The provisions relating to the setting aside of an arbitral award have been given under Section 34 of the Arbitration and Conciliation Act 1996.

When the award is announced by arbitral tribunal the party to arbitration cannot appeal against it’s merit and court cannot interfere with it on its merit but there are certain grounds on which award can be set aside. These grounds have been mentioned under Section 34 of the Arbitration and Conciliation Act 1996. These grounds are as follows –

Incapacity of Parties.

According to Section 34(2)(a)(i), a party who is incapable of protecting his interest he is represented by a person who can protect the interest of party. E minor are a person of unsound mind is unable to protect his interest. He must be represented by a guardian if he is not represented by guardian and the award will be liable to be set aside.

Section 9 of the Arbitration and Conciliation Act 1996 provides for the appointment of guardian for minor or unsound mind persons because they are unable to bind themselves by contract. Therefore an award passed without appointing a guardian or passed without proper representation is liable to be set aside.

Invalidity of Agreement

Section 34(2)(a) (ii) provides that if the arbitration agreement is invalid the reference under the agreement and award passed under the agreement would be invalid and can be set aside. The invalidity of the arbitration agreement can be challenged on any of the grounds on which the validity of the contract can be challenged if the contract in which arbitration clause is contained is invalid, the arbitration clause also be invalid.

Notice not given to party

Section 34(2)(a)( iii) provides that an arbitral award may be set aside by the court if the party making the application was not given proper notice required and award to be challenged on the ground of notice requires following grounds –

1. Party was not given proper notice of the appointment of an arbitrator.
2. The party was not given proper notice of arbitral proceeding.
3. The party was unable to present his case for some reasons.

Section 12 of the Arbitration and Conciliation Act 1996 gives a party right to challenge the appointment of an arbitrator on the grounds of his integrity are impossibility being doubtful. If the party is not given notice of appointment of arbitrator how the party can challenge the appointment of arbitrator.

It is also necessary that party should be given proper notice of arbitral proceedings so that he may file a statement of claim or defence as required by Section 23 of the arbitration and conciliation act 1996.

Section 24 (2) of the Arbitration and Conciliation Act, 1996 requires that the party shall be given sufficient advance notice of any hearing are meeting of the tribunal for the purpose of inspection of documents goods or other property if this is not compiled the award is liable to be set aside.

Award beyond scope of reference

Section 34(2)(a)(iv) provides that an arbitral award may be set aside by the court, if the arbitral award deals with a dispute not contemplated by or not falling within the terms of submission to arbitration or it contains decision on matters beyond the scope of the submission to the arbitration.

In other words an award may be set aside if it deals with a dispute –

1. not contemplated by the reference, or
2. not falling within the terms of reference, or
3. which contains a decision in matters beyond reference.

The proviso of Section 34 (2)(a)(iv) provides that if the decision in respect of the matters outside the tribunal’s jurisdiction can be separated from the decision on matters within the jurisdiction then only that part of the arbitral award may be set aside.

Irregularities in composition of tribunal or in arbitral proceedings

An arbitral award may be set aside by the court on the grounds –

1. that the composition of the tribunal was not in accordance with the agreement. Or
2. that the proceedings agreed by the parties was not followed in the conduct of proceedings. Or
3. That in the absence of agreement as to procedure the procedure prescribed by the set was not followed.

If the above mentioned procedure is not followed it is called procedural misconduct.

Dispute not arbitrable

Section 34(2)(b) (i) provides that an arbitral award may be set aside by the court if it finds that the subject matter of the dispute is not capable of being settled by arbitration.

Generally all matters, except criminal matters may be the subject matter of arbitration unless the law has not provided special jurisdiction to that matter for example insolvency, probate matters.

The matters which are in the public nature or which creates judgement in rem. The matters which affect public at large cannot be referred to arbitration. only matters in difference between the parties to the litigation which effect private rights can be referred to arbitration. Matters of public right cannot be decided by arbitration. Questions relating to will, revocation of probate cannot be referred to arbitration. The Proceedings of winding of a company, suit under section 92 of CPC 1908 cannot be referred to arbitration.

Specific performance of contract

The question whether specific performance of contract can be referred to arbitration was raised in the supreme court in the case of Olympus Super Structure Private Limited vs Meena Vijay Khetan, AIR1999. The supreme court noting the affirmative view of the Punjab Bombay and Kolkata High Court and rejecting the negative of the Delhi High Court held that the disputes relating to specific performance of a contract can be referred to arbitration and section 34 (2)(b)(i) is not attracted.

Public policy : fraud and corruption

Section 34(2)(b) (ii) provides that an arbitral award may be set aside by the court if the court finds that arbitral award is in conflict with the public policy of India.

The explanation, as substituted by the Arbitration and Conciliation Amendment Act, 2016 (w.e.f 23-10-2015) clarified that an award is in conflict with the public policy of India only if –

1. The making of the award was induced by or affected by fraud or corruption or was in violation of section 75 or 81, or
2. It is in the contradiction with the the fundamental policy of Indian law, or
3. it is in conflict with the most basic notions of morality and Justice.

Explanation to provides for the avoidance of doubt the test as to whether there is a contravention with the the fundamental policy of Indian law shall not entail a review on the merits of the disputes.

Limitation for filing of application for setting aside

Section 34 (3) provides three months limitation period for filing application for the setting aside the award.

After the expiry of the three month application cannot be made for setting aside the award from the date –

• On which the party received the arbitral award or
• Disposal of application under section 33 if made for the correction, interpretation or making additional award.

Section 34(3) provides the extension of period of limitation for further 30 days if sufficient cause shown for delay.