August 17, 2022

THE JURISPRUDENCE OF ADR WITH RELEVANCY TO SECTION 34; DOES PARTIES HAVE RECOURSE AGAINST ARBITRAL AWARD?

By E-Justice India Legal Articles 0 Comments

Author(s) – 1. Sapna Kumari (BA. LL. B 3rd year Amity University, Patna)

2. Shristi Singh (BA. LL. B 3rd year Amity University, Patna)

“Let’s change the vision for resolution; by resolving the dispute through Alternative Dispute Resolution”

ABSTRACT

Disputes, are increasing frequently are resolved through the ADR mechanism. When ADR first emerged, it frequently supported third-party decision-making, therefore it tended to be more advisory or decisional and less facilitative (for example, arbitral forms of ADR were introduced in many jurisdictions before mediation). However, there has been a growing focus recently on the more facilitative ADR approaches that are supported by interest-based or integrative types of negotiation and are based on self-determination principles. The adoption and use of these more facilitative types of ADR, like mediation, vary from nation to country and can be an expression of local cultural. Section 34 of the Act basically aims to reduce Ambiguity of Legal Interpretation is a matter of real concern and relevance in the field of legal interpretation of the reasons for revoking an arbitral award. This provision describes court interference in maintenance. In this regard, the 1940 Arbitration Act and the 1996 Arbitration Mediation Act could not give a particular dimension to the concept of “public policy”, arbitral awards for other reasons, and, as a result, judicial intervention in the field of arbitration. Provided a wide range of opportunities and authority to bring about.

WHAT IS ARBITRATION?

Arbitration has not been defined under Arbitration and Conciliation Act,1996; however, the provision that is Section 2(1)(a) of the said Act is merely a classification that Act covers the institutional as well as the ad hoc arbitration. This definition is basically based on Article 2 clause (a) of UNCITRAL Model Law. According to it “Arbitration” is the means by which the parties to the dispute get the matter settled through the intervention of an agreed third independent person.

According to Halsbury – ‘Arbitration means the reference of the dispute or difference between not less than two parties for determination, after hearing both side in a judicial manner, by a person or persons other than a court of competent jurisdiction.’

So, the basic essential of Arbitration is:

Arbitration clause in Arbitration Agreement to resolve the dispute via arbitration.
Dispute must be between two parties.
Dispute must be arbitrable in nature.
Dispute must be referred to third parties other than a court of competent authority.
Person or persons constituting arbitration are under obligation to resolve the dispute in judicial manner.

KINDS OF ARBITRATION:

Generally, Arbitration is of seven kinds namely:

Ad-Hoc Arbitration: When dispute arises between the parties in course of commercial transaction and not settled friendly by negotiation.
Institutional Arbitration: When there is prior agreement between parties for future disputes arising out of commercial transactions. It has their own rules.
Contractual Arbitration: When there is an arbitration clause as a part of agreement to refer future or existing differences or disputes to a named arbitrator to be appointed.
Statutory Arbitration: Mandatory Arbitration which is imposed on the parties by the operation of law. Parties have no option as such nut to abide by the law of land.
Domestic Arbitration: It simply denotes Arbitration which occurs in India.
International Arbitration: When at least one party is of resident which is outside India or the subject matter is related to a place outside India.
Foreign Arbitration: When Arbitration proceeding is conducted outside India. In such Arbitration a “foreign award” is sought to be enforced.

HOW SECTION: 34 IS IMPORTANT MEANING OF SETTING ASIDE, ARBITRAL AWARD SECTION WITH INTERPRATION AND CASE LAWS:

In spite of all the benefits and conveniences associated with mechanism of arbitration to resolve disputes, one of the main drawbacks of the arbitration process is that the award made by the arbitrator is binding upon the parties and cannot be appealed. It is now when Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the “Act of 1996”) enters the picture and plays a vital role, but within the confines of the law, to save the claimant of the award by giving him the right to challenge the award and allowing the courts’ intervention for setting aside award. The main points of Section 34 of the Act of 1996 can be understood with the aid of this article. Before going into detail about section 34’s complexities.

