Chapter 7

RECOURSE AGAINST ARBITRAL AWARD

I. APPLICATION FOR SETTING ASIDE ARBITRAL AWARD

When can an application for setting aside an arbitral award be made? What is the period of limitation for making
such an application?

Discuss the grounds on which an arbitral award can be set aside

Section 34(1) and (2) of the Arbitration and Conciliation Act, 1996 provides that a party aggrieved by an arbitral
award may make an application to the court for setting aside the arbitral award and the 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; or

(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; or

(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 matter 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 Part-I from which
the parties cannot derogate, or failing such agreement was not in accordance with part-I; or

(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 83

(ii) the arbitral award is in conflict with the public policy of India. The Explanation appended to section
34(2) provides 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 of the
Act. Section 75 of the Act provides that notwithstanding anything contained in any other law for the
time being in force, the conciliator and the parties shall keep confidential all matters relating to the
conciliation proceedings. Confidentiality shall extend also to the settlement agreement, except where
its disclosure is necessary for purpose of implementation and enforcement. For the purposes of section
34(2)(b)(ii), the words 'conciliator' and 'conciliation' used in section 75 shall have to be substituted for
the words 'arbitrator' and 'arbitration'. Thus, where in an arbitral proceedings, the arbitrator or the
parties fail to maintain confidentiality, an arbitral award made in such proceeding shall be regarded as
an award which is in conflict with the public policy of India. Section 81 of the Act provides that the
parties to a conciliation proceedings shall not rely on or introduce as evidence in arbitral or judicial
proceedings whether or not such proceedings relate to dispute that is the subject of the conciliation

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 proceedings,-

(a) views expressed or suggestions made by the other party in respect of a possible settlement
of the dispute;

(b) admissions made by the other party in the course of the conciliation proceedings;

(c) proposals made by the conciliator;

(d) the fact that the other party had indicated his willingness to accept a proposal for
settlement made by the conciliator.

Thus, where in an arbitral proceeding, anything mentioned in section 81(a) to (d) was introducted or relied on as
evidence, the award made in such proceedings is in conflict with the public policy of India under the provisions of
section 34(2)(b)(ii).

Incapacity of Parties

Discuss 'incapacity of parties' as a ground for setting aside an arbitral award under section 34 of the Arbitration
and Conciliation Act, 1996

Incapacity of parties is a ground for setting aside the arbitral award under the provisions of section 34(2)(a)(i) of
the Arbitration and Conciliation Act, 1996. Section 11 of the Indian Contract Act, 1872 provides that every person is
competent to contract who is of the age of majority according to the law to which he is subject, and who is of
sound mind and is not disqualified from contracting by any law to which he is subject. This provision deals only within
the incapacity of natural persons. But the expression 'incapacity' under section 34(2)(a)(i) covers the incapacity of
natural as well as of legal persons. The general rule regarding the capacity of a person to enter into an arbitration
agreement is that any natural or legal person who has the capacity to enter into a valid contract, has the capacity
to enter into an arbitration agreement.

Thus, an arbitration agreement in which one of the parties is a minor would be void. But a minor may enter into an
arbitration agreement through his guardian. In Ponnaya v. Suppamal, MANU/TN/0282/1946 : AIR 1946 Mad 391, it
was held that a natural and legal guardian of a minor is competent to make a reference to arbitration on behalf of
the minor, if the reference is for the benefit of the minor. In Vasudeva v. Sundararaja, MANU/TN/0277/1929 : AIR
1930 Mad 38, it was held that a reference to arbitration by a natural and legal guardian of a minor must fulfil the
following two conditions,-

(i) the guardian must not have an interest adverse to that of minor, and

(ii) the reference must be for the benefit of the minor. In Vasudeva Ayyar v. Sundararaja Ayyar,
MANU/TN/0277/1929 : AIR 1930 Mad 38, it was held that a minor is bound by the award, only when he is not
injuriously affected by the arbitration, when it is fair and when he has been duly represented. But is Sadashiv
Ramchandra Datar v. Trimbak Keshav, AIR 1920 Bom 32, it was held that if the minor is not properly
represented and his guardian fails in his duty to protect his interest, the award is not binding on the minor. In
Ram Nagina Singh v. Governor-General in Council, MANU/WB/0022/1952 : AIR 1952 Cal 306, and also in
Dharmeswar Kalita v. Union of India, AIR 1955 Assam 86, it was held that a statutory person can exercise its
power subject to the formalities imposed by statute, and any restriction on the exercise of power does not
amount to inherent disqualification or incapacity. In certain cases, the statute which creates a corporation
expressly confer upon the corporation the capacity to enter into contract. The statute may confer the
authority to enter into contract upon a body within the corporation. Regarding the capacity of a company to
enter into contract, the Companies Act, 1956 assumes that a company can enter into a contract. Section 46
of the Companies Act, 1956 provides the mode of executing contracts by the company and also lays down
that such contracts shall bind the company.

