Non Speaking Judgments cannot be passed while dealing with the Objections filed under Section 34 of The Arbitration & Conciliation Act, 1996

Preface:

The jurisdiction of the court in setting aside an arbitral award is limitedand the court cannot correct the errors of the arbitrator in the award, however, the court can only quash the award leaving the parties free to begin the arbitration again if they so desire [Mc Dermott International Inc. V/s Burn Standard Co. Ltd., (2006) 11 SCC 181].

Scope of interference by the courts in dealing with an application under Section 34 of the Arbitration & Conciliation Act, 1996:

The law related to the scope of interference by the courts in dealing with an application for setting aside an arbitral award can be stated thus:

1. An arbitral award being a decision of an arbitrator whether a lawyer or layman, chosen by the parties and entrusted with the power to decide a dispute, is ordinarily not liable to be challenged on the ground that it is erroneous.
2. The award of the arbitrator is final and conclusive unless it is contrary to the terms of the contract.
3. The approach of the court should be with an aim to uphold the award rather than set it aside and not by sitting in appeal and re-appreciating the evidence and arriving at a different finding.

It is pertinent to note that in the reports, namely: Gobardhan Das V/s Lachmi Ram, AIR 1954 SC 689 and Indu Engineering & Textile Ltd. V/s Delhi Development Authority, (2001) 5 SCC 691, it was held that the endeavor of the court should be to preserve the arbitral award as far as possible and a close scrutiny of the findings of the arbitrator is not permissible.

Further, in the matter of: P.R. Shah, Shares & Stock Brokers (P) Ltd. V/s B.H.H. Securities (P) Ltd., (2012) 1 SCC 594, it was held that:

“… A court does not sit in appeal over the award of an Arbitral Tribunal by re-assessing or re-appreciating the evidence. An award can be challenged only under the grounds mentioned in Section 34 (2) of the Act. Therefore, in the absence of any ground under Section 34 (2) of the Act, it is not possible to re-examine the facts to find out whether a different decision can be arrived at…”

4. The construction of the agreement or a term of the contract is within the domain of the arbitrator and cannot be interfered with by the court simply to substitute its own interpretation where two possible views are available.
5. The arbitral tribunal, though, is not bound by the technical rules of evidence or the procedural laws an award contrary to the principles of natural justice is liable to be set aside.
6. Unless otherwise agreed by the parties, if a specific question of law has been referred to the arbitrator and his conclusion is erroneous on the point of law, the award cannot be set aside and his decision shall be binding on the parties.

It is important to note that in the matter of: Allen Berry & Co. (P) Ltd. V/s Union of India, AIR 1971 SC 696, it was observed that the arbitrator is the final Judge of all questions both of law and fact and it was held that:

“… The rule thus is that as the parties choose their own arbitrator to be the Judge in the dispute between them, they cannot when the award is good on the face of it, object to the decision either upon the law or the facts. Therefore, even when an arbitrator commits a mistake either in law or in fact in determining the matters referred to him, but such mistake does not appear on the face of the award or in a document appended to or incorporated in it so as to form part of it, the award will neither be remitted nor set aside notwithstanding the mistake…”

7. Annulment V/s Appeal: In the matter of: State Trading Corporation of India V/s Toepfer International Asia Pte. Ltd., 2014 (3) Arb. LR 105 (Delhi) (DB), it was observed that:

“… In appeal, the decision under review not only may be confirmed, but may also be modified.In annulment, on the other hand the decision under review only may be invalidated in whole or in part or be left to stand if the plea for annulment is rejected. Annulment operates to negate a decision, in whole or in part, thereby depriving the portion negated of legal force and returning the parties, as to that portion, to their original litigating positions.Section 34 is found to provide for annulment only on the grounds affecting legitimacy of the process of decision as distinct from substantive correctness of the contents of the decision. A remedy of appeal focuses upon both legitimacy of the process of decision and the substantive correctness of the decision.Annulment, in the case of arbitration focuses not on the correctness of decision but rather more narrowly considers whether, regardless of errors in application of law or determination of facts, the decision resulted from a legitimate process…”

