|ALTERNATIVE DISPUTE RESOLUTION LAW | FINAL DRAFT | 2017-18| 1

DR. RAM MANOHAR LOHIYA NATIONAL LAW UNIVERSITY, LUCKNOW

ACADEMIC SESSION: 2017-18

ALTERNATIVE DISPUTE
RESOLUTION LAW
FINAL DRAFT
“Exceeding of jurisdiction with respect to
Section 34 of the Arbitration and
Conciliation Act, 2015”
Submitted To: Submitted By:

Ms. Kirti Singh Neelesh Ramchandani

Assistant Professor (Law), B.A.LL.B.(Hons.)

Dr. Ram Manohar Lohiya 8th Semester

National Law University, Lucknow. Roll No: 81

Enrolment No.: 140101081

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ACKNOWLEDGEMENT

It feels great pleasure in thanking Ms. Kirti Singh- Assistant Professor(Law) for giving me this
opportunity to work on the project topic, ‘Exceeding of jurisdiction with respect to Section 34 of
the Arbitration and Conciliation Act, 2015' which helped me in doing a lot of research and gain
knowledge on the same. I would also like to thank my family and friends for their support and
guidance. Lastly, I wish to thank the library staff for providing help in finding appropriate books
and content related to the project topic.

Neelesh Ramchandani

8th Semester

Roll No.:81
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TABLE OF CONTENTS

RESEARCH METHODOLOGY .......................................................................................................................... 4

INTRODUCTION ............................................................................................................................................. 6
SETTING ASIDE OF THE ARBITRAL AWARD ................................................................................................. 10
INCAPACITY OF PARTIES [Section 34(1)(a)(i)] ......................................................................................... 12
INVALIDITY OF AGREEMENT [Section 34(2)(a)(ii)] .................................................................................. 12
NOTICE NOT GIVEN TO PARTIES [Section 34(2)(a)(iii)] ........................................................................... 12
AWARD BEYOND SCOPE OF REFERENCE [Section 34(2)(a)(iv)] .............................................................. 13
ILLEGALITY IN ARBITRAL PROCEDURE [Section 34(2)(a)(v)] ................................................................... 14
DISPUTE NOT ARBITRABLE [Section 34(2)(b)(i)] ..................................................................................... 15
AWARD AGAINST PUBLIC POLICY [Section 34(2)(b)(ii)] .......................................................................... 16
EXCEEDED JURISDICTION ............................................................................................................................ 18
CONCLUSION............................................................................................................................................... 20
BIBLIOGRAPHY ............................................................................................................................................ 22
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RESEARCH METHODOLOGY

Statement of Problem

Use of discretion enables the Court to balance arbitral finality with the need to protect parties
against seriously flawed arbitrations. However, the question which arises for discussion is what
should be the criteria for the exercise of that discretion. Here, the analysis is to see what criteria
have been employed by the Courts and whether judicial intervention has been consistent with the
modern approach in favour of ‘sustaining awards where that can fairly be done.’

Hypothesis

The only grounds on which an award may be set aside are those specified in Article 34. Article
34(2)(a)(i) contains two grounds for setting aside, neither of which are often encountered, i.e.,
the incapacity of a party and the lack of a valid arbitration agreement. An award may be set aside
under Article 34(2)(a)(ii) if a party ‘was not given proper notice of the appointment of an
arbitrator or of the arbitral proceedings or was otherwise unable to present that party’s case.’

Research Questions

1. Can Award could also be set aside if it is as unfair and unreasonable?

2. Can Courts approach the exercise of this discretion?
3. What are the grounds on which an award may be set aside?
4. What could be interfered under Section 34.?
5. What does the UNCITRAL model say in this regard?
6. Can the court exceed its jurisdiction?
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Aim/Objective

The advantages of arbitration are lost where Courts seek to intervene outside these specified
areas, or for tenuous reasons within those areas. Overly strict evaluation of awards may mean
parties are, in effect, forced to comply with rigid Court procedures rather than flexible arbitral
procedures, contrary to their original agreement.

Literature Review

The researcher has relied mostly on secondary source of data for the paper and uses limited
primary source. The author will analyze the problem with help of law books, existing statutes,
proposed bills and decided cases pertaining to the issues raised. The author will select
bibliographic databases to identify secondary sources which could be anything from text books,
bar review, scholarly articles and legal encyclopedias. Entire material will be screened to
differentiate the most authoritative from the least authoritative based on either the quality or
relevancy of the material to the research issue.

