Law > Civil Laws > Alternate Dispute Resolution > Setting Aside of Arbitration Award (Section 34 of the Arbitration and Conciliation Act)
Arbitration is a procedure in which parties submit present or future disputes, to one or more arbitrators (arbitral tribunal) who make a binding decision on the dispute. In choosing arbitration, the parties opt for a private dispute resolution procedure instead of going to court. The decision given by the arbitral tribunal is called an arbitration award. In this article, we shall study setting aside of arbitration award.
An arbitration award is an instrument embodying the decision of the arbitral tribunal, given after determination in a quasi-judicial manner of matters in dispute between two or more contending parties, referred in pursuance of a valid written arbitration agreement between them providing for such reference giving arbitrators the power to decide and imposing a duty which makes it incumbent upon the parties to obey the decision arising from the submission.
Essentials of Arbitration Award:
- The award must be in writing. (Section 31(1))
- It must be signed by all or majority members of the arbitral tribunal. Reasons for the non-signing of defaulting members should be mentioned in the award. (Section 31(2))
- It must reasonable, legal and possible. (Section 31(3))
- It must have a date and place of arbitration (Section 31(4))
- It must talk about the cost of the arbitration (Section 31(5))
- It must be certain. If it is uncertain, it cannot be enforced.
- It must follow the agreement and not purport to decide matters, not within the agreement. An award outside the agreement is void, and the void award cannot be severed from the rest of the award, the whole award is void.
- It must be final.
- It must dispose-off all the differences submitted to arbitration.
- The award must be reasoned in the circumstances earlier.
Setting Aside of Arbitration Award:
Section 34 of the Arbitration and Conciliation Act 1996 deals with the setting aside of the arbitral award. In order to set aside an arbitral award, individual needs to file an application in court. The court in general accepts an application of challenge only if it comes under the ambit of Sec. 34 only. Prior to filing an application in the court to set aside the award, the party filing the application has to hand over a notice of such filing to the opposite party. Application for setting aside award to the Court as defined in the Act (Principal Civil Court of Original Jurisdiction) should be made within 3 months from the date of receipt of the final award of arbitration. Extension of further 30 days can be given at the discretion of the Court. Section 20 and Section 44 of CPC are applicable. The effect of the order setting aside the arbitral award is that where only a part of the reward is set aside, the rest of the award is final and binding on parties and can be enforced under the Code of Civil Procedure.
Grounds of Setting Aside of Arbitration Award:
The following are the grounds on which an award can be set aside:
- Incapacity of a party.
- Unlawful agreement.
- No notice to the other party.
- Subject matter extent to the scope of the arbitration agreement.
- Formation of Tribunal not as per the agreement.
- Subject matter not under the arbitration law.
- Award in conflict with the public policy of India.
Incapacity of the parties
In case any of the parties is of unsound mind or is minor, then such persons are not bound to act in harmony with any agreement or contract. Therefore, the agreement itself becomes null and void and passing any award in such case can be set aside by the court.
Unlawful agreement
If the contract is unlawful, then the arbitration agreement will also be held to be invalid. All the essential elements of a contract have to accomplish in order for it to become enforceable.
No notice to the other party
A prior notice must be sent to the other party regarding the commencement of the proceedings or of invocation of the arbitral clause of the agreement.
Subject matter extent to the scope of Arbitration Agreement
While formulating an agreement, the parties describe as to what all can be enclosed in the subject matter and what are the disputes that are enclosed under the arbitration agreement. Consequently, only those subject matters can be referred to an arbitral tribunal to resolve the dispute, not any other. If the tribunal acts ultra vires to the agreement, the party affected may file an application in the court and challenge such award.
Formation of the Tribunal not as per the Agreement
In case the Arbitrator is not appointed as per the agreed terms of the agreement or by the parties which has not been followed or any other bureaucratic aspect that was decided earlier in the agreement by the parties has not been followed all the way through, then such affected party may challenge the award in the court to set aside the award.
Subject matter not under the ambit of Arbitration law
There are certain types of matters that are not arbitral in nature like criminal, insolvency or any other public matters. These matters have been unambiguously barred under the purview of arbitration.
Award in conflict with the Public Policy of India
This ground has additional three more explanations, which was added in the 2015 amendment.
- Award through deception or dishonesty.
- In contravention to the fundamental policy of India.
- In disagreement with ethics or integrity.
If a party challenges the award of an arbitral tribunal (under section 34 of the Arbitration Act) by filing an application for the same in the court, just because he has applied would not set aside the arbitral award. The award will be set aside only when the court orders so. The court may put a stay on the arbitral award if it is satisfied that the award is against the principles of justice. The court shall record its reason for doing so.
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