JAMIA MILLIA ISLAMIA

SETTING ASIDE OF
ARBITRAL AWARD

Submitted by,

Jijo Raj P
B.A LL.B (IV year)
Section: B
Roll No: 17

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 TABLE OF CONTENTS
Seriel No Title Page No

1. Abstract. 3.

2. Introduction. 4.

3. Alternate Dispute Redressal. 5.

4. Arbitration. 6.

5. Recourse to a Court. 7-8.

6. Grounds for Setting Aside an Arbitral Award. 8-15.

7. Time Limit for Filing Application. 15-17.

8. Remission by Tribunal. 17.

9. Prior Notice. 18.

10. Disposition of an Application. 18.

11. Conclusion. 21.

12. Reference. 22.

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 ABSTRACT
Alternate Dispute Redressal includes dispute resolution processes and techniques
that act as a means for disagreeing parties to come to an agreement short of
litigation. It is a collective term for the ways that parties can settle disputes, with
the help of a third party. Arbitration is a process of dispute resolution between the
parties through arbitral tribunal appointed by parties to the dispute or by the Court
at the request by a party.

The Arbitration and Conciliation Act, 1996 does not provide any provision for
appeal against an arbitral award and it is final and binding between the parties.
However, an aggrieved party may take recourse to law court for setting aside the
arbitration award on certain grounds specified in Section 34 of the Arbitration and
Conciliation Act, 1996.

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 INTRODUCTION
Alternate Dispute Redressal includes dispute resolution processes and techniques
that act as a means for disagreeing parties to come to an agreement short of
litigation. It is a collective term for the ways that parties can settle disputes, with
the help of a third party. It includes mediation, conciliation, arbitration, Lok Adalat
etc. as a viable alternative to the conventional court litigation.

Arbitration is a process of dispute resolution between the parties through arbitral

tribunal appointed by parties to the dispute or by the Court at the request by a
party. In other words, it is an alternative to litigation as a method of dispute
resolution. In India, the Law on arbitration was drafted in the year 1940 in the form
of Arbitration Act, 1940 and remained in force until it was replaced by the new
Arbitration and Conciliation Act, 1996.

The Arbitration and Conciliation Act, 1996 does not provide any provision for
appeal against an arbitral award and it is final and binding between the parties.
However, an aggrieved party may take recourse to law court for setting aside the
arbitration award on certain grounds specified in Section 34 of the Arbitration and
Conciliation Act, 1996.

In this Report, I am dealing with section 34 of the Arbitration and Conciliation Act
1996 which talks about setting aside of arbitral award and the grounds on which a
award can be set aside.

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 ALTERNATE DISPUTE REDRESSAL
Alternate Dispute Redressal includes dispute resolution processes and techniques
that act as a means for disagreeing parties to come to an agreement which is short
of litigation. It is a collective term used for the ways in which parties can settle
disputes, with the help of a third party.

Normally in case of any disputes or infringement of Rights, people approach the

court and as a result of which the Indian Judiciary is burdened with work, and to
add to the trouble is the rapidly growing population of the country, due to which
pendency of cases are increasing day by day in the Indian courts and there happens
a delay in administering justice. Hence, the alternative dispute resolution became
an important part of India’s Legal system.

 As the word suggest, Alternative dispute Resolution is the alternative to

Litigation. The Malimath Committee (1989-1990) undertook a comprehensive
review of the working of the court system, particularly all aspects of arrears and
Law’s delay and made various useful recommendations for reducing litigation and
making justice readily accessible to the people at the minimum cost, time and
money. It underlined the need for alternative dispute resolution mechanism such as
mediation, conciliation, arbitration, Lok Adalat etc. as a viable alternative to the
conventional court litigation.

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 ARBITRATION

Arbitration is a process of dispute resolution between the parties through arbitral

tribunal appointed by parties to the dispute or by the Court at the request by a
party. In other words, it is an alternative to litigation as a method of dispute
resolution. In India, the Law on arbitration was drafted in the year 1940 in the form
of Arbitration Act, 1940 and remained in force until it was replaced by the new
Arbitration and Conciliation Act, 1996.