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 Non-validity or Non-existence of the Arbitration Agreement

Discuss invalidity or non-existence of the arbitration agreement on a ground for setting aside an arbitral award by
court

Invalidity of the arbitration agreement in pursuance of which an arbitral award is made is a ground for setting aside
the arbitral award under the provisions of section 34(2)(a)(ii) of the Arbitration and Conciliation Act, 1996. An
arbitral tribunal derives its jurisdiction to arbitrate from the arbitration agreement and if the arbitration agreement is
invalid or does not exist, the arbitral tribunal will have no jurisdiction to arbitrate any dispute submitted to it by such
arbitration agreement. In Tarapore and Co. v. State of Madhya Pradesh, MANU/SC/0689/1994 : (1994) 3 SCC 521, it
was held that invalidity or non-existence of the arbitration agreement results in patent lack of jurisdiction of the
arbitral tribunal, which cannot be conferred on the tribunal by the acquiescence or agreement of the parties. It is to
be noted that the plea about invalidity of the arbitration agreement is different from the plea about non-existence of
arbitration agreement. A plea of non-existence of the arbitration agreement must be taken before the arbitral
tribunal itself and if the arbitral tribunal rejects such plea, only then the plea can be raised in proceedings under
section 16(6) of the Act. The non-existence of an arbitration agreement is not expressly mentioned in any of the
clauses of section 34 as a ground for setting aside an arbitral award and unless the case falls within section 16(6) of
the Act, it may not be open to take the plea about non-existence of arbitration agreement. Invalidity of the
arbitration agreement as a ground for setting aside an arbitral award is expressly mentioned in section 34(2)(a)(ii) of
the Act, and a plea on that ground may be raised even for the first time before the court in a proceeding for setting
aside the arbitral award.

An arbitration agreement to refer to arbitration a matter which could not be referred to arbitration is invalid. In
Khelawati v. Chetram, AIR 1952 Punj 67, it was held that question relating to genuineness of Will cannot be referred
to arbitration and so an arbitration agreement to refer such a question to arbitration would be invalid because that
question must be decided in accordance with law dealing with probate of Wills under the Succession Act, 1925. In
Gopalchandra v. Lakshmikanta, MANU/WB/0129/1933 : AIR 1933 Cal 816, it was held that where the consideration
for the reference to arbitration was dropping of criminal proceedings relating to a non-compoundable offence, the
reference was invalid and the award given thereon was illegal and inoperative. In Union of India v. Jai Society Wood
Works, the High Court remitted the award to the arbitrator for determining the existence or validity of the arbitration
agreement between the parties where the arbitrator had failed to examine the plea that the arbitration agreement
was invalid for non-compliance of the requirements of Article 299 of the Constitution.

Non-compliance of due Process

Discuss how noncompliance of due process during an arbitral proceeding vitiates an arbitral award?

Non-compliance of due process is a ground for setting aside an arbitral award under the provisions of section 34(2)
(a)(iii) of the Arbitration and Conciliation Act, 1996. Non-compliance of due process may arise under section 34(2)(a)
(iii) if a party to the arbitration agreement was-

(a) not given proper notice of the appointment of an arbitrator; or

(b) not given proper notice of the date, time and place of the arbitral proceedings; or

(c) otherwise unable to present his case. While appointing an arbitrator, the party so appointing the
arbitrator must give notice of appointment of the arbitrator to the other party. After the appointment, the
arbitrator must give to the parties notice of the date, time and place of the arbitration proceedings. In Lovely
Benefit Chit Fund and Finance Pvt. Ltd. v. Purandutt Sood, AIR 1983 Del 413, it was held that the first duty
of the arbitrator is to give notice of time, date and place of meeting to the parties to enable them to appear
before the tribunal and put up their case. In Damodar Pershad Gupta v. Saxena & Co., AIR 1959 Punj 476, it
was held that the parties to an arbitration proceedings are entitled to a reasonable notice of the time and

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 place of the hearing and have an absolute right to be heard and to present their evidence before the
arbitrators. If they are deprived of this right, the court will not hesitate to set aside the award, even though
there may have been no improper intention. In Jose Antao R. Carvalho v. C.S. Raje, AIR 1976 Goa 56, it was
held that if an arbitrator takes evidence or hears agreements in the absence of one of the parties without
having given due notice of the time and place for the meeting, he is guilty of misconduct. But in Gurumurthy
v. Narsimha, MANU/OR/0073/1954 : AIR 1954 Ori 234, it was held that the mere absence of formal notice to
the parties will not invalidate an award, if the arbitrator gave the parties a reasonable opportunity of being
heard.

