Setting Aside an Arbitral Award

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. [1]

The Arbitration Act, 1940 and also the Acts of 1937 and 1961 were then repealed by The Arbitration and Conciliation Act, 1996.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. [2]

During the course of this paper, the researcher intends to delve into the provisions of the Arbitration and Conciliation Act, 1996 so as to discover the grounds for setting aside and appeal against an arbitral award and whether it is sufficient to provide recourse to the aggrieved party.

Award Amount

An award, according to The Arbitration Act, 1996 will be considered valid if it satisfies two conditions, which are:

it must be certain, and

it must contain the decision.

The award should not leave any matters to be discussed subsequently and it should clearly mention and define the duties and liabilities imposed on the parties. It must be clear and unambiguous and final in relation to the issues and claims with which it deals. [3]

In Union of India Vs Punjab Communications Ltd, [4] the amount which was payable by the objector to the respondent was not specified in the award and the claim for the amount which has been denied by it was incomplete, ambiguous and incapable of being implemented or enforced, therefore the award was liable to be set aside.

Interference of the Court

The grounds for objecting an award under section34 and section 37 are now made common to purely domestic awards as well as international arbitration awards. The principle of least court interference seems fine when it is applied to international arbitration awards. The same, though, cannot be said with respect to domestic awards as many a times the awards passed in India are passed by lay men who are not very well acquainted with law. Thus, unlike with international awards, interference with awards given in domestic matter should not be restricted. [5]

“Amongst states which have a developed arbitration law, it is generally recognized that more freedom may be allowed in an international arbitration than is commonly allowed in a domestic arbitration. The reason is evident. Domestic arbitration usually takes place between the citizens or residents of the same state, as an alternative to proceedings before the courts of law of that state…it is natural that a State should wish (and even need) to exercise firmer control over such arbitrations, involving its own residents or citizens than it would wish (or need) to exercise in relation to international arbitrations which may only take place within the state’s territory because of geographical convenience.” [6]

The above passage supports the view that in the matter of purely domestic arbitrations between Indian nationals, the State can desire that its courts should have greater or firmer control on the arbitrations. [7]

Setting aside an arbitral award

In every arbitral proceeding, an arbitrator has to be appointed who finally makes an award which is called the arbitral award. The contents of the award have to be written and signed by the arbitrator and the reasons for the award have to be stated unless stated otherwise.

As mentioned above, section 34 provides for provision on the basis of which an arbitral award can be set aside, and if an award is declared to be void then the whole purpose and object of the act gets nullified. Thus, the arbitrator has to take extra care while making an award, but how much care should be taken is the question without the answer.

An appeal to set aside an award has to be strictly made by the aggrieved party within 3 months from the date the award was received by it. A request can also be made under section 33, provided that the court is satisfied that there was a sufficient cause for the delay, thereby allowing the appeal to set aside an award to be made within 30 days after the 3 month period. Hence the award should be chal­lenged timely as per the provision of section 34(3) of the Act. [8]

According to section 34(2), an award maybe set aside on the application of an aggrieved party. Under certain circumstances, the court can set aside the award made by the arbitral tribunal even without an application made by the party.

The grounds, mentioned in section 34(2) under which a party can make an application to the court to set aside an award are as follows:

When the party making the application was incapacitated to enter the agreement.

The arbitration agreement, to which the parties are subjected, is not valid under the law.

A proper notice of appointment of arbitrators, or of the arbitral tribunal was not given to the party making the application.

Arbitral award deals with a dispute not contemplated by the parties or beyond the term of submission.

Composition of the Arbitral Award was not in accordance with the agreement of the parties.

Subject-matter of dispute is not capable of settlement by arbitration under the law for the time being in force.

The arbitral award is in conflict with the public policy of the country.

Once an application of setting aside the arbitral award is preferred under section 34, the executing court has no jurisdiction to enforce the award, until and unless the application under section 34 is dismissed or refused. This is a marked departure from even the normal rule under the Code of Civil Procedure, 1908 where an executing court can execute the decree if there exists no stay by the appellate court. In the opinion of the author, this ought not to have been the position under the new Act. Enforcement of the award should be permitted unless there is a stay by the court hearing an application under section 34. [9]

Constitutional Validity of Section 34

In TPI Ltd Vs Union of India [10] , in a writ petition, it was contended by the petitioner that a right to challenge an arbitral award on merits should be present, and in the absence of the same, section 34 would be unconstitutional. The court dismissed the write petition and stated that the matter in question was not related to judicial review of a tribunal decision created under any statute or any administrative action. The arbitration is an alternate forum for redressal of disputes, and is selected by the parties of their own free will and they agree to the arbitrator’s decision by means of a mutual agreement or contract, which gives a go by to the normal judicial forum otherwise available to the parties. There is no compulsion or imposition by any statute compelling the parties to resort to arbitration if a dispute arises.

