India: Validity And Grounds For Challenging An Award

Last Updated: 15 May 2017
Article by Mahip Singh Sikarwar

Most Read Contributor in India, July 2017

PREFACE

The parties cannot appeal against an arbitral award as to its merits and the court cannot interfere on its merits. The Supreme Court has observed "an arbitrator is a judge appointed by the parties and as such an award passed by him is not to be lightly interfered with." But this does not mean that there is no check on the arbitrator's conduct. In order to assure proper conduct of proceeding, the law allows certain remedies against an award.

INDIAN SCENARIO

Under the repealed 1940 Act three remedies were available against an award- modification, remission and setting aside. These remedies have been put under the 1996 Act into two groups. To the extent to which the remedy was for rectification of errors, it has been handed over to the parties and the Tribunal. The remedy for setting aside has been moulded with returning back the award to the Tribunal for removal of defects.

Section 34 provides that an arbitral award may be set aside by a court on certain grounds specified therein. Under Section 34 of the Act, a party can challenge the arbitral award on the following grounds-

  • the parties to the agreement are under some incapacity;
  • the agreement is void;
  • the award contains decisions on matters beyond the scope of the arbitration agreement;
  • the composition of the arbitral authority or the arbitral procedure was not in accordance with the arbitration agreement;
  • the award has been set aside or suspended by a competent authority of the country in which it was made;
  • the subject matter of dispute cannot be settled by arbitration under Indian law; or
  • the enforcement of the award would be contrary to Indian public policy.

The Amendment Act has added an explanation to Section 34 of the Act. In the explanation, public policy of India has been clarified to mean only if:

  • the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or 81; or
  • it is in contravention with the fundamental policy of Indian law; or
  • it is in contravention with the most basic notions of the morality or justice.

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

The Amendment Act clarifies that an award will not be set aside by the court merely on erroneous application of law or by re-appreciation of evidence.1 A court will not review the merits of the dispute in deciding whether the award is in contravention with the fundamental policy of Indian law.2 The Amendment Act has also introduced a new section providing that the award may be set aside if the court finds that it is vitiated by patent illegality which appears on the face of the award in case of domestic arbitrations. For ICA seated in India, 'patent illegality' has been keep outside the purview of the arbitral challenge.3

A challenge under this section can be filed only after providing prior notice to the opposite party.4Section 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)5, 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.

In Sanshin Chemical Industry v. Oriental Carbons & chemical Ltd.6, 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.

In Brijendra Nath v. Mayank,7 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.

INTERNATIONAL SCENARIO

Generally, the grounds for challenging an award are limited and many countries do not permit appeals from the decision of an arbitral tribunal. In countries that have adopted the UNCITRAL Model Law on International Commercial Arbitration, awards can only be challenged by seeking their 'annulment' at the seat of the arbitration. Awards may also be challenged by resisting their enforcement in a place where the successful party seeks to enforce them. Even if an award is annulled, or if enforcement is refused, this may not necessarily prevent it from being enforced in another country.

The grounds to challenge of awards given in Part I (section 34) of the Indian Arbitration Act are applicable only to Domestic Awards and not to Foreign Awards. On September 6, 2012, Supreme Court in Bharat Aluminum Co. v. Kaiser Aluminium Technical Service Inc. reconsidering its previous decisions concluded that the Indian Arbitration Act should be interpreted in a manner to give effect to the intent of Indian Parliament. In this case the Court reversed its earlier rulings in cases of Bhatia International v. Bulk Trading S.A. & Anr. and Venture Global Engg v Satyam Computer Services Ltd & Anr. stating that findings in these judgments were incorrect. Part I of the Indian Arbitration Act has no application to arbitrations seated outside India irrespective of whether parties chose to apply the Indian Arbitration Act or not. Most importantly, these findings of the Supreme Court are applicable only to arbitration agreements executed after 6 September 2012. Thus all disputes pursuant to arbitration agreement entered into upto 6 September 2012 shall be decided by old precedents irrespective of fact that according to the Supreme Court such rulings were incorrect and have been reversed.

Most challenges will be made before the courts. Although each country which has a law governing arbitration will have its own concept for challenging arbitral awards, there are three general grounds for such challenges.

  • An award may be challenged on jurisdictional grounds, i.e. the non-existence of a valid and binding arbitration clause.
  • An award may be challenged on what may be broadly described as procedural grounds, such as failure to give proper notice of the appointment of an arbitrator.
  • An award may be challenged on substantive grounds, on the basis that the arbitral tribunal made a mistake of law or on the grounds of a mistake of fact.

Some arbitration rules provide for "internal" challenges. The most extensive provision for the challenge of arbitral awards by means of an internal review procedure is to be found in the ICSID arbitration rules. In the case of an application for the annulment of the award, an ad hoc committee of three members is constituted by ICSID to determine the application. If the award is annulled, in whole or in part, either party may ask for the dispute to be submitted to a new tribunal, which Tribunal will consider the dispute again and then deliver a new (and final) award.

Footnotes

1 Proviso to section 34(2A) of the Act

2 Explanation 2 to section 48 of the Act

3 Section 34(2A) of the Act

4 Section 34(5) of the Act

5 (2003) 4 RAJ 363 (Bom)

6 AIR 2001 SC 1219

7 AIR 1994 SC 2562

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.