Professional Documents
Culture Documents
UNIT - II
ARBITRATION TRIBUNAL
According to Section 10 of Arbitration and Conciliation Act the qualification and procedure for the
Appointment of Arbitrators are :
1) A person of any nationality may be an arbitrator, unless otherwise agreed by the parties.
2) Subject to sub‐section (6), the parties are free to agree on a procedure for appointing the
arbitrator or arbitrators.
3) Failing any agreement referred to in sub‐section (2), in an arbitration with three arbitrators each
party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third
arbitrator who shall act as the presiding arbitrator.
4) If the appointment procedure in sub‐section (3) applies and –
a. a party fails to appoint an arbitrator within thirty days from the receipt of a
request to do so from the other party; or
b. The two appointed arbitrators fail to agree on the third arbitrator within thirty
days from the date of their appointment, the appointment shall be made, upon request
of a party, by the Chief Justice or any person or institution designated by him.
5) Failing any agreement referred to in sub‐section (3), in an arbitration with a sole arbitrator, if
the parties fail to agree on the arbitrator within thirty days from receipt of a request by one
party from the other party to so agree the appointment shall be made, upon request of a party,
by the Chief Justice or any person or institution designated by him.
6) Where, under an appointment procedure agreed upon by the parties –
a. a party fails to act as required under that procedure; or
b. the parties, or the two appointed arbitrators, fail to reach an agreement
expected of them under that procedure; or
c. a person, including an institution, fails to perform any function entrusted to him
or if under that procedure, a party may request the Chief Justice or any person or
institution designated by him to take the necessary measure, unless the agreement on
the appointment procedure provides other means for securing the appointment.
7) A decision on a matter entrusted by sub‐section (4) of sub‐section (5) on sub‐section (6) to the
Chief Justice or the person or institution designated by him is final.
8) The Chief Justice or the person or institution designated by him, in appointing an arbitrator,
shall have due regard to –
a. any qualifications required of the arbitrator by the agreement of the parties;
and
b. other considerations as are likely to secure the appointment of an independent
and impartial arbitrator.
9) In the case of appointment of sole or third arbitrator in an international commercial arbitration,
the Chief Justice of India or the person or institution designated by him may appoint an
arbitrator of a nationality other than the nationalities of the parties where the parties belong to
different nationalities.
10) The Chief Justice may make such scheme as he may deem appropriate for dealing with matters
entrusted by sub‐section (4) or sub‐section (5) or sub‐section (6) to him.
11) Where more than one request has been made under sub‐section (4) or sub‐section (5) or sub‐
section (6) to the Chief Justices of different High Courts or their designates, the Chief Justice or
his designate to whom the request has been first made under the relevant sub‐section shall
alone be competent to decide on the request.
b. Where the matters referred to in sub‐sections (4), (5), (6), (7), (8) and (10) arise
in any other arbitration, the reference to “Chief Justice” in those sub‐sections shall be
construed as a reference to the Chief Justice of the High Court within whose local limits
the Principal Civil Court referred to in clause (e) of sub‐section (1) of Section 2 is situate
and, where the High Court itself is the Court referred to in that clause, to the Chief
Justice of that High Court.
Appointment by Chief Justice (Section 11) : The expression Chief Justice in this connection virtually
means the court because in most cases the Chief Justices have authorised Civil Judges.
1) Where he parties fall to appoint or concur in the appointment of an arbitrator or arbitrators;
2) Where the two appointed arbitrators fail to appoint or concur in the appointment of the
presiding arbitrator.
3) Where the person or institution designated by the parties for appointment fails to act.
Thirty‐day Notice : Before asking the Chief Justice to act in the matter, a thirty clear days’ notice should
be given to the other party to concur in the appointment and if he fails to do so then an application can
be made to the court. The court will also give an opportunity to the other party to explain his position.
The Chief Justice must have due regard to the qualifications f the arbitrators required by the parties
under their agreement and also independence and impartiality of the person in question. An application
for appointment of arbitrator made before giving any notice to the other party or raising a demand
against him was held to be incompetent.
Challenge to Arbitrators : The old topic of revoking the authority of an arbitrator and seeking his
removal has been given a new jargon, namely challenging the arbitrator. The grounds on which a
challenge can be presented are listed in Section 12 of Arbitration and Conciliation Act, 1996.
Grounds for Challenge :
1) When a person is approached in connection with his possible appointment as an arbitrator he
shall disclose in writing any circumstances likely to give rise to justifiable doubts as to his
independence or impartiality.
2) An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall
without delay, disclose to the parties in writing any circumstances referred to in sub‐section (1)
unless they have already been informed of them by him.
3) An arbitrator may be challenged only if –
a. circumstances exist that give rise to jusificable doubts as to his independence or
impartiality, or
b. he does not possess the qualifications agreed to by the parties.
4) A party may challenge an arbitrator appointed by him, or in whose appointment he has
participated, only for reasons of which he becomes aware after the appointment has been
made.
Doubt as to Independence or Impartiality at initial stage : One of the grounds for challenge is the
existence of a doubt about the arbitrator’s independence or impartiality. Section 12 (1) says that when a
person is approached in connection with his possible appointment as an arbitrator, he is under a duty to
disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or
impartiality.
Disclosure of circumstances by proposed arbitrator : Sub‐section (1) casts a duty upon a person who is
approached for appointment as an arbitrator to disclose in writing any circumstances which are liable to
cast justifiable doubts as to his independence or impartiality.
The arbitrator must be, and must be seen to be, disinterested and unbiased. Unless both parties, with
full knowledge of the facts expressly agree to his acting, no one should adjudicate in proceedings in the
outcome of which he has a direct pecuniary interest. For example, no one should accept appointment in
a dispute if he holds shares in one of the parties, or if he would benefit in some other way from a
decision in favour of one of the parties. And the arbitrator in a valuation dispute should not be
remunerated on a scale such that the higher the amount of his award, the higher his fee.
The arbitrator should have no connection, direct or indirect, with a party such that it creates an
appearance of partiality. It is easier to recognise than to define the boundary between what previous
connections do and what do not disqualify. Actual bias is irrelevant for this purpose. The test is whether
a reasonable person who was not a party to the dispute would think it likely that the connection was
close enough to cause the arbitrator to be biased. Thus, personal friendship or hostility; an employment
relationship; a previous professional relationship either direct or through other members of a firm in
which the arbitrator is a partner; these are examples of a relationship which might create in a
responsible outsider a reasonable suspicion of bias. If there is any real doubt about the matter, the
arbitrator should disclose the facts to the parties and should ask if they object to his accepting the
appointment. If the facts become known to him after appointment, he should disclose them and ask if
they object to his continuing.
It is well‐settled that there must be purity in the administration of justice as well as in administration or
quasi‐judicial functions as are involved in the adjudicatory process before the arbitrators.
An arbitrator ought to be an indifferent and impartial person between the disputants. When the parties
entrust their facts into the hands of an arbitrator, it is essential that there must be abundant good faith.
The arbitrator must be absolutely disinterested and impartial. An interested person is disqualified from
acting as an arbitrator. The interest disqualifies the arbitrator if it is calculated to produce a bias in his
mind. The test is whether he is likely to be biased. Actual bias need not be proved.
Doubts Developing Afterwards : Disclosure after appointment : Sub‐section (2) casts a duty on the
arbitrator after his appointment and throughout the arbitral proceedings to make to the parties the
disclosures, mentioned in sub‐section (1), relating to matter which may have arisen after the
appointment began. He may not do so if he has already made the disclosure before the appointment.
