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GUJARAT NATIONAL LAW UNIVERSITY

Analysis of Section 34 of the


Arbitration and Conciliation Act:
Setting Aside of Arbitral Award and Courts
Interference
ALTERNATIVE DISPUTE RESOLUTION
Semester V
Submitted to Dr. Vikas Gandhi
Pavani Nath
12B091
B.A. LL.B. (Hons.)
(2012 - 2017)

TABLE OF CONTENTS

Analysis of Section 34 of the Arbitration and Conciliation Act:


Setting Aside of Arbitral Award and Courts Interference

TOPIC
Acknowledgement
Abstract
Introduction
Incapacity of a Party
Invalidity of the Agreement
Want of Proper Notice
Award Deals with Dispute Not Referred to Arbitration
Arbitral Tribunal was Defective in its Composition
Dispute was not Capable of a Settlement
Public Policy under the Act
Section 34(3) of the Arbitration Act and Limitation
Conclusion
Bibliography

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ACKNOWLEDGEMENT
It is indeed my privilege to present this project on Analysis of Section 34 of the
Arbitration and Conciliation Act: Setting Aside of Arbitral Award and Courts
Interference, to my teacher, Dr. Vikas Gandhi.
I would like to express my deepest gratitude to Mr. Bimal Patel, Director, Gujarat
National Law University, for providing this wonderful opportunity to carry out
research on this significant topic.
Gujarat National Law University

Analysis of Section 34 of the Arbitration and Conciliation Act:


Setting Aside of Arbitral Award and Courts Interference

I would like to thank Vikas Sir, Assistant Professor of Law, Gujarat National Law
University, for giving us the freedom to research on the topic in whatever way we
deemed fit, and for giving us valuable information and advice regarding the same.
This paper has broadened my understanding of the current scenario of arbitration in
India. Vikas Sirs continuous support and guidance throughout the course of preparing
this project has been a morale-booster and has made me work harder.
I would also like to thank everyone teachers, family and peers for giving me
valuable information and helping me formulate ideas through stimulating discussions
and a cohesive work environment to turn my ideas and stray thoughts into this
coherent research paper.

INTRODUCTION
One of the important differences between the 1940 Arbitration Act and the 1996 Act
in respect of setting aside arbitral award is that in the former the party had an access
to the court almost at every stage of arbitration, right from appointment of arbitrator
to implementation of final award and under this Act wide powers are exercised by the
courts. Especially by virtue of Section 30(c) of 1940 Act, every award was made
challengeable by raising all kinds of allegations. But the 1996 Act has laid down the
grounds only and only on which an award can be challenged which thus has curbed
Gujarat National Law University

Analysis of Section 34 of the Arbitration and Conciliation Act:


Setting Aside of Arbitral Award and Courts Interference

the tendency of approaching the court at drop of a hat. If a party fails to establish his
case within the four corners of section 34, the award cannot be set aside.1 The new Act
has fixed the time limit on arbitral proceedings and time frame to challenge any
arbitral award. It further has prohibited courts to entertain any challenge on any
ground before passing of the award.
Provision
Under Section 34 of the new Act, an award can be set aside only by an application of
the party. An aggrieved party has to apply to the court within three months of receipt
of the award for setting aside the award which may be extended for a further period of
30 days if the partys application satisfies the court. The grounds under which a party
may apply to the court to set aside an award are only those mentioned in Section 34(2)
of the Act. Thus the scope of interference with the award by the court is very limited
and is restricted to the following:

Incapacity of a party [Section 34 (2)(a)(i)]


Invalidity of the agreement [Section 34 (2)(a)(ii)]
Want of proper notice [Section 34 (2)(a)(iii)]
Award deals with dispute not referred to arbitration [Section 34 (2)(a)(iv)]
Arbitral Tribunal was defective in composition [Section 34 (2)(a)(v)]
Subject matter of the dispute not being capable of settlement by arbitration under the

law for the time being in force [ Section 34 (2)(b)(i)]


Arbitral award being in conflict with public policy [Section 34 (2)(b)(ii)]
The party challenging the award has to establish any of these grounds beyond
reasonable doubt to set aside the award, failing which, the court will uphold the
arbitral award.