The Indian arbitration law is based on the United Nations Commission on

International Trade Law (UNCITRAL). The law of arbitration is based on the
principle of withdrawing the dispute from the ordinary court and enabling the
parties to substitute a domestic tribunal consisting persons of their own choice
called as arbitrators. The Parliament enacted the Arbitration and Conciliation Act,
1996 which not only removed many serious defects of the earlier arbitration law
but also incorporated modern concepts of arbitration which are internationally
accepted. The arbitral award has been treated at par with the decree of the Court.
The arbitral award is enforceable in the same manner as a decree of a law court.

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 RECOURSE TO A COURT

The Arbitration and Conciliation Act, 1996 does not provide any provision for
appeal against an arbitral award and it is final and binding between the parties.
However, an aggrieved party may take recourse to law court for setting aside the
arbitration award on certain grounds specified in Section 34 of the Arbitration and
Conciliation Act, 1996.

Section 34 of the Act is based on Article 34 of the UNCITRAL Model Law and the
scope of the provisions for setting aside the award is far less than it was under the
Sections 30 or 33 of the 1940 Act.

In Municipal Corp. of Greater Mumbai v. Prestress Products (India) 1, the court

held that the new Act was brought into being with the express Parliamentary
objective of curtailing judicial intervention. Section 34 significantly reduces the
extent of possible challenge to an award.

It is necessary for the aggrieved party to make an application under Section 34

stating the grounds of challenge. An application for setting aside the award has to
be made by a party to the arbitration agreement. But a legal representative can
apply for it because he is a person claiming under them. There is no special form
prescribed for making an application under Section 34 of the act except it has to be
a written statement filed within the period of limitation.

In Sanshin Chemical Industry v. Oriental Carbons & chemical Ltd.2, there arose a
dispute between the parties regarding the decision of the Joint Arbitration
Committee relating to venue of arbitration. The Apex Court held that a decision on
the question of venue will not be either an award or an interim award so as to be
appealable under Section 34 of the act.
1
(2003) 4 RAJ 363 (Bom)
2
AIR 2001 SC 1219.

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In Brijendra Nath v. Mayank3, the court held that where the parties have acted
upon the arbitral award during the pendency of the application challenging its
validity, it would amount to estoppel against attacking the award.

An award which is set aside is no longer remains enforceable by law. The parties
are restored to their former position as to their claims in the dispute. Setting aside
an award means that it is rejected as invalid. The award is avoided and the matter
becomes open for decision again. The parties become free to go back to arbitration
or to have the matter decided through court.

Section 34(1) provides that “Recourse to a Court against an arbitral award may be
made only by an application for setting aside such award in accordance with sub-
section (2) and sub-section (3)”.

GROUNDS FOR SETTING ASIDE AN ARBITRAL AWARD

Section 34(2)(a) provides that an arbitral award may be set aside by a court on

certain grounds specified therein. These grounds are:

1. Incapacity of a party.

2. Arbitration agreement not being valid.

3. Party not given proper notice of arbitral proceedings.

4. Nature of dispute not falling within the terms of submission to arbitration.

5. Arbitral procedure not being in accordance with the agreement.

Section 34(2)(b) mentions two more grounds which are left with the Court itself to
decide whether to set aside the arbitral award:

1. Dispute is not capable of settlement by arbitral process

3
AIR 1994 SC 2562.

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 2. The award is in conflict with the public policy of India

INCAPACITY OF PARTIES
If a party to arbitration is not capable of looking after his own interests, and he is
not represented by a person who can protect his interests, the award will not be
binding on him and may be set aside on his application.

If a minor or a person of unsound mind is a party he must be properly represented

by a proper guardian otherwise the award would be liable to be set aside. Such a
person is not capable of binding himself by a contract and therefore, an award
under a contract does not bind him.

Section 9 of the 1996 Act enables him to apply to the court for appointment of a
guardian for a minor or a person of unsound mind for the purpose of arbitral
proceedings. The ground of incapacity would cease to be available when the
incompetent person is represented by a guardian.

INVALIDITY OF AGREEMENT

The validity of an agreement can be challenged on any of the grounds on which the
validity of a contract may be challenged. In cases where the arbitration clause is
contained in a contract, the arbitration clause will be invalid if the contract is
invalid.