Section 34. Application for setting aside arbitral award. –

Section 34 of the Act 1996 is modeled on article 34 of the model of this is one of the most important sections of the present act.

Section 34 of the Act 1996 is analogous to section 30 of the Arbitration Act 1940.

Section 34 provides for the ground and circumstances when an arbitral award may be set aside. It empowers the course to review the whole arbitration process followed in a presented case and also to examine to lessen the dignity of it. No prescribed form of an application for setting aside an award is necessary. Though the High Court may prescribe form of such application.

Section 34(1) provides that an application for setting aside the arbitral award may be made to a court, in accordance with sub-section (2) and sub-section (3).

Let’s see Section 34 of arbitration and conciliation act 1960, to set aside the arbitral award there are basically two ways-

By an application for setting aside;
By the Court findings.

Q. What are the grounds on which setting aside can be done?

Basically, there are 6 grounds:

Incapacity of Parties
Invalidity of agreement
Lack of proper notice
Award beyond the scope of reference
Illegality in composition of arbitral tribunal or in arbitral proceeding
Award not get binding.

1. Incapacity of Parties

If one of the parties to the arbitration is unable to protect their interests and is not being represented by someone who can protect their rights, the court may grant an application to set aside the arbitral result. If the court determines that a party to a contract is a minor or an unsound person who is not having a Guardian represent him to protect his interests, the award may be ruled out. A guardian may be appointed to represent a minor who is not of sound mind during the arbitration proceedings, according to Section 9 of the Arbitration and Conciliation Act of 1996.

2. Invalidity of Agreement

The same reasons that are used to challenge a contract’s validity can also be used to challenge an arbitration agreement’s legality. When a contract’s agreement Clause was inserted by the parties, the arbitration will be deemed invalid if the contract is as well.

3. Lack Of Proper Notice

According to section 34(2)(a)(iii), the arbitral award of such proceedings may be set aside if the party involved in a dispute was not given adequate notice regarding the appointment of an arbitrator or any other notification of the arbitration proceedings.

According to Section 23(1) of the Arbitration and Conciliation Act of 1966, the arbitral tribunal must decide when the statement must be filed. In accordance with section 24(2), the parties must be properly notified in advance of any hearing or meeting of the Tribunal for the purpose of inspecting any documents, goods, or other property, among other things.

In Dulal podda V. Executive Engineer, Dona Canal Division Court held that the appointment of an arbitrator at the request of the appellant of the dispute without sending a notice to the respondent and an ex-parte decree given by the arbitration Tribunal will be held illegal and liable for setting aside.

4. Award beyond the scope of reference

The scope of an arbitral tribunal’s authority and jurisdiction is established by the elements of a dispute in an agreement. If the jurisdiction is outside of the purview of the Tribunal, the award would be deemed illegal and subject to reversal to the degree that it exceeds the arbitrator’s jurisdictional authority. A neutral arbiter cannot deviate from the agreement’s provisions.

In Rajendra Krishan Kumar v. Union of India, an arbitration hearing was requested in relation to a writ petition. Because the opposing party released effluents and slurry on that other party’s land, the writ petition makes no claim for compensation for the harm to the land’s perfectibility. The court determined that because the award of any such compensation is outside the purview of reference, it would be subject to set aside.

5. Illegality In Composition Of Arbitral Tribunal Or In Arbitral Proceeding

Section 34(2)(a)(v) lays out that an award can be discarded or challenged if the composition of the arbitral tribunal was not in obedience with the agreement of the parties or if the procedure of conduct of proceedings was not followed properly. If the arbitrator passes a decision of an award which is in deviation from the terms of reference and the arbitration agreement, then this would lead to the award to be set aside and will amount to the misconduct of the arbitrator.

In ONGC Ltd v. Saw Pipe Ltd., the Supreme Court ruled that the arbitral tribunal could not violate certain aspects of substantive law or the Arbitration and Conciliation Act, 1966, while exercising its jurisdiction.

