An Arbitration Award is a basically a verdict given in an arbitration proceeding
by an Arbitration Tribunal and can be associated to the judgement given by a
court of Law. Nevertheless, the aggrieved party can take the benefit for the
remedies available against arbitral awards on certain grounds.
Section 34 of
Arbitration and Conciliation Act, 1996 deals with the procedure for setting
aside an arbitral award, granted by an arbitral tribunal, based on the happening
of certain specific grounds mentioned in 34(1). First and foremost, an
application has to be filed by the party desiring to set aside the arbitral
The party submitting the application has to thereby furnish proof of the
occurrence of situations mentioned in clause 2 of Section 34. Along with
furnishing such proof, it has to be ensured by the party filing the application,
that the application has been filed within three months from the date on which
they have received the arbitral award. Subsequent to furnishing such proof, the
court may entertain the application depending on its satisfaction on the
necessity of setting aside such arbitral awards.
An arbitral award may be set
aside by the Court only if the award granted is against the public policy of
India or if the court feels that the subject-matter of the dispute is not
capable of settlement by arbitration. Alternatively, the court may adjourn its
proceedings and direct the arbitral tribunal to resume the arbitral proceedings
further or to take necessary steps as per the opinion of the arbitral tribunal
to eliminate the grounds for setting aside the arbitral award, if doing so is
appropriate to deal with the situation and if the applicant desires so.
Need for amendments in this context in The Arbitration act, 1940
The expression public policy of India
was dicey and vague according to The
Arbitration Act of 1940 and the grounds authorizing setting aside of arbitral
award were also not clarified properly. Therefore in the Arbitration and
Conciliation Act, 1996, an opportunity is given to the judiciary to interpret
the case as per their understanding and give judgement accordingly. To solve the
aforementioned issue, the Act has been amended further in 2015, subsequent to
which Section 34 and the grounds entitling setting arbitral awards have been
made distinct and crystal clear.
As per the Arbitration and Conciliation Act, 1996, the aggrieved party has to
challenge the verdict and award granted by the arbitration tribunal and has to
file an application under Section 34 of the Act as the arbitral tribunal
established under the 1996 Act cannot review the decision on its own.
Rationale behind Section 34:
The position of an arbitrator is quite a few times
explained by the
Supreme Court. The decisions rendered by an arbitral tribunal have a binding
nature. Therefore its verdict can be hardly questioned. Nevertheless, at times,
in certain cases, the arbitral tribunal may fail to deliver justice. Since the
primary goal of law is to deliver justice, in order to ensure that, the court of
law has been bestowed with the power of intervention to indemnify the aggrieved
Grounds enabling setting aside Arbitral Awards
Grounds on virtue of which the arbitral awards can be set aside by the court is
mentioned in Section 34(2) (a) of the Arbitration and Conciliation Act, 1996.
The aggrieved Party has to prove either of the following points[i]:
- A party was under some incapacity
- The arbitration agreement is not valid in accordance with the Law to
which the parties to the Agreement have subjected it
- 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
- The dispute dealt by the arbitral award does not fall within the terms
of the submission to arbitration, or the award contains a decision beyond
the scope of the submission to arbitration.
- The composition of the tribunal or the arbitral procedure was not in
accordance with the agreement of the parties.
Section 34(2) (b) mentions about two circumstances on the satisfaction of which
the court may set aside the award granted by the arbitration tribunal:
- The subject-matter of the dispute is not capable of settlement by
arbitration under the law for the time being in force.
- The arbitral award is in conflict with the public policy of India.
Nuances of the term Public Policy subsequent to the amendments
Prior to the amendments, the term
was ambiguous and dicey. As a
result, the courts had the complete leverage to interpret the term as per the
circumstances of each case. However it had to be ensured that it is for the
larger public good or benefit. The unfettered power given to judiciary to
intervene in the matters of tribunal resulted into slow dispensing of case and
will add on the burden of courts.
To eliminate the ambiguity to an extent, the term public policy
clarified in the explanatory part, subsequent to the amendments, which
elucidates 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[ii].
Despite the aforementioned explanatory part, the ambiguity in the term public
policy still subsists though it is quite evident that the extent of judicial
intervention has minimized after the amendment.
Interpretation of the term public policy in the case of Renusagar Power Co.
Ltd v. General Electric Co
The Court gave a restricted meaning to the expression public policy in the
international Commercial arbitration case and it was opined that an award could
be refused only when the award is against
- fundamental policy of India
- interest of India
- justice or morality.
This interpretation was found to be extremely narrow and restricted.
The term public policy was given a wider connotation in the case of ONGC Ltd v
Saw Pipes Ltd.
