Arbitration has become one of the most preferred alternative dispute resolution mechanism in India because it is faster, more private and flexible compared to traditional courts. However, just like any legal process, arbitration awards are not always accepted by all parties. To address this, Section 34 of Arbitration and Conciliation Act gives parties the right to challenge an arbitral award in court. This section allows judicial intervention to set aside an arbitral award on specific legal grounds such as fraud, invalid agreements or violation of public policy. The main objective of Section 34 is to provide a clear remedy for parties dissatisfied with an arbitration award while maintaining the efficiency and finality of the arbitration process. In this article, we explain the meaning, scope, procedure and key aspects of Section 34 of the Arbitration and Conciliation Act 1996.
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Grounds To Set Aside Arbitral Award Under Section 34 of the Arbitration Act
In Section 34 of the Arbitration Act, which contains several important provisions, the grounds for setting aside an arbitral award are defined. There is a full breakdown of the section below.
1. Grounds for Setting Aside an Award
According to Section 34(2), an award may be set aside if:
Incapacity: A party to the arbitration was under incapacity, making the award unenforceable.
Invalid Arbitration Agreement: The arbitration agreement was invalid according to the applicable law.
Lack of Proper Notice: The party challenging the award was not given proper notice of the appointment of an arbitrator or of the proceedings and was unable to present their case.
Matters Beyond the Scope of Arbitration: The award addresses issues that fall outside the agreed scope of arbitration or includes decisions on issues beyond those submitted.
Provision on Severability: If only part of the award addresses matters beyond the scope, Section 34(2)(a)(iv) allows the court to set aside only that part rather than the entire award.
Improper Composition or Procedure: If the composition of the tribunal or the procedure followed was not in accordance with the agreement between parties or the applicable law.
2. Public Policy Grounds
Section 34(2)(b) provides that an award can also be set aside if it is contrary to the public policy of India. According to the Supreme Court’s interpretation, an award is in conflict with public policy if:
It was induced by fraud or corruption.
It violates the fundamental policy of Indian law.
It is in conflict with basic notions of morality or justice.
Recent amendments have clarified that “public policy” does not mean a review of the award’s merits which ensures that courts do not overstep into re-evaluating the substantive issues of the arbitration.
3. Patent Illegality (Domestic Arbitration Only)
Section 34(2A) provides an additional ground for domestic arbitration, where the award can be challenged for patent illegality appearing on its face. However, this ground does not apply to international commercial arbitration. As errors in legal interpretation alone are insufficient for setting aside an award the provision ensures that domestic awards adhere to the legal framework without encouraging pointless challenges.
Timelines & Procedure Under Section 34 of the Arbitration Act
Section 34(3) of the Arbitration Act mandates a strict timeline for filing applications to set aside an award:
Three-Month Limit: A party must apply to set aside the award within three months from the date they received it.
Extension for Sufficient Cause: The court may extend this period by an additional thirty days if it finds sufficient cause for the delay. However, further extensions beyond thirty days are not allowed.
Significance of Section 34 of the Arbitration and Conciliation Act 1996
Section 34 of Arbitration and Conciliation Act carries significant implications for parties involved in arbitration. The following are the salient features of the section
Limited Grounds for Challenge: it prohibits any recourse other than the grounds mentioned in Section 34 to set aside the final award.
Public Policy Safeguard: By including public policy grounds, awards don't go against India's core legal principles. However, this ground is also narrowly interpreted to keep the courts from getting too involved.
Strict Adherence to Timelines: This section provides strict timelines for challenging an award. This ensures the finality of the arbitral award.
Patent Illegality for Domestic Arbitration: The addition of patent illegality as a ground specifically for domestic arbitration reflects the legislature's intention to uphold local standards of legality without compromising the efficiency of arbitration.
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Recent Amendments to Section 34 of the Arbitration Act (2021)
The Arbitration and Conciliation (Amendment) Act, 2021 introduced an important safeguard to ensure fairness in arbitral awards. It empowers courts to stay the enforcement of an arbitral award if the underlying arbitration agreement or contract is found to be prima facie induced by fraud or corruption.
This amendment was made to protect parties from being forced to comply with awards arising from tainted contracts. However, the provision also balances efficiency by ensuring that such stays are granted only when credible evidence of fraud or corruption exists, preventing misuse of the process.
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Judicial Interpretations on Section 34 of Arbitration Act 1996
Section 34 of arbitration and conciliation act has evolved through legislative amendments and judicial interpretations, particularly in defining grounds like “public policy” and “patent illegality.” Notable recent cases have further clarified its application
National Highways Authority of India v. M. Hakeem (2021)
The Supreme Court held that courts under Section 34 have no power to modify arbitral awards; they can only set aside awards. It did not grant the Supreme Court special power to modify, only Article 142 of the Constitution gives the SC extraordinary powers for “complete justice.
Ssangyong Engineering & Construction Co. Ltd. v. NHAI (2019)
The Supreme Court clarified that “public policy” does not allow for a review of the award’s merits, ensuring that courts do not interfere with the substantive findings of the tribunal.
Associate Builders v. Delhi Development Authority (2015)
The court held that an arbitral award could be set aside if it contravenes basic notions of justice or morality, refining the scope of public policy under Section 34 of the Arbitration Act.
ONGC v. Western Geco International Ltd. (2014)
The Supreme Court ruled that an award may be set aside under public policy if it violates the fundamental policy of Indian law. This landmark judgment helped to shape the understanding of public policy in the context of arbitration.
Venture Global Engineering v. Satyam Computer Services Ltd. (2010)
This case highlighted that patent illegality is applicable only to domestic awards ensuring that international awards are subject to less stringent standards.
Summary
By limiting the reasons for challenging the award to specific ones Section 34 of arbitration and conciliation act offers a focused remedy ensuring that arbitration stays a swift and final method of resolving disputes. This section upholds the effectiveness and fairness of arbitration by ensuring that awards are still legally binding unless they go against basic justice or legal standards. Interpretations by judges and recent changes have made it even clearer how it should be used limiting court involvement and supporting the independence of the arbitration process.
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Section 34 of Arbitration and Conciliation Act: FAQs
Q1. What is Section 36 of Section 34 of Arbitration and Conciliation Act?
Section 36 deals with the enforcement of arbitral awards. An award is enforceable like a court decree, and filing a Section 34 challenge does not automatically stay enforcement.
Q2. What is Section 37 of Section 34 of Arbitration and Conciliation Act?
Section 37 provides the right to appeal against certain orders, including those made under Section 34 when an arbitral award is set aside or refused to be set aside.
Q3. What is Section 34 of Arbitration and Conciliation Act?
Section 34 allows a party to challenge an arbitral award in court on specific legal grounds such as fraud, invalid arbitration agreement, or violation of public policy.
Q4. What is the time limit under Section 34 of Arbitration and Conciliation Act?
The application to set aside an award must be filed within 3 months, with a possible extension of 30 days for sufficient cause.
Q5. Can arbitral awards be challenged on merits under Section 34 of Arbitration and Conciliation Act?
No, arbitral awards cannot be challenged on merits. Section 34 permits challenges only on limited legal grounds.
Q6. What is patent illegality in Section 34 of Arbitration and Conciliation Act?
Patent illegality refers to errors that are obvious on the face of the award. It applies only to domestic arbitration, not to international awards.
