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How to Challenge an Arbitral Award: Grounds and Procedures
An arbitral award is the final and binding decision of an arbitral tribunal on the merits of the dispute submitted to it by the parties. An arbitral award has the same status and effect as a decree of a court and can be enforced accordingly. However, unlike a court decree, an arbitral award is not subject to appeal on substantive grounds. The only recourse available to a party aggrieved by an arbitral award is to apply for its annulment or set aside by a court.
The grounds for annulment or setting aside of an arbitral award are limited and narrowly defined by law. In India, the law governing arbitration is the Arbitration and Conciliation Act, 1996 (the Act), which is based on the UNCITRAL Model Law on International Commercial Arbitration 1985 (with amendments as adopted in 2006) (the Model Law). The Act applies to both domestic and international arbitrations seated in India, as well as to foreign awards sought to be enforced in India.
The Act provides for two different regimes for annulment or setting aside arbitral awards, depending on whether the award is domestic or foreign. A domestic award is an award passed in an arbitration in which the seat is in India, whereas a foreign award is an award passed in an arbitration in which the seat is outside India.
Domestic Awards
Section 34 of the Act regulates the annulment or setting aside of domestic awards. It provides a comprehensive list of limited and narrowly defined grounds for setting aside, which aligns with the underlying pro-arbitration rationale of the Act. The grounds for setting aside a domestic award under Section 34 are as follows:
The parties to the agreement were under some incapacity;
- The arbitration agreement was invalid under the law applicable;
The party making the application was not given proper notice of the appointment of the arbitrator or the arbitral proceedings or was otherwise unable to present its case;
The award contains decisions on matters beyond the scope of the arbitration agreement;
The composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, with the Act;
The award has been set aside or suspended by a competent authority of the country in which it was made;
The subject matter of the dispute is not capable of settlement by arbitration under Indian law; or
The enforcement of the award would be contrary to the public policy of India.
The last ground, namely public policy, has been interpreted by the Supreme Court of India in several landmark cases, such as Renusagar Power Co. Ltd. v. General Electric Co.,[1] ONGC Ltd. v. Saw Pipes Ltd.,[2] and Associate Builders v. Delhi Development Authority.[3] The Supreme Court has held that public policy includes three sub-grounds: (i) the fundamental policy of Indian law; (ii) the interest of India; and (iii) justice or morality. The Supreme Court has also clarified that public policy does not include mere errors of law or fact unless they are so egregious as to shock the court's conscience.
An application for setting aside a domestic award under Section 34 must be made within three months from the date of receipt by the party making the application, extendable by another thirty days on sufficient cause being shown. The application must be made to the court having jurisdiction over the matter, which is usually the principal civil court of original jurisdiction or a high court exercising original civil jurisdiction.
The court hearing an application under Section 34 has no power to modify or correct the award; it can only set aside or uphold the award in its entirety. The court also has no power to review the merits of the award or re-appreciate the evidence; it can only examine whether any of the grounds under Section 34 are made out.
The court may also adjourn the proceedings, allow the arbitral tribunal to resume or recommence the arbitration, and eliminate any existing grounds for setting aside if requested by a party and if it considers it appropriate.
Foreign Awards
Section 48 of the Act regulates the enforcement and execution of foreign awards in India.
It provides that a foreign award may be enforced in the same manner as a decree of a court, subject to the party against whom it is invoked furnishing proof that the award falls under any of the grounds for refusal of enforcement. The grounds for refusal of enforcement under Section 48 are the same as the grounds for setting aside a domestic award under Section 34, except for the following differences:
The arbitration agreement or award must be invalid or contrary to the law of the country where it was made, not the law applicable;
The award must have been set aside or suspended by a competent authority of the country under the law of which it was made, not the country in which it was made;
The subject matter of the dispute must be capable of settlement by arbitration under the law of India, not Indian law; and
The enforcement of the award must be contrary to India's public policy, not India's public policy.
The last difference, namely public policy, has been further narrowed down by the Supreme Court of India in Shri Lal Mahal Ltd. v. Progetto Grano Spa,[4] where it held that public policy for enforcement of foreign awards only includes two sub-grounds: (i) the fundamental policy of Indian law; and (ii) the interest of India. The Supreme Court excluded justice or morality as a sub-ground for enforcement of foreign awards, as it considered it to be too vague and subjective.
An application for enforcement of a foreign award under Section 48 must be accompanied by the original or certified copy of the award and the arbitration agreement, along with their translations if required. The application must be made to the court having jurisdiction over the matter, which is usually the High Court having original jurisdiction.
The court hearing an application under Section 48 has no power to set aside or modify the award; it can only refuse or allow its enforcement. The court also has no power to review the merits of the award or re-appreciate the evidence; it can only examine whether any of the grounds under Section 48 are made out.
Conclusion
The grounds for annulment or setting aside of arbitral awards in India are limited and narrowly defined by law. The courts in India have adopted a pro-arbitration approach and have refrained from interfering with arbitral awards on substantive grounds. The courts have also given a restrictive interpretation of public policy as a ground for setting aside or refusing enforcement of arbitral awards. The aim is to uphold the finality and binding force of arbitral awards and to respect the autonomy and choice of the parties who opt for arbitration as their mode of dispute resolution.
References
[1] 1985 AIR SC 1156
[2] 2003 AIR SC 2629
[3] 2015 (3) SCC 49
[4] 2013 SCC ONLINE SC 565
- Grounds for annulment or setting aside under Section 34 and Section 48 of the Act and judicial interpretation of public policy
- Procedure and time limit for filing an application for annulment or setting aside and scope and power of the court hearing it
- Consequences of annulment or setting aside on validity and enforceability of the award