Section 18 of the Arbitration and Conciliation Act, 1996 provides that the parties shall be treated with equality and
each party shall be given a full opportunity to present his case. Thus, if a party to an arbitration proceedings is
unable to present his case, the proceedings will be in violation of the mandate of section 18 of the Act, In Godrej
Properties and Investments Ltd. v. Tripura Constructions, Mumbai, 2003 (2) Arb LR 195 (Bom), it was held the
requirement of section 18 is that the parties shall be treated with equality and each party shall be given a full
opportunity to present his case. In Lovely Benefit Chit Fund & Finance Pvt. Ltd. v. Pawandutt Sood, AIR 1983 Del
413, it was held that an arbitrator ought not to proceed ex parte against a party, if he has failed to appear at one of
the sittings. The arbitrator should fix another date for hearing and give notice to the defaulting party of his intention
to proceed ex parte on specified date, time and place. If even after such notice, the defaulting party does not take
part in the proceedings, the arbitrator may proceed in his absence. In Skanska Cementation India Ltd. v. Bajranglal
Agarwal, 2004 (2) Arb LR 67 (Bom), it was held that refusal by the arbitral tribunal to allow the parties to be
represented by lawyers in the arbitral proceedings, cannot be a ground for setting aside the award because it does
not in any manner disable any particular party to present his case. It is to be noted that the objection of non-
compliance with the procedural requirements of section 34(2)(a)(ii) goes to the root of jurisdiction of the arbitral
tribunal and must be raised, in the first instance, before the tribunal itself.

Jurisdictional error on the part of the Arbitral Tribunal

How jurisdictional error on the part of the arbitral tribunal affords a ground for setting aside an arbitral award
under section 34 of the Arbitration and Conciliation Act, 1996?

Section 34(2)(a)(iv) of the Arbitration and Conciliation Act, 1996 provides that an arbitral award may be set aside by
the court if the party making the application furnishes proof that 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. But 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.

The provisions of section 34(2)(a)(iv) contemplates two situations-

(a) cases where the arbitral award deals with a dispute not contemplated by or not following within the terms
of the submission to arbitration i.e., where the arbitral tribunal acts outside its jurisdiction or without
jurisdiction (extra petita) and

(b) cases where the award contains decision on matter beyond the scope of the arbitration agreement (ultra
petita).

In the cases where the arbitral award deals with a dispute not contemplated by or not falling within the terms of the
submission to arbitration, the award is wholly void for complete lack of jurisdiction, but where the arbitral award
contains decisions on matters beyond the scope of the arbitration agreement, it may be partially valid and partially
void. If the void part of the award is separable from the valid part, only the void part of the award may be set aside
but if the valid and the void part of the award are so connected with one another that the one is inseparable from
the other, the whole award will have to be set aside.

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 The arbitrator(s) derive his/their authority to arbitrate from the arbitration agreement and as such the arbitrator(s)
must operate within the four corners of the arbitration agreement and cannot travel beyond it. If the arbitrator
travels outside the bounds of the arbitration agreement from which he derives his authority, he acts without
jurisdiction.

In D.C.M. Ltd. v. Municipal Corporation of Delhi, MANU/SC/0814/1997 : (1997) 7 SCC 123, a reference was made to
an arbitrator by a court with a direction inter alia, that it would not be open to the arbitrator to examine the
correctness of the formula for fuel adjustment charges in the tariff. But the arbitrator could examine whether the
formula had been correctly applied and the amount of increase in fuel adjustment charges correctly calculated. But
the arbitrator in arriving at his award distorted the formula. He removed the factor of transmission and distribution
from calculation of the units sold. It was held by the Supreme Court that the arbitrator in doing so had not only
committed an error of law apparent on the face of the record but had also exceeded his jurisdiction by acting
beyond the scope of reference. The Apex Court thus held that the award was properly set aside in part to the
extent it excluded transmission and distribution losses. In Hindustan Shipyard Ltd. v. Essar Oil Ltd., 2005 (1) Arb LR
454 (AP) (DB), it was held that if the award is in excess of jurisdiction of arbitrator, then it is liable to be set aside,
but if the award is within the jurisdiction on the basis of construction of the contract, which the arbitrator was
required to do, then the court cannot set it aside only because another view is possible. In Rajendra Krishan Khanna
v. Union of India, MANU/SC/0652/1998 : (1998) 7 SCC 129, a reference was made to an arbitrator to determine a
dispute with respect to 'damage to the crops and land by excessive pressure by effluents'. But the arbitrator in
addition to the compensation for the damage to the crops and the land, also awarded compensation for 'loss of the
potential of the land and interest thereon'. The award was set aside by the Supreme Court on the ground that it fell
outside the scope of the reference to arbitration and was not in relation to the dispute contemplated in the
submission to arbitration. In Soudamino Ghose v. Gopalchandra Ghose, AIR 1915 Cal 745, as well as in Kherchand v.
Dharamchand, 1976 Punj LR 382, it was held that when an arbitrator touches the interest of a stranger, his authority
and the award becomes void.