1 State of Rajasthan v. Nav Bharat Const. Co., AIR 2002 SC 258.


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Analysis of Section 34 of the Arbitration and Conciliation Act:


Setting Aside of Arbitral Award and Courts Interference

INCAPACITY OF A PARTY
If the party challenging the award furnishes proof that he was under some incapacity
then the court if it is satisfied may set aside the award. Grounds of incapacity of a
party to enter into a valid contract under the Indian Contract Act, 1872 are squarely
applicable in deciding the cases falling under this category.
The Supreme Court by its judgment held that incapacity of a party is a good ground
for setting aside an award.2 It was held by the Madras High Court in

2 Subhash Chandra Das Mushib v. Ganga Prosad Das Mushib and others, AIR 1967
SC 878
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Analysis of Section 34 of the Arbitration and Conciliation Act:


Setting Aside of Arbitral Award and Courts Interference

Lakshminarayana Tantri v. Ramachandra Tantri3 that an award which is invalid under


the law governing minors ought to be set aside.

INVALIDITY OF THE AGREEMENT


On an application by the party that the arbitration agreement is not valid under the law
to which the parties have subjected it or, failing any indication thereon, under the law
for the time being in force, the court can set aside the award.
The Patna High Court in Waverly Jute Mills Co. Ltd. v. Raymon and Co. (India) Pvt.
Ltd.4 held that if a contract is illegal and void, an arbitration clause which is one of the
terms thereof, must also perish along with it.

3 AIR 1919 Mad 1029.


4 AIR 1982 Pat 238.
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Analysis of Section 34 of the Arbitration and Conciliation Act:


Setting Aside of Arbitral Award and Courts Interference

The Delhi High Court in Director General of Supplies and Disposals v. Covenry
Metals Corporation (P) Ltd.5 held that where there was no concluded contract
between the parties with respect to the disputed items, since the formal acceptance
was sent when the tender offer already stood lapsed, the arbitration clause in such a
contract was also not in existence and any award made in such a reference was liable
to be set aside.
It is from the terms of the arbitration agreement that the arbitrator derives his
authority to arbitrate, if in law there is no valid agreement the proceedings of
arbitrator would be unauthorized.6
The Supreme Court held that invalidity of an agreement can be a ground of an
application for setting aside an award which is based on such invalid agreement.7
In view of the specific objection that there was no arbitration agreement between the
parties and consequently there was not and could not have been any reference to the
arbitrators, failure of the Trial Court to order production of arbitration agreement and
of reference and to decide thereon vitiated its judgment.8

WANT OF PROPER NOTICE


If the party making the application was not given proper notice of the appointment of
an arbitrator or of the arbitral proceedings or was otherwise unable to present his case
then the Court can set aside the award. This ground is derived from the principle of
natural justice. Where the party to the arbitration was not served with the notice of
hearing and was not served with the copy of the award, the award would be liable to

5 AIR 1984 NOC 153 (Delhi).


6 Union of India v. A.L. Rallia Ram, AIR 1963 SC 1685.
7 Union of India v. Om Prakash, AIR 1976 SC 1745.
8 Fulmani Devi v. Sheo Govind Prasad Agarwal, AIR 1985 Pat 156.
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Analysis of Section 34 of the Arbitration and Conciliation Act:


Setting Aside of Arbitral Award and Courts Interference

be set aside.9 An arbitral award can be set aside by the court if the party making the
application was not given proper notice.10
One of the principles of natural justice is that the parties should be given reasonable
opportunities to be heard and therefore the arbitrator is duty bound to take this into
consideration and if he fails to do so the court can on an application set aside the
award.11
When dispute on settlement of accounts on retirement of a partner was referred to
arbitrator which was sought to be solved by him on the basis of valuation report called
by him but the arbitrator at no point of time supplied copy of valuation report to the
said retired partner, there was breach of principles of natural justice and the award of
arbitrator was liable to be set aside.12

