This article is written by Mukarram Chaudhary, here he discusses grounds on which an arbitration award can be challenged.
Arbitration is a legitimate strategy, which happens outside the courts, yet at the same time results in a last and lawfully restricting decision like a court judgment. Arbitration is an adaptable strategy for dispute goals, which can give a speedy, cheap, secret, reasonable and last solution for a dispute. It includes the assurance of the dispute by at least one free outsiders instead of by a court. The outsiders, called arbitrators, are named by or for the benefit of the gatherings in dispute. The arbitration is led as per the terms of the parties arbitration understanding, which is generally found in the arrangements of a business contract between the parties.
Practically speaking, this agreement is frequently made before the dispute emerges and is incorporated as a condition in their business contract. In marking an agreement with an arbitration proviso, the meetings are concurring that their dispute won’t be heard by a court, yet by a private individual or a board of several private peoples. If the parties have consented to arbitration, they will by and large need to go to arbitration, instead of the court. As the courts will ordinarily decline to hear their case by staying it to compel the hesitant party to respect their agreement to arbitrate.
Grounds for setting aside an arbitration award
Domestic Arbitral award
An award approved in arbitration which takes place in India would be a “domestic award”. additional, an award made in an international commercial arbitration held in a non-convention nation is also measured to be a “domestic award”.
The challenges to the arbitral awards are dealt with chapter VII under the head ‘Recourse against arbitral award’. This chapter has only one section i.e. Section 34. The section deals with setting aside the arbitral award. This section is based on Article 34 of the UNCITRAL Model with few deviations. The applicability of section 34 is limited to the awards made in India or domestic awards.
The arbitrator after making the award files the same in the court. The party desiring to have the award set aside must make an application to the court under which an award can be challenged on the grounds mentioned in section 34 of the Act. The Court can act only when such an application is made by a party. There is no special form prescribed to make the application. The section lists the grounds for setting aside which are exhaustive.
The remedy under this section is available only in case of domestic arbitration. Thus, an application filed under this section for setting aside an award made in connection with a contract relating to international commercial arbitration will have no applicability.
An award can be set aside only in the three contingencies;
- The composition of arbitral tribunal was not in accordance with the agreement;
- The arbitral procedure was not in accordance with the agreement between the parties;
- In the absence of such an agreement, the composition of the arbitral tribunal or arbitration procedure was not in accordance with Part I of the Act.
An award will be entirely void if;
- The arbitrator was not validly appointed or lacked necessary qualifications.
- The parties never made any binding arbitration agreement.
- the matters in dispute fell outside the scope of the agreement.
- the whole of the relief granted lay outside the powers of the arbitrator.
It is clear from a bare reading of section 34 that the award can be set aside only if any of the five grounds as contained in section 34(2)(a) or any of the two grounds as contained in section 34(2)(b) of the Act exist. The scope of interference with the award is very limited and is restricted to the grounds mentioned in this section. The use of the word ‘only’ is fairly significant and it excludes a position of attack against an arbitral award other than those contemplated under section 34(2) (a) and (b) stated in this section and no more. Any ground other than the one listed in the section may be invoked. Therefore it is necessary to examine these grounds closely.
In addition to section 34, there are some additional grounds for setting aside awards. Section 13 of the 1996 Act provides for a challenge to an arbitrator on the ground of lack of independence or lack of qualification or neutrality. An application for the challenge in the first instance is to be made before the arbitral tribunal itself. Section 13(5) of the 1996 Act provides that where the tribunal overrules proceeds and challenge with the arbitration, the party demanding the arbitrator may create an application for setting aside the arbitral award under section 34 of the Act. Consequently, the approach to a court is merely at the post-award stage.
Foreign Arbitral award
Part II of the Act of 1996 deals with the Enforcement of Certain Foreign Awards. It has two chapters. Chapter I, section 44 to 50, deals with New York Convention awards; and chapter II, section 53 to 60, deals with Geneva Convention awards. The provisions of Part II of the Act of 1996 give effect to both the New York Convention and the Geneva Convention.
