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Rayat College Of Law

Ropar Campus

Project of Alternative Dispute Resolution

Topic : Award Arbitration

Submitted to:- Submitted by:-

MISS RAJINI MAM Amanpreet Singh

7TH SEMESTER B.A LLB (HONS.)

UNIVERSITY ROLL NO: - 13308
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Acknowledgement

I would like to express my special thanks of gratitude to my teacher Miss

Rajni as well as our officiating principal Dr Monika Sharma who gave
me the golden opportunity to do this wonderful project on the topic Rights
of Unpaid Seller ,which also helped me in doing a lot of Research and i
came to know about so many new things I am really thankful to them.

Secondly I would also like to thank my parents and friend and seniors
who helped me a lot in finalizing this project within the limited time
frame.
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Table Of Contents

TABLE OF CASES ___________________________ _4

INTRODUCTION_________________________________ _ ___5

MEANING___ 6-7

DEFINITION_____________________ ________________ ___7

SETTING ASIDE OF ARBITRAL AWARD 7-8

ARBITRAL AWARD _ ___ 8-9

INCAPICITY OF PARTIES_______________________ __ _9-10

INVALIDITY OF PARTIES ________ 10

NOTICE NOT GIVEN TO PARTIES 10-11

AWARED BEYOND SCOPE OF REFERENCE _ _11-12-13

ILLEGALITY IN ARBITRAL PROCEDURE________ __13-14

DISPUTE NOT ARBITRAL________ 15

AWARD AGAINST PUBLIC POLICY__ 15-16

LIMITATION FOR FILLING APPLICATION_______ 16-17

REMISSION BY TRIBUNAL_______________________ ___18

FOREIGN AWARDS______________________________ __ _19

CONCLUSION_____________________-__________ 20

BIBLIOGRAPHY 21

WEBLIOGRAPHY 22
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Table of Cases

 Municipal Corp. of Greater Mumbai v. Prestress Products (India)

 Sanshin Chemical Industry v. Oriental Carbons & chemical Ltd
 Brijendra Nath v. Mayank
 State of U.P. v. Allied Constructions
 Dulal Podda v. Executive Engineer
 Vijay Kumar v. Bathinda Central Co-operative Bank and ors
 Gautam Construction & Fisherie Ltd v. National Bank for Agriculture
and Rural Development
 Rajinder Kishan Kumar v. Union of India
 State of Rajasthan v. Nav Bharat Construction Co.
 State Trading Corp. v. Molasses Co., the Bengal Chamber of Commerce
 Bathinda Central Co-operative Bank’s Case\
 ONGC Ltd v. Saw Pipe Ltd
 Union of India v. Om Prakash Baldev Krishna
 Delhi High Court, held in PNB Finance ltd v. Shital Prasad Jain
 Bharat Aluminium Co. v. Kaiser Aluminium Technical Service Inc
 Bhatia International v. Bulk Trading S.A. & Anr.1 and Venture Global
Engg Computer Services Ltd & Anr

1
2004 (2) SCC 105
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SETTING ASIDE OF AWARD

INTRODUCTION
Arbitration may be defined as a “ mechanism for the resolution of disputes which
take place usually pursuant to an agreement between two or more parties, under
which parties agree to be bound by the decision to be given by the arbitrator
according to the law or , if so agreed, other considerations, after a fair hearing such
a decision being enforceable”.

Settlement of a dispute (whether of fact, law, or procedure) between parties to a

contract by a neutral third party (the arbitrator) without resorting to court action.
Arbitration is usually voluntary but sometimes it is required by law. If both sides
agree to be bound by the arbitrator's decision (the 'award') it becomes a binding
arbitration. The exact procedure to be followed (if not included in the contract under
dispute) is governed usually by a country's arbitration laws, or by the arbitration
rules prescribed by the International Chamber Of Commerce (ICC).
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MEANING:
According to Byrne’s law dictionary the term “arbitration” includes practically
every question, which might be determined by a civil action, referred to arbitration.
Thus under the English law, arbitration means the settlement of disputes by the
decisions one or more persons called arbitrators. As Russel rightly pointed out, “
the essence of awardarbitration is that some dispute is referred by the parties for
settlement to a tribunal of their own choice instead of to a court”.

