Making of the Arbitral Award: Sections 28 to 33

This group of sections takes the reference from the law to be applied through to the document that ends it. Section 28 fixes the substantive law, Section 29 the manner of decision by a panel, Sections 29A and 29B the time within which the award must be made, Section 30 settlement during the arbitration, Section 31 the form and contents of the award including interest, Section 31A costs, Section 32 termination of the proceedings, and Section 33 the narrow powers that survive the award. The dominant themes after the amendment of 2015 are time and cost: the twelve-month limit in Section 29A and the costs regime in Section 31A were both introduced to answer the complaint that Indian arbitration had become as slow and as expensive as litigation.

1. The Law Applicable to the Substance: Section 28

Three points follow. In a purely domestic arbitration the parties cannot choose a foreign law to govern the substance; Indian law applies. In an international commercial arbitration they may, and the exclusion of renvoi in the second limb prevents the choice from being deflected by conflict rules. And a decision ex aequo et bono, that is according to what the tribunal considers fair and good rather than by strict law, requires express authority; an arbitrator who decides on his own notion of fairness without that authority exceeds his mandate.

Section 28(3) was amended in 2015. As originally enacted it required the tribunal to decide in accordance with the terms of the contract, and that language, read with the public policy ground, produced a period in which awards were set aside for departing from the contract on the court's own construction of it. The present words, take into account, were substituted to restore the tribunal's role as the interpreter of the contract.

2. Decision by a Panel: Section 29

Unless otherwise agreed, in arbitral proceedings with more than one arbitrator any decision is made by a majority of all the members. Questions of procedure may be decided by the presiding arbitrator if the parties or all the members of the tribunal so authorise. Two consequences are worth noting. A three-member tribunal must produce a majority; where each member takes a different view on a head of claim, there is no decision on it and the point must be resolved by further deliberation. And a dissenting opinion is not an award. It may be useful to a party challenging the award as a record of the material, but it has no operative effect, and the award is the majority document.

3. Time for the Award: Sections 29A and 29B

The periods, the consent extension, and what the court may do when asked for more time

Section 29A, inserted in 2015 and amended in 2019, requires the award in a domestic arbitration to be made within twelve months from the date of completion of pleadings under Section 23(4). Where the award is made within six months, the tribunal is entitled to such additional fees as the parties may agree. The parties may by consent extend the period by up to six months further. Beyond that, the mandate of the arbitrator terminates unless the court extends the period, and an extension is granted only for sufficient cause and on such terms as the court may impose. For an international commercial arbitration the proviso requires the tribunal to endeavour to make the award within twelve months, which is a direction and not a limit.

• Reduction of fees. While extending, the court may order a reduction of the fees of an arbitrator by not more than five per cent for each month of delay, where it finds that the delay is attributable to the tribunal.
• Substitution. The court may substitute one or all of the arbitrators, and the reconstituted tribunal continues from the stage already reached, on the basis of the evidence and material already on record.
• Costs. The court may impose actual or exemplary costs on any of the parties.
• Pendency. Where an application is pending, the mandate of the arbitrator continues until its disposal, and the court is to endeavour to dispose of the application within sixty days.

Section 29B provides a fast track procedure which the parties may adopt in writing before or at the time of the appointment. The award is to be made within six months from the date the tribunal enters upon the reference. The tribunal decides on the basis of written pleadings, documents and submissions, holds an oral hearing only if all the parties make a request or the tribunal considers it necessary for clarifying certain issues, and may call for further information. The fees are as agreed between the parties and the tribunal.

4. Settlement during Arbitration: Section 30

The section makes clear that it is not incompatible with an arbitration agreement for the tribunal to encourage settlement, and permits it, with the agreement of the parties, to use mediation, conciliation or other procedures at any time during the proceedings for that purpose. Where the parties settle, the tribunal terminates the proceedings and, if requested by the parties and not objected to by it, records the settlement in the form of an arbitral award on agreed terms. Such an award is made in accordance with Section 31, states that it is an arbitral award, and has the same status and effect as any other arbitral award on the substance of the dispute.