6. The Arbitral award is in conflict with Public Policy of India.

The Arbitration and Conciliation Act ,1996 restrain an Arbitral Tribunal or sole Arbitrator to make any award which is against the Public Policy of India. Various provisions laid down under 1996 Act are briefed here under:-

Section 34 (2) (b)(ii) of the Act says:- that an Arbitral Award may be set aside if the court finds that the arbitral award is in conflict with the Public Policy of India .

Only on these grounds, award may be set aside and onus is on the person filing application that such grounds exist.

Meaning of recourse is a way/alternative available to an aggrieved party if he is not satisfied with arbitral award.

Meaning of set aside is arbitral award and is rejected order treated as invalid so there is a scope for starting the arbitration again or to approach the court.

The court will not accept the award if the parties have acted upon it.

INTERPRETATION OF CASE LAWS:

Vasudeva Ayyar vs. Sundararaja Ayyar

A reference to arbitration by natural and legal guardian of a minor must fulfill following two conditions:

Guardian must not have interest adverse to that of minor.
The friends must be for benefit of minor.

Incapacity of a person: A person who is incapable of looking after his own interest, example minor, unsound mind. Section 9 provides for appointment of guardian and if such provision is not complied with application may be filed. It’s should be in compliance with section 11 of Indian contract act.
Invalidity of agreement: Invalidity of agreement, there should exist two agreements:

Arbitration agreement does not exist (not a ground u/s 34)
If it exists, it is invalid

In both the cases there is patent, lack of jurisdiction. At first place, the objection should be raised at the arbitral tribunal. It may be challenged under section 16. Even if application is not filed under section section16, application may be filed under section 34 directly.

Tarapore & Co V. State of M. P

The plea of invalidity of arbitration agreement is different from non-existence of arbitration agreement. Plea of non-existence of arbitration agreement must be taken before arbitral tribunal itself, if the arbitral tribunal rejects such plea and if only then the plea can be raised in proceeding under section 16 (6).

Lack of proper notice: It is violation of natural justice. It may be challenged on following grounds:

Proper notice of appointment of arbitrator
Proper notice of arbitral proceeding
Otherwise, unable to present his case

4. Award beyond scope of reference: It deals with jurisdiction to deal with a case or to pass arbitral award.

Not contemplated by the reference
Not falling within the terms of reference
It contains a decision in matters beyond the reference

Example. If matter was to be decided on (a) & (b) of a particular agreement but it decided on clause (c) & (d), thus it will be beyond its jurisdiction. If it is possible to separate the part which was beyond the jurisdiction from those within the scope, the part outside the scope will be set aside. If it is not possible to separate the entire award would be set aside.

Illegality in composition of tribunal or arbitration proceedings: Arbitrator lack of qualification, Procedure given in agreement was not followed, the composition of tribunals should be according to agreement. The proceedings should also be in accordance with agreement and if not by agreement by the act.

Grounds under section 34(2) (b): Ex-officio grounds parties need not prove this court will find it.

Subject-matter is not related to arbitration. Example, Criminal proceedings, insolvency etc. even if award is made, it will be set aside because it is not within the Jurisdiction of arbitral tribunal.
Public policy: a. Section 34(2)(b) (ii); b. Section 48(2)(b)- (Foreign Awards)

Definition of public policy is not defined anywhere, no such provision in 1940 act.

Renusagar Power Co. Ltd V. General Electric Co.

Public policy was tried to be defined. The court said that Indian court could be justified in refusing the enforcement of foreign award on three grounds:

Against fundamental policy of Indian law
Against interest of India
Against Morality and justice

The same meaning was made applicable to domestic awards also. Originally, it was referred to for an award under 1961 act.

Oil and Natural Gas Corporation Ltd. V. Saw Pipes Ltd.

Wider meaning of public policy, opened the flood gate. Respondent company agreed to supply casing pipes to the appellant and respondent placed an order for supply of steel plates required for manufacturing quote casing pipes with an Italian supplier. At that time there was a general strike by steel mill worker and thus he said that he would not be able to supply pipes to appellant and asked for extension. The appellant accepted the request to extend the time for execution of order with a stipulation that they will deduct some liquidated damages for delaying the supply as, mentioned in agreement.

