Arbitral Award, Is It Unchallengeable?

What is an arbitral award?

Under the Arbitration and Conciliation Act, 1996 arbitral award is the order passed by the Arbitral Tribunal after hearing the contentions from both parties. An arbitral award could be monetary such as the amount of money one party has to pay to another or non-monetary such as restraining one party from doing something. It can be final, interim or consent based. As per section 2(1)(C) of the act arbitral award includes an interim award. Section 31(6) defines an Interim award as an award passed by an arbitral tribunal at any time during the arbitral proceedings. Section 30 talks about the award by consent. If during the proceeding, the parties want to settle the dispute, the arbitral tribunal shall terminate the dispute and record the settlement in the form of an arbitral award with the consent of both parties.

Arbitral awards are mainly categorized as follows

1. Domestic award

Act does not clearly define domestic award but as per section 2(7), an arbitral award made under part 1 shall be considered as a domestic award. In layman's language, an arbitration which take place within the territory of India considered as domestic. Even though arbitration is international if it takes place within the territory of India then it shall be considered as a domestic award and governed by part 1 of the act

2. Foreign award

Part II of the act deals with the foreign award. Section 44 of the act defines foreign awards as

“—In this Chapter, unless the context otherwise requires, “foreign award” means an arbitral award on differences between persons arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India, made on or after the 11th day of October, 1960—

(a) in pursuance of an agreement in writing for arbitration to which the Convention set forth in the First Schedule applies, and

(b) in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made may, by notification in the Official Gazette, declare to be territories to which the said Convention applies.”^[1]

Foreign awards are the awards which are decided by the arbitration tribunal outside of the territory of India This part deals with the arbitrations under international convention. Chapter 1 of Part I deals with the New York Convention and Chapter II deals with Geneva Convention Awards.

Essentials of an Arbitral Award

Section 31 deals with the essentials of an arbitral award

1. The award should be in writing and shall be signed by members of the arbitral tribunal
2. Arbitral award shall state the reason upon which the award is based
3. The award shall state the date and place of arbitration

Also, a signed copy shall be delivered to each party.

Procedure for issuing arbitral award.

The Arbitration and Conciliation Act, of 1996 outlined the procedure for the issuance of an arbitral award. To one extent arbitration process is similar to a trial proceeding. As per section 21 of the act, the arbitration process commences when the respondent receives notice of referring the dispute to arbitration. After beginning the arbitration parties constitute an arbitral tribunal to adjudge their matter. Parties are free to appoint anyone as arbitrator as agreed by both parties. In the absence of such agreement or if parties can't appoint the arbitrator within a stipulated period, the procedure laid down in sections 10 to 15 of the act is followed for the arbitrator's appointment. After constituting the arbitral tribunal parties are required to submit their pleadings, the claimant submits a statement of claims and the respondent submits the statement of defence. Submission has to be made within the agreed time. But these submissions should be completed within 6 months from the date the arbitrator or all arbitrators received notice, in writing of their appointment. Then tribunal decides whether to hold an oral proceeding or the proceeding shall be conducted based on documents and other material.

How can an arbitral award be set aside?

Generally, an arbitral award is considered unchallengeable and binding on parties because if the appeal in all instances is allowed then it would ultimately lose the purpose it is meant for i.e. to reduce the burden of judiciary and speedy trials of commercial matters. Supreme court has observed in Indu Engineering & Textiles Ltd vs Delhi Development Authority,^[2] “an arbitrator is a Judge appointed by the parties and as such the award passed by him is not to be lightly interfered with”. However, the act has given some exceptions in which parties can challenge the arbitral award. Sections 34(2)(a) and 34(2)(b) mentioned the ground where an arbitral ward can be challenged.

Section (2)(a) states

1. Incapacity of the parties

If the parties are incompetent or in some incapacity. Parties are minor or of unsound mind or any incapacity in which they are not obliged to follow any agreement. In order to protect the rights of such a person Section 9 of the act enables him to apply to the court for the appointment of a guardian for a minor person or a person of unsound mind for the purpose of arbitral proceedings. The ground of incapacity would cease to be available when the incompetent person is represented by a guardian.

2. Agreement is not valid

If the arbitration agreement is void under the law, parties have been subjected to or the agreement is not valid under the law at that relevant time. In case where the arbitration clause contained in the contract and the contract is invalid, then the arbitration agreement would also be considered invalid.^[3]

3. The party was notified

The party was not notified about the appointment of an arbitrator or the arbitral proceedings or was otherwise unable to present his or her case. Hon'ble Supreme Court in case of Dulal Poddar vs Executive Engineer, Dona Canal Division,^[4] held that “that the award given by the arbitrator was ex-parte one. Furthermore. Such an award which has been made by the Arbitrator having been passed without giving an opportunity of hearing to the respondent herein, was illegal and void.”. Also, both parties should get a chance to represent their side. Supreme Court on this held in case of K.V. George v Secy to Government, water and power deptt.^[5] That am award has been held liable to be set aside where the arbitrator has failed to consider the counter-claim of the party.

