How to challenge an Arbitration Award

What is Arbitration?

The process to resolve dispute outside the court is known as arbitration. Arbitration is a form of alternative dispute redressal (ADR) in which a dispute is submitted by the agreement or will of both the parties to arbitrators who make a binding decision on the dispute. In this process the parties prefers private dispute resolution procedure over going to the court for settling of disputes.

What is an arbitration Award?

The award guaranteed by the arbitrator in their decision is called as arbitration award. The award can be in the form of money which one party is liable to pay to the other party or can also be in a form of non-financial award such as adding on an employment incentive or stopping a particular business practice, etc.

Setting aside Arbitral Award

The parties do not have the rights to appeal against arbitral award as to its merits and also the court cannot interfere on its merits. The Supreme Court observes arbitrator as a judge appointed by the parties and thus award passed by him should not be lightly interfered with. However the court ensures proper check on the arbitrators conduct and thus law allows certain remedy to the award.

Under the repealed 1940 Act, there were three remedies available against an award modification, remission and setting aside. Those remedies have been put under the 1996 Act and is divided into two groups. The remedy for rectification of errors has been handed over to the parties and the Tribunal. The remedy for setting has been termed ad returning back the award to the Tribunal for removal of defects.

Section 34 states that an arbitral award might be set aside by a court on particular grounds specified therein. These grounds are:

1. Incapacity of a party
2. Arbitration agreement not being valid
3. Party not given proper notice of arbitral proceedings
4. Nature of dispute not falling within the terms of submission to arbitration
5. Arbitral procedure not being in accordance with the agreement.

Section 34(2)(b) states two more grounds which allows the court to decide whether to set aside the arbitral award:

1. Dispute is not capable of settlement by arbitral process
2. The award is in conflict with the public policy of India

Section 34 makes it compulsory for the aggrieved party to make an application under Section 34 stating the grounds of challenge. The party to the arbitration agreement needs to make an application for setting aside but a legal representative can apply under him as he is a person claiming under them. However, there is no separate or special form prescribed for making an application under Section 34 of the act except it has to be a written statement filed within the period of limitation

In Sanshin Chemical Industry V/s Oriental Carbons & Chemical Ltd. arose a dispute between the parties regarding the decision of the Joint Arbitration Committee relating to venue of arbitration. The Apex Court held that a decision on the question of venue will not be either an awar or an interim award so as to be appealable under Section 34 of the act.

Whereas, an award which is set aside no longer remains enforceable by law and the parties to arbitration are restored to their former position as to their claims in the dispute. Setting aside an award indicates that it is rejected as invalid. The award is then considered avoided and thus the matter becomes open for decision again. The parties to arbitration are then deemed to be free to go back arbitration or to to have matter decided through court.

How to challenge the ex parte arbitration award

Challenging the arbitration award is a way to difficult task as the limitation period to challenge the award is only 3 months from the date of receipt of the award. Moreover, ex parte award is per se not a ground for challenging the award. Provided the award must fall under one of the grounds under Section 34 of the Arbitration and Conciliation Act,1966 ; the arbitration award can be challenged.

Notice not given to Parties

Section 34(2)(a)(iii) permits challenge to an award if the party was not given proper notice of the appointment of an arbitrator, or the party was not given proper notice of the arbitral proceedings, or the party was for some reasons unable to present his case.

Under Section 23(1) the Arbitral Tribunal has to determine the time within which the statements must be filed. This determination must be communicated to the parties by a proper notice. Section 24(2) mandates that the parties shall be given sufficient advance notice of any hearing or meeting of the Tribunal for the purpose of inspection of documents, goods or other property.

If for any good reason a party is prevented from appearing and presenting his case before the Tribunal, the award will be liable to be set aside as the party will be deemed to have been deprived of an opportunity of being heard the principle of natural justice.

Conclusion

Usually it is said that arbitration award are not a subject to appeal which is actually an oversimplification. Many other countries allow arbitration award to be challenged in the court despite there are limits to circumstances in which such challenges may be brought. The most common permitted grounds of challenges are:-

• That the tribunal did not have jurisdiction to make the award
• Serious irregularity on the part of tribunal

However, arbitration awards are non-justifiable and thus this right is closely limited to avoid undermining the commercial effects of arbitration.