8. The court exercising its jurisdiction under Section 34 of the Arbitration & Conciliation Act, 1996 does not have the power to modify or vary the award. An act of modifying or varying the award would amount to undertaking the task of correcting the errors of the arbitral tribunal, which is beyond its scope of power under Section 34of the Arbitration & Conciliation Act, 1996 [Puri Construction (P) Ltd. V/s Larsen and Toubro Ltd., (2015) SCC Online Del 9126]. The court can only annul the award leaving the parties free to begin the arbitration again if it is desired. The court consciously plays a supervisory role to a limited extent whilst giving effect to party autonomy in opting for a final decision from a forum of its own choice.
9. The arbitrator is the sole Judge of the quality and quantity of evidence. It is incumbent to note that in the matter of: Municipal Corporation of Delhi V/s Jagan Nath Ashok Kumar, AIR 1987 SC 2316, it was observed that:

“… The Arbitrator in our opinion is the sole Judge of the quality as well as the quantity of evidence and it will not be for this Court to take upon itself the task of being a Judge of the evidence before the Arbitrator. It may be possible that on the same evidence the Court might have arrived at a different conclusion than the one arrived at by the Arbitrator but that by itself is no ground in our view for setting aside the award of an arbitrator…”

10. The adjudication of the arbitrator is generally binding between the parties and it is not open to the court to attempt to probe the mental process by which the arbitrator has reached his conclusion.
11. The arbitrator is a creature of the agreement itself and therefore is duty bound to enforce the terms of the agreement and cannot adjudicate a matter beyond the agreement itself. If the arbitrator adjudicates a claim of a contractor with reference to the clauses of the agreement itself whereby the agreement gets engrafted into the award, it will be open to the court to examine those clauses of the agreement and find out the correctness of the conclusions of the arbitrator with reference to those clauses [State of U.P. V/s Ram Nath International Construction (P) Ltd., AIR 1996 SC 782].

Similarly, in the matter of: Navodaya Mass Entertainment Ltd. V/s J.M. Combines, (2015) 5 SCC 698, it was held that once the arbitrator has applied his mind to the matter before him, the court cannot re-appraise the matter as if it were an appeal and even if two views are possible, the view taken by the arbitrator would prevail. Further, where there is an error apparent on the face of the record or the arbitrator has not followed the statutory legal position, then and only then it would be justified in interfering with the award published by the arbitrator.

12. A plea not taken before the arbitrator cannot be raised in a challenge to the award [KEI Industries Ltd. V/s V.B., (2012) SCC Online Del 1523]. The “adequacy or inadequacy of evidence” or the “question of weight of the evidence” cannot be examined by a court while considering objections to an award under Section 34 of the Arbitration & Conciliation Act, 1996. As long as there is some evidence to sustain a finding of fact recorded by arbitrator, the hands-off approach must be adopted by a court seized of objections to an award.
13. The limitation period for making an application for setting aside an arbitral award under Section 34 of the Arbitration & Conciliation Act, 1996 is 3 months, which starts from the date on which the party making the application received the award. The word “month” means calendar month and not a period of 30 days. If, however, a request has been made to the arbitral tribunal for correction and interpretation or additional award in terms of Section 33, the limitation would start running from the date on which the request has been disposed of by the tribunal.The date of delivery of award on a holiday cannot be construed as “receipt” of the award for the purpose of Section 34. The date of receipt will be the next working day [State of Himachal Pradesh V/s Himachal Techno Engineers, (2010) 12 SCC 210].
14. The effect of setting aside an arbitral award is that the arbitral award becomes a piece of paper having no legal effect. The arbitral award would have legal effect if the court in appeal reverses the order of setting aside the arbitral award. The setting aside of the arbitral award does not invalidate the arbitration clause. The arbitration clause survives as long as any question or dispute or difference between the parties continues to exist unless the language of the clause clearly expresses an intention to the contrary or the award has been set aside on the ground that the arbitration clause is invalid [ACC Limited V/s Global Cements Ltd., (2012) 7 SCC 71].
15. Mandate contained in Section 34 (4) of the Arbitration & Conciliation Act, 1996:i. The setting aside of an arbitral award rejecting a claim under Section 34 proceeding by the court does not result in an order decreeing that claim. Section 34 (4) of the Arbitration & Conciliation Act, 1996 provides that a party can make a request to the court after the application for setting aside the award has been filed, to adjourn the proceedings for a period of time so that an opportunity may be given to the arbitral tribunal to resume the arbitration proceedings or take any action as in the opinion of the arbitral tribunal would result in eliminating the grounds for setting aside the award.
    ii. On receiving a request, where appropriate, the court may adjourn the proceedings for setting aside the award. Section 34 (4) of the Arbitration & Conciliation Act, 1996 does not stipulate a time period for making the request. However, such request can be made only after the application for setting aside the award has been filed in the court.iii. The scope of the power of the arbitral tribunal to eliminate the grounds for setting aside the arbitral award is limited. It does not confer the arbitral tribunal with the power to re-write the award or re-appreciate the evidence on record and make fresh findings.iv. The scope of Section 34 (4) of the Arbitration & Conciliation Act, 1996 is to remove defects that have crept into the award and could be cured without reopening the proceedings.
16. Gary B. Born in International Commercial Arbitration, Volume III, Second Edition (2014), Page 3392 states as follows:

“… A further issue is what the effect of an annulment decision is on the parties’ arbitration agreement and the arbitral tribunal. With regard to the former, the annulment of an award should have no effect on the parties’ underlying agreement to arbitrate. That agreement subsists even if an arbitral tribunal engaged in procedural misconduct or manifestly misapplied the law or exceeded the scope of its authority.With regard to the effect of annulment on the arbitrators, the short answer will generally be that the tribunal is functus officio and an annulment does not change this or bring the tribunal back into legal existence…”

17. Order which decides objections under Section 34 of the Arbitration & Conciliation Act, 1996 must be a speaking judgment, that is, what are the facts of the case have to be stated, what are the issues to be decided have then to be stated, how the arbitrator has dealt with the issues and by what discussion and reasoning then has to be stated, and as to how such reasoning and conclusions in the award are neither illegal nor perverse or within the ingredients of Section 34 of the Arbitration & Conciliation Act, 1996 for the court hearing objections under Section 34 of the Arbitration & Conciliation Act, 1996 to set aside the award as court hearing objections is not an appellate court to re-apprise the findings of facts and conclusions arrived at by the arbitrator [IOCL V/s Aneja Transporters, FAO No. 167/2017, High Court of Delhi, Date of Decision: 25.07.2017, Coram: Valmiki J. Mehta, J.].
18. An arbitral tribunal must decide in accordance with the terms of the contract, but if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground. Construction of the terms of a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in such a way that it could be said to be something that no fair minded or reasonable person could do. Once it is found that the arbitrator’s approach is not arbitrary or capricious, then he is the last word on facts. [Associated Builders V/s Delhi Development Authority, 2014 (4) Arb. LR 307 (SC)]

Modification of Arbitral Award:

The power of the court under Section 34 of the Arbitration & Conciliation Act, 1996 is only to set aside the arbitral award [Mc Dermott International Inc (Supra)]. The court does not have the power to modify the award under the Arbitration & Conciliation Act, 1996, however, the High Court of Delhi in the matter of: Poysha Oxygen (P) Ltd. V/s Ashwini Suri, ILR (2009) Supp. (3) Delhi 223, observed that the power given to the court to set aside the award, necessarily includes a power to modify the award, notwithstanding absence of express power to modify the award, on the reasoning that if the powers of the court under Section 34 of theArbitration & Conciliation Act, 1996 are restricted to not include power to modify, even where the court without any elaborate enquiry and on the material already before the arbitrator finds that the lisshould be finally settled with such modification and if the courts are compelled to only set aside the award and to relegate the parties to second round of arbitration or to pursue other civil remedies, then it would not be serving the purpose of expeditious or speedy disposal of lisand it would amount tothe making of arbitration as a form of alternative dispute resolution mechanism which is more cumbersome than the traditional judicial process.

In the matter of: GayatriBalaswamy V/s ISG Novasoft Technologies Ltd, 2015 (1) Arb. LR 354 (Madras), the Madras High Court took note of the decision in the matter of: Krishna Bhagya Jala Nigam Ltd. V/s G. Harischandra Reddy, (2007) 2 SCC 720 and observed that, the phrase “recourse against the award” which appears in Section 34 of the Arbitration & Conciliation Act, 1996 is a comprehensive and inclusive expression. Merely because such recourse is to be made in the form of an application to set aside the award, it cannot be construed that the power of the court is limited by Section 34 (1) of the Arbitration & Conciliation Act, 1996, only to set aside the award and to leave the parties in a position much worse than what they contemplated or deserved before the commencement of the arbitral proceeding. Moreover, it was also held that the expression ‘application for setting aside such an award’ appearing in Section 34 (2) and (3) of the Arbitration & Conciliation Act, 1996 merely prescribes the form, in which, a person can seek recourse against an arbitral award. The form, in which an application has to be made, cannot curtail the substantial right conferred by the statute.

Doctrine of ‘Perversity’:

A decision can be said to be perverse or so irrational that no reasonable person could be said to have arrived at it in given set of facts and circumstances, and it settled law that where a finding is based on no evidence or if an arbitral tribunal takes into account something irrelevant to the decision which it arrives at or ignores vital evidence in arriving at its decision, such decision would necessarily be perverse.