A method of alternative dispute resolution in which the disputing parties agree to

abide by the decision of an arbitrator(s).

The submission of a dispute to an impartial third person or persons. The arbitrator

or arbitrators are selected directly by the parties or are chosen in accordance with
the terms of a contract in which the parties have agreed to use a court-ordered
arbitrator or an arbitrator from the American Arbitration Association. If there is no
contract, usually each party chooses an arbitrator and the two arbitrators select a
third. When parties submit to arbitration, they agree to be bound by and comply
with the arbitrators' decision. The arbitrators' decision is given after an informal
proceeding where each side presents evidence and witnesses.

Some arbitration proceedings are mandatory (enforced by statute), such as many

labor disputes. Other arbitration proceedings are selected in advance and written
into contracts. In fact, many couples who sign cohabitation agreements or divorce
agreements include a clause agreeing to go to arbitration if any dispute should arise,
thereby avoiding the delay, expense, bitterness and formality of litigation. Other
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arbitration proceedings are chosen by the disputing parties after the conflict arises,
but are also to avoid the delay, expense, bitterness and formality of courts.

DEFINITIONS
“Arbitration” means any arbitration whether or not administered by permanent
arbitral institution the word “Arbitration” as defined in the present act connotes the
same meaning as contained in article 2(a) of the model law of UNCITRAL.

Setting aside of arbitral award

The parties cannot appeal against an arbitral award as to its merits and the court
cannot interfere on its merits. The Supreme Court has observed “an arbitrator is a
judge appointed by the parties and as such an award passed by him is not to be
lightly interfered with.” But this does not mean that there is no check on the
arbitrator’s conduct. In order to assure proper conduct of proceeding, the law allows
certain remedies against an award.

Under the repealed 1940 Act three remedies were available against an award-
modification, remission and setting aside. These remedies have been put under the
1996 Act into two groups. To the extent to which the remedy was for rectification of
errors, it has been handed over to the parties and the Tribunal. The remedy for
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setting aside has been moulded with returning back the award to the Tribunal for
removal of defects.

Arbitral award under section 34 of arbitration act

Section 34 provides that an arbitral award may be set aside by a court on certain
grounds specified therein. These grounds are:

 Incapacity of a party
 Arbitration agreement not being valid
 Party not given proper notice of arbitral proceedings
 Nature of dispute not falling within the terms of submission to arbitration
 Arbitral procedure not being in accordance with the agreement

Section 34(2)(b) mentions two more grounds which are left with the Court itself to
decide whether to set aside the arbitral award:

1. Dispute is not capable of settlement by arbitral process

2. The award is in conflict with the public policy of India

If the decision on matters submitted to arbitration can be separated from those not
submitted; only that part of the arbitral award which contains decisions on matters
not submitted to arbitration may be set aside.

Section 34 of the Act is based on Article 34 of the UNCITRAL Model Law and the
scope of the provisions for setting aside the award is far less than it was under the
Sections 30 or 33 of the 1940 Act.
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Municipal Corp. of Greater Mumbai v. Prestress Products (India)2, the court held
that the new Act was brought into being with the express Parliamentary objective of
curtailing judicial intervention. Section 34 significantly reduces the extent of
possible challenge to an award.

In Sanshin Chemical Industry v. Oriental Carbons & chemical Ltd.3 there arise a
dispute between the parties regarding the decision of the Joint Arbitration
Committee relating to venue of arbitration. The Apex Court held that a decision on
the question of venue will not be either an award or an interim award so as to be
appealable under Section 34 of the act.

In Brijendra Nath v. Mayank4, the court held that where the parties have acted
upon the arbitral award during the pendency of the application challenging its
validity, it would amount to estoppel against attacking the award.

INCAPACITY OF PARTIES

If a party to arbitration is not capable of looking after his own interests, and he is
not represented by a person who can protect his interests, the award will not be
binding on him and may be set aside on his application.

If a minor or a person of unsound mind is a party he must be properly represented

by a proper guardian otherwise the award would be liable to be set aside. Such a
person is not capable of binding himself by a contract and therefore, an award under
a contract does not bind him.

