Webinar organized by CORD on scope of Section 34, Arbitration Act 1996 (setting aside of

Arbitral Reward)
Organizer- CORD
Topic - Arbitration and Conciliation Act, 1996 (Scope of Section 34.)
Date- 16th May, 2020.
Speakers:
Speaker 1- Justice Nageshwar Rao (Former Additional Solicitor General and Supreme Court
Justice.)

Speaker 2- K V Vishwanathan (Former Additional Solicitor General and Senior Advocate in

Supreme Court)
Moderators:
Moderator 1- Mr. Shashank Garg (Partner at Adani and Co.)

Moderator 2- Mr. Sameer Jain (Managing Partner at PSL Advocates and Solicitors)

Purpose  for Webinar

The humongous assemblage of undecided court cases in today’s globalization has become one of
the most concerning issues around the globe. Alternative Dispute Resolution is becoming the
most efficient way to carry out issues emerging in industrial and commercial space, its
effectiveness and prompt outcome is not only appreciated but also adopted in diverse parts of the
world. Besides emerging as the one of the most providential tools, ADR is additionally becoming
a necessity in the Indian market. With over 9 million pending civil cases the justice is not only
delayed but equally adversely affects the day to day commercial transactions. ADR has turned
into an eminent method of resolving issues arising of bilateral agreements between conflicting
parties, for the arbitration to perform effectively the interference of the judiciary should be
minimum, which has been taken note of the legislature itself. In addition to this, Arbitration Act
provides Section 32, which provides a provision of setting aside of arbitral awards by the courts,
but such cases of setting aside cannot be taken suo moto by the courts. The section provides
several conditions under which petition for setting aside an arbitral award can be filled.
Speaker 1 - Justice Nageshwar Rao
Sir commenced the webinar by stating that the arbitration as an alternate dispute resolution
mechanism is very much necessary for the Indian scenario as there are about 3.23 pending crore
cases in office courts in this country. Barring those matters, which are criminal and relating to
other branches of law, we have about 90 lakh pending civil cases in this country. The judge
population ratio is much lesser than it is in the other parts of the world. Thereby, in addition to
the other issues, we have problems pertaining to cases, taking a long time to be decided in courts
and effective ultimate dispute resolution mechanisms like arbitration will transfer the load off the
courts and provide efficient and speedy disposal of conflicts in commercial disputes. There were
certain issues that were cropping up on the interference by courts and as to whether the
legislative policy has been taking shape properly. There was another amendment made in 2015
followed by yet another in 2019, there is a bearing of these 2015 and 19 amendments on section
34. Section 34 deals with applications for setting aside arbitral awards. The proceedings under
Section 34 in a court of law, is summary in nature, the idea is to ensure that these proceedings
under Section 34 are disposed off early and expeditiously.

Before the 2015 amendment, the position as understood by judgment to the Supreme Court is
that once an application to Section 34 is filed, the award is automatically state that was changed
by an amendment that is made to Section 36, in which it was made clear that unless an order is
delivered with a court, there is no automatic state. There was a problem pertaining to the
applicability of the 2015 amendments to the arbitrations which commenced prior to the date of
the amendment that is 23rd of October 2015. And prior to the applications file under Section 30
prior to the date in Bcci vs. Cochi. The Supreme Court dealt with this aspect and tried to make an
attempt to resolve the controversy by holding that the amendment shall be made applicably, even
to petitions that were pending on 23rd of October 2015. The Supreme Court was also informed
about the prospect of the amendment that was going to be made, and it made a comment saying
that it would not be wise to bring back disorder to state all petitions that were pending that were
already filed, that was pending on the date of the amendment, after the judgment of Bcci vs.
Cochi.

