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The Arbitration Act, 1940 1
Section 34 in The Arbitration And Conciliation Act, 1996
The Arbitration And Conciliation Act, 1996
Section 13 in The Arbitration Act, 1940 1
Section 34 in The Arbitration Act, 1940 1

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Section 34
SECTION 34 Of THE NEW ARBITRATION AND CONCiLIATION ACT Of 1996:A RETURN TO 19401 ANJUM ROSHA* Under The \ie\" Arbitration and Conciliation Act. Section 34, only one kind of recourse from an arbitral award is prov. .cd for, i e.. b:- way of application under the said section to a court to set aside the award This section enumerates certain grounds on which an award may be set aside. Recently questions have arisen regarding the exclusivity of these grounds and regarding the interpretation of some provisions under Section 34 The Supreme Court has propounded the view that challenge to an award is possible exclusively under the grounds expressly mentioned in Section 34 and that these grounds are by far more restricted than those available under the 1940 act 1 However, the flexibilitv and innovation of the ..judiciary in the construction of .. .. ., these grounds belies the above assertion Is it possible that the new enactment is distinct from the old and does restrict the grounds of challenge but the judiciary is so interpreting it, that the differences between the old enactment and the new are being diluted? This is the focal question addressed herein The Reference Point Section 30 of the 194(1 Act is generally considered to be much wider in import the new Section 34 Section 30 read as follows: * IIII'd year. B.A. LIb. Hons.. National School of India University. Bangalore. 1. FCl v. Joginder Lal, AIR J9~9 SC 1263 Vol. XVI SECTION 34 OF THE NEW ARBITRATION 481 a) that an arbitrator or umpire has misconducted himself or the proceedings b) that an award has been made after the issue of an order by the court superceding the arbitration of after the arbitration proceedings have become invalid under Section .,5 c) that an award has been improperly procured or is otherwise invalid The Expanding Scope of Section 34 Under the Act of 1940. error of law on the face of the award was an adequate ground for setting aside of the award. This was however not included as a ground under Section 34 and nor does it find a place in the Model UNC'fTRAL Law. Now through judicial interpretation, the position as per the 1996 in this respect is the same as it was under the ]940 Act. In Uti & Natural (las Corporation Ltd v. S4 W Pipes Ltd. 2, the primary question considered by the court was the scope and ambit of the courts powers vis-a-vis section 34. The court considered whether the power to set aside as award that was patently illegal reposed with the court as per Section 34. It was argued that the Parliament has not mad-...nuch change while adopting Article 34 of UNCITRAL Model MiW. By not providing error of law as a ground of challenge to the arbitral award under Section 34 of the Act is has not intended to give a wider jurisdiction to the courts. 2. (2003) 5 sec 705 CENTRAL INDIA LAW 1003 The Supreme Court considered Section 28(1) (a) which states that the arbitral tribunal is required to make the award in keeping with the substantive law for the time being in force in India. This is inclusive of the provisions of the Arbitration and Conciliation Act as well. The Supreme Court stated that the legislative intent could not be that an award, despite being in contravention of the Act.should be allowed to stand. If the arbitral tribunal has not followed the mandatory procedure prescribed under the Act, it would mean that it has acted beyond its jurisdiction and thereby the award would be patently illegal which could be set aside under Section 34. The court held: " ...the jurisdiction' or the power of the arbitral tribunal is prescribed under the Act and if the award is de hors the said provisions, it would be, on the face ofit, illegal. The decision of the Tribunal must be within the bounds to its jurisdiction conferred under the Act or the contract. In exercising jurisdiction, the arbitral tribunal can not act in breach of some provision of substantive law or the provisions ofthe Act." This statement necessarily has. grave implications on the interpretation of Section 34(2)(a)(v). The Supreme Court in the ONGC case also acknowledged that Section 34(2)(a)(v) dealt with the setting aside of an award if the arbitral procedure or the composition'of the tribunal was not in accordance with the parties agreement or in the absence of an agreement, Part I of the Act comprising of Sections 2 to 43 Interestingly, the court observed that the parties' agreement must· not be in contravention of the provision of Part I. This was in Vol. XVI SECTION).. OF THE NEW ARBITRATION 483 stark contrast to the Apex court's observations in Narayan Prasad Lohia 1'. Nikunj Kumar Lohia' wherein it was held that if a award was in accordance