AWARD DEALS WITH A DISPUTE


NOT REFERRED TO ARBITRATION
If the arbitral award deals with a dispute not contemplated by or not falling within the
terms of the submission to arbitration, or it contains decisions on matters beyond the
scope of the submission to arbitration then the court can set aside the award.
Arbitrators jurisdiction is confined to the four corners of the contract. He cannot
ignore the provisions of the contract; otherwise he would be acting without
9 (1998)2 Mah LR 845 (848) Bom.
10 Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd. and another, AIR 2005 SC
3766.
11 2002 (2) Bom LR 271.
12 Shri Rajendra J. Joshi v. Dilip J. Joshi & others, (2000) 1 Bom LR 615.
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Analysis of Section 34 of the Arbitration and Conciliation Act:


Setting Aside of Arbitral Award and Courts Interference

jurisdiction.13 Where an award is contrary to the terms of the agreement, the same
could be interfered with under section 34 (2) (b) (ii) as being patently illegal and is
opposed to public policy of India. If an arbitrator makes an award, which is in conflict
with the price variation formula contained in the Purchase Order, it ought to be set
aside being in excess of the jurisdiction of the arbitrator.14
In order to determine whether the arbitrator has acted in excess of jurisdiction what
has to be seen is whether the claimants could raise a particular dispute or claim before
the arbitrator. If the answer is in affirmative, then it is clear that the arbitrator would
have the jurisdiction to deal with such a claim. On the other hand, if the arbitration
clause or a specific term in the contract or the law does not permit or give the
arbitrator the power to decide or to adjudicate on a dispute raised by the claimant or
there is a specific bar to the raising of a particular dispute or claim, then any decision
given by the arbitrator in respect thereof would clearly be in excess of jurisdiction.15
Section 34(2)(a)(iv) of the Act contains a proviso which provides for a principle of
severability that is if the decisions on matters submitted to arbitration can be separated
from those not so submitted, only that part of the arbitral award which contains
decisions on matters not submitted to arbitration may be set aside.
When an award is good in part and bad in part and the two parts are severable, the
award can be set aside in part 16 however if a part of the award is closely interlinked
with the entire amount and is inseparable, the whole award should fail in law.17
The assumption of jurisdiction not possessed by the arbitrator renders the award, to
the extent to which it is beyond the arbitrators jurisdiction invalid and if it is not
possible to sever such invalid part from the other part of the award, the award must
fail in its entirety.18

13 BharatCoking Coal Ltd. v. Annapurna Const., (2003) 8 SCC 154.


14 Hindustan Zinc Ltd. v. Friends Coal Carbonization, (2006) 4 SCC 445.
15 Himachal Pradesh State Electricity Board v. R.J. Shah, (1999) 4 SCC 214.
16 Union of India v. Apeejay Pvt. Ltd., AIR 1983 Cal 271(DB).
17 Chinoy Chalani and Co. v. Anjiah, AIR 1958 AP 384.
18 Juiraj bhai Ujamshi Sheth v. Chintamanrao Balaji, AIR 1965 SC 214.
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It was held by the Supreme Court in Oil and Natural Gas Corporation Ltd. v. SAW
Pipes Ltd.19 that if the arbitral tribunal has not followed the mandatory procedures
prescribed under the Act, it would mean that it has acted beyond its jurisdiction and
thereby the award would be patently illegal which could be set aside. Thus arbitrator
cannot award any amount ruled out by terms of agreement.20

ARBITRAL TRIBUNAL WAS


DEFECTIVE IN ITS COMPOSITION
The award can be set aside if:
- composition of arbitral tribunal is not in accordance with the agreement;
- the arbitral procedure is not in accordance with the agreement between the parties;
- in the absence of such an agreement, the composition of arbitral tribunal or
arbitration procedure is not in accordance with Part I of the Act.

19 2000 (3) SC 449.


20 Shyama Charan Agarwala & Sons v. Union of India (UOI), AIR 2002 SC 2659.
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The Supreme Court in Narayan Prasad Lohia v. Nikhunj Kumar Lohia21 held that if
the composition of arbitral tribunal is not in accordance with the agreement of the
parties the award can be challenged. Where the arbitral tribunal consisted of only even
number of members contrary to the provisions of Section 10 of the Act and contrary
to the orders passed by the designate of the Chief Justice under Section 11 of the Act
the wrong composition of the arbitral tribunal would be a ground for setting aside of
an award.22
Where the arbitration clause provided for arbitration by a panel of arbitrators, the
assumption of jurisdiction by a sole arbitrator was held by the Supreme Court to be
illegal and consequently the award passed by such an arbitrator was set aside.23
It was held by the Supreme Court in Union of India v. Prabhat Kumar & Bros.24, that
when a person has been appointed as arbitrator by virtue of the office he was holding
at that time (and not named as such by the agreement of the parties), he ceases to be
the arbitrator from the time of his retirement.