The grounds for challenging an arbitral award under sec 34 -

• One party was under some disability (both mentally & physically).
• The arbitration agreement is not valid according to the law to which the parties to the
agreement have subjected it.
• No proper notice of appointment or proceeding of the arbitrator was given to him.
• The dispute related to the arbitral award does not fall under the terms of submission to the
arbitration, or the award contains a decision beyond the scope of the submission of the
arbitration.
• The structure of the tribunal was not in accordance with the agreement of the parties.
Further, under Section 34 (2) (b) of the Act, the Court can set aside the award if:
• The subject of the dispute cannot be decided through an arbitral award.
• The Arbitral Award is in opposition to India's public policy.
The most essential aspect or point on which an arbitral Award can be satisfied, which is
undergone a change over the years remains the public policy.

Public policy was described as a very unruly horse. And when once you get a strike, you never
know where it will carry; this was what Justice Burrough said, in Richardson v. Mellish in 1824.
An improvement was constituted by just Lord Denning, who said a horse can be tamed if the
person who gets onto the horse is a person who can do it well. So public policy has been of an
indeterminate definition for a very long time. The term "public policy" definition is absent in the
Arbitration and Conciliation Act, 1996 and consequently, the term remained unclear. The term
embodied a broad meaning, providing the courts the freedom to interpret it according to their
own understanding. The expression is borne for more avid public interest or public good.
However, it gives an accurate description without giving an exact meaning to the word.
Therefore the clarification related to sub-clause (ii) through the Amendment Act defines the
scope and meaning of the expression where the arbitration award would be considered against
public policy if the award was persuaded by fraud or corruption or violation. The court therefore
cited in Rail India Technical and Economic Services Ltd v Ravi Construction that the
enforcement of an arbitral award is forbidden from being against public policy, if it is the
fundamental policy of India, the interests of the country, and its Justice and morality are against
emotion. The expression "public policy" has been interpreted differently and the scope and
meaning of the term has been the subject of debate among many practitioners and academics.
The first case where the scope of public policy was limited remains in Renu Sagar Power
Company Limited v. General Electric Company, where the Court restricted public policy of
expression in an international commercial arbitration case where an award was refused merely
could go. The award is against India's (1) fundamental policy (2) India's interest (3) justice or
morality. However, the Supreme Court clutched ONGC Ltd v. Saw Pipes Ltd has given wide
meaning to the term "public policy" and while explaining the concept of "public policy of India",
it is not defined in the Act and is unclear and is likely to be the context in which it was utilized
going can be interpreted broadly or narrowly. The Law Commission made suggestions in its
246th report to apply to set aside an arbitral award based on public policy and apply only if the
award was perpetrated or affected by fraud or corruption, or if the fundamental policy was
against in violation with the most primary assumptions of Indian law or morality. The Law
Commission obtained the first to suggest the amendment, and its suggestion was included in the
Amendment Act. The amendment was brought into effect so as to limit the judicial intervention
of the courts in arbitration. This is because the paramount consideration for adopting arbitration
to resolve disputes obtains the swift resolution of disputes and if courts are involved in the
process it will only add to the parties' pendency and costs for arbitration. Considerably, the
amendment also incorporated Explanation 2 to sub-clause (ii), on the basis of which when an
agitated party applies to determine an arbitral award based on the fundamental policy of Indian
law, the courts are now entitled to This is no longer the case.

