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(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.]3

[(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 ground of an 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

(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.

[(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.
3
Ibid
4
Ibid

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(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.]5

Section 34 of the Arbitration and Conciliation Act, 1996, provides for the interference of the
Court/Judiciary in the Arbitral Process. It lays down the procedure for the application as well
as the grounds on which the arbitral award can be asked to be set aside. It also puts a
limitation on the applicant that such an application needs to be filed within three months from
the date of receipt of the arbitral award by that party. Alternatively if a request has been made
by the applicant under Section 33, then the limitation period is three months from the date on
which that request has been disposed of by the arbitral tribunal. The Courts have been granted
the power to accept an application filed within thirty days of extinguishing of the above
mentioned three months period if it deems the cause for delay to be so sufficient. The section
further goes on to state that if, on the receipt of such application for setting aside of arbitral
award, the Court deems it so appropriate, or it is requested by a party, it may adjourn the
proceedings for a period of time determined by it so as to give to the arbitral tribunal an
opportunity to resume the arbitral proceedings or to take such other action as in the opinion of
the arbitral tribunal shall be enough to eliminate the grounds argued for the setting aside of
the arbitral award.6

CH-3 GROUNDS FOR SETTING ASIDE THE ARBITRATION AWARD

5
Ibid
6
“ANALYSIS OF THE AMENDMENTS TO SECTION 34 OF THE ARBITRATION AND CONCILIATION
ACT, 1996”, retrieved from http://www.mcolegals.in/gp/Submission%203-GP.pdf on 12th April, 2018.

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Like other ways of dispute settlement, the process of arbitration, to work effectively needs the
support of the system of law. Earlier, the provisions on arbitration were laid down in three
different enactments, namely, The Arbitration Act, 1940, which dealt with the domestic
awards, The Arbitration (Protocol And Convention) Act, 1937 and The Foreign Awards
(Recognition and Enforcement) Act, 1961, which basically dealt with foreign awards.

The Arbitration Act, 1940 and also the Acts of 1937 and 1961 were then repealed by The
Arbitration and Conciliation Act, 1996. This modern law seeks to provide for an effective
mode of settlement of disputes between the parties, both for domestic and also for
international commercial arbitration. It is clear an evident that an arbitral award will be
binding on the parties. However, under section 34 read with section 37 of the Act it is
provided that an arbitral award can be appealed against on limited question of fact and law.
Section 34 lays down the grounds on which an award passed by the arbitral tribunal can be
set aside, and at the same time section 37 enumerates when an award can be appealed against.
These include capacity of a party, invalidity of arbitration agreement, violation of principles
of natural justice and the exceeding of terms of reference by arbitrator. The only residuary
ground on which the Court can go into the merits of the award is the public policy, which is
always subject to circumstances and interpretation.7

Under the repealed 1940 Act three remedies were available against an award- modification,
remission and setting aside. These remedies have been put under the 1996 Act into two
groups. To the extent to which the remedy was for rectification of errors, it has been handed
over to the parties and the Tribunal. The remedy for setting aside has been moulded with
returning back the award to the Tribunal for removal of defects.

Section 34 provides that an arbitral award may be set aside by a court on certain grounds
specified therein. These grounds are:

1. Incapacity of a party:

If a party to arbitration is not capable of looking after his own interests, and he is not
represented by a person who can protect his interests, the award will not be binding on him
and may be set aside on his application. 8 If a minor or a person of unsound mind is a party he

7
https://www.lawteacher.net/free-law-essays/commercial-law/setting-aside-an-arbitral-award-commercial-law-
essay.php#ftn17 retrieved on 14th April, 2018
8
AVTAR SINGH, LAW OF ARBITRATION &CONCILIATION 293 (10th ed.2013)

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must be properly represented by a proper guardian otherwise the award would be liable to be
set aside. Such a person is not capable of binding himself by a contract and therefore, an
award under a contract does not bind him. Section 9 of the 1996 Act enables him to apply to
the court for appointment of a guardian for a minor or a person of unsound mind for the
purpose of arbitral proceedings. The ground of incapacity would cease to be available when
the incompetent person is represented by a guardian.9

2. Arbitration agreement not being valid

The validity of an agreement can be challenged on any of the grounds on which the validity
of a contract may be challenged. In cases where the arbitration clause is contained in a
contract, the arbitration clause will be invalid if the contract is invalid. In State of U.P. v.
Allied Constructions10 the court held that the validity of an agreement has to be tested on the
basis of law to which the parties have subjected it. Where there is no such indication, the
validity would be examined according to the law which is in force.

