SNDT WOMENS UNIVERSITY LAW

SCHOOL - JUHU

TOPIC: Recourse against Arbitral Award

MONTH &YEAR OF SUBMISSION: April 2023

Name: Simran Hadi

Roll No: 12

SUBJECT: Foundation Principles Of Law Of Contract And Allied

Settling a dispute by referring it to a third person was well known in ancient and medieval India. If
any of the parties to the dispute was not satisfied with the decision, he could go on an appeal to the
Court of law and ultimately to the King itself.1 The modern law of arbitration evolved in the form of
Regulations framed by the East India Company whereby the courts were empowered to refer the suits
to arbitration.

The first Indian Arbitration Act of 1899 was based on the English Arbitration Act of 1889. Then came
the Indian Arbitration Act, 1940, and finally the Arbitration and Conciliation Act, 1996 (the “Act”)
was enacted by Parliament based on the UNCITRAL Model Law on International Commercial
Arbitration, 1985.2

Prior to the enactment of the 1996 Act, Section 30 of the Indian Arbitration Act, 1940, contained
rather broad grounds for setting aside an arbitral award. In contrast, Section 34(2) of the Act sought to
restrict the grounds for challenging an award. Setting aside procedures are provided so as to act as a
check on the powers of the arbitrators, to prevent them from going beyond their scope of authority.
However, there is another school of thought which advocates that provision for setting aside of an
arbitral award should never be envisaged. The parties should stick to their award and any mistake,
however inflated it may be and an award however unreasonable it may be, should be treated the same
as a final judgment.

• The author is a fourth-year BA LLB student at WB National University of Juridical Sciences (WB NUJS), Kolkata and
can be reached at [email protected].
1
P.C. Rao & W. Sheffield, Alternative Dispute Resolution (Delhi: Universal Law Publishing Co. Pvt. Ltd., 1997) at 33.

2
K.D. Kerameus, “Waiver of Setting Aside Procedures in International Arbitration” 41(1) The American Journal of
Comparative Law (1993), http://links.jstor.org/sici
Court cannot reassess the evidence even if arbitrator committed error. 3 The Court has no jurisdiction
to substitute its own valuation of conclusion on law/fact. 4 It cannot sit in appeal over the conclusions
of arbitrator and reexamine or reappraise evidence which had been already considered by the
arbitrator.5 To investigate misconduct, Court may see simply the record before the arbitrator but not
examine it.6

It is further stated by proponents of this school that Arbitrators are judges of fact as well as law and
has jurisdiction and authority to decide wrong as well as right, and thus, if they reach a decision fairly
after hearing both sides, their award cannot be attacked.7 However erroneous his decision may be, it
cannot be interfered with by any Court.8

Furthermore, where reasons have been given by the arbitrator, the Court cannot examine the
reasonableness of reasons. If the parties have selected their own forum, the deciding forum must be
conceded the power of appraisement of evidence. If arbitrator failed to appreciate the oral and
documentary evidence brought on record in the arbitral proceedings, it was held in a case that “the
arbitral award is not open to challenge on ground that the arbitral tribunal has reached a wrong
conclusion or has failed to appreciate facts/evidence. Thus, it had been well settled that the parties
constitute the arbitral tribunal as the sole and final judge of the dispute arising between them and they
bind themselves as a rule to accept the arbitral award as final and conclusive and thus, the award is not
liable to be set aside on the ground that facts/law is erroneous. This is outside scope of Section 34 of
the Arbitration and Conciliation Act.9

3
Eastern and North East Frontier Railway Cooperative Bank Ltd. v. B. Guha & Co. AIR 1986 Cal 146, Uttar Pradesh State
Electricity Board v. Searsole Chemicals (1995) 2 Arb LR 320, National Electric Supply and Trading Corporation Pvt. Ltd.
v. Punjab State AIR 1963 Punj 56.

4
Francis Klein Pvt. Ltd v. Union of India 1995 2 Arb LR 298.

5
State of Orissa v. R.N. Mishra AIR 1984 Ori 42, Swaran Singh v. University of Delhi AIR 1994 Del 290, Samyukt Namrata
v. Delhi Development Authority 1986 2 Arb LR 48, Sarabjit Singh v. State of Punjab AIR 1985 P&H 179, New Snow View
Transport Pvt. Ltd AIR 1994 NOC 311 (H.P.), R.S. Builders v. Delhi Development Authority AIR 1995 Del 10, Shivlal
Prasad v. Union of India AIR 1975 MP 40.

6
Jagdish Chander v. Hind Vegetable Oils Corporation AIR 1990 Del 204, Eastern and North East Frontier Railway
Cooperative Bank Ltd. v. B. Guha & Co. AIR 1986 Cal 146.

