BY LABDHI JAIN
INTERN, H.K. LAW OFFICES
Introduction
An Arbitration Award is essentially a decision issued by an Arbitration Tribunal in an arbitration procedure and is comparable to a judgement issued by a court of law. Nonetheless, the aggrieved party may use of the remedies provided against arbitral rulings on specific reasons. Section 34 of the Arbitration and Conciliation Act of 1996 addresses the procedure for setting aside an arbitral decision made by an arbitral tribunal based on the occurrence of certain specific reasons specified in it. The Court may set aside an arbitral judgement only if the award is contrary to Indian public policy or if the court believes that the subject matter of the dispute is not amenable to resolution through arbitration. Alternatively, the court may adjourn its proceedings and direct the arbitral tribunal to resume the arbitral proceedings further or, in the arbitral tribunal’s opinion, to take necessary steps to eliminate the grounds for setting aside the arbitral award, if doing so is appropriate to deal with the situation and the applicant desires it.
The Supreme Court has addressed the role of an arbitrator several times. The rulings of an arbitral tribunal are legally binding. As a result, the decision is unlikely to be challenged. However, in some situations, the arbitral tribunal may fail to bring justice. Because the basic objective of law is to give justice, the court of law has been conferred with the power of intervention to compensate the offended party.
Grounds for rescinding Arbitral Awards
Section 34(2) (a) of the Arbitration and Conciliation Act, 1996 lists the grounds on which arbitral awards can be set aside by the court.
“The aggrieved Party has to prove either of the following points:
I. A party was under some incapacity
II. The arbitration agreement is not valid in accordance with the Law to which the parties to the Agreement have subjected it
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
IV. 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.
V. The composition of the tribunal or the arbitral procedure was not in accordance with the agreement of the parties.”[1]
“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:
I. The subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force.
II. The arbitral award is in conflict with the public policy of India.”[2]
Changes to the word “Public Policy” as a result of the modifications. Prior to the modifications, the word “public policy” was imprecise and fraught with danger. As a result, the courts had complete authority to interpret the phrase based on the facts of each case. However, it must be assured that it is for the greater good or advantage of the public. The unrestricted authority granted to the judiciary to intervene in tribunal issues has resulted in sluggish case disposition and will increase the strain on courts. To some degree, the word “public policy” has been explained in the explanatory section after the revisions, which states that an award is in contradiction with Indian public policy if it was inspired or influenced by fraud or corruption, or if it violated section 75 or section 81. Despite the explanatory paragraph, the word “public policy” remains ambiguous, even though it is clear that the degree of judicial interference has been reduced since the modification. “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
A. Fundamental policy of India
B. Interest of India
C. Justice or Morality.
This interpretation was found to be extremely narrow and restricted.”[3] “The term ‘public policy’ was given a wider connotation in the case of ONGC Ltd v Saw Pipes Ltd. 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.”[4]
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 stated the 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.
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:
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.
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.
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.[5], observed:
“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 Appellate Court.”
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”[6]
Limitation
1. Filing the application: According to Section 34, the application must be filed within three months of the date on which the party filing the application received the arbitral ruling (3). The court may hear an application within another 30 days, but not thereafter, if there is a substantial and appropriate explanation for the delay.
2. Application disposition: Following the 2015 Amendment, subsection 6 was added to section 34 to expedite the disposition of the case, which is the primary goal of the parties who choose arbitration to resolve disputes. Taking this into account, the maximum time restriction for disposing of the application is one year from the day notice was delivered.
Conclusion
The primary goal of the arbitration procedure is to restrict the interference of courts in order to expedite the resolution of disputes. The major goal of an arbitral tribunal’s award, on the other hand, is to guarantee that the award given is genuine and serves the goals of justice. As a result, striking a balance between the two becomes critical in order to provide total justice to the parties to a litigation. To preserve balance, the legislation allows courts to intervene in arbitral processes and overturn the arbitral verdict. However, it must be assured that the extent to which courts can intervene in the arbitral procedure is kept to a minimum.
[1] Section 34 of Arbitration and Conciliation Act, 1994.
[2] Id.
[3] Renusagar Power Co. Ltd v. General Electric Co , 1994 SCC Supl. (1) 644.
[4] ONGC Ltd v Saw Pipes Ltd. , (2003) 5 SCC 705.
[5] Venture Global Engineering LLC v Tech Mahindra Ltd, [2017] 13 SCALE 91 (SC).
[6] Associate Builder’s v. Delhi Development Authority, 2014 (4) ARBLR 307(SC).
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