3. Party not given proper notice of arbitral proceedings

Section 34(2)(a)(iii) permits challenge to an award if the party was not given proper notice of
the appointment of an arbitrator, or the party was not given proper notice of the arbitral
proceedings, or the party was for some reasons unable to present his case. Under Section
23(1) the Arbitral Tribunal has to determine the time within which the statements must be
filed. This determination must be communicated to the parties by a proper notice. Section
24(2) mandates that the parties shall be given sufficient advance notice of any hearing or
meeting of the Tribunal for the purpose of inspection of documents, goods or other property.
If for any good reason a party is prevented from appearing and presenting his case before the
Tribunal, the award will be liable to be set aside as the party will be deemed to have been
deprived of an opportunity of being heard the principle of natural justice. In Dulal Podda v.
Executive Engineer, Dona Canal Division11, the court held that appointment of an arbitrator
at the behest of the appellant without sending notice to the respondent, ex parte award given
by the arbitrator was illegal and liable to be set aside.

9
“Setting Aside Arbitral Award: Contemporary Scenario in India “ retrieved from
https://www.lawctopus.com/academike/arbitral-award-setting-aside/ on 15th April, 2018
10
(2003) 7 SCC 396
11
(2004) 1 SCC 73

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In Vijay Kumar v. Bathinda Central Co-operative Bank and ors 12 the court observed “it is a
typical case where the arbitrator misconduct the proceedings and also misconduct himself.
Arbitrator held the first and only hearing on May 17, 2010. No points for settlement or issues
were framed. The bank filed affidavits of four employees. Appellant was not given
opportunity to cross examine them. He was denied the opportunity to produce evidence. A
complete go bye was given to the provisions of law, procedure and rules of justice. It would
thus be seen that appellant was unable to present his case.

4. Nature of dispute not falling within the terms of submission to arbitration

The reference of a dispute under an agreement defines the limits of the authority and
jurisdiction of the arbitrator. If the arbitrator had assumed jurisdiction not possessed by him,
the award to the extent to which it is beyond the arbitrator’s jurisdiction would be invalid and
liable to be set aside. Section 34(2)(a)(iv) of the Act provides that an arbitral award is liable
to be set aside if it deals with a dispute not contemplated by the reference, or not falling
within the terms of the reference, or it contains a decision in matters beyond the reference.
In Gautam Construction & Fisherie Ltd v. National Bank for Agriculture and Rural
Development13, the Supreme Court modified the award to the extent that the rate of
construction meant for ground floor could not be applied to the construction of the basement
area.

In Rajinder Kishan Kumar v. Union of India14, a matter under a writ petition was referred to
arbitration. The writ petition contained no claim of compensation for damage to potentiality
of the land because of the opposing party discharging effluents and slurry on the land. The
award of such compensation was held to be outside the scope of reference hence liable to be
set aside. Section 16 of the Arbitration and Conciliation Act, 1996 provides that the initial
decision as to jurisdiction lies with the Tribunal. The party should immediately object as to
excess of jurisdiction. If the Tribunal rejects the objection, the aggrieved party may apply
under Section 34(2)(a)(iv) for setting aside on the ground of excess of jurisdiction. An
arbitrator cannot go contrary to the terms of the contract. Where the terms of the contract are
not clear or unambiguous, the arbitrator gets the power to interpret them. In State of

12
2014 (1) RAJ 579 (P&H)
13
AIR 2000 SC 3018
14
AIR 1999 SC 463

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Rajasthan v. Nav Bharat Construction Co.15, a majority of claims allowed were against the
terms of the contract.16

