Background to the legislation

A good system of law to help the working of the arbitration process is needed so that it can
work properly. The three acts mentioned above which dealt with law on arbitration earlier are
The Arbitration Act 1940 for domestic awards, The Arbitration (Protocol and Convention)
Act 1937, The Foreign Awards (Recognition and Enforcement) Act 1961 for foreign awards.

Judicial intervention used to and still does causes lot of delay in proceedings of the tribunal
and hence, it affects the working and purpose of arbitration. Reasons for delay are many.
Judicial courts are not effective enough to dispose off the cases pertaining to commercial
matters specifically due to the excess burden which courts already have and the speed that is
required to dispose such cases. Despite the presence of section 5 in the act, the bar created to
the intervention of judicial courts are not sufficient and strict and there is a lot of scope for
the courts to entertain arbitration cases.

Meaning of public policy is restricted to few phrases through some judgements of court:

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

If it is in contravention to basic notions of morality or justice.

If it is in conflict with the fundamental policy of India.

All these meanings are contained in 1st and 2nd explanation to section 34 (2) (b). Subsection
2A of Section 34 mentions an additional ground of patent illegality which is also covered in
the meaning of public policy as per some judgements of court. However, this ground is used
to challenge only domestic arbitral award and not international arbitral awards. Also, using
parent illegality as a ground is not open to challenge due to mere erroneous application of law
or re appreciation of evidence, but this ground can be used only when such illegality appears
on the face of the award.

Besides interpreting the meaning of public policy to restrict the challenge to award, internal
safeguards within section 34 are also given. Issuance of notice prior to filing for such
challenge of award under section 34 is mandatory in order to ensure that natural justice
principles are complied with and other party also gets a chance to get heard effectively. An
affidavit is hence required to be endorsed along with an application evidencing that the
requirement of prior notice has been complied with. Time limit to dispose off the application
under this section is also necessary so that the purpose of speedy disposal contained in the
arbitration act is not frustrated. Furthermore, filing of application under section 34 is not
sufficient to stop the enforcement of an award. An application has to be made separately by
the parties for the stay of such award from operation.