Recourse against Arbitral Award and Enforcement notes — Unit 4

Arbitration is supposed to be a final and binding alternative to courts. Therefore, you cannot simply 'appeal' an arbitral award just because the arbitrator made a mistake of fact or law. There is no appeal against an arbitral award.

⇒The Only Remedy

Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with Section 34.

⇒No Review on Merits

The Court hearing a Section 34 petition does not sit as an appellate court. It cannot re-appreciate the evidence or substitute the arbitrator's views with its own. It can only annul the award if it falls within the specific, narrow grounds listed in Section 34(2).

The court may set aside the award if the party making the application furnishes proof that:

• (i) Incapacity: A party to the arbitration agreement was under some incapacity (e.g., minor).
• (ii) Invalid Agreement: The arbitration agreement is not valid under the law to which the parties have subjected it.
• (iii) No Notice: The party was not given proper notice of the appointment of an arbitrator or of the proceedings, or was otherwise unable to present his case (Violation of Natural Justice).
• (iv) Beyond Scope: The award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration. (If the arbitrator awards on matters beyond the contract).
• (v) Illegal Composition: The composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties.

(These grounds require the party to actively furnish proof to the court).

The court may also set aside the award if the Court itself finds that:

• (i) Non-Arbitrable Subject Matter: The subject matter of the dispute is not capable of settlement by arbitration under the law for the time being in force. (e.g., Criminal offences, divorce proceedings, insolvency proceedings, or eviction of tenants protected by rent control acts cannot be arbitrated).
• (ii) Public Policy: The arbitral award is in conflict with the public policy of India.

For decades, Indian courts interpreted "Public Policy" extremely broadly (especially in the ONGC v. Saw Pipes case), allowing them to set aside awards simply because they felt the award was legally wrong. This defeated the purpose of arbitration.

To stop this judicial interference, the Parliament amended Section 34 in 2015 to strictly define and restrict 'Public Policy'.

⇒The Strict Definition (Post-2015)

An award is in conflict with the public policy of India ONLY if:

• It was induced or affected by fraud or corruption.
• It is in contravention with the fundamental policy of Indian law. (The court explicitly clarified that reviewing contravention of fundamental policy shall NOT entail a review on the merits of the dispute).
• It is in conflict with the most basic notions of morality or justice.

Along with narrowing Public Policy, the 2015 Amendment added a new sub-section regarding 'Patent Illegality'.

⇒The Ground

An arbitral award arising out of arbitrations other than international commercial arbitrations (i.e., purely domestic arbitrations) may also be set aside by the Court if the Court finds that the award is vitiated by patent illegality appearing on the face of the award.

⇒The Restriction

The proviso is crucial: An award shall not be set aside merely on the ground of an erroneous application of the law or by re-appreciation of evidence.

(Meaning: If the arbitrator interprets a contract clause in a way the Judge disagrees with, that is just an error of law, not a patent illegality. Patent illegality is when the arbitrator's decision is so perverse, irrational, or absurd that no reasonable person could have arrived at it).

⇒Strict Timeline (Section 34(3))

An application for setting aside an award may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award.

⇒Condonation of Delay

If the Court is satisfied that the applicant was prevented by sufficient cause, it may entertain the application within a further period of thirty days, but not thereafter.

(The Supreme Court has held this is an absolute cap. Section 5 of the Limitation Act does NOT apply here. Even if a party is delayed by 31 days due to a genuine disaster, the court has no power to condone it. The total maximum period is 120 days).

If the award is not challenged within the time limit, or if the challenge is dismissed by the Court, the award becomes final and enforceable.

⇒Enforced as a Court Decree

Where the time for making an application to set aside the arbitral award under Section 34 has expired, the award shall be enforced in accordance with the provisions of the Code of Civil Procedure, 1908, in the same manner as if it were a decree of the court.

(The winning party can file an execution petition under Order XXI of the CPC, and attach the properties or freeze the bank accounts of the losing party).

Before 2015, there was a major flaw in the law. The moment a losing party filed a Section 34 challenge application, the enforcement of the award was automatically stayed (frozen) until the challenge was decided years later. This made arbitration useless, as losers routinely filed frivolous challenges just to delay payment.

⇒The 2015 Amendment to Section 36

The law was drastically changed. Now, filing an application to set aside an arbitral award under Section 34 shall NOT by itself render that award unenforceable.

To stop the execution of the award, the losing party must file a specific application requesting a stay, and the Court may grant the stay subject to conditions (usually requiring the losing party to deposit 100% of the awarded amount into the court while the challenge is pending).

As stated, you cannot appeal the award itself. However, you can appeal certain orders made by the court or the tribunal.

⇒Appealable Orders of Court

An appeal lies from the following orders of the Court:

• Refusing to refer the parties to arbitration under section 8.
• Granting or refusing to grant any interim measure under section 9.
• Setting aside or refusing to set aside an arbitral award under section 34.

⇒Appealable Orders of Arbitral Tribunal

An appeal lies to a court from an order of the arbitral tribunal:

• Accepting the plea that it does not have jurisdiction (under Section 16).
• Granting or refusing to grant an interim measure under section 17.

No second appeal is permitted (though SLP to the Supreme Court remains available).

⇒Summary of Master Concepts

• Section 34: The only way to challenge an award. Not an appeal on merits.
• Public Policy: Narrowed down to fraud, fundamental policy of Indian law, and basic morality.
• Patent Illegality: Glaring error on the face of the award (only for domestic awards), not just an error of law.
• Time Limit: 3 months + max 30 days condonation. Absolute deadline.
• Enforcement (Sec 36): Enforced like a civil decree. No more automatic stay upon filing a challenge.

⇒University Exam Tips for this Unit (Premium Advice)

• Public Policy vs Patent Illegality: Understand that Public Policy applies to all awards (domestic and international), while Patent Illegality (Sec 34(2A)) applies ONLY to domestic awards. Highlight the 2015 amendments that restricted court interference.
• Automatic Stay: Examiners often ask "What is the effect of filing a Section 34 petition on the enforcement of the award?" Clearly explain the pre-2015 position (automatic stay) and post-2015 position (no automatic stay, must deposit money).
• Limitation Period: Emphasize that the 3 months + 30 days rule in Section 34(3) is an inflexible, hard stop. Courts have absolutely no power to condone delay beyond 120 days.