Juris Centre

Arbitration Awards

What is an Arbitration Agreement?

Section 7 of the Arbitration and Conciliation Act 1996 provides an Arbitration agreement. An arbitration agreement is an agreement in which if a dispute arises between two or more parties, they submit the dispute/discrepancies to the unbiased arbitrator(s), who passes an award binding upon the parties. An arbitration agreement shall be in writing between two parties or agreed amicably by the parties.

In M. Dayanand Reddy v. A.P. Industrial Infrastructure Corp. Ltd.[1], this Court has held that: (SCC p. 142, para 8)

“An arbitration clause is not required to be stated in any form. Suppose the parties’ intention to refer the dispute to Arbitration can be ascertained from the terms of the agreement. In that case, it is immaterial whether or not the expression arbitration or ‘arbitrator’ or ‘arbitrators’ has been used in the agreement.”

 In Nandan Biomatrix Ltd. v. D 1 Oils Ltd.[2] The court held that, the Court is required, therefore, to decide whether the existence of an agreement to refer the dispute to Arbitration can be ascertained in the facts and circumstances of the case. This, in turn, may depend upon the parties’ intention to be gathered from the correspondence between the parties, the agreement in question and the surrounding circumstances. It is required to collect the parties’ intentions as to whether they have agreed to resolve the disputes through Arbitration. What is needed to be decided in an application under Section 11 of the 1996 Act is: whether there is an arbitration agreement as defined in the said Act.

In Jagdish Chander v. Ramesh Chander[3], the Court said that an Arbitration Agreement should exist when “There is either a clear indication for the parties to go for Arbitration or a signal via the words that the parties are ready for Arbitration. There should be a common point of view/meeting of mind for the parties to refer to Arbitration. In Rickmers Verwaltung GMBH v. Indian Oil Corp. Ltd[4], the Court took the idea that the Court must construe correspondence to conclude whether there was any meeting of mind between the parties, which could create a binding contract between them. Unless from the post, it can unequivocally and emerge that the parties were ad idem to the terms, it cannot be said that an agreement had come into existence between them through correspondence.”

If the elements of an arbitration agreement are there, there is no boundation for words like “Arbitration”, “Arbitration Clause”, or “Arbitration Agreement” to be present. Merely missing these words does not stop a clause from being an arbitration clause or agreement. Also, suppose terms like “Arbitration”, “Arbitration Clause”, or “Arbitration Agreement” are present. In that case, it is unnecessary that the agreement will be constituted as an arbitration agreement, and the parties shall be referred to for Arbitration. There shall be the consent of the parties for being referred to Arbitration.

Stages of Arbitration

  1. Arbitration Agreement: Two or more parties submit their case to an arbitrator for Arbitration to skip court proceedings. For initiation of proceedings, there must exist an agreement between the parties to refer to Arbitration.
  2. Appointment of Arbitrators: Sections 10 and 11 discuss the selection and number of arbitrators. The arbitrators in a case are selected as per the contract. An arbitrator may be chosen by the parties in the agreement itself. The number of arbitrators must be manageable. If no details about the arbitrators are present, the case shall be referred to one sole arbitrator. Suppose it is agreed by the parties that the number of arbitrators shall be three. In that case, both parties will appoint one arbitrator, and those two will appoint an arbitrator who shall be the presiding arbitrator. If the parties fail to appoint arbitrators, they can refer to the Hon’ble High Court in case of local/national dispute and to the Supreme Court in case of International Arbitration.
  3. Initial or preliminary stage: The arbitrator meets with the disputed parties to resolve the method, place of Arbitration, rules and timing. A “scheduling order” is then passed by the arbitrator, which contains all the details about the initial meeting, i.e., the time, place, rules, etc.
  4. Hearing stage: This is the main stage of Arbitration wherein the parties submit their dispute to the arbitrator(s). The hearings are usually done at the place of Arbitration and, in some cases, done online. Arguments and counter-arguments or replies can be in writing, also known as “Written submission.”
  5. Award stage: This is the final stage of Arbitration. After listening extensively to the parties’ pleadings and arguments, the arbitrator ensures that the principle of ‘Audi Alteram Partem’ is fulfilled and no more evidence is left to be proved, issuing an award to do good to the aggrieved.

Arbitral Award

After the parties submit themselves to Arbitration and the proceedings begin, the arbitrator(s) decide upon a binding award for the parties. The award is of a final and compulsive nature, and no further trials are allowed unless it is perverse and comes under the ambit of Section 34 of the Act. The award is as exact and valuable as the Code of Civil Procedure (CPC) decree. In case of any discrepancies, the arbitral tribunal has the power to amend the award within thirty days or as per the time agreed upon by the parties. These powers are vested under section 31 of the Act and provide for the following:

  1. Correct clerical, typographical computation and other errors of the exact nature.
  2. Interpret a specific part(s) if both parties agree.
  3. If the tribunal feels that the above two changes are justified, it can change its decision or correct any discrepancies in the judgement.
  4. Allow the arbitral tribunal to award additional awards if deemed fit.