7
Yeshwantrao Ganpatrao v. Dattarayarao Ramachandranrao AIR 1948 Nag 162 (DB).

8
Bharu Kure Jat v. Tara Lal AIR 1962 Punj 173.

9
Laxmi Mathur v. Chief General Manager, MTNL 2000 (2) Arb LR 684 (Bom).
In addition, it has been laid down in a catena of cases that the appraisement of evidence by arbitrator is
not a matter that the Court can question or consider.10 It is not for the Court to take upon itself the task
of being the judge of evidence by arbitrator since it is possible that the court may come to a totally
different conclusion altogether based on same facts which is not a ground to stay arbitral award.
Arbitrator has final say on evidence production and the Court cannot enquire about which document is
important, which should be accepted and how should the necessary evidence be appreciated. 11 It
cannot be challenged on ground of inadequacy or inadmissibility or impropriety of evidence. But it
may be noted that the total absence of evidence or the failure to consider material documents or
admission of parties in arriving at a conclusion are good grounds for challenge since these amount to
judicial misconduct.12

Unless the arbitrator disregards principles of natural justice in the arbitration proceedings such as
being radically wrong or vicious in proceedings or disregarding the fundamental rules of evidence, the
Court cannot interfere.13

Therefore, finality should always be the price to be paid by the defeated litigants in adjudication and
arbitration alike.14 After all, as soon as a judgment becomes final and no appeals are provided for, does
not the judgment become sacrosanct? It has also been argued that the reason for this unequal treatment
and partial subjugation is that arbitration is yet to be recognised as an autonomous institution, separate

10
Haji Ebrahim Kassim Cochinwalla v. Northern Indian Oil Industries Ltd. AIR 1951 Cal 230, Life Insurance Corporation
(LIC India) v. M.L. Dalmia & Co. Ltd. AIR 1972 Cal 295, Polo Singh & Co. v. Union of India 1995 (2) Arb LR 303, State
of Punjab v. Amarnath Agarwal 1993 103 Pun LR 1, State of Rajasthan v. Puri Construction Co. Ltd. 1994 6 SCC 485.

11
Shankarlal Majumdar v. State of West Bengal AIR 1994 Cal 55.

12
West Bengal Industrial Infrastructure Development Corporation v. Star Engineering Co. AIR 1987 Cal 126 (Arbitrator is
the sole judge of the quality and sufficiency of evidence and the courts are not allowed to interfere) Natwarlal Shamaldas
&Co v. Minerals and Metals Trading Corporation India Ltd. AIR 1982 Del 44, Bungo Steel Furniture Pvt. Ltd. v. Union of
India AIR 1967 SC 378.

13
Des Raj & Sons v. Union of India 1984 Arb LR 156, Krishna Gopal Prasad v. Chandiprasad Duryandhanprasad AIR
1953 Nag 309 (DB), Louis Dreyfuss Co v. S. Balasubbaraya Chettiar & Son AIR 1961 Mad 186, Baldev Singh Sardool
Singh
v. Union of India AIR 1965 J&K 28(An award is not open to challenge on grounds that the arbitrator has reached a wrong
conclusion or has failed to appreciate facts) Hindusthan Tea v. Sashikant & Co. AIR 1987 SC 81, Uttam Singh Duggal v.
Union of India AIR 1988 MP 191, D.K. Sharma v. Union of India 1987 2 Arb LR 6.

14
Supra note 2, at 35.
and independent from the judiciary. “It has been to a varying degree tolerated by the State and
tentatively incorporated into a somehow cohesive system of the overall administration of justice.” 15
Setting aside measures have made the judges an important player in determining the validity and
enforceability of the arbitration.16

Throughout this essay, it is argued that even though recourse to arbitration was made to keep the
dispute resolution system simple and less technical, arbitration was never meant to be unresponsive to
the cannons of justice and fair play. Therefore, if the arbitrator does not follow the principles of
natural justice, the aggrieved party must be provided with recourse, for justice should not only be done
swiftly, but it must appear to have been done. The argument on finality of a final decree does not hold
water. There are provisions in the Civil Procedure Code for review and revision. Similarly, the notion
that by providing for setting aside procedures arbitration is subjugated by the adjudication is
erroneous. Arbitration and adjudication are nothing but various means of seeking justice. So if one
method fails to provide for justice then the other means should be resorted to. Both should be seen as
complementing each other rather than fighting for supremacy over each other.

Setting Aside
Not everyone takes defeat in their stride. So whenever an arbitral award goes against one of the parties
to the dispute, he seeks ways of setting it aside. An award can be set aside only on the grounds
mentioned in Section 34 of the Act. The purpose of setting aside is to modify in some way the award
in part or wholly.17

Salient Features of Section 34

15
Id.

16
Id.

17
A. Redfern & M. Hunter, Law & Practice of International Commercial Arbitration (London: Sweet & Maxwell, 2004) at
404.
The Act only provides for specific heads under Section 34 on which appeals can be made to the Court
to set aside the award. If the legislators wanted to include “error of law” as a ground for setting aside
the award, they would have provided for it in Section 34 itself. There are two legislative proposals
before the Indian Parliament which clearly show that the legislature did not intend to include “error of
law” as a public policy ground under Section 34(2)(b)(ii) of the Act. Both the April 2001 Bill and
December 2003 Bill have proposed amendments to the 1996 Act as follows:
“34A(1) In the case of an arbitral award made in an arbitration other than an international
arbitration (whether commercial or not), recourse to the following additional grounds can be
had in an application for setting aside an award referred to in sub-section (1) of section 34,
namely--
(a) that there is an error which is apparent on the face of the arbitral award giving rise
to a substantial question of law; ...”35