Section 12(2) takes care of doubts which develop after the appointment. It requires the arbitrator to
disclose to the parties in writing and without any delay any circumstances developing after the time of
his appointment and during the course of the arbitral proceedings which give rise to a justifiable doubt
about his independence or impartiality. Thus an arbitrator can be challenged, whether he discloses his
disqualification or not if there are justifiable doubts about his independence or impartiality.
The appointment of an arbitrator can be challenged only on one or more of the following grounds :
a) That circumstances exist which give rise to justifiable doubts as to his independence of
impartiality, or
b) That he does not possess the qualifications agreed to by the parties. The appointment can not
be challenged on any other grounds.
Party’s Challenge to his own arbitrator : An arbitrator can be challenged by the party who appointed
him or in whose appointment he participated only for reasons of which the party became aware after
the appointment has been made.
Challenge Procedure :
1) Subject to sub‐section (4), the parties are free to agree on a procedure for challenging an
arbitrator.
2) Failing any agreement referred to in sub‐section (1), a party who intends to challenge an
arbitrator shall, within fifteen days after becoming aware of the constitution of the arbitral
tribunal or after becoming aware of any circumstances referred to in sub‐section (3) of Section
12, send a written statement of the reasons for the challenge to the arbitral tribunal.
3) Unless the arbitrator challenged under sub‐section(2) withdraws from his office or the other
party agrees to the challenge, the arbitral tribunal shall decide on the challenge.
4) If a challenge under any procedure agreed upon by the parties or under the procedure under
sub‐section (2) is not successful, the arbitral tribunal shall continue the arbitral proceedings and
make an arbitral award.
5) Where an arbitral award is made under sub‐section (4), the party challenging the arbitrator may
make an application for setting aside such an arbitral award in accordance with Section 34.
6) Where an arbitral award is set aside on an application made under sub‐section (5), the Court
may decide as to whether the arbitrator who is challenged is entitled to any fees.
On this point also the Act gives freedom to the parties to settle by agreement the procedure by which
the arbitrator in question would be challenged. If there is no agreement on the point or the parties have
failed to agree, then the procedure to be followed is that the party wishing to challenge the person has
to inform the Arbitral Tribunal of the matter. This should be done within fifteen days. If the other party
agrees to the challenge and the arbitrator does not voluntarily withdraw, the Tribunal shall decide the
matter. If the challenge is not successful, the Tribunal shall continue with the proceeding and make an
award. The party who challenged the arbitrator may challenge the award also and make an application
for setting aside in accordance with Section 34. If the award is set aside, the court can consider whether
the arbitrator shuld be entitled to his remuneration or not.
The grounds on which leave to revoke could be given were put under five heads :
1. Excess or refusal of jurisdiction by the arbitrator.
2. Misconduct of arbitrator.
3. Disqualification of arbitrator
4. Charges of fraud.
5. Exceptional cases.
Termination of authority of arbitration : Sub‐section (1) of Section 14 sets out the following grounds on
which the mandate or authority of an arbitrator can be terminated :
b. for some reasons he fails to act without undue delay, and
b. the parties agree t the termination.
There was no provision corresponding to Section 14 in the repealed Arbitration Act, 1940. Section 11(1)
of the old Act gave power to the Court to remove an arbitrator in circumstances similar to those
mentioned in Section 14(1) (a) of the present Act. Section 11(1) of the old Act provided :
“The court may, on the application of any party to a reference, remove an arbitrator or umpire who fails
to use all reasonable despatch in entering on the proceeding with the reference and making an award.”
Retirement or Change of Posting of Ex‐officio Arbitrator : An arbitration agreement provided for
reference to an engineer officer to be appointed by a third party. The arbitrator so appointed retired
during the pendency of the proceedings. The Supreme Court held that the retirement resulted in the
termination of the authority of the arbitrator. A new arbitrator would be appointed and the proceedings
would be deemed to have continued before the new arbitrator.
Court’s Assistance : If there is a dispute between the parties as to the existence of the grounds
mentioned in clause (a) of sub‐section (1) of Section 14, any party may apply to the Court for resolution
of the dispute. Such grounds are de jure or de facto inability to act or failure to act without undue delay.
But the section does not contemplate a dispute as regards the grounds mentioned in Section 14 (1) (b)
and there is no provision for a reference to the Court in this regard. These grounds are withdrawing
from office or termination of authority under parties’ agreement. There can hardly be any doubt about
the operation of these grounds.
Effect of withdrawal : Where – (a) an arbitrator withdraws from his office, or (b) a party agrees to the
termination of his mandate, it will not be inferred that any of the grounds referred to in Section 14 (1) or
in Section 12 (3) have been established. Withdrawal from office by the arbitrator is not on account of
any decision on the merits of grounds for termination of his mandate. Likewise the agreement of the
parties to the termination of the mandate does not entail any decision on merits. The mandate of an
office‐holder arbitrator comes to an end on his withdrawal from office. The court cannot provide an
extension except perhaps, where he was appointed by the court.
Additional Grounds for Termination : Section 15 (1) purports to set out an additional ground for
terminating the mandate of an arbitrator namely, where he withdraws from office for any reason. But
the provisions being of overlapping nature, it seems that the ground mentioned is already covered by
Section 14(1) (b).
Removal of arbitrator (Sections 12 and 13) : The provisions of the Arbitration and Conciliation Act, 1996
about removal of arbitrators are somewhat different. They do not confer a straight power on the court.
Section 12 casts a duty upon a would be arbitrator to disclose in writing if there is anything which gives
rise to a justifiable doubt as to his independence and impartiality. An arbitrator’s appointment can be
challenged on that ground and also on the ground of his being not in possession of requisite
qualifications as agreed to between the parties. A party can challenge his own appointee only on the
basis of a ground which he discovered afterwards. If the arbitrator does not withdraw after the
challenge, the Tribunal would decide the question. If the challenge is successful the mandate of the
arbitrator would be terminated. The mandate of an arbitrator also becomes terminated under Section
14 if he becomes unable to perform his functions de facto or de jure or if he withdraws or agrees to the
termination of his mandate or fails to act without under delay.
Jurisdiction of Arbitral Tribunal :
1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with
respect to the existence or validity of the arbitration agreement, and for that purpose :
a. an arbitration clause which forms part of a contract shall be treated as an
agreement independent of the other terms of the contract; and
b. a decision by the arbitral tribunal that the contract is null and void shall not
entail ipso jure the invalidity of the arbitration clause.
2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the
submission of the statement of defence; however, a party shall not be precluded from raising
such a plea merely because that he has appointed, or participated in the appointment of, an
arbitrator.
3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon
as the matter alleged to be beyond the scope of its authority is raised during the arbitral
proceedings.
4) The arbitral tribunal may, in either of the cases referred to in sub‐section (2) or sub‐section (3),
admit a later plea if it considers the delay justified.
5) The arbitral tribunal shall decide on a plea referred to in sub‐section (2) or sub‐section 93) and,
where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral
proceedings and make an arbitral award.
6) A party aggrieved by such an arbitral award may make an application for setting aside such an
arbitral award in accordance with Section 34.
Challenge to Jurisdiction : Section 16(1) empowers an Arbitral Tribunal to decide :
a) The question as to its jurisdiction, and
b) The objection as to the existence or validity of the arbitration agreement.
For this purpose an arbitration clause in a contract shall be treated as an arbitration agreement
independent of the contract.
If the Arbitral Tribunal holds that the contract is null and void it will not result in the automatic invalidity
of the arbitration clause.
Though there was no similar provision in the erstwhile 1940 Act, the position in law was more or less the
same.
AWARD
When an award has been made after rejection of the objections as to lack of or excess of jurisdiction the
aggrieved party may make an application under Section 34 to set aside the award. In these proceedings
the award can be challenged, inter alia, on the ground that the objections were wrongly rejected.