In State of U.P. v. Allied Constructions 4 the court held that the validity of an
agreement has to be tested on the basis of law to which the parties have subjected
it. Where there is no such indication, the validity would be examined according to
the law which is in force.
4
(2003) 7 SCC 396

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NOTICE NOT GIVEN TO PARTIES

Section 34(2)(a)(iii) permits challenge to an award if the party was not given

proper notice of the appointment of an arbitrator, or the party was not given proper
notice of the arbitral proceedings, or the party was for some reasons unable to
present his case.

Under Section 23(1) the Arbitral Tribunal has to determine the time within which
the statements must be filed. This determination must be communicated to the
parties by a proper notice. Section 24(2) mandates that the parties shall be given
sufficient advance notice of any hearing or meeting of the Tribunal for the purpose
of inspection of documents, goods or other property.

If for any good reason a party is prevented from appearing and presenting his case
before the Tribunal, the award will be liable to be set aside as the party will be
deemed to have been deprived of an opportunity of being heard the principle of
natural justice.

In Dulal Podda v. Executive Engineer, Dona Canal Division 5, the court held that
appointment of an arbitrator at the behest of the appellant without sending notice to
the respondent, ex parte award given by the arbitrator was illegal and liable to be
set aside.

AWARD BEYOND SCOPE OF REFERENCE

The reference of a dispute under an agreement defines the limits of the authority
and jurisdiction of the arbitrator. If the arbitrator had assumed jurisdiction not

5
(2004) 1 SCC 73

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possessed by him, the award to the extent to which it is beyond the arbitrator’s
jurisdiction would be invalid and liable to be set aside.

Section 34(2)(a)(iv) of the Act provides that an arbitral award is liable to be set
aside if it deals with a dispute not contemplated by the reference, or not falling
within the terms of the reference, or it contains a decision in matters beyond the
reference.

In Gautam Construction & Fisheries Ltd v. National Bank for Agriculture and
Rural Development6,the Supreme Court modified the award to the extent that the
rate of construction meant for ground floor could not be applied to the construction
of the basement area.

In Rajinder Kishan Kumar v. Union of India 7, a matter under a writ petition was
referred to arbitration. The writ petition contained no claim of compensation for
damage to potentiality of the land because of the opposing party discharging
effluents and slurry on the land. The award of such compensation was held to be
outside the scope of reference hence liable to be set aside.

Section 16 of the Arbitration and Conciliation Act, 1996 provides that the initial
decision as to jurisdiction lies with the Tribunal. The party should immediately
object as to excess of jurisdiction. If the Tribunal rejects the objection, the
aggrieved party may apply under Section 34(2)(a)(iv) for setting aside on the
ground of excess of jurisdiction.

An arbitrator cannot go contrary to the terms of the contract. Where the terms of
the contract are not clear or unambiguous, the arbitrator gets the power to interpret

6
AIR 2000 SC 3018
7
AIR 1999 SC 463

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them. In State of Rajasthan v. Nav Bharat Construction Co. 8, a majority of claims
allowed were against the terms of the contract.

ILLEGALITY IN ARBITRAL PROCEDURE

Section 34(2)(a)(v) provide that an award can be challenged if the composition of

the Tribunal was not in accordance with the agreement, or the procedure agreed to
by the parties was not followed in the conduct of proceedings, or in the absence of
agreement as to procedure, the procedure prescribed by the Act was not followed.

Failure to follow the agreed procedure or the procedure prescribed by the Act is a
procedural misconduct. If the arbitral tribunal takes the matter which is clearly
beyond the scope of its authority, it would tantamount to misconduct of arbitrator.
An award in which the arbitrator has deliberately deviated from the terms of
reference and arbitration agreement will amount to misconduct of the arbitrator.

Section 12(3)(a) provides that an arbitrator may be challenged if there is justifiable

doubt as to his independence or impartiality. Section 13 says that if the challenge
is not successful and the award is made, the party challenging the arbitrator may
apply to the court under Section 34 for setting aside the award.

In State Trading Corp. v. Molasses Co., the Bengal Chamber of Commerce 9,a
permanent arbitral institution, did not allow a company to be represented by its
Law Officer, who was full time employee of the company. The Court held that it
was not only misconduct of the arbitrator but also misconduct of the arbitration
proceedings.