Improper Composition of the Arbitral Tribunal or the Arbitral Procedure

Improper composition of the arbitral tribunal or the arbitral procedure is a ground for setting aside an arbitral award
under the provisions of section 34(2)(a)(v) of the Arbitration and Conciliation Act, 1996. Section 34(2)(a)(v)
provides that an arbitral award may be set aside by the court if the party making the application furnishes proof that
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 Part-I from which the parties cannot derogate, or
failing such agreement, was not in accordance with this part.

Discuss improper composition of the arbitral tribunal or the arbitral procedure as a ground for setting aside an
arbitral award under section 34 of the Arbitration and Conciliation Act, 1996

Section 10(1) of the Arbitration and Conciliation Act, 1996 provides that the parties are free to determine the
number of arbitrators, provided that such number shall not be an even number. Section 10(2) of the Act provides
that if the parties fail to agree on the number of arbitrators, the arbitral tribunal shall consist of a sole arbitrator. As
far as the procedure for appointment of the arbitrator is concerned, section 11(2) of the Act provides that the
parties are free to agree on a procedure for appointment of the arbitrator. If the parties fail to agree on a procedure
for appointment of the arbitrator, the appointment is to be made as per the procedure provided under section 11 of
the Act. But if the appointment of the arbitral tribunal is not in accordance with the number determined by the
parties or the procedure agreed to by them, the arbitral proceedings will be invalid and the resulting award will be
liable to be set aside as nullity.

In Faze Three Exports Ltd. v. Pankaj Trading Co., 2004 (2) Arb LR 163 (Bom), a dispute was referred to an arbitral
tribunal of three arbitrators. But all the three arbitrators were not present in the arbitral proceedings. One of the
arbitrators was not present at all during the arbitral proceedings and as a result there were no deliberations between

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 all the arbitrators. Although all the arbitrators signed the arbitral award, but in fact it was not an award by all the
arbitrators as the third arbitrator has merely put his signature without hearing the parties or without being a party to
any deliberations. On the above grounds, the award was vacated by the court. In N. Chelleppan v. Secretary, Kerala
State Electricity Board, MANU/SC/0002/1974 : (1975) 1 SCC 289, it was held that a party who submits to the
jurisdiction of the arbitrator and takes party in the proceedings before him without any demur cannot be allowed to
challenge his jurisdiction after the award is made. He would be precluded by his acquiescence from challenging the
award for lack of jurisdiction.

Section 28(1)(a) of the Arbitration and Conciliation Act, 1996 provides that where the place of arbitration is situate
in India, in an arbitration other than an international commercial arbitration, the arbitral tribunal shall decide the
dispute submitted to arbitration in accordance with the substantive law for the time being in force in India. Section
43 of the Act further provides that the Limitation Act, 1963 shall apply to arbitration as it applies to proceedings in
court. Thus, where an award is given by an arbitral tribunal of time-barred claim, it is a violation of section 28(1)(a)
and section 43(1) of the Act affording a ground under section 34(2)(a)(v) of the Act for setting aside the award. In
Ramdutt Ram Kissen v. E.D. Sassoon & Co., AIR 1929 PC 103, it was held that except in the case of statutory
arbitrations, if an arbitrator failed to apply the law of limitation, the award will be liable to be set-aside.

Where arbitrator is biased, an application can be made for setting aside the arbitral award under section 13(5) read
with section 34(2)(a)(v) of the Act. If a party become aware of the bias of the arbitrator before the making of the
award, he must make a challenge against that arbitrator. The arbitral tribunal then considers the challenge and it
after so considering rejects the challenge, the arbitral tribunal continues its proceeding and make the arbitral award.
After making of the arbitral award, the aggrieved party may make an application under section 13(5) for setting aside
the arbitral award.

If a party became aware of the bias of the arbitrator after the arbitral award was made, but within a period of 3
months [allowed under section 34(3)] or a further period of 30 days [allowed under proviso to section 34(3)], the
party may make an application for setting aside the arbitral award on the ground of bias of the arbitrator.

Inarbitrability of the Subject-matter

What will be the consequence when a matter which is not arbitrable under the law is arbitrated upon and an award
is made?

Section 34(2)(b)(i) provides that an arbitral award may be set aside by the court if it finds that the subject-matter
of the dispute is not capable of settlement by arbitration under the law for the time being in force.

