Section 34 of the Arbitration and Conciliation Act, 1996 (Act) provides for setting aside of an arbitral award by making an application to the Court, on the grounds stated therein. It would not be wrong to say that section 34 of the Act has evolved since 1996 to what we read today. This evolution can be traced through the following judgments and the amendments that eventually occurred.
1. Interpretation of Public Policy under section 34.
Section 34 (2)(b)(ii) states that a Court may set aside an arbitral award if it finds that the award is in conflict with the public policy of India. The concept has witnessed a great change starting in the year 1996.
i. Renusagar Power Co. Ltd. v General Electric Co. 1994] AIR 860 (SC)
The apex court here held that an award against public policy would be an award that was passed in contravention of “(i) fundamental policy of Indian law; or (ii) the interests of India; or (iii) justice or morality”.
ii. In ONGC Ltd v Saw Pipes Ltd. [2003] 5 SCC 705
The Court held that in case of an application u/s 34 to set an award aside, the role of the Court was similar to an appellate/revision court, therefore, it had wide powers. Further, the Court also added a new ground – patent illegality to the grounds enumerated in Renusagar Power Co. Ltd; under which the arbitral award could be set aside.
“Therefore, in our view, the phrase ‘Public Policy of India’ used in Section 34 in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest has varied from time to time. However, 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/judgment/decision is likely to adversely affect the administration of justice.”
iii. Further the court expanded the scope of ‘Public Policy’ ONGC Ltd v Western GECO Ltd. [2015] AIR 363 (SC)
In this judgment the three judge bench after considering the judgment in Saw Pipes Case, noted that the judgment was silent on the meaning of “fundamental policy of Indian Law”. The court interpreted the ‘Fundamental policy of Indian Law’ and laid down three distinct and fundamental juristic principles that must necessarily be understood as a part and parcel of the Fundamental Policy of Indian law. The first being the “judicial approach” the second being the principles of natural justice and lastly every decision must be based on some rational and should not be perverse and irrational.
This judgment expanded the scope of ‘Public Policy’ under section 34 of the Act.
iv. Later in Associate Builders v Delhi Development Authority [2015] AIR 620 (SC)
The apex court while again interpreting on public policy held that an award can be challenged on the said grounds and can be set aside if an award could be set aside under the ground of justice when the “award” would be such that it would shock the conscience of the Court. Further, an award against morality was considered to be something that was against the mores of the day that would shock the conscience of the Court.
Court further pointed that a court does not sit in appeal over the award of an Arbitral Tribunal by reassessing or re-appreciating the evidence. An award can be challenged only under the grounds mentioned in Section 34(2) of the Act. Court further added that in the absence of any ground under Section 34(2) of the Act, it is not possible to re-examine the facts to find out whether a different decision can be arrived at. Thus,It is with this very important caveat that the two fundamental principles which form part of the fundamental policy of Indian law (that the arbitrator must have a judicial approach and that he must not act perversely) are to be understood.
v. The remarkable Amendment brought in the year 2015.
The amendment brought in the year 2015 witnessed some changes in the concept of Public Policy under section 34 of the Act. The changes were suggested by the 246th Report of the Law Commission of India. These changes were aimed at restricting Courts from interfering with arbitral awards on the ground of “public policy.” Accordingly, the amendment added “Explanation 2” to section 34(2) as well as Section 2A. Explanation 2 of section 34(2) states –
“For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian Law shall not entail a review on the merits of the dispute.”
Similarly, section 2A provides as follows:
“An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiate by patent illegality appearing on the face of the award:
Provided that an award shall not be set aside merely on the ground of an erroneous application of law or by reappreciation of evidence.”
The Amendment curtailed the scope provided in the ONGC Ltd v Saw Pipes Ltd. [2003] 5 SCC 705 and gave a completely new meaning to public policy.
