The arbitration concept provides a fundamental basis for dispute resolution outside the orthodox court, offering an expeditious and relatively cheaper alternative through which disputes are settled. The finality and enforceability of arbitral awards are some of the most salient characteristics of arbitration, such that once disputes are resolved through arbitration, they acquire a conclusive status and are enforceable in almost the same way as the decrees of the courts. This results in the principle of legal certainty and respect for arbitration as a viable alternative mechanism of dispute resolution.
In the Indian context, it is Chapter VIII of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the Act") which regulates finality and enforcement of arbitral awards. Specifically, Sections 35 and Section 36 thereof detail the setting and procedural stages regarding the binding nature of awards and the process for execution.
Meaning of Arbitral Award
An arbitral award refers to the decision given after due consideration of the evidence and arguments presented to an arbitral tribunal by the parties to the dispute. It is the final determination of the matters referred to arbitration. Though a judgment is public in origin, the arbitral award is a private pronouncement made under the arbitration agreement between the parties; it has the same binding force as a court decree and is thus enforceable under the Arbitration and Conciliation Act, 1996.
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Validity of an Arbitral Award
The validity of an arbitral award is governed by the provisions of Sections 34 and Section 36 of the Arbitration and Conciliation Act, 1996. While Sections 34 and 36 deal with challenging and enforcing arbitral awards, Section 35 establishes the binding nature of a valid arbitral award. An award becomes valid only if it adheres to the following conditions:
Written Form: The award must be made in writing and signed by the members of the arbitral tribunal.
Reasoning: It must state the reasons upon which it is based except where parties opt for a non-reasoned award or the award happens to be a consent award.
Compliance with Arbitration Agreement: It should conform to the terms and scope of the arbitration agreement;
Delivery to Parties: The award must be in a form that is served to each party in a signed copy for the award to be effective;
Finality and Binding Nature: It is binding on the parties once delivered subject to any challenges filed under Section 34.
No Contravention of Public Policy: The award must not be contrary to the fundamental policy of Indian law, morality, or justice.
Jurisdiction of Tribunal: The tribunal must have jurisdiction over the matters decided in the award.
Absence of Fraud or Corruption: The awards influenced by fraud or corruption are invalid under Indian law.
Section 35 deals with the enforcing aspect of the award, but Section 34 provides the grounds for setting aside the award in case such an award is held to be invalid on account of, inter alia, procedural irregularities and breach of public policy, etc.
Then, in case no successful challenge under Section 34 occurs, Section 35 ensures the finality of the award to send it to enforcement under Section 36.
Meaning of Finality of Awards:
Finality: An arbitral award is said to be final and cannot be re-litigated and not re-opened in most cases.
Section 35 of the Act: An arbitral award shall be binding on the parties and to their respective successors unless under Sections 34 etc.
Meaning of Enforcement of Awards:
Enforcement ensures compliance with the arbitral award. If the award is not complied with through voluntary action then it is possible to execute upon a court decree in the same manner as a decree obtained in the Code of Civil Procedure, 1908.
Explanation of Chapter VIII in Detail
Section 35: Finality of Arbitral Awards
This section embodies the rule of finality in arbitration. Main features:
Binding Nature: The arbitral award is binding on:
The parties to arbitration
Persons claiming any right through such party, e.g., legal heirs, assignees.
Exceptions: The finality is liable to Part I of the Act, which enumerates grounds under Section 34 to set aside the awards.
Key Implications:
Once the challenge period provided for under Section 34 lapses, arbitral awards cannot be challenged before the courts on their merit.
It binds the parties with the disputes coming to an end and disputes are not allowed to go on interminably.
Section 36: Enforcement of Arbitral Awards
This section has given proper procedural guidance on the enforcement of arbitral awards strictly in accordance with the legal requirement. The provision was substantially overhauled under the Arbitration and Conciliation (Amendment) Act, 2015, and consequently brought clarity and precision.
Sub-section (1): Precondition for Enforcement
An award can be treated as a rule only when:
The period for moving an application to set aside an award under Section 34 has expired, or
The moving application is rejected by the Court.
After such circumstances are satisfied, the award is of the same nature as that of a decree of court.
Sub-section (2): Application to Set Aside
A presentation of an application to set aside an award (under Section 34) does not work as a stay of its execution.
It helps prohibit frivolous challenges from delaying the process of enforcement.
Sub-section (3): Stay on Operation of Awards
A separate application should be filed to grant a stay of enforcement.
The court can grant a stay with conditions like:
The reasons for the stay must be committed to writing.
Special treatment be given to monetary awards so that it serves the provisions of the Code of Civil Procedure.
Provisos of Section 36
There are two important provisos of this provision:
1. Unqualified Stay for Fraud or Corruption:
If there is a prima facie case of fraud or corruption:
In the arbitration agreement or contract.
In the making of the arbitral award.
The court shall stay the enforcement unconditionally.
This aspect underscores the gravity of ethical conduct during the arbitration procedure.
2. Retrospective Operation:
The proviso shall apply irrespective of whether the proceedings relating to the arbitration or at court were commenced prior to or subsequent to the 2015 amendment.