The ground set forth in section 34(2)(b)(i) is an ex afficio ground for setting aside an arbitral award, i.e. the party
challenging the award on the ground of inarbitrability of the subject-matter need not plead or prove the existence of
these grounds. The arbitral tribunal has ex officio jurisdiction to set aside an award made in an arbitration proceeding
where the subject-matter of the dispute is inarbitrable under the law for the time being in force. In Mangilal

v. Devicharan, MANU/NA/0022/1947 : AIR 1949 Nag 110, it was held that proceedings in insolvency including the
question whether or not a certain person should be declared an insolvent cannot be referred to arbitration. In
Ghellabhai v. Nandubai, ILR 21 Bom 335, it was held that a dispute involved in probate proceedings cannot be
referred to arbitration as these end in judgement in rem. In Trilokchand Jain v. Swastika Stripes (P) Ltd., (1990) 2
Punj LR 655, it was held that the proceedings for winding up of a company under the Companies Act, 1956 cannot be
referred to arbitration. In Malka v. Sardar, AIR 1929 Lah 394, it was held that a criminal complaint as such cannot be
referred to arbitration. In Kalikanath Barman v. Rajnath Barman, AIR 1952 Assam 118, it was held that the matter in
proceedings under section 145 of the Code of Criminal Proceedure (dispute concerning land or water likely to cause
breach of the place) cannot properly be referred to arbitration.

Arbitral award in conflict with the public policy of India

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 Section 34(2)(b)(ii) provides that an arbitral award may be set aside by the court if it finds that the arbitral award is
in conflict with the public policy of India.

The Explanation appended to this section provides that for the avoidance of any doubt, it is hereby declared 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 of the Act.

What is the meaning of the expression public policy of India as mentioned in section 34(2)(b)(ii) of the Arbitration
and Conciliation Act, 1996? Can an award which is in conflict with the public policy of India be enforced by the
court?

The ground stated in section 34(2)(b)(ii) for setting aside an arbitral award is an ex officio ground, i.e., the party
challenging the award on the ground that the award is in conflict with the public policy of India need not plead or
prove the existence of these grounds. The court has ex officio jurisdiction to set aside an arbitral award under the
provisions of section 34(2)(b)(ii), if the award is in conflict with the public policy of India. The expression 'public
policy' has not been defined in the Arbitration and Conciliation Act, 1996. The expression 'public policy' is not capable
of a precise definition because it is a variable notion, depending on changing manners, morals and economic
conditions. In Maxim Nordenfelt Guns and Ammunition Co. v. Nordenfelt, [1893] 1 Ch 630, it was observed that rules
which rest on the foundation of public policy, not being rules which belong to the fixed customary law, are capable,
on proper occasion, of expansion or modification. Circumstances may change and make a commercial practice
expedient which formerly was mischievous to commence. In Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport)
Ltd., [1968] AC 169, it was held that it may so happen that a practice which was once permissible, may now be
proscribed. In Oil and Natural Gas Corporation Ltd v. Saw Pipes, MANU/SC/0314/2003 : (2003) 5 SCC 705, it was
held that the concept of 'public policy' is considered to be vague, susceptible to narrow or wider meaning depending
upon the context in which it is used. The expression 'public policy' does not admit of precise definition and may vary
from generation to generation and from time to time. Lacking precedent, the court has to give its meaning in the
light and principles underlying the Arbitration Act, Contract Act and Constitutional provisions.

Public policy as a ground for setting aside an arbitral award sometimes overlaps with the ground of inarbitrability of
the subject-matter. Sometimes, violation of public policy refers to procedural violation of minimum due process
requirements. Although parties are free to enter into any agreement as they like, but they cannot make a binding
contract in violation of law or of public policy. Public policy imposes certain restriction on the freedom to enter into
contract. It prohibits conduct or determination that offend fundamental juridical values in the jurisdiction where
enforcement is sought. Public policy is a principle of law, under which freedom for contract or private dealings is
restricted by law for the good of the community. However, the concept of public policy is not a static concept and
varies with time and changing needs of the society. In Renusagar Power Co. Ltd. v. General Electric Co., (1994)
Supp 1 SCC 644, it was held that the enforcement of a foreign award would be refused on the ground that it is
contrary to the public policy of India, if such enforcement would be contrary to-

(i) fundamental policy of Indian law; or

(ii) the interest of India; or

(iii) justice or morality.