Scope

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.

Mode of citation

The researcher has used “BLUEBOOK” mode of citation.

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INTRODUCTION

The existence of the discretion given under the concept of setting aside is undoubted because of
the word may in the opening phrase of Article 34(2): “An arbitral award may be set aside …”
even if one of the specified grounds is established, it is also supported by the drafting history of
Article 34, and specifically the concern of the drafters of the Model Law that awards should not
have to be set aside for technical or inconsequential errors. Use of discretion enables the Court to
balance arbitral finality with the need to protect parties against seriously flawed arbitrations.
However, the question which arises for discussion is what should be the criteria for the exercise of
that discretion. Here, the analysis is to see what criteria have been employed by the Courts and
whether judicial intervention has been consistent with the modern approach in favour of
‘sustaining awards where that can fairly be done.’ Here is an area where a degree of judicial
restraint is desirable. Arbitration is, by definition, characterised by flexibility and freedom from
the rigid procedures of litigation. Nevertheless Courts must maintain a residual supervisory
jurisdiction to ensure that the fundamental principles of due process and natural justice are
observed. Article 34 authorises National Courts to intervene by setting aside awards in situations
where the basic rights of parties have been breached or where an arbitral tribunal has acted beyond
its jurisdiction.

The only grounds on which an award may be set aside are those specified in Article 34. Article
34(2)(a)(i) contains two grounds for setting aside, neither of which are often encountered, i.e., the
incapacity of a party and the lack of a valid arbitration agreement. An award may be set aside
under Article 34(2)(a)(ii) if a party ‘was not given proper notice of the appointment of an arbitrator
or of the arbitral proceedings or was otherwise unable to present that party’s case.’ The provision
for setting aside in Article 34(2)(a)(ii) supports the natural justice requirements expressed in
Article 18, which follows as, directing that each party be treated equally and be given the full
opportunity to present its case and Article 24, which is related to the conduct of hearings and
written proceedings. Article 34(2)(a)(iii) deals with excess of jurisdiction and Article 34(2)(a)(iv)
covers defects in the composition of the arbitral tribunal or unauthorised arbitral proceedings.
Whereas, wider natural justice protections are recognized in Article 34(2)(b)(ii), which permits
setting aside in circumstances where enforcement of an award would conflict with public policy,
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for example when breach of the rules of natural justice has occurred. This list is exhaustive and,
hence, cannot be extended by analogy.1

The advantages of arbitration are lost where Courts seek to intervene outside these specified areas,
or for tenuous reasons within those areas. Overly strict evaluation of awards may mean parties are,
in effect, forced to comply with rigid Court procedures rather than flexible arbitral procedures,
contrary to their original agreement. Moreover, since the parties to arbitration have agreed to

1
Article 34. Application for setting aside as exclusive recourse against arbitral award:

(1) Recourse to a court against an arbitral award may be made only by an application for setting aside in accordance
with paragraphs (2) and (3) of this article.

(2) An arbitral award may be set aside by the court specified in article 6 only if:

(a) the party making the application furnishes proof that:

(i) a party to the arbitration agreement referred to in article 7 was under some incapacity; or the said
agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the
law of this State; or

(ii) 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

(iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to
arbitration, or 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 award
which contains decisions on matters not submitted to arbitration may be set aside; or

(iv) 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 Law from which the parties
cannot derogate, or, failing such agreement, was not in accordance with this Law; or

(b) the court finds that:

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law of this State;
or

(ii) the award is in conflict with the public policy of this State.

(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 award or, if a request had been made under article 33, from the date on which
that request had been disposed of by the arbitral tribunal.

(4) The court, when asked to set aside an award, may, where appropriate and so requested by a party, suspend the
setting aside 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 arbitral tribunal's opinion will eliminate the
grounds for setting aside.
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accept the findings of the arbitral tribunal, Courts should not attempt to ‘second-guess’ the
tribunal’s procedural rulings. It is for this reason that, when interpreting Article 34, Courts have
construed the grounds for setting aside in Article 34(2) narrowly especially in relation to the so-
called public policy ground.