This provision [Section 16(5)] has been held to be constitutionally valid. The fact that the court can
consider the question of jurisdiction of arbitrator only after passing of the award was held to be not a
ground for contending that the award is not subject to any judicial scrutiny.
Arbitration Clause is Collateral or Ancillary Contract : The arbitration agreement contained in
the arbitration clause in a contract is often referred to as a collateral or ancillary contract in relation to
the main contract of which it forms a part in the sense that it survives even after the parties have broken
or repudiated the rest of the contract and will remain applicable for the settlement of the resulting
dispute. The repudiation or breach of the main contract does not put an end to the arbitration clause.
The failure of the main contract constitutes the occasion for the application of the arbitration clause.
The main contract does not become irrelevant. That still provides the framework within which the rights
and liabilities of the parties would be determined. The arbitration would, therefore, proceed according
to the proper or applicable law of contract. Section 7(2) of the Arbitration and Conciliation Act,
1996 provides that an arbitration agreement may be in the form of an arbitration clause in a contract
or in the form of a separate agreement. Section 16 (1) (b) further provides that a decision by the
Arbitral Tribunal that the contract is null and void shall not entail ipso jure the invalidity of the
arbitration clause.
Interim Measures by Tribunal
According to Section 17 of Arbitration and Conciliation Act, 1996
Interim Measures Ordered by Arbitral Tribunal
1) Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party order
a party to take any interim measure of protection as the arbitral tribunal may consider
necessary in respect of the subject‐matter of the dispute.
2) The arbitral tribunal may require a party to provide appropriate security in connection with a
measure ordered under sub‐section (1).
While Section 9 provides for the taking of interim measures by the Court in certain matters, Section 17
provides for the taking of interim measures in respect of the subject‐matter of the dispute by the
Arbitral Tribunal. The opening words of Section 17(1) indicate that the parties may be agreement
exclude the exercise of such a power by the arbitral Tribunal.
Sub‐section (2) empowers the tribunal to order the furnishing of adequate security by a party for
carrying out an interim measure ordered under the section.
Conduct of Arbitral Proceedings : The Arbitrator has to come to a conclusion on the matters of
difference between the parties which are referred to him and to express it in terms of an award. He
cannot delegate this function to any other person. The parties have appointed him because of their trust
and confidence in him and they may not repose the same trust in any other person. But he may obtain
legal assistance of drawing up his award.
The Tribunal has to treat the parties with equality. They should be given full opportunity to present their
respective cases.
Time and Place of Hearing (Section 20)
Equal Treatment of Parties : The parties shall be treated with equality and each party shall be given a
full opportunity to present his case.
This section casts a two fold duty on the arbitral tribunal :
a) It must be independent and impartial and must mete out equal treatment to each party. [See
Section 12 Note (1)]
b) It must give each party a full opportunity to present its case. Sections 23 and 24 provide for the
giving of such opportunity.
A time and place should be fixed for hearing and notice should be given to the parties accordingly.
Section 20 provides that the parties are free to agree on the place of arbitration. Failing such agreement
the place is to be determined by the Arbitral Tribunal. In doing so, the Tribunal has to give due
consideration to the circumstances of the case and also the convenience of the parties. Unless
otherwise agreed by the parties, the Tribunal may meet at any appropriate place for mutual
consultation, for hearing witness, experts or other parties or for inspection of documents, goods or
other property.
Rules of Procedure
1) The arbitral tribunal shall not be bound by the Code of Civil Procedure, 1908 (5 of 1908) or the
Indian Evidence Act, 1872 (1 of 1872).
2) Subject to this Part, the parties are free to agree on the procedure to be followed by the arbitral
tribunal in conducting its proceedings.
3) Failing any agreement referred to in sub‐section (2),the arbitral tribunal may, subject to this
Part, conduct the proceedings in the manner it considers appropriate.
4) The power of the arbitral tribunal under sub‐section (3) includes the power to determine the
admissibility, relevance, materiality and weight of any evidence.
CPC & Evidence Act : Sub‐section (1) provides that the Code of Civil Procedure, 1908, and the Evidence
Act, 1872 are not to be binding in arbitration proceedings. The position under the repealed Arbitration
Act, 1940 was the same.
Natural Justice : No doubt arbitrator is not bound by technical rules of procedure but he cannot ignore
rules of natural justice. The thread of natural justice should run through the entire arbitration
proceedings and the principles of natural justice require that the person who is to be prejudiced by the
evidence ought to be present to hear it taken, to suggest cross‐examination or himself to cross‐examine
and to be able to find evidence, if he can, that shall meet and answer it, in short, to deal with in the
same manner as in the ordinary course of legal proceedings. Except in a few cases where exceptions are
unavoidable, both sides must be heard, each in the presence of the other.
COURT ASSISTANCE (SECTION 27)
The Tribunal may by itself, or any party with the approval of the Tribunal, apply to the court of
assistance in taking evidence. The application has to specify the particulars as stated in Section 27 –
1) The arbitral tribunal, or a party with the approval of the arbitral tribunal, may apply to the court
for assistance in taking evidence.
2) The application shall specify :
a. the names and addresses of the parties and the arbitrators;
b. the general nature of the claim and the relief sought;
c. the evidence to be obtained, in particular –
i. the name and address of any person to be heard as witness or
expert witness and a statement of the subject‐matter of the testimony required;
ii. the description of any document to be produced or property to
be inspected
3) The court may, within its competence and according to its rules on taking evidence, execute the
request by ordering that the evidence by provided directly to the arbitral tribunal.
4) The court may, while making an order under sub‐section (3), issue the same processes to
witnesses as it may issue in suits tried before it.
5) Persons failing to attend in accordance with such process, or making any other default, or
refusing to give their evidence, or guilty of any contempt to the arbitral tribunal during the
conduct of arbitral proceedings, shall be subject to the like disadvantages, penalties and
punishments by order of the Court on the representation of the arbitral tribunal as they would
incur for the like offences in suits tried before the Court.
6) In this section the expression “Processes” includes summonses and commissions for the
examination of witnesses and summonses to produce documents.
Seeking Court’s assistance : Under Section 27(1), the Arbitral Tribunal as well as any part with the
approval of the Arbitral Tribunal can apply to the court for assistance in taking evidence. Under Section
43 of the old 1949 Act only the arbitrator or umpire could apply and not a party.
Orders of Court : The court may order that the evidence be provided directly to the Arbitral Tribunal. It
will issue to the witnesses the same processes as it issues in the suits before it. The processes that may
be issued include :
a) summonses for the examination of witnesses,
b) commissions for the examination of witnesses, and
c) summonses for the production of documents.
Disobedience of Orders : Persons who fail to attend as required, or make any other default; or refuse to
give evidence; or are guilty of contempt of the Arbitral Tribunal, shall be dealt with by the Court on the
representation of the Arbitral Tribunal in the same way as a person who was guilty of like offences in
suits before the court.
Default of Party (Section 25)
Default of a Party : Unless otherwise agreed by the parties, where, without showing sufficient cause :
1) the claimant fails to communicate his statement of claim in accordance with sub‐section (1) of
Section 23, the arbitral tribunal shall terminate the proceedings :
2) the respondent fails to communicate his statement of defence in accordance with sub‐section
(1) of Section 23, the arbitral tribunal shall continue the proceedings without treating that
failure in itself as an admission of the allegations by the claimant;
3) a party fails to appear at an oral hearing or to produce documentary evidence, the arbitral
tribunal may continue the proceedings and make the arbitral award on the evidence before it.
