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Grounds for challenge to Arbitral Award

Section 34 of Arbitration and Conciliation Act 1996


Application for setting aside arbitral award.
(2) An arbitral award may be set aside by the Court only if(a) the party making the application furnishes proof that(i) a party was under some incapacity, or
(ii) 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; or
In Case of Delhi Development Authority vs M/S. R.S. Sharma & Co. (2008)13SCC80
The following principles emerge:
(a) An Award, which is
(i) contrary to substantive provisions of law ; or
(ii) the provisions of the Arbitration and Conciliation Act, 1996 ; or
(iii) against the terms of the respective contract ; or
(iv) patently illegal, or
(iv) prejudicial to the rights of the parties, is open to interference by the Court under Section
34(2) of the Act.

(b) Award could be set aside if it is contrary to : (a) fundamental policy of Indian Law; or
(b) the interest of India; or
(c) justice or morality;
(c) The Award could also be set aside if it is so unfair and unreasonable that it shocks the
conscience of the Court.

(d) It is open to the Court to consider whether the Award is against the specific terms of contract
and if so, interfere with it on the ground that it is patently illegal and opposed to the public policy
of India.

(iii) 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; or
Sulaikha Clay Mines Vs .M/s. Alpha Clays & Another AIR2005Ker3
(iv) 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: Provided that, 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;
or
R.S. Jiwani Vs. Ircon International Ltd., A Government of India
AND

Appellants: Hathway Cable and Datacom Private Limited A company registered under the
Companies Act, 1956 and Vision India Network Private Limited Vs.Respondent: Mr. V.G. Selvan
AND
Appellants: Victor G. Selvan Vs. Respondent: Hathway Cable and Datacom Private Limited
(formerly known as Chicks Display Services Pvt. Ltd.) A company registered under the
Companies Act, 1956 and Vision India Network Private Limited, A company registered under the
Companies Act, 1956
2010(1)BomCR529

(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance
with the agreement of the parties, unless such agreement was in conflict with a provision of
this Part from which the parties cannot derogate, or, failing such agreement, was not in
accordance with this Part; or
Sulaikha Clay Mines Vs .M/s. Alpha Clays & Another AIR2005Ker3
(b) the Court finds that-

(i) the subject- matter of the dispute is not capable of settlement by arbitration under the
law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India. Explanation.- Without
prejudice to the generality of sub- clause (ii), it is hereby declared, for the avoidance of any
doubt, that an award is in conflict with the public policy of India if the making of the
award was induced or affected by fraud or corruption or was in violation of section 75 or
section 81.
The UNCITRAL Model Law Commission stated in its report[15] that the term public policy
comprises fundamental principles of justice. It was understood that the term public policy
which was used in the 1958 New York Convention and many other treaties, covered fundamental
principles of law and justice in substantive as well as procedural respects. Thus, instances such as
corruption, bribery, or fraud and similar serious cases would constitute a ground for setting aside
an award.
In the case of Renusagar Power Plant Co. Ltd. Vs. General Electric Co AIR1994SC860, the court
in view of the absence of a workable definition of international public policy found it difficult
to construe the expression public policy in Article V(2)(b) of the New York Convention to
mean international public policy as it could be, construed both in narrow or wide sense. In the
Renusagar case, it has been observed: It is obvious that since the Act is calculated and designed
to subserve the cause of facilitating international trade and promotion thereof by providing for
speedy settlement of disputes arising in such trade through arbitration, any expression or phrase
occurring therein should receive, consisting with its literal and grammatical sense, a liberal
construction.
The Supreme Court, while construing the term public policy in Section 7(1)(b)(ii) of Foreign
Awards (Recognition and Enforcement) Act, applied the principles of private international law
and held that an award would be contrary to public policy if such enforcement would be contrary
to (i) fundamental policy of Indian law; or (ii) the interests of India; or (iii) justice or morality.
The trend in India is similar to that in England i.e. public policy could be interpreted in a narrow
sense and a broad sense.
The decision of the two judges Bench in Oil & Natural Gas Corporation Ltd. v. SAW Pipes Ltd.
AIR 2003 SC 2629 has bypassed the ruling of the three judges Bench of Supreme Court in the
Renusagar case.
The Supreme Courts judgment in this case expanded the concept of public policy to add that the
award would be contrary to public policy if it was patently illegal. The Supreme Court
distinguished SAW Pipes case[21] from that of Renusagar on the ground that the Renusagar
judgment12 was in context of a foreign award, while the ratio of SAW Pipes[22] would be
confined to domestic awards only. And in the name of public policy, the court went on to re-

