Setting Aside a Domestic Award: Nature, Scope and Grounds

An application under Section 34 is the only way to attack an arbitral award, and it is not an appeal. The court sits to see whether one of the stated grounds is made out on the record of the arbitration, not to decide the dispute again. This topic deals with the character of the proceeding, how it is conducted, and the five grounds in Section 34(2)(a) which the applicant must establish; the two grounds the court may find for itself, non-arbitrability and public policy, are treated separately, as is patent illegality under Section 34(2A).

1. The Character of the Proceeding

Section 34(1) provides that recourse to a court against an arbitral award may be made only by an application for setting aside in accordance with sub-sections (2) and (3). The words only by an application do two things: they exclude a suit, a writ petition and any other form of attack, and they fix the character of what is filed as an application rather than a plaint.

• No issues are framed. The procedure of a suit does not apply. The court does not settle issues, does not record evidence as a matter of course and does not try the dispute.
• Decided on the record. The application is ordinarily decided on the record of the arbitral proceedings and on affidavits. Cross-examination is permitted only in the exceptional case where a ground depends on matters outside the record, as where a party alleges that it never received notice.
• The applicant must furnish proof. For the grounds in Section 34(2)(a) the party making the application must furnish proof, and that proof comes from the record unless the exceptional case arises.
• No automatic stay. Since 2015, filing does not render the award unenforceable. A separate application under Section 36(2) is needed, and the court may grant a stay on conditions, including a deposit.
• One court only. The application lies to the court defined in Section 2(1)(e), and by Section 42 to the court before which the first application under Part I was made. Where the subject matter is a commercial dispute of the specified value, Section 10 of the Commercial Courts Act, 2015 routes it to the Commercial Division or the Commercial Court.

The sequence from receipt of the award to the appeal, and where the burden lies

2. The Five Grounds under Section 34(2)(a)

2.1 Incapacity of a party

Sub-clause (i) applies where a party was under some incapacity. The incapacity is judged at the time the arbitration agreement was made, and the relevant law is the ordinary law of contract: minority, unsoundness of mind, or want of authority in the person who signed for a company or a partnership. The ground goes to the foundation of the tribunal's authority, because a person incapable of contracting cannot confer jurisdiction on a private tribunal. It is seldom pleaded successfully, since commercial parties rarely lack capacity, and the more common complaint, that the signatory had no authority, is usually framed as an attack on the existence of the agreement under the next sub-clause.

2.2 Invalidity of the arbitration agreement

Sub-clause (ii) applies where the arbitration agreement is not valid under the law to which the parties have subjected it, or, failing any indication thereon, under the law for the time being in force. Three points must be kept distinct. The invalidity must attach to the arbitration agreement and not merely to the contract containing it, because Section 16(1) treats the clause as separable. The law by which validity is tested is the law governing the arbitration agreement, which may differ from the proper law of the contract. And a party who has taken no jurisdictional objection before the tribunal under Section 16(2) will usually be met with the answer that the plea was not raised in time, although a plea that no agreement existed at all is not lost in the same way.

2.3 Want of notice, or inability to present the case

Sub-clause (iii) applies where 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. This is the procedural fairness ground, and it is the one under which a breach of Section 18 is taken.

• Notice of appointment. The party must be told who has been appointed and how; an appointment made without notice, or in breach of the agreed procedure, is challenged here and under sub-clause (v).
• Notice of the proceedings. Section 24(2) requires sufficient advance notice of any hearing or meeting, and the tribunal's record must show it.
• Otherwise unable to present his case. The words cover reliance by the tribunal on material the party never saw, refusal of a reasonable opportunity to lead evidence or to answer, and a decision on a ground nobody argued. They do not cover a party's own failure to use the opportunity it had.
• Ex parte proceedings. Where the tribunal has proceeded under Section 25(c), the question is whether notice was given, not whether the party attended.

2.4 Award beyond the scope of the submission

Sub-clause (iv) applies where 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. The submission is measured by the arbitration clause and by the claims actually referred, which is why the notice under Section 21 and the statement of claim matter at this stage. The proviso is important: if the decisions on matters submitted can be separated from those not submitted, only that part of the award which contains decisions on matters not submitted may be set aside. A party relying on this sub-clause should therefore identify precisely which findings are outside the reference and show that the remainder stands on its own.

The ground is distinct from a complaint that the tribunal misconstrued the contract. Deciding a referred dispute wrongly is not deciding an unreferred dispute, and only the latter falls within sub-clause (iv). The distinction is what separates a jurisdictional objection from an appeal on the merits.

2.5 Irregular composition or procedure

Sub-clause (v) applies where the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless that agreement was in conflict with a provision of Part I from which the parties cannot derogate, or, failing such agreement, was not in accordance with Part I. Two qualifications built into the text are frequently missed. An agreed procedure that conflicts with a mandatory provision, such as Section 18, does not save an award made under it. And a party who knew of the irregularity and proceeded without objection will meet Section 4, under which the right to object to non-compliance with a derogable provision is deemed waived.

3. The Grounds the Court May Find

Section 34(2)(b) permits the court to set aside an award if it finds that the subject matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or that the award is in conflict with the public policy of India as explained in the two Explanations added in 2015. Neither ground depends on proof by a party, and non-arbitrability is not waived by participation in the reference. Section 34(2A) adds patent illegality for an award arising out of an arbitration other than an international commercial arbitration. These grounds are dealt with in the separate topics on arbitrability, on Section 34 as a whole, and on patent illegality.

4. Consequences

5. Related Topics and Provisions