However, very recently the concept enunciated in the 2015 amendment again saw some significant interpretation by the court in the following cases:
vi. Venture Global Engineering LLC and Ors v Tech Mahindra Ltd. and Ors [2017] 13 SCALE 91 (SC)
The court while deciding it held that:
“The Award of an arbitral Tribunal can be set aside only on the grounds specified in Section 34 of the AAC Act and on no other ground. The Court cannot act as an Appellate Court to examine the legality of Award, nor it can examine the merits of claim by entering in factual arena like an Appellate Court.”
vii. Again in Sutlej Construction v. The Union Territory of Chandigarh [2017] 14 SCALE 240 (SC) held that the same as held in Venture Global.
viii. In M/S Lion Engineering Consultants v State of M.P. & Ors. Civil Appeal NOS. 8984-8985 OF 2017
The court held that, “In our considered view, the public policy of India refers to law in force in India whether State law or Central law. Further, the court held that there is no bar on plea of jurisdiction being raised by way of an objection under Section 34 of the Arbitration Act, 1996 even if no such objection was raised under Section 16.”
2. No requirement to lead evidence under Section 34 of Arbitration Act, Supreme Court
i. Sandeep Kumar v. Dr. Ashok Hans, (2004) 3 Arb LR 306, wherein the High Court of Delhi held that there is no requirement under the provisions of Section 34 for parties to lead evidence. The record of the Arbitrator was held to be sufficient in order to furnish proof of whether the grounds mentioned in Section 34 had been made out.
ii. Sial Bioenergie v. SBEC Systems, AIR 2005 Del 95 wherein the High Court of Delhi inter alia held:
“…the whole purpose of the 1996 Act would be completely defeated by granting permission to the applicant/JD to lead oral evidence at the stage of objections raised against an arbitral award. The 1996 Act requires expeditious disposal of the objections and the minimal interference by the Court…
.. At the stage of the objections which are any way limited in scope due to the provisions of the Act to permit oral evidence would completely defeat the objects underlying the 1996 Act. The process of oral evidence would prolong the process of hearing objections and cannot be countenanced…”
iii. Fiza Developers & Inter-Trade Pvt. Ltd. v. AMCI (India) Pvt. Ltd. and Anr., (2009) 17 SCC 796, the Supreme Court dealt with the question whether issues as contemplated under the Code of Civil Procedure, 1908 should be framed in challenge to the award under Section 34 of the Act. The Supreme Court inter aliaheld:
“…Applications under Section 34 of the Act are summary proceedings with provision for objections by the respondent-defendant, followed by an opportunity to the applicant to “prove” the existence of any ground under Section 34(2). The applicant is permitted to file affidavits of his witnesses in proof. A corresponding opportunity is given to the respondent-defendant to place his evidence by affidavit. Where the case so warrants, the court permits cross-examination of the persons swearing to the affidavit. Thereafter, the court hears arguments and/or receives written submissions and decides the matter. This is of course the routine procedure. The court may vary the said procedure, depending upon the facts of any particular case or the local rules. What is however clear is that framing of issues as contemplated under Rule 1 of Order 14 of the Code is not an integral part of the process of a proceeding under Section 34 of the Act.”
iv. WEB Techniques and Net Solutions Pvt. Ltd. v. M/s. Gati Ltd. and Anr decided on 2nd may 2012, wherein the High Court of Calcutta after referring to Fiza Developers, held that oral evidence is not required under a Section 34 application when the record before the Arbitrator would show whether the petitioners had received notice relating to his appointment.
The Court also referred to the Arbitration and Conciliation (Amendment) Bill of 2018, being Bill No.100 of 2018, which provides for an amendment to Section 34(2)(a) of the principal Act, and proposes substitution of the words “furnishes proof that”, with “establishes on the basis of the record of the arbitral tribunal that”.
v. Emkay Global Financial Service Limited v. Giridhar Sondhi, Civil Appeal No. 8367 of 2018, decided on August 20, 2018.
Here, the question before the Supreme Court was whether there is any requirement to lead evidence in an application to challenge an award under the Act?
