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Analysis of Section 34 of the Arbitration and Conciliation Act: Setting Aside of Arbitral
Award and Court Intervention: A Case-by-Case Study

In order to understand the extent to which courts might intervene with the arbitration
process—something that must be avoided or the arbitration's independence would be lost
—this paper explores Section 34 of the Arbitration and Conciliation Act, 1996 in depth.
The study also examines whether arbitral rulings are final and under what circumstances
they may be revoked, such as in matters of public policy.

INTRODUCTION:

In both ancient and mediaeval India, it was standard procedure to resolve disputes by
referring them to a third party. If either party was unable to resolve the conflict amicably or
was dissatisfied with the resolution, he may then recourse to the court of law and finally to
the King.

The first Indian Arbitration Act of 1899 was based on the English Arbitration Act of 1899,
then came the Indian Arbitration Act 1940 and then finally the arbitration and Conciliation
act 1996(the Act) was enacted by the parliament based on the UNCTRAL Model Law on
International Commercial Arbritration,19851.

Indian arbitration law underwent substantial revisions in the 1990s, including the 12-month
deadline for arbitration proceedings' conclusion and the exclusion of foreign arbitrators. The
main justification was that, previous to arbitration, legislation was thought to be extremely
complicated, leading to needless expense and delay. The Arbitration and Conciliation Act of
1996 was passed as a consequence of the need for new and effective dispute resolution laws.

Before the 1996 Act was passed, section 30 of the 1940 Indian Arbitration Act offered very
open-ended reasons for annulling an arbitral judgement. In contrast, the Act's section 34(2)
aimed to limit the grounds for contesting an award. Setting aside proceedings are offered as a
check on the arbitrators' power, preventing them from acting outside the bounds of their
jurisdiction. Another school of thought, however, contends that no provision for setting aside
an arbitral award should ever be considered; instead, the parties should adhere to their
decision, and any error, however exaggerated, and any award, however irrational, should be
1
K.D. Kerameus, “Waiver of setting aside procedures in International Arbitration” 41(1) the American Journal

of Comparative law 1993, http://links.jstor.org/sici

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treated as a final judgement; the court cannot re-evaluate the evidence, even if the arbitrator,
committed a fault. It is also claimed that arbitrators are judges of fact and law who have the
power and jurisdiction to rule both right and wrong. As a result, if they make a fair
conclusion after hearing all parties, their award cannot be challenged.

SECTION 34 OF THE ARBITRATION AND CONCILIATION ACT:

Section 34 of the 1996 Act makes reference to both Article 34 of the UNCITRAL (United
Nations Commission on International Trade Law) Model Law and Section 30 of the
Arbitration Act 1940, which both deal with annulling an arbitral ruling. The grounds for
contesting an arbitral ruling issued under Section 31 are outlined in Section 34 of the
Arbitration and Conciliation Act of 1996. But there are restrictions for challenging an award
under Section 34, such as the fact that it can only be done within three months of receiving
the award, which can be extended for an additional 30 days.

The court determined in Municipal Corp. of Greater Mumbai v. Prestress Products (India) 2
(2003) that the new Act (1996) was passed with the explicit parliamentary goal of limiting
judicial participation and that Section 34's restriction on the potential scope of a challenge to
an award was a key component of this legislation.

WHAT IS ARBITRAL AWARD?

An arbitration tribunal's decision in an arbitration action is known as an arbitral

award, and it is thought to have the same legal standing as a court's ruling in some
cases. The award may grant the parties a range of relief, including monetary
compensation, consent, injunctions, and other types of relief. The kind of the award—
whether interim, partial, or final—depends on the issue.

Additionally, unless the parties have agreed that no justification should be provided or
the judgement is an arbitral award on predetermined terms under Section 30 of the
Arbitration and Conciliation Act of 1996, the arbitral award must provide the reasons
behind its conclusion3.