Principles governing ex parte proceedings : The principles governing the arbitrator’s right to proceed ex
parte are :
1) If a party to an arbitration agreement fails to appear at one of the sittings, the arbitrator cannot
or, at least, ought not to proceed ex parte against him at that sitting;
2) Where non‐appearance was accidental or casual, the arbitrator should ordinarily proceed it the
ordinary way, fixing another date of hearing and awaiting the future behaviour of the
defaulting‐party;
3) If, on the other hand, it appears that the defaulting party had absented himself for defeating the
object of the reference, the arbitrator should issue a notice that he intended at specified time
and place to proceed with the reference and that if the party concerned did not attend he
would proceed in his absence;
4) But if after making such peremptory appointment issuing such a notice the arbitrator did not in
fact proceed ex parte on the day fixed, but fixed another subsequent date, he could not proceed
ex parte on such subsequent date, unless he issued a similar notice in respect of the date as
well; and
5) If he issued a similar notice and the party concerned did not appear, an award made ex parte
would be in order. But, if he did not issue such notice on the second occasion but nevertheless
proceeded ex parte, the award would be liable to be set aside in spite of a notice of peremptory
hearing having been given in respect of the earlier date, subject, however, to the condition that
prejudice was caused to the party against whom the ex parte order was made. Arbitrator’s
action ought to be in due compliance with the concept of natural justice. In the event of there
being any such violation, courts oughts not to hesitate to strike down an action of the
Arbitrtrator and set aside the award if made.
In Juggilal Kamlapat v. General Fibre Dealers Ltd., AIR 1955 Cal 354, the Calcutta High Court laid down
the procedural rule to be followed by the arbitrators : “If a party fails to appear, the arbitrator ought
ordinarily to fix another date of hearing and await the future behaviour of the defaulting party, and give
the party notice that is he does not appear, he (the arbitrator) would proceed ex parte against him. If
after having issued such a notice the arbitrator does not proceed ex parte on the adjourned date, and
fixed another date, he cannot proceed ex parte on that date, unless similar notice has been given in
respect of that date as well.” The same view was been taken by the Punjab High Court.
If no such notice was given, and it could be shown that no prejudice was caused to the absenting party,
the award would not be set aside. But it has been held in the very same case that where no such notice
was given, there will always be a presumption that prejudice has been caused.
Power to Limit evidence [Section 19(4)] : The arbitrator may restrict evidence to the necessities of the
case and the court may not interfere in such matters.
A contract for the construction of two office blocks contained an arbitration clause. Disputes arose as to
81 separate roofs in the two blocks. They were referred to arbitration. The roofs involved being too
many, attempts were made by the parties to limit the issues. The parties failed to agree. One of them
asked the arbitrator to do so by an order. He accordingly ordered that the issue of liability be
determined by reference to a maximum of 25 roofs and then suspended it to enable the parties to test
its validity in a court. He indicated by his letter that the parties were still free to raise any matter
requiring special consideration.
It was held that in general the court should be slow to interfere with an arbitrator’s procedural orders.
In this case, the particular question of law was one which the arbitrator ought not to have been asked to
state. There was no requirement that an arbitrator must allow each party to call the evidence which he
wishes to call. In all the circumstances of the case the arbitrator was not acting unfairly or refusing to
decide the case submitted to him.
An arbitrator may order for filing of pleadings, or for discovery or inspection of documents. Under the
preceding 1940 Act, the arbitrator could call upon a party to provide security for costs unless such
power was granted to him by the partie. But now by virtue of the provisions in Section 38 of the
Arbitration and Conciliation Act, 1996, the Arbitral Tribunal can call upon the parties to deposit a sum of
money for covering costs.
The arbitrator has to follow the ordinary rules of evidence. The owner engaged a building contractor.
Disputes arose as to adjustments to be made for certain sums and were referred to arbitration.
Closure of Hearings : There is no provision in the 1996 Act requiring the arbitrator to give notice of
closure of hearing to the parties. But judicial pronouncements and fair play require that the parties
should be informed of the closure of the proceedings. The Courts have held that such a notice should be
given so as to enable the parties to lead any additional evidence if they so desire.
Settlement
1) It is not incompatible with an arbitration agreement for an arbitral tribunal to encourage
settlement of the dispute and, with the agreement of the parties, the arbitral tribunal may use
mediation, conciliation or other procedures at any time during the arbitral proceedings to
encourage settlement.
2) If, during arbitral proceedings, the parties settle the dispute, the arbitral tribunal shall terminate
the proceedings and, if requested by the parties and not objected to by the arbitral tribunal,
record the settlement in the form of an arbitral award on agreed terms.
3) An arbitral award on agreed terms shall be made in accordance with Section 31 and shall state
that it is an arbitral award.
Settlement Through Alternative Dispute Resolution (ADR) : Though there was no specific
provision corresponding to this section in the repealed Arbitration Act, 1940, the law was the same. An
award which merely embodied a compromise of the parties themselves was a valid award. Accepting
a compromise is an adjudication of the case as is a decree of the court founded on a compromise.
An award remains an award even though it approved an arrangement putforward by the parties
and was in accordance with their wishes. The rule that all award is not open to objection on the
sole basis that it merely reproduced an agreement come to between the parties, applies only where
the consent of the parties is regarded by the arbitrator as evidence of the fact that the
settlement proposed is fair to all. If the existence of the compromise is disputed, the arbitrator can
go into that question and if he finds the compromise to be valid, he can given his award in terms of the
same.
This section gives this position to the arbitral tribunal that to the extent possible it should encourage the
parties to come to a voluntary settlement and for this purpose to use mediation, conciliation and other
procedures.
Sub‐section (2) provides that if the parties settle the dispute the Tribunal may terminate the
proceedings and if the parties so desire record the settlement in the form of an award on agreed terms.
Sub‐section (3) requires that an award on settled terms should state that it is an award and it has to be
made in accordance with the requirements of Section 31. Sub‐section (4) gives to an agreed award the
same status and force as if it were an arbitral award.
Form and Contents of Award
Form and Contents of Arbitral Award
2) For the purposes of sub‐section (1), in arbitral proceedings with more than one arbitrator, the
signatures of the majority of all the members of the arbitral tribunal shall be sufficient so long as
the reason for any omittee signature is stated.
3) The arbitral award shall state the reasons upon which it is based, unless :
a) the parties have agreed that no reasons are to be given, or
b) the award is an arbitral award on agreed terms under Section 30.
4) The arbitral award shall state its date and the place of arbitration as determined in accordance
with Section 20 and the award shall be deemed to have been made at that place.
5) After the arbitral award is made, a signed copy shall be delivered to each party.
6) The arbitral tribunal may, at any time during the arbitral proceedings, make an interim arbitral
award on any matter with respect to which it may make a final arbitral award.
b) A sum directed to be paid by an arbitral award shall, unless the award otherwise
directs, carry interest at the rate of eighteen per centum per annum from the date of
the award to the date of payment.
8) Unless otherwise agreed by the parties –
a) the costs of an arbitration shall be fixed by the arbitral tribunal;
b) the arbitral tribunal shall specify –
i) the party entitled to costs,
ii) the party who shall pay the costs,
iii) the amount of costs or method of determining that amount, and
iv) the manner in which the costs shall be paid.
Explanation : For the purpose of clause (a), “costs” mans the reasonable costs relating to :
a) the fees and expenses of the arbitrators and witnesses.
b) legal fees and expenses.
c) any administration fees of the institution supervising the arbitration, and
d) any other expenses incurred in connection with the arbitral proceedings and the arbitral award.