The Supreme Court interpreted the words “furnishes proof” appearing in Section 34(2)(a) in the following words after relying upon all the judgments quoted above:
“An application for setting aside an arbitral award will not ordinarily require anything beyond the record that was before the Arbitrator. However, if there are matters not contained in such record, and are relevant to the determination of issues arising under Section 34(2)(a), they may be brought to the notice of the Court by way of affidavits filed by both parties. Cross-examination of persons swearing to the affidavits should not be allowed unless absolutely necessary, as the truth will emerge on a reading of the affidavits filed by both parties.”
vi. In GTM Builders & Promoters Pvt Ltd. v. Sneh Developers Pvt Ltd O.M.P. (COMM) 10/2016
Whether no particular evidence is required for awarding loss of profits and the same could be awarded by estimating the same at 10%?
The Supreme Court in this matter held that none of the decisions rendered by this court previously can act as authority on this matter. In order to claim for profit or loss one must be able to provide sufficient evidence. And even after producing such evidences it would be left upon the courts to determine the quantum of relief in terms of the profit or loss. However the parties claiming for profit will have to establish that such a contract in the due course and time would have yielded the stipulated claim.
vii. Under What Circumstances Should Parties Be Allowed To Adduce Evidence For Proving Grounds Under Section 34(2)(A)?
Section 34(2) (a) of the Act provides that a Court may set aside an award if the party furnishes proof of the grounds for setting aside the award. In deciding this issue, Supreme Court relied primarily on its earlier decision in Emkay Global, which involved the same issue, and in which the Supreme Court had also taken note of the judgment in Fiza Developers.
Reiterating and following this decision in Emkay Global, the Supreme Court in the present case held that the Respondents had not made out any exceptional circumstances as to why it was necessary for them to lead further evidence for determination of their Challenge Petition. In fact, the District Court had specifically noted that the grounds in the Challenge Petition could sufficiently be proved by way of the evidence as filed in the arbitral proceedings.
Hence Supreme Court Reiterates That Only In Exceptional Circumstances Should Parties Be Allowed To Adduce Evidence For Proving Grounds Under Section 34(2)(A). Also the court held that the proceedings under section 34 is not in the nature of a regular suit but it is merely a summary proceeding.
3. Whether the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “the Code”) can be invoked in respect of an operational debt where an Arbitral Award has been passed against the operational debtor, which has not yet been finally adjudicated upon?
i. K. Kishanv. Vijay Nirman Company, Civil Appeal No. 21824 of 2017, decided on August 14, 2018
Deciding on the above question, Justice Nariman held that filing of a petition under Section 34 of the Act against an arbitral award shows that a pre-existing dispute which culminates at the first stage of the proceedings in an Award, continues even after the Award, at least till the final adjudicatory process under Sections 34 and 37 has taken place. The Court further held that:
“23. We may hasten to add that there may be cases where a Section 34 petition challenging an Arbitral Award may clearly and unequivocally be barred by limitation, in that it can be demonstrated to the Court that the period of 90 days plus the discretionary period of 30 days has clearly expired, after which either no petition under Section 34 has been filed or a belated petition under Section 34 has been filed. It is only in such clear cases that the insolvency process may then be put into operation.
24. We may hasten to add that there may also be other cases where a Section 34 petition may have been instituted in the wrong court, as a result of which the petitioner may claim the application of Section 14 of the Limitation Act to get over the bar of limitation laid down in Section 34(3) of the Arbitration Act. In such cases also, it is obvious that the insolvency process cannot be put into operation without an adjudication on the applicability of Section 14 of the Limitation Act.
…Section 238 of the Code would apply in case there is an inconsistency between the Code and the Arbitration Act. In the present case, we see no such inconsistency. On the contrary, the Award passed under the Arbitration Act together with the steps taken for its challenge would only make it clear that the operational debt, in the present case, happens to be a disputed one.