with the agreement of the parties, it ma,y not be set aside by the court. But as per the ONGC case, t he award must be in accordance with the agreement of the parties and the agreement of the parties must lie within the parameters prescribed by the non-derogable provisions of Part I. If the award does not meet the said criteria, it may be set aside, via Section 34(2)(a)(v) read with Section 28( 1)(a). The second approach employed by the court was to attempt to capture the meanin~ of 'public policy' under Section 34(2)(b)(ii) and read a patently illegal award as antithetical to the interests of 'public policy'. The court held, inter alia, that Public Policy is not defined under the Arbitration Act, The Contract Act or the Constitution but must be understood in the light of all three. The court reiterated that public policy is not the policy of a particular government but is a policy in keeping with public interest. public good and the public conscience. It is a concept that must not be accorded a-static meaning. In. fact the term is capable of modification and expansion. Further, the explanation to section 34(2)(b)(ii) reads 'without prejudice to the generality of sub-clause (ii)' implying that policy is not a concept limited to the above examples but inclusive of them. Therefore the ground of public policy that has been provided for is .very wide in scope and ambit. The court. specitically considered Rel1usagar Power ('0. Ltd v. General Flee/ric C:', and added to the principles Jaiddown therein stating that an award may be set aside if it is contrary to: 3. (2002) 3 sec 572. 4. 1l)84(4) sec 679. 484 CENTRAL INDIA LAW 2003 ]. Fundamental policy of Indian law; or 2. The interest of India; or 3. Justice or morality: or 4. If it is patently illegal. The need for' error of law' asa ground for setting aside the arbitral award, as is present in Section 68 of t he English Arbitration Act, ]996 has oft been expressed. Thus it may be observed that the Supreme Court has exerted itself to provide wide grounds of challenge under the broad head of pub Iic policy. Some Further Implications of the ONGC Decision It may also be observed that Section 34 does not provide 'misconduct of the arbitrator' as one of the grounds for recourse. Indeed this ground is not made available under the UNCITRAL Model Arbitration Law. Under the English Arbitration Act, 1996, misconduct of the arbitrator is a ground for challenge and section 67 and 68 of the English Act do not correspond exactly with the UNCITAL Model Law. Under the Indian enactment of 1940, section 30 included misconduct of the arbitrator as a ground for recourse. However, since the ONGC case, under the head of 'public policy' the court has deemed itself to have the power to cure any injustice. Therefore wherever the principles of natural justice have not been followed, the court may redress this by setting aside the arbitral award. More specifically, Section 12(4) read with Section 13(3) indicates that the appointment of an arbitrator may be challenged on the grounds of doubt as to independence of the arbitrator or Vol. XVI SECTION J~ OF THE NEW ARBITR-\TION impartiality of the arbitrator in the course of the arbitral proceeding itself Section 13(4) states that if the challenge is unsuccessful, the arbitral proceedings shall continue. Section 13(5) provides that any award made under these circumstances may be challenged by the party and an application for setting aside of the award may be made in consonance with the provisions of section 34 Section 34(2)(a)(v) can be read to include a challenge on the above grounds. In the ON(;(' case the Apex Court validated Section 13( 5) and Section 16( 6) as legitimate grounds of challenge under Section 34 of the Act. The old act which provided for recourse in a situation where the arbitrator misconducted himself or the award was broadly construed. Reading Section 34 in the light of the ONCI(' case it is evident that though this ground for setting aside an award under the 1996 Act is not expressly stated, the interpretation of the judiciary enhances the scope of the Section So as to possibly include it as a ground for recourse. Therefore. the position in law would seem to be that misconduct of the arbitrator may be read into the section and would be a sufficient ground for setting aside an award Conclusion The judiciary has through the decision in the ON(J(' case demonstrated its unwillingness to take a back seat and play the limited role in arbitration matters envisaged for it by the Model UNCITRAL Law. From the above observations the logical conclusion follows that though the structure and language of Section 34 of the 1996 Act is far removed from that of Section 30 CENTRAL INDIA LAW 1003 of the 1940 Act, judicial interpretation has, in essence, diluted the differences between the two: the extent of this dilution will only become apparent by observing and analyzing the next few judicial decisions in this area which will be crucial. ••••••