2
(2003) 4 RAJ 363 (Bom)
3
AIR 2001 SC 1219
4
AIR 1994 SC 2562
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Section 9 of the 1996 Act enables him to apply to the court for appointment of a
guardian for a minor or a person of unsound mind for the purpose of arbitral
proceedings. The ground of incapacity would cease to be available when the
incompetent person is represented by a guardian.

INVALIDITY OF AGREEMENT

The validity of an agreement can be challenged on any of the grounds on which the
validity of a contract may be challenged. In cases where the arbitration clause is
contained in a contract, the arbitration clause will be invalid if the contract is
invalid.

State of U.P. v. Allied Constructions.5the court held that the validity of an

agreement has to be tested on the basis of law to which the parties have subjected it.
Where there is no such indication, the validity would be examined according to the
law which is in force.

NOTICE NOT GIVEN TO PARTIES

Section 34(2)(a)(iii) permits challenge to an award if the party was not given proper
notice of the appointment of an arbitrator, or the party was not given proper notice
of the arbitral proceedings, or the party was for some reasons unable to present his
case.

Under Section 23(1) the Arbitral Tribunal has to determine the time within which
the statements must be filed. This determination must be communicated to the

5
(2003) 7 SCC 396
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parties by a proper notice. Section 24(2) mandates that the parties shall be given
sufficient advance notice of any hearing or meeting of the Tribunal for the purpose
of inspection of documents, goods or other property.

If for any good reason a party is prevented from appearing and presenting his case
before the Tribunal, the award will be liable to be set aside as the party will be
deemed to have been deprived of an opportunity of being heard the principle of
natural justice.

In Dulal Podda v. Executive Engineer6, Dona Canal Division, the court held that
appointment of an arbitrator at the behest of the appellant without sending notice to
the respondent, ex parte award given by the arbitrator was illegal and liable to be set
aside.

In Vijay Kumar v. Bathinda Central Co-operative Bank and ors.,the court

observed “it is a typical case where the arbitrator misconducted the proceedings and
also misconducted himself. Arbitrator held the first and only hearing on May 17,
2010. No points for settlement or issues were framed. The bank filed affidavits of
four employees. Appellant was not given opportunity to cross examine them. He
was denied the opportunity to produce evidence. A complete go bye was given to
the provisions of law, procedure and rules of justice. It would thus be seen that
appellant was unable to present his case.

AWARD BEYOND SCOPE OF REFERENCE

The reference of a dispute under an agreement defines the limits of the authority and
jurisdiction of the arbitrator. If the arbitrator had assumed jurisdiction not possessed

6
(2004) 1 SCC 73
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by him, the award to the extent to which it is beyond the arbitrator’s jurisdiction
would be invalid and liable to be set aside.

Section 34(2)(a)(iv) of the Act provides that an arbitral award is liable to be set
aside if it deals with a dispute not contemplated by the reference, or not falling
within the terms of the reference, or it contains a decision in matters beyond the
reference.

In Gautam Construction & Fisherie Ltd v. National Bank for Agriculture and
Rural Development7, the Supreme Court modified the award to the extent that the
rate of construction meant for ground floor could not be applied to the construction
of the basement area.

In Rajinder Kishan Kumar v. Union of India8, a matter under a writ petition was
referred to arbitration. The writ petition contained no claim of compensation for
damage to potentiality of the land because of the opposing party discharging
effluents and slurry on the land. The award of such compensation was held to be
outside the scope of reference hence liable to be set aside.

Provided that, Section 16 of the Arbitration and Conciliation Act, 1996 provides
that the initial decision as to jurisdiction lies with the Tribunal. The party should
immediately object as to excess of jurisdiction. If the Tribunal rejects the objection,
the aggrieved party may apply under Section 34(2)(a)(iv)for setting aside on the
ground of excess of jurisdiction.

An arbitrator cannot go contrary to the terms of the contract. Where the terms of the
contract are not clear or unambiguous, the arbitrator gets the power to interpret
them.

7
AIR 2000 SC 3018
8
AIR 1999 SC 463
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In State of Rajasthan v. Nav Bharat Construction Co.9, a majority of claims

allowed were against the terms of the contract.