[iv] The court opined that:
The phrase 'Public Policy of India' used in Section 34 in context is required to
be given a wider meaning. It can be stated that the concept of public policy
connotes some matter which concerns public good and the public interest. What is
for public good or in public interest or what would be injurious or harmful to
the public good or public interest has varied from time to time. However, the
award which is, on the face of it, patently in violation of statutory provisions
cannot be said to be in public interest. Such award/judgment/decision is likely
to adversely affect the administration of justice.
To give the term public policy a specific connotation, Law Commission in 2014
came to the rescue and put forward certain suggestions and recommendations.
246th Law Commission Report : Suggestion was given to file an application on the
grounds of public policy only when the award was persuaded or affected by fraud
or corruption, or was against the fundamental policy of Indian law or in
contravention with the most basic notions of morality.[v]
Subsequent to the suggestions put forward by the Law Commission, the Arbitration
and Conciliation Act was amended in 2015.
The 2015 amendment act[vi], clarifies that an award is in conflict with the
public policy of India, only if:
- the making of the award was induced or affected by fraud or corruption
or was in violation of section 75 or section 81; or
- it is in contravention with the fundamental policy of Indian law; or
- it is in conflict with the most basic notions of morality or justice.
For the avoidance of doubt, the test as to whether there is a contravention with
the fundamental policy of Indian law shall not entail a review on the merits of
The following sub-section shall be inserted, namely:
(2A) An arbitral award arising out of arbitrations other than international
commercial arbitrations, may also be set aside by the Court, if the Court finds
that the award is vitiated by patent illegality appearing on the face of the
Case laws clarifying the terms Public Policy
and Patent Illegality
Subsequent to the amendment, Courts withhold itself from giving a wide
interpretation to public policy. Supreme Court in the case of Venture Global
Engineering LLC v Tech Mahindra Ltd.
The Award of an arbitral Tribunal can be set aside only on the grounds specified
in Section 34 of the Arbitration and Conciliation Act and on no other ground.
The Court cannot act as an Appellate Court to examine the legality of Award, nor
can it examine the merits of claim by entering in factual arena like an
The term patent illegality was well explained by the Supreme Court in the case
of Associate Builder's v. Delhi Development Authority
The court concluded
that Patent Illegality constitutes the following:
- fraud or corruption
- contravention of substantive law
- error of law by the arbitrator
- contravention of the arbitration and Conciliation Act, 1996 itself
- the arbitrator fails to give consideration to the terms of the contract
and usages of trade under section 28(3) of the Act
- arbitrator fails to give a reason for his decision
- Filing the application: The application must be filed within 3 months
from the date on which the party making that application had received the
arbitral award as per section 34(3). The court may entertain an application
within a further period of 30 days but not thereafter in case there is a
sufficient and apt reason behind the delay caused.
- Disposal of application: Subsequent to the 2015 Amendment, subsection 6
has been added to section 34 to dispose the case efficiently at a fast pace,
which is the principal aim of the parties opting for arbitration to resolve
disputes. Taking this point into consideration, the maximum time limit
allowed for disposing the application is one year from the date on which
notice was served to the other party intimating the party about the filing
of application by virtue of 34(5), inserted in the 2015 Amendment of the
The principal aim of the arbitration process is to limit the intervention for
courts for faster disposal of cases. On the other hand, the main aim of the
Award delivered by arbitral tribunal is to ensure that the award granted is
legitimate and is serving the ends of justice.
Therefore it becomes essential to
balance between the two, to render complete justice to the parties to a suit. To
maintain the balance, law permits the courts to intervene in the arbitral
proceedings to set aside the arbitral award. Nevertheless, it has to be ensured
that extent to which courts can intervene in the arbitral process is be minimal.
Written By: Poulomi Sen,
- Section 34, Arbitration and Conciliation Act, 1996, available
- Section 34, Arbitration and Conciliation Act, 1996, available
- Renusagar Power Co. Ltd v. General Electric Co , 1994 SCC Supl. (1) 644
- ONGC Ltd v Saw Pipes Ltd. , (2003) 5 SCC 705
- Report 246- Law commission of India, available at, http://lawcommissionofindia.nic.in/reports/Supplementary_to_Report_No._246.pdf
- the Arbitration and Conciliation (amendment) act, 2015, available
- Venture Global Engineering LLC v Tech Mahindra Ltd,  13 SCALE 91
- Associate Builder's v. Delhi Development Authority, 2014 (4) ARBLR
Student Of Rajiv Gandhi School Of Intellectual Property Law, IIT Kharagpur