S.34 Indian Act, 1996S.34 Indian Act, 1996

SETTING ASIDE OF THE AWARD

S.34(1)S.34(1) Application for setting Application for setting aside arbitral award. –aside arbitral award. –

Recourse to a court against an Recourse to a court against an arbitral award may be made only by arbitral award may be made only by an application for setting aside such an application for setting aside such award in accordance with sub-section award in accordance with sub-section (2) and subsection (3).(2) and subsection (3).

S.34 (2) (a)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;

(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;

(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; or

S.34 (2) (b)An arbitral award may be set aside by the court only if-

(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. -Without prejudice to the generality of sub-clause (ii), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81

S.34(3)S.34(3)

(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.

S.34(4)S.34(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.

Article 34 UNCITRAL Article 34 UNCITRAL ((2) An arbitral award may be set aside by the court specified in article

6 only if:(a) the party making the application furnishes proof that:

(i) a party to the arbitration agreement referred to in article 7 was under some incapacity; or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of this State; or

(ii) 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

(iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or 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 award which contains decisions on matters not submitted to arbitration may be set aside; or

(iv) 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 Law from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Law; or

Article 34 UNCITRALArticle 34 UNCITRAL

(b) (b) the court finds that:the court finds that: (i) the subject-matter of the (i) the subject-matter of the

dispute is not capable of dispute is not capable of settlement by arbitration under settlement by arbitration under the law of this State; orthe law of this State; or

(ii) the award is in conflict with (ii) the award is in conflict with the public policy of this State.the public policy of this State.

Two categories of the Two categories of the groundsgrounds Grounds which are to be proven by one party are as

follows: lack of capacity of the parties to conclude an arbitration

agreement; lack of a valid arbitration agreement; lack of notice of appointment of an arbitrator or of the

arbitral proceedings or inability of a party to present its case;

the award deals with matters not covered by the submission to arbitration;

the composition of the arbitral tribunal or the conduct of arbitral proceedings are contrary to the effective agreement of the parties or, failing such agreement, to the Model Law.

The Grounds that a court may consider of its own initiative are : non-arbitrability of the subject-matter of the dispute violation of public policy (which is to be understood as

serious departures from fundamental notions of procedural justice).

S.34: Recourse against the S.34: Recourse against the award.award.

Section 34 of the Arbitration and Conciliation Act 1996 specifies the grounds on which an award can be challenged and uses the word “only” before enumerating the grounds of challenge.

The Awards made by arbitral tribunal cannot be challenged on ‘merits’ and the conclusions of arbitral tribunal on facts as well as law are final and no appeal or petition to set aside an award lies merely on this count.

The underlying object of such an approach is to provide finality and encourage resolution of disputes by arbitral tribunal having consensual jurisdiction. If the award can be liberally challenged before the Court and the fresh round of litigation is permitted with a liberal approach, the very object of arbitral process as a speedy process of adjudication would be defeated.

Recourse against the award.Recourse against the award.

An award being a decision of an arbitrator is ordinarily not liable to be challenged on the ground that it is erroneous. In order to make arbitration effective and the awards enforceable, machinery is devised for lending the assistance of the ordinary Courts.

The Court is also entrusted with power to modify or correct the award on the ground of imperfect form or clerical errors, or decision on questions not referred, which are severable from those referred.

The Court has also power to remit the award when it has left some matters, referred undetermined, or when the award is indefinite, or where the objection to the legality of the award is apparent on the face of the award.

Recourse against the Recourse against the award.award. The Court may also set aside an

award on the ground of corruption or misconduct of the arbitrator, or that a party has been guilty of fraudulent concealment or willful deception.

Wrong or right the decision is binding if it be reached fairly after giving adequate opportunity to the parties to place their grievance in the manner provided by the arbitration agreement.

Recourse against the award.Recourse against the award. An award of an arbitrator may be set aside for

error of law appearing on the face of it, though that jurisdiction is not lightly to be exercised.

If a specific question of law is submitted to the arbitrator for his decision and he decides it, the fact that the decision is erroneous does not make the award bad on its face so as to permit it being set aside; and where the question referred for arbitration is a question of construction, which is, generally speaking, a question of law, the arbitrator's decision cannot be set aside only because the court would itself have come to a different conclusion; but if it appears on the face of the award that the arbitrator has proceeded illegally, as, for instance, by deciding on evidence which was not admissible, or on principles of construction which the law does not countenance, there is error in law which may be ground for setting aside the award.

Recourse against the award.Recourse against the award. If an Arbitrator has acted arbitrarily, irrationally,

capriciously or beyond the terms of the agreement, an award passed by him can be set aside. In such cases, the Arbitrator can be said to have acted beyond the jurisdiction conferred on him.

Where the Arbitrator had applied his mind to the pleadings, considered the evidence adduced before him and passed an award, the court could not interfere by reappraising the matter as if it were an appeal.

Arbitrator is a Judge appointed by the parties and as such the award passed by him is not to be lightly interfered with.

There is distinction between error within jurisdiction and error in excess of jurisdiction.

The role of the Arbitrator is to arbitrate within the terms of the contract and if he acts in accordance with the terms of the agreement, his decision cannot be set aside. It is only when he travels beyond the contract that he acts in excess of jurisdiction in which case, the award passed by him becomes vulnerable and can be questioned in an appropriate court.

Assigning ReasonsAssigning Reasons

An award passed under the (old) Act was not liable to be set aside or remitted only on the ground that no reasons had been recorded in support of such award.

Hand Book of Arbitration Practice by Ronald Bernstein :

"The absence of reasons does not invalidate an award. In many arbitrations the parties want a speedy decision from a tribunal whose standing and integrity they respect, and they are content to have an answer Yes or No; or a figure of X. Such an award is wholly effective; indeed, in that it cannot be appealed as being wrong in law it may be said to be more effective than a reasoned award."