In Bathinda Central Co-operative Bank’s Case, the court observed “it is a typical
case where the arbitrator misconducted the proceedings and also misconducted

8
AIR 2005 SC 4430
9
AIR 1981 Cal. 440

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himself. A complete go bye was given to the provisions of law, procedure and
rules of justice.

In ONGC Ltd v. Saw Pipe Ltd.10, the Supreme Court held that in exercising
jurisdiction, the Arbitral Tribunal cannot act in breach of some provisions of
substantive law or the provision of the Act. In Section 34(2)(a)(v) of the Act, the
composition of the Arbitral Tribunal should be in accordance with the agreement.
The procedure which is required to be followed by the arbitrator should also be
accordance with the agreement. If there is no such agreement then it should be in
accordance with the procedure prescribed in Part 1 of the Act.

In the above case, the losses caused by delay were deducted from the supplier’s
bill. The direction of the Arbitral Tribunal that such deduction should be refunded
with interest was held to be neither in accordance with law, nor contract. The
award was set aside to that extent.

In Union of India v. Om Prakash Baldev Krishna 11, it was held that a non-reasoned
award is liable to be set aside by the court as contemplated by Section 31(3) which
requires that arbitral award shall State reasons upon which it is based unless the
parties have mutually agreed that no reasons are to be given.

Some other examples of misconduct of proceedings are proceeding ex parte

without sufficient cause; denial of opportunity to parties; acting against the
mandate given to the arbitrator under the agreement; failure or refusal to consider
counter-claim of the respondent etc.

DISPUTE NOT ARBITRABLE

10
AIR 2003 SC 2629
11
AIR 2000 J&K 79

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Section 34(2)(b)(i) provides that an application for setting aside an arbitral award
can be made if the subject-matter of the dispute is not capable of settlement by
arbitration under the law for the time being in force.

The existence of an arbitral dispute is a condition precedent for exercise of power

by an arbitrator.

Only matters of indifference between the parties to litigation which affect their
private rights can be referred to arbitration.

Therefore, matters of criminal nature, insolvency proceedings, and matters of

public rights cannot be decided by arbitration.

The Delhi High Court, held in PNB Finance ltd v. Shital Prasad Jain12, that
specific performance of an act cannot be granted in an arbitration proceeding. The
Supreme Court did not approve the view point of the Delhi High Court.  The Court
held that the right to specific performance of an agreement of sale deals with
contractual rights and it is certainly open to the parties to agree to refer the issue
relating to specific performance to arbitration.

AWARD AGAINST PUBLIC POLICY

Section 34(2)(b)(ii) provides that an application for setting aside an arbitral award

can be made if the arbitral award is in conflict with the public policy of India.

The explanation to clause (b) clarifies that an award obtained by fraud or

corruption would also be an award against the public policy of India. An award
obtained by suppressing facts, by misleading or deceiving the arbitrator, by bribing
the arbitrator, by exerting pressure on the arbitrator, etc. would be liable to be set
aside.

12
AIR 1991 Del 13

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The concept of public policy connotes some matter which concerns public good
and public interest.

In Venture Global Engg v. Satyam Computer Service Ltd13, it was held that an
award could be set aside if it is contrary to fundamental policy of Indian law, or the
interest of India, or justice or morality, or it is patently illegal.

If the award is contrary to the substantive provisions of law or the provisions of the
Act or against the terms of the contract, it would be patently illegal, which could be
interfered under Section 34. Award could also be set aside if it is as unfair and
unreasonable as to shock the conscience of the court as it is against public policy.

TIME LIMIT FOR FILING APPLICATION - (SECTION 34(3))

Section 34(3) provides that an application for setting aside an arbitral award must
be made within 3 months of receiving the award or disposition of application by
the arbitral tribunal.

The importance of this is emphasized by Section 36 which provides that the award
becomes enforceable as soon as the limitation period under Section 34 expires.

The proviso to Section 34(3) allows the party a further period of 30 days after the
expiry of three months if the court is satisfied that the party was prevented by a
sufficient cause from making the application. No application for setting aside the
award can be entertained by the court after the expiry of these additional thirty
days.