Although the above observation was made in the Renusagar case while dealing with section 7(1)(b)(ii) of the Foreign
Awards (Recognition and Enforcement) Act, 1961, it has been held to be relevant for setting aside arbitral awards
under the provisions of section 34(2)(b)(ii) of the Arbitration and Conciliation Act, 1996 [Municipal Corporation of
Greater Mumbai v. Jyoti Construction Co., 2003 (3) Arb LR 489 (Bom)]. In Oil and Natural Gas Corporation Ltd. v.
Saw Pipes Ltd., MANU/SC/0314/2003 : (2003) 5 SCC 705, it was held that the expression 'public policy' should be
given a wider and not a narrower meaning. In this case, it was also held that the court can set aside the award if it
is-

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 (i) contrary to-

(a) fundamental policy of Indian law; or

(b) the interest of India; or

(c) justice or morality; or

(ii) patently illegal; or

(iii) so unfair and unreasonable that it shocks the conscience of the court. In the same case, it was held that
a patent illegality is an illegality which goes to the root of the matter and if the illegality is of a trivial nature,
it cannot be held that the award is against the public policy. In Kesar Enterprises v. DCM Sriram Industries
Ltd., 2001 (1) RAJ 378 (Del), the arbitrator, a former Chief Justice of India, did not return a finding on every
question that was raised. It was contended that the arbitrator did not appreciate and duly consider all the
questions raised before him. It was held that failure of the arbitrator to return a finding on every question
raised before him did not amount to infraction of public policy. In such circumstances, it would be deemed
that the arbitrator rejected the contention. Where the arbitrator is a former Chief Justice of India, it would be
extremely sanguine to predicate that he had not appreciated and duly considered all the questions raised
before him.

Fraud or Corruption-Grounds for setting aside an Arbitral Award under Section 34(2)(b)(ii)

Discuss fraud or corruption as a ground for setting aside an arbitral award under section 34(2)(b)(ii) of the
Arbitration and Conciliation Act, 1996

The Explanation appended to section 34(2)(b)(ii) provides that an award induced or affected by fraud or corruption
is in conflict with the public policy of India and the same can be set aside by the court under section 34(2)(b)(ii).
Where an award is obtained by fraud or by corrupt inducement, it is improper and can be set aside by the court.
Section 17 of the Indian Contract Act, 1872 defines the term 'fraud' as-

'Fraud' means and includes any of the following acts committed by a party to a contract or with his
connivance, or by his agent, with intent to deceive another party thereto or his agent, or to induce him to
enter into the contract-

(i) the suggestion, as to a fact, of that which is not true by one who does not believe it to be true;

(ii) the active concealment of a fact by one having knowledge or belief of the fact;

(iii) a promise made without any intention of performing it;

(iv) any other act fitted to deceive;

(v) any such act or omission as the law specially declares to be fraudulent.

The Explanation appended to section 17 provides that mere silence as to facts likely to affect the willingness of a
person to enter into a contract is not fraud, unless the circumstances of the case are such that, regard being had
to them, it is the duty of the person keeping silence to speak, or unless his silence is, in itself, equivalent to speech.

Misconduct on the part of the arbitrator is a ground under Explanation to section 34(2)(b)(ii) for setting aside an
arbitral award so far such misconduct lies in fraud or corruption. In Payyavule v. Payyavule Kesanna,
MANU/SC/0002/1952 : AIR 1953 SC 21, the Supreme Court set aside an award where the arbitrator took statements
from each of the parties in the absence of the other and made the award. In Dewan Singh v. Champat Singh,
MANU/SC/0001/1969 : AIR 1970 SC 967, it was held that it is a misconduct on the part of an arbitrator to use
personal knowledge for deciding the dispute before him unless so authorised by the reference

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 Corruption on the part of an arbitrator means moral obliquity. For an allegation of corruption, it is not always
necessary that the arbitrator should have been bribed, nor is it necessary that there should be some other form of
venality or gross immorality or flagitious conduct. Corruption may take a milder form. But there must be some privity
of mind; some perversion of the moral feeling, either by interest or passion or partiality [Cameron v. Menzies, [1868]
6 M 279].

Violation of Section 75 as a Ground for Setting Aside an Arbitral Award

What will be the consequence when an arbitral award is made in violation of section 75 of the Arbitration and
Conciliation Act, 1996?

An arbitral award passed in violation of section 75 of the Arbitration and Conciliation Act, 1996 is in conflict with the
public policy of India and is liable to be set aside by the court under the provisions of section 34(2)(b)(ii) of the Act.
Section 75 provides that notwithstanding anything contained in any other law for the time being in force, the
conciliator and the parties shall keep confidential all matters relating to the conciliation proceedings. Confidentiality
shall extend also to the settlement agreement, except where its disclosure is necessary for purposes of
implementation and enforcement. It is to be noted that although in section 75 only the words 'conciliation' and
'conciliator' are used, but for the purpose of section 34(2)(b)(ii), the words 'conciliation' and 'conciliator' used in
section 75 shall have to be substituted for the words 'arbitration' and 'arbitrator'. Thus, if the arbitrator does not
maintain the confidentiality as required under the provision of section 75, the resulting arbitral award in liable to be
set aside.