27. …Even if it be clear that there be a record of an operational debt, it is important that the said debt be not disputed. If disputed within the parameters laid down in Mobilox Innovations Private Limited Kirusa Software Private Limited (2018) 1 SCC 353, an insolvency petition cannot be proceeded with further.”
4. The question raised in this appeal pertains to whether Section 34(5)of the Arbitration and Conciliation Act, 1996, inserted by Amending Act 3 of 2016 (w.e.f. 23rd October, 2015), is mandatory or directory.
i. In State of Bihar v. Bihar Rajya Bhumi Vikas Bank Samiti, Civil Appeal No. 7314 of 2018, Decided on July 30, 2018
The Supreme Court inter alia held that to construe such a provision as being mandatory would defeat the advancement of justice as it would provide the consequence of dismissing an application filed without adhering to the requirements of Section 34(5), thereby scuttling the process of justice by burying the element of fairness. It was further held that the provision is procedural, the object behind which is to dispose of applications under Section 34 expeditiously.
The Court however added that it shall be the endeavour of every Court in which a Section 34 application is filed, to stick to the time limit of one year from the date of service of notice to the opposite party by the applicant, or by the Court, as the case may be. In case the Court issues notice after the period mentioned in Section 34(3) has elapsed, every Court shall endeavour to dispose of the Section 34 application within a period of one year from the date of filing of the said application.
While deciding this issue the justice Nariman also pointed out the correctness of decision by the Bombay and Calcutta High Court on the above matter in Maharashtra State Road Development Corporation Ltd. v. Simplex Gayatri Consortium and Ors., Commercial Arbitration Petition No. 453 of 2017 [decided on 19.04.2018] and Srei Infrastructure Finance Limited v. Candor Gurgaon Two Developers and Projects Pvt. Ltd., A.P. No. 346 of 2018 [decided on 12.07.2018].
5. Arbitration and Conciliation (Amendment) Act, 2015 (the ‘Amendment Act’) is prospective in its operation.
i. BCCI v. Kochi Cricket Pvt. Ltd., (2018) 6 SCC 287
The supreme court here held that the nature of the Arbitration and Conciliation (Amendment) Act, 2015 (the ‘Amendment Act’) is prospective in its operation and held that it shall apply to both arbitral proceedings initiated on or after the commencement of the Amendment Act and even to court proceedings in relation to arbitral proceedings initiated on or after the Amendment Act having coming into force.
6. Independent assessment of the merits of an arbitral award.
i. MMTC Ltd. V/s M/s Vedanta Ltd. Civil Appeal No. 1862 of 2014, Supreme Court of India, 18 February 2019.
Deciding on the issue the SC pointed out that as far as Section 34 is concerned, the position is well settled by now that the Court does not sit in appeal over the arbitral award and may interfere on merits on the limited ground provided under Section 34(2)(b)(ii), i.e. if the award is against the public policy of India. As per the legal position clarified through decisions of this Court prior to the amendments to the 1996 Act in 2015, a violation of Indian public policy, in turn, includes a violation of the fundamental policy of Indian law, a violation of the interest of India, conflict with justice or morality, and the existence of patent illegality in the arbitral award.
The Supreme Court also observed that in case an arbitral award has been confirmed under Section 34 and thereafter in an appeal under Section 37, the Supreme Court must be extremely cautious and slow to disturb such concurrent findings.
On the basis of the above and after appreciating the material on record on the issue of arbitrability of the disputes, the Award, as confirmed by the High Court in exercise of its powers under Section 34 & 37 of the Act, was held to be a possible view based upon reasonable construction of the Agreement and consideration of material on record. Therefore, the Supreme Court declined to interfere with the Award thereby dismissing the civil appeal filed by the Appellant.
7. The question that arose here was that whether in a Section 34 Petition the Court has the Jurisdiction to remand the matter to the Arbitrator?
i. Radha Chemicals v. Union of India Civil Appeal No. 10386 of 2018
In the above matter this Court in a series of judgments culminating in Kinnari Mullick and Another vs. Ghanshyam Das Damani, (2018) 11 SCC 328 held that the court while deciding a Section 34 petition has no jurisdiction to remand the matter to the Arbitrator for a fresh decision. It is, therefore, clear that the learned Single Judge’s judgment is contrary to this judgment as a result of which both the judgments of the Single Judge as well as the Division Bench have to be set aside.
