Whatsapp
Arbitral Award: Legal Framework and Judicial Oversight in India
Introduction
The arbitral award represents the final determination of disputes referred to arbitration and forms the cornerstone of the entire arbitration process. In India, the legal framework governing arbitral awards is primarily contained in the Arbitration and Conciliation Act, 1996, which was enacted to consolidate and amend the law relating to domestic arbitration, international commercial arbitration, and enforcement of foreign arbitral awards. The Act draws inspiration from the UNCITRAL Model Law on International Commercial Arbitration, reflecting India’s commitment to align its arbitration regime with international best practices. This article examines the regulatory framework, statutory provisions, and judicial precedents that govern the making, challenge, and enforcement of arbitral awards in India.
Form and Content Requirements of Arbitral Awards
The formal requirements for arbitral awards are meticulously laid down in the Arbitration and Conciliation Act, 1996, specifically under the provisions governing the making of arbitral awards. An arbitral award must satisfy certain mandatory requirements to be considered valid and enforceable under Indian law. The Act prescribes that an arbitral award shall be made in writing and must be signed by the members of the arbitral tribunal [1]. In arbitral proceedings with more than one arbitrator, the signatures of the majority of all members of the arbitral tribunal are sufficient, provided the reason for any omitted signature is clearly stated. This provision ensures flexibility while maintaining the integrity of the award-making process.
The requirement of stating reasons in an arbitral award is fundamental to ensuring transparency and accountability in the arbitration process. The arbitral award must state the reasons upon which it is based, unless the parties have agreed that no reasons are to be given, or the award is an arbitral award on agreed terms. The Supreme Court in Som Datt Builders Ltd. v. State of Kerala emphasized that the requirement to state reasons is not merely an empty formality but ensures that the arbitral tribunal fairly and legitimately deals with the issues presented by the parties [2]. While the tribunal is not expected to write judgments akin to court orders, it must ensure that the process leading to a conclusion is explained, however briefly.
The arbitral award must state its date and the place of arbitration, and the award is deemed to have been made at that place. After the arbitral award is made, a signed copy must be delivered to each party. The arbitral tribunal may, at any time during the arbitral proceedings, make an interim arbitral award on any matter with respect to which it may make a final arbitral award. Unless otherwise agreed by the parties, where an arbitral award is for the payment of money, the arbitral tribunal may include interest at such rate as it deems reasonable. A sum directed to be paid by an arbitral award shall carry interest at the rate of two percent higher than the current rate of interest prevalent on the date of award, from the date of award to the date of payment [3].
Types of Arbitral Awards
Arbitral awards can be classified into several categories based on their nature and finality. A final award resolves all the issues in dispute and terminates the arbitration proceedings. It is made after considering the evidence, arguments, and submissions of the parties and must be in writing and signed by the arbitrator or arbitrators. An interim award, on the other hand, may be made on any matter with respect to which a final award can be made during the course of arbitral proceedings. Such interim awards allow the tribunal to address certain issues separately while the main arbitration continues.
Awards on agreed terms represent settlements reached by parties during arbitration proceedings. When parties settle their dispute during arbitral proceedings, the arbitral tribunal shall terminate the proceedings and, if requested by the parties and not objected to by the tribunal, record the settlement in the form of an arbitral award on agreed terms. Such an award is made in accordance with the requirements for final awards and has the same status and effect as any other arbitral award on the substance of the dispute [4]. This mechanism encourages settlement and provides parties with an enforceable award even when they resolve their differences consensually.
Grounds for Challenge Under Section 34
The Arbitration and Conciliation Act, 1996 provides limited grounds for challenging an arbitral award, reflecting the principle of minimal judicial intervention that underpins the arbitration process. Recourse to a court against an arbitral award may be made only by an application for setting aside such award in accordance with the statutory provisions. The grounds for setting aside an arbitral award are exhaustively enumerated and cannot be expanded by judicial interpretation beyond their statutory scope.
A party making an application to set aside an arbitral award must establish on the basis of the record of the arbitral tribunal that a party to the arbitration agreement was under some incapacity, or the arbitration agreement is not valid under the law to which the parties have subjected it. Incapacity refers to the inability of a person to enter into a valid contract, which may arise from minority, unsoundness of mind, or disqualification by any law. The invalidity of the arbitration agreement itself forms a fundamental ground for setting aside an award, as the tribunal derives its jurisdiction solely from the existence of a valid arbitration agreement [5].