Requirements of Valid Award : At the conclusion of the hearing, the Tribunal passes its judgment and it
is known as the award. There is no presumption that merely because an award had been made, it is a
valid award. It has to be proved by the party who sues upon it that it was made by the arbitrators within
the terms of the authority. A valid award has to satisfy the following requirements :
1) Must Conform to Submission : The arbitrator should conform to the terms of the agreement
under which he is appointed and is supposed to function. He has no authority to arbitrate that
which is not submitted to him. One of the grounds of setting aside in Section 34(2) (iv) says :
(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 beset aside; or
Hence an award which is outside the submission is void. If an arbitrator has awarded something
beyond authority the award is pro tanto void and if the void part is so mixed up with the rest
that it cannot be separated, the award is void altogether and such an ward is liable to be set
aside. For example, where the arbitrator awarded damages in lump sum and in reckoning the
amount he had taken into account matters which he had no jurisdiction to consider, the award
was held to be bad. But where the excess part can be separated from the rest, the part which is
within the reference remains valid.
2) Must be Certain : The award must be certain in its operative particulars. For example, there
must be certainty as to the party who has to perform, who has to receive the payment, the time
and mode of payment, the amount payable. An award which says that A or B shall do a certain
act, or that the money shall be paid by some or one of the several named persons on demand,
has been held to be bad for uncertainty.
An award allowed the supplier of electricity to recover the amount only as shown by the meter
or according to the report of the inspector. Under Section 26(6) of the Electricity Act, 1910, the
inspector’s report superseded the award. The Supreme Court held that the award was not
uncertain. The supplier claimed that the meter was slow. The Supreme Court referred the
matter to arbitration. The arbitrator decided in the above manner.
Where the arbitrator passed an award stating that “the claimant will be paid 10% more than the
measured quantity of the embankment for conveyance charges after deducting the quantity of
cut earth”, it was held that the language of the award was highly vague even to a technically
equipped engineer. The court agreed with the following remark of the trial judge :
Apart from the language, the determination calls for a further calculation based upon several
records such as the measurement books, a matter on which there may still be scope for
controversy. Why the arbitrator should not at least take the trouble of doing this work rather
than leaving it to the parties to fight out later. The courts are not obliged to pass a decree based
on awards unless the awards are self‐contained; if an award calls for other records or evidence
so as to be the basis for an executable decree the award is incomplete.
The court agreed with the judge and said that the award was too vague and in determinative of
the main points in controversy. It was difficult to confirm the decree which was passed in terms
of such an award.
An award may be referred back to an arbitrator where it is so indefinite as to be incapable of
execution. An uncertain award is not capable of being executed with any certainty and,
therefore, it may be referred back to the arbitrator to remove the elements of uncertainty from
it. Where the setting aside of an award is demanded on the ground of wrong application of law,
it may be sent back to the arbitrator with a guidance note as to the state of the law.
A vessel was chartered for a period of 24 months. Its engine suffered a major breakdown. The
charterer purported to treat the contract as terminated on this ground. The ship owner,
however, elected to continue the contract, hecarried out extensive repairs and re‐tendered the
ship. The charterer refusecd to take ti saying that by failing to make the vessel seaworthy at the
inception the ship owner had committed repudiatory breach of the contract. The arbitrator held
that the ship owner had committed the alleged breach, but it did not go to the roof of the
contract. The character’s repudiation was wrong, but even so the ship owner was bound to
accept it.
The ship owner brought the matter before the court. The court felt that there was a strong
prima facie case that the arbitrator’s decision that the ship owner was bound to accept the
repudiation was wrong. The case thus involved a question or importance in the development of
the law of contract as to whether a party is bound to accept a repudiation. The ship owner’s
appeal for a consideration f this question was allowed. The court also held that the award would
be remitted to the arbitrator in order that he should summarise the facts upon which he had
concluded that the ship owner had no legitimate interest in keeping the contract alive and was,
therefore, bound to accept the repudiation.
3) Must be Consistent and Not Vague : An award may be set in terms of alternatives. An award
directed the party to do one of two things. One of the alternatives was certain and impossible,
but the other was certain and possible. The award was held to be valid and binding. The award
should be consistent in all its terms. At inconsistent award is as bad as an uncertain one.
4) Must be Complete and Final : the arbitrator should finally dispose of the matter before him and
not leave it a part of the way The award found that some sleepers were merchantable and some
not and directed that the buyer should dispose of them and the sleeping broker should certify
the difference in amount realised by the unmerchantable and merchantable sleepers and that
amount the seller should pay.
The award was held to be bad for want of finality.
Similarly, where an arbitrator made his award subject to the opinion of a third person, it was
held to be a substituted judgment and the award was not final.
Where the award finally decides the facts involved in the submission but is stated in the form of
a special case for the opinion of the court over a matter of law, it will not be void for want of
finality. The power of the arbitrator to state a special case for the opinion of the court has not
been included in the Arbitration and Conciliation Act, 1996 Act. Now under the new Act, it is the
duty of the arbitrator to record his finding of facts on the basis of evidence adduced before him
and apply the substantive law to the facts so found. Facts must be recorded in the award itself.
A mere reference to the evidence is not enough.
Grounds of Challenge Resulting into Termination : The arbitral proceedings shall be terminated by the
final arbitral award or by an order of the arbitral tribunal under sub‐section (2).
1) The arbitral tribunal shall issue an order for the termination of the arbitral proceedings where :
a) the claimant withdraws his claim, unless the respondent objects to the order
and the arbitral tribunal recognises a legitimate interest on his part in obtaining a final
settlement of the dispute,
b) the parties agree on the termination of the proceedings, or
c) the arbitral tribunal finds that the continuation of the proceedings has for any
other reason become unnecessary or impossible.
2) Subject to Section 33 and sub‐section (4) of Section 34, the mandate of the arbitral tribunal
shall terminate with the termination of the arbitral proceedings.
Automatic Termination : The arbitration proceedings stand automatically terminated when the final
arbitral award is made.
Where the contract under which an arbitration arose is assigned to another person on an assignment
takes place by reason of take over of the concern, it becomes the duty of the assignee to give notice to
the arbitrator, within a reasonable period, that he has succeeded to the rights of the previous party to
the arbitration. His failure to do so would bring the arbitration agreement to an end.
Termination by Tribunal : An order for the termination of arbitral proceedings has to be passed by the
Arbitral Tribunal in the following cases :
1) when proceedings under section 33 have been initiated :
a. for correction of errors,
b. for interpretation of the award, or
c. for making an additional award, or
2) when proceedings for setting aside an award under Section 34(1) have been adjourned by the
court to enable the Arbitral Tribunal to take action to eliminate the grounds for setting aside the
award. [Section 34(4)].
Powers of Arbitrators : Under Section 13 of the erstwhile 1940 Act the powers of the arbitrator
included the following :
1) The powers to administer oath to parties and witnesses appearing before him.
2) In reference to questions of law, he had the power to refer the matter for the opinion of the
court or he could write his award his award in terms of a reference to the court on a point of law
so that the court’s opinion would finally decide the matter. (Not applicable under 1996 Act)
3) He had the power to make the award conditional or in terms of alternatives.
4) He had the power to rectify any clerical error or mistake arising from any accidental slip or
omission.
5) He had the power to administer such interrogatories to the parties as may in his opinion be
necessary.
Power to Rectify clerical errors or accidental slip or omission [Section 33(1) (a), 1996 Act] : Though the
words “accidental slip or omission” are not there in Section 33(1) (a) but such matters are likely to be
covered by the words “any other errors of a similar nature”. Under clause (a) of Section 33 (1) of the
1996 Act the arbitrator has the power to rectify any clerical mistake or error which arises due to any
accidental slip or omission. In Rikhabdas v. Ballabhdas, AIR 1962 SC 551, before the Supreme Court, an
arbitrator submitted his award without using proper stamps and one of the questions was whether the
award could be sent back to the arbitrator for rectifying this error. SARKAR, J. (afterwards C.J.) held that
the provision as to rectification was not applicable.
