Challenging Arbitration Awards under the new Arbitration Act

One of the important changes that the new Arbitration Act in India (Arbitration and Conciliation Act 1996 as amended in 2015 or ACA 1996/2015) has brought in is in the matters relating to the Finality of Arbitration Awards.

Under the replaced section 36 of the Act on “Enforcement”, it is now stated that

” Where an application to set aside the arbitral award has been filed in the Court under section 34, the filing of such an application shall not by itself render that award unenforceable, unless the Court grants an order of stay of the operation of the said arbitral award in accordance with the provisions of sub-section (3), on a separate application made for that purpose.”

This provision means that unless a stay is specifically granted, mere filing of an application for setting aside an award shall not result in the arbitral award not being enforced .

As a result of this provision, it becomes necessary for the objecting party to satisfy the Court that a stay is necessary and there is a substantial case under Section 34 for the award to be set aside.

Under Section 34 of the Act, an arbitral award can be set aside only if the party furnishes proof that

a) A party was under some incapacity

b) Arbitration agreement is not valid under law

c) Party was not given proper notice of of the  Appointment of the Arbitrator or of the Arbitral Proceedings or that he was otherwise unable to present his case

d) Arbitral award was beyond the scope of the submission to arbitration

e) Composition of the Arbitral tribunal was faulty

Readers will appreciate that the procedure adopted by ODR Global (www.odrglobal.in) for Virtual ODR, effectively captures evidence that can be used to prove or disprove any of the above points when a Court sits in judgement. In the absence of the CEAC certified recording that ODR Global provides, it would be difficult to prove only with the copy of the Award that the point such as “was unable to present the case” can be proved.

Another factor under which the award can be set aside under Section 34 is when the award is in conflict with the public policy of India. This is a clause which is subject to interpretation and debate and could be a difficult aspect to prove.

The points that constitute conflict with public policy are

a) award induced by fraud

b) award induced by corruption

c) award was in violation of Section 75 (Confidentiality clause in a conciliation)

d) award was in violation of Section 81 (Production of evidence used in a Conciliation)

In connection with the above, it must be pointed out that the Virtual ODR process includes a role for an intermediary and the protection of confidentiality of a Virtual Conciliation proceeding rests with the confidentiality agreement that the Administrator of the ODR (eg: ODR Global) signs with the parties to the conciliation.

This view is recognized by the UNCITRAL Draft law on ODR which is in the final stages of being approved by the UN which states that the ODR Administrator shall follow a “Code of Ethics and The ODR administrator should adopt and implement appropriate confidentiality measures”.

Also the application under Section 34 should be made within 3 months after the receipt of the award.

Further the application shall be made only after serving a notice to the other party.

With all these conditions, the Court is expected to dispose off the application within one year.

The above safeguards indicate that getting an arbitral award delayed or over turned is not easy in most cases. In genuine cases, where the award needs to be challenged, the evidence that supports any of the requirements of Section 34 is very important.

A further appeal of the setting aside or refusal to set aside an award under Section 34 can be appealed in a higher Court and could be a possible means of delaying the award by one of the parties. But in view of the fact that “Stay” is not a presumption, the decree can be enforced even if the appeal is being discussed in a higher Court.

Parties entering into Arbitration must be aware of the finality of an award and ensure that at every point of the arbitration such as appointment of the arbitrator, meeting the deadlines in notices, placing its claim or defense, providing evidences before the Tribunal, or pressing for oral hearings and arguments etc, sufficient care is exercised so that they donot lose an arbitration by virtue of the laxity of the disputing party or his counsel. This adds an extra sense of responsibility on the Counsel as well as the choice of the Counsel by the party.

Despite a long history of Arbitration in India, with the new Arbitration Act there is a need for all Arbitrators as well as Counsels to study the material changes that have occurred in the Act an ensure that they donot contribute to any fault or error in the award.

In this connection it is also necessary for the Counsels and Arbitrators not to be mis-led by past Case laws which might have been decided under the old Act and apply it blindly to the new Act. In this connection, we may recall the Sundaram Finance Ltd V NEPC India Ltd  judgement in Supreme Court where the Court observed,

“… The Act of 1996 is very different from the Arbitration Act of 1940. The provisions of the Act of 1996 have, therefore to be interpreted and construed independently and in fact reference to the 1940 Act may actually lead to  misconstruction…”.

The above words hold true in the context of Act of 2015 modifying the Act of 1996 rendering most of the Case laws of the past being rendered not applicable in the current context. Legal professionals by force of habit should not simply quote past decisions and assume that the precedence would be acceptable even under the new law.

It is for this reason that this website tries to discuss the new law in great detail so that we can understand the difference between what the advocates studied and practiced until last year and what they are now confronted with.

Naavi