ILLEGALITY IN ARBITRAL PROCEDURE

Section 34(2)(a)(v) provide that an award can be challenged if the composition of

the Tribunal was not in accordance with the agreement, or the procedure agreed to
by the parties was not followed in the conduct of proceedings, or in the absence of
agreement as to procedure, the procedure prescribed by the Act was not followed.

Failure to follow the agreed procedure or the procedure prescribed by the Act is a
procedural misconduct. If the arbitral tribunal takes the matter which is clearly
beyond the scope of its authority, it would tantamount to misconduct of arbitrator.
An award in which the arbitrator has deliberately deviated from the terms of
reference and arbitration agreement will amount to misconduct of the arbitrator.

Section 12(3)(a) provides that an arbitrator may be challenged if there justifiable

doubt as to his independence or impartiality. Section 13 says that if the challenge is
not successful and the award is made, the party challenging the arbitrator may apply
to the court under Section 34 for setting aside the award.

In State Trading Corp. v. Molasses Co., the Bengal Chamber of Commerce10, a

permanent arbitral institution, did not allow a company to be represented by its Law

9
AIR 2005 SC 4430
10
AIR 1981 Cal. 440
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Officer, who was full time employee of the company. The Court held that it was not
only misconduct of the arbitrator but also misconduct of the arbitration proceedings.

As discussed earlier in Bathinda Central Co-operative Bank’s Case, the court

observed “it is a typical case where the arbitrator misconducted the proceedings and
also misconducted himself. A complete go bye was given to the provisions of law,
procedure and rules of justice.

In ONGC Ltd v. Saw Pipe Ltd11, the Supreme Court held that in exercising
jurisdiction, the Arbitral Tribunal cannot act in breach of some provisions of
substantive law or the provision of the Act. In Section 34(2)(a)(v)of the Act, the
composition of the Arbitral Tribunal should be in accordance with the agreement.
The procedure which is required to be followed by the arbitrator should also be
accordance with the agreement. If there is no such agreement then it should be in
accordance with the procedure prescribed in Part 1 of the Act.

In the above case, the losses caused by delay were deducted from the supplier’s bill.
The direction of the Arbitral Tribunal that such deduction should be refunded with
interest was held to be neither in accordance with law, nor contract. The award was
set aside to that extent.

In Union of India v. Om Prakash Baldev Krishna12 ,it was held that a non-
reasoned award is liable to be set aside by the court as contemplated by Section
31(3) which requires that arbitral award shall State reasons upon which it is based
unless the parties have mutually agreed that no reasons are to be given.

11
AIR 2003 SC 2629
12
AIR 2000 J&K 79
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DISPUTE NOT ARBITRABLE

The existence of an arbitral dispute is a condition precedent for exercise of power

by an arbitrator.

Only matters of indifference between the parties to litigation which affect their
private rights can be referred to arbitration.

Therefore, matters of criminal nature, insolvency proceedings, and matters of public

rights cannot be decided by arbitration.

The Delhi High Court, held in PNB Finance ltd v. Shital Prasad Jain13, that
specific performance of an act cannot be granted in an arbitration proceeding. The
Supreme Court did not approve the view point of the Delhi High Court. The Court
held that the right to specific performance of an agreement of sale deals with
contractual rights and it is certainly open to the parties to agree to refer the issue
relating to specific performance to arbitration.

AWARD AGAINST PUBLIC POLICY

Section 34(2)(b)(ii) provides that an application for setting aside an arbitral award
can be made if the arbitral award is in conflict with the public policy of India.

The explanation to clause (b) clarifies that an award obtained by fraud or corruption
would also be an award against the public policy of India. An award obtained by

13
AIR 1991 Del 13
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suppressing facts, by misleading or deceiving the arbitrator, by bribing the

arbitrator, by exerting pressure on the arbitrator, etc. would be liable to be set aside.

The concept of public policy connotes some matter which concerns public good and
public interest.

In Venture Global Engg v. Satyam Computer Service Ltd14, it was held that an
award could be set aside if it is contrary to fundamental policy of Indian law, or the
interest of India, or justice or morality, or it is patently illegal.

If the award is contrary to the substantive provisions of law or the provisions of the
Act or against the terms of the contract, it would be patently illegal, which could be
interfered under Section 34. Award could also be set aside if it is as unfair and
unreasonable as to shock the conscience of the court as it is against public policy.