8. Question on the limitation period for setting aside the award.
i. In State of Maharashtra and Ors. v. Ark Builders Pvt. Ltd., (2011) 4 SCC 616,
while following the judgment in Tecco Trichy Engineers case, held that the expression “…party making that application had received the arbitral award…” cannot be read in isolation and it must be understood that Section 31(5) of the Act requires a signed copy of the award to be delivered to each party. By cumulative reading of Section 34(3) and Section 31(5) of the Act, it is clear that the limitation period prescribed under Section 34(3) of the Act would commence only from the date of signed copy of the award delivered to the party making the application for setting it aside.
ii. Anilkumar Jinabhai Patel (D) V Pravinchandra Jinabhai Patel Civil Appeal No. 3313 of 2018 arising out of SLP (C) No.15668 of 2012
The above decision was reiterated and held that Limitation period prescribed under Section 34(3) of the Arbitration Act, 1996 would commence only from the date of signed copy of the award delivered to the party making the application for setting it aside. Further, the court held that Section 31(5) of the Act requires a signed copy of the award to be delivered to each party.
iii. P Radha Bai v Ashok Kumar 2018 SCC Online SC 1670
The court held that Extending Section 17 of the Limitation Act would go contrary to the principle of ‘unbreakability’ enshrined under section 34(3) of the AAC. Also the phrase “but not thereafter” in Section 34(4) of the Act nails the legislative intent of giving “finality” to the Arbitral Award by fixing an “outer boundary period” for challenging an award.
iv. M/s Simplex Infrastructure Ltd. v Union of India 2019 2 SCC 455
The decision of the Delhi HC in which it was held that Section 34 (3) of the Act clearly provides that an application for setting aside an award shall not be entertained if it is made after the time period of three months. The proviso to Section 34 further makes it clear that if the court is satisfied that the parties were “prevented by sufficient cause” from making an application within a stipulated time period of three months, the court may use its judicial discretion, further to extend the period for 30 (90+30)days “but not thereafter”. Thus, it is beyond the cavil that the discretion of the court to permit an application beyond the original period cannot extend beyond 30 days, being the statutory outer limit for exercise of discretion.
9. Whether the Arbitral Tribunal had the jurisdiction to adjudicate the claims (not being Notified Claims)
i. J.G. Engineers Private Ltd. v. Union of India & Another: (2011) 5 SCC 758
The apex court while deciding on the matters excepted from the arbitration agreement held that an award adjudicating claims, which are excepted matters would violate Section 34 (2)(a)(iv) and 34(2)(b) of the Act.
ii. Triune Energy Services Pvt Ltd v. Indian Oil Petronas Pvt LtdO.M.P. (Comm) 5/2016.
The High court relied on the previous judgment in J.G. Engineers Private Ltd. v. Union of India & Another: (2011) 5 SCC 758 by the Hon’ble SC, the court held that an award adjudicating claims, which are excepted matters would violate Section 34 (2)(a)(iv) and 34(2)(b) of the Act. Further, the court held that the Petitioner’s claim for work done could not have been rejected only on the ground that the termination of the contract was legal. The court observed that notwithstanding the legality of the termination of the contract, a contractor is entitled to the value of the work done.
10. Whether an issue determined prior to the final award qualifies as an ‘interim award’.
i. In Indian Farmers Fertilizer Co-operative Ltd. vs Bhadra Products2018 (1) Arb LR 271 (SC).