DISPUTE IS NOT CAPABLE OF A


SETTLEMENT
If the subject matter of the dispute is not capable of settlement by arbitration under the
law for the time being in force then the court can set aside the award.
It was held in Olympus Superstructures Pvt. Ltd. v. Meena Vijay Khetan & others 25
overruling the earlier judgement of the Delhi High Court in P.N.B. Finance Ltd. v.
Shital Prasad Jain and others 26 that disputes relating to specific performance of a
21 AIR 2002 SC 1139.
22 (2004) 1 All MR 654 (Bom).
23 Dharma Prathishthanam v. Madhok Construction Pvt. Ltd., AIR 2005 SC 214.
24 AIR 1994 SC 649.
25 AIR 1999 SC 2102.
26 AIR 1991 Delhi 13.
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contract can be referred to arbitration and also that under sub clauses 2 (a) (iv) of
Section 34 of the Act, Arbitral Award may be set aside by the Court if the Award deals
with the dispute not contemplated by or not falling within the terms of the submission
to Arbitrator.
Dispute relating to claim of appellant who had submitted a supplemental bill for
electrical energy supplied but not recorded. In absence of a dispute as to whether the
matter was or was not correct such a dispute was arbitrable and was not liable to be
set aside.27
Where the respondent Corporation had raised the dispute before the arbitrator that the
claim with regard to refund / storage cannot be decided by the arbitrator and they
submitted to the jurisdiction of the arbitrator subject to said objection, the respondent
can take the plea before the High Court that to that extent the arbitrator had no
jurisdiction to go into the said controversy.28
Where the dispute or difference in relation to the agreement is arbitrable and the
question of restoration of distributorship does not arise under the agreement, the
arbitrator was in error and had no jurisdiction to direct restoration of distributorship to
respondent.29
It was held by the Supreme Court in Rajasthan State Mines & Minerals Limited v.
Eastern Engineering Enterprises & another30 that an award which is contrary to the
provisions of law will be illegal. Arbitrator cannot ignore the provisions of the
contract and give an award not related to the agreement.31

27 The Tata Hydro-Electric Power Supply Co. Ltd. and Others v. Union of India
(UOI), AIR 2003 SC 1581.
28 1999 AIHC 1042.
29 E. Venkatakrishna v. Indian Oil Corporation and anothers, 2000 (7) SCC 764.
30 AIR 1999 SC 3627.
31 2003 (8) SCC 154.
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PUBLIC POLICY UNDER THE ACT


If the arbitral award is in conflict with the public policy of India then the court can set
aside the award. The term public policy is not defined in the Act though it is used in
Section 34 (2) (b) (ii) of the Act. The term public policy was interpreted in
Renusagar Power Co. v. General Electric Co.32 by the Supreme Court while dealing
with Section 7(1) (b) (ii) of the Foreign Awards (Recognition and Enforcement) Act,
1961 relating to enforcement of a foreign award taking the view that public policy
consisted of (a) the fundamental policy of Indian law (b) the interests of India, and (c)
justice and morality. Hence the expression public policy of India for the purpose of
this section refers to the

32 1994 Supp (1) SCC 644.