Similarly, where an arbitrator had mentioned costs in his award, he was not allowed subsequently by
issuing a new award to say that the intended to include a larger amount by way of costs and by mistake
mentioned less.
Power Generally to award Interest [Section 31(7), 1996 Act] : Section 31(7) enables the Arbitral
Tribunal to award interest. The provisions of the sub‐section are as follows :
Section 7
a) Unless otherwise agreed by the parties, where and insofar as an arbitral award is for the
payment of money, the Arbitral Tribunal may include in the sum for which the award is made
interest, at such rate as it deems reasonable, on the whole or any part of the money, for the
whole or any part of the period between the date on which the cause of action arose and the
date on which the award is made.
b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry
interest at the rate of eighteen percentium per annum from the date of the award to the date of
payment.
The parties may make their own agreement as to the matter of interest. If they have not done so, these
provisions would come into play. Where the award is for payment of money, the Tribunal may add a
sum by way of interest to the amount awarded at such rate as it deems reasonable. Interest may be
allowed on the whole amount awarded or on any part of it and also for the whole or any part of the
period between the date of the cause of action and the date on which the award is made. If the Tribunal
does not specify and rate of interest, 18% interest would be applicable from the date of the award to
the date of payment.
Correction of Errors : Section 33(1) (a) permits a party to request the Arbitral Tribunal to correct :
a) Any computation errors,
b) any clerical or typographical errors, or
c) any other errors of a similar nature occurring in the award.
The request is to be made after notice to the other party within the time prescribed.
Recourse Against Arbitral Award
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 furnished 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 :
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 : Without prejudice to the generality of sub‐clause(ii), it is hereby declared, for the
avoidance of any doubt, that an award is in conflict with the public policy of India if the making
of the award was induced or affected by fraud or corruption or was in violation of Section 75 or
Section 81.
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.
Setting Aside Award (Section 34) : The effect of an award no doubt is that the parties cannot appeal
against it as to its merits and the court cannot interfere with it on merits. But this does not mean that
there is no check on the arbitrator’s conduct. In order, therefore, to assure proper conduct of
proceedings, the law allows certain remedies against an award. These remedies can be obtained
through a court of law having jurisdiction over the matter.
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. Moving the court
is not necessary. The parties can apply to the Tribunal for removal of errors and the Tribunal can also
rectify errors at its own motion. The remedy of setting aside has been moulded into a composite one,
namely, setting aside as well as returning the award back to the Tribunal for removal of defects. Thus
remission and setting aside have been brought under one head.
Incapacity of Party [Section 34(2) (a) (i)] : If a party to an arbitration is not capable of looking after his
own interests, and he is no 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. Thus, 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. There is nothing new in this. A minor or a person of unsound mind is not capable of binding
himself by a contract and, therefore, an award under a contract does not bind him. In order to protect
the interest of such a party Section 9 of the 1996 Act enables him to apply to the court for the
appointment of a guardian for a minor or a person of unsound mind for the purposes of arbitral
proceedings. The ground of incapacity would cease to be available when the incompetent person is
represented by a guardian.
Invalidity of Agreement [Section 34 (2) (a) (ii)] : If the arbitration agreement is invalid, the reference
thereunder and consequently the award or the basis of such reference would be invalid and can be set
aside. The validity of an arbitration 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.
Notice not given to party [Section 34 (2) (a) (iii)] : Section 34 (2) (a) (iii) permits challenges to an award
on the grounds :
a) That the party was not given proper notice of the appointment of an arbitrator, or
b) that the party was not given proper notice of the arbitral proceedings, or
c) that the party was for some reason unable to present his case.
Section 12 gives a party the right to challenge the appointment of an arbitrator on the ground of his
integrity and impartiality being doubtful and of challenging the award on this ground. If the party is not
given notice of the appointment of an arbitrator he is deprived of this valuable right.
It is essential that the parties be given proper notice of the arbitral proceedings so that they may file
their statements of claim or defence as required by Section 23. 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 parties by a proper notice. Failure to give such notice may deprive the parties of
the opportunity of placing their cases before the Tribunal. Further, sub‐section (2) of Section 23
mandates that the parties shall be given sufficient advance notice of any hearing and of any meeting of
the Tribunal for the purpose of inspection of documents, goods or other property. If there is a non‐
compliance of these obligations in reference to a party, the award would be liable to be set aside at the
instance of that party.
If for any good reason a party is prevented from appearing and presenting his case before for 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.
Award beyond scope of reference [Section 34(2) (a) (iv)] : The reference of a dispute under an
agreement defines the limits of the authority and jurisdiction of the arbitrator. The arbitrator’s authority
has its source in the reference. he cannot traverse beyond the reference. If he does so he acts without
jurisdiction. The jurisdiction of the arbitrator is limited by the reference and if the arbitrator has
assumed jurisdiction not possessed 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(1) (a) (iv) of the present 1996 Act provides that an arbitral award is liable to be set aside if it
deals with a dispute.
a) not contemplated by the reference, or
b) not falling within the terms of the reference, or
c) it contains a decision in matters beyond the reference.
Illegality in Composition of Tribunal or in arbitral procedure [Section 34(2) (a) (v)] : An application
under Section 34 for setting aside an arbitral award can be made on the grounds
a) that the composition of the Tribunal was not in accordance with the agreement; or
b) that the procedure agreed to by the parties was not followed in the conduct of proceedings or
c) that, in the absence of agreements 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. Where the parties agreed that the counsel’s opinion should be sought on the legal
questions surrounding the arbitration, such opinion and the award based on it should not be lightly
overturned.
Non‐speaking award : It was not obligatory under the 1940 Act for an arbitrator, unless the parties so
required, to state reasons for his award. This state of the law has been changed by 1996 Act which
provides it Section 31 (3) that an arbitral award shall state the reasons upon which it is based, unless
the parties have agreed that no reasons are to be given or the award is on agreed terms. In the decision
of the Supreme Court in Food Corporation of India vs. Great Eastern Shipping Co. Ltd. (1988) 3 SCR 366 :
AIR 1988 SC 1198 and Raipur Development Authority v. Chokhamal Contractors (1982) 2 SCC 721 : AIR
1990 SC 1426, it was held that no objection could be taken to an award merely on the ground that no
reasons were stated when the arbitration clause didn’t contain any requirement to that effect. On the
basis of these decisions, the Supreme Court in Food Corporation of India v. Jagdish Chandra Saha, AIR
1994 sC 219 came to the conclusion that though the unreasoned award could not have been challenged,
the Calcutta High Court was wrong in not considering other possible objections to a non‐speaking
award. The party was challenging the validity on the ground that the effect of the arbitration agreement
was that reasons were required to be stated. The matter was accordingly sent back to the trial court to
consider such other objection as were available against a silent award.
The Supreme Court reiterated these points in M.K. Shah Engineers and Contractors v. State of M.Pl.
(1999) 2 SCC 594; AIR 1999 SC 950. An arbitrator’s award is not vitiated merely because the arbitrator
has not given an item‐wise award and has chosen to give a lump sum award. A lump sum award is not a
bad award. An award need not formally express the decision of the arbitrator on each matter of
difference, nor it is necessary for the award to be a speaking one (under the 1996 Act it has to be a
speaking one unless the parties agree otherwise). It will be presumed that the award disposes of finally
all the matters in difference.