The drafting history of the Model Law in respect of Article 34 supports the principle that arbitral
awards will not be set aside for minor or immaterial violations. On the other hand, the UNCITRAL
Commission Report states that a non-material error can give rise to grounds for setting aside the
award, but, as was noted during the debates, national courts have discretion not to set aside the
award when such grounds are present. The drafting history, however, does not and could not
address in detail how Courts should approach the exercise of this discretion. Gary Born
summarizes the basic approach of the Model Law to the setting aside of arbitral awards:

The UNCITRAL Model Law sets forth an influential approach to the annulment of
international awards in the arbitral seat. Article 34 of the Model Law provides for the presumptive
validity of international arbitral awards, subject only to specified exceptions which are
substantially identical to Article 36 of the UNCITRAL Model Law (dealing with recognition of
foreign awards). These grounds parallel the non-recognition in the New York Convention and are
narrowly construed. It is equally clear that the grounds specified in Article 34(2) of the Model Law
are permissive or discretionary, not mandatory. That is, a court may annul an award if one or more
of the Article 34(2) grounds are satisfied, but the court is not mandatorily required to annul the
award, even where one of these grounds applies. This is made express by Article 34(2), which
provides that an “award may be set aside by the court only if..” specified grounds are present. In
many cases, the existence of one of the Article 34(2) grounds will be sufficiently serious that
annulment of the award will be virtually automatic; nonetheless, there may be instances where, for
example, a procedural error was sufficiently inconsequential that it is held not to affect the award’s
validity. Also preliminarily, it is clear that the burden of proving that one of the exceptions under
Article 34 of the Model Law applies is on the party seeking to set an award aside. That is the
explicit requirement with regard to the exceptions in Articles 34(2)(a)(i) to (a)(iv), as to which
Article 34(2) requires that “the party making the application [to annul] furnish proof” that the
exception applies. Judicial authority including in countries that have not adopted the Model Law,
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is to the same effect. Article 34(2)(b), which deals with non-arbitrability and public policy, is not
prefaced by the foregoing requirement that the party seeking to annul and award must demonstrate
that the exception is applicable. This parallels the New York Convention and reflects the power of
a national court to raise these issues suasponte or ex officio. Nevertheless, it would be wrong to
conclude that the burden of proof allocations noted above do not apply to Article 34(2)(b)’s public
policy and non-arbitrability exceptions; on the contrary, public policy and non-arbitrability rules
are designed in part for the protection of particular parties, and it is entirely appropriate (and
necessary) to conclude that the party seeking to annul an award bears the ultimate burden of
demonstrating that one of these exceptions applies.

The first Indian Arbitration Act of 1899 was based on English Arbitration Act of 1889. Then came
the Indian Arbitration Act, 1940, followed by the, Arbitration and Conciliation Act, 1996, which
was enacted by the Parliament based on the United Nations Commission on International Trade
Law (UNCITRAL Model Law) on International Commercial Arbitration, 1985 and finally, we
have the Arbitration and Conciliation Act, 2015.

Prior to the enactment of the 1996 Act, Section 30 of the Indian Arbitration Act, 1940, contained
rather broad grounds for setting aside an arbitral award. In contrast, Section 34(2) of the Act sought
to restrict the grounds for challenging an award. Setting aside procedures are provided so as to act
as a check on the powers of the arbitrators, to prevent them from going beyond their scope of
authority. However, there is another school of thought which advocates that provision for setting
aside of an arbitral award should never be envisaged. The parties should stick to their award and
any mistake, however inflated it may be and an award however unreasonable it may be, should be
treated the same as a final judgment.
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SETTING ASIDE OF THE ARBITRAL AWARD

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 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 court for setting aside the arbitration
award on certain grounds specified in Section 34 of the Arbitration and Conciliation Act, 2015.

The parties cannot appeal against an arbitral award as to its merits and the court cannot interfere
on its merits. The Supreme Court has observed that “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. Further, with the amendment of 2015, conditions violating public policy have also been
enlisted upon.

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

 Incapacity of a party, or
 Arbitration agreement not being valid, or
 Party not given proper notice of arbitral proceedings, or
 Nature of dispute not falling within the terms of submission to arbitration, or
 Arbitral procedure not being in accordance with the agreement of the parties.
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Further, Section 34(2)(b) mentions two more grounds which are left with the Court itself to decide
whether to set aside the arbitral award, where:

 Dispute is not capable of settlement by arbitral process, or

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

On a general note, 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 held that the new Act, i.e, the 1994 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 also 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.

An award which is set aside 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.

2
(2003) 4 RAJ 363 (Bom).
3
AIR 2001 SC 1219.
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INCAPACITY OF PARTIES [Section 34(1)(a)(i)]

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.