Non-compliance with procedural requirements constitutes another significant ground for challenging an arbitral award. The party making the application may establish that it was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present its case. This ground ensures adherence to principles of natural justice and procedural fairness. The requirement that each party be given a full opportunity to present its case is fundamental to the arbitration process and any violation of this principle may render the award liable to be set aside.
The award may also be challenged if it 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 to arbitration. However, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside. This provision for partial setting aside recognizes that errors in jurisdiction need not invalidate an entire award if the problematic portions can be severed from the rest [6].
Public Policy and Patent Illegality
An arbitral award may be set aside by the court if it finds that the award is in conflict with the public policy of India. For the avoidance of doubt, it is clarified that an award is in conflict with the public policy of India only if the making of the award was induced or affected by fraud or corruption, or it is in contravention with the fundamental policy of Indian law, or it is in conflict with the most basic notions of morality or justice. This narrow definition of public policy was introduced through amendments to prevent excessive judicial interference in arbitral awards.
The landmark judgment in Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India significantly clarified the scope of judicial intervention on public policy grounds [7]. The Supreme Court held that interference based on public policy violations is limited to examining whether the arbitral tribunal’s decision shocks the conscience of the court or violates fundamental principles of justice. The Court emphasized that the tribunal’s interpretation of the contract, even if arguably erroneous, cannot be a ground for setting aside the award unless it amounts to a violation of the fundamental policy of Indian law or the most basic notions of justice.
For domestic arbitral awards arising out of arbitrations other than international commercial arbitrations, an additional ground exists for setting aside. The court may set aside such an award if it finds that the award is vitiated by patent illegality appearing on the face of the award. However, an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence. Patent illegality means illegality that goes to the root of the matter and is not merely an erroneous application of the law. This ground is not available for challenging international commercial arbitration awards, reflecting the policy of minimal interference in international arbitrations [8].
Limitation Period and Procedural Requirements
An application for setting aside an arbitral award must be made within three months from the date on which the party making that application had received the arbitral award. If a request for correction, interpretation, or additional award has been made, the limitation period runs from the date on which that request has been disposed of by the arbitral tribunal. The court may entertain an application within a further period of thirty days if it is satisfied that the applicant was prevented by sufficient cause from making the application within the initial three-month period, but not thereafter [9].
This strict limitation period underscores the principle of finality of arbitral awards and prevents prolonged uncertainty regarding the enforceability of awards. The requirement that sufficient cause be shown for condonation of delay ensures that parties act diligently in challenging awards while recognizing that genuine impediments may occasionally prevent timely filing. The absolute bar on entertaining applications beyond the extended period of thirty days reflects the legislative policy of ensuring expeditious resolution of disputes through arbitration.
Enforcement of Arbitral Awards
Subject to the provisions of the Arbitration and Conciliation Act, 1996, an arbitral award shall be final and binding on the parties and persons claiming under them respectively. Where the time for making an application to set aside the arbitral award has expired, the award shall be enforced in accordance with the provisions of the Code of Civil Procedure, 1908, in the same manner as if it were a decree of the court. This mechanism ensures that arbitral awards have the same enforceability as court judgments, thereby reinforcing the effectiveness of arbitration as an alternative dispute resolution mechanism [1].
A significant amendment was introduced to address the automatic stay on enforcement that previously operated upon filing a challenge under the setting aside provisions. The amended provision stipulates that where an application to set aside the arbitral award has been filed, the filing of such an application shall not by itself render that award unenforceable, unless the court grants an order of stay of the operation of the arbitral award on a separate application made for that purpose. This amendment eliminated the automatic stay regime that had previously caused significant delays in enforcement of arbitral awards.
The Supreme Court in Hindustan Construction Company Limited v. Union of India held that an automatic stay on the enforcement of an award by filing an application to set aside the award is manifestly arbitrary and unconstitutional. The Court emphasized that a party seeking a stay on the enforcement of an award must make out a case for grant of such stay and satisfy the court that the balance of convenience is in favor of granting stay and that irreparable loss and injury would be caused if stay is not granted. This judgment reinforced the policy of ensuring prompt enforcement of arbitral awards unless compelling circumstances justify a stay [4].
