Judicial Review of Arbitral Awards

Abstract

Arbitration has played a very crucial role in providing an alternate dispute resolution process to various businesses and individuals to resolve their disputes and differences in a very efficient manner. This research paper gives us an insight about the legal framework, procedural aspects governing the arbitration process and arbitral awards, and grounds for setting aside awards. Various provisions of the arbitration act and amendments have been mentioned for a better understanding.

The field of arbitration and ADR is our future, with rapid modernization, industrialization and growing population and fulfilling the growing needs of the people. In addition, it states the impact of international guidelines on Indian arbitration practices and the need of judicial intervention in the arbitration. This paper also mentions and explains a lot of landmark cases decided by the courts regarding the arbitral award and process. How these cases played an important role in reshaping our legislative framework of Arbitration Act.

Keywords

Arbitral award, set aside, public policy, Alternate Dispute Resolution

Introduction

Arbitration is a process of resolving disputes between parties outside of court by a third party who is neutral. In simple terms, when a dispute arises between parties to the contract, they mutually agree to resolve the matter by appointing one or more arbitrators who makes a decision on the dispute. This decision given by the arbitrators, after hearing all the parties, is final and binding upon all and is called as Arbitral Award.

Arbitration is one of the most popular ways of Alternate Dispute Resolution (ADR) in India which is governed as per the provisions of Arbitration and Conciliation Act, 1996. The main of aim of resolving disputes through arbitration is that it is faster, less formal and more economical way when compared to courts. The concept of arbitration was introduced in India with a view to minimize the judicial intervention in third party dispute resolution and this could have been achieved only when the judicial scrutiny was limited to the procedural aspects. The main aim was to ensure the enforcement of the arbitral awards and respect the integrity of party’s autonomy.

Research Methodology

This legal research paper is being prepared using doctrinal research methodology and is of descriptive nature in which I’ve analysed primary sources such as statutes, articles, case laws. Various secondary sources such as website reports, legal texts and research papers were also referred to write this paper.

Legal Framework

The Arbitration and Conciliation Act, 1996 is a legal framework which regulates and governs arbitration in India which is based on the United Nations Commission on International Trade Law model law. This Act provides a comprehensive legal structure of conducting arbitration like preparation of arbitration agreements, appointment and number of arbitrators, conducting proceedings, making and enforcement of awards and setting aside of awards. Both domestic and international arbitration proceedings are governed by this Act.

United Nations Commission of International Trade Law[1]:

UNCITRAL had a huge impact on arbitration laws in India. It has played a prominent role in framing Indian arbitration law and practice through its instrumental guidelines and procedures. After adoption of these principles, India has made its arbitration process more transparent and reliable. The main emphasis of UNICTRAL is promoting arbitration as a means of resolving international disputes and India has utilized this opportunity to place itself in position of global arbitration hub. This forum has also helped India to improve its arbitration system, making it more attractive market for the world.

Setting aside of arbitral award[2]

Domestic awards:

Section 34(1) of the Arbitration and Conciliation Act, 1996 provides that a “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 (3)”. This basically means when the party or parties are not satisfied with decisions given by the arbitration panel, they cannot simply file an appeal against the arbitral award just like a court’s order rather they shall file an application before the court seeking cancellation or setting aside of the arbitral award.

Section 34(2) of this Act provides for various grounds under which the arbitral award may be set aside. The grounds are as follows:

(a) The party making application produces evidences that

1. The party was under some incapacity;
2. The arbitration agreement entered into by the parties does not stand valid under the law which the parties have subjected to or under the law that in force at that particular time;

• The applicant has not been duly served a proper notice regarding the appointment of the arbitrator or of the arbitral proceedings or he was unable to present his case;

1. The arbitral award includes those matters or issues that were not decided by the parties at the beginning or the decision includes things which are not a part of the original dispute. This means that the arbitrators have exercised powers beyond their scope;
2. The composition of the arbitration panel or the arbitration procedure was not carried out as per the rules laid down in the agreement entered into by the parties unless those rules were not consistent with the provisions of this Act.

