Scope of Section 34 of Arbitration and Conciliation Act, 1996

In India the three organs work efficiently in their respective spheres, laws are made and implemented by Legislature and the executive respectively, the Judiciary is the interpreter and the guardian of laws made, it protects the interest of the citizens of India.

 

The alternative dispute resolution became an important part of India’s Legal system. People approach the court in case of any disputes or infringement of Rights, as a result of which the Indian Judiciary is burdened with work, and to add to the trouble is the rapidly growing population of the country, due to which pendency of cases exist in the Indian courts and there happens a delay in administering justice.

 

As the word suggest, Alternative dispute Resolution is the alternative to Litigation. Justice Malimath Committee made recommendations after it reviews the working of the court system, particularly all aspects of arrears and law delays. It talked about reducing litigation and saving cost and time. It focused on the need for Alternative Dispute mechanism such as mediation, arbitration, conciliation, Lok Adalats etc.

 

In arbitration the parties appoint Arbitral Tribunal themselves or request the court to do so for settling of their dispute. The Indian Arbitration law is based on English Arbitration Law. The United Nations Commission on International Trade law also forms the basis of Arbitration Law in India. The award passed in arbitration is considered at par with the decree of the court and is enforceable in the same manner as the court.

 

Arbitral award is final and binding in nature and is also not appealable, but a provision of setting aside Arbitral award is given under section 34 of Arbitration and Conciliation Act, 1996.

 

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 if no check is put then the arbitrator might act arbitrarily so to protect from such a conduct various specific conditions under section 34 wherein the award can be set aside is given.

 

In Municipal Corporation of Greater Mumbai v Prestress Product (India)- the court held that new act was brought to express the parliamentary objective of curtailing the judicial intervention.

 

The application to set aside the award must be made by the aggrieved party within 3 months from the date the award has been received by it. A further period of 30 days after the expiry of 3 months if the court is satisfied that the party was prevented by a sufficient cause from making the application can also be granted as is given under the proviso to section 34(3).

 

Section 34 specifies the conditions under which the award can be set aside which are as follows:

 

  1. Incapacity of a party- if the party is not under capacity to look after his interests and is also not represented properly, the award will not be binding on him and may be set aside on his application, example minor or an unsound person is not capable to bind himself under a contract so a contract also doesn’t bind him.
  2. Invalidity of agreement- in arbitration, where the clause is contained in the contract, the arbitration clause will be invalid if the contract is invalid.
  3. Notice not given to parties- the court held that the appointment of an arbitrator by the appellant and without sending notice to the respondent, any ex-parte award given by the arbitrator will be considered illegal and also liable to be set aside.

 

An award can be challenge to be set aside if no proper notice is given of the appointment of an arbitrator or no proper notice of arbitral proceedings is given or the party was unable to for some reasons present his case.

 

  1. Award beyond the scope of reference- the Arbitrator is required to pass awards within the jurisdiction, if the arbitrator goes beyond his jurisdiction so the award will be invalid to extent to which it is beyond the arbitrator’s jurisdiction and can be set aside.

 

It is important to know that the arbitrator can also not go beyond the terms of the contract, but in case its terms are not clear, the arbitrator has the power to interpret it.

 

  1. Illegality in arbitral proceedings- Section 34(2)(a)(v) provides another condition where the arbitral award can be challenged. This section says that where the composition of the Tribunal was not in accordance with the agreement or the conduct of the proceedings was not according to the procedure agreed to by the parties, or in the absence of agreement as to the proceedings, the procedure prescribed by the Act was not followed. Procedural misconduct happens when the agreed procedure or the procedure prescribed by the Act is not followed.

 

In ONGC Ltd Vs Saw Pipe Ltd, the Supreme Court held that while exercising the Jurisdiction, the Arbitral Tribunal cannot act in breach of some of the 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 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.

 

There are two more conditions or grounds which are left with the court itself to decide whether to set aside the arbitral award which are as follows:

  • Dispute is not capable of settlement by arbitral process
  • The award is in conflict with public policy of India

 

Public policy is yet another rationale when an arbitral award can be set aside by the court provided under section 34(2)(b)(ii). Public policy is a terms which has various meanings attached to it and it can be understood in the light of judicial pronouncements.

