SETTING ASIDE AN ARBITRAL AWARD

Not everyone takes defeat in their stride. So whenever an arbitral award goes against one of the parties to the dispute, he seeks a way of setting it aside. An award can be set aside only on the grounds mentioned in the Arbitration and Conciliation Act, 1996.

Earlier arbitration in India was lengthy and complex affairs. The arbitral process was also largely dependent on individual arbitrators due to a lack of formal rules and the fact. Arbitrations were also plagued with uncertainty because of various judicial decisions which expanded the scope of challenges to awards and judicial interference in the arbitral process. This uncertainty led to lengthy court proceedings arising from arbitrations and further ambiguity regarding the means by which final awards could be executed. These drawbacks hindered arbitration as an effective means of dispute resolution.

Setting aside of an award under Section 34 of the Arbitration and Conciliation Act, 1996: An award can be set aside if,

1. a party was under some incapacity; or
2. the arbitration agreement was not valid under the governing law; or
3. a party was not given proper notice of the appointment of the arbitrator or on the arbitral proceedings; or
4. the award deals with a dispute not contemplated by or not falling within the terms of submissions to arbitration or it contains decisions beyond the scope of the submissions; or
5. the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties; or
6. the subject matter of the dispute is not capable of settlement by arbitration; or
7. the arbitral award is in conflict with the public policy of India.

Limitation of Time: Section 34(3) provides that an application for setting aside an award shall not be entertained by the Court if it is made after three months have elapsed from the date on which the applicant had received the arbitral award.

The Arbitration and Conciliation (Amendment) Ordinance, 2015: In order to rectify these issues, Parliament passed the Arbitration and Conciliation (Amendment) Act which came into force on October 23 2015. The Amended Ordinance, 2015 has introduced significant changes to the Act. It is certainly a positive step towards making arbitration speedy, efficacious and a cost effective remedy which have been affecting arbitrations in India. With these amendments, arbitrations in India are sought to be made more user-friendly and cost effective. Furthermore, the ambit for judicial interpretation is narrowed and fair certainty has been brought to the Act. Persons who were earlier wary of Court intervention may now heave a sigh of relief.

The amendment seeks to:

• make arbitration in India a quicker and more streamlined process;
• reduce interference by the courts;
• make India a more attractive destination for foreign investors; and
• improve the ease of doing business in India

Section 34 has been amended to give a conclusive definition to the term “public policy” and includes:

1. If the making of the award was affected by fraud or corruption.
2. If it is in contravention to basic notions of morality or justice.
3. If it is in conflict with the fundamental policy of India.

Explanation 1 to the term ‘public policy of India’ substituted in Section 34(2)(b): As per the new amendment, an award passed in an international arbitration, can only be set aside on the ground that it is against the public policy of India if, and only if, – (i) the award is vitiated by fraud or corruption; (ii) it is in contravention with the fundamental policy of Indian law; (iii) it is in conflict with basic notions of morality and justice.

Explanation 2 inserted in Section 34(2)(b): The test as to whether the award is in contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.

Insertion of new sub section (2A) in Section 34: The present amendment has clarified that the additional ground of “patently illegality” to challenge an award can only be taken for domestic arbitrations and not international arbitrations. Further, the amendment provides that the domestic awards can be challenged on the ground of patent illegality on the face of the award but the award shall not be set aside merely on the ground of an erroneous application of law or by re-appreciation of evidence.

Insertion of new sub section (5) in Section 34: The new Act also provides that an application for setting aside of an award can be filed only after issuing prior notice to the other party. The party filing the application has to file an affidavit along with the application endorsing compliance with the requirement of service of prior notice on the other party.

Insertion of new sub section (6) in Section 34: A period of one year has been prescribed for disposal of an application for setting aside an arbitral award.

Amendments to Section 36: Mere filing of application for setting aside an arbitral award would not render that award unenforceable unless the court grants an order of stay on the operation of the said award on a separate application made for that purpose.

Parul

Senior Associate

The Indian Lawyer & Allied Services