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CONCEPT OF ARBITRAL AWARD – BRIEF INSIGHT

The term “arbitral award” is defined under section 2(1)(c) of the Arbitration and Conciliation Act. An award is a conclusive decision reached by the arbitrators regarding a particular aspect of a claim that was brought up during the arbitration. To put it simply, the decision of the arbitrator is final and must be followed by both parties. A person who is selected to arbitrate or settle a dispute that has been brought up between two or more parties is known as an arbitrator. An argument or disagreement can be settled by a procedure known as arbitration when those involved on both sides of a disagreement give their case to an impartial third party. The entire arbitration proceeding is documented in the award. It’s like a judicial ruling that settles all the issues in a case after the judge has carefully evaluated all the evidence presented to them.

The arbitral tribunal is required to issue its award in disputes that are not subject to international commercial arbitration within a period of twelve months from the date on which the party’s respective pleadings have been resolved under section 29A.

Section 30 of the act provides for settlement of the dispute. With the parties’ consent, the arbitral tribunal may employ mediation, conciliation, or other measures to facilitate settlement at any moment during the arbitral procedures. If the parties are able to resolve their dispute during arbitration, the arbitral tribunal will issue an award which has the same status as an arbitral award.

According to the provisions of Section 31 of the Act, the arbitral award must be in writing and must have the signatures of each member of the arbitral panel. Because of this, the only time an award is fully binding and final is once all the arbitrators have signed it. Unless the parties agree otherwise, it must specify the rationale behind the award. Reasoning is the bridge between the underlying evidence and that conclusion. The 1996 Act emphasizes the reasoned awarded so that the parties and reviewing courts comprehend the facts as well as the general line of thinking that the arbitrator used to conclude that this was the deciding factor. At any point throughout the arbitral procedure, the arbitral tribunal is authorised to issue an interim award pursuant to section 31(6). However, in most cases, this authority is only exercised once the parties have moved past the stage of filing a claim statement and defence statement with the arbitral tribunal.

SETTING ASIDE OF ARBITRAL AWARD- A LEGISLATIVE APPROACH

Whenever an arbitral award is handed down that rule in favour of one of the disputing parties, they look for ways to overturn the decision. Only the reasons that are specified in section 34 of the act can result in the nullification of an award. The award either in its entirety or in part, may be modified in some ways as a result of setting aside.[1]

Observable characteristics of section 34 are as follows:

1. It forbids the use of any other challenge to an arbitral award than the one described in subsection (1).
2. According to subsection (2) of section 34, it limits the bases on which an award can be challenged, including

• When the party is under some incapacity or the agreement is invalid- The court ruled in the State of P. v. Allied Construction[2] that the legislation to which the parties have submitted an agreement is the test for its legitimacy. In the absence of any such evidence, the legality would be evaluated per the applicable law.
• Proper notice was not given to parties making the application – The court in Dulal Podda v. Executive Engineer, Dona Canal Division[3] found that an ex parte award granted by an arbitrator appointed at the appellant’s request without providing notice to the respondent was invalid and can be set aside
• The arbitral tribunal’s composition was not according to the agreement made by the parties.
• If the arbitrator’s award goes outside the parameters of the case, the decision might be vacated. An issue that was being addressed as part of a writ petition was sent to arbitration in the case of Rajinder Kishan Kumar v. Union of India.[4] The writ petition did not request monetary damages for the land’s potential being diminished due to the other party’s effluent and slurry discharges. The opposite side discharged effluents and sludge into the land, causing devastation. The decision to grant such compensation was found to go beyond the scope of the reference and was therefore subject to review for reversal.
• It allows for the award to be sent back to the arbitral tribunal so that any problems with it can be fixed.

3. Subsection (3) states that an application for setting aside a judgment may be submitted within a period that is considered to be quite short.

The Appellant petitioned the Learned Single Judge of the Bombay High Court to set aside the award under Section 34 of the Act, contending that the matters before the Arbitral Tribunal were not arbitrable since they were not within the scope of the arbitration clause in the Agreement.

For example, in Union of India v. Popular Construction Company[5], it was unclear whether or not an application contesting an award under Sec. 34 would be subject to the time limits set by Section 5. This issue was raised since it wasn’t apparent whether or not the time limits specified in subsection (c) of section 5 of the limitation act would apply. The legislative history, intent, and anticipated results were all considered by the court when reaching its decision. Following subsection (2) of section 29 of the limitation act, it was determined that this phrase related to an express exclusion that would exclude the application of subsection (5).