2
2003 (2) ARBLR 624 Bom, 2003 (3) BomCR 117

3
A. Redfemm & M. Hunter, Law & Practice of International Commercial Arbitration (London: Sweet &

Maxwell,2004) at 404.
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CONDITIONS IN WHICH THE ARBITRAL AWARD CAN BE SET

ASIDE:

The Arbitration and Conciliation Act of 1996 provides many grounds under Sections 34(2)(a)
and (b) for the Court to set aside an arbitral ruling, including the following:

1. THE PARTY'S INCAPACITY

Any party who is a minor or under the age of majority is not required to abide by any
agreements made. The agreement is therefore null and unlawful, and any award
rendered in such a circumstance may be vacated by the court. For instance, a lady
who has schizophrenia, a mental disease, may request that an award be withheld via
the help of her agent.

However, the party who is incompetent may ask the court to appoint a guardian for
arbitral proceedings pursuant to Section 9 of the arbitration statute, which will remove
the party's basis for incompetence.

2. THE AGREEMENT IS INVALID

A contract must satisfy each of its key requirements in order to be enforceable. The
arbitration agreement will be deemed invalid if the contract is unenforceable, and the
arbitral ruling may be set aside as a result. In the 2007 case of Adarsh Kumar Khera
v. Kewal Kishan Khera4, the arbitral decision was thrown out since it was formed
without the parties' consent, it was considered invalid, and both sides demanded its
reversal.

3. THE OTHER PARTY WASN'T INFORMED

If the party making the application did not get prior notice of the arbitrator's
appointment or the arbitral processes or was otherwise unable to present his case, the
arbitral award will be annulled. The arbitrator refused to arbitrate on the merits of the
applicant's counter case in AKM Enterprises Pvt. Ltd. v. Ahluwalia Contract (India)
Ltd. (2016)5 on the grounds that no notification had been given prior to the subject

4
CRL.M.As. 13622/2015, 2073/2017

5
O.M.P. (COMM) 2/2016 & IA 310/2016
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assertion and therefore the council had no right to engage in something very similar,
which is contrary to the established place of regulation that the purpose of the counter
case is to limit the variety of parties, even without prior notice, the court would have
the authority to arbitrate about them.

4. TOPICS NOT COVERED BY THE ARBITRATION

AGREEMENT

If the arbitral award addresses a matter that is not covered by the arbitration
agreement or contains rulings on topics that are not covered by the arbitration
agreement, the arbitral award will be called into question. Additionally, only that
portion of the arbitral award, including decisions on subjects not submitted to
arbitration, may be set aside if judgements on items submitted to arbitration can be
distinguished from those not so submitted.

In the 2019 case of India Yamaha Motor Pvt. Ltd. v. Divya Ashish Jamwal 6, the
arbitral decision was overturned because it was given against the letter and spirit of
the contract, without consideration of pertinent information on file, and on the basis of
assumptions. In addition, it was determined in Rulia Mal Amarchand v. Hindustan
Petroleum Corporation Ltd. 20197 that the arbitrator should have restricted his work
to the issues and settlement that had been submitted for arbitration.

5. COMPOSITION OF ARBITRAL TRIBUNAL NOT AS PER

CONTRACT

The aggrieved party may seek to have the award annulled in court if the arbitrator is
not chosen in accordance with the terms of the agreement or by the parties, or if any
other administrative requirement of the agreement that was decided earlier by the
parties has not been completely executed.

In the case of Bharat Sanchar Nigam Ltd. v. Maharashtra Knowledge Corporation

Ltd.8(2019), the award was partially overturned because the arbitrator violated the

6
2019 SCC OnLine Del 6912
7
2019 SCC OnLine Del 11636
8
2019 SCC OnLine Del 11438
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terms of the contract by failing to consider material facts before reaching his
conclusion.

In addition to the reasons listed above, the court may further do one of the
following things to invalidate an arbitral award as specified in Section 34(2)
(b) of the Arbitration and Conciliation Act, 1996:

 Subject matter is of any other act/law – If the subject matter is related to

some other law and not Arbitration Act, an arbitral award can be
challenged.
 Not adhered to Public Policy of India – If the arbitral award is in conflict
with the Public Policy of India, then the court can set it aside.

The award in Steel Authority of India Ltd. v. Primetals Technologies (2020) 9 was partially
overturned as being against public policy since a 14 percent annual interest rate was granted
without any explanation in contrast to existing interest rates. In addition, considering the
situation, the high interest rate appeared to be punitive in nature. The interest rate was thus
decreased to 10% annually.