The award shall be in writing and should be signed by the arbitrator. In case the bench consists of more than one arbitrator, the signature of arbitrators shall be sufficient as long as there is a reason for the omission. There should be a proper justification for an award, and in case there is no adequate justification, the parties can get the award set aside. In State of U. P. v. Combined Chemicals Co. (P) Ltd.[5], the Court held that “the arbitrator was duty-bound to examine the tenability of the claim made by the respondent under different heads and decide the same by assigning some reasons, howsoever briefly. His failure to do so constituted a valid ground for setting aside the award, and the trial court committed a grave error by making the award rule of the Court. Unfortunately, the High Court overlooked this lacuna in recognition and approved the trial court’s judgment.”

The arbitrator need not give reasons for the judgement only if both parties unamicably agree that the grounds are unnecessary or the decision is passed via the procedure mentioned in Section 30.

During the proceedings, the parties can request that the tribunal provide interim relief. This power is vested in section 17 of the Act. As cited in Alka Chandewar v. Shamshul Ishrar Khan[6], the 246th Report of the Law Commission itself submitted that “Under Section 17, the Arbitral Tribunal has the power to order interim measures of protection, unless the parties have excluded such power by agreement. Section 17 is an important provision crucial to the working of the arbitration system since it ensures that even for interim measures, the parties can approach the Arbitral Tribunal rather than await orders from a court.”

The parties can request the tribunal to award interim relief in the form of the following:

  1. A temporary injunction/stay over the disputed property,
  2. Preservation or custody of the disputed goods
  3. Appointment of a guardian for a minor or an insane person
  4. Other reliefs that the tribunal deems fit and necessary

At any time during the Arbitration, the parties shall agree to settle the dispute via mediation, conciliation, or other such methods. Under section 30, the parties can resolve their dispute via mediation. The award decided on settlement shall have the same power and value under section 31 of the Act.

Awards that the arbitrator can grant-

  1. The arbitrator shall grant interest to the parties from date and rates which seem justifiable and compensatory to do good to the aggrieved party.
  2. The arbitrator shall order the award on cost, i.e., the cost of proceedings and the money spent on litigation (Arbitration).
  3. The arbitrator may provide the party with compensation sufficient to help him recover the loss incurred by him.
  4. The arbitrator shall issue any other award he may deem necessary and justifiable.
  5. He may issue injunctive relief prohibiting the parties from doing or compelling them to do something.
  6. The arbitrator may also provide specific relief to the party.

Finality Of Award

The awards passed by the arbitrators are binding and shall also be enforceable by the Court’s action. After the period for applying section 34 has expired or if the Court has rejected the application filed under section 34, it shall only be unenforceable if the Court stays it. The Court in Leela Hotels Ltd. v. Housing & Urban Development Corpn. Ltd.[7], at page 313 held

“Regarding the question as to whether the award of the learned arbitrator tantamounts to a decree or not, the language used in Section 36 of the Arbitration and Conciliation Act, 1996, makes it very clear that such an award has to be enforced under the Code of Civil Procedure in the same manner as it were a decree of the Court. The said language leaves no room for doubt about how the award of the learned arbitrator was to be accepted.”

“In Simplex Infrastructure Ltd. v. Union of India [Simplex Infrastructure Ltd. v. Union of India[8],  the Hon’ble Court held that

“The phrase “but not after that” provided under Section 34(3) of the Act makes it evident that the statutory period of limitation for applying setting aside is three months, which is extendable by thirty days if sufficient cause is made out. No additional time can be granted for applying Section 34.”

Court in P. Radha Bai v. P. Ashok Kumar [P. Radha Bai v. P. Ashok Kumar[9], held that:

 “Once the time-limit or extended time limit for challenging the arbitral award expires, the period for enforcing the award under Section 36 of the Arbitration Act commences. This is evident from the phrase “where the time for making an application to set aside the arbitral award under Section 34 has expired.”

When can an Award be Challenged?

Under section 34 of the Arbitration and Conciliation Act 1996, the parties can apply to set aside the arbitral award. Some significant grounds for setting aside an application shall be:

  1. The point of dispute needs to be appropriately referred to the arbitrator, or the award is more inclusive of the actual conflict. The arbitrators need the power to enlarge the scope of reference.
  2. Something beyond the agreement or contract
  3. Outside the scope and authority of the arbitrator
  4. Impartiality and injustice are defying the principles of natural justice
  5. The matter is not within the jurisdiction of the arbitrator
  6. The award is against the public policy of India
  7. Legal misconduct by the arbitrator
  8. Patent illegality.