At the time of payment of money, the appellant has accordingly made the deduction. This was opposed by respondent. And as there was arbitration clause, matter went to arbitration. In the arbitration proceeding the agreement did not prove that it had suffered any loss due to delay of supply of goods. The arbitral tribunal decided in favor of respondent holding that the amount of liquidation damages was wrongfully deducted.

Matter came before Bombay High Court both single and division bench set aside the application to set aside the arbitral award go to set that the expression “in conflict with public policy of India” could not be interpreted to mean that in case of violation of some provision of law without anything more, the court could set aside arbitral award.

Matter came before Supreme Court the fourth ground of ‘Patent illegality’ was added, in addition to three grounds. The court set aside the arbitral award.

Patent illegality– Something which would go into the roots of the case or something which appears on the face of it. The court said that under section 34, wider meaning should be given and patent illegality should be related.

Supreme Court observed that phrase ‘Public policy’ should be widened, it connotes some matter which concern public good and public interest. Award which is on the face of it patent in violation of statutory provision cannot be said to be in public interest. Such a word is likely to adversely affect the administration of justice and so the award would we set aside if it is patently illegal.

If the illegality goes to the root of the matter, (it would be patent illegal) and mere trivial illegality will not violate the award as being against public policy of India.

Award is against justice and morality.

Supreme Court said that it includes three components:

With regard to justice, the award should not be such that it shocks the conscience of the court
With regard to morality, there can be no universal standard however, Supreme Court observed that both English and Indian courts have restricted the scope of morality to sexual immorality only
With respect to arbitration, it would be a valid ground when the contract is not illegal but against the mores of the day, however held that this could only apply when it shocked the conscience of the court.

Section (2A) ‘Patent illegality’ will only be confined 2 section 34 and will not apply to international commercial arbitration.

Sub- section (3) talks about time period i.e., three months, this may be extended for thirty days for justified reasons.

Sub- section (4) contain that the court will adjourn the proceeding and given an opportunity to arbitral tribunal to resume the proceeding to eliminate the grounds for which the application under section 34 if filed.

Sub-Section (5), when application is to be given under section 34, notice should also be given to other party before giving such application.

Sub-Section (6) speaks about the application part which may be set aside within a period of one year.

In the recent judgement Hon’ble Apex Court while considering the appeals filed by National Highways Authority of India (NHAI) :The Supreme Court observed that, under Section 34 or 37 of Arbitration and Conciliation Act, a Court cannot modify the award passed by the Arbitrator.The option would be to set aside the award and remand the matter, the bench comprising Justices Indira Banerjee and AS Bopanna said.

The bench therefore allowed the appeal by observing thus:

“That being the fact situation and also the position of law being clear that it would not be open for the court in the proceedings under Section 34 or in the appeal under Section 37 to modify the award, the appropriate course to be adopted in such event is to set aside the award and remit the matter to the learned Arbitrator in terms of Section 34(4) to keep in view these aspects of the matter and even if the notification dated 28.03.2016 relied upon is justified since we have indicated that the same could be relied upon, the further aspects with regard to the appropriate market value fixed under the said notification for the lands which is the subject matter of the acquisition or comparable lands is to be made based on appropriate evidence available before it and on assigning reasons for the conclusion to be reached by the learned Arbitrator. In that regard, all contentions of the parties are left open to be put forth before the learned Arbitrator.”

CONCLUSION:

By Concluding the above-mentioned topic, we observed that the legislature’s primary objectives in drafting the Arbitration & Conciliation Act, 1996 were to ease the load on the courts and provide a speedier alternative to resolution. The Amendment Act of 2015 made amendments to Section 34 that have addressed a number of problems and made an effort to reduce court intervention. Both systems must coexist because alternative dispute resolution mechanisms offer an alternative to litigation. Currently, a large portion of the arbitrators are retired judges who are accustomed to applying procedural codes instead than natural justice principles in arbitration. There should be little judicial intervention because the parties to the dispute have opted to go through an arbitral tribunal rather than a court of law. So, that the balance is maintained.