Arbitration is widely used as an alternative dispute resolution mechanism in India, offering a quicker, more flexible approach to resolving conflicts. Once an arbitral award is issued, it is usually binding, but there are circumstances under which a party may seek to have the award set aside in Indian courts. The Arbitration and Conciliation Act, 1996 (Act) provides specific grounds under which an arbitral award can be challenged or set aside, primarily under Section 34. However, the grounds are narrow, emphasizing minimal judicial intervention to preserve the autonomy of arbitration.
Incapacity of a Party
If a party to the arbitration agreement was under some form of incapacity (such as being a minor or mentally unfit), the award may be set aside.
Invalidity of the Arbitration Agreement
If the arbitration agreement was not valid under the applicable law, then the arbitral award can be challenged. This could include cases where the agreement was void due to fraud or coercion.
Lack of Proper Notice
If one party did not receive adequate notice of the appointment of an arbitrator or of the proceedings, this could be grounds to set aside the award.
Arbitral Tribunal’s Jurisdiction
If the arbitral tribunal exceeded its jurisdiction or ruled on matters not covered by the arbitration agreement, the award may be contested.
Improper Composition of the Arbitral Tribunal
If the tribunal was not constituted according to the agreement of the parties or the law, the award could be challenged.
Award in Conflict with Public Policy of India
An award can be set aside if it is found to be in conflict with India’s public policy. This broad ground includes violations related to:
Bias or Conflict of Interest
If the arbitrator exhibited bias or there was a conflict of interest, the award may be set aside due to the lack of impartiality.
Error in Law or Fact
While the Indian courts generally do not re-examine the facts or legal principles applied by the arbitral tribunal, if an error of law or a gross mistake of fact can be shown, a challenge may be possible.
Fraud or Corruption
Fraudulent conduct or corruption during the arbitration process can be a valid ground for setting aside an award, especially if it impacted the award's fairness.
Public Policy
A decision in conflict with public policy can lead to annulment. The scope of public policy is broad and includes considerations like the integrity of the legal system, the preservation of India’s international obligations, or the protection of parties' rights.
Non-enforcement of Foreign Arbitral Awards
If the award is foreign, it may not be enforced if it conflicts with Indian public policy or violates India's laws.
Section 34 of the Arbitration and Conciliation Act, 1996
Section 34 lays down the grounds for challenging an arbitral award and specifies that such challenges must be brought before the court within three months of receiving the award (extendable by an additional 30 days if sufficient cause is shown).
Section 48
This provision deals with the enforcement of foreign arbitral awards and provides the grounds for refusing enforcement, which are similar to those in Section 34 but are specific to foreign awards.
Clear Arbitration Clauses
Ensure that the arbitration agreement is clearly drafted, specifying the scope of disputes, the process, and the appointment of arbitrators.
Legal Counsel
Seek legal advice before entering into arbitration to understand your rights and obligations fully.
Challenge within Time Frame
If you wish to challenge an arbitral award, ensure you do so within the specified time limits to avoid dismissal due to delay.
Suppose two companies, A and B, enter into an arbitration agreement after a business dispute. Company A is unhappy with the arbitral award in favor of Company B and seeks to set it aside in an Indian court, claiming that the tribunal exceeded its jurisdiction by awarding damages for a claim not covered by the original agreement.
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