This article is an analysis of Section 34 of the Arbitration and Conciliation Act 1996.
Arbitration is a dispute settlement mechanism in which the parties to the dispute agree in a written contract to submit their disputes to arbitration for settlement. The settlement is called an arbitration award, which is given by the arbitrators. The award is the award made by the arbitrator and is final. There is only one recourse to an injured party who goes to court.
Section 34 of the Arbitration & Conciliation Act 1996 is of great importance as it provides for the setting aside of an arbitration award through judicial intervention. There has always been a tremendous outcry to keep the jurisdiction of the courts away from alternative dispute settlement mechanisms, as doing so would essentially defeat the purpose of establishing alternative dispute settlement mechanisms if the entire burden of cases remained with the judiciary.
Section 34 of the Arbitration & Conciliation Act 1996 was drafted in accordance with the UNCITRAL Model Law. However, the courts are not empowered to change or modify the award or to examine the case on any matter of fact or law other than the award itself.
After the Arbitration Act of 1940, a major problem was the vagueness of the legislative intent of the term “Public Policy of India”, which eventually gave the judiciary the opportunity to intervene and interpret as it understood. Section 34 of the Arbitration and Conciliation Act 1996 following the 2015 and 2019 Amending Acts appears to have resolved certain issues related to judicial intervention. However, further analysis is needed to understand the scope of Clause 34.
Highlights of the amendments to the Arbitration and Conciliation Act 2015 and 2019
Prior to the 2015 Amendment Act, the courts often treated an application under Section 34 of the Arbitration and Conciliation Act as a regular civil action, following the lengthy process that led to pending cases and defeated the purpose of alternative dispute resolution mechanisms. In addition, “Public Policy of India” was a vague term that needed to be interpreted.
The Apex Court in 2009 in the case of Fiza Developers and Inter-Trade P. Ltd v AMCI (I) Pvt. GmbH. decided that – it is difficult and unnecessary to consider an application under Section 34 of the Arbitration and Conciliation Act 1996 as an application or action under the Code of Civil Procedure. Motions according to § 34 of the law serve to prove the existence of reasons for only setting aside the arbitral award.
The Law Commission cited the Supreme Court’s aforementioned intention in 2014 and 2019 and recommended that section 34 of the Arbitration and Conciliation Act 1996 be amended. Below are the changes included in the 2015 and 2019 amending laws:
- Public Order of India – Since there was no definition of public order in India in the 1996 law, the courts were free to interpret the term according to their whims and ideas, resulting in numerous judicial encroachments on arbitration. The addition of a specific “Indian Public Order” statement was the order of the day.
It is very difficult to define the term “public order” because the term is vague and ambiguous. Every lawyer would interpret the above term in his own way, according to his understanding.
The first case that the scope of public order was mentioned was – Renusagar Power Co. GmbH. v General Electric Co. The court has here limited the meaning of the term “public order” in an international commercial arbitration proceeding to
- The basic politics of India,
- The interest of India and
- Justice & Morality
In 2003 in the case of ONGC Ltd v Saw PipesThe Supreme Court gave the term “public order” a broader meaning, saying that since public order has not been defined in any act, it is likely to be interpreted broadly or narrowly depending on the context in which it is used.
Under Explanations 1 and 2, public order was defined as an arbitral award won through fraud or corruption or in violation of the basic policy of Indian law or the basic principles of natural law and morality.
- Prior notification to the other party and timely disposal – The need to send a notice to the other party was mandated to avoid delays and the time limit for disposing of such requests was limited to one year.
- Section 34 – A Monitoring Mechanism, Not a Process – In order to prevent courts from creating a mini-procedure from an application according to § 34, the legislature has restricted every possibility of submitting evidence and cross-examining according to § 34 and “evidence” as “that which the court can determine on the basis “Worked out What evidence did the arbitrator have on file? “
- Patent illegality – The 2015 Amending Act also put forward another reason for setting aside the award – the illegality of patents. This reason only applies to domestic arbitration and does not apply to International Commercial Arbitration Awards. Patent illegality can be explained as – a flaw evident on the face of the record.
If an arbitration award is inconsistent with the provisions of the Arbitration & Conciliation Act, it is considered a patent error. As Lord RadCliff said, such an award bears the mark of invalidity on the forehead.
In the case of Associate Builders v Delhi Development Authority, The Supreme Court has set out what constitutes patent illegality.
- Fraud or corruption,
- Violation of substantive law,
- A mistake in law by the arbitrator,
- Violation of the Arbitration & Conciliation Act, 1996,
- Failure of the arbitrator to give reasons for the award, or
- Failure of the arbitrator to give due consideration to the terms of the contract and uses.
Reasons according to § 34
Section 34 of the Arbitration & Conciliation Act 1996 provides grounds for setting aside the award. Section 34 states:
- Section 34 (1) notes that recourse to the award is only possible by filing a motion against this award in accordance with the next two subsections.
- Section 34 (2) provides the reasons for which the award can be set aside:
- If, on the basis of the established evidence from the arbitral tribunal, the requesting party determines that –
- The party was under some incapacity, or
- The party was not properly informed of the appointment of arbitrators, or
- The party was unable to present its case, or
- The award deals with a dispute that is not expressly mentioned in the arbitration agreement.
- Where the Court finds or considers that –
- The item is currently not arbitrated or under Indian law
- The award is directed against the public order of India and further explains what the public order of India provides.
- Section 34 (2A) authorizes the courts to set aside arbitral awards other than those granted in international commercial arbitration due to apparent illegality.
- Section 34 (3) provides for a limitation period for filing an application for the annulment of the arbitral award. The deadline for filing a motion cannot be more than 3 months from the date the party received the award.
- Section 34 (4) According to this subsection, the court has the power to adjourn the proceedings and allow the arbitral tribunal to resume the arbitration in order to remedy the deficiency that caused a party to submit an application under Section 34.
- Section 34 (5) instructs the counterparty to be notified in advance before submitting a request under Section 34 (introduced by the Amending Act, 2015)
- Section 34 (6) provides the deadline for the disposal of an application according to § 34, which takes place as quickly as possible within a period of one year.
As noted, the main purpose of the legislature in drafting the Arbitration & Conciliation Act 1996 was to ease the burden on the courts and allow for faster recourse.
The 2015 Amendment Act brought changes to Section 34 that resolved several issues and also tried to minimize judicial interference.
Alternative dispute resolution mechanisms provide an alternative to litigation, and both systems must coexist. Currently, many of the arbitrators are retired judges who rely on the use of the Rules of Procedure, with natural justice principles rather than procedural rules governing arbitration.
The parties to the dispute have chosen to go to an arbitration tribunal rather than a court of law, so there should be limited judicial intervention. Hence, a balance must be struck between judicial intervention and arbitration in order to bring out the real subject matter of the law.