How to Challenge Arbitral Award in India

Arbitration has emerged as a preferred mode of dispute resolution in India, especially in commercial matters. However, the finality of arbitral awards does not imply that they are immune to scrutiny. The Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act'), provides specific grounds and procedures for challenging arbitral awards. This article delves into the mechanisms available for challenging arbitral awards under Indian law, the relevant provisions of the Act, and the judicial interpretations surrounding these provisions.

Understanding Arbitral Awards

An arbitral award is the decision made by the arbitrator(s) in an arbitration proceeding. It is binding on the parties involved and has the same effect as a decree of a court. However, there are instances where a party may feel aggrieved by the arbitral award and may wish to challenge it. The Act outlines the grounds on which an award may be set aside and the procedure for doing so.

Grounds for Challenging an Arbitral Award

Section 34 of the Arbitration and Conciliation Act, 1996, provides the grounds upon which an arbitral award can be challenged. The following are the key grounds:

• Incapacity of a Party: If one of the parties to the arbitration agreement was under some incapacity, such as being a minor or mentally incapacitated, the award may be set aside.
• Invalid Arbitration Agreement: If the arbitration agreement is not valid under the law to which the parties have subjected it, the award can be challenged.
• Improper Procedure: If the arbitral tribunal did not follow the procedure agreed upon by the parties or the procedure under the Act, the award may be set aside.
• Lack of Jurisdiction: If the arbitral tribunal exceeded its jurisdiction or failed to make a decision on the matters referred to it, the award can be contested.
• Public Policy: An award can be set aside if it is in conflict with the public policy of India. This includes awards that are illegal, contrary to the fundamental policy of Indian law, or against the interests of justice.
• Non-disclosure of Bias: If there is evident bias or lack of independence in the arbitrator’s conduct, the award may be challenged.

Procedure for Challenging an Arbitral Award

The procedure for challenging an arbitral award is primarily governed by Section 34 of the Act. The following steps outline the process:

1. Filing an Application

To challenge an arbitral award, a party must file an application under Section 34 in the relevant court. This application must be made within three months from the date of receipt of the award. An extension of up to 30 days may be granted by the court if sufficient cause is shown for the delay.

2. Content of the Application

The application must contain the following:

• The details of the parties involved.
• Grounds on which the challenge is made.
• Supporting evidence and documents.
• Relief sought from the court.

3. Court Proceedings

Upon receiving the application, the court will issue notice to the other party and schedule a hearing. During the hearing, both parties will present their arguments. The court will then assess whether the grounds for challenging the award are substantiated.

4. Court's Decision

The court has the authority to:

• Uphold the award.
• Set aside the award.
• Modify the award, if necessary.

Judicial Interpretation of Grounds for Challenge

The Supreme Court and various High Courts have elaborated on the grounds for challenging arbitral awards. Important judgments include:

• ONGC Ltd. v. Western Geco International Ltd. (2014): The Supreme Court emphasized that the grounds for setting aside an award should be interpreted narrowly, reinforcing the principle of minimal judicial intervention in arbitration.
• Shri Lal Mahal Ltd. v. Progetto Grano Spa (2014): The court clarified the meaning of 'public policy' and held that an award cannot be set aside merely because it is against the interests of a party, but only if it violates the fundamental policy of Indian law.
• Indian Oil Corporation Ltd. v. Amritsar Gas Service (2009): The Supreme Court ruled that if an arbitrator fails to consider the relevant material and evidence, it may be a valid ground for setting aside the award.

Limitations on the Challenge of Arbitral Awards

While the Act provides avenues for challenging arbitral awards, there are limitations:

• The scope of judicial review is limited to the grounds specified in Section 34.
• Parties cannot appeal on merits of the case, as the courts do not reassess evidence or re-evaluate the merits of the dispute.
• Once an award is set aside, the parties may have to resort to fresh arbitration or litigation, which may prolong the resolution of the dispute.

FAQs

1. What is the time limit for challenging an arbitral award in India?

The application to challenge an arbitral award must be filed within three months from the date of receipt of the award. An extension of 30 days may be granted for sufficient cause.

2. Can an arbitral award be challenged on merits?

No, the courts do not entertain challenges on merits. The review is limited to the grounds specified under Section 34 of the Act.

3. What is the significance of 'public policy' in challenging an arbitral award?

An award can be set aside if it is in conflict with the public policy of India, which includes violations of fundamental rights and principles of justice.

4. What happens if a party does not challenge the award within the stipulated time?

If a party fails to challenge the award within the prescribed time frame, the award becomes final and binding on the parties.

5. Are there any fees associated with challenging an arbitral award?

Yes, filing a challenge involves court fees, which may vary based on the value of the dispute and the court jurisdiction.

6. Can an arbitral award be appealed to a higher court?

There is no appeal against an order under Section 34; however, a party may approach the Supreme Court under Article 136 of the Constitution in certain circumstances.

7. What is the role of the court during the challenge of an arbitral award?

The court reviews the application, evaluates the grounds for challenge, and decides whether to uphold, set aside, or modify the award.

8. Can a foreign arbitral award be challenged under Indian law?

Yes, foreign arbitral awards can be challenged under the provisions of the Arbitration and Conciliation Act, 1996, specifically under Section 48.

9. What are the consequences of setting aside an arbitral award?

If an award is set aside, the parties may need to resolve the dispute through fresh arbitration or litigation, which can prolong the resolution process.

10. Is there a provision for interim relief while challenging an arbitral award?

Yes, the court may grant interim relief as per Section 9 of the Act, even during the pendency of the challenge to the arbitral award.

Conclusion

Challenging an arbitral award in India is a process governed by specific statutory provisions and judicial interpretations. While the grounds for challenge are limited, understanding the nuances of the Arbitration and Conciliation Act, 1996, is essential for parties who wish to contest an award. It is crucial to act within the prescribed timelines and adhere to the procedural requirements to ensure that the challenge is maintainable. Legal counsel should be sought to navigate this complex area of law effectively.