CONDITIONS IN WHICH THE ARBITRAL AWARD CANNOT BE SET

ASIDE

Section 34 (3) of the Arbitration and Conciliation Act, 1996 talks about limitations in which
an arbitral award cannot be set aside, which are as follows:

APPLICATION FILED AFTER THREE MONTHS OF WHEN THE AWARD

WAS RECEIVED

According to Section 34, if an application to set aside an award is submitted more

than three months after the applicant received the arbitral award, the Court will not
take the application into consideration (3). The proviso to this provision also provides
that the Court may hear the application for an extra 30 days, but not longer, if the
Court is persuaded that the applicant was prohibited from filing the application within
the required timeframe for appropriate reasons.

9
2020 SCC OnLine Del 6793
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ERRONEOUS APPLICATION OF LAW OR MISAPPRECIATION OF

EVIDENCE

In Haryana Urban Development Authority v. M/S Mehta Construction Company

(2022)10, the supreme court held while quashing aside the judgment of Punjab and
Haryana High Court that an arbitral award cannot be set aside simply because of
erroneous application of law or misappreciation of evidence.

RATIONALE BEHIND THE AWARD

The award must be supported by reasons, according to Section 31(3) of the

Arbitration Act, unless the parties explicitly indicated otherwise in their agreement or
if the decision was rendered subject to predetermined circumstances as described in
Section 30 of the Act.

PUBLIC POLICY IN INDIA

In Oil & Natural Gas Corporation Ltd. v. SAW Pipes Ltd., 2003 11, the Supreme Court came
to the conclusion that, in the case of a Section 34 motion to set aside an award, the Court's
position was viewed as that of an appellate/revision court, giving it extensive authority. It was
also said that "public policy" refers to matters pertaining to the welfare and interests of the
general population. The reward, however, cannot be justified as being in the public interest
because it blatantly violates legal restrictions. Such an award or judgement is likely to be
detrimental to the administration of justice.

In Mohan Steels Ltd. v. Steel Authority of India (SAIL), (2017)12 the court set aside the
arbitral award because the Arbitrator construed the contract based on circumstances unrelated
to contract terms by relying on Regulator’s notifications, which were first brought on record
after the parties’ closing arguments. Even while it was clearly denied in its statement of
claims, this was done without giving the petitioner a chance to refute its application to the
case.

10
CIVIL APPEAL NO. 2693 OF 2022
11
Appeal (civil) 7419 2001 of 518

12
CM APPL. 13246/2021, CM APPL. 13247/2021
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LIMITATION OF TIME UNDER SECTION 34 OF THE ARBITRATION

AND CONCILIATION ACT

According to Section 34(3) of the Arbitral Act, the aggrieved party shall submit a request to
vacate the arbitration award within three months of the date of the award. The three-month
deadline could be extended by another 30 days if the applicant can convince the court that
there was a good reason he wasn't able to file the application. The time restriction under
Section 34(3) expires after "three months." It is best practise to design this time as a calendar
month rather than a 90-day period. Thus, the period would conclude on the day that
corresponds to the start date in the third month.

In the 2005 case Union of India v. Tecco Trichy Engineers & Contractors 13, the Supreme
Court ruled that the statute of limitations for submitting an application under Section 34
would not start until the decision had been delivered in accordance with Section 31(5) of the
Arbitration Act.

The Supreme Court ruled that Section 31(1) obliged arbitral tribunal members to make their
awards in writing and sign them in the case of State of Maharashtra v. M/S. Ark Builders
Pvt. Ltd. (2011)14. It was decided that a copy of the award that had been signed by the
arbitrator's members, and not just any copy, was what was needed by Section 31's sub-section
(5) to be transmitted. The Court said that if Sections 31(5) and 34(3) were read together, the
deadline for submitting objections would not start until the signed copy of the award had
been given to the party initiating the application to set aside the decision.

