LL.B. IV Sem and BA LL.B.

VIII Sem
Subject: ADR & Arbitration
Dr. Rajnish Kumar Singh
Law School, BHU

Arbitration and Conciliation Act, 1996

Chapter VII: Recourse Against Arbitral Award
Document 1
Section 34: Application for setting aside arbitral award -
1. Recourse to a Court against an arbitral award may be made only by an application for
setting aside such award in accordance with sub-section (2) and sub-section (3).
2. An arbitral award may be set aside by the Court only if—
a) the party making the application furnishes proof that—
i) a party was under some incapacity, or
ii) the arbitration agreement is not valid under the law to which the parties have
subjected it or, failing any indication thereon, under the law for the time being
in force; or
iii) 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; or
iv) the arbitral award 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 submission to arbitration:
Provided that, if the decisions on matters submitted to arbitration can be
separated from those not so submitted, only that part of the arbitral award
which contains decisions on matters not submitted to arbitration may be set
aside; or
v) the composition of the arbitral tribunal or the arbitral procedure was not in
accordance with the agreement of the parties, unless such agreement was in
conflict with a provision of this Part from which the parties cannot derogate,
or, failing such agreement, was not in accordance with this Part; or
b) the Court finds that—
i) the subject-matter of the dispute is not capable of settlement by arbitration
under the law for the time being in force, or
ii) the arbitral award is in conflict with the public policy of India.

Explanation 1.—For the avoidance of any doubt, it is clarified that an award is

in conflict with the public policy of India, only if,—
i) the making of the award was induced or affected by fraud or
corruption or was in violation of section 75 or section 81; or
ii) it is in contravention with the fundamental policy of Indian law; or
iii) it is in conflict with the most basic notions of morality or justice.
 Explanation 2.—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 dispute.
(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 award:
Provided that an award shall not be set aside merely on the ground of an erroneous
application of the law or by reappreciation of evidence.
(3) An application for setting aside may not be made after three months have elapsed from the
date on which the party making that application had received the arbitral award or, if a request
had been made under section 33, from the date on which that request had been disposed of by the
arbitral tribunal:
Provided that if the Court is satisfied that the applicant was prevented by sufficient cause
from making the application within the said period of three months it may entertain the
application within a further period of thirty days, but not thereafter.
(4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and
it is so requested by a party, adjourn the proceedings for a period of time determined by it in
order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take
such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside
the arbitral award.
(5) An application under this section shall be filed by a party only after issuing a prior notice to
the other party and such application shall be accompanied by an affidavit by the applicant
endorsing compliance with the said requirement.
(6) An application under this section shall be disposed of expeditiously, and in any event, within
a period of one year from the date on which the notice referred to in sub-section (5) is served
upon the other party.

Comments
 Chapter VII of the Act contains only one section i.e section 34. It is the most
important provision because it is most significant in the delicate task of balancing
between part autonomy on hand and judicial control on the other.
 The provision can be invoked only on an application, but the Act does not provide
any format. It is relevant to mention that the application should lay the foundation
of the evidence that the applicant would like to adduce. The application must be
filed within the time limit prescribed in section 34(3).
 The arbitral award is not reviewable by a court of law on the traditional grounds of
error of law or error of fact, because the tribunal is the master of both law and fact.
The award is binding on the parties even if it is bad or indifferent provided the
 necessary formalities have been observed and correct procedures have been
followed.
In the case of Union of India v. AL Rallia Ram (AIR 1963 SC 1685) the court
observed that “the award of the arbitrator is ordinarily final and conclusive, unless
a contrary intention is disclosed by the agreement. The award is the decision of a
domestic tribunal choosen by the parties, and the civil court which are entrusted
with the power to facilitate arbitration and to effectuate the awards cannot exercise
appellate powers over the decision. Wrong or right, the decision is binding, if it is
reached fairly and after giving adequate opportunity to the parties to place their
grievances in the manner provided by the agreement.
Again in the case of Rajasthan State Mines and Minerals Ltd. v. Eastern
Engineering Enterprises (1999) 9 SCC 283, the court observed the following:
1. It is not open for courts to speculate the reasons for arbitrator to arrive at his
conclusion.
2. Court shall not probe the mental process by which the arbitrator has reached
the conclusion.
3. Court cannot interfere on mere error of fact or law.
4. If no specific question of law is referred the decision of arbitrator on that
question is not final.
5. In order to examine if the arbitrator acted beyond jurisdiction, two things need
to be seen: a) arbitration agreement needs to be examined; and b) whether
claimant could have raised a particular claim before the arbitrator or whether
he actually raised it.
6. The award made by the arbitrator disregarding the terms of the reference or the
arbitration agreement or the terms of the contract would be a jurisdictional
error. The deliberate disregard of contract between the parties by the arbitrator
is not only misconduct but it may also amount to mala fide action. (We will
examine this point later in the context of 2015 Amendment Act).