INVALIDITY OF AGREEMENT [Section 34(2)(a)(ii)]

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 Constructions4
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)]

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

4
(2003) 7 SCC 396.
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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 Division5, the court held that appointment of
an arbitrator at the behest of the appellant without sending notice to the respondent, ex parte award
given by the arbitrator was illegal and liable to be set aside.

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

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. 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 Development6,
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 India7, 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

5
(2004) 1 SCC 73.
6
AIR 2000 SC 3018.
7
AIR 1999 SC 463.
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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, 2015 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.8, a majority of claims allowed were against the terms of the contract.

ILLEGALITY IN ARBITRAL PROCEDURE [Section 34(2)(a)(v)]

Section 34(2)(a)(v) provides 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) provides that an
arbitrator may be challenged if there, happens to be a justifiable doubt as to his independence or
impartiality, or, he/she does not possess the qualifications agreed to by the parties. 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 Commerce9, a permanent arbitral
institution, did not allow a company to be represented by its Law Officer, who was full time

8
AIR 2005 SC 4430.
9
AIR 1981 Cal. 440.
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employee of the company. The Court held that it was not only misconduct of the arbitrator but also
misconduct of the arbitration proceedings.

As discussed earlier in Bathinda Central Co-operative Bank’s Case, the court observed that, 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 Ltd10, the Supreme Court held that in exercising jurisdiction, the Arbitral
Tribunal cannot act in breach of some provisions of substantive law or the provision of the Act. In
section 34(2)(a)(v)of the Act, the composition of the Arbitral Tribunal should be in accordance
with the agreement. The procedure which is required to be followed by the arbitrator should also
be accordance with the agreement. If there is no such agreement then it should be in accordance
with the procedure prescribed in Part 1 of the Act. In the above case, the losses caused by delay
were deducted from the supplier’s bill. The direction of the Arbitral Tribunal that such deduction
should be refunded with interest was held to be neither in accordance with law, nor contract. The
award was set aside to that extent.

In Union of India v. Om Prakash Baldev Krishna11, 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 [Section 34(2)(b)(i)]

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

10
AIR 2003 SC 2629.
11
AIR 2000 J&K 79.
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be referred to arbitration. Therefore, matters of criminal nature, insolvency proceedings, and

matters of public rights cannot be decided by arbitration.

AWARD AGAINST PUBLIC POLICY [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 is in conflict with public policy, only if, the award has been made under
fraud, corruption or violates Section 75 or 81, or contravens fundamental policy of the Indian Law-
the test for the same does not mean a review on the merits of the dispute; or the award happens to
be in conflict with the basic notions of morality or justice. The concept of public policy connotes
some matter which concerns public good and public interest.

The Act provides that if the arbitral award is in conflict with the public policy of India it can be
set aside. The term “public policy” has not been defined in the Act. A simple attempt to describe
it is contained in the legal glossary of the Ministry of Law, Justice and Company Affairs,
Government of India, namely that public policy is ‘a set of principles in accordance with which
communities need to be regulated to achieve the good of the entire community or public.’ Clearly,
the term public policy is very open-ended, depending on some socio-cultural notions prevailing in
the society and impossible to straightjacket. It is not possible to classify the elementary inclusive
and exclusive distinctiveness of public policy.

In one of its earlier decisions in Gherulal Parekh v. Mahadeodas Maiya12, the Apex Court gave a
narrow interpretation of public policy. It held that within public policy of India, it lay certain
determinate specified heads and that it would not be prudent to begin search for new heads.
However, in Central Inland Water Transport Corp. Ltd. v. Brojo Nath Ganguly13, the Supreme
Court promoted a wider stance by interpreting the term public policy on the pillars of public
conscience, public good and public interest.

12
AIR 1959 SC 781.
13
AIR 1986 SC 1571.
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Again in Renusagar Power Co. Ltd. v. General Electric Co.14, the concept of public policy with
respect to foreign awards was construed in a narrow manner. The Court held that the award would
be considered as being in conflict with public policy of India if it was shown contrary to (i)
fundamental policy of Indian law; or (ii) the interests of India; or (iii) justice or morality. By the
latest judgment of Supreme Court in ONGC v. Saw Pipes15, the Court gave a wide interpretation
to the term public policy. The Apex Court held that in a case where the validity of award is
challenged, there is no necessity of giving a narrow interpretation to the term public policy of
India. On the contrary, wider meaning is required to be given so that the patently illegal award
passed by the tribunal could be set aside. 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.