Assigning ReasonsAssigning Reasons It is now well settled that an award can neither be

remitted nor set aside merely on the ground that it does not contain reasons in support of the conclusion or decisions reached in it except where the arbitration agreement or the deed of submission requires him to give reasons. The arbitrator or umpire is under no obligation to give reasons in support of the decision reached by him unless under the arbitration agreement or in the deed of submission he is required to give such reasons and if the Arbitrator or Umpire chooses to give reasons in support of his decision it is open to the court to set aside the award if it finds that an error of law has been committed by the Arbitrator or Umpire on the face of the record on going through such reasons. The Arbitrator or Umpire shall have to give reasons also where the court has directed in any order such as the one made under Section 20 or Section 21 or Section 34 of the Act that reasons should be given or where the statute which governs an arbitration requires him to do so.

Public PolicyPublic Policy The phrase 'public policy of India' used in S. 34

in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest has varied from time to time.

However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/decision is likely to adversely affect the administration of justice.

Public PolicyPublic Policy Award could be set aside if it is contrary to :-

(a) fundamental policy of Indian law; or (b) the interest of India; or (c) justice or morality; or (d) in addition, if it is patently illegal.

{Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is against the public policy.)

Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the Court. Such award is opposed to public policy and is required to be adjudged void.

Public Policy in IndiaPublic Policy in India In a case where the validity of award is

challenged there is no necessity of giving a narrower meaning to the term 'public policy of India.'

On the contrary, wider meaning is required to be given so that the 'patently illegal award' passed by the Arbitral Tribunal could be set aside. If narrow meaning is given, some of the provisions of the Arbitration Act would become nugatory.

PUBLIC POLICY IN INDIA PUBLIC POLICY IN INDIA Oil and Natural Gas Corporation Oil and Natural Gas Corporation

vs. Saw Pipes Limitedvs. Saw Pipes Limited The Hon’ble Supreme Court of India for the

first time recognized that an award shown to be suffering from ‘patent error of law’ (which need not necessarily be error apparent on face of the award) could be challenged under the head “Award being in conflict with public policy of India”.

The expression “public policy of India” used in Section 34 (2)(b) (ii) was used a much wider sense.

Public PolicyPublic Policy

The standard of public policy varies between countries because it is interpreted by the legislature and judiciary of each country. This doctrine has found its way in two major areas of law. It is directly applicable in the field of contracts and is indirectly applicable in the choice of law rules. When parties make contractual agreements violating state laws they are not enforced because it is against that states public policy.

Rights and duties based on illegal contracts such as a gambling contract is a good example. Its applicability is more complex when parties choose foreign law as the choice of law under their contract. The question then is whether applying the foreign law will violate the basic judicial principles of the enforcing state.

Public PolicyPublic Policy

Public policy is divided Public policy is divided into two major types:into two major types:

1.1. DOMESTIC DOMESTIC PUBLIC POLICYPUBLIC POLICY

2.2. INTERNATIONAL INTERNATIONAL PUBLIC POLICYPUBLIC POLICY

Domestic public policy:Domestic public policy:

When arbitration is associated to a particular country, only that country’s domestic policy will be considered by the enforcing court.

The court analyzes whether enforcement would violate the local norms and the well established principles of that country’s justice and morality. Domestic public policy is expressed by the laws of that state and its judicial practices.

Thus if the court or the parties involved can raise a strong case that enforcement would violate the domestic public policy, fraud in the agreement or due process violations for instance, then enforcement will be denied.

International public International public policy:policy:

When arbitration has an international character and different countries are involved, the enforcing court should not only consider its own public policy but also that of interested nations and the needs of international commerce.

There is a kind of balancing of interest and depending on the case at hand and the interests of the involved states a determination is made as to which country’s policy will prevail.

International public policy is generally construed more liberally than that of its domestic counterpart.

JurisdictionJurisdiction The award made by an Arbitrator can be set

aside if the Arbitrator acts beyond jurisdiction, and, to find out whether the Arbitrator has travelled beyond jurisdiction, it would be necessary to consider the agreement between the parties containing the arbitration clause and if the Arbitrator acts beyond the arbitration clause then it would be deemed that he has acted beyond jurisdiction.

In order to determine whether the arbitrator has acted in excess of his jurisdiction what has to be seen is whether claimant can raise a particular claim before the arbitrator. If there is a specific term in the contract or the law which does not permit to the parties to raise a point before the arbitrator and if there is a specific bar in the contract to the raising of the point then the award passed by the arbitrator in respect thereof would be in excess of his jurisdiction.

S.35 & S.36 Indian Act S.35 & S.36 Indian Act

CHAPTER VIIICHAPTER VIII

FINALITY AND FINALITY AND ENFORCEMENT OF ENFORCEMENT OF ARBITRAL AWARDSARBITRAL AWARDS

S. 35. Finality of arbitral awards. -S. 35. Finality of arbitral awards. -Subject to this Part an arbitral award Subject to this Part an arbitral award shall be final and binding on the parties shall be final and binding on the parties and persons, claiming under them and persons, claiming under them respectively.respectively.

S. 36. Enforcement. - Where the time S. 36. Enforcement. - Where the time for making a application to set aside for making a application to set aside the arbitral award under section 34 has the arbitral award under section 34 has expired, or such application having expired, or such application having been made, it has been refused, the been made, it has been refused, the award shall be enforced under the Code award shall be enforced under the Code of Civil Procedure, 1908 (5 of 1908) in of Civil Procedure, 1908 (5 of 1908) in the same manner as if it were a decree the same manner as if it were a decree of the court.of the court.