In National Aluminum Co Ltd v. Presteel Fabrication (P) Ltd 14, proceedings were
instituted before the Supreme Court under the wrong belief that it had jurisdiction
in the matter of setting aside. Time spent on a bona fide prosecution of an
13
2008 (4) SCC 190
14
(2004) 1 SCC 540

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application in a wrong forum was held by the Supreme Court to be a sufficient
cause for condonation of delay.

In Union of India v. Shring Construction Co (P) Ltd15, sometime was lost in

challenging the award in a writ court which was declared to be not maintainable
because the petitioner had his remedy under Section 34 by the proceeding before
the District Judge. The District Judge was then approached along with an
application for condonation of delay. He rejected it as time barred.  The Supreme
Court held that the District Judge should have decided whether the application was
within time after excluding the period lost in a wrong court.

In Union of India v. Microwave Communication Ltd, the Delhi High Court noted
that, in contradiction with Section 5, Section 4 “does not enlarge the period of
limitation but it only enables the party to file any suit, application, etc. on the
reopening day of the Court if the Court is closed on a day when limitation expires.”
As there was no overlap of any sort between Section 4 and Section 34(3) the Court
held that Section 4 would apply in cases where there was not any lack of due
diligence on the part of the applicant. Interestingly, the Court also held that S. 4
was applicable even to situations where the proviso to Section 34(3) was attracted
– i.e., the thirty-day condonation period.

A bare reading of Section 34(3) read with the proviso makes it abundantly clear
that the application for setting aside the award will have to be made within three
months. The period can further be extended, on sufficient cause being shown, by
another period of thirty days but not thereafter. Section 29 (2) of the Limitation
Act, provides that when any special statute prescribes certain period of limitation
as well as provision for extension up to specified time limit, on sufficient cause
being shown, then the period of limitation prescribed under the special law shall
15
(2006) 8 SCC 18

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prevail and to that extent the provisions of the Limitation Act shall stand excluded.
The provisions of Section 5 of the Limitation Act would not be applicable because
of the provisions of Section 29 (2) of the Limitation Act.

REMISSION BY TRIBUNAL- (SECTION 34(4))

When an application for setting aside an arbitral award has been made, under
section 34(4) the court may, instead of adjudicating upon the grounds raised,
adjourn the proceedings for a determined period of time to enable the tribunal to
deal with the grounds on which objection have been raised and to eliminate them.

In T.N. Electricity Board v. Bridge Tunnel Constructions, the court held that where
an award is vitiated by an error of jurisdiction, the court can send it back to the
arbitrator for rectification of the error.

Upon such adjournment the Arbitral Tribunal shall resume the arbitral proceedings
and take such action as will eliminate the grounds. The resumed proceedings can
only be relating to the grounds raised in the application under Section 34.

It may become necessary to record fresh findings and to amend the award.
Thereafter the court would consider whether the grounds raised have been
eliminated and whether the award is liable to be set aside.

ARBITRATION AND CONCILIATION (AMENDMENT) ACT,

2015

An amendment was made to the Arbitration and Conciliation Act 1996 through the
Arbitration and Conciliation (Amendment) Act, 2015. The Arbitration and
Conciliation (Amendment) Act, 2015 was introduced in the light of India’s poor
position in contract enforcement in the World Bank Doing Business Report
wherein it ranked 178 out of 189 countries in enforcing contracts. The reason

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being, slow process of dispute resolution through arbitration and further putting
aside by court interferences. The introduction entailed several debates over a
possible legislation which was urgently required to diminish the snowballing
pendency. The heart of the amendment was to ensure quick enforcement of
contracts, easy recovery of monetary claims, and encouraging investment and
economic activity. Sub-section 34(5) and 34(6) was added to the Section 34 after
the Amendment Act 2015.

PRIOR NOTICE - SECTION 34(5)

Section 34(5) says that “an application under this section shall be filed by a party
only after issuing a prior notice to the other party and such application shall be
accompanied by an affidavit by the applicant endorsing compliance with the said
requirement.”

DISPOSITION OF AN APPLICATION - SECTION 34(6)

Section 34(6) states that an “application under this section shall be disposed of
expeditiously, and in any event, within a period of one year from the date on which
the notice referred to in sub-section (5) is served upon the other party”.