14
MANU/SC/0195/1994.
15
AIR 2003 SC 2629.
16
2008 (4) SCC 190.
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EXCEEDED JURISDICTION

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, the
Supreme Court in Bharat Aluminum Co. v. Kaiser Aluminium Technical Service Inc.17
reconsidering 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.18
and Venture Global Engg v Satyam Computer Services Ltd & Anr.19 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. In this case,
the Court decided that Part I and Part II of the Act are exclusive of each other, and the Parliament
intended that the Act must be territorial in nature, and section 9 and 34 will be applicable only
when the seat of arbitration is in India.

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

Moreover, talking about the concept of public policy, the Supreme Court further expanded the
scope of public policy in the case of Renusagar Power Co. v. General Electric Company20 by

17
(2012) 9 SCC 552.
18
2004 (2) SCC 105.
19
2008 (4) SCC 190.
20
1994 Supp (1) SCC 644.
 |ALTERNATIVE DISPUTE RESOLUTION LAW | FINAL DRAFT | 2017-18| 19

stating that Public policy means statutory provisions of Indian Law or even the terms of the
contract. This was further expanded in ONGC v. Western Geo International Ltd21 wherein the
Court assumed the power to modify the subject matter of an award for violation of the ground of
fundamental policy of the Indian Statute under Section 34(2)(b)(ii) of the Arbitration and
Conciliation Act, 1996. The Court held that if the arbitrators failed to make an interference which
should have been made, or has made a prima facie inference, ‘……then the adjudication made by
an Arbitral Tribunal that enjoys a considerable latitude and play at the joints in making awards
will be open to challenge and may be cast away or be modified…’ (para 30).

21
(2014) 9 SCC 263.
 |ALTERNATIVE DISPUTE RESOLUTION LAW | FINAL DRAFT | 2017-18| 20

CONCLUSION

Given this scheme of the 1996 Act, it was generally understood that by choosing a foreign seat,
parties could preclude intervention of the Indian courts and obtain an award that could be enforced
under the New York Convention. However, this understanding (and the underlying scheme of the
1996 Act) was upset by the decision of the Indian Supreme Court in Bhatia International.
Therefore, this judgment ended up being as an authority for the proposition that Indian courts are
entitled to exercise their powers under Part I of the 1996 Act even in respect of arbitrations having
a foreign seat. Extensions of the Bhatia ruling have had other far-reaching, and much-criticised,
consequences. It considerably extended the scope for the Indian courts to interfere in offshore
arbitrations viz. arbitrations with a seat outside India. Under this line of authority, the Indian courts
have reopened and set aside arbitral awards rendered in offshore arbitrations and suggested that
they have the power to appoint arbitrators even in arbitrations seated outside India. For instance,
as foreshadowed in Venture Global Engg. v. Satyam Computer Services Ltd., the Indian Supreme
Court interpreted the Bhatia decision as giving it the right to set aside an LCIA award despite the
fact that the arbitral award was rendered in London. In yet another controversial extension of the
Bhatia ruling, in Indtel Technical Services (P) Ltd. v. W.S. Atkins Rail Ltd., the Supreme Court
ruled that it was empowered to appoint arbitrators in the event of a deadlock between the parties
even in cases where the seat of the arbitration was outside India. In addition to the fact that such
decisions had little textual support from the 1996 Act, attempts to exercise such self-conferred,
long-arm jurisdiction also meant that the Indian judiciary was seen as keen to encroach upon
powers reserved for the courts of the seat. In order to mitigate the risk of excessive judicial
intervention, it has now become standard market practice in India-related international commercial
transactions to exclude the application of Part I in arbitrations seated outside India.

The Indian courts have often been criticised for undertaking extensive judicial review of awards.
In a controversial ruling, in ONGC Ltd. v. Saw Pipes Ltd., the Supreme Court held that the public
policy ground for setting aside awards should be given a broad meaning and ruled that an award
could be set aside if it was patently illegal. It further held that an arbitral award would be patently
illegal, if it was contrary to substantive law, the provisions of the 1996 Act or the terms of the
contract. Saw Pipes decision has been viewed as authorising greater judicial interference in arbitral
 |ALTERNATIVE DISPUTE RESOLUTION LAW | FINAL DRAFT | 2017-18| 21

awards and effectively converted what was designed to be a jurisdictional review into full-fledged
appeal proceedings. Most importantly, it disregarded the will of the parties to resolve their disputes
by arbitration rather than by recourse to a national court. Fortunately, according to the 2015
amendment, an award would be considered to be contrary to public policy only if it is contrary to
the fundamental policy of India, the interests of India or justice and morality. Though, each of
these facets of public policy are relatively nebulous concepts (and therefore subject to judicial
interpretation).