(b) The court is of the opinion that

1. The issue or the subject matter of the dispute is of such a nature that it cannot be settled using arbitration procedure;
2. The award given by the arbitration panel is not consistent or violated the public policy of India.

Section 34(3) of this Act states that the aggrieved party has a time period of maximum 3 months from the date of receipt of award to make an application to the court for setting aside the arbitral award. If the party has requested the arbitration panel to correct or clarify something under Section 33, the period of three months starts from the day on which the request is resolved or disposed of.

Section 34(4) of this Act provides that when an application is made under sub section (1) to the court, it can bring a stay or hold on the arbitral proceedings. This stay gives the arbitral panel an opportunity to rectify those errors that can be grounds for setting aside the award.

Section 34(5) of this Act states that a notice must be served by the aggrieved party to the other party before filing an application of setting aside under this section. The application must contain an affidavit stating that the notice has been duly served to the other party.

Section 34(6) of this Act provides that the court must dispose of the application under this section made by the party within one year from the date on which the notice was duly served to the other party.

Foreign arbitral awards:

Section 48 of this Act deals with enforcement of foreign awards. The court can refuse enforcement of this award only if the party provides proof that –

1. the parties to the agreement were under some incapacity or the said agreement is not valid;
2. the aggrieved party was not properly served notice regarding appointment of arbitrator, the proceedings or to present its case;
3. the award contains decisions regarding those matters which didn’t fall within its scope to be decided;
4. the composition of the arbitration panel or the arbitration procedure was not held in accordance as per the agreement or the law;
5. the award has not become binding or is suspended or set aside by the authority of the country in which the arbitration was held.

The court can also refuse the enforcement of the award on the grounds that –

1. The subject matter or the dispute arise cannot be resolved or is of such nature that it cannot be resolved through arbitration;
2. The enforcement would be contradicting the public policy of India.

The Arbitration and Conciliation (Amendment) Act, 2015

Section 34(2)(b) of this Act provides clarification that an arbitral award is in conflict with public policy if –

• the award is made under affected or persuaded by any fraud or corruption or violated the Sections 75 & 81;
• the award is in contravention with the fundamental policy of Indian law; or
• the award is in contradicting the basic notions of morality and justice.

Section 34(2A) of this Act states that arbitral award granted other than that of international commercial arbitration can be set aside if the court is of the opinion that the award is vitiated (i.e. spoiled) by patent illegality.

Case Laws

In the case of Delhi Metro Rail Corporation Ltd. Vs. Delhi Airport Metro Express Pvt Ltd., 2024 INSC 292[3], the Hon’ble Supreme Court of India held that the arbitral award passed was “perverse” and “irrational” in nature. It further stated that the arbitral tribunal had missed the expressed terms of agreement. The Hon’ble Supreme Court restored the Division Bench’s judgement that had partially overturned the arbitral award.

In the case of Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India (NHAI) 2019 SCC OnLine SCC 67[4], the Hon’ble Supreme Court of India had applied the principles provided by the New York Convention to set aside an award on the grounds that one of the parties was not provided with reasonable opportunity of being heard. The Hon’ble Court was of a view that such arbitral award suffers from patent illegality and has to be set aside.

In the case of Fiza Developers & Inter-Trade P. Ltd vs AMCI (I) Pvt Ltd. & Anr (2009), 17 SCC 796[5], the Hon’ble Supreme Court of India held that the proceedings conducted under Section 34 of the Arbitration and Conciliation Act, 1996 are in the nature of summary proceedings and the arbitral awards can only be set aside on one of the grounds mentioned in Section 34(2)(a) or Section 34(2)(b) of this Act.

In the case of  Renusagar Power Co. Ltd. v. General Electric Co. (1994) AIR 860, the Hon’ble Supreme Court of India decided to use the narrow definition of public policy as used in the international law. It said that mere violation of Indian law is not enough to challenge an award on the grounds of public policy rather its enforcement would be refused if it goes against (i) the fundamental policy of India, (ii) interests of India, (iii) Justice or morality.