The apex court held that, an issue is determined prior to the final award, such order qualifies as an “interim award” and in the present case the Order qualified as an interim award as nothing further was left for adjudication in the Application. The Court concluded that the Order has a finality attached to it, therefore the Order qualifies as an award and in turn the petition under section 34 of the Act stood maintainable.
ii. Further in Container Corporation of India v. Taxmaco Ltd., 2009 SCC OnLine Del 1594
The Delhi HC was of the opinion that the tribunal rejecting an application for amendment to the written statement (to incorporate the counter claim) did not constitute an interim award. Distinguishing the ruling, the Court held that seemingly the fact that the application for amendment was moved at a belated stage weighed in on the court therein.
iii. Recently in M/S Cinevistaas Ltd. v. M/s Prasar Bharti OMP (Comm.) 31/2017
Delhi HC held that:
Deciding on the issue whether any amendment made in the statement of claim would amount to interim award. The court relied on Indian Farmers Fertilizer Co-operative Ltd. vs Bhadra Products 2018 (1) Arb LR 271 (SC) the court held that if an issue is conclusively determined prior to the final award, the same constitutes an ‘interim award’. The court observed that the order is not to be construed as a mere procedural order or an order rejecting a technical amendment but in fact a rejection of substantive claims.
11. Can an Arbitral Tribunal Unilaterally change or alter the Contract?
In the very recent judgment of Ssangyong Engineering & Construction Co. Ltd. v. National Highway Authority of India 2019 SCC OnLine SC 677.
The court in this landmark judgment decided on The Supreme Court concluded that the Award applied unilateral Policy Circular unilaterally and substituted a workable formula with a formula which was de-hors the Contract, thereby creating a new contract for the parties. The Supreme Court held that neither can a unilateral addition or alteration of a contract be foisted upon an unwilling party, nor can a party be held liable to perform a bargain it did not enter into. In the circumstances, the Supreme Court concluded that the most basic notions of justice under the ground of public policy had been breached and the conduct of the Respondent shocked the conscience of the court. Finally the apex court held that no such unilateral alteration is allowed as it is against the basic norms of public policy.
12. Whether the Outer Limit of 120 Days to File ‘Section 34’ Application to Set Aside Arbitral Award has been Diluted by 2015 Amendment?
The apex court in the matter of NHAI & Anr. v. Subhash Bindlish & Ors [Judgment dated 14.08.2019 Special Leave Petition (Civil) No(s). 17812/2019] held that the outer limit of 120 days for filing an application to set aside an award under section 34(3) of the AAC Act, 1996 is not diluted by the 2015 Amendment.
Further while deciding on this issue the court also relied on the judgment in Union of India v. M/s Popular Construction Company, the Court held that, after a period of 90 days is over, a further period of 30 days can be condoned but beyond that no power of condonation has been given.
Lastly in the Hon’ble Justices U.U. Lalit & Vineet Saran
“In our considered view, both these provisions stand on different footings. What is provided under Section 34(3) is the outer limit within which the application can be preferred for setting aside the arbitral award. The law laid down on the point by this Court is very clear and, in our view, the subsequent amendment in 2015 would not change the character of the mandate under Section 34(3) of the Act.”
13. Question over an Arbitration clause.
i. Parmeet Singh Chatwal & Ors. v. Ashwani Sahani[Judgment dated February 14, 2020 in OMP 1445/2014]
The arbitration clause written at the bottom in very tiny font was in question before the Delhi HC. The court held that it was very much probable that such a clause would not have been noticed by the party. Moreover the presence of a clause in such a manner does not give rise to Ad-idem. The Court further observed that a vague arbitration clause purportedly providing for institutional arbitration without any specifics about the constitution of the arbitral tribunal or the status of the entity which would purportedly supervise the arbitration, could not be sought to be unilaterally acted upon by a party.
14. Setting aside an arbitral award without considering the documents relevant to the controversy was in question.
i. First Global Stock Broking Private Limited v. Tarun Gupta[Judgment dated 14.01.2020 in FAO (OS) (COMM.) 50/2019]
The Delhi HC while considering the issue of setting aside an arbitral award without considering the relevant documents in question upheld the decision of the arbitral tribunal as such documents being a part of the controversy needs to be duly considered in order to reach to the ends of the justice.