5. Arbitral procedure not being in accordance with the agreement

Section 34(2)(a)(v) provide that an award can be challenged if the composition of the

Tribunal was not in accordance with the agreement, or the procedure agreed to by the parties
was not followed in the conduct of proceedings, or in the absence of agreement as to
procedure, the procedure prescribed by the Act was not followed. Failure to follow the agreed
procedure or the procedure prescribed by the Act is a procedural misconduct. If the arbitral
tribunal takes the matter which is clearly beyond the scope of its authority, it would
tantamount to misconduct of arbitrator. An award in which the arbitrator has deliberately
deviated from the terms of reference and arbitration agreement will amount to misconduct of
the arbitrator. Section 12(3) (a) provides that an arbitrator may be challenged if their
justifiable doubt as to his independence or impartiality. Section 13 says that if the challenge is
not successful and the award is made, the party challenging the arbitrator may apply to the
court under Section 34 for setting aside the award.

Section 34(2) (b) mentions two more grounds which are left with the Court itself to decide
whether to set aside the arbitral award:

1. Dispute is not capable of settlement by arbitral process

2. The award is in conflict with the public policy of India

If the decision on matters submitted to arbitration can be separated from those not submitted;
only that part of the arbitral award which contains decisions on matters not submitted to
arbitration may be set aside.

CH-4 PUBLIC POLICY

15
AIR 2005 SC 4430
16
Supra Note 9

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The act provides that if the arbitral award is in conflict with the public policy of India it can
be set aside. The term ‘public policy’ has not been defined in the act. A simple attempt to
describe it is contained in the legal glossary of the Ministry of law, Justice and Company
Affairs, Government of India, namely that public policy is “a set of principles in accordance
with which community need to be regulated to achieve the good of the entire community or
public”. Clearly, the term public policy is a very opened, depending on some socio-cultural
notions prevailing in the society and impossible to straightjacket. 17 It is not possible to
classify the elementary inclusive and exclusive distinctiveness of public policy.

Section 34 lays down an exhaustive list of reasons, based on which an application can be
preferred to the court for challenging the award. It is derived from the Art 34 of the
UNCITRAL Model Law, 1985 and its width is much larger than the predecessors under the
1940 act. Section 34 (2)(a) mentions 5 sub provisions under which party has to furnish
concrete proof in support of its petition to the court to set aside the arbitral award. Sec 34 (2)
(b) which uses the expression ‘the court finds that’ laying grounds where the party is not
required by the law to prove the reasons for challenge the award. The sub clause refers to two
grounds of examining the arbitral award. Firstly, if the subject matter of dispute is not
capable of settlement and secondly if the award is in conflict with the ‘public policy of India.’
An explanation has been annexed next to it stating a brief outline for what is to be understood
with ‘public policy of India’ i.e. fraud, corruption and violation of Section 75 or section 81.
As the expression ‘public policy’ has not been supplied with a definitive meaning under the
1996 act or any other statute, over the years through judicial craftsmanship the width of the
expression gradually increased giving vast discretion to court to interpret it accordingly. 18
Lately, in International commercial arbitration and investment arbitration, this has caused a
lot of difficulties to the litigants as well as the courts whimsically rejected and accepted
claims on this ground.19

Section 23 of the Indian Contract act, 1872 states that a contract against public policy is void.
In Gherulal Parakh vs Mahadeo Das20, this was considered for the first time in the
Independent India and it was held that public policy was an ‘untrustworthy guide’. This view

17
http://manupatra.com/roundup/326/Articles/Arbitration.pdf retrieved on 15th April, 2018
18
AVTAR SINGH, LAW OF ARBITRATION &CONCILIATION 361 (10th ed.2013)
19
NAMIT SAXENA, “Public Policy’ under Indian Arbitration Law”, retrieved from
http://www.livelaw.in/public-policy-under-indian-arbitration-law/ on 15th April, 2018
20
AIR 1959 SC 781

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was confirmed in P.Rathinam vs Union Of India21 quoting it to be an ‘unruly horse’. In
Renusagar Power Co. Ltd vs General Electric Co 22 an issue under the 1940 act, an
interpretation to the expression was provided. It was held that enforcement of a foreign award
can be refused on the ground of contrary to public policy if such enforcement would be
contrary to (i) fundamental policy of Indian law, (ii) interest of India, (iii) justice or morality.
Theses three expressions were however kept open for judicial discretion and not define.

