People choose arbitration as their preferred dispute resolution method mainly because it provides efficient solutions and flexible processes and creates legal final agreements. The final character of arbitral awards defines arbitration since parties must accept definite resolutions when an award is released. The Arbitration and Conciliation Act of 1996 enacts Section 35 which establishes arbitral awards as legally binding upon parties thus stopping any future court battles about the same dispute. The arbitration provision safeguards tribunal decisions through legal commitment because parties must maintain respect for arbiter decisions.
This article gives an in-depth analysis of Section 35, examining its legal effects, salient features, judicial interpretations, and its contribution to ensuring effective resolution of disputes.
Understanding of Section 35 of Arbitration and Conciliation Act, 1996
Arbitral awards conclude disputes in a legal manner, making further arbitration or litigation impossible. Section 35 specifies the finality and binding nature of these awards, enforcing compliance by everyone involved.
The provision of Section 35 creates two significant legal principles:
Finality of the Award: The award of the arbitral tribunal is final, in the sense that the dispute cannot be re-arbitrated or reopened before a different arbitral tribunal.
Binding Effect on Parties and Successors: The award is binding not just on the immediate parties but also on legal heirs, assigns, and successors.
Key Features of Section 35
Section 35 grants arbitral awards the status of legally binding and enforceable documents against the involved parties. The legal process under Section 35 ensures arbitral awards become binding and stops further unnecessary court proceedings.
1. Finality of the Arbitral Award
Once an arbitral award has been given, it concludes the arbitration process and cannot be revisited by the tribunal. It maintains the arbitration process as a final dispute resolution process.
The tribunal's jurisdiction (functus officio) terminates upon the award's transmission.
The controversy cannot be re-arbitrated between the same parties on the same issue.
2. Binding Nature on Parties and Successors
Arbitration awards are not only binding on the initial parties but also on legal heirs, assignees, and successors. This keeps the contractual obligations in place even when a party restructures.
The award compels:
The original disputing parties.
Successors and legal heirs in the event of death or corporate reorganisation.
Assignees or merged parties assume the contractual obligations.
3. Interplay with Section 34 (Setting Aside an Award)
Although Section 35 provides finality, it is subject to Part I of the Act, specifically Section 34, which provides for a limited challenge to an award.
A party may file a Section 34 challenge if:
The award was procured by fraud, corruption, or bias.
The tribunal has gone beyond its jurisdiction.
The award is against public policy in India.
If no challenge is filed within three months, the award becomes final and binding.
4. Enforcement under Section 36
Once an award has reached finality under Section 35, it is enforceable as a court decree under Section 36. This ensures compliance, such that the victorious party can get legal enforcement.
If one party does not adhere, the other party may go to the court for enforcement.
The award is considered to be a civil court judgement and enforced as such.
5. Application to Domestic and International Arbitration
Section 35 extends to domestic and international commercial arbitration seated in India, promoting legal uniformity.
Domestic Arbitration: Indian law applies, and Indian courts bind.
International Commercial Arbitration (with a seat in India): Permits foreign parties to be governed by Indian arbitration laws.
Judicial Interpretation of Section 35
Indian courts have reinforced the finality and binding nature of arbitral awards, ensuring arbitration remains an effective dispute resolution mechanism.
Case 1: Kandla Export Corporation v. OCI Corporation (2018) 14 SCC 715
Facts:
Kandla Export Corporation entered into a contract with OCI Corporation, a foreign company.
A dispute arose, leading to an international arbitration under the rules of the London Maritime Arbitrators Association (LMAA).
The arbitration award was in favour of OCI Corporation.
Kandla Export filed a petition in an Indian court under Section 34, seeking to challenge the foreign arbitral award.
Issue:
Whether a foreign arbitral award falls under the finality rule of Section 35?
Can a foreign award be challenged under Section 34, or does it fall under the enforcement provisions of Part II of the Act?
Judgement:
The Supreme Court held that Section 35 applies only to domestic arbitration awards and does not govern foreign arbitral awards.
Foreign awards are governed by Part II of the Act (Enforcement of Foreign Awards under the New York Convention).
The court ruled that foreign awards cannot be challenged under Section 34, but they can only be resisted under enforcement proceedings (Section 48).
Significance:
Clarified that Section 35 finality is only applicable to domestic awards of arbitration.
Cemented India's pledge to the enforcement and recognition of foreign arbitral awards under the New York Convention.
Case 2: Ssangyong Engineering & Construction Co. Ltd. v. NHAI (2019) 15 SCC 131
Facts:
Ssangyong Engineering & Construction Ltd. entered into a contract with NHAI (National Highways Authority of India) for highway construction.
A dispute arose over price adjustments and an arbitral tribunal ruled in favor of NHAI.
Ssangyong challenged the award under Section 34, arguing that the tribunal misinterpreted the contract and violated the principles of natural justice.
Issue:
Can an arbitral award be challenged if the tribunal misinterprets the contract?
Does a misinterpretation of a contract affect the finality of an award under Section 35?
Judgement:
The Supreme Court ruled that:
Misinterpretation of a contract does not make an award void or unenforceable.
Courts cannot interfere with an award merely because they disagree with the tribunal’s interpretation.
The finality of an award under Section 35 cannot be disturbed unless it violates public policy or falls under Section 34 grounds.
Significance:
Strengthened the binding nature of arbitration awards.
Confirmed that contract misinterpretation is not a valid ground for setting aside an award under Section 34.
Exceptions to Finality under Section 35
While Section 35 provides finality, there are certain provisions of law that provide limited exceptions in extraordinary situations.
Challenge under Section 34: When an award is set aside, it ceases to be final and enforceable.
Correction and Interpretation under Section 33: Where an award contains errors, parties may apply for clarification or correction.
Other Awards: If claims are waived, an arbitral tribunal may render an additional award under Section 33(4).
Also, Learn How to Become an Arbitrator in India
Summing Up
Section 35 of Arbitration and Conciliation Act, 1996 establishes arbitral awards as permanently binding which strengthens arbitration as a trustworthy dispute resolution system. Section 35 of Arbitration and Conciliation Act, 1996 strengthens arbitration by eliminating repeated lawsuits then it enforces awards which leads to increased trust and faster dispute settlement. Courts continue to maintain support for the significance of this provision which ensures arbitration functions as a primary method for commercial disputes resolution in India.
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FAQs on Section 35 of Arbitration and Conciliation Act, 1996
Q1. What is stated in Section 35 of Arbitration Act?
Section 35 provides that an arbitral award is binding on the parties and their successors in interest and shall be final and conclusive upon the parties to the arbitration.
Q2. Is an arbitral award challengeable under Section 35?
No, Section 35 provides finality. Nonetheless, an award can be impeached under Section 34 on restricted grounds such as fraud, bias, or contravention of public policy.
Q3. Who is covered by an arbitral award under Section 35?
The award binds both the parties, their legal representatives, assignees, and successors so that there remains continuity of obligation.
Q4. What occurs subsequent to an arbitral award acquiring finality?
Once the award becomes final, the award is enforceable as a decree of court under Section 36, and that failure to comply can have enforcement by law.
Q5. Is Section 35 applicable to domestic and international arbitration?
Yes, Section 35 is applicable to domestic arbitration and international commercial arbitration which is seated in India, providing enforceability in all cases.
