1

A Project Work In ALTERNATIVE DISPUTE RESOLUTION

‘GROUNDS FOR CHALLENGES UNDER ARBITRATION AND CONCILIATION

ACT, 1996’’

SUBMITTED TO: Mr. Manoj Kumar

FACULTY: - ALTERNATIVE DISPUTE RESOLUTION

SUBMITTED BY: DIPTIMAAN KUMAR

SEMESTER 6
SECTION B
ROLL NO. 61

SUBMITTED ON:
15th FEBRUARY, 2016

HIDAYATULLAH NATIONAL LAW UNIVERSITY

Raipur, Chhattisgarh

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ACKNOWLEDGEMENTS
Thanks to the Almighty who gave me the strength to accomplish the project with sheer hard
work and honesty.
I would like to sincerely thank my faculty for Alternative Dispute Resolution Mr. Manoj
Kumar for giving me this topic and guiding me throughout the project. Through this project I
have learned a lot about the aforesaid topic and this in turn has helped me grow as a student.

My heartfelt gratitude also goes out to the staff and administration of HNLU for the
infrastructure in the form of our library and IT lab that was a source of great help in the
completion of this project.

DIPTIMAAN KUMAR

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TABLE OF CONTENTS
Acknowledgements .................................................................................................................... 2
Introduction ................................................................................................................................ 4
Objectives .................................................................................................................................. 5
Research Methodology .............................................................................................................. 5
Chapterisation ............................................................................................................................ 6
CHAPTER 1: GROUNDS FOR REFUSAL/CHALLENGE FOR SETTING ASIDE AN
ARBITRAL AWARD ........................................................................................................... 6
Incapacity of Parties ........................................................................................................... 7
Invalidity of Agreement ..................................................................................................... 8
Notice not given to Parties ................................................................................................. 8
Award Beyond Scope of Reference ................................................................................... 9
Illegality in Arbitral Procedure ........................................................................................ 10
Dispute not Arbitrable...................................................................................................... 11
Award against Public Policy ............................................................................................ 11
CHAPTER 2: LIMITATIONS/RESTRICTIONS UNDER WHICH AN ARBITRAL
AWARD CANNOT BE REFUSED OR CHALLENGED ................................................. 12
Limitation for Filing Application..................................................................................... 12
Remission By Tribunal .................................................................................................... 13
Foreign Awards ................................................................................................................ 14
Conclusion ............................................................................................................................... 15
References ................................................................................................................................ 16
Acts/Statutes ........................................................................................................................ 16
Books ................................................................................................................................... 16
Websites ............................................................................................................................... 16

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INTRODUCTION

Arbitration is a process of dispute resolution between the parties through arbitral tribunal
appointed by parties to the dispute or by the Court at the request by a party. In other words, it
is an alternative to litigation as a method of dispute resolution. The law relating to arbitration
n India is based on the English Arbitration Law. In 1940 the Indian Law on arbitration was
drafted in the form of Arbitration Act, 1940 and remained in force until it was replaced by the
new Arbitration and Conciliation Act, 1996.

The Indian arbitration law is based on the United Nations Commission on International Trade
Law (UNCITRAL Model Law).The law of arbitration is based on the principle of
withdrawing the dispute from the ordinary court and enabling the parties to substitute a
domestic tribunal consisting persons of their own choice called as arbitrators. The Parliament
enacted the Arbitration and Conciliation Act, 1996 which not only removed many serious
defects of the earlier arbitration law but also incorporated modern concepts of arbitration
which are internationally accepted. The arbitral award has been treated at par with the decree
of the Court. The arbitral award is enforceable in the same manner as a decree of a law court.
This change has enabled reduction of litigation in some areas of arbitration. Earlier an award
could not be executed in its own right unless the court ordered that award be filed and a
decree issued in terms thereof.

There is no provision for appeal against an arbitral award and it is final and binding between
the parties. However, an aggrieved party may take recourse to law court for setting aside the
arbitration award on certain grounds specified in Section 34 of the Arbitration and
Conciliation Act, 1996.

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OBJECTIVES
 To discuss about the grounds under which an arbitral award can be refused or
challenged in India.
 To discuss about the limitations and restrictions for such grounds.

RESEARCH METHODOLOGY

This research is descriptive and analytical in nature. Secondary and Electronic resources
have been largely used to gather information about the topic.
Websites, books, journals and articles have been primarily helpful in giving this project a
firm structure.
Footnotes have been provided wherever needed to acknowledge the source.