These proposed amendments unequivocally show the intention of the legislature not to include “error
of law” as a separate ground for setting aside domestic awards under the Act. 36 In fact, the Court’s
interpretation of public policy is so broad that it potentially opens the floodgates to more and more
challenges of arbitral awards before the Indian courts. Arguably, it is precisely this judicial review of
the merits of the case that Section 34 of the Act as well as the corresponding UNCITRAL Model Law
provisions were intended to prevent in order to ensure the finality of arbitral awards on the merits. The
ratio of the judgment is not in line with the objective of the Act. Some authors advocate a middle path.
As per them there is need to adopt the so-called “error apparent on the face of record” test as an “all
weather” solution.37 However, such a solution is unnecessary given the exhaustive nature of the
grounds given in Section 34.
Judicial Responses

35
(1999) 9 SCC 283.

36
Id.
.
37
A. Kurup, “Reposing faith in the arbitral process: A restrained exercise of judicial discretion when construing the ‘public
policy of India’”, 4(3) Company Law Journal (2003), at 147.
International Law Association (ILA) floated a still narrower concept of “transnational public policy”,
or “truly international public policy”. It is said to “comprise fundamental rules of natural law,
principles of universal justice, jus cogens in public international law, and the general principles of
morality accepted by what are referred to as civilized nations”.44 These definitions are helpful but they
are yet to be widely accepted.

Another idea which has been floated around is that the international arbitration community
should reach a broad consensus as to which “exceptional circumstances” would justify a national court
denying enforcement of a foreign arbitral award.45

There is still a long way to go before we arrive at a global standard of public policy, but it is hoped
that the ILA Recommendations represent a broad consensus, and if applied will lead to greater
consistency in the interpretation and application of public policy as a bar to enforcement of
international arbitral awards.

The interpretation of public policy in domestic arbitration should be different from that of
international arbitration. The reason for this is that domestic policies should not influence the outcome
of international arbitration. Public policy in international arbitration should be interpreted so as to
bring it in line with the interpretations given to it worldwide. Consequently this will bring in
uniformity and predictability in the enforcement of foreign awards. Barriers to foreign arbitral awards
are barriers to foreign trade, and barriers to foreign trade are barriers to economic development.

However, the role of Courts has been drastically reduced in arbitral proceedings. A party cannot
approach Courts for setting aside an arbitral award except on very limited grounds. The grounds to set
aside an award have been reduced considerably and have been specified minutely without an omnibus
ground as “or is otherwise invalid” as in Section 30 of the Arbitration Act, 1940.46 This has been done
so as to lessen the burden on Court and this would lead to settlement of disputes without resorting to
cumbersome Court procedures.47

44
Supra note 9, at 420.

45
A. Sheppard, “Public policy and the enforcement of arbitral awards: Should there be a global standard, 1(1) Transnational
Dispute Management taken from http://transnational-dispute- anagement.com/samples/freearticles
46
See generally Arbitration Act, 1940, Section 30.

47
P.C. Markanda, Law Relating to Arbitration and Conciliation, 2nd Edition, 1997, Wadhwa Publishers, Delhi.
 References

Arbitration Act, 1940.

Arbitration and Conciliation Act, 1996.

P.C. Rao & W. Sheffield, Alternative Dispute Resolution (Delhi: Universal Law Publishing Co. Pvt.
Ltd., 1997).

K.D. Kerameus, “Waiver of Setting Aside Procedures in International Arbitration” 41(1) The
American Journal of Comparative Law (1993), http://links.jstor.org/sici.

A. Redfern & M. Hunter, Law & Practice of International Commercial Arbitration (London: Sweet &
Maxwell, 2004).

M.V. Sundararaman, “Finality of Domestic Arbitral Awards”, 3(2) Company Law Journal (2003).

Justice D.R. Dhanuka (Retd.), “Critical Study of Recent Judgments Pertaining to Arbitration Law”,
5(2)
Company Law Journal (2005).

P. Anklesaria, “Scope of the expression public policy in domestic and foreign awards” 9 AIR (2005)

O.P. Malhotra, The Law and Practice of Arbitration and Conciliation (New Delhi: Lexis Nexis
Butterworths, 2002).

Darwazeh and R.F. Linnane, “Set-Aside and Enforcement proceedings: The 1996 Arbitration Act
Under Threat” 7(3) Int. A.L.R. (2004).

A. Kurup, “Reposing faith in the arbitral process: A restrained exercise of judicial discretion when
construing the ‘public policy of India’”, 4(3) Company Law Journal (2003).

A. Sheppard, “Public policy and the enforcement of arbitral awards: Should there be a global standard,
1(1) TransnationalDispute Management taken from http://transnational-dispute-
anagement.com/samples/freearticles

P.C. Markanda, Law Relating to Arbitration and Conciliation, 2nd Edition, 1997, Wadhwa Publishers,
Delhi.