Violation of Section 81 as a Ground for Setting Aside an Arbitral Award

Discuss the consequences of failure on the part of the arbitrator (s) or the parties to maintain confidentiality
during an arbitration proceeding

Discuss violation of section 81 of the Arbitration and Conciliation Act, 1996 in making an arbitral award as a
ground for setting aside the award

If an arbitral award is made in violation of section 81 of the Arbitration and Conciliation Act, 1996 it is in conflict with
the public policy of India and is liable to be set aside by the court under the provision of section 34(2)(b)(ii) of the
Act. Section 81 of the Act provides that the parties shall not rely on or introduce as evidence in arbitral or judicial
proceedings, whether or not such proceedings relate to the dispute that is the subject of the conciliation
proceedings,-

(a) views expressed or suggestions made by the other party in respect of a possible settlement of the
dispute;

(b) admissions made by the other party in the course of the conciliation proceedings;

(c) proposals made by the conciliator;

(d) the fact that the other party had indicated his willingness to accept a proposal for settlement made by
the conciliator.

It is to be noted that for the purpose of section 34(2)(b)(ii), the words 'conciliation' 'conciliator' and 'settlement' in
section 81 have to be read as 'arbitration', 'arbitrator' and 'award'. As a result, section 81 will be read as-

The parties shall not rely on or introduce as evidence in arbitral or judicial proceedings, whether or not such
proceedings relate to the dispute that is the subject of the arbitration proceedings,-

(a) views expressed or suggestions made by the other party in respect of a possible award of the disputes;

(b) admissions made by the other party in the course of the arbitration proceedings;

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 (c) proposals made by the arbitrator;

(d) the fact that the other party had indicated his willingness to accept a proposal for award made by the
arbitrator. Thus where in any arbitral proceedings anything stated in section 81(a) to (d) is relied upon or
introduced as evidence, the resulting award is liable to be set aside under section 34(2)(ii) as it is in conflict
with the public policy of India.

Whether a proceeding for setting aside an arbitral award under section 34 be adjourned by the court? If so, why?

Discuss the jurisdiction of the court, to which an application for setting aside an arbitral award was made, to remit
the award to the arbitral tribunal

Adjournment of Proceeding under Section 34 for Setting Aside an Arbitral Award by the Court and Remission of the
Award to the Arbitral Tribuna

Section 34(4) of the Arbitration and Conciliation Act, 1996 provides that on receipt of an application under section
34(1) for setting aside an arbitral award, 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 the arbitral tribunal will eliminate the
grounds for setting aside the arbitral award. Under the provisions of section 34(4), where it is appropriate and it is so
requested by a party, the court to which an application is made for setting aside an arbitral award to remit the
award to the arbitral tribunal for eliminating the grounds on which the award in liable to be set aside. The court,
while remitting the award, will specifically mention in the remission order the period of time within which the tribunal
shall resume the arbitral proceedings and eliminate from the award the grounds for setting it aside. The period of
time mentioned in the remission order cannot be extended. Thus, if the arbitral tribunal fails to resume the arbitral
proceedings or to rectify the award by removing from the award the grounds for setting it aside within the prescribed
time, the court will resume the proceedings for setting aside the arbitral award. It is to be noted that when an award
is remitted to the arbitral tribunal, the tribunal is conferred with the jurisdiction to reconsider the matter remitted to
it afresh. If the arbitral tribunal decides a matter which has not been remitted to it, such decision is without
jurisdiction and hence a nullity.

Discuss the jurisdiction of an arbitral tribunal in deciding matter remitted to it under section 34(4) of the
Arbitration and Conciliation Act, 1996

Time limit for making an Application for Setting Aside an Arbitral Award under Section 34

What is the time limit for making an application for setting aside an arbitral award under the provisions of section
34 of the Arbitration and Conciliation Act, 1996? Whether the provisions of the Limitation Act, 1963 applies to the
making of such application?

Section 34(3) of the Arbitration and Conciliation Act, 1996 provides that an application for setting aside an arbitral
award 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 for correction and interpretation of
award or additional award, from the date on which that request had been disposed of by the arbitral tribunal.

The proviso appended to the section lays down that if the court is satisfied that the applicant was prevented by
sufficient cause from making the application for setting aside the arbitral award within the period of three months it
may entertain the application within a further period of thirty days but not thereafter.