SECTION 34(5): WHETHER MANDATORY OR DIRECTORY

While dealing with whether section 34(5) is directory or mandatory, the Patna
High Court in Bihar Rajya Bhumi Vikas Bank Samiti v. The State of Bihar 16,
Guwahati High Court in Union of India and Ors. vs. Durga Krishna Store Pvt.

16
L.P.A. No. 1841/2016

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Ltd17, the Uttarakhand High Court in National Highways Authority of India vs.
Ashish Panwar and Ors18. and Himachal Pradesh High Court in Madhav Hi-tech
Engineers Pvt. Ltd. vs. The Executive Engineers and Ors 19, held it to be mandatory.
Thus, it came to be understood that the use of the words ‘shall’ and ‘only’ rendered
the provision to be mandatory.

The Bombay High Court, while dealing with whether section 34(5) is directory or
mandatory, in the case of Global Aviation Services Private Limited v. Airport
Authorities of India noted that the provision is directory, largely because no
consequence has been provided for breach of the time limit specified. Furthermore,
it observed, that there existed no consequence under section 34(6). Therefore, if the
Court is not able to dispose of the arbitration petition under section 34 within one
year from the date of service of notice, the only consequence would be that the
timeline would get extended. It was further observed that the legislative intent of
inserting those provisions is the speedy disposal of the proceedings and not to
penalize the petitioner for non-compliance of the procedure which, in effect, is
directory. This view was followed by the Calcutta High Court in the case of Sree
Infrastructure Finance Limited v. Candor Gurgaon Two Developers and Projects
Pvt. Ltd.20

The Hon’ble Supreme Court in the case of The State of Bihar & Ors. vs. Bihar
Rajya Bhumi Vikas Bank Samiti21, stated that it was the view propounded by the
High Courts of Bombay and Calcutta that represented the correct state of the law.
The Court noted that the object of Section 34(5) and (6) is, as has been stated by
the Law Commission, the requirement that an application under Section 34 be

17
Arb. A. 1/2018
18
2017 AIR 2018 Utr 12
19
2017 OMP (M) No. 48 of 2016
20
A.P. No. 346 of 2018
21
Civil Appeal No. 7314 of 2018

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disposed of expeditiously within a period of one year from the date of service of
notice. It found it imperative to note that the provision was procedural, the object
behind which is to dispose of applications under Section 34 expeditiously. It was
however observed that the aforenoted by itself would not be sufficient to construe
Section 34(5) as mandatory, keeping in view the fact that if the time limit of one
year is not adhered to under Section 34(6), no consequence thereof is provided.
“To construe such a provision as being mandatory would defeat the advancement
of justice as it would provide the consequence of dismissing an application filed
without adhering to the requirements of Section 34(5), thereby scuttling the
process of justice by burying the element of fairness.” The Court thus, concluded
by holding that Section 34(5) is a directory provision and not mandatory.

CONCLUSION

The Scope of Section 34 of the Arbitration and Conciliation Act, 1996 is very
extensive, it is extremely wide in nature and also has a lot of interpretations
attached to it. Arbitration is considered as an important form of an Alternate
Dispute mechanism providing an opportunity to the fast-growing population to

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resort to a process which would save time and money. People appoint arbitrators so
that delay of justice is avoided and also the dispute is resolved at the earliest.

Section 34 of the 1996 legislation gives ample opportunity to the people to set
aside the award passed by the arbitrator, the section mentions five grounds under
which an arbitration award be set aside, this is of utmost importance so that no
arbitrariness happens on part of the award passed by arbitrator and people resorting
to this mode of dispute resolution get the best of justice which they expect. The
basic purpose of Section 34 is to give opportunity to the people who have opted for
arbitration as a method of dispute resolution to approach the court to set aside the
award passed if the parties fall within the ground mentioned under the section, so
basically it acts as a protective measure.

REFERENCE

 Singh Avatar Dr., Law of Arbitration and Conciliation with Alternative

Dispute Resolution Systems, 11th Edition, Eastern Book Company, 2018.

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 Saharay Madhusudan, Textbook on Arbitration & Conciliation with
Alternative Dispute Resolution, 4th Edition, Universal Law Publishing, New
Delhi, 2017
 Paranjape N.V Dr., Law Relating to Arbitration & Conciliation in India,
Central Law Agency, Allahabad, 2016.

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