Supplementary Information

Law and Practice of Commercial Arbitration: Shared understanding and developments in UK and India[6]

The Chief Justice of India had delivered a lecture on commercial arbitrations at the UK Supreme Court, hosted by a senior advocate Mr. Gourab Banerji, wherein he provided some interesting and useful insights regarding this topic. The CJI talked about a case of Federal Republic of Nigeria V. Process and Industrial Development Ltd., in which the arbitral tribunal had passed an award against the Nigerian government to pay certain amount. It was later found out that the businessman had bribed the Nigerian legal team during arbitration process. A appeal was made to the High Court in which it was held that manner in which award was passed was against the public policy.

The CJI stated that when the courts take necessary steps to correct the unfair arbitral awards, they are basically upholding the rule of law. The intervention is important as it ensures the arbitration process remains fair and transparent. He said that the arbitral awards granted have huge financial impact not only on the parties but also upon various peoples and businesses across the world.

In conclusion, he was of the opinion that it is time for countries like India and many others to create and promote the culture of commercial arbitration.

Suggestions

As we are moving towards rapid modernization, there are conflicts and disputes arising everywhere. There is a need to take necessary steps towards establishment of mechanisms to provide people with easy and simple dispute resolution process. The Government of India along with various other judicial bodies shall undertake workshops, seminars and camps to make people aware about the different alternate dispute resolution processes. People shall also be made aware about institutions like Mumbai Centre for International Arbitration (MCIA) and the Delhi International Arbitration Centre (DIAC). It must be ensured that a continuous judicial support is being provided to these institutions with minimum interference and enforcement of their awards. Training must be provided by experienced professionals to the newcomers in these field. Latest technology and AI must be integrated with this process to make it more efficient and effective. Both physical and digital Infrastructure must be developed to support arbitration activities. Foreign collaborations must be encouraged to enhance the experience and knowledge of our professionals and promote our country as a business-friendly nation.

Conclusion

At last, we can conclude this article by saying that arbitration is still a new and developing concept in India because of which the courts need to continuously review and keep a check on the working and decisions been given so as to ensure proper justice is being served. The main aim for which arbitration is being introduced in India is to resolve disputes and matters in a timelier and cost-effective manner. The burdens on the courts have been reduced a lot due to this alternate method of dispute resolution. In arbitration, the parties are free to choose those professionals who will review facts, analyse evidences and provide them solution in a matter as decided by the parties themselves upfront. From the above-mentioned cases, we get to know that there are still some aspects where the court needs to work regarding the provisions of the Act so as to ensure that proper interpretation is being done while deciding matters. In today’s world, where there are many businesses being carried out and disputes are arising in them, there was a need to provide a quick, efficient and cost saving way to the businesses to resolve their disputes which the arbitration has done. As per my view a check must always be kept on the arbitration aspect so as to ensure fair and transparent working is being carried out in this dispute resolution process. But the review and intervention must be in a limited manner so that the purpose of arbitration is not compromised.

[1] ‘The United Nations Commission on International Trade Law’ https://uncitral.uin.org/sites/uncitral.un.org/files/media-documents/uncitral/en/uncitral-e.pdf accessed 24 July 2024

[2] Arbitration and Conciliation Act 1996

[3] Delhi Metro Rail Corporation Ltd. Vs. Delhi Airport Metro Express Pvt Ltd. 2024 INSC 292

[4] Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India (NHAI) 2019 SCC OnLine SCC 67

[5] Fiza Developers & Inter-Trade P. Ltd vs AMCI (I) Pvt Ltd. & Anr (2009) 17 SCC 796

[6] Bhumika Indulia, ‘Future of Arbitration is already here: CJI Dr. DY Chandrachud at UK Supreme Court’ (2024) https://www.scconline.com/blog/post/2024/06/07/future-arbitration-already-here-cji-dr-dy-chandrachud-uk-supreme-court accessed 24 July 2024