When the parties have chosen the forum of arbitration and the arbitrator of their choice, it is not necessary to make a provision for appeal against the award rendered by the arbitrator. The legislature has the power to specify the grounds on which an award can be challenged and it would be permissible for the party to challenge the award only on those grounds. If it were permissible for the court to re-examine the correctness of the award, the entire proceedings would amount to a futile exercise. [11]

Interpretation of the term ‘public policy’

It is not possible to precisely define “Public Policy’. Keeping that in mind, the term “Public Policy” has been interpreted quite liberally by the Indian Courts. Whatever tends to injustice of operation, restraint of liberty, commerce, natural or legal rights, whatever tends to the obstruction of justice or to the violation of a statute and whatever is against good moral when made the object of contract is against ‘public policy’, and, therefore, void and not susceptible to enforcement. [12]

The researcher would like to further elaborate the same point with the help of a few Indian cases where the courts have had an opportunity to interpret public policy. In Renusagar Power Co. v. General Electric Co. the hon’ble Supreme Court held that “the expression ‘public policy’ refers to the public policy India and the recognition and enforcement of the award of the arbitral tribunal in India cannot be questioned on the ground that it is contrary to the public policy of any other country”. [13]

It has been held in various cases that it is against public policy if the arbitrator is partial or biased towards a party. Thus the arbitrator is bound:

by the contract between the parties and decide the case in the light of the contractual provision, and to give proper opportunity to the parties;

to pass the award in accordance with the law so as not to be guilty of misconduct and

to apply mind to crucial questions as non-application amounts to legal misconduct. [14]

The judgment given by the Supreme Court in Oil and Natural Gas Corpn. Ltd. V. Saw Pipes ltd, [15] further interprets public policy. The court stated that if any award given by the arbitral tribunal violates any provision of The Arbitration Act, 1996 or is “patently illegal”, then in that case the award could be set aside under section 34 of the said Act. Thus the court has expressly stated that “an award which is, on the face of it, patently in violation of any statutory provisions cannot be said to be in public interest”. [16]

Conclusion

Presently, section 34 and 37 provide for recourse against an arbitral award which may be set aside by a court on certain specified grounds. The grounds mentioned in section 34(2)(a) entitles the court to set aside an award only if the parties seeking such relief furnishes proof as regards the existence of the grounds mentioned therein. These grounds include incapacity of a party, validity of arbitration agreement, the party making the application not being given proper notice of appointment of arbitrator or of the proceedings or otherwise unable to present his case, subject matter not falling within the terms of submission to arbitration. Section 34(2)(b) mentions two grounds which are, however, left to be found out by the court itself. The grounds are:

the subject matter of the dispute not capable of settlement by arbitration that is to say, the disputes are not arbitral; and

that the award is in conflict with the public policy of India.

While on the other hand, s.34 contains the provision where an appeal may lie against an arbitral award.

All these grounds are common to both domestic as well as international arbitral awards. However, in so far as the ground regarding the award being in conflict with the public policy of India is concerned, that ambit thereof is quite distinct and different and depends upon the nature of the award i.e., domestic or international. The Supreme Court in Renu Sagar case has clarified that enforcement of foreign award being governed by the principles of private international law, the doctrine of public policy, as applied in the field of international law alone would be attracted. The court further clarified that a mere infraction of a domestic law per se would not amount to a conflict with the public policy of India.

Furthermore, the verdict given in Oil and Natural Gas Corpn. Ltd. V. Saw Pipes ltd can be misinterpreted by the courts in their own rights and gives them an opportunity to interfere in almost every arbitral award which is brought to its notice. [17]

The researcher submits that the term ‘public policy’ should be used in its narrow sense. It should be used in such a way that the threshold for the court to consider setting aside or allowing an appeal against an arbitral award is more than just a mere violation of the law in India. Thus ‘public policy’ should be only so interpreted as far as it aims to broaden the public interest of honesty and fair-dealing, of not violating a basic notion of Indian law. [18]