This clarification eliminates ambiguity in the application of these provisions to pending disputes.
Explanation
This section categorically clarifies that the amendments of 2015 apply to all the relevant cases on the removal of disparities.
Know the Key Differences Between Arbitration & Conciliation
Judicial Interpretations and Key Principles
1. Binding Effect:
The Supreme Court of India, in various judgments, clearly observed that it is an award that is binding and there can only be interference on restricted grounds under Section 34.
Case: ONGC Ltd. v. Saw Pipes Ltd. (2003)
Facts of the Case: In this case, Oil and Natural Gas Corporation Ltd. (ONGC) and Saw Pipes Ltd. were parties to an arbitration agreement. A dispute arose, and the matter was taken to arbitration. The arbitral tribunal issued an award in favor of Saw Pipes Ltd., which ONGC challenged in court under Section 34 of the Arbitration and Conciliation Act, 1996.
Judgment: The Supreme Court held that while arbitral awards are generally binding and the scope for judicial interference is limited, an award could be set aside if it is in conflict with the public policy of India. The Court clarified that an award is contrary to public policy if:
It is illegal or patently illegal.
It goes against the fundamental policy of Indian law.
It is in conflict with the interests of India.
It is against justice or morality.
The Court, thus, expanded the scope of "public policy" under Section 34, allowing for limited judicial intervention if an award is found to be patently illegal or unjust.
2. Stay of Enforcement:
The discretionary power of the court to condition its pronouncement upon the award debtor balances abuses of the challenge process with the legitimate concerns of the award debtor.
3. Fraud and Corruption:
Recent judicial pronouncements reinforced that arbitral awards that have been induced by fraud or corruption cannot stand. This conforms to the standard norms in the global arbitration world.
Case: Venture Global Engineering v. Satyam Computer Services Ltd. (2008) 4 SCC 190
Facts of the Case: This case involved a dispute between Venture Global Engineering (VGE) and Satyam Computer Services Ltd. over an agreement in which they were joint venture partners. An arbitral award was passed in favor of Satyam, but VGE challenged the award, alleging fraud on the part of Satyam, especially after the corporate fraud at Satyam came to light.
Judgment: The Supreme Court held that arbitral awards induced by fraud cannot be enforced. The Court emphasized that if an award is based on fraudulent practices, it violates the principles of public policy and cannot be allowed to stand. The judgment reinforced the idea that awards affected by fraud fall within the purview of judicial review under Section 34 of the Arbitration and Conciliation Act, 1996.
Importance of Finality and Enforcement of Arbitral Awards
Legal Certainty: Ensures that not even for disputes that are resolved through arbitration do they lie there forever.
Efficiency: It frees courts from the burden of considering arbitration matters and induces parties to respect the arbitrators' decisions.
Investor Confidence: This strengthens arbitration, especially in the context of international commercial disputes.
Balance of Interests: It is thereby tempered with fast enforcement and sufficient protective measures against manifestly unjust awards.
Challenges and Reforms
Despite this, however, while the provisions do aid in making the arbitration process more streamlined, some challenges persist:
Delays in Enforcement:
Section 34 is widely resorted to, and the resultant delay in the process diminishes the whole idea of efficiency in arbitration.
Courts take long times to decide on stays, affecting the interests of the parties concerned.
Uniformity in Interpretation:
Courts producing various interpretations on conditions for stay affect predictability.
Conclusion
Chapter VIII of the Arbitration and Conciliation Act, of 1996, provides for finality and enforcement of arbitral awards; these provisions form the bedrock on which arbitration as a disputive mechanism in India is built on a foundation of reliability. Sections 35 and 36 reflect a sound framework that ensures awards are binding and enforceable but present defenses against the exercise of malpractices. Continued judicial backing and periodic legislative updates will further increase the effectiveness of arbitration in India and provide a pro-arbitration environment to both domestic and foreign parties.
If you're interested in learning more about the Arbitration and Conciliation Act, 1996, you might find the following sections particularly insightful: Section 33, Section 14, Section 13, Section 16, Section 9, Section 4, Section 11, Section 8, Section 37
Finality and Enforcement of Arbitral Awards FAQs
Q1. What is an arbitral award?
An arbitral award is the decision of the arbitral tribunal on the dispute submitted to arbitration. It is final and binding like a decree in court proceedings.
Q2. What are the kinds of arbitral awards?
Arbitral awards consist of final awards, interim awards, partial awards, consent awards, default awards, and additional awards, depending upon the scope and outcome of arbitration.
Q3: Is an arbitral award final and binding?
Yes, an arbitral award is final and binding upon the parties and their successors in interest save as far as it may be subject to such challenge as mentioned in Section 34 under Section 35 of the Arbitration and Conciliation Act, 1996.
Q4: How can an arbitral award be challenged?
Under Section 34 of the Act, an arbitral award is challenged on several grounds like jurisdiction, procedure, violation of public policy, etc.
Q5: How is an arbitral award enforced in India?
An arbitral award can be enforced in India under Section 36 of the Arbitration and Conciliation Act where it is declared as a decree of the court upon the expiry of the time limit for challenging under Section 34.