4. Subject matter beyond the scope of the arbitration clause

An arbitral award can be challenged if it 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 submissions to arbitration. In the case of Rajinder Krishan Khanna & Ors vs Union of India & Ors,^[6] matter under a writ petition was referred to arbitration and the petition contained no claim of compensation for damage so the apex court held that “the award of Rs.77,19,800 for "loss of potential of land" and interest thereon falls outside the scope of the reference to arbitration and is not in relation to a dispute contemplated thereby.”

5. Composition of arbitral tribunal

If the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or if any other administrative aspect of the agreement that was determined earlier by the parties has not been fully implemented, the aggrieved party may seek to have the award set aside in court. Supreme Court in the case of Krishna Lal v Union of India,^[7] set aside the arbitral award saying that the procedural requirement of the act of equal treatment of parties was not followed because the contractor was not allowed to lead evidence. Also, in another similar case Hon'ble Delhi High Court In Bharat Sanchar Nigam Ltd. v. Maharashtra Knowledge Corporation Ltd. (2019),^[8] the award was partially set aside because the arbitrator failed to examine important information while making his decision on the account of which the Arbitral Tribunal was formed and this resulted in the breach of terms of the contract.

Apart from these grounds, some other grounds on which an arbitral award can be challenged are given under Section 32(2)(b) stated:

1. Subject matter is of any other act/law

If the matter of dispute is of a nature that is not capable of settlement by arbitration under the law for the time being in force. Generally, almost all the matters in dispute not being of a criminal nature, may be referred to arbitration. Insolvency matters deciding whether a person is insolvent or not cannot refer to arbitration.

2. Against the public policy of India, fraud or corruption

If the award granted is against the fundamental public policy of India, then an application for setting aside the arbitration award can be moved. It includes if the award was induced by fraud or corruption or was in violation of section 75 or 81 or is in conflict of basic notions of morality and justice. In case of In Steel Authority of India Ltd. v. Primetals Technologies (2020),^[9] the award was partially set aside as being against public policy because an extraordinarily high-interest rate of 14 percent per annum was given without any justification in comparison to current interest rates. Furthermore, the high interest rate looked to be punitive in character given the circumstances. As a result, the interest rate was cut to 10% per year.

Limitation to application for setting aside the arbitral award

Application for setting aside an arbitral award may not be made after three months from the date on which party making the application has received the award. Or if a request of correction and interpretation under section 33 had been made, from the date on which that request had been disposed of by the arbitral tribunal. There is a time barrier on application under section 34 but if the court is satisfied that the applicant had sufficient cause for the delay in making the application within the said period of three months then the court can entertain such application but only within a further period of thirty days not thereafter. For calculating the limitation period date from which the period starts is the date on which the party received a signed copy of the arbitral award. Hon'ble Supreme Court on this matter further clarifies in the case of Union of India v. Tecco Trichy Engineers & Contractors, (2005)^[10] that the statute of limitations for filing an application under Section 34 would begin only after a valid delivery of the judgment was made under Section 31(5) of the Arbitration Act. Further in 2011 Apex Court again in the case of State of Maharashtra v. M/S. Ark Builders Pvt. Ltd.,^[11] (2011), declared that Section 31(1) required arbitral tribunal members to make their awards in writing and sign them. It was held that Section 31's sub-section (5) required the transmission of a copy of the award signed by the arbitrator's members, not just any copy of the award. The Court further said that if Section 31(5) and Section 34(3) were read together, the time of limitation for submitting objections would begin only after the signed copy of the award was submitted to the party bringing the motion for setting aside the award. So, application for setting aside the arbitration award can be moved within 3 months form the date on which party receive the signed copy of the Arbitral award.

The Indian Arbitration and Conciliation Act 1996 has adequate legal provisions for making, resisting and enforcing arbitration awards in India. The Act may therefore be seen to achieve a fair balance of the certainty of awards and the ability of the parties to appeal against decisions which are manifestly illegally arrived at. Limited ground for challenging the arbitral award is necessary in restoring the basic principles of ADR also the integrity of the ADR mechanism. The intervention of the Judiciary in arbitral awards needs to be reduced to provide the importance and reliance to Arbitration proceedings. Knowledge of both the procedural and the substantial legal frameworks of this Act regarding the arbitral awards is crucial for all those who are engaged in the arbitration process and their goal is to safeguard their position.

The authors are students at Guru Gobind Singh Indraprastha University. Views are personal.

REFERENCES

• THE ARBITRATION AND CONCILIATION ACT, 1996
• https://www.mondaq.com/advicecentre/content/3964/Limitation-Of-Time-Under-Section-34-Of-The-Arbitration-And-Conciliation-Act-1996
• https://www.scconline.com/blog/post/2021/09/24/section-34-of-arbitration-and-conciliation-act/
• https://www.natlawreview.com/article/courts-can-set-aside-or-uphold-arbitral-award-not-modify
• https://www.lexology.com/library/detail.aspx?g=b1595a58-372a-4f11-8acd-fa9a19a10e4c
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