However, where the court is satisfied that a prima facie case is made out that the arbitral award is induced or affected by fraud or corruption, it shall stay the award unconditionally pending disposal of the challenge to the award. This provision recognizes that awards tainted by fraud or corruption should not be enforced even temporarily, as such enforcement would undermine the integrity of the entire arbitration process.
Judicial Review and Court’s Limited Powers
The scheme of judicial review under the Arbitration and Conciliation Act, 1996 reflects a conscious policy choice to minimize court intervention in arbitration. On receipt of an application for setting aside an award, the court may adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of the arbitral tribunal will eliminate the grounds for setting aside the arbitral award. This provision allows the tribunal to cure curable defects without the need for setting aside the entire award.
The recent jurisprudence has clarified that courts exercising jurisdiction under the setting aside provisions cannot modify arbitral awards but can only either uphold them or set them aside. The Supreme Court has consistently held that the power under these provisions does not include the power to modify or correct awards, except for clerical or computational errors. Any modification of an award would amount to the court substituting its own decision for that of the arbitral tribunal, which would be contrary to the fundamental principle of party autonomy in arbitration [7].
The doctrine of severability allows courts to partially set aside awards where the claims are separate, distinct, and not intertwined. In such cases, if errors are identified in relation to some claims, the unaffected claims must be segregated and upheld. This approach ensures that valid portions of an award are not invalidated merely because certain other portions suffer from infirmities. However, the determination of whether claims are severable depends on the facts and circumstances of each case.
Conclusion
The regulatory framework governing arbitral awards in India represents a careful balance between ensuring the integrity and fairness of the arbitration process while minimizing judicial intervention. The statutory provisions prescribe clear requirements for the form and content of awards, establish limited grounds for challenge, and provide mechanisms for efficient enforcement. The judicial precedents interpreting these provisions have progressively narrowed the scope of court interference, reinforcing arbitration as an effective alternative to litigation. The emphasis on finality of awards, coupled with procedural safeguards and the availability of limited judicial review, ensures that arbitration remains a credible and efficient dispute resolution mechanism in India. As the arbitration landscape continues to evolve, the principles established through legislation and judicial interpretation provide a robust framework that serves the interests of justice while respecting party autonomy and the specialized expertise of arbitral tribunals.
References
[1] India Code. (1996). The Arbitration and Conciliation Act, 1996. Retrieved from https://www.indiacode.nic.in/handle/123456789/1978
[2] Global Arbitration Review. (n.d.). Challenging and Enforcing Arbitration Awards: India. Retrieved from https://globalarbitrationreview.com/guide/the-guide-challenging-and-enforcing-arbitration-awards/4th-edition/article/india
[3] IBC Laws. (n.d.). Section 31: Form and contents of arbitral award. Retrieved from https://ibclaw.in/section-31-form-and-contents-of-arbitral-award/
[4] The Legal School. (n.d.). Section 36 of Arbitration and Conciliation Act: Enforcement & Stay of Awards. Retrieved from https://thelegalschool.in/blog/section-36-of-arbitration-and-conciliation-act
[5] The Legal School. (n.d.). Section 34 of Arbitration and Conciliation Act: Grounds, Procedure & Key Provisions. Retrieved from https://thelegalschool.in/blog/section-34-of-arbitration-and-conciliation-act
[6] Cyril Amarchand Mangaldas. (2023). Determining the ‘Lakshman Rekha’ of Section 34 of the Arbitration and Conciliation Act. Retrieved from https://disputeresolution.cyrilamarchandblogs.com/2023/07/determining-the-lakshman-rekha-of-section-34-of-the-arbitration-and-conciliation-act/
[7] Indian Kanoon. (2019). Ssangyong Engineering And Construction Co. Ltd. vs National Highways Authority Of India. Retrieved from https://indiankanoon.org/doc/95111828/
[8] Lexology. (2020). Judicial interference in arbitration: Section 34 saga. Retrieved from https://www.lexology.com/library/detail.aspx?g=be215633-4d9c-4416-bd69-18905093f3cc
[9] Global Arbitration Review. (n.d.). Challenging and Enforcing Arbitration Awards: India. Retrieved from https://globalarbitrationreview.com/insight/know-how/challenging-and-enforcing-arbitration-awards/report/india