5. Form and Contents of the Award: Section 31

The formal requirements, and the two kinds of interest

The award must be in writing and signed by the members of the tribunal; in proceedings with more than one arbitrator, the signatures of the majority suffice provided the reason for any omitted signature is stated. It must state the reasons upon which it is based, unless the parties have agreed that no reasons are to be given or it is an award on agreed terms under Section 30. It must state its date and the place of arbitration as determined under Section 20, and is deemed to have been made at that place. A signed copy must be delivered to each party, and the date of receipt of that copy is what sets the period for an application under Section 34(3) running.

The requirement of reasons is a substantive one. Reasons must show the tribunal's mind on the issues: what was claimed, what was disputed, what material was considered and why the conclusion follows. An award which records conclusions without reasoning is open to challenge as patently illegal in a purely domestic arbitration, and as offending the principles of natural justice where it shows that the tribunal did not consider the case at all.

5.1 Interest

Section 31(7)(a) provides that unless otherwise agreed, where the award is for the payment of money, the tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made. Clause (b), as substituted in 2015, provides that a sum directed to be paid by an award shall, unless the award otherwise directs, carry interest at the rate of two per cent higher than the current rate of interest prevalent on the date of the award, from the date of the award to the date of payment.

Two qualifications are worth adding. The discretion to award pre-award interest is subject to any agreement between the parties, so a clause barring interest is effective; and the rate chosen must be reasonable, which in the case of an award expressed in foreign currency means a rate reflecting the currency of the award rather than an Indian rate applied to it.

6. Costs: Section 31A

Section 31A, inserted in 2015, replaced the earlier position in which costs were left largely at large. The general rule now is that the unsuccessful party shall be ordered to pay the costs of the successful party, although the court or the tribunal may make a different order for reasons to be recorded in writing.

• What costs include. The fees and expenses of the arbitrators, courts and witnesses; legal fees and expenses; administration fees of the institution supervising the arbitration; and any other expenses incurred in connection with the arbitral or court proceedings and the award.
• What the tribunal considers. The conduct of the parties; whether a party has succeeded partly in the case; whether a party has made a frivolous counterclaim leading to delay; and whether any reasonable offer to settle was made by a party and refused by the other.
• Agreements about costs. An agreement that the parties will share or bear their own costs is valid only if it is made after the dispute has arisen; a clause to that effect in the original contract is ineffective.

7. Termination of the Proceedings: Section 32

The arbitral proceedings are terminated by the final award or by an order of the tribunal under Section 32(2). Such an order is made where the claimant withdraws his claim, unless the respondent objects and the tribunal recognises a legitimate interest on his part in obtaining a final settlement of the dispute; where the parties agree on the termination; or where the tribunal finds that the continuation of the proceedings has for any other reason become unnecessary or impossible. Section 32(3) provides that the mandate of the tribunal terminates with the termination of the proceedings, subject to Section 33 and to Section 34(4).

8. Correction, Interpretation and Additional Award: Section 33

What survives the award, what does not, and the single route back to the tribunal

1. Correction. Within thirty days from receipt of the award, unless another period has been agreed, a party may, with notice to the other, request the tribunal to correct any computation errors, clerical or typographical errors or any other errors of a similar nature. The tribunal may also make such a correction on its own initiative within thirty days from the date of the award.
2. Interpretation. If the parties have so agreed, a party may within the same period request the tribunal to give an interpretation of a specific point or part of the award. Absent such agreement, no request for interpretation lies.
3. Time to decide. The tribunal must make the correction or give the interpretation within thirty days of receipt of the request, and it forms part of the award.
4. Additional award. A party may, within thirty days and with notice to the other, request an additional award as to claims presented in the proceedings but omitted from the award. If the tribunal considers the request justified, it must make the additional award within sixty days.
5. Extension and form. The tribunal may extend the period within which it is to act, and Section 31 applies to a correction, an interpretation or an additional award as it applies to the award itself.

9. Related Topics and Provisions