15. In M Anasuya Devi v M. Manik Reddy (2003) 8 SCC 565:
It was held that the award could not be set aside under section 34 for want of stamping and registration. An application for setting aside the award would not lie on any other ground, which is not enumerated in section 34 of Act. The grounds enumerated in section 34 must be adhered while challenging an award.
16. In Anita Garg v M/s Glencore Grain Rotterdam BV (2011) 4 ARB LR 59 (Del), The question relating to the locus standi was dealt in this case where the court observed that Only a party to the arbitration proceedings can file an application for setting aside the arbitral award under section 34 of the Act. An application for setting aside the award filed by one of the partners of a partnership firm is not maintainable where the firm, which was party to the arbitration proceedings, did not challenge the award.
17. Amendment of Application to Set Aside the Award or of Appeal against order Refusing to Set Aside the Award.
i. In State of Maharashtra v Hindustan Construction Company Ltd. (2010) 4 SCC 518.
The Act provides that the application for setting aside an arbitral award under section 34 of the Act must be made within time prescribed under sub-section (3), ie, within months and a further period of 30 days on sufficient cause being shown and not thereafter. However, even after the prescribed time period, incorporation of additional grounds by way of amendment to the application under section 34 will not amount tofiling of a fresh application. The words in clause (b) of section 34(2) “the court finds that” do enable the court, where the application under section 34 has been made within prescribed time, to grant leave to amend the application if the very peculiar circumstances of the case so warrant and it is so required in the interest of justice. The court also held that No new grounds containing new material or facts can be introduced for the first time in an appeal under section 37 of the Act against an order refusing to set aside the award if such grounds were not originally raised in the arbitration petition for setting aside the award. The same was also held by the Bombay High Court in Vastu Finvest & Holdings Pvt. Ltd. v Gujarat Lease Financing Ltd., 2001 (2) ARBLR 315 (Bom).
18. In West Bengal State Warehousing Corporation v Sushil Kumar Kayan (2002) 5 SCC 679. And Bharat Coking Coal Ltd v Annapurna Construction (2003) 7 SCALE 20.
i. If the arbitrator decides a dispute beyond the scope of his reference, or beyond the subject-matter of the reference, or makes an award in complete disregard of the terms of reference or the arbitration agreement, he would be deemed to have acted beyond the scope of reference. In addition to the above, if he ignores or disregards the specific terms of the contract or the law that prohibits a party to raise a claim before the arbitrator, then the award passed by the arbitrator would be in excess of jurisdiction.
19. Excess of jurisdiction by the Arbitrators.
i. Lesotho Highlands Development Authority v Impregilo Spa [2003] 2 Lloyd’s Rep 497
Where the contract (a) identified the currency of account; (b) identified the currency of payment; and (c) specified the proportions of any debt due under the contract which had to be apportioned in different currencies to the different members of an international consortium, and the parties’ agreement was clear on the face of the contract, then the arbitrators ought to interpret the contract in accordance with the currencies that the parties had agreed upon. If not, the arbitrators would be deemed to have exceeded their jurisdiction.
ii. In FCI v Chandu Construction (2007) 4 SCC 697.
The apex court held that The arbitrator cannot find on construction of the contract, an implied term inconsistent with an express term of the contract. The arbitrator derives his authority from the contract and if he acts in disregard of the contract, he acts without jurisdiction
20. Distinction between Error within the Jurisdiction and Error in Excess of Jurisdiction.
i. MSK Projects (India) (JV) Ltd. v State of Rajasthan (2011) 10 SCC 573.