In addition, the Arbitration Act's Section 34(6) establishes a one-year deadline for handling
the application from the notification period. Given the numerous instances that come up in
commercial arbitration, the goal of implementing this article is to encourage the prompt
resolution of disputes. However, based on a number of prior decisions, the Supreme Court
determined in The State of Bihar & Ors. v. Bihar Rajya Bhumi Vikas Bank Samiti 15, (2018)
that the altered parts are advisory rather than required. By examining these samples, it was
possible to discern the nature of the changed clauses.
13
Appeal (civil) 1784 of 2005

14
CIVIL APPEAL NO. 2152 OF 2011

15
CIVIL APPEAL NO. 7314 of 2018
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CAN COURTS MODIFY OR ALTER ARBITRAL AWARDS

The findings in the arbitral decision cannot be altered or modified, and Section 34 is the only
provision that can annul the arbitral award. A division bench of the Supreme Court of India
ruled in favour of minimal judicial intervention in the case of Project Director, National
Highway Authority of India v. M. Hakeem & Anr., (2021), holding that courts cannot amend,
revise, or alter an arbitral judgement under Section 34 of the Arbitration Act. However, under
Article 142 of the Indian Constitution, the Court has permitted modifications to awards in the
interest of full justice, which expressly declares that the court hasn't backtracked on the
modification of the judgement but is instead honouring Section 34 by offering minimum
judicial involvement.

RELIABILITY OF ARBITRAL AWARD AND JUDICIAL

INTERVENTION

An arbitration award is analogous to a court decision in that it is legally binding on the parties
and is important in that it helps the parties resolve their disagreement. Whether or not the
arbitration decision is binding is the most crucial consideration when considering whether or
not to appeal a verdict. Any party or parties may challenge the judgement without a good
reason if the arbitration is ineffective and non-binding. To challenge the decision in court, as
they would in a jury trial, the party or parties must, however, have a strong reason to do so if
the arbitration is binding.

According to a number of cases, measures for overturning an arbitral judgement should never
be considered. No one should be permitted to question the arbitrators' capacity to resolve a
dispute. The parties shall abide by the arbitrator's award, whether it is in their best interests or
not. According to the ruling in Eastern and North East Frontier Railway Cooperative Bank
16
Ltd. v. B. Guha and Co. (1986), the court cannot re-examine the evidence even if the
arbitrator committed a mistake.

As long as the arbitrator follows the correct procedures, parties to an arbitration agreement
agree to accept the arbitrator's decision even if it is erroneous. As a result, as determined in
Rajasthan State Mines and Minerals Ltd. v. Eastern Engineering Enterprise 17, courts

16
AIR 1986 Cal 146, 89 CWN 804
17
1992 (2) WLC 19, 1991 WLN UC 402
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cannot impede the implementation of an award based on a legal or factual error (1999). The
problem of the load of cases on courts, for which the arbitration tribunal was first founded
and as a key goal, would resurface if the courts are granted the authority to review based on a
legal or factual error. However, if the court is convinced that the applicant party does not
have a copy of the arbitration agreement and will not be able to obtain one during the normal
course of the arbitration procedure, the Arbitration Act permits the court to hear any such
applications for intervention in arbitration cases.

JUDICIAL INFERENCE

MMTC LTD. V. M/S VEDANTA LTD. (CIVIL APPEAL NO. 1862/2014)