One of the crucial factors that will determine the success of arbitration in India is the attitude of
the courts. The most striking aspect of the history of the 1996 Act has been the propensity for
judicial intervention. Although the Act bolted the front door and limited judicial intervention to a
few [narrowly] defined instances, the Indian courts have found means to break down the back
door. Therefore, no matter how tightly the legislature tries to ring-fence the powers of the courts,
the courts have proved themselves to be adept of breaching these barriers. What, therefore, is
necessary is a sea change in the court’s attitude towards arbitration. Overzealous exercise of the
courts supervisory powers over arbitration strikes at the root of party autonomy and the parties
conscious decision to have their disputes resolved by an Arbitral Tribunal than by the courts. It is
hoped that the courts will henceforth respect the will of Parliament and of parties who have decided
to arbitrate, and hold off from excessively interfering with the arbitral process. Only then will it
be possible for India to erase its image of being an arbitration-unfriendly jurisdiction.
 |ALTERNATIVE DISPUTE RESOLUTION LAW | FINAL DRAFT | 2017-18| 22

BIBLIOGRAPHY

INTERNATIONAL CONVENTIONS/ NATIONAL LEGISLATIONS:

The Arbitration and Conciliation Act, 2015.
New York Convention on Enforcement of Foreign Arbitral Awards, 1958.
UNCITRAL Model Law, 1985.

BOOKS & ARTICLES:

A. Redfern & M. Hunter, Law & Practice of International Commercial

Arbitration (London: Sweet & Maxwell, 2004).
Gry B. Born, International Commercial Arbitration, (Volume 1, Wolters Kluwer).
Henry J. Brown, ADR Principles and Practice, (3rd Edition, Thomson Reuters).
Howard M Holtzmann and Joseph E Neuhaus, A Guide to the UNCITRAL Model Law on
International Commercial Arbitration: Legislative History and Commentary (Kluwer, The
Hague, 1989) at 921–922 and 1057–1058.
K.D. Kerameus, “Waiver of Setting Aside Procedures in International Arbitration.”
P. Anklesaria, “Scope of the Expression Public Policy in Domestic and Foreign Awards.”
A. Kurup, “Reposing Faith in the Arbitral Process: A Restrained Exercise of Judicial
Discretion When Construing the ‘Public Policy of India’.”
A. Sheppard, “Public Policy and the Enforcement of Arbitral Awards: Should there be a
Global Standard?”
Sujoy Chatterjee, “Judicial Import of the Model Law: How far is too far?” Indian Journal
of Arbitration Law, Volume 4, Issue 1.
Sumeet Kachwaha, “The Arbitration Law of India: A Critical Analysis,” Asia International
Arbitrational Journal, Volume 1, Issue 2.
Karishma Amar Galliara, “Arbitration is Helpless When the Judiciary is Inevitably
Influenced by the Executive.”
Aishwarya Padmanabhan, “Analysis of Section 34 of the Arbitration and Conciliation Act-
Setting Aside of Arbitral Award and Courts’ Interference: An Evaluation with Case Laws.”
 |ALTERNATIVE DISPUTE RESOLUTION LAW | FINAL DRAFT | 2017-18| 23

O.P. Malhotra, “The Law and Practice of Arbitration and Conciliation,” New Delhi, Lexis
Nexis Butterworths, 2002.
P.C. Markanda, “Law Relating to Arbitration and Conciliation,” 2nd Edition, 1997,
Wadhwa Publishers, Delhi.

WEBSITES:

http://www.livelaw.in/amendment-of-indian-arbitration-act-a-sigh-of-relief-for-the-
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http://www.mondaq.com/india/x/357928/Arbitration+Dispute+Resolution/When+Courts
+Can+Interfere+In+The+Awards+Passed+By+An+Arbitral
http://www.mondaq.com/india/x/20649/Constitutional+Administrative+Law/Judicial+Re
view+in+India
http://www.mondaq.com/india/x/357928/Arbitration+Dispute+Resolution/When+Courts
+Can+Interfere+In+The+Awards+Passed+By+An+Arbitral
http://www.indiacore.com/bulletin/papers-tpi2009/Ramesh-Bhatia-Advocate-
Challenging-Of-Arbitration-Award.pdf