In the matter of: H.B. Gandhi, Excise & Taxation Officer-Cum- Assessing Authority V/s Gopi Nath & Sons, 1992 Supp (2) SCC 312 (at p. 317), it was held that:

“… It is, no doubt, true that if a finding is arrived at by ignoring or excluding relevant material or by taking into consideration irrelevant material or if the finding so outrageously defies logic as to suffer from the vice of irrationality incurring the blame of being perverse, then, the finding is rendered infirm in law…”

Further, in the matter of: Kuldeep Singh V/s Commissionerof Police, (1999) 2 SCC 10, it was held that:

“… A broad distinction has, therefore, to be maintained between the decisions which are perverse and those which are not. If a decision is arrived at on no evidence or evidence which is thoroughly unreliable and no reasonable person would act upon it, the order would be perverse. But if there is some evidence on record which is acceptable and which could be relied upon howsoever compendious it may be, the conclusions would not be treated as perverse and the findings would not be interfered with…”

Recent Precedents of Importance- Section 34 of the Arbitration & Conciliation Act, 1996:

1. Parties should not make attempts to find fault in every issue decided by the arbitrator, only because it is decided by the arbitrator against either of them.

In the matter of: Union of India V/s Susaka (P) Ltd. &Ors, 2018 (1) Arb. LR 12 (SC), it was held that:

“… It is well settled principle in arbitration law that the award of an arbitral tribunal once passed is binding on the parties.The reason being that the parties having chosen their own arbitrator and given him an authority to decide the specific disputes arising between them must respect his decision as far as possible and should not make any attempt to find fault in each issue decided by him only because it is decided against one party. It is only when the issue decided is found to be bad in law in the light of any of the specified grounds set out in Section 34 of the Arbitration and Conciliation Act, 1996, the court may consider it appropriate to interfere in the award else not…”

2. The arbitral tribunal is the master of the evidence and the findings of fact which are arrived at by the arbitrators on the basis of the evidence on record.

In the matter of: Maharashtra State Electricity Distribution Co. Ltd. V/s Datar Switchgear Ltd. &Ors, 2018 (1) Arb. LR 236 (SC), it was held that:

“… The arbitral tribunal is the master of evidence and the findings of fact which are arrived at by the arbitrators on the basis of evidence on record are not to be scrutinized as if the court was sitting in appeal…”

3. If the arbitrator considers irrelevant evidence for decision which it arrives at or ignores vital evidence in arriving at its decision, then the award of the arbitrator can certainly be interfered with by the court under Section 34 of the Arbitration & Conciliation Act, 1996.

In the matter of: Lifelong Meditech (P) Ltd. V/s United India Insurance Co. Ltd., 2018 (1) Arb. LR 34 (Delhi), it was held that:

“… Though it is correct that in exercise of its limited jurisdiction under Section 34 of the Arbitration and Conciliation Act, 1996 court would not sit in appeal over the findings of the arbitrator, however, at the same time if an arbitral tribunal takes into account some irrelevant evidence for decision which it arrives at or ignores vital evidence in arriving at its decision, the award can certainly be interfered with…”

4. A petition under Section 34 of the Arbitration & Conciliation Act, 1996 is only a challenge to an arbitral award on the limited grounds adumbrated in Section 34 of the Arbitration & Conciliation Act, 1996 and is not an appeal, review or revision.

In the matter of: V.S. Ekambaram, Proprietor, Sangupani Fuels V/s Sri Krishna Tiles & Potteries (Madras) (P) Ltd., 2018 (1) Arb. LR 180 (Madras) (DB), it was held that:

“… A petition under Section 34 of the Arbitration and Conciliation Act, 1996 is not a traditional appeal against an arbitral award.Law as it is obtaining today is very clear that a petition under Section 34 is only a challenge to an award (on limited grounds adumbrated in Section 34) and not an appeal, review or revision… In a petition under Section 34 of the Arbitration and Conciliation Act, 1996 there can be no re-appreciation of evidence…”

5. It is only where the finding is either contrary to the terms of the contract between the parties or ex-facie perverse that interference by the court under Section 34 of the Arbitration & Conciliation Act, 1996 is necessary.

