Arbitration project

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Aayushi Doshi <doshiaayushi07@gmail.com> Tue, 19 Dec, 2023 at 10:42

To: Aayushi Doshi <doshiaayushi07@gmail.com>

Meaning
An arbitral/arbitration award is the award granted in the decision made by the arbitration tribunal in an
arbitration proceeding.
An arbitral award can be monetary or non-monetary. It can be monetary which is made for payment of a sum
of money from one party to the other and it can be non-monetary when no money needs to be paid but it
includes decisions like stopping a certain business practice or increasing unemployment perks and incentives.
There are two conditions provided in the Arbitration Act, 1996 for an award to be valid-

1. It must be certain, and

2. It must contain the decision.

The award must be written and signed by the arbitrator and it must contain the reasons for the passing of
such award in the particular case.
The arbitral award should clearly state the duties and liabilities imposed on the parties to the dispute and it
should not leave any aspect pending of the dispute for the future discussion.
It should be very much clear and final in the context of the issues and claims of the dispute concerned. In the
case of Union of India V. Punjab Communications, the amount which was payable by one party to the other was
not specified in the award and also the decision was unclear and incapable of being enforced. Therefore the
arbitral award was set aside.

Application for setting aside arbitral awards

To ascertain the proper conduct of the arbitration proceedings, the law allows certain remedies against an arbitral
award. An aggrieved party may resort to the law Court for setting aside the arbitral award on certain Grounds
mentioned under Arbitration and Conciliation Act, 1966.

Grounds
Section 34 of the Arbitration and Conciliation Act provides the provisions of certain specific grounds on the basis
of which an arbitral award rendered in India can be set aside. They are-

1. Incapacity of a party while making an application to enter the agreement.

2. Arbitration agreement not being valid under the law.
3. Parties were not given proper notice of the appointed Arbitrators or the Arbitral Tribunal.
4. Nature of dispute not capable of settlement by arbitration.
5. Composition of the arbitral award was not in accordance with the agreement of parties.
6. The Arbitral award is in the violation of the public policy of a state.
7. The Arbitral award deals with a dispute not falling within the terms of submissions to an arbitration.

(1). Incapacity of Parties

An application for setting aside an arbitral award can be passed if a party to the arbitration is incapable in taking
care of their interest and they are not represented by a person who can safeguard their rights. The award can be
set aside by the court if it finds that a party to a contract is a minor or of an unsound person who is not being
represented by a Guardian for protecting his interest. Section 9 of the Arbitration and Conciliation Act,1996
provides that the provision of appointment of a guardian for a minor of unsound mind for his/her matter’s arbitral
proceedings.

(2). The Invalidity of Arbitration Agreement under Laws

The validity of an arbitration agreement can be challenged in the same way on the same grounds on which the
validity of a contract is challenged. In cases where the agreement Clause is added in a contract by the parties to
it, the arbitration will be considered invalid if the contract is invalid.

(3). Notice not given to the parties of arbitration proceedings

As provided under section 34(2)(a)(iii), if the party to a dispute in arbitral proceedings was not given proper notice
regarding the appointment of an arbitrator or any other notice of arbitral proceedings, then this would be
considered as a ground for setting aside the arbitral award of such proceedings.

Section 23(1) of Arbitration and Conciliation Act,1966 provides that the arbitral Tribunal has to determine the time
within which the statement must be filed. This must be timely communicated to the parties by a proper notice
and section 24(2) provides that an advance notice shall be given to the parties regarding any hearing or meeting
of the Tribunal for any purpose of inspection of documents, goods or other property etc.

In Dulal podda V. Executive Engineer, Dona Canal Division, Court held that the appointment of an arbitrator at the
request of the appellant of the dispute without sending a notice to the respondent and an ex-parte decree given
by the arbitration Tribunal will be held illegal and liable for setting aside.

(4). An Award not falling within the terms of Submission to

Arbitration
The testimonials of a dispute in an agreement determines the limits of the authority and jurisdiction of an Arbitral
Tribunal. If the jurisdiction does not come within the ambit of the Tribunal, then the award to the extent to which it
is beyond the arbitrator’s jurisdictional powers would be considered as invalid and such award would be liable for
setting aside. An arbitrator cannot act in contradiction to the terms of the contract.

In Rajendra Krishan Kumar V. Union of India, a matter under a writ petition was referred for arbitration proceedings.
The writ petition contains no claim of compensation for damage to the perfectibility of the land because of the
opposition party releasing effluents and slurry on that other party’s land. The court held that the award of any
such compensation would be liable to set aside as it stands outside the scope of reference.

(5). Composition of Tribunal- Not in accordance with

Agreement
Section 34(2)(a)(v) lays out that an award can be discarded or challenged if the composition of the arbitral
tribunal was not in obedience with the agreement of the parties or if the procedure of conduct of proceedings
was not followed properly. If the arbitrator passes a decision of an award which is in deviation from the terms of
reference and the arbitration agreement, then this would lead to the award to be set aside and will amount to the
misconduct of the arbitrator.