Patently Illegal
Amendments to the Arbitration and Reconciliation Act, 1996 additionally include section 2A
which provides for patent illegality which constitutes an additional basis for setting aside an
arbitral award. This ground will apply merely to arbitrators held in India and not to international
commercial arbitration as may be interpreted by the wording of the clause which states "other
than international commercial arbitration."Furthermore, such an award would obviously have a
negative impact on the administration of justice and therefore it could be illegally set aside
illegally if it is contrary."Explicit law error on the record of law" has been considered in
administrative law as a basis for invalidating a judicial or quasi-judicial case under the writ of
certiorari. In an arbitral award, if an arbitral award is inconsistent with any provision of the
Arbitration and Conciliation Act, 1996, it will amount to a patent error on its face. Such a
decision or award remains a disqualification and will have no effect on the law and hence it can
be declared void, which is unable to apply. The concept of the public policy refers to common
matters to the people and in the interest of the people. The notion of what is moral for the people
or what is in the interest of the people and what is detrimental or harmful to the ordinary people
has been a matter of debate and has been different at sundry times. But an award which violates
any statute or statutory provision and may be bound in the face of the award, such an award
cannot be said to be in the interest of the common people or for the good of the people.
Furthermore, such an award would obviously have a negative impact on the administration of
justice and therefore it could be illegally set aside illegally if it is contrary. a. India's fundamental
policy b. India's interest c. Justice or morality d. If it is outlawed, a final decree can only be
disputed on a limited number of grounds such as lack jurisdiction or being legally void. But
where the appellate court is exercising revision jurisdiction, and a decree is challenged before
such court, the jurisdiction of such court is broad. Therefore while the credibility of an award
based on "public policy of India" has been questioned, it has to be interpreted broadly so that the
award passed by the currently illegal tribunal is set aside in Natural Gas Corporation Limited. v.
In Supreme Court of SAW Pipes Limited Associate Builder v. The Delhi Development Authority
has clearly articulated what embodies illegal illegality. Imparting with to the court, patent
illegality would include:
• Fraud or corruption
• Violation of Law
• Error of the law by the arbitrator & violation of Arbitration and Conciliation Act, 1996.
• The arbitrator fails to justify the decision.
The core objective of the legislature was to reduce the interference of courts by violating the law
on arbitration under the Arbitration and Reconciliation Act 1996 and to provide an alternative
way to resolve commercial disputes that provide for a speedy justice delivery system. The
amendments brought under Section 34 of the Act under the Arbitration and Reconciliation
(amendment) Act, 2015 have resolved many issues to a great extent as well as minimized judicial
intervention, and clarified to a certain extent Is "public policy" of India "which was not accurate
prior to the amendment and was adding patent illegality as another basis. Another instrument for
curbing judicial interference under section 37 after the amendment Insertion of sub-section 6,
there has been a time limit for the courts to resolve the dispute within a period of one year.
Speaker 2- K.V. Vishwanathan
Sir carried the webinar further by addressing the challenges and concerns arising with the
Arbitration act.
No Automatic Stay
Position of law laid down in the Board of Control for Cricket in India v. Kochi Cricket Private
Limited and Ors.
Section 42 and Seat
Section 42 of the Arbitration Act, 1996 would be rendered ineffective and useless. Section 42 is
meant to avert conflicts in the jurisdiction of Courts by placing the supervisory jurisdiction over
all arbitral proceedings in connection with the arbitration in one Court exclusively. This is why
the section begins with a non-obstante clause and then goes on to state where with respect to an
arbitration agreement any application under this Part has been made in a Court. It is apparent that
the application made under this part to a Court must be a court which has jurisdiction to decide
such application or tribunal under Section 20 of the Arbitration Act, 1996.
Additional Evidence- The proceedings under Section 34 of the Act are summary proceedings and
are not in the nature of an ordinary suit. The powers of the Court under Order XII Rule 6 of the
Code of Civil Procedure, 1908 is discretionary could not have been exercised by the arbitral
tribunal in a casual manner and that also without giving an opportunity to both the parties to lead
oral evidence and to the petitioner to explain the alleged admission in any part of the pleadings
or documents exchanged between the parties. Test for deciding severability of the arbitration
clause in the agreement in the present case, clause 23 relates to arbitration. It stipulates that the
costs of arbitration shall be divided by the parties equally. The offending and objectionable part,
no doubt, expressly makes the arbitrator's determination «final and binding between the parties
and declares that the parties have waived the rights of appeal or objection in any jurisdiction. By
implementing that part, it cannot be stated that the Court is doing something which is
uncontemplated by the parties or by the interpretative process, the Court is rewriting the contract
which is in the nature of novatio. The intention of the parties is explicitly clear and they have
agreed that the dispute if any would be referred to an arbitrator.
The Courts need to be cautious and should defer to the view adhered to by the Arbitral Tribunal
even if the reasoning provided in the award is implied unless such awards portray perversity
unpardonable under Section 34 of the Arbitration Act in Namrata Goyal, 2019 SCC Online Del
7072.