In the matter of: NHAI V/s BSC-RBM-PATI Joint Venture, 2018 (1) Arb. LR 570 (Delhi) (DB), it was held that:

“… Findings of fact as well as of law of the arbitrator/ arbitral tribunal are ordinarily not amenable to interference either under Section 34 or Section 37 of the Arbitration and Conciliation Act, 1996. It is only where the finding is either contrary to the terms of the contract between the parties or ex-facie perverse that interference by this court is necessary. The arbitrator/arbitral tribunal is the final arbiter on facts as well as in law and even errors factual or legal which stop short of perversity do not merit interference under Section 34 or Section 37 of the Act. Insofar as the ultimate view of the arbitrator/ arbitral tribunal on any issue is concerned so long as the view is plausible and not merely possible this court would be loath to interfere therewith…”

6. Mandate contained in Section 34 (5) of the Arbitration & Conciliation Act, 1996 is procedural in nature and is not mandatory.

In the matter of: State of Bihar &Ors V/s Bihar Rajya Bhumi Vikas Bank Samiti, 2018 (4) Arb. LR 346 (SC), it was held that:

“… To construe Section 34 (5) of the Arbitration and Conciliation Act, 1996 as being mandatory would defeat the advancement of justice as it would provide the consequence of dismissing an application filed without adhering to the requirements of Section 34 (5), thereby scuttling the process of justice by burying the element of fairness… The only requirement in Section 34 (1) of the Arbitration and Conciliation Act, 1996 is that an application for setting aside an award be in accordance with sub-sections (2) and (3). This again is an important pointer to the fact that even legislatively sub-section (5) is not a condition precedent but a procedural provision which seeks to reduce the delay in deciding applications under Section 34…”

7. The scope of judicial scrutiny and interference by an appellate court under Section 37 of the Arbitration & Conciliation Act, 1996 is even more restricted in comparison to deciding objections to the award under Section 34 the Arbitration & Conciliation Act, 1996.

In the matter of: State Trading Corporation of India Ltd. V/s Helm Dungemittel GmbH &Anr., 2018 (4) Arb. LR 1 (Delhi) (DB), it was held that:

“… It is no longer res integra that the scope of judicial interference in an application under Section 34 of the Arbitration and Conciliation Act, 1996 is limited in nature.The scope of interference while deciding an appeal under Section 37 is even more restrictive in nature… While deciding an appeal it must be kept in mind that the arbitrator/arbitral tribunal is the final arbiter on facts as well as law and even errors, factual or legal, which stop short of perversity do not merit interference under Section 34 or 37 of the Arbitration and Conciliation Act, 1996…”

8. While entertaining appeals under Section 37 of the Arbitration & Conciliation Act, 1996 the court is not actually sitting as a court of appeal over the award of the arbitral tribunal.

In the matter of: ADTV Communication (P) Ltd. V/s Vibha Goel & Ors, 2018 (3) Arb. LR 499 (Delhi) (DB), it was held that:

“… The scope of judicial scrutiny and interference by an appellate court under Section 37 of the Arbitration and Conciliation Act, 1996 is even more restricted while deciding a petition under Section 34 of the Act… While entertaining appeals under Section 37 of the Arbitration and Conciliation Act, 1996 the court is not actually sitting as a court of appeal over the award of the arbitral tribunal and therefore the court would not re-appreciate or re-assess the evidence…”

9. No application for setting aside the arbitral award under sub-section (3) of Section 34 of the Arbitration & Conciliation Act, 1996 can be entertained beyond three months and a further period of thirty days.

In the matter of: Executive Engineer, National Highways Division &Ors V/s Satya Prakash & Brothers (P) Ltd., 2018 (4) Arb. LR 241 (Allahabad) (DB), it was held that:

“… There is no manner of doubt from a bare perusal of the provisions of sub-section (3) of Section 34 of the Arbitration and Conciliation Act, 1996 that any delay beyond thirty days from the date of expiry of three months from the date on which the party making the application had received the arbitral award cannot be condoned…”

10. If issues are to be framed and oral evidence is to be taken in a summary proceeding under Section 34 of the Arbitration & Conciliation Act, 1996 then the object of speedy resolution of disputes through the arbitration mechanism will be defeated.