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CHAPTERISATION

CHAPTER 1: GROUNDS FOR REFUSAL/CHALLENGE FOR SETTING ASIDE AN

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 observed1 “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 setting aside has been moulded with
returning back the award to the Tribunal for removal of defects.
Section 34 provides that an arbitral award may be set aside by a court on certain grounds
specified therein. These grounds are:
1. Incapacity of a party
2. Arbitration agreement not being valid
3. Party not given proper notice of arbitral proceedings
4. Nature of dispute not falling within the terms of submission to arbitration
5. 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. In Municipal Corp. of Greater Mumbai v. Prestress Products (India)2, the court

1
Indu Engg & Textiles Ltd v DDA, (2001) 5 SCC 691
2
(2003) 4 RAJ 363 (Bom)

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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.
It is necessary for the aggrieved party to make an application under Section 34 stating the
grounds of challenge. An application for setting aside the award has to be made by a party to
the arbitration agreement. But a legal representative can apply for it because he is a person
claiming under them. There is no special form prescribed for making an application under
Section 34 of the act except it has to be a written statement filed within the period of
limitation.
In Sanshin Chemical Industry v. Oriental Carbons & chemical Ltd.3, there arose 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.
An award which is set aside is no longer remains enforceable by law. The parties are restored
to their former position as to their claims in the dispute. Setting aside an award means that it
is rejected as invalid. The award is avoided and the matter becomes open for decision again.
The parties become free to go back to arbitration or to have the matter decided through court.

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.
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

3
AIR 2001 SC 1219
4
AIR 1994 SC 2562

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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.
In State of U.P. v. Allied Constructions5 the 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 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 Engineer, Dona Canal Division6, 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.7, 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

5
(2003) 7 SCC 396
6
(2004) 1 SCC 73
7
FAO No. 2161 of 2012 (P&H HC)

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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 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
Development8, 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 India9, 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.
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. In State of
Rajasthan v. Nav Bharat Construction Co.10, a majority of claims allowed were against the
terms of the contract.

8
AIR 2000 SC 3018
9
AIR 1999 SC 463
10
AIR 2005 SC 4430

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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 Commerce11, a permanent
arbitral institution, did not allow a company to be represented by its Law 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 Case12 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 Ltd13, 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

11
AIR 1981 Cal. 440
12
Supra 7
13
AIR 2003 SC 2629

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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 Krishna14 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.
Some other examples of misconduct of proceedings are proceeding ex parte without
sufficient cause; denial of opportunity to parties; acting against the mandate given to the
arbitrator under the agreement; failure or refusal to consider counter-claim of the respondent
etc.

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 Jain15, 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 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.

14
AIR 2000 J&K 79
15
AIR 1991 Del 13

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In Venture Global Engg v. Satyam Computer Service Ltd16, 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.

CHAPTER 2: LIMITATIONS/RESTRICTIONS UNDER WHICH AN ARBITRAL

AWARD CANNOT BE REFUSED OR CHALLENGED

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 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) Ltd17, 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) Ltd18, 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.

16
2008 (4) SCC 190
17
(2004) 1 SCC 540
18
(2006) 8 SCC 18

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In Union of India v. Microwave Communication Ltd19 the Delhi High Court noted that, in
contradiction with Section 5, Section 4 “does not enlarge the period of limitation but it only
enables the party to file any suit, application, etc. on the reopening day of the Court if the
Court is closed on a day when limitation expires.” As there was no overlap of any sort
between Section 4 and Section 34(3) the Court held that Section 4 would apply in cases
where there was not any lack of due diligence on the part of the applicant. Interestingly, the
Court also held that S. 4 was applicable even to situations where the proviso to Section 34(3)
was attracted – i.e., the thirty day condonation period.
A bare reading of Section 34(3) read with the proviso makes it abundantly clear that the
application for setting aside the award will have to be made within three months. The period
can further be extended, on sufficient cause being shown, by another period of thirty days but
not thereafter. Section 29 (2) of the Limitation Act, provides that when any special statute
prescribes certain period of limitation as well as provision for extension upto specified time
limit, on sufficient cause being shown, then the period of limitation prescribed under the
special law shall prevail and to that extent the provisions of the Limitation Act shall stand
excluded. The provisions of Section 5 of the Limitation Act would not be applicable because
of the provisions of Section 29 (2) of the Limitation Act.

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 Constructions,20 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.

19
O.M.P. 235/2004 (Delhi HC)
20
(1997) 4 SCC 121

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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.

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,
Supreme Court in Bharat Aluminum Co. v. Kaiser Aluminium Technical Service
Inc.21reconsidering 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.22
and Venture Global Engg v Satyam Computer Services Ltd & Anr.23 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.

21
Civil Appeal No. 7019 of 2005 (SC)
22
2004 (2) SCC 105
23
2008 (4) SCC 190

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CONCLUSION

From what has been stated and discussed above, in the end conclusively, we see that the law
relating to refusal of arbitral award in India is in consonance with the UNCITRAL model law
as the national law is based on the same only. Grounds for refusal of an arbitral award
provided under Section 34 provides a recourse to an aggrieved party. 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 practice has to be promoted in India so that
arbitration may be successful.

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REFERENCES

Acts/Statutes

 The Arbitration and Conciliation Act, 1996

 The Limitation Act, 1963

Books

 AVTAR SINGH LAW OF ARBITARTION AND CONCILIATION AND

ALTERNATIVE DISPUTE RESOLUTION SYSTEMS, 10th EDITION (2013),
EASTERN BOOK COMPANY
 JUSTICE R.P. SETHI, COMMENTARY ON LAW OF ARBITRATION AND
CONCILIATION, (2007), ASHOKA LAW HOUSE

Websites

 www.lawyersclubindia.com
 www.indiacore.com
 www.kaplegal.com

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