The award cannot be unreasoned

Section 31 clearly stipulates that the arbitral award shall state the reasons upon which it is based,
unless and subsequently goes on to provide two contingencies-one, where parties agree that
reasons are unnecessary, and the second if the award is on agreed terms under Section 30.
Neither contingency applied in this case since the dispute was contested by the parties, on merits
and neither of them agreed to an unreasoned award. Though an Arbitral Tribunal may not give
detailed reasons, it must mention the basis for his conclusions. LR 170 there must be a nexus of
reasoning between the pleaded facts and the conclusion drawn by the arbitrator.

Highlighted difference between the inadequacy of reasons in an award and unintelligible awards,
if the challenge to an award is based on impropriety or perversity in the reasoning, then it can be
challenged strictly on the grounds provided under Section 34 of the Arbitration Act. Coming to
the last aspect concerning the challenge on the adequacy of reasons, the Court while exercising
jurisdiction under Section 34 has to adjudicate the validity of such an award based on the degree
of the particularity of reasoning required demonstrating regard to the nature of issues falling for
consideration. Even if the Court comes to a conclusion that there were gaps in the reasoning for
the conclusions reached by the Tribunal, the Court needs to entertain regard to the documents
submitted by the parties and the contentions raised before the Tribunal so that awards with
inadequate reasons are unset aside in casual and cavalier manner. On the other hand, ordinarily
unintelligible awards are to be set aside, subject to party autonomy to do away with the reasoned
award. Section 34 of the Arbitration & Conciliation Act lays down the parameters which have to
be followed by the Court in deciding a challenge to an award. To contend the finding by the
Arbitrator in the impugned award is neither perverse nor patently illegal nor against any
fundamental policy of the land or morality or justice. Examining the award impugned before me,
in the light of the above judgments and the evidence before the Arbitrator, I am of the view that
the Award has been rendered by the Arbitrator in accordance with the terms of the contract and
based on the evidence led before him.
No second bite at the cherry
“If a court is allowed to review the decision of the arbitral tribunal on the law or on the merits,
the speed and, above all, the efficacy of the arbitral process is lost" - UOI v. The scope of
interference is only where the finding of the tribunal is either contrary to the terms of the contract
between the parties or ex-facie, perverse, that interference, by this Court, is absolutely necessary.
While entertaining appeals under Section 37 of the Act, the Court is not actually sitting as a
Court of appeal over the award of the Arbitral Tribunal, and therefore, the Court would not re-
appreciate or re-assess the evidence. Moreover, the scope of this court is limited with regard to
Section 34 and 37 of The Arbitration and The Arbitrator/Tribunal is the final arbiter on facts as
well as in law, and even errors, factual or legal, which stop short of perversity, do not merit
interference under Sections 34 or 37 of the Act. Section 34 jurisdiction calls for judicial restraint
and an awareness that the process is removed from the appellate review. Arbitration is a form of
alternate dispute resolution, running parallel to the judicial system, attempts to hinder the prolix
and lengthy process of the courts, and presupposes parties consciously agreeing to submit a
potential dispute to arbitration with the object of actively avoiding a confrontation in the
precincts of the judicial system. In such cases, the court must consider the question of whether
the parties could have agreed on the valid terms of the agreement had they known the other terms
were invalid or unlawful.