In the case of DDA v. R.S. Sharma and Co.,[10] at page 91, the Hon’ble Supreme Court stated that seeing the past few judgements and the decisions of the Hon’ble Courts, it can be interpreted that the awards passed by an arbitrator shall be challenged when:

  1. “An award is
    1. contrary to substantive provisions of law; or
    1. the requirements of the Arbitration and Conciliation Act, 1996; or
    1. against the terms of the respective contract; or
    1. patently illegal; or
    1. prejudicial to the rights of the parties;

 Such awards are open to interference by the Court under Section 34(2) of the Act.

  • The award could be set aside if it is contrary to the following:
    • The fundamental policy of Indian law; or
    • the interest of India; or
    • justice or morality.
    • The award could also be set aside if it is so unfair and unreasonable that it shocks the Court’s conscience.
    • It is open to the Court to consider whether the award is against the specific terms of the contract and, if so, interfere with it on the ground that it is patently illegal and opposed to the public policy of India.

Grounds of Challenged Applicable as of Date:

The case of Ssangyong Engg. & Construction Co. Ltd. v. NHAI[11], changed the whole aspect and angle of the grounds of challenge under section 34 of the Act. The judgement reduced the grounds of challenge. The challenge based on the “interest of India” under section 34 (2)(ii) has now been done away with. This is not a ground to challenge the award as it had a broad meaning and contradicted the goal of introducing arbitration. Standards for application to set aside arbitral award set in as follows:

  1. The award violates the public policy of India (Fundamental policy of the country):

In the case of Lion Engg. Consultants v. State of M.P.[12], the Supreme Court held that “public policy of India” refers to the Central and State laws in force. To achieve the goals of the general public interest, governments and their representatives develop a system of laws, regulations, rules of conduct, and financing priorities. These ways and methods are a part of the public policy of India and are meant for the growth and betterment of the country and its people.  In the case of ONGC v. Saw Pipe[13], the court held that these matters include something of public interest. Any award patently violating the law cannot be found to be in favour of the public interest and thus shall be put aside. [Challenging the award based on the “judicial approach” not being followed is also no longer the ground to challenge as held in the case of Ssangyong Engg. & Construction Co. Ltd. v. NHAI[14]. Public policy can be bifurcated into:

  • Fundamental policy of India: It can be interpreted from the ONGC Ltd. v. Saw Pipes Ltd.[15] judgement that disobeying any statutory law/act or any precedent/order by the Indian Courts shall be violative of the fundamental policy of India.
  • Basic notion of justice and morality: This ground is constituted mainly from Sections 18, 24(3) of the Act. Section 18 particularly talks about the parties being treated equally and without bias. If there is biasness or inclination towards a specific party(s), an application to set aside the judgement shall be moved in the court. This also includes the principles of natural justice and, more specifically, the principle of “audi alteram partem.” The court shall apply its mind and shall pass a reasoned judgement. An award can also be set aside if it is against justice to the extent that it shocks the court’s conscience. Morality should be present in the judgement to ensure fairness and the greater good.
  • Patent illegality:

Patent illegality, a ground mentioned under section 34 of the Arbitration Act, is not defined in the act but has a broad scope.

In Associate Builders Vs Delhi Development Authority[16], the Supreme Court held that there would be only three grounds for filing the application under patent illegality.

  • That the decision passed by an arbitrator is irrational or perverse or both and that a common man would not have had reached to that conclusion, or
  • The decision contravenes the Act in itself shall be liable to be challenged under patent illegality, or
  • The contract and its terms are properly interpreted by the Arbitrator. This implicitly doesn’t mean that if the arbitrator interprets a clause in a certain way which is reasonable, the award shall not be challenged.

[1] (1993) 3 SCC 137

[2] (2009) 4 SCC 495: (2009) 2 SCC (Civ) 227:2009 SCC OnLine SC 298

[3] (2007) 5 SCC 719: 2007 SCC OnLine SC 570

[4] (1999) 1 SCC 1

[5] (2011) 2 SCC 151: (2011) 1 SCC (Civ) 375: 2011 SCC OnLine SC 113

[6] (2017) 16 SCC 119

[7] (2012) 1 SCC 302: (2012) 1 SCC (Civ) 58: 2011 SCC OnLine SC 1477 

[8] (2019) 2 SCC 455: (2019) 1 SCC (Civ) 738

[9] (2019) 13 SCC 445: (2018) 5 SCC (Civ) 773

[10] (2008) 13 SCC 80: 2008 SCC OnLine SC 1298

[11] (2019) 15 SCC 131

[12] (2018) 16 SCC 758

[13] 2003 (5) SCC 705

[14] (2019) 15 SCC 131

[15] (2003) 5 SCC 705

[16] AIR2015SC620, 2014(4)ARBLR307(SC)

Author: Arnav Singhal

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