According to both UNCITRAL Model Law and New York Convention, any recourse against an arbitral award including the possibility of an annulment is left to the national courts of the country in which the arbitration has its seat. The Act of 1996 provides for setting aside proceedings against an arbitral award under Section 34, which falls within Part I of the Act; whereas the enforcement process would be as per Part II of the Act.
In order to be considered as a foreign award (for the purposes of the Act), the same must fulfill two requirements;
- it must deal with differences arising out of a legal relationship (whether contractual or not) considered as commercial under the laws in force in India.
- the country where the award has been issued must be a convention country. A convention country is a member country of the New York Convention and notified by the Government of India in the Official Gazette It is generally accepted that an international arbitration award is final and binding.
A court judgment can be appealed for factual and legal review. But an arbitral award typically can only be challenged based on procedural irregularities, lack of jurisdiction, and lack of arbitrability or violation of public policy. The English Arbitration Act of 1996 permits appeal on a point of English law if all parties agree or the court grants leave to appeal. The court’s power to grant leave, however, is restricted and requires the court to determine that resolution of the question will substantially affect the rights of one or more parties and that the question was one the tribunal was asked to decide. It further requires the court to determine that the tribunal’s decision was obviously wrong or “the question is one of general public importance and the decision of the tribunal is at least open to serious doubt.”
There are several requirements for a foreign arbitral award to be enforceable under the Act of 1996.
- Commercial transaction: The award must be given in a convention country to resolve commercial disputes arising out of a legal relationship.
- Written agreement: The Geneva Convention and the New York Convention provide that a foreign arbitral agreement must be made in writing, although it needs not to be worded formally or be in accordance with a particular format.
- The agreement must be valid: The foreign award must be valid and should arise from an enforceable commercial agreement.
- The award must be unambiguous: To give effect to an award, it must be clear, unambiguous and capable of resolution under Indian law.
Important judgments of courts vis-a-vis challenging of an arbitral award
In Sanjeev Kumar Jain v. Raghubir Saran Charitable Trust, (2012) 1 SCC 455, the supreme court of India has dealt the important arrangements under the Code of Civil Procedure, 1908 for the honor of compensatory and correctional expenses for the successful party. The Supreme Court in this landmark judgment has recommended a climb in the quantum of expenses on people enjoying negligible and vexatious cases, which are stopping up the equity conveyance framework in the nation.
The Supreme Court, following its earlier decision, in appeal in Bhatia International vs Bulk Trading S. A. & Anr 2002, Trading held that even though there was no provision in Part-II of the Act providing for the challenge to a foreign award, a petition to set aside the same would lie under Sec. 34- Part I of the Act. The Court held that Indian Law necessarily would need to be followed to execute the award. The Court held that a challenge to a foreign award in India would have to meet the expanded scope of Public Policy as laid down in Saw Pipes Case i.e. to meet a challenge on merits contending that the award is ‘patently illegal’.
In Oil & Natural Gas Corp. v. Saw Pipes Ltd., in 2003 The Supreme Court prescribed four facets while elaborating on the meaning of the expression ‘public policy of India’ in context of Section 34 and only the test of “patent illegality” is inapplicable to a challenge to enforcement of foreign awards under Section 48 of the Act.62 Thus, the principles enunciated in this case, being part of “fundamental policy of Indian law” are applicable to domestic and foreign awards alike.
The Parliament has ordered the Arbitration and Conciliation Act so as to give expedient cure by arbitration and to accomplish this target, section 5 of the Act puts a complete bar on the mediation of the courts in issues where there exists an arbitration statement. The law of arbitration in India is, particularly at its intersection. As things stand today, arbitration is ready to impact extraordinary changes to the manners by which dispute resolution is conducted. It carries with it the seriousness and irrevocability of the legal procedure and couples it with the procedural adaptabilities of non-traditional dispute goals techniques. There is, however, a similarly pressing need to significantly enhance the arbitral procedures in India. However, in particular, we feel that there is a need to impact an adjustment in recognition. As our country moves towards expanding belligerence, elective techniques for dispute goals may very well give the way to settling the issues of overburdened caseloads, long pendency of cases and a very incessant instance of equity being deferred.