SETTING ASIDE OF ARBITRAL AWARD

SEC 34 OF ARBITRATION & CONCILLATION ACT, 1996

INTRODUCTION

Since the Indian judiciary is renowned for being overworked with pending cases, ADR, or
Alternative Dispute Resolution methods, were implemented to resolve conflicts in a more
user-friendly, cost-effective, and speedy manner. ADR is merely a technique of requirement
that outlines the choice between going to arbitration OR using a recognised court of law.

In other words, ADR supplements the legal setup and does not supplant it. Means ADR
enhances rather than replaces the judicial system, it does not intend to take the role of a
recognised court of law.

There are various alternative dispute resolution procedures, including Lok Adalat,
Arbitration, Conciliation, negotiation, and Judicial Settlement. Arbitration stands out as the
most successful and efficient ADR procedure among them all. The arbitral award is a quasi-
judicial remedy with the same weight as a court's decree; it has fewer grounds for challenge
than the other ADR processes and is more legally binding.

The United Nations commission on international trade law (UNCITRAL), which adopted the
UNCITRAL MODEL Law on International Commercial Arbitration in 1985, is the main
source of inspiration for the 1996 Arbitration & Conciliation Act.

Minimal Judicial Intervention

In the ADR process of arbitration, a dispute is presented to an arbitral tribunal on the basis of
which an award is made that resolves the conflict between the parties and binds the parties to
the award. This act insists on least court intervention. The Act made sure to include clauses
that restrict judicial intervention in the dispute settlement process to accomplish two goals:
first, to give some relief for the already overworked courts, and second, to prevent arbitration
from becoming a time-consuming process.

Section 5 of the of the Arbitration and Conciliation Act,1996 provides for the extent of
judicial intervention which says that “notwithstanding anything contained in any other law
for the time being in force, in matters governed by this Part, no judicial authority shall
intervene except where so provided in this Part”.1

Supreme Court in the case of Bhaven Construction v. Executive Engineer Sardar Sarovar
Narmada Nigam Ltd. and Anr2 observed that the High Court's power of interference under
Articles 226 and 227 of the Constitution in relation to arbitration proceedings may be
exercised in 'exceptional rarity'. Commenting on the term 'exceptional rarity', the court
pointed out that such interference would be warranted only in cases wherein a party is left
remediless under the Act or clear bad faith is shown by one of the parties. The apex court
noted that the Arbitration Act was a 'a code in itself'. Commenting on this note, it said that it
was not merely perfunctory but had definite legal consequences, one of which was the non-
obstante clause contained in Section 5 of the Arbitration Act that has been provided to uphold
the intention of the legislature as provided in the Preamble to the Arbitration Act, that is to
adopt UNCITRAL Model Law and Rules and to reduce excessive judicial interference. As
observed by the court, the framework contained in the Arbitration Act clearly projected an
intention to address most of the issues within the ambit of the Act itself without leaving any
scope for extra statutory mechanism.

Sec 34 of The Arbitration and Conciliation act 1996

The grounds for challenging an arbitral award given 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 grounds given under sec 34 for setting aside an arbitral award by the court are:

1. Incapacity of the party- If any of the parties is a minor or a person of unsound mind,
the award made by the tribunal in regard of such party may be set aside by the court.

2. Arbitration agreement is not valid- If the Arbitration agreement under sec 7 of this act
to which the parties have subjected, is not valid under the law, the arbitral award may
be set aside by the court.

1
The ARBITRATION AND CONCILLATION ACT 1996, s 5.
2
Civil Appeal No. 14665 OF 2015, decided on January 6th, 2021.
 3. Other party was not notified- If the other party who have filed this application under
section 34, was not given proper notice of the appointment of an arbitrator or of the
arbitral proceeding or was otherwise unable to present his case, the court may set
aside the arbitral award.

4. Subject matter beyond the scope of arbitration- if the arbitral award deals with a
dispute which is not contemplated by or not falling within the terms of the submission
to arbitration, it may be set aside.

5. Composition of arbitral tribunal was not in accordance with the agreement- When the
composition of arbitral tribunal who has given the award was not in accordance with
the terms agreed by the parties.

Apart from these, the court may set aside the arbitral award on other grounds, such
as:-

1. Subject matter was of any other law/act- If the subject matter of the dispute was to
any other law or act for time being in force, the award made for that dispute may
be set aside,

2. Arbitral award does not adhere to the public policy of India- The act clarifies as to
what award can be said to be in conflict with the public policy of India: -

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

was in violation of sec 75 & sec 81; or

II. It is in contravention of fundamental policy of India; or

III. It is in conflict with the basic notion of morality or justice.

PUBLIC POLICY OF INDIA

Prior to 2015, courts were interpreting the term “Public policy” widely, paving the way to a
tendency to review an arbitral award or merits. This anomaly arose as the supreme court
accorded an expensive construction to the term “Public Policy” appearing in sec 34 of the
arbitration act in its decision in the case of ONGC V. Saw pipes3.

Paragraph 15 of the said judgement says “If the award is contrary to the substantive provision
of the law or the act or against the terms of the contract, it would be patently illegal which
could be interfered under section 34. However, such failure of procedure should be patent
affecting the rights of the parties.

In the case of A. Schroeder Music Publishing Co. Ltd v. Macaulay 4, it was established that
where a contract is vitiated as being contrary to public policy, the party adversely affected by
it can sue to have it declared void.

Conclusion

Due to the broad and liberal interpretation of 'public policy' attributed by the Hon'ble
Supreme Court to 'public policy,' ONGC V. Saw Pipes opened the door for the review of
arbitral awards on the merits of cases rather than technicalities, which was later rectified by
successive amendments to the Act of 1996 and ultimately preserved the objective sought by
it. This case teaches us from the history of arbitration law that the independence of alternative
dispute resolution mechanisms must be maintained to some extent, or else everything can go
wrong.

3
Appeal (civil) 7419 of 2001

4
1974 1 WLR 1308