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Setting aside an Arbitral Award in India

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The Arbitration and Conciliation Act, 1996

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.

COMMENT –The principle of Intervention:  The law with regard to Section 34 of Arbitration and Conciliation Act, 1996, is well settled that the jurisdiction of the Court to interfere with the award made by an arbitrator is very limited and consequently the court while entertaining an objection petition under Section 34 of the said Act cannot sit as a Court of Appeal and that evidence is not to be re- appreciated. The Apex Court in the case of Markfed Vanaspati and Allied Industries v. Union of India reported in (2007) 7 Supreme Court Cases 679, while relying on Bijendra Nath Srivastava (Dead) through LRs v. Mayank Srivastava And Others reported in (1994) 6 Supreme Court Cases 117, has observed that “the arbitrator is the sole judge of the quality as well as the quantity of the evidence. It will not be for the court to take upon itself the task of being a judge of the evidence before the arbitrator. The court should approach an award with a desire to support it, if that is reasonably possible, rather than to destroy it by calling it illegal.” Further in Mcdermott International Inc. v. Burn Standard Co. Ltd. & Ors reported in (2006) 11 SCC 181 it has been held by the Apex Court that “the 1996 Act makes provision for the supervisory role of courts, for the review of the arbitral award only to ensure fairness. Intervention of the court is envisaged in few circumstances only like, in case of fraud or bias by the arbitrators, violation of natural justice, etc.” Recently, the observations of the Apex Court in para 21 in P.R. Shah, Shares and Stock Brokers Private Limited v. B.H.H. Securities Private Limited And Others reported in (2012) 1 Supreme Court Cases 594 is worth noting in this respect. Para 21 reads as under:-
“21. A court does not sit in appeal over the award of an Arbitral Tribunal by reassessing or reappreciating the evidence. An award can be challenged only under the grounds mentioned in Section 34 (2) of the Act. Therefore, in the absence of any ground under section 34 (2) of the Act, it is not possible to re-examine the facts to find out whether a different decision can be arrived at.”

Appreciation of facts and evidence: Where the Arbitral Tribunal has assessed the material and evidence placed before it in detail, the court while considering the objections under Section 34 of the said Act does not sit as a court of appeal and is not expected to re-appreciate the entire evidence and reassess the case of the parties. The jurisdiction under section 34 is not appellate in nature and an award passed by an Arbitrator cannot be set aside on the ground that it was erroneous. It is not open to the court to interfere with the award merely because in the opinion of the court, another view is possible. The duty of the court in these circumstances is to see whether the view taken by the Arbitrator is a plausible view on the facts, pleadings and evidence before the Arbitrator. Even if on the assessment of material, the court while considering the objections under section 34 is of the view that there are two views possible and the Arbitral Tribunal has taken one of the possible views which could have been taken on the material before it, the court would be reluctant to interfere. The court is not to substitute its view with the view of the Arbitrator if the view taken by the Arbitrator is reasonable and plausible.

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