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principles and standards constituting the general or fundamental policy of the state

established by the Constitution


the existing laws of the country and
the principles of justice and morality.33

The concept of public policy connotes some matter which concerns public good and
the public interest. However what is good in public interest or for public good or what
would be injurious or harmful to the public good or public interest would vary from
time to time.
The award which is on the face of it, patently in violation of statutory provisions
cannot be said to be in public interest. Such award is likely to adversely affect the
administration of justice.
In Oil and Natural Gas Corporation v. SAW Pipes Ltd. 34, the Supreme Court added
the additional ground of patent illegality as being a component of public policy
within the meaning of Section 34 (2) (b) (ii) of the Act of 1996. Illegality must go to
the root of the matter and if the illegality is of trivial nature it cannot be held that
award is against the public policy. Such a provision in the Indian Act would permit
courts to intervene not only when the awards are a result of a procedural misconduct
on the part of the arbitral tribunal but also where there has been an irregularity of a
kind which has caused substantial injustice. Where an award is contrary to the terms
of the agreement, the same could be interfered with under section 34(2)(b)(ii) as being
patently illegal and is opposed to public policy of India. 35 Award could also be set
aside if it is so unfair and unreasonable that it shocks the conscience of the court.
Such award is opposed to public policy and is required to be adjudged void. An award
based on a contract which is void would be arbitrary and would be contrary to the
public policy of India and is liable to be set aside.36

33 Smita Conductors Ltd. v. Euro Alloys Ltd., (2001) 7 SCC 728.


34 (2003) 5 SCC 705.
35 Hindustan Zinc Ltd. v. Friends Coal Carbonization, (2006) 4 SCC 445.
36 Managing Director, The Nagarjuna Co-operative Sugars Limited v. T.K. Mohan Rao, Retd. Chief
Engineer and another, AIR 1995 AP 365.

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The term 'public policy' as applicable to petitions under S. 34 of the Arbitration &
Conciliation Act, 1996 has been examined by the Delhi High Court in Ramesh
Chander Arora v. Kashmir Saree Kendra & Anr.37 The Bench, while dealing with a
challenge to an arbitral award, reiterated the priciples laid down by the Apex Court
and held that: As far as public policy and its interpretation is concerned, the law is
now well settled.
The Supreme Court in the case of in the case of ONGC v. Saw Pipes38, has been
pleased to interpret as follows:
The phrase Public Policy of India is not defined under the Act. Hence, the said term
is required to be given meaning in context and also considering the purpose of the
section and scheme of the Act. It has been repeatedly stated by various authorities that
the expression public policy does not admit of precise definition and may vary from
generation to generation and from time to time. Hence, the concept public policy is
considered to be vague, susceptible to narrow or wider meaning depending upon the
context in which it is used. Lacking precedent the Court has to give its meaning in the
light and principles underlying the Arbitration Act, Contract Act and Constitutional
provisions.
While dealing with the concept of public policy, this Court in Central Inland Water
Transport Corporation Limited and Anr. v. Brojo Nath Ganguly and Anr.39, SC has
observed thus:
The Indian Contract Act does not define the expression public policy or
opposed to public policy. From the very nature of things, the expressions
public policy, opposed to public policy, or contrary to public policy
are incapable of precise definition. Public policy, however, is not the policy of
a particular government. It connotes some matter which concerns the public
good and the public interest. The concept of what is for the public good or in
the public interest or what would be injurious or harmful to the public good or
the public interest has varied from time to time.
37 Decided On: 06.01.2011.
38 2003 (5) SCC 705.
39 (1986) IILLJ 171.
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As new concepts take the place of old, transactions which were once considered
against public policy are now being upheld by the courts and similarly where there
has been a well recognised head of public policy, the courts have not shirked from
extending it to the new transactions and changed circumstances and have at times not
even flinched from inventing a new head of public policy. There are two schools of
thought the narrow view school and the broad view school. According to the
former, courts cannot create new heads of public policy whereas the latter
countenances judicial law-making in this area. The adherents of the the narrow view
school would not invalidate a contract on the ground of public policy unless that
particular ground had been well- established by authorities.
It is thus clear that the principles governing public policy must be and are capable, on
proper occasion, of expansion or modification. Practices which were considered
perfectly normal at one time have today become obnoxious and oppressive to public
conscience. If there is no head of public policy which covers a case, then the court
must in consonance with public conscience and in keeping with public good and
public interest declare such practice to be opposed to public policy. Above all, in
deciding any case which may not be covered by authority our courts have before them
the beacon light of the Preamble to the Constitution. Lacking precedent, the court can
always be guided by that light and the principles underlying the Fundamental Rights
and the Directive Principles enshrined in our Constitution.
The normal rule of Common Law has been that a party who seeks to enforce an
agreement which is opposed to public policy will be non-suited. The type of contract
to which the principle formulated by us above applies are not contracts which are
tainted with illegality but are contracts which contain terms which are so unfair and
unreasonable that they shock the conscience of the court. They are opposed to public
policy and require to be adjudged void.