In the matter of: Emkay Global Financial Services Ltd. V/s GirdharSondhi, 2018 (5) Arb. LR 1 (SC), it was held that:

“… An application for setting aside an arbitral award will not ordinarily require anything beyond the record that was before the arbitrator. However, if there are matters not contained in such record and are relevant to the determination of issues arising under Section 34 (2) (a) of the Arbitration and Conciliation Act, 1996 they may be brought to the notice of the court by way of affidavits filed by both parties.Cross-examination of persons swearing to the affidavits should not be allowed unless absolutely necessary as the truth will emerge on a reading of the affidavits filed by both parties… Speedy resolution of arbitral disputes has been the reason for enacting the Arbitration and Conciliation Act, 1996 and continues to be the reason for adding amendments to the said Act to strengthen the aforesaid object. Quite obviously if issues are to be framed and oral evidence taken in a summary proceeding under Section 34 this object will be defeated…”

11. Section 34 of the Arbitration & Conciliation Act, 1996 and the Test of Wednesbury Unreasonableness

In the matter of: Rail Land Development Authority V/s Parsvnath Developers Limited &Anr, 2018 (2) Arb. LR 364 (Delhi), it was held that:

“… Courts would not interfere with the decision of the arbitral tribunal which falls within its jurisdiction unless the same is found to be patently illegal, perverse or unreasonable so as to fail the Wednesbury Test, that is, no sensible person could have arrived at such a conclusion…”

12. Whether incorporation of additional grounds by way of amendment in the application under Section 34 of the Arbitration & Conciliation Act, 1996 tantamount to filing a fresh application?

In the matter of: State of Maharashtra V/s Hindustan Construction Co. Ltd., 2010 (4) SCC 518, it was held that:

“… There is no doubt that the application for setting aside an arbitral award under Section 34 of the 1996 Act has to be made within the time prescribed under sub-section (3), i.e. within three months and a further period of thirty days on sufficient cause being shown and not thereafter. Whether incorporation of additional grounds by way of amendment in the application under Section 34 tantamounts to filing a fresh application in all situations and circumstances. If that were to be treated so, it would follow that no amendment in the application for setting aside the award howsoever material or relevant it may be for consideration by the court can be added nor existing ground amended after the prescribed period of limitation has expired although the application for setting aside the arbitral award has been made in time. This is not and could not have been the intention of the legislature while enacting Section 34…”

Similarly, in the matter of: N.T.P.C. Ltd. &Anr. V/s Reshmi Constructions, 2018 (2) Arb. LR 272 (Kerala) (DB), it was held that:

“… amendment of an application filed under Section 30 of the old Act or Section 34 of the new Act is not altogether a taboo notwithstanding the period of limitation…”

13. In all cases where Section 34 petition is filed after commencement of the Arbitration & Conciliation (Amendment) Act, 2015 (23.10.2015) and application for stay having been made under Section 36 therein, will be governed by Section 34 as amended and Section 36 as substituted. Section 36 as substituted is to apply even to pending Section 34 applications on the date of commencement of the Arbitration & Conciliation (Amendment) Act, 2015 (23.10.2015).

Section 36 of the Arbitration & Conciliation Act, 1996 as amended in 2015 by virtue of the Arbitration & Conciliation (Amendment) Act, 2015 reads as under:

“36.Enforcement-

• • Where the time for making an application to set aside the arbitral award under Section 34 has expired, then, subject to the provisions of sub-section (2), such award shall be enforced in accordance with the provisions of the Code of Civil Procedure, 1908 (5 of 1908), in the same manner as if it were a decree of the court.
  • Where an application to set aside the arbitral award has been filed in the Court under Section 34, 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 said arbitral award in accordance with the provisions of sub-section (3), on a separate application made for that purpose.
  • Upon filing of an application under sub-section (2) for stay of the operation of the arbitral award, the Court may, subject to such conditions as it may deem fit, grant stay of the operation of such award for reasons to be recorded in writing:

Provided that the Court shall, while considering the application for grant of stay in the case of an arbitral award for payment of money, have due regard to the provisions for grant of stay of a money decree under the provisions of the Code of Civil Procedure, 1908 (5 of 1908).”

Section 26 of the Arbitration & Conciliation (Amendment) Act, 2015 reads as under:

“26.Act not to apply to pending arbitral proceedings-

Nothing contained in this Act shall apply to the arbitral proceedings commenced, in accordance with the provisions of Section 21 of the principal Act, before the commencement of this Act unless the parties otherwise agree but this Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act.”