M/s Vedanta Ltd. invoked the arbitration clause in the entered into with MMTC Ltd. claiming
payments for goods sold by the Respondent to one Hindustan Transmission Products Ltd.
through the Appellant. By its majority the three-member Arbitral Tribunal, inter alia, allowed
the claims of the Respondent and directed the Appellant to pay the same along with interest.
The Appellant challenged this Award u/s 34 of the Act before the Learned Single Judge of
the Bombay High Court, inter alia, on the ground that the disputes before the Arbitral
Tribunal were not arbitral in as much as the same were not covered by the arbitration clause
contained in the Agreement. The Learned Single Judge after considering the entire evidence
and material on record dismissed the challenge. The said order passed by the Learned Single
Judge was challenged by the Appellant before the Division Bench of the Bombay High Court
only on one ground namely that the disputes before the Arbitral Tribunal were not arbitral.
The Division Bench refused to interfere with the order passed by the Learned Single Judge
and dismissed the appeal filed by the Appellant. The Appellant accordingly preferred a Civil
Appeal against the said order passed by the Division Bench of the Bombay High Court before
the Supreme Court of India as far as section 34 of the Arbitration Act, 1996 is concerned, the
position is that Court does not sit in appeal over the arbitral award and may interfere on
merits on the limited grounds provided under Section 34(2) (b) (ii) i.e. if award is against
public policy of India. Further, an arbitral award may not be interfered if the view taken by
the arbitrator is a possible view based on facts. However, position changed after 2015
Amendment whereby Explanation 1 was inserted to Section 34(2) and the scope of
contravention of public policy was modified to the extent that it now means fraud or
corruption in the making of the award etc. Additionally, in domestic arbitrations, violation of
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Indian Public Policy also includes patent illegality appearing on the face of the award.
[Section 34 (2A)] Interference under Section 37 cannot travel beyond the restrictions laid
down under Section 34. While interpreting the terms of a contract, conduct of parties and
correspondences exchanged would also be relevant factors and it is within the Arbitrator’s
jurisdiction to consider the same.

M/S CINEVISTAAS LTD. V. M/S PRASAR BHARTI OMP (COMM.) 31/2017

A petition under section 34 of the Arbitration Act, 1996 was filed challenging the Order
passed by the Arbitrator whereby the prayer for amendment of Statement of Claim filed by
the Petitioner was rejected. The issue before the court was whether these amendments were
inadvertent errors which were left out in the Statement of Claims or they were additional
claims. Relying on Indian Farmers Fertilizer Co-operative Ltd. vs Bhadra Products 2018 (1)
Arb LR 271 (SC) the court held that if an issue is conclusively determined prior to the final
award, the same constitutes an ‘interim award’. The court observed that the order is not to be
construed as a mere procedural order or an order rejecting a technical amendment but in fact
a rejection of substantive claims. Lastly, it was held that additional claims were not time-
barred as they were raised in the first place in the notice invoking arbitration.

RADHA CHEMICALS V. UNION OF INDIA CIVIL APPEAL NO. 10386 OF 2018

The Supreme Court reaffirmed its stand taken in Kinnari Mullick and Another vs.
Ghanshyam Das Damani, (2018) 11 SCC 328, and held that the court while deciding a
Section 34 petition has no jurisdiction to remand the matter to the Arbitrator for a fresh
decision. Further, it was held that the discretion of the Court under Section 34(4) to defer the
proceedings for specified purpose is limited and can be invoked only upon request by the
party prior to setting aside of the Award.

M/S EMKAY GLOBAL FINANCIAL SERVICES LTD. V. GIRDHAR SONDHI CIVIL

APPEAL NO. 8367 OF 2018

The court held that an application for setting aside an arbitral award will not ordinarily
require anything beyond the record that was before the Arbitrator. However, if there are
matters not contained in such record, and are relevant to the determination of issues arising
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under Section 34(2)(a), they may be brought to the notice of the Court by way of affidavits
filed by both parties. Cross examination of persons swearing to the affidavits should not be
allowed unless absolutely necessary, as the truth will emerge on a reading of the affidavits
filed by both the parties.