Grounds for setting aside the arbitral award:

There are seven grounds in section 34(2)(a) & (b) for setting aside an arbitral
award. First five grounds mentioned in clause (a) must be pleaded and proved by the
party, whereas rest two grounds mentioned in clause (b) need not be pleaded, the court by
its own initiative may take cognizance of these.

[Note: The general principles of contract Act shall apply with respect to the grounds
mentioned below and the present document shall not elaborate those principles,
students may revise those principles]
1. Incapacity of parties: Capacity is not only required at the time of entering into
the arbitration agreement but also during the course of the proceedings.
2. Non-existence or invalidity of Arbitration agreement: It shall be a case of
patent lack of jurisdiction. Examples of non-existing agreement is if one of the
parties did not have legal capacity to sign it or if it a case of misrepresentation or
illegal in the country. The invalidity is to be determined on the basis of any one of
the reasons contemplated by the law to which the parties have subjected their
arbitration. It is relevant to mention that section 28 of the Act provides freedom to
partied to designate law of any country for them and the law of that country shall
govern their transaction. It is that law which shall be used to determine the validity
of the agreement.
3. Non-compliance of due process: It has two aspects:
a) Party was not given proper notice of the appointment of arbitrator. In relation
to proper notice some institutions have prescribed their own forms of the
notice. A notice becomes proper if it gives notice in writing about particulars
of the reference. It must be real, definite and must give ample time to the
parties. Otherwise it may amount to violation of right to be heard.
b) Inability of a party to present his case. Section 18 provides that parties shall be
treated with equality and each party shall be given full opportunity to present
his case. If a party is prevented from presenting his case it is incumbent on him
to raise his objection before the tribunal immediately. (kindly refer to our
discussions on section 16 of the Act). If the tribunal finds the objections
sustainable, it should give him an opportunity to present his case. If it rejects
the objection, the decision will be reviewable by the court only once the award
is passed. (Students are advised to revise the contents of section 16).
4. Exceeding Jurisdiction:
a) Disputes not contemplated or not falling within the terms of the submission to
arbitration. The difference between arbitration agreement and submission
agreement has been discussed with section 7 of the Act. (Students are advised
to refer to our discussion of section 7. Arbitration agreement is an
agreement between the parties to submit disputes arising between them,
while submission to agreement is the factual submission of certain
specified disputes by the parties to the tribunal). Many disputes may arise
out of an agreement out of which the tribunal has to confine itself to the
disputes submitted by the submission agreement.
b) Award contains certain decisions on matters beyond the scope of submission to
arbitration.
 Separability of the award: Proviso to section 34(2)(a)(iv) gives legislative
recognition to the judicially evolved principle and adopts the language of
UNCITRAL Model law. The entire award shall not be set aside; it shall be set
aside to the extent it is beyond jurisdiction. There was no such provision in the
old 1940 Act but in practice the courts have been applying this principle.
5. Invalid composition of tribunal and invalid procedure: For both of these the
law was explained in the case of Narayan Prashad Lohia v. Nikunj Kumar Laohi
(the case was discussed in the context of section 10 to decide about the
derogable nature of that provision. Students are advised to refer to our
discussion of that case). The composition and procedure are valid as long as these
are in accordance with the agreement of the parties. ‘failing such agreement’
means if there is no agreement at all on these aspects, in such a situation the
validity of the composition and procedure is determined according to the
mandatory provisions of part I of the Act. Determination of validity of the
arbitration agreement is not contemplated by this provision. Students may refer to
sections 10, 11, 12, 13, 14, and 15 for the purpose of composition of the tribunal.

Ex office jurisdiction to set aside an arbitral award: Section 34(2)(b) provided two
grounds. These may be used even if these are not pleaded by the party contesting the
award.

1. Violation of Public Policy of India

2. Non-arbitrability of the subject matter.

These two grounds shall be discussed in separate documents. Together with these
the aspect of limitation prescribed in section 34 and other miscellaneous aspects
shall be discussed in separate document.