In the matter of: Board of Control for Cricket in India V/s Kochi Cricket (P) Ltd. &Ors, 2018 (2) Arb. LR 170 (SC), it was held that:

“… In all cases where the petition under Section 34 of the Arbitration and Conciliation Act, 1996 is filed after the commencement of the Arbitration and Conciliation (Amendment) Act, 2015 and an application for stay having been made under Section 36 therein, will be governed by Section 34 as amended and Section 36 as substituted… Since it is clear that execution of a decree pertains to the realm of procedure and that there is no substantive vested right in a judgment debtor to resist execution, Section 36 of the Arbitration and Conciliation Act, 1996 as substituted would apply even to pending Section 34 applications on the date of commencement of the Arbitration and Conciliation (Amendment) Act, 2015…”

14. Mandate contained in Section 34 (2) (a) (iii) of the Arbitration & Conciliation Act, 1996

In the matter of: S.A. Fasludeen&Anr. V/s Siyauddin&Ors, 2018 (3) Arb. LR 64 (Madras), it was held that:

“… The language of Section 34 (2) (a) (iii) of the Arbitration and Conciliation Act, 1996 makes it amply clear that the arbitral tribunal is not only obliged to give notice of the appointment of the arbitral tribunal but also give the parties notice of the dates of arbitral proceedings to enable the parties to appear and make their submissions… The arbitral tribunal is duty bound to arrive at its decision in substantial compliance of the principles of natural justice.A party can be said to have been given reasonable opportunity to appear and make submissions not only by service of notice of constitution of the arbitral tribunal, but also by notice of the proceedings and/or in other words notice of the dates on which the proceedings are scheduled to be held… The arbitral proceedings which are informal in nature heard and adjudicated before a tribunal constituted by the respective parties by agreement cannot be equated with proceedings before a court of law where the daily/weekly/monthly cause lists serve as notice of the hearing dates…”

15. A judgment deciding objections filed under Section 34 of the Arbitration & Conciliation Act, 1996 has to be a ‘speaking’ judgment.

In the matter of: Union of India V/s Alok Kansal&Anr, 2017 SCC Online Del 11473, it was held that:

“… A reading of the impugned judgment shows that the court below has simply held that the Arbitrator has considered the evidence before him and accordingly passed an Award and the impugned judgment only refers to what has been decided by the Award. Impugned judgment however does not state what were the issues between the parties, how those issues are rightly or wrongly decided by the Arbitrator and which is a sine qua non for a judgment to be a judgment in the eyes of law because a judgment has to be a speaking judgment. It is not enough for a Court dealing with objections under Section 34 of the Act to say that the Arbitrator has given a reasoning which has to be accepted as correct…”

16. Non speaking judgments cannot be passed while dealing with the objections which are filed under Section 34 of the Arbitration & Conciliation Act, 1996.

In the matter of: Harbhajan Kaur Bhatia (Through Her Attorney Charanjit Singh Bhatia) V/s M/s. Aadya Trading & Investment (P) Ltd. &Anr., 2017 SCC Online Del 9176, it was held that:

“… The impugned judgment dismissing the objections, I am forced to note, is an apology for the expression judgment. In an impugned judgment what are the respective cases of the parties and the issues to be decided have to be mentioned. Thereafter how the issues are decided is discussed. The impugned judgment however only states that Award is passed by the Arbitrator and there are no grounds for setting aside of the Award under Section 34 of the Act because there is no incapacity of the objector or any issue of lack of notice. It is also observed that the Award does not deserve to be set aside as it is not in conflict with the public policy of India… This Court is receiving many judgments of the courts below which are most unfortunately dismissing the objections by simply stating that the Award is not against the public policy or the Award does not violate the ratio of the judgment of the Supreme Court in ONGC V/s Saw Pipes Ltd., (2003) 5 SCC 705 and the other connected judgments.In my opinion, this is an unacceptable practice…this Court has received a series of cases where objections under Section 34 of the Act are being decided without even mentioning what the disputes between the parties are, how the Award has decided the same and how a court hearing objections under Section 34 of the Act cannot interfere because the Award, as per the reasoning, is neither illegal or perverse including not falling under the ingredients of Section 34 of the Act… that non speaking judgments cannot be passed while dealing with the objections which are filed under Section 34 of the Act… that the case be remanded back to the court below to decide the case in accordance with law after setting out the facts in issue, discussion on the relevant issues and giving reasoning for the conclusion which is to be arrived at by the court below for allowing or dismissing the objections under Section 34 of the Act…”

17. What is meant by the expression “furnishes proof” in Section 34 (2) (a) of the Arbitration & Conciliation Act, 1996?

In the matter of: Sandeep Kumar V/s Dr. Ashok Hans, (2004) 3 Arb. LR 306, it was held that:

• • There is no requirement under the provisions of Section 34 of the Arbitration & Conciliation Act, 1996 for parties to lead evidence; and,
  • The record of the arbitrator is sufficient in order to furnish proof of whether the grounds under Section 34 of the Arbitration & Conciliation Act, 1996 had been made out.