NHAI vs M HAKEEM CIVIL APPEAL NO. 13020 OF 2021

The Supreme Court was faced with an issue that juxtaposes the Arbitration Act and the
National Highways Act, 1996 (NHA). The facts in the batch of these matters relate to: (a)
certain notifications issued under the provisions of the NHA; and (b) awards passed
thereunder by the competent authority under the NHA for acquisition of land for the purposes
of construction of a highway, including compensation for certain trees and crops. The awards
in some of the instances were extremely low and were therefore modified by the District and
Sessions Judge in a challenge under Section 34 of the Arbitration Act, and later affirmed by
the Madras High Court.Under the NHA, if the amount determined by the competent authority
is not acceptable to the National Highways Authority of India (NHAI) or a landowner, the
amount of compensation is to be determined by an ‘arbitrator’ who is appointed by the
Central government. It was observed, “Thus there can be no doubt that given the law laid
down this Court, Section 34 of the Arbitration Act, 1996 cannot be held to include within it a
power to modify an award.” The Supreme Court referred to a series of judgments to affirm
the view that an award can only be ‘set aside’ on limited grounds as specified in Section 34
and it is not an appellate provision. An application under Section 34 for setting aside an
award does not entail any challenge on merits to an award. The Arbitration Act is modelled
on the UNCITRAL Model Law on International Commercial Arbitration 1985, under which
no power to modify an award is given to a court hearing a challenge to an award. The
Arbitration Act was enacted in 1996 to bring the arbitration regime in India at par with the
Model Law. While Section 15 of the Arbitration Act, 1940 provided specifically for
modification of an award, the Arbitration Act, 1996 does not, as it is in alignment with the
Model Law. In jurisdictions like England, the United States, Canada, Australia and
Singapore, there are express provisions that permit the varying of an award. However, in the
case of Section 34 of the Arbitration Act, Parliament very clearly intended that no power of
modification of an award exists. The Supreme Court held that the judgments relied on by the
Single Judge were under Article 142 of the Constitution of India and for a limited purpose.
The observations in McDermott bound the Single Judge and any decision to the contrary,
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much less the interpretation that Section 34 carried a power to modify, would be incorrect.
The Supreme Court has put a quietus to the conundrum of modifying arbitral awards, stating
in unequivocal terms that a challenge to an arbitral award can result only in: (a) setting aside
of an award on the limited grounds provided in Section 34 and as a necessary corollary,
relegating the award back to the arbitrator/arbitral tribunal for deciding afresh; or (b)
upholding an award by a court hearing a Section 34 challenge. Two observations of the
Supreme Court are important, i.e., Section 34 as it stands today is based on the Model Law
that does not permit a challenge on ‘merits’ to an arbitral award, and that Parliament could
consider amending Section 34 to bring it at par with jurisdictions that permit challenge to an
arbitral award on merits or modifying an award.

NATIONAL HIGHWAYS AUTHORITY OF INDIA V SRI P NAGARAJU & ANR CIVIL

APPEAL NO. 4671 OF 2022

Section 34 of the Arbitration and Conciliation Act of 1996 permits the limited setting aside of
an arbitration result, while Section 37 permits a further appeal. According to a recent ruling
by the Supreme Court, if such challenges are successful, the Court cannot change the decision
but must instead set it aside and send the case back to the Tribunal. A Special Land
Acquisition Officer was appointed to decide the compensation for land acquired after
notifications were made under the National Highways Act of 1956 (NH Act) for land
acquisition. The Respondents and the Appellant got into arguments over the amount of the
compensation that was due. An arbitrator was selected to decide on compensation in
accordance with section 3G(7) of the NH Act. The amount of compensation to be given to the
appellant was enhanced by the arbitrator. The award was sustained on appeal by the District
and Sessions Courts as well as the Karnataka High Court. Then the Appellant went to the
Supreme Court. The Supreme Court allowed the appeal and relied on National Highway
Authority of India v M Hakeem & Anr. The Supreme Court held that since the scope of
interference by a court is limited, it would not be open to the court to modify an award and
alter the compensation payable. The appropriate course to be adopted in such event is to set
aside the award and remit the matter back to the Tribunal in terms of section34(4) of the Act.
A court may only set aside an arbitral verdict and send the case back to the Tribunal in the
event that the award is contested.
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Conclusion

One should understand that the primary reason for the parties to select arbitration over
litigation is to resolve their disputes and obligations quickly through an arbitral. However,
most arbitral rules only specify that the award is binding on the parties. The current
arbitration rules and regulations represent a suggestion rather than a clear and full legal
framework addressing the conclusive effect of an arbitral award.

Arbitration as an institution is still developing, and it has not yet reached the point where it
can successfully meet the demands of economic expansion. To effectively execute and
achieve the act’s goal, India has to make several revisions to the rules governing the setting
aside of arbitral awards, ambiguity in public policy, time limits, and more. However, the
intervention of the Judiciary in arbitral awards needs to be reduced to provide the importance
and reliance to Arbitration proceedings.