Subsequently in Oil & Natural Gas Corporation Ltd vs Saw Pipes Ltd 23 for the second time a
vast expansion in the scope of “public policy” took place when it was held that it includes
“patent illegality” apart from the three cases mentioned in the Renusagar. It was supplanted
that illegality must go to the root of the matter and if it is of trivial nature it cannot be held
against public policy. This judgment allowed the courts to go to the merits of the case.

For the first time, dissent sounded when in Glencore Grain Rotterdam B.V. vs Shivnath Rai
Harnarain (India)24 the Delhi High court relied on Renusagar limiting itself to the three
grounds only. The apex court in Phulchand Exports Ltd vs Ooo Patriot  25 held that “patent
illegality” under the term “public policy of India” needs to be considered even while
examining enforcement of foreign award u/s 48 (2)(b) of the 1996 Act. This judgment was
overruled in Shri Lal Mahal and the interpretation given by Renusagar was held to be correct
in respect of Sec 48 of the 1996 Act.

Last year in Western Geco26 the Supreme court restated the Saw Pipes approach to public
policy. It said that this includes “all such fundamental principles as providing a basis for
administration of justice and enforcement of law in this country.”

The law commission of India in its 246th Report had suggested amendments in a lot of
sections including section 34, the arbitration and conciliation (Amendment) ordinance, 2015
narrows down the scope for judicial intervention and clarifies that an award will be treated to
be in conflict with the public policy of India, only in certain circumstances. These
circumstances are- when the award is induced or affected by fraud or corruption or is in
contravention with the fundamental policy of Indian law or is in conflict with the most basic
21
1994 AIR 1844
22
1994 AIR 860,
23
(2003) 5 SCC 705
24
No. 01-15539.
25
(2011) 10 SCC 300
26
Oil & Natural Gas Corpn.Ltd vs Western Geco International Ltd Civil Appeal No. 3415 of 2007 

17 | P a g e
 notions of morality or justices. The ordinance also provides that a determination of whether
there is contravention with the fundamental policy of Indian law cannot entail a review of the
merits of the dispute. This amendment seeks to limit the re-appreciation of the merits of the
dispute at the stage of the challenge to the award before the court. The legislature has
therefore fundamentally reduced the scope of the inquiry by the judiciary into the question of
violation of ‘public policy’. The ordinance rules that an arbitral award can be set aside by
court if the award is vitiated by patent illegality appearing on the face of the award. However,
an award cannot be set aside merely on the ground of an erroneous application of law or by
re-appreciation of evidence.27

Parliament passed the Arbitration and Conciliation (Amendment) Act which came into force
on October 23 2015. The Amended Ordinance, 2015 has introduced significant changes to
the Act. The amendment seeks to:

 make arbitration in India a quicker and more streamlined process;

 reduce interference by the courts;
 make India a more attractive destination for foreign investors; and
 improve the ease of doing business in India

Section 34 has been amended to give a conclusive definition to the term “public policy” and
includes:

1. If the making of the award was affected by fraud or corruption.

2. If it is in contravention to basic notions of morality or justice.
3. If it is in conflict with the fundamental policy of India.

Explanation 1 to the term ‘public policy of India’ substituted in Section 34(2)(b): As per
the new amendment, an award passed in an international arbitration, can only be set aside on
the ground that it is against the public policy of India if, and only if, – (i) the award is vitiated
by fraud or corruption; (ii) it is in contravention with the fundamental policy of Indian law;
(iii) it is in conflict with basic notions of morality and justice.28

27
Supra Note 16
28
http://www.theindianlawyer.in/blog/2016/08/23/setting-aside-arbitral-award/ retrieved on 14th April, 2018

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Explanation 2 inserted in Section 34(2)(b): The test as to whether the award is in
contravention with the fundamental policy of Indian law shall not entail a review on the
merits of the dispute.