Non-Arbitrable Disputes
The Arbitral Tribunals attend private fora chosen voluntarily by the parties to the dispute, to
adjudicate their disputes in place of courts and tribunals which are public fora constituted under
the laws of the country. Arbitral Tribunals are excluded either expressly or by necessary
implication. Adjudication of certain categories of proceedings is reserved by the legislature
exclusively for public fora as a matter of public policy. Certain other categories of cases, though
not expressly reserved for adjudication by public fora, may be necessary implication stand
excluded from the purview of private fora. Consequently, where the cause/dispute is inarbitrable,
the court where a suit is pending will refuse to refer the parties to arbitration, under Section 8 of
the Act, even if the parties might have agreed upon arbitration as the forum for settlement of
such disputes.
FOREIGN AWARDS
The ground of "public policy of India" used to set aside an award under Section 34, or to refuse
recognition and enforcement of a foreign award under Section 48, has to be construed in the
same manner as Section 48. What is clear, therefore, is that the expression "public policy of
India", whether contained in Section 34 or in Section 48, would right now suggest the
"fundamental policy of Indian law" as explained in paras 18 and 27 Associate Builders v. The
fundamental policy of Indian law would be relegated to "Renusagar" understanding of this
expression.

To elucidate, para 42.1 of Associate Builders namely, a mere contravention of the substantive
law of India, by itself, provide no longer a ground present to set aside an arbitral award. Para
42.2 of Associate Builders, however, would remain, for if an arbitrator cites no reasons for an
award and contravenes Section 31 of the 1996 Act, which would certainly amount to patent
illegality on the face of the award. This must be comprehended in the sense that such illegality
must belong to the root of the matter and cannot represent of a trivial nature. India would
certainly amount to patent illegality appearing on the face of the award. Thus, a finding based on
no evidence at all or an award which disregards vital evidence in arriving at its decision would
be perverse and liable to be set aside on the ground of patent illegality. Under section 2 of the
Arbitration Act, the arbitral award includes an interim award. Under section 31 of the Arbitration
Act, it is provided that at any time during the arbitral proceedings, Arbitral Tribunal may grant
an interim arbitral award on any matter with respect to which it may make a final arbitral award.
Limitation on the amendment in Pleadings before Arbitral Tribunal- Though under Section 23 of
the Arbitration Act, either party is entitled to amend or supplement his claim or defense during
the course of the arbitral proceedings, such application for amendment of the claim or prepared
statement would not save the period of limitation with retrospective effect.
Delay even after availing the benefit of Sec 14 of limitation act cannot be condoned- The use of
the words "but not thereafter" in the proviso makes it clear that the extension cannot be beyond
thirty days. Even if the benefit of Section 14 of the Limitation Act is given to the respondent,
there will until now is a delay of 131 days in filing the application. The delay of 131 days cannot
be condoned.
Construction Company versus Union of India 2020 SCC Online Cal 566 Ferro Concrete
Construction Ltd. Section 3 of which it is clear that pre-reference interest can be allowed by an
arbitrator unless there is a bar by virtue of an express provision between the parties. Section 37
of the new Act by using the words "unless otherwise agreed by the parties" categorically clarifies
that the arbitrator is bound by the terms of the contract insofar as the award of interest from the
date of cause of action to the date of the award. "A conspectus of the decisions that have been
referred to formerly would show that under the 1940 Act, an arbitrator has the power to grant
pre-reference interest under the Interest Act, 1978 as well as pendente lite and future interest.”
However, he is constricted only by the fact that an agreement between the parties may contain an
express bar to the award of pre-reference and/or pendente lite interest We hasten to add that the
position as has been explained in some of the judgments above under Section 31 of the 1996 Act,
is altogether different, inasmuch as Section 31 of the 1996 Act sanctifies agreements between the
parties and states that the moment the agreement says otherwise, no interest becomes payable
right from the date of the cause of action until the award is delivered.