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Analysis of Section 34 of the Arbitration and Conciliation Act:


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SECTION 34(3) OF THE


ARBITRATION ACT AND
LIMITATION
Recently, the Delhi High Court was called upon to adjudicate upon a few interesting
issues arising out of the interpretation of Section 34 of the Arbitration Act in general,
and its relationship with the Limitation Act in particular. In Union of India v.
Microwave Communication Ltd.40, the question before the Court was whether, in the
event that the specified period for filing an application for setting aside an arbitral

40 High Court of Delhi, 20-12-2011.


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award under S. 34 has expired, S. 4 of the Limitation Act can be applied to


nevertheless render the application admissible.
S. 34(3) of the Arbitration Act states:
An application for setting aside may not be made after three months have
elapsed from the date on which the party making that application had received
the arbitral award or, if a request had been made under section 33, from the
date on which that request had been disposed of by the arbitral tribunal
Provided that if the Court is satisfied that the applicant was prevented by
sufficient cause from making the application within the said period of three
months it may entertain the application within a further period of thirty days,
but not thereafter.
S. 4 of the Limitation Act states:
When the prescribed period for any suit, appeal or application expires on a
day when the court is closed, the suit, appeal or application may be instituted,
preferred or made on the day when the court reopens.
In order to assess the applicability of S. 4 of the Limitation Act notwithstanding the
specified period under S. 34(3), the Court was called upon to consider the 2001
decision of the Apex Court in Union of India v. M/s Popular Construction Company 41.
In that case, it was held that S. 5 of the Limitation Act, which provided for a general
extension of the limitation period provided that sufficient cause was shown to the
Court, could not be used to save an application that was in breach of both the threemonth period under S. 34(3), as well as the extended time period of thirty days under
the proviso. While admittedly the Supreme Courts decision was limited to S. 5, its
observations were so sweeping that most of the High Courts treated it as sacrosanct
and took the view thatS.4 [was] not applicable to an issue involving S. 34(3).
Thus, the term and not thereafter at the end of the proviso to S. 34(3) was
interpreted by the High Courts to mean that the specified time under S. 34 was
absolute and unextendable.

41 (2001) 8 SCC 470.


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In 2008, however, the Supreme Court in Consolidated Engineering Enterprises v.


Principal Secretary, Irrigation Dep.42, noted that the provisions of S. 5 were impliedly
excluded by the proviso to S. 34(3). This is because S. 5 provides for a general
extension of the limitation period where sufficient cause is shown, while S. 34
specifically provides for a thirty-day extension for the very same reason. In
accordance with the well accepted principle of specific statutes overriding general
ones in cases of overlap, S. 34(3) would therefore exclude the operation of S. 5. This,
in effect, was the holding of the Court.
The Delhi High Court then noted that, in contradistinction with the object of S. 5, S. 4
does not enlarge the period of limitation but it only enables the party to file any suit,
application, etc. on the reopening day of the Court if the Court is closed on a day
when limitation expires. As there was no overlap of any sort between S. 4 and S.
34(3) indeed, the two dealt with completely different issues the Court held that S.
4 was not excluded, and would continue to apply in cases where there was neither any
inaction, nor a lack of due diligence on the part of the applicant. Interestingly, the
Court also held that S. 4 was applicable even to situations where the proviso to S.
34(3) was attracted i.e., the thirty-day condonation period. In the present case,
bureaucratic delays between departments were the main reasons for the delay, and
were therefore held to constitute sufficient cause for attracting both the thirty-day
extension period, as well as consequently necessitating the application of S. 4.
The Court also had occasion to deal with another point of interest, i.e., the meaning of
the party [who had] received the arbitral award under S. 34(3). Under S. 2(h) of
the Arbitration Act, the word party means a party to an arbitration agreement. An
argument was raised that, in light of a recent Supreme Court decision Teccho Trichy
Engineers, in the context of a huge organization like Railways the copy of the Award
has to be received by the person who has knowledge of the proceedings and who
would be the best person to understand and appreciate the arbitral Award and also to
take a decision in the matter of moving an application. Rejecting this contention, the
Court held that supervision of the day-to-day working under the contract, as well as
being in-charge of all correspondence thereto was irrelevant in determining who the
party to the arbitration agreement was. Rather, it was the signatory to the arbitration
42 (2008) 7 SCC 169.
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agreement who was deemed to be the requisite party, as defined under the Arbitration
Act. While that was the determining factor, other aspects such as the party in whose
name the application for setting aside the arbitral award was filed, or a subsequent
appeal, were also relevant aspects that needed to be taken into account.
In my submission, the Court is correct on both counts. It correctly identified that the
rationale of the Popular Construction Company was not the overriding or absolute
nature of S. 34(3), but rather, the fact that it excluded the operation of S. 5 due to their
overlapping nature. As S. 4 and S. 34(3) deal with two very different types of
exceptions to limitations, it is reasonable to give both their full effect. Secondly, while
the argument that an effectual, or purposive interpretation should be given to the word
party, it must be remembered that party is a term of art that has a specific legal
definition. The Court was bound both by the provisions of the Arbitration Act as well
as Teccho Trichy Engineers in rejecting the contention.