Insertion of new sub section (2A) in Section 34: The present amendment has clarified that
the additional ground of “patently illegality” to challenge an award can only be taken for
domestic arbitrations and not international arbitrations. Further, the amendment provides that
the domestic awards can be challenged on the ground of patent illegality on the face of the
award but the award shall not be set aside merely on the ground of an erroneous application
of law or by re-appreciation of evidence.

Insertion of new sub section (5) in Section 34: The new Act also provides that an
application for setting aside of an award can be filed only after issuing prior notice to the
other party. The party filing the application has to file an affidavit along with the application
endorsing compliance with the requirement of service of prior notice on the other party.

Insertion of new sub section (6) in Section 34: A period of one year has been prescribed for
disposal of an application for setting aside an arbitral award.29

CH-5 LIMITATION

Section 34(3) provides that an application for setting aside an arbitral award must be made
within 3 months of receiving the award or disposition of application by the arbitral tribunal.
29
“Highlights of Amendment to the Arbitration and Conciliation Act 1996 via Arbitration Ordinance 2015”,
retrieved from http://www.manupatrafast.in/NewsletterArchives/listing/ILU%20RSP/2015/Dec/Highlights
%20of%20Amendment%20to%20the%20Arbitration%20and%20Conciliation%20Act%201996%20via
%20Arbitration%20Ordinance%202015.pdf on 12th April, 2018

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The importance of this is emphasized by Section 36 which provides that the award becomes
enforceable as soon as the limitation period under Section 34 expires.

The proviso to Section 34(3) allows the party a further period of 30 days after the expiry of
three months if the court is satisfied that the party was prevented by a sufficient cause from
making the application. No application for setting aside the award can be entertained by the
court after the expiry of these additional thirty days.

In National Aluminum Co Ltd v. Presteel Fabrication (P) Ltd30, proceedings were instituted
before the Supreme Court under the wrong belief that it had jurisdiction in the matter of
setting aside. Time spent on a bona fide prosecution of an application in a wrong forum was
held by the Supreme Court to be a sufficient cause for condonation of delay.

In Union of India v. Shring Construction Co (P) Ltd 31, sometime was lost in challenging the
award in a writ court which was declared to be not maintainable because the petitioner had
his remedy under Section 34 by the proceeding before the District Judge. The District Judge
was then approached along with an application for condonation of delay. He rejected it as
time barred.  The Supreme Court held that the District Judge should have decided whether the
application was within time after excluding the period lost in a wrong court.

In Union of India v. Microwave Communication Ltd32 the Delhi High Court noted that, in
contradiction with Section 5, Section 4 “does not enlarge the period of limitation but it only
enables the party to file any suit, application, etc. on the reopening day of the Court if the
Court is closed on a day when limitation expires.” As there was no overlap of any sort
between Section 4 and Section 34(3) the Court held that Section 4 would apply in cases
where there was not any lack of due diligence on the part of the applicant. Interestingly, the
Court also held that S. 4 was applicable even to situations where the proviso to Section 34(3)
was attracted – i.e., the thirty-day condonation period.

A bare reading of Section 34(3) read with the proviso makes it abundantly clear that the
application for setting aside the award will have to be made within three months. The period
can further be extended, on sufficient cause being shown, by another period of thirty days but
not thereafter. Section 29 (2) of the Limitation Act, provides that when any special statute
prescribes certain period of limitation as well as provision for extension up to specified time
30
(2004) 1 SCC 540
31
(2006) 8 SCC 18
32
2012 (2) RAJ 687 (Del)

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limit, on sufficient cause being shown, then the period of limitation prescribed under the
special law shall prevail and to that extent the provisions of the Limitation Act shall stand
excluded. The provisions of Section 5 of the Limitation Act would not be applicable because
of the provisions of Section 29 (2) of the Limitation Act.33

