Chapter 7: Arbitral Award
Introduction to Arbitral Award
The Arbitral Award serves as the culmination of the arbitration process, providing a binding resolution to the dispute at hand. Governed by the Arbitration and Conciliation Act, 1996, the award must meet certain criteria to be considered valid and enforceable. This chapter delves into the types of awards, the challenges to them, and the enforcement mechanisms available.
Types of Arbitral Award
A Final Award resolves all the issues in dispute and terminates the arbitration proceedings. It is usually made after considering the evidence, arguments, and submissions of the parties. It must be in writing and signed by the arbitrator or arbitrators. It must also state the reasons for the award unless otherwise agreed by the parties or unless it is a settlement award under Section 30 of the Act.
As per Section 31(6) of the Arbitration and Conciliation Act, 1996, an interim award can be made on any matter with respect to which a final award can be made. An interim award is binding on the parties and can be challenged or enforced in the same manner as a final award. An interim award can deal with issues such as:
- The preservation, interim custody or sale of any goods which are the subject matter of the arbitration agreement
- Securing the amount in dispute in the arbitration
- The detention, preservation or inspection of any property or thing which is the subject matter of the dispute or as to which any question may arise therein
- Interim injunctions or other interim measures
Challenge to and Setting Aside an Award
Section 34: Application for Setting Aside Arbitral Award
An award can be challenged under Section 34 of the Arbitration and Conciliation Act, 1996. The grounds for setting aside an award are limited and include issues like fraud, bias, and violation of natural justice. An application for setting aside an award must be made within three months from the date of receipt of the award by the party making that application.
The Supreme Court in Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India (NHAI), (2019) 15 SCC 1311, held that an arbitral award can be set aside only if it is perverse, irrational, illogical or capricious. The court also clarified that patent illegality as a ground for setting aside an award under Section 34(2A) would apply only to domestic awards and not to international commercial awards.
Section 34(2A) allows for an award to be set aside if it is vitiated by patent illegality appearing on the face of the award, but not merely on the ground of an erroneous application of the law or by reappreciation of evidence.
The Supreme Court in Associate Builders v. Delhi Development Authority, (2015) 3 SCC 492, held that patent illegality would mean such illegality as goes to the root of the matter and strikes at its very core. The concept of ‘Public Policy’ has been a ground for challenging arbitral awards. It was elaborated in the case of ONGC v. Saw Pipes, 2003, where the Supreme Court extended the scope of judicial interference in domestic arbitrations.
The Court held that an award can be set aside if it is contrary to:
- The fundamental policy of Indian law
- The interest of India
- Justice or morality
- The most basic notions of justice or morality
However, this expansive interpretation of public policy was criticized for being vague and subjective, and for undermining the finality and certainty of arbitral awards.
The Supreme Court in Renusagar Power Co. Ltd. v. General Electric Co., (1994) Supp (1) SCC 644, adopted a narrower approach to public policy in the context of enforcement of foreign awards. The Court held that public policy in this context would mean:
- Fundamental policy of Indian law
- Interest of India
- Justice or morality
The Court also clarified that the enforcement of a foreign award would be refused only if such enforcement would be contrary to the core values of Indian law and not merely because it is erroneous in law or in fact.
The Supreme Court in Shri Lal Mahal Ltd. v. Progetto Grano Spa, (2014) 2 SCC 433, affirmed the Renusagar principle and held that the expression “public policy of India” under Section 48(2)(b) of the Act has to be given a narrow meaning and does not cover patent illegality.
The Supreme Court in Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India (NHAI), (2019) 15 SCC 131, further refined the concept of public policy and held that it would include only:
- Fraud or corruption
- Contravention of fundamental policy of Indian law
- Conflict with basic notions of justice or morality
The Court also held that contravention of fundamental policy of Indian law would mean violation of principles such as:
- Judicial approach
- Natural justice
- Wednesbury principle of reasonableness
- Substantive public interest
Enforcement of Awards
Section 36: Enforcement
Once an award has survived the challenges under Section 34, it is enforceable under Section 36 of the Arbitration and Conciliation Act, 1996, in the same manner as if it were a decree of the court.
The Supreme Court in Hindustan Construction Company Limited v. Union of India, (2020) SCC Online SC 1520, held that an automatic stay on the enforcement of an award under Section 36 by filing an application under Section 34 is manifestly arbitrary and unconstitutional. The Court also held 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 there is a substantial case against enforcement.
Relevant Provisions: Arbitration and Conciliation Act, 1996 – Sections 34, 36
Conclusion of Arbitral Award
The Arbitral Award is the cornerstone of any arbitration proceeding. Understanding the types of awards, the legal framework for challenging them, and the mechanisms for their enforcement is crucial for both practitioners and parties to arbitration.