If the arbitrator commits an error in the construction of the contract, it would be an error within his jurisdiction. In case of an error in excess of the jurisdiction, the court can look into the arbitration agreement, whereas in the case of an error within the jurisdiction, the court cannot look into the arbitration agreement unless the agreement is incorporated or recited in the award. In the former case, the court can take into record as evidence the contract and consider whether or not the arbitrator has exceeded its jurisdiction because the nature of the dispute is something that has to be decided outside the award3. Extrinsic evidence is admissible in such cases because the dispute is not something that arises under or in relation to the contract or dependent on the construction of the contract or to be determined within the award. The ambiguity of the award can, in such cases, be resolved by admitting extrinsic evidence. The rationale behind this rule is that the nature of the dispute is something that has to be determined outside and independent of what appears in the award. Such jurisdictional error needs to be proved by evidence extrinsic to the award.
21. In Sikkim Subba Associates v State of Sikkim (2001) 5 SCC 629.
The apex court held that If the award is based upon a proposition of law which is unsound or findings recorded which are absurd or so unreasonable and irrational that no reasonable or right thinking person or authority could have reasonably come to such a conclusion on the basis of the materials on record or the governing position of law to interfere, it would be set aside.
22. Reappraisal of Evidence by the Court.
i. In Olympus Superstructures (P) Ltd v Meena Vijay Khetan (1999) 5 SCC 651.
Re-appraisal or re-appreciating of evidence is not within the jurisdiction of the court when looking at the validity of the award. The exercise of power to reappraise the evidence is unknown to a proceeding for setting aside of an award.
ii. P. R. Shah, Shares and Stock Brokers Private Limited v B.H.H. Securities Private Limited (2012) 1 SCC 594.
A court cannot sit in appeal over the award of an arbitral tribunal by reassessing or re-appreciating the evidence. An award can be challenged only on the grounds mentioned in section 34(2) of the Act. Therefore, in the absence of any ground under section 34(2) of the Act, it is not possible to re-examine the facts to find out whether a different decision can be arrived at.
iii. National Highways Authority of India v Oriental Structural India Pvt. Ltd., 2015 (1) ARBLR 322 (Delhi).
The correctness of the inference drawn by the arbitral tribunal cannot be gone into by the court since such an exercise would entail going through the entire arbitral record and give an opportunity to the parties to address on the inference drawn by the arbitral tribunal. Permitting such an exercise to be undertaken would make section 34 proceeding akin to an appeal.
23. Fact Finding:
i. In National High Authority of India v Italian Thai Development Public Company Limited, 2014 (1) Arb.LR 41 (Delhi) (DB).
A finding of fact cannot be interfered with by the court nor can it come to a different finding of fact. If permitted, it would amount to reappraisal of the evidence and/or materials before the arbitral tribunal. A finding of fact by the arbitral tribunal even if erroneous shall not be interfered with by the court unless there is something manifest on the face of the award that is so grave as to move the conscience of the court that the error would result in a monumental miscarriage of justice.
24. Jurisdiction of court under section 34.
i. In State Trading Corporation of India v Toepfer International Asia Pte. Ltd. 2014 (3) Arb. LR 105
(Delhi) (DB).The legislative intent in section 34 was to make the result of the annulment procedure prescribed therein potentially different from that in an appeal. Laying down the distinction between “annulment” and an “appeal”, the court observed:
“7… The remedy provided in Section 34 against an award is in no sense an appeal. The legislative intent in Section 34 was to make the result of the annulment procedure prescribed therein potentially different from that in an appeal. In appeal, the decision under review not only may be confirmed, but may also be modified. In appeal, the decision under review not only may be confirmed, but may also be modified. In annulment, on the other hand the decision under review only may be invalidated in whole or in part or be left to stand if the plea for annulment is rejected. Annulment operates to negate a decision, in whole or in part, thereby depriving the portion negated of legal force and returning the parties, as to that portion, to their original litigating positions. Section 34 is found to provide for annulment only on the grounds affecting legitimacy of the process of decision as distinct from substantive correctness of the contents of the decision. A remedy of appeal focuses upon both legitimacy of the process of decision and the substantive correctness of the decision. Annulment, in the case of arbitration focuses not on the correctness of decision but rather more narrowly considers whether, regardless of errors in application of law or determination of facts, the decision resulted from a legitimate process.”
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