In the case of State Trading Corporation V. Molasses Co. the Bengal Chamber of Commerce, the Arbitral Tribunal
did not allow a company who was a party to be represented by its law officer who was a full-time employee of the
company. Here, the court held that it was the misconduct of the arbitrator as well as the violation of arbitration
proceedings.

In the case of ONGC Ltd V. Saw Pipe Ltd., the Supreme Court held that the arbitral Tribunal, while exercising its
jurisdiction cannot act in breach of some provisions of substantive law or provisions of the Arbitration and
Conciliation Act, 1966.

(6). Disputes not arbitrable

The nature of the dispute should be capable of settlement by arbitration. Generally, all disputes which can be
decided by a Civil Court involving private rights can be referred to the arbitration. Therefore, matters of criminal
nature or matters of public rights cannot be decided by arbitration proceedings.

(7). Award against public policy

Section 34 provides that an application for setting aside an arbitral award can be made if such award is in
violation of the public policy of India. The concept of public policy implies matters which concerns public good
and Public Interest. The explanation of this section clarifies that such award which is obtained either by fraud or
by corruption would be considered against the public policy of India. Also, the award which is required by
suppressing the actual facts of the case either by misleading or tricking the arbitrator or by bribing the arbitrator
or by using force on the arbitrator etc. would be held liable for setting aside as in contrary to the public policy.

In the case of Venture Global Engineering V. Satyam Computer Services Ltd., the Court held that an arbitral award
could be set aside if it is conflicting with the fundamental policies of Indian laws or the justice, morality or interest
of India.

Limitation
Section 34(3) states regarding the limitation period for filing an application that an appeal to set aside an
arbitration order by an aggrieved party has to be strictly made within the period of 3 months from the date of
receipt of the same. The importance of this is set out by Section 36 which asserts that the award becomes
enforceable as soon as the limitation period under Section 34 expires. Under section 33, the Court may, however,
allow a delay of 30 days on request made by the aggrieved party if the court is satisfied on the evidence of the
sufficient cause. In Case of National Aluminum Co Ltd v. Presteel Fabrication (P) Ltd, proceedings were instituted
before the Supreme Court under the disbelief that it had jurisdiction in the matter of setting aside the arbitral
award passed by Arbitral Tribunal. Time consumed 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.

As in the Code of Civil Procedure, 1908, there is a general rule that an executing Court can execute the decree
if there is no stay by the appellate court. In the same way, in Arbitration Act, once an application of setting
aside the arbitral award is done under section 34, the executing Court has no power or authority to effectuate
the award until and unless the application gets dismissed/refused under section 34.

As per section 34, a party to the arbitration agreement has to make an application for setting aside the award. But
a legal representative in a case of any such party can also apply for it because he is a person claiming under that.
An award which is set aside no longer remains applicable by law. Setting aside means that it is rejected as
invalid. The parties get back to their former position in regard to their claims in the dispute and the matter
becomes open again for decision. The parties have the option after setting aside an order to either again go for
arbitration or to have the matter decided by the court of law.

Constitutional Validity of Sec 34

In the case of TPI Ltd. V. Union of India, in a writ petition, it was contended by the petitioner that an inherent right
to set aside an arbitral award on the grounds provided, should be present and in the absence of the same, section
34 should be considered as unconstitutional. Here, the court dismissed the writ petition by stating that the
arbitration is an alternate forum for the resolution of a dispute and it is on the wish of the parties to opt in on their
free will for their matters and if they agree to the decision of the arbitral tribunal by mutual agreement. There is no
compulsion by any statute forcing the parties to resort to the arbitration procedure.

Setting aside the foreign award

The Part 1 (Section 34) of the Indian Arbitration Act 1996 furnishes the grounds to challenge or set aside the
award to be applicable only to the awards within a state and not to the foreign awards. On 6th September 2012,
In Bharat Aluminium company V. Kaiser Aluminium Technical Service, the Supreme Court held that the Indian
Arbitration Act should be interpreted in a way to give effect to the objective or purpose of the Indian parliament
who drafted this legislation. Such findings of the Supreme Court are applicable only to the arbitration agreement
executed after 6 September 2012.

So part 1 of the Arbitration and Conciliation Act has no application to the arbitrations occurring in matters outside
India irrespective of the fact that whether parties chose to apply Indian Arbitration Act or not.

In Bhatia Int. V. Bulk Trading case, the Supreme Court held that even though there was no provision in Part 2 of the
act providing for the challenge to a foreign award, a petition to set aside the same would lie under section 34
(part 1) of the act which provides provisions of the domestic award will be applicable to the foreign awards. The
court held that the property in a dispute related to the shares in the Indian Company situated in India necessarily
needed Indian laws to be followed to execute the award. The Court stated that in such a situation the award must
be attested on the measurement of public policy of India and the Indian public policy cannot be affirmed through
the implementation of the award on any foreign strand/support.

Conclusion
India has a modern and efficient Arbitration Act. Section 34 and 37 provides for recourse against an arbitral
award which may be set aside by a court on certain specified grounds. All these Grounds are common to both
domestic as well as international arbitral awards. The ground of public policy should only be interpreted as far as
it aims towards broadening the public interest and not violating the basic notions of Indian laws. The judicial
intervention should also be minimal for success and further promotion of Arbitration in India.