Section 34(3) provides that an application for setting aside an award shall not be entertained
by the Court if it is made after three months have elapsed from the date on which the
applicant had received the arbitral award. The proviso to this Section further provides that if
the Court is satisfied that the applicant was prevented by sufficient cause from making the
application within the prescribed time; it may entertain the application within a further period
of 30 days but not thereafter. The importance of period fixed under Section 34 is highlighted
under the 1996 Act by Section 36 which stipulates that where the time for making an
application to set aside the arbitral award under Section 34 has expired, the award shall be
enforced under the Code of Civil Procedure, 1908 in the same manner as it was a decree of
the Court. In catena of cases, the Supreme Court has held that the period mentioned under
Section 34(3) cannot be extended. It is pertinent to note that Section 34(3) places emphasis on
the “receipt” of the award.34

CH-6 CASE ILLUSTRATIONS

In Sanshin Chemical Industry v. Oriental Carbons & chemical Ltd. 35, there arose a dispute
between the parties regarding the decision of the Joint Arbitration Committee relating to

33
https://www.lawctopus.com/academike/arbitral-award-setting-aside/ retrieved on 15th April, 2018
34
“Limitation Of Time Under Section 34 Of The Arbitration And Conciliation Act, 1996”, retrieved from
https://singhania.in/time-limitation-under-section-34/ on 12th April, 2018

35
AIR 2001 SC 1219

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venue of arbitration. The Apex Court held that a decision on the question of venue will not be
either an award or an interim award so as to be appealable under Section 34 of the act.

In Brijendra Nath v. Mayank36, the court held that where the parties have acted upon the
arbitral award during the pendency of the application challenging its validity, it would
amount to estoppel against attacking the award.

In ONGC Ltd v. Saw Pipe Ltd37, the Supreme Court had broadened the scope of the
definition of the Public policy of India. In fact, subsequent to this decision the incidence of
the setting aside of the awards had increased manifold in view of the broadened definition of
the words ‘Public Policy of India’. Similarly, the act has also sought to emphasis that other
than patent illegalities appearing on the face of the award, the court should not set aside the
award on the ground of erroneous application of law or re-appreciation of evidence.

Recently, the Supreme Court of India (“Supreme Court”) in Associate Builders v. Delhi

Development Authority38 has dealt with some of the key issues involving challenge of an
arbitral award in an arbitration seated in India. The Supreme Court discussed and clarified
some of the earlier rulings on the scope of ‘public policy’ in Section 34 of the Arbitration and
Conciliation Act, 1996 (“Act”), under several headings (viz. patent illegality, contrary to
justice, contrary to morality, interest of India and fundamental policy of Indian law). 39
FACTS: Associate Builder (“Appellant”) was awarded a construction contract for 168
middle income group houses and 56 lower income group houses in trilok puri in the trans-
yamuna area by the Delhi Development Authority (“DDA/Respondent”). The understanding
was that the contract will be completed in nine months for INR 87,66,678. However, the
work came to be completed only after 34 months. The Appellant alleged that the delay arose
at the instance of the Respondent and subsequently made fifteen claims and consequently,
Shri K.D. Bali was appointed as the sole arbitrator by the Delhi High Court to arbitrate the
dispute (“Ld Arbitrator”). Ld Arbitrator allowed four claims of the Appellant and further,
scaled down two claims on the reasoning that DDA was responsible for the delay in the
execution of the contract. Thereafter, DDA moved an application before the single judge of
the Delhi High Court under Section 34 of the Act to set aside the award, which was dismissed

36
AIR 1994 SC 2562
37
AIR 2003 SC 2629
38
2014 (4) ARBLR 307(SC)
39
http://www.nishithdesai.com/information/research-and-articles/nda-hotline/nda-hotline-single-
view/article/supreme-court-clarifies-the-narrow-scope-of-public-policy-for-challenge-of-indian-award.html?
no_cache=1&cHash=c2934ad845e18a28db84af76bf51c391 retrieved on 16th April, 2018

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 on April 3, 2006. Against this order, an appeal was filed under Section 37 of the Act before
the Division Bench of the Delhi High Court (“Division Bench”) and vide an order dated
February 8, 2012, the Division Bench found the arbitral award to be incorrect and rejected the
four claims and further scaled down Claims 12 and 13 (“Impugned Judgment”). Aggrieved
by the Impugned Judgment, the Appellant approach the Supreme Court by way of a Special
Leave Petition.40

ISSUES: The primary issue before the Supreme Court was to decide the correctness of the
Impugned Judgment. While deciding the same, the Supreme Court looked into the scope of
‘public policy’ as a ground for setting aside an award under Section 34(2)(b)(ii) of the Act.
Supreme Court also considered the extent to which a court can replace the Ld Arbitrator’s
conclusion with its own conclusion by way of judicial interference.