According to the terms of the act, the arbitral tribunal judgement may be overturned if it runs counter to the general direction of the public policy in India. The act does not include a definition for the phrase “public policy”. According to the definition, public policy is “a set of principles following which communities need to be regulated to achieve the good of the entire community or public”.[6] This is a relatively straightforward way of putting what is a complex concept into words. A broad meaning was ascribed to the concept of “public policy” in the supreme court’s most recent decision which was rendered in the case of ONGC v. Saw Pipes.[7] The court concluded that there is no need to give a restricted meaning to the phrase “public policy of India” in a case where the legitimacy of an award is being contested. On the other hand, a broader interpretation is required for the illegitimate award that was handed out by the tribunal to be overturned.

 

APPEALABLE ORDER

Section 37 of the Arbitration and Conciliation act states provisions regarding the appealable orders. The right to appeal is a legal provision and it cannot be expanded via implication since an appeal is a statutory creation. The basis for appeal does not rest on every single order that was handed down by the arbitration panel. Only some kinds of orders are subject to appeal, and only to the precise listed under section 37 of the act.

Only the court orders listed below, as specified in subsection (1) of Sec. 37 of the Arbitration and Conciliation Act of 1996. In subsection (1), there are three subsections: (a), (b), and (c). In accordance with section 8 of the act and subject to the provisions of section 8 of the act, subsection (a) addresses an order of the court to either refer the parties to the arbitration or the court’s decision not to refer the parties to the arbitration. The phrase “and from no others” makes it abundantly obvious that the legislature intended for there to be no other grounds for appeal before an appellate court than those pertaining to the directives specified in section 37.

Sub-clause (b) states that if a court grants any measure or decides not to grant any interim measure then the appeal shall lie under section 9. Whereas sub-clause (c) talks about parties’ right to appeal when the court under Sec. 34 sets aside an arbitral award or the court’s denial to set aside the same.

Sub-section 2 of the act states about the appeal contesting the admissibility of a plea for lack of jurisdiction. A court may hear an appeal from an arbitral tribunal’s decision to accept a plea under subsection (2) or (3) of section 16. A tribunal’s ruling on its jurisdiction is not an interim award. Nevertheless, if a claim of lack of jurisdiction is recognised by the tribunal, section 37 of the act permits an appeal of the order.

Sub-clause (b) of sub-section 2 states a court may hear an appeal from an arbitral tribunal’s ruling granting in denying an interim remedy under section 17.

A “second appeal” from an order that has been handed down in appeal is specifically forbidden under sub-section 3 of the Act, except for an appeal to the Supreme Court. The provisions of Article 133 of the Constitution of India are not altered in any way as a result of this section. As long as the requirements of the article are met, a person will be able to appeal the decision to India’s highest court, the Supreme Court.

 

SECTION 37 VIS A VIS SECTION 34

According to what was stated above, Section 37 grants the ability to appeal to either party in specific scenarios where the court issues an order. Specifically, appeals to a court order issued under section 34 are the topic of discussion in subparagraph 1(c) (Recourse for an arbitral award.). This demonstrates that there is a connection between the two sections since in this situation, for there to be an appeal, there needs to be a decree from the under 34. If there isn’t already an order in place, there can’t be an appeal. However, even for an appeal to be valid, it cannot address the merits of the award. It is a known fact and principle that, in the field of arbitration that an appeal under section 37 can only be made regarding the law and the facts. This is further enumerated in the case of MMTC Ltd. V. Vedanta Ltd.[8] –

The Respondent, M/s Vedanta Ltd., has filed an arbitration claim with the Appellant, MMTC Ltd., seeking payment for goods that the Respondent sold to Hindustan Transmission Products Ltd. (“HTPL”) via the Appellant, according to the terms of an agreement between the parties dated 14 December 1993 (“Agreement”). The Arbitral Tribunal, by majority judgement dated 27 June 2001 (“Award”), among other things, granted the claims of the Respondent and ordered the Appellant to pay the same with interest.

The Appellant submitted a petition to the Learned Single Judge of the Bombay High Court following Section 34 of the Act to have the award overturned. In the petition, the Appellant argued, among other things, that the disputes that were brought before the Arbitral Tribunal could not be arbitrated because they did not fall under the purview of the arbitration clause that was included in the Agreement. After reviewing all of the evidence and paperwork, the Learned Single Judge issued an order on August 5, 2002, rejecting the challenge, the Appellant simply raised the premise that the disputes before the Arbitral Tribunal were not arbitrable in their challenge to the order issued by the Learned Single Judge. By ruling dated February 9, 2009, the Division Bench declined to review the Appellant’s request for a review of the Learned Single Judge’s decision and instead rejected the appeal.

Accordingly, the Appellant filed a Civil Appeal with the Supreme Court of India challenging the aforementioned judgement from the Division Bench of the Bombay High Court dated 9 February 2009.