A non‐speaking award can be interfered with where it has been passed without jurisdiction or if the
arbitrator has misconducted himself or the proceedings.
Reasoned or Speaking Awards : it becomes easier to locate a fault if the award is with a statement of
reasons and there is a flaw in them. A reasoned award is known as a speaking award. The Supreme
Court explained the concept in Jajodia (Overseas) (P) Ltd. v. Industrial Development Corporation of
Orissa (1993) 2SCC 106.
“A speaking or reasoned award is one which discusses or sets out the reasons which led the arbitrator to
make the award. Setting out the conclusions upon the question or issues that arise in the arbitration
proceedings without discussing the reasons for coming to those conclusions does not make an award a
reasoned or speaking award.
Reference in the award to pleadings does not amount to not incorporating the pleadings in the award.
The question where a contract or a clause of it is incorporated in the award is a question of the
construction of the award. The test is, does the arbitrator come to a finding on the wording of the
contract. If he does, he can be said to have impliedly incorporated the contract or a clause in it. But a
mere general reference to the contract in the award is not to be held as incorporating it.
Even where the contract or any clause of it finds incorporation in the award, it would still be necessary
for setting aside the award that it suffered from a patent defect. In its decision in Bungo Steel Furniture
(P) Ltd. v. Union of India (1967) 1 SCR 633 : AIR 1967 SC 378, the Supreme Court quoted the well‐known
passage from the judgment of Lord DUNEDIN in Champsey Bharat Co. v. Jivraj Balloo Spinning &
Weaving Co. ltd., 50 IA 324 : AIR 1923 PC 66.
An error in law on the face of the award means, in their Lordships’ view, that you can find in the award
or a document actually incorporated thereto, as for instance a note appended by the arbitrator stating
the reasons for his judgment, some legal proposition which is the basis of the award and which you can
then say is erroneous, it does not mean that if in narrative a reference is made to a contention of one
party, that opens the door to seeing first what that contention is, and then going to the contract on
which the parties’ rights depend to see if that contention is sound....
An award has to be read as a whole and harmoniously. The grounds upon which an award can be set
aside are limited. The court should be very circumspect about setting aside an award reached by an
arbitrator.
Another possible angle from which the validity of a non‐speaking award can be examined was
the subject‐matter of some explanation in Sudarsan Trading Co. v. Government of Kerala (1989) 2
SCC 38 : (1989) 1 SCR 665, 687. SABYASACHI MUKHERJI, J., said :
An award may be remitted or set aside on the ground that the arbitrator in making it has exceeded his
jurisdiction and evidence of matters not appearing on the face of it, will be admitted it order to establish
whether the jurisdiction had been exceeded or not, because the nature of the dispute is something
which has to be determined outside that award – whatever might be said about it in beyond his
jurisdiction – is a different ground from an error apparent on the face of the award.
It is not necessary that the arbitrator should give actual arithmetical computation of amount awarded
under different heads. It is enough that the award indicates reasons for allowing or disallowing
objections raised by the parties in respect of the different claims.
Dispute not Arbitrable [Section 34(2) (b) (i)] : Generally speaking, almost all matters in dispute, not
being of a criminal nature, may be referred to arbitration. Where the law has given jurisdiction to
determine a particular matter to specifier tribunals only, determination of that matter by other tribunals
is excluded. Insolvency proceedings “require the exercise of judicial discretion and it would be acting
contrary to the whole spirit of the Insolvency Act to the arbitrator”. It has, therefore, been held that
proceedings in insolvency including the question whether or not a certain person should be declared an
insolvent, cannot be referred to arbitration. Similarly, only matters in difference between the parties to
litigation which affect private rights can be referred to arbitration. Matters of public right cannot be
decided by arbitration. A judgment in probate proceedings is not merely inter partes but a judgment in
rem. It cannot be allowed to be decided by arbitrators selected at the instance of the parties to the
proceeding. Questions, therefore, relating to the genuineness of a will or revocation of probate cannot
be referred to arbitration. Proceedings for winding up of a company under the Companies Act, 1956
cannot be referred to arbitration. Similarly, a suit under Section 92 of the Code of Civil Procedure is not
one for the determination of the private rights of parties, and mattres in such a suit cannot be referred
to arbitration, though disputes inter se about a mutt which is not a public charity, between parties
litigating in their own right, can be referred to arbitration.
Proceedings relating to the appointment of a guardian are also not matters of private interest and
cannot be settled by reference to arbitration.
The arbitrator cannot clothe himself collusively with the jurisdiction to decide or omit to decide the
arbitrability of a particular item. He has to state reasons for his decision one way other. His jurisdiction
to decide on merits depends on the arbitrability of the issue. The Supreme Court in U.P. Rajkiya Nirman
Nigam ltd. v. Indure (P) Ltd. (1996) 2SCC 667 : AIR 1996 SCW 980 held that the arbitrability of a claim
depends on the construction of the clause in the contract and on this point the finding of the arbitrator
is not conclusive and that ultimately it is the court that decides the controversy. Section 16 of the 1996
Act empowers the arbitrators to decide such questions. The decision of the arbitrator in this respect
being appealable, ultimately the matter goes for the decision of the court.
The decision in T.N. Electricity Board v. Bridge Tunnel Constructions (1997) 4 SCC 121, was followed by
the Supreme Court in Premier Fabricators v. heavy Engineering Corporation Ltd. (1997) 4 SCC 319. In this
case, the question whether certain items of claim were or not referable to arbitration in the terms of the
contract was raised as a preliminary issue before the arbitrators. The arbitrators were unanimous in
their view that the items were referable, but the differed on the merits of the points. An umpire was
appointed who ordered a lump sum amount without giving reasons which was three times less than the
party’s claim. The Supreme Court judges also happened to differ. The majority of two as against one
was of the view that the entire dispute, including the preliminary question, was referred. There was no
interim award by the arbitrator as to the arbitrability of the claims. The umpire was, therefore, required
to decide the preliminary issue first and then to decide on merits. His non‐speaking award of an amount
was not showing whether he had considered the arbitrability of the matter. That being a jurisdictional
issue, the umpire committed a jurisdictional error. The award was returned for de novo consideration.
The dissenting judge was of the opinion that the circumstances of the case were creating a presumption
that the umpire must have considered everything and hence there was no jurisdictional error.
Specific Performance of Contract : One of the points raised in a case before the Supreme Court was that
the grant of specific performance is discretionary and the discretion to order or not to order specific
performance has been conferred by the Specific Relief Act, 1963 on the Civil Court and, therefore, an
arbitrator cannot be deemed to be competent to grant such relief. The court noted the decisions of the
Punjab, Bombay and the Calcutta High Courts in which the view taken is that the arbitrator can grant the
relief of specific performance of a contract relating to immovable property under an award. The Delhi
High Court, however, held in PNB Finance Ltd. v. Shital Prasad Jain, AIR 1991 that such relief cannot be
granted in an arbitration proceeding. The Supreme Court did not approve the view point of the High
Court of Delhi.
“We are of the view 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 with a view to shorten litigation in
regular courts to refer the issues relating to specific performance to arbitration. There is no provision in
the Specific Relief Act, 1963 that issue relating to specific performance of contract relating to immovable
property cannot be referred to arbitration. Nor is there any such prohibition it the Arbitration and
Conciliation Act, 1996 as contrasted with Section 15 of the English Arbitrator Act, 1950 or Section 48(5)
(b) of the English Arbitration Act, 1996 which contains a prohibitor relating to specific performance of
contracts concerning immovable property.”
Public Policy : Fraud and Corruption [Section 34 (2) (b) (ii)] : 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. Thus, an award obtained by
suppressing facts, by misleading or deceiving the arbitrator, by bribing the arbitrator, by exerting
pressure on the arbitrator, et., would be liable to be set aside.