CONTENTIONS

Appellant’s submissions:

 The Division Bench has lost sight of the law laid down by the Supreme Court when it
comes to challenges made to arbitral awards under Section 34 of the Act.

 The Division Bench has acted as a court of first appeal and taken into consideration
facts which were neither pleaded nor proved before the Ld Arbitrator.41

 The Division Bench has wrongfully interfered with the award as no error of law arises
thereunder. Further, it has failed to appreciate the legal position that the arbitrator is the sole
judge of the quality and quantity of evidence to arrive at a finding.

Respondent’s Submissions:

 The Ld Arbitrator’s award was in ignorance of the contractual provisions and that
such an award amounts to a jurisdictional error by the Arbitrator and hence, the Division
Bench has rightfully interfered with the award.

40
Ibid
41
Ibid

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 JUDGMENT: The Supreme Court allowed the appeal and set aside the Impugned
Judgment. In effect, the Supreme Court refused to interfere with the arbitral award with the
following reasoning:

First, Supreme Court observed that the grounds for interfering with an arbitral award are
limited to those mentioned in Section 34 of the Act and held that merits of the award can be
looked into only under the broad head of ‘public policy’. The Supreme Court relied on the
landmark judgments like, Renusagar42, Saw Pipes43, McDermott International44, Western
Geco International Ltd45. and others, and laid down the heads under the ground of ‘public
policy’ as:
 “Fundamental Policy of Indian law” would include factors such as a) disregarding
orders of superior courts; b) judicial approach, which is an antithesis to an arbitrary approach;
c) principles of natural justice; d) decision of arbitrators cannot be perverse and irrational in
so far as no reasonable person would come to the same conclusion. Supreme Court held that
an arbitrator is the sole judge with respect to quality and quantity of facts and therefore an
award is not capable of being set aside solely on account of little evidence or if the quality of
evidence is of inferior quality. Supreme Court further held that when a court is applying the
“public policy” test to an arbitration award, it does not act as a court of appeal and
consequently “errors of fact” cannot be corrected unless the arbitrators approach is arbitrary
or capricious.

 Supreme Court described “Interest of India” as something which deals with India in
world community and its relations with foreign nations. Notably, the Supreme Court did not
illustrate this ground in detail as the same is a dynamic concept which needs to evolve on a
case by case basis.

 Supreme Court held that the term “award is against justice and morality” would
include the following: a) with regard to justice, the award should not be such that it shocks
the conscience of the court; b) with regard to morality, there can be no universal standard
however, Supreme Court observed that both the English and the Indian courts have restricted
the scope of morality to “sexual immorality” only; c) With respect to an arbitration, it would
be a valid ground when the contract is not illegal but against the mores of the day, however,
held that this would only apply when it shocks the conscience of the court.

42
1994 Supp (1) SCC 644
43
2003 (5) SCC 705
44
2006 (11) SCC 181
45
2014 (9) SCC 263

24 | P a g e
 Supreme Court further held that “Patent Illegality” would include: a) fraud or
corruption; b) contravention of substantive law, which goes to the root of the matter; c) error
of law by the arbitrator; d) contravention of the Act itself; e) where the arbitrator fails to
consider the terms of the contract and usages of the trade as required under Section 28(3) of
the Act; and f) if arbitrator does not give reasons for his decision.

Second, the Supreme Court held that the Division Bench has lost sight of the fact that it is not
a first appellate court and cannot interfere with errors of fact.