appreciate the question of facts, mixed question of fact and law and pure question of law, which
is most undesirable in international commercial arbitration, as it would lead to uncertainty, a
factor which no businessman in international business transaction would like to have.
FOREIGN ARBITRAL AWARD
The Act of 1996 does not provide for challenge for foreign arbitral award specifically. Although
Section 48 and more particularly Section 48(1)(e) read with other substantive provisions makes it
abundantly clear that although it is not permissible to challenge a foreign award, it could be
resisted in its enforcement on the same grounds as are available while challenging a domestic
award. While a bare reading of Section 48(1)(e) would demonstrate that a foreign award can be
challenged in a country in which it was made or the country under law of which it was made.
The most recent decision of the Supreme Court on the subject of setting aside an award on the
ground of public policy under Section 34 is Venture Global Engineering Vs. Satyam Computer
Services Ltd. AIR2008SC1061. Based on the earlier judgment in Bhatia International
AIR2002SC143, the Supreme Court held that it is open to the parties to exclude the application
of the provisions of part I by express and implied agreement, failing which the whole of part I
would apply. Further, it held that to apply Section 34 to a foreign award would not be
inconsistent with Section 48 of the 1996 Act, or any other provision of part II and that the
judgment-debtor cannot be deprived of his right under Section 34 to evoke the public policy of
India, to set aside the award. Thus, the extended definition of public policy cannot be bypassed
by taking the award to foreign country for enforcement.
India's Arbitration and Conciliation Act, 1996 provides a statutory framework for the
enforcement of foreign arbitral awards given in countries which are signatories to either the 1927
Convention on the Execution of Foreign Arbitral Awards (Geneva Convention) or the 1958
Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York
Convention).
One of the prerequisites for the enforcement of a foreign arbitral award in India's courts is that it
should be a foreign award under the Geneva Convention or the New York Convention.
In the case of Bhatia International vs Bulk Trading, AIR 2002 SC 1432, the Supreme Court held
that an arbitration award not made in a convention country will not be considered a foreign
award and, as such, a separate action will have to be filed on the basis of the award.
Enforceable awards
There are several requirements for a foreign arbitral award to be enforceable under the AC Act.

(i) Commercial transaction: The award must be given in a convention country to resolve
commercial disputes arising out of a legal relationship. In the case of RM Investment & Trading
vs Boeing, AIR 1994 SC 1136, the Supreme Court observed that the term "commercial" should
be liberally construed as having regard to manifold activities which are an integral part of
international trade.
(ii) Written agreement: The Geneva Convention and the New York Convention provide that a
foreign arbitral agreement must be made in writing, although it need not be worded formally or
be in accordance with a particular format.
(iii) Agreement must be valid: The foreign award must be valid and arise from an enforceable
commercial agreement. In the case of Khardah Company vs Raymon & Co (India), AIR 1962 SC
1810, the Supreme Court held that an arbitration clause cannot be enforceable when the
agreement of which it forms an integral part is declared illegal.
(iv) Award must be unambiguous: In the case of Koch Navigation vs Hindustan Petroleum
Corp, AIR 1989 SC 2198, the Supreme Court held that courts must give effect to an award that is
clear, unambiguous and capable of resolution under Indian law.

Unenforceable awards
Under sections 48 and 57 of the AC Act, an Indian court can refuse to enforce a foreign arbitral
award if it falls within the scope of the following statutory defenses:
(i) the parties to the agreement are under some incapacity;

(ii) the agreement is void;

(iii) the award contains decisions on matters beyond the scope of the arbitration agreement;

(iv) the composition of the arbitral authority or the arbitral procedure was not in accordance with
the arbitration agreement;

(v) the award has been set aside or suspended by a competent authority of the country in which it
was made;

(vi) the subject matter of dispute cannot be settled by arbitration under Indian law, or

(vii) the enforcement of the award would be contrary to Indian public policy.