The Arbitration and Conciliation Act, 1996 prescribes under section 34(3) the period of limitation for making an
application for setting aside an arbitral award on any of the grounds stated in section 34(2). The limitation in three
months from the date on which the party making the application had received the arbitral award or, if a request is
made under section 33, from the date on which that request was disposed of by the arbitral tribunal. However, the

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 court may condone a delay of 30 days in the maximum 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 is to be noted that although
section 43(1) provides that the Limitation Act, 1963 shall apply to arbitrations as it applies to proceedings in court
does not have the effect of overriding the provisions of section 34(3) in view of the expression 'but not thereafter'
mentioned in the proviso of section 34(3). In Union of India v. Popular Construction Co., MANU/SC/0613/2001 :
(2001) 8 SCC 470, it was held that the time limit prescribed by section 34(3) to make an application for setting aside
an award is absolute and unextendable by the court under section 5 of the Limitation Act, 1963. In M.I.C. Electricals
Ltd. v. Union of India, Department of Telecommunications, 2002 (1) Arb LR 63 (AP), an order condoning delay of 80
days, instead of maximum of 30 days was held to be illegal and was set aside in revision. In Union of India v. Tecco
Trichy Engineers and Contractors, MANU/SC/0214/2005 : (2005) 4 SCC 239, it was held that a delay of 27 days in
filing the application under section 34 deserves to be condoned and the application of the appellant deserves to be
heard and decided on merits. In Vastu Finvest &

Holdings Pvt. Ltd. v. Gujarat Lease Financial Ltd., 2001 Arb WLJ 371 (Bom),

it was held that where the prescribed time limit has expired an application for amendment to raise an independent
ground of challenge cannot be entertained.

Right to get an award set aside in statutory right

In the Supdtg. Engineer (Highway and Rural Works), Chennai v. D.G. Deivasigamani, AIR 2005 Mad 59, it was held
that the right to file an application under section 34 to set aside an award is statutory and the same is unconditional
and unqualified.

Proper Approach of the Court in Setting Aside an Arbitral Award

What should be the proper approach of the court in setting aside an arbitral award? Support your answer with
decided cases

While considering the legality and validity of award, the court cannot substitute its own findings as if sitting in
appeal over award. The court has no jurisdiction to interfere with the award [Ram Prasad Sharma v. Jharkhand State
Housing Board, AIR 2006 NOC 258 (Jhar)]. In Union of India v. Pam Developments Pvt. Ltd., AIR 2004 NOC 353 (Cal),
it was held that the court cannot interfere with the award on the ground that the award is erroneous if the award is
otherwise proper. It is not open to the court to reapprecite reasonableness of reasons in the arbitral award. In Puri
Construction (P) Ltd.

v. Union of India, MANU/SC/0427/1989 : AIR 1989 SC 777, it was held that when a court is called upon to decide the
objection raised by a party against an arbitral award, it has no jurisdiction to sit in appeal and examine the
correctness of the award on merits. The court cannot sit in appeal over the views of the arbitrator by re-examining
and re-assessing the materials. In E. & N.E.F. Railway Co-op. Bank Ltd. v. B. Guha & Co., MANU/WB/0027/1986 : AIR
1986 Cal 146, it was held that it is not open to the court to reassess the evidence to find whether the arbitrator has
committed any error or to decide the question of adequacy of such evidence. In Bihar State Electricity Board v.
Khalsa Bros., MANU/BH/0048/1988 : AIR 1988 Pat 304, it was held that an arbitrator is a tribunal selected by the
parties and his adjudication is binding on them. If it were permissible for the court to re-examine the correctness of
the award, the entire proceeding would amount to an exercise in futility. In

Yeshwantrao Ganpatrao v. Dattartrayarao Ramchandrarao, MANU/NA/0006/1946 : AIR 1948 Nag 162, it was held
that the arbitrators are judges of fact as well as law and have jurisdiction and authority to decide wrongly as well as
rightly, and thus, if they reach a decision fairly after hearing both sides, their award cannot be attacked. In Sarkar
Enterprise v. Golden Reach Ship Builders and Engineers Ltd., MANU/WB/0312/2001 : AIR 2002 Cal 65, it was held that
insufficiency of evidence cannot nullify an award. In Municipal Corporation of Delhi v. Jagan Nath Ashok Kumar,
MANU/SC/0013/1987 : (1987) 4 SCC 497, it was held that appraisement of evidence by the arbitrator is ordinarily

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 never a matter which the court questions and considers. It may be possible that on the same evidence the court
might have arrived at a different conclusion than the one arrived at by the arbitrator but that by itself is no ground
for setting aside the award of an arbitrator.

Constitutional Validity of Section 34

Discuss the constitutional validity of section 34 of the Arbitration and Conciliation Act, 1996

In T.P.I. Ltd. v. Union of India, 2001 (3) Raj 70 Del, by a writ petition, the petitioner contended that there should be
a right to challenge the award on merits and in the absence of such a provision, section 34 would be
unconstitutional. The writ petition was dismissed and it was held that the matter in question does not relate to
judicial review of an administrative action or of a tribunal decision created under any statute. In arbitration, the
alternative forum is selected by the parties on their own free will and they agree to the arbitrator's decision by an
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.

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