Improperly procedure or otherwise invalid or opposed to public policy : An award may be set aside if it
has been improperly procedured or is otherwise invalid. Where as award has been obtained by fraud or
by corrupt inducements, it is improper. The expression “otherwise improper” would include cases where
the award is suffering from an apparent mark of invalidity such as an error of law apparent on the face
of it. An award is liable to be set aside if it is opposed to public policy of India. Though it is a general
ground. Section 34 says in particular that an award shall be deemed to be opposed to public policy if it
was induced or affected by fraud or corruption.
Bias and Misconduct : Doubts about impartiality and lack of independence : This is not one of the
grounds specified in Section 34 for setting aside an arbitral award by the court. Section12 (3) (a)
provides that an arbitrator may be challenged if there are justificable doubts as to his independence
or impartiality. If the challenge is rejected by the Arbitral Tribunal and an award is made, an application
for setting aside the award can be made on the ground that the challenge was wrongly rejected and the
question of bias can be agitated in that proceeding. But if no challenge was made under Section 12(3)
(a), the question of bias cannot be raised before the court under Section 34.
Misconduct on the part of the arbitrator or misconduct of proceedings is not a direct ground for setting
aside the award under the 1996 Act. The scheme of provisions is somewhat different. Misconduct is a
ground for disqualifying an arbitrator. Misconduct creates a doubt about his independence or
impartiality and is a ground for challenging the arbitrator under Section 12 (3). Thereafter, 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. Misconduct of proceedings would
fall under Section 34(2) (a) (v), because this provision says that it would be a ground for setting aside
where either the agreed or prescribed procedure was not observed. Thus, not following such procedure
is a misconduct of the proceedings. It would also fall under Section 34 (1) (b) (ii) explanation to the
extent to which misconduct lies in fraud or corruption.
An example of misconduct was before the Supreme Court in Payyavula v. Payyavula Kesanna 1953 SCR
119 : AIR 1953 SC 21.
The arbitrator took statements from each of the parties in the absence of the other and made an award.
Bhagwati, J., set aside the award and cited the following passage from the judgment of Lor LANGDALE,
M.R., in Harvey v. Shelton (1844), where an award was set aside on the ground of interview having
taken place between the arbitrator and one party in the absence of the other.
It is so ordinary a principle in the administration of justice, that no party to a cause can be allowed to
use any means whatsoever to influence the mind of the judge, which means are not known to and
capable of being met and resisted by the other party, that it is impossible, for a moment, not to see that
this was an extremely indiscreet mode of proceeding .... In every case in which matters are litigated, you
must attend to representations made on both sides, and you must not in the administration of justice, in
whatever form, whether in the regularly constituted courts or in arbitrations, whether before lawyers or
merchants, permit on side to use means of influencing the conduct and decision of the judge.
It has been held by the Supreme Court in Dewan Singh v. Champat Singh (1969) 3 SCC 447 : (1970) 2 SCR
903 : AIR 1970 SC 967, that it is a legal misconduct on the part of an arbitrator to use personal
knowledge for deciding the dispute before him unless so authorised by the reference.
Limitation for filing application for setting aside [Section 34 (3)] : Sub‐section (3) prescribes the
limitations of three months for filing an application for setting aside an award. The application cannot be
made after the expiry of three months –
1) from the date on which the party received the arbitral award, or
The proviso to sub‐section (3) empowers the Court to extend, for sufficient cause, the time by a further
maximum period of thirty days.
FINALITY AND ENFORCEMENT OF ARBITRAL AWARDS
Finality of Arbitral Awards : Subject to this Part an arbitral award shall be final and binding on the
parties and person claiming under them respectively.
This provision makes the award binding on the parties and those claiming under them. The award is final
in the sense that there can neither be a further award on the same subject, nor an appeal against the
finality of the award. The aggrieved party may apply to the court, if there is a ground, for setting aside
the award, but the court cannot be called upon to decide the matter.
Must be Legal : The award must be in accordance with the principles of the relevant law, otherwise it
will be illegal, being against the law. Thus, where an arbitrator awarded ownership in perpetuity, it was
held to be void as offending the rule against perpetuity.
Must be reasonable and possible : An award requiring a party to do an act which is unreasonable or not
possible, is bad. An award that one of the parties should do a thing which is out of his power to do, or to
deliver up a thing which is in the custody of another person, is void, as it requires the party to do an
impossible act.
Must dispose of matter : An award should be a complete decision on matters requiring determination.
An award which leaves some of the questions undecided cannot be enforced.
Finality, effect and enforcement of award : The arbitrator’s power over the matter submitted to him is
complete and final. he has the power to do what the court could have done if the matter had been
before the court. His award puts an end to the proceedings. The court will not interfere with the findings
of the arbitrator even if the court feels on merits that the arbitrator should have come to a different
conclusion. “His award on both fact and law is final. There is no appeal from his verdict. The court
cannot review his award and correct any mistake in his adjudication unless an objection to the validity
of the award is apparent on the face of it.” Section 35 of the Arbitration and Conciliation Act, 1996
expressly declares that an arbitrate award shall be final and binding on the parties and persons claiming
under them respectively Section 36 makes the award enforceable in the manner of a court decree. In
the case of Union of India v. Bungo Steel Furniture (P) Ltd. (1967) 1 SCR 324 : AIR 1967 SC 1032 : (1967) 2
SCJ 440. RAMASWAMI, J., quoted WILLIAM, J., in Hodgkinson v. Fernic, 3 CB NS 189 :
The law has for many years been settled, and remains so at this day, that where a cause or matters in
difference are referred to an arbitrator, whether a lawyer or layman, he is constituted the sole and final
judge of all questions, both of law and of fact .... The only exceptions to that rule are, cases where the
award is the result of corruption or fraud.
Enforcement : Section 36 of the Arbitration and Conciliation Act, 1996 provides for direct enforcement
of awards without having to get them converted into a rule of the court. The section says :
Where the time for making an application to set aside the arbitral award under Section 34 has
expired, or such application having been made, it has been refused, the award shall be enforced
under the Code of Civil Procedure, 1908 (5 of 1908) in the same manner as if it were a decree of
the court.
Enforcement of award in part : The import of the words “pronounce judgment according to the award”
(as they appeared in Section 17 of the repealed 1940 Act) was explained by the Supreme Court in
Mattapalli Chelamayya vs. Mattapalli Venkatratnam, AIR 1972 SC 1121. In this case, the award was not
registered, though a portion of the award related to immovable property and was thus compulsorily
registrable. It was held that a decree could be passed in terms of that part of the award which was
severable from the other part of it which was invalid for any reason. Where a severable part of a award
cannot be given effect to for a lawful reason, there is no bar to enforce the part to which effect could be
justly given.
IMPORTANT QUESTIONS
Q.1. On what grounds the appointment of an arbitrator can be challanged? What is the procedure to
be adopted for it?
Q.2. Which court has the power to set aside an arbitral award or order and what is its procedure?
Q.3. To what extent courts can interfer in the matters of arbitration.
Q.4. Enumerate briefly the grounds on which an award can be set‐aside.
Q.5. Trace the provisions of the Act relating to removal of an arbitrator and filling of the vacancy.
Q.6. Describe the circumstances in which the court may modify or correct the award.
Q.7. What are the essentials of an arbitral award? When arbitral proceedings shall be deemed to be
terminated? Discuss.
Q.8. State the matters connected with the enforcement of an arbitral award including the jurisdiction
of court?
Q.9. What provisions exist in the Act for making any corrrection, interpretation and amendment of
an award?