 

Any award obtained by fraud or corruption would also be an award against the Public Policy which clause (b) clarifies. Obtaining award by any suppressing fact, misleading or deceiving the arbitrator, by bribing the arbitrator, by exerting pressure on the arbitrator would also be liable to be set aside.

 

It was held that an award could be set aside if it is contrary to the fundamental policy of Indian Law, or interest of India, or justice or Morality or it is patently illegal.

 

The term public policy was used in 1958 in the New York convention and other treaties which covered fundamental principles of Law and Justice in substantive as well as procedural respects.

 

The Supreme Court in 1996 in the Renusagar vs General Electric Co, The term Public Policy was construed to mean :

  1. Fundamental policy of India law
  2. Interest of India
  3. Justice or morality.

 

The scope of this expression was broadened after 9 years in the case of ONGC v Saw Pipes ’ to mean an award that violates the statutory provisions of Indian law or terms of the contract. Such an award is considered as ‘patently illegal’ and therefore in violation of public policy.

 

The Supreme Court judgement of Oil and Natural Gas Corporation Ltd. Vs Western Geco International expanded the undefined scope of the phrase ‘fundamental policy of Indian Law which happens to be one of the elements of Public policy. The 246th report suggested that if this expression is not construed in the narrow sense then the application of this  Wednesbury Principle will lead to judicial encroachments.

 

The question in the Renusagar case was the enforcement of award was challenged whereas in the ONGC case the validity of the award itself was the challenging factor.

 

The case of Venture Global Vs Satyam Computers an open challenge under section 34 of the act started of the arbitration awards which were seated outside India. Resulting this, foreign awards began to be subject to the broader test of Public policy as was enunciated in the ONGC case.

 

The doors were opened for a lot of petitions on the ground of patent illegality. The very objective and purpose of arbitration was being defeated.

 

A wider meaning was given to Public policy in the  Phulchand case and it laid down that the scope and purpose of public policy is the same in section 34 and section 48.in case of the partries challenging the enforcement of the foreign award, section 34 of the act can be invoked by the reason of the Phulchand decision which gave a wider interpretation and meaning to the expression.

 

The Shri Lal Mahal Ltd vs Progetto Grano Spa overruled what was given in the Phulchand decision In this matter, an award passed under the rules of the Grain and Feed Trade Association, London and upheld by courts in the UK was sought to be enforced in India. Objection to the enforcement of the award was raised under Section 48 of the Act on the ground that the award was contrary to the terms of the contract and thus patently illegal and in violation of ‘public policy’.

 

The Supreme court expressed that the term Public Policy as is found under section 48 of the Act would not  go on to include within its folds the ground of Patent Illegality. Furthermore, such a ground has a limit to Section 34 wherein the issue of whether award should be set aside or not exists.

 

CONCLUSION:

 

The Scope of Section 34 of the Arbitration and Conciliation Act, 1996 is very extensive, it is extremely wide in nature and also has a lot of interpretations attached to it. Arbitration is considered as an important form of an Alternate Dispute mechanism providing an opportunity to the fast growing population to resort to a process which would save time and money. In the Recent times, arbitration has gained a lot of popularity and people are following it as a trend.  People appoint arbitrators so that delay of justice is avoided and also the dispute is resolved at the earliest which in turn does not slow the working of the society and at the same time the economy.

 

The new act of Arbitration and Conciliation was made to provide a wider ambit and also to make more opportunities available to the people.  Section 34 of the 1996 legislation gives ample opportunity to the people to set aside the award passed by the arbitrator, the section mentions five grounds under which an arbitration award be set aside, this is of utmost importance so that no arbitrariness happens on part of the award passed by arbitrator and people resorting to this mode of dispute resolution get the best of justice which they expect. if the parties are incompetent to the agreement or if the proceedings are inconsistent with the contract or agreement entered into then definitely it is liable to be set aside. The term public policy has been subjected to various interpretations and its meaning has changed with time and cases and also best possible meaning is accepted for the interest of the people. The basic purpose of Section 34 is to give opportunity to the people who have opted for arbitration as a method of dispute resolution to approach the court to set aside the award passed if the parties fall within the ground mentioned, so basically it acts as a protective measure.

 

(This is submitted by Prerna Jalan, Amity Law School, Noida)

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