ANALYSIS: This ruling marks an important step in the line with the pro arbitration
decisions of the Supreme Court in the last couple of years. It is a welcome decision in so far
as ‘public policy’ had been clarified in order to provide guidance on the level of interference
sought to be made under Section 34 of the Act. This marks a rare occasion where Supreme
Court has discussed “morality” in a challenge under Section 34 of the Act. Further,
in Western Geco International Ltd46, Supreme Court elaborated the scope of “fundamental
policy of Indian law” for challenge of arbitral award, and consequently the legal community
was sceptical, as it was felt that this would open flood gates of challenge to arbitration
awards. Therefore, this judgment provides much needed assistance as it defines the narrow
boundaries of challenge under Section 34 of the Act.47

Supreme Court`s finding that an arbitral award cannot be set aside on the grounds of “error in
facts”, unless the arbitrators approach is arbitrary or capricious, is indeed praiseworthy as it
would narrow judicial intervention. Another aspect which needs some attention is that the
jurisprudence on ‘public policy’ laid down in this case would apply only to awards arising
out of arbitrations seated in India, as Section 34 of the Act would only be applicable in such a
situation.

46
2014 (9) SCC 263
47
Supra Note 39

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CH- 7 CONCLUSION

Arbitration is a process of dispute resolution between the parties through arbitral tribunal
appointed by parties to the dispute or by the Court at the request by a party. In other words, it
is an alternative to litigation as a method of dispute resolution. The Indian arbitration law is
based on the United Nations Commission on International Trade Law (UNCITRAL Model
Law). The law of arbitration is based on the principle of withdrawing the dispute from the
ordinary court and enabling the parties to substitute a domestic tribunal consisting persons of
their own choice called as arbitrators.

Arbitration is considered as an important form of an Alternate Dispute mechanism providing

an opportunity to the fast-growing population to resort to a process which would save time
and money. In the Recent times, arbitration has gained a lot of popularity and people are
following it as a trend.  People appoint arbitrators so that delay of justice is avoided and also
the dispute is resolved at the earliest which in turn does not slow the working of the society
and at the same time the economy. Section 34 provides that an arbitral award may be set
aside by a court on certain grounds specified therein.

The Scope of Section 34 of the Arbitration and Conciliation Act, 1996 is very extensive, it is
extremely wide in nature and also has a lot of interpretations attached to it.

The new act of Arbitration and Conciliation was made to provide a wider ambit and also to
make more opportunities available to the people.  Section 34 of the 1996 legislation gives
ample opportunity to the people to set aside the award passed by the arbitrator, the section
mentions five grounds under which an arbitration award be set aside, this is of utmost
importance so that no arbitrariness happens on part of the award passed by arbitrator and
people resorting to this mode of dispute resolution get the best of justice which they expect. if
the parties are incompetent to the agreement or if the proceedings are inconsistent with the
contract or agreement entered into then definitely it is liable to be set aside. The term public
policy has been subjected to various interpretations and its meaning has changed with time
and cases and also best possible meaning is accepted for the interest of the people. The basic
purpose of Section 34 is to give opportunity to the people who have opted for arbitration as a
method of dispute resolution to approach the court to set aside the award passed if the parties
fall within the ground mentioned, so basically it acts as a protective measure.

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BIBLIOGRAPHY

WEBSITES

 http://www.theindianlawyer.in/blog/2016/08/23/setting-aside-arbitral-award

 https://www.lawctopus.com/academike/arbitral-award-setting-aside

 https://singhania.in/time-limitation-under-section-34/

 https://www.lawteacher.net/free-law-essays/commercial-law/setting-aside-an-arbitral-
award-commercial-law-essay.php#ftn17

 http://icadr.nic.in/file.php?123?12:1461580854

BOOKS

 AVTAR SINGH, LAW OF ARBITRATION &CONCILIATION (10th ed.2013)

 Dr PC Markanda, Naresh Markanda & Rajesh Markanda, LAW RELATING TO

ARBITRATION AND CONCILIATION (9th ed. 2016)

 Hari Dev Kohli, ARBITRATION AND CONCILIATION ACT (New Delhi:

Universal Law Publishing Co. Pvt. Ltd, 2008)

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