LIMITATION FOR FILING APPLICATION

Section 34(3) provides that an application for setting aside an arbitral award must
be made within 3 months of receiving the award or disposition of application by the
arbitral tribunal.

The importance of this is emphasized by Section 36 which provides that the award
becomes enforceable as soon as the limitation period under Section 34 expires.

The proviso to Section 34(3) allows the party a further period of 30 days after the
expiry of three months if the court is satisfied that the party was prevented by a

14
2008 (4) SCC 190
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sufficient cause from making the application. No application for setting aside the
award can be entertained by the court after the expiry of these additional thirty days.

In National Aluminum Co Ltd v. Presteel Fabrication (P) Ltd15, proceedings

were instituted before the Supreme Court under the wrong belief that it had
jurisdiction in the matter of setting aside. Time spent on a bona fide prosecution of
an application in a wrong forum was held by the Supreme Court to be a sufficient
cause for condonation of delay.

In Union of India v. Shring Construction Co (P) Ltd16, sometime was lost in

challenging the award in a writ court which was declared to be not maintainable
because the petitioner had his remedy under Section 34 by the proceeding before the
District Judge. The District Judge was then approached along with an application
for condonation of delay. He rejected it as time barred. The Supreme Court held
that the District Judge should have decided whether the application was within time
after excluding the period lost in a wrong court.

15
(2004) 1 SCC 540
16
(2006) 8 SCC 18
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REMISSION BY TRIBUNAL

When an application for setting aside an arbitral award has been made, the court
may, instead of adjudicating upon the grounds raised, adjourn the proceedings for a
determined period of time to enable the tribunal to deal with the grounds on which
objection have been raised and to eliminate them.

In T.N. Electricity Board v. Bridge Tunnel Constructions17, the court held that
where an award is vitiated by an error of jurisdiction, the court can send it back to
the arbitrator for rectification of the error.

Upon such adjournment the Arbitral Tribunal shall resume the arbitral proceedings
and take such action as will eliminate the grounds. The resumed proceedings can
only be relating to the grounds raised in the application under Section 34.

It may become necessary to record fresh findings and to amend the award.
Thereafter the court would consider whether the grounds raised have been
eliminated and whether the award is liable to be set aside.

17
http://www.indiankanoon.org/doc/791953/ accessed on 20/09/2018 at 18:59 p.m
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FOREIGN AWARDS

The grounds to challenge of awards given in Part I (section 34) of the Indian
Arbitration Act are applicable only to Domestic Awards and not to Foreign Awards.
On September 6, 2012, v Satyam Supreme Court in Bharat Aluminum Co. v.
Kaiser Aluminium Technical Service Inc.18reconsidering its previous decisions
concluded that the Indian Arbitration Act should be interpreted in a manner to give
effect to the intent of Indian Parliament. In this case the Court reversed its earlier
rulings in cases of Bhatia International v. Bulk Trading S.A. &
Anr.19 and Venture Global EnggComputer Services Ltd & Anr.20 , stating that
findings in these judgments were incorrect. Part I of the Indian Arbitration Act has
no application to arbitrations seated outside India irrespective of whether parties
chose to apply the Indian Arbitration Act or not. Most importantly, these findings of
the Supreme Court are applicable only to arbitration agreements executed after 6
September 2012. Thus all disputes pursuant to arbitration agreement entered into
upto 6 September 2012 shall be decided by old precedents irrespective of fact that
according to the Supreme Court such rulings were incorrect and have been reversed.

18
Civil Appeal No. 7019 of 2005
19
2004 (2) SCC 105
20
2008 (4) SCC 190
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CONCLUSION

We see that the law relating to setting aside of arbitral award in India is is
consonance with the UNCITRAL model law as the national law is based on the
same only. However, the interpretation of Supreme Court in several decisions like
Bhatia International have raised serious issues which to some extent have been
resolved in the BALCo case. The judicial intervention should be minimal and this
practise has to be promoted in India so that arbitration may be successful.
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BIBLIOGRAPHY
 ADR by Dr. R.K. Bangia
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WEBLIOGRAPHY

o http://www.indiankanoon.org/doc/791953/
o indiankanoon.org