Considering the Arbitration and Conciliation (Amendment) Act, 2015 (“2015 Amendment”), the Supreme Court examined the existing position of law concerning the scope of interference with an arbitral ruling in India under Sections 34 and 37 of the Act. After examining the scope of judicial interference, the Supreme Court ruled that it cannot exceed the limitations outlined in Section 34 and hence cannot replace the judgement reached by the Arbitral Tribunal with its finding. By way of clarification, the Court’s powers under Section 37 are limited to verifying that the High Court’s powers under Section 34 have not been exceeded. The Court, therefore, determined that it lacked the jurisdiction to evaluate the award on its own.

The Supreme Court further noted that it must exercise extreme caution and move slowly to disturb concurrent conclusions if an arbitral award has been confirmed under Section 34 and then in an appeal under Section 37.

In light of the foregoing, and after considering the evidence in the record on the question of the arbitrability of the disputes, the High Court, in exercising its powers under Sections 34 and 37 of the Act, confirmed the Award and found that it was a reasonable interpretation of the Agreement and the evidence presented. Therefore, the Supreme Court did not hear the Appellant’s civil appeal and dismissed the Award.

One of the only exceptions to this rule was enumerated in the case of Sarkar and Sarkar v. State of West Bengal,[9]

A correct decision was made by the Calcutta High Court in Sarkar and Sarkar v. State of West Bengal, wherein it was held that the role of the court which has appellate jurisdiction, under Sec. 37(2)(a) is to evaluate the decision made by the tribunal in accordance with Section 16 about the legality of the arbitration agreement, whether it is factually and legally correct, as well as the arbitrability of the matter at hand. In addition, it was concluded that in contrast to Section 34 when read in conjunction with Section 37, the court’s authority in its function as a first appellate court is not limited in any way. This decision was made in light of the fact that the court is the first appellate court. As a consequence of this, it gives power to the court to evaluate all the aspects of the case. As a consequence of this, the court is in a position to decide whether or not the interpretation of an arbitration clause offered by an arbitrator is accurate. The fact that India’s highest court, the Supreme Court, upheld the decision that was issued by the Calcutta High Court in 2018 makes this development much more significant.

CONCLUSION

This decision establishes the law as it stands, as it has been repeatedly ruled in precedent that courts must exercise judicial restraint when using their jurisdiction under Sections 34 and 37 of the Act unless the conclusions of the Arbitral Tribunal are prima facie perverse or unconstitutional. The Court made its decision because it is well-established by precedent that judges should be cautious when applying the Act’s Sections 34 and 37. In reality, the Act was amended in 2015 to make it clear that an arbitral judgement cannot be reversed due to a mistake in the application of law or a different interpretation of the facts. This rule went into effect on January 1, 2016. There can be no revaluation of the evidence or the merits of the dispute, as the Supreme Court correctly concludes, thus the conclusions in the arbitral decision cannot be reviewed. The Supreme Court reached this decision by considering the whole scheme of the provisions found in Sections 34 and 37 of the Act, as well as the 2015 Amendment, both of which seek to limit the Court’s supervisory function. The purpose of these provisions and amendments is to prevent courts from interfering with arbitration proceedings to the extent that they undermine the expediency and finality that such procedures offer as a means of alternative dispute settlement. The right to appeal is universally recognised as an invaluable legal right. Indian legal system, in particular, provides vast powers of appeal thus, ensuring that the interests of aggrieved litigants are safeguarded. However, the setup does have side effects which can be problematic for speedy disposals of disputes. This could be particularly alarming in arbitration as speedy disposal of disputes is one of the many factors that make commercial arbitration so popular. Supreme Court has acknowledged this perspective while dealing with appeals arising out of International Commercial Arbitrations under Sec. 50 of the Act. In this light, the court has rightly cemented the legal position surrounding the scope of an appeal under Sec. 37 of the Act. 

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Written by- Shreya Sharma

[1] Alan Redfern and Martin Hunter, Law and Practice of International Commercial Arbitration, London: Sweet and Maxwell, January 17, 2008

[2] State of U.P. v. Allied Construction (2003) 7 SCC 396

[3] Dulal Podda v. Executive Engineer, Dona Canal Division (2004) 1 SCC 73

[4] Rajinder Kishan Kumar v. Union of India AIR (1999) SC 463

[5] Union of India v. Popular Construction Company (2001) 8 SCC 470 (India)

[6]Aishwarya Padmanbhan, Analysis of Section 34 of the Arbitration and Conciliation Act – Setting Aside of Arbitral Award and Courts’ Interference: An Evaluation with Case Laws, In Manupatra,  on January 1, 2011

[7]  ONGC v. Saw Pipes 2003 (5) SCC 705 (India)

[8] MMTC Ltd. V. Vedanta Ltd (2019) S.C.C. SC 220(India)

[9] Sarkar and Sarkar v. State of West Bengal (2018) 12 S.C.C. 736 (India)