Further, in the matter of: Sial Bioenergie V/s SBEC Systems, AIR 2005 Del 95, it was observed that:

“… In my view the whole purpose of the 1996 Act would be completely defeated by granting permission to the applicant/JD to lead oral evidence at the stage of objections raised against an arbitral award… At the stage of the objections which are any way limited in scope due to the provisions of the Act to permit oral evidence would completely defeat the objects underlying the 1996 Act. The process of oral evidence would prolong the process of hearing objections and cannot be countenanced…”

18. Whether issues as contemplated under Order XIV, Rule 1 of the Code of Civil Procedure, 1908 should be framed in applications under Section 34 of the Arbitration & Conciliation Act, 1996?

In the matter of Emkay Global Financial Services Ltd. (Supra) it was observed that:

“… issues need not be struck at the stage of hearing a Section 34 application, which is a summary procedure …we clarify the legal position by stating that an application for setting aside an arbitral award will not ordinarily require anything beyond the record that was before the Arbitrator. However, if there are matters not contained in such record, and are relevant to the determination of issues arising under Section 34 (2) (a), they may be brought to the notice of the Court by way of affidavits filed by both parties. Cross-examination of persons swearing to the affidavits should not be allowed unless absolutely necessary, as the truth will emerge on a reading of the affidavits filed by both parties…”

19. “Better Safe than Sorry”:Mother Boon Foods (P) Ltd. V/s Mindscape One Marketing (P) Ltd., O.M.P. (COMM) 136/2017, High Court of Delhi, Date of Decision: 27.08.2018, Coram: Prathiba M. Singh, J.

In the matter of Mother Boon Foods (P) Ltd. (Supra)it was observed that:

“… The Petitioner having raised its objection at the initial stage itself to the constitution of the tribunal but the tribunal having proceeded further with the matter, the Petitioner is entitled to challenge the said constitution at this stage by raising its objection under Section 34. If, as per the clause, a Sole Arbitrator was to be appointed, then only a Sole Arbitrator could have been appointed. It appears that the so-called safe approach has, in fact, proved to be dangerous for the Respondent as the appointment of three arbitrators by the Respondent was not contemplated in the agreement… The arbitral tribunal being not in accordance with the arbitration agreement between the parties, the award rendered by the said tribunal is liable to be set aside…”

20. A matter cannot be remanded back to the arbitrator for fresh decision.

In the matter of: Kinnari Mullick&Anr V/s Ghanshyam Das Damani, (2018) 11 SCC 328, it was held that, the court while deciding a Section 34 petition has no jurisdiction to remand the matter to the arbitrator for a fresh decision.

21. Whether an award delivered by an arbitrator, which decides the issue of limitation, can be said to be an interim award, and whether such interim award can then be set aside under Section 34 of the Arbitration & Conciliation Act, 1996?

In the matter of: Indian Farmers Fertilizer Co-operative Ltd. V/s Bhadra Products, Civil Appeal No. 824 of 2018, Supreme Court of India, Date of Decision: 23.01.2018, Coram: R.F. Nariman &Navin Sinha, JJ., it was held that:

• • The question whether interim award is final to the extent it goes or has effect till the final award is delivered will depend upon the form of the award. If the interim award is intended to have effect only so long as the final award is not delivered it will have the force of the interim award and it will cease to have effect after the final award is made. If, on the other hand, the interim award is intended to finally determine the rights of the parties it will have the force of a complete award and will have effect even after the final award is delivered.
  • As per Section 2 (c) of the Arbitration & Conciliation Act, 1996, “arbitral award” includes an interim award.
  • As per Section 31 (6) of the Arbitration & Conciliation Act, 1996, 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.
  • An award, which does not relate to the arbitral tribunal’s own jurisdiction under Section 16 of the Arbitration & Conciliation Act, 1996, does not have to follow the drill of Section 16(5) and (6) of the Arbitration & Conciliation Act, 1996.
  • The word “jurisdiction” mentioned in Section 16 of the Arbitration & Conciliation Act, 1996 has reference to three things, that is: (1)Whether there is the existence of a valid arbitration agreement; (2)Whether the arbitral tribunal is properly constituted; and (3) Whether matters submitted to arbitration are in accordance with the arbitration agreement.
  • An award delivered by an arbitrator, which decides the issue of limitation, can be said to be an interim award, and such an interim award can be challenged separately and independently under Section 34 of the Arbitration & Conciliation Act, 1996.

This content is contributed by Advocate Shivam Goel, Partner at Lex Unified Law Firm, Delhi