What are the Grounds and Procedures for Setting Aside an Arbitral Award in India?

Arbitration is a widely accepted method of resolving disputes outside the traditional court system, offering parties a more flexible and efficient alternative. In India, the Arbitration and Conciliation Act, 1996, governs the arbitration process and outlines the legal framework for setting aside an arbitral award. This blog post delves into the key provisions and recent judicial decisions related to setting aside an arbitral award in India.

Grounds for Setting Aside an Arbitral Award

Section 34 of the Arbitration and Conciliation Act, 1996, provides the grounds on which a party can seek to set aside an arbitral award. These grounds include:

• Incapacity: If one of the parties was under some incapacity at the time the arbitration agreement was made.
• Invalid Arbitration Agreement: If the arbitration agreement is not valid under the law chosen by the parties or, in the absence of such a choice, under the law currently in force.
• Lack of Proper Notice: If a party making the application was not given proper notice of the appointment of an arbitrator or the arbitral proceedings, or was otherwise unable to present their case.
• Award Beyond the Scope: If the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or if it contains decisions on matters beyond the scope of the submission to arbitration. In such cases, only the part of the award dealing with matters not submitted to arbitration may be set aside.
• Procedural Violation: If the composition of the arbitral tribunal or the arbitral procedure did not comply with the parties’ agreement, unless such agreement conflicted with mandatory provisions of the Arbitration Act.
• Public Policy Conflict: If the award is in conflict with the public policy of India, which includes situations involving fraud, corruption, violation of statutory provisions, contravention of fundamental policy, or a decision contrary to basic morality or justice.

It’s important to note that the 2019 amendment to Section 34(2)(a) replaced the words “furnishes proof that” with “establishes on the basis of the record of the arbitral tribunal that.”

Recent Judicial Decisions

Recent judicial decisions have provided further clarity on the grounds and procedures for setting aside arbitral awards:

• Alpine Housing Development Corporation Pvt. Ltd. vs. Ashok S. Dhariwal & Ors. (2023 SCC OnLine SC 55): In exceptional cases where relevant information is not in the record of the arbitrator, parties challenging the award under Section 34(2)(a) may file an affidavit as evidence.
• Indian Oil Corporation vs. Shree Ganesh Petroleum Rajgurunagar (2022 (4) SCC 463): An arbitral award can be deemed patently illegal when the tribunal fails to act in accordance with the contract’s terms or ignores specific contract provisions.
• Mutha Constructions vs. Strategic Brand Solutions (I) Pvt. Ltd. (SLP No. 1105 of 2022): Parties to arbitration can agree to remit the matter to the same arbitrator for a fresh reasoned award if the award is set aside under Section 34.
• National Highways Authority of India vs. P. Nagaraju (2022 SCC OnLine SC 864): Courts have no discretion to deviate from the mandatory requirement of depositing 75% of the awarded amount as a pre-deposit in Section 34 applications under the Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006.
• Tirupati Steels vs. Shubh Industrial Component & Anr. (2022 7 SCC 429): Section 34(4) of the Arbitration Act does not grant courts the authority to modify an arbitral award; their role is limited to setting it aside.
• Project Director, National Highway No.45 E and Anr. vs. M. Hakeem & Anr. (2021 9 SCC 1): Courts cannot modify arbitral awards under Section 34; their jurisdiction is restricted to setting aside awards on limited grounds.

Conclusion

Understanding the grounds and procedures for setting aside an arbitral award is essential for parties involved in arbitration proceedings in India. Recent judicial decisions have shed light on the interpretation and application of these provisions, ensuring that the arbitration process remains efficient and equitable.