CONCLUSION
Subsequent to the decision in Saw Pipe case, the question that needs to be answered is
what exactly did the Court mean when it stated that an award would also be contrary
to public policy if it were patently illegal? Before that one has to know what
illegality means in the arbitration context. Illegality in arbitration context has
threefold meaning. Firstly, the illegal nature of the underlying contract, secondly its
subject matter and lastly, the circumstances surrounding the entering into of the
contract or the arbitration agreement.43 But the Apex Court in Saw Pipe case gave a
whole new dimension to the term illegality in arbitration context by equating it to
mean error of law.44 Arbitration is a consensual adjudication process. This implies
43 Darwazeh and R.F. Linnane, Set-aside and enforcement proceedings: The 1996
Arbitration Act under threat, 7(3) Int. A.L.R. (2004).
44 Id.
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that parties have agreed to accept the award given by the arbitrator even if it is wrong,
as long as proper procedures are followed by him.
Therefore, Courts cannot interfere with the enforcement of award on the ground of
error of law or error of fact. If the Courts are given the power to review on the ground
of error of law or error of fact then it will defeat the objectives of the Act and will also
make arbitration the first step in the process which will lead to the highest Court of
the land by way of successive appeals.
The Supreme Court itself has held in Rajasthan State Mines and Minerals Limited v.
Eastern Engineering Enterprise45 that the Court cannot interfere with the decision of
an arbitrator on the ground that his decision is based on error of law or fact. But this is
disagreed with. The Act clearly does not provide for the appeal to a court on the
merits of an arbitral award. If the wording of the Act is seen, a court hearing an
application to set aside an award under the Act is precluded from reviewing even
indirectly the merits of the award since set-aside is no longer possible for errors of
law or fact.
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; ...46

45 1999 (9) SCC 283.


46 Ibid.
Gujarat National Law University

Analysis of Section 34 of the Arbitration and Conciliation Act:


Setting Aside of Arbitral Award and Courts Interference

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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. In fact, the Courts 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 socalled error apparent on the face of record test as an all weather solution. 47
However, such a solution is unnecessary given the exhaustive nature of the grounds
given in Section 34.

BIBLIOGRAPHY
I.

BOOKS REFERRED

a. Avtar Singh (2007) Law of Arbitration and Conciliation, Lucknow: Eastern


Book Company.
b. O.P. Malhotra, The Law and Practice of Arbitration and Conciliation (New
Delhi: Lexis Nexis Butterworths, 2002).
c. P.C. Markanda, Law Relating to Arbitration and Conciliation, 2001,
Wadhwa Publishers.

II.

WEBSITES REFERRED

47 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.
Gujarat National Law University

Analysis of Section 34 of the Arbitration and Conciliation Act:


Setting Aside of Arbitral Award and Courts Interference
a. http://indiankanoon.org/doc/732196/
a. Last accessed on 20 March, 2014

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