In Hyder Consulting 2 SCC 189, it was held that Section 31 does not require party autonomy
since the grant of interest is for the post-Award period. Moreover, Clause 64 of the GCC which
states that where the Arbitral Award if for the payment of money, no interest shall be payable on
the whole or part of the money for any period till the date on which the Award is made, indicates
there is no bar on the Arbitrator's awarding interest after the delivery of the Award. In
international commercial arbitration, in the absence of an agreement between the parties on
interest, the rate of interest awarded would be governed by the law of the seat of arbitration. The
discretion of the arbitrator to award interest must be exercised reasonably. Courts may reduce the
interest rate awarded by an Arbitral Tribunal where such interest rate does not reflect the
prevailing economic conditions or where it is not found reasonable or promotes the interests of
justice. The respondent/claimant has, in fact, been awarded 105% of the costs incurred under the
EPC contracts by the Arbitral Tribunal. The levy of such a steep rate of interest on a claim made
in a foreign currency would result in the claimant being awarded compensation, contrary to the
conditions stipulated in the contract. Interest rates differ depending upon the currency.
Tribunal to coordinate the choice of currency with the interest rate. The tribunal will remain
undisturbed & One-year time limits under sec 34 are the directory and not mandatory. It will be
seen from this provision that, unlike Sections 34 and if an award is made beyond the stipulated or
extended period contained in the section, the consequence of the mandate of the arbitrator being
terminated is expressly provided. This provision is in stark contrast to Sections 34 and where, as
has been stated hereinabove, if the period for deciding the application under Section 34 has
elapsed, no consequence is provided. The 1996 Act makes provision for the supervisory role of
courts, for the review of the arbitral award only to ensure fairness. It can only quash the award
leaving the parties free to undertake the arbitration again if it is desired. Therefore, in light of the
dictum in McDermott International Inc. Third-Party possesses no locus to challenge the award
under sec 34: Bombay & Delhi HC Only a party to the arbitration agreement which is defined
under section 2 of the Act can challenge an arbitral award under section 34 of the Act and not by
a person who remains not a party to the arbitration agreement unless covered by sections 40 and
41 of the Act. The grounds of available challenge under section 34 of the Act and various other
and applicable provisions to the parties who are defined under section 2 of the Arbitration and
Conciliation Act, 1996 cannot be exercised by an outsider or by a person who is not a party to
the arbitration agreement or the arbitration proceedings.

Key Takeaways:
 Arbitration is a form of alternate dispute resolution, running parallel to the judicial
system, attempts to hinder the prolix and lengthy process of the courts, and presupposes
parties consciously agreeing to submit a potential dispute to arbitration with the object of
actively avoiding a confrontation in the precincts of the judicial system.

 The 1996 Act makes provision for the supervisory role of courts, for the review of the
arbitral award only to ensure fairness. It can only quash the award leaving the parties free
to undertake the arbitration again if it is desired.

 Under section 2 of the Arbitration Act, the arbitral award includes an interim award.

 The grounds for challenging an arbitral award under sec 34 –

 1. One party was under some disability.
2. The arbitration agreement is not valid according to the law to which the parties to
the agreement have subjected it.
3. No proper notice of appointment or proceeding of the arbitrator was given to him.
4. The dispute related to the arbitral award does not fall under the terms of
submission to the arbitration, or the award contains a decision beyond the scope
of the submission of the arbitration.
5. The structure of the tribunal was not in accordance with the agreement of the
parties.
6. The subject of the dispute cannot be decided through an arbitral award.
7. The Arbitral Award is in opposition to India's public policy.
 The concept of the public policy refers to common matters to the people and in the
interest of the people.
 Award would obviously have a negative impact on the administration of justice and
therefore it could be illegally set aside illegally if it is contrary. a. India's fundamental
policy b. India's interest c. Justice or morality d. If it is outlawed.
 It is apparent that the application made under this part to a Court must be a court which
has jurisdiction to decide such application or tribunal under Section 20 of the Arbitration
Act, 1996.
 Section 31 clearly stipulates that the arbitral award shall state the reasons, upon which it
is based and it should be reasonable.

Submitted by-