Abstract
One of the most common methods used to settle disputes in India is through arbitration, rather than by going to the courts. Many businesses, contractors, property owners, and government entities use arbitration because it is quicker, more private, and final than going through the courts. However, if either party believes that the arbitrator was wrong, or worse, acted unfairly, what happens?
There is a legal basis for challenging an arbitral award through the courts in India. However, this is not an easy process, and the law intentionally limits the avenues for appeal. Generally, if one party is dissatisfied with the outcome of an arbitration, the court will not review the merits of the dispute simply because one party was not satisfied with the outcome. The ability to challenge an arbitration award is limited to specific provisions of the law.
This article will describe in layman’s terms what an arbitral award is, when you may challenge an arbitrator’s decision, the legal basis to do so, how the courts review the award, and decisions by the courts regarding arbitral awards through real-life examples and landmark cases.
Introduction: What Is an Arbitral Award?
When two parties have a disagreement and agree to arbitrate their dispute (in the form of a contract provision or an independent agreement), they each select an arbitrator, who is an impartial party who hears both sides’ positions and renders a decision. This decision is called an arbitral award.
An arbitral award has similarities to a judgment rendered in court. An arbitral award is binding on the parties; thus, the arbitral award is enforceable in the same manner as a court order. An arbitrator may award damages, order a party to perform a specific act for the other party, or establish the rights of the parties.
The primary legal framework governing arbitration in India is the Arbitration and Conciliation Act, 1996 (known in this article as “the Act”). The Act is based on the UNCITRAL Model Law and has been amended substantially in 2015, 2019, and 2021 in order to provide for more expedient and efficient resolution of disputes through arbitration.
The general rule with respect to an arbitral award is that the award is final once rendered. However, the Act provides for a limited number of instances where a court can intervene to set aside the award. This process is governed by Section 34 of the Act.
Why Can’t Courts Freely Review Arbitral Awards?
The main purpose of an arbitration proceeding is for the parties involved to select their preferred method of resolving any dispute instead of going through the traditional court system.
If there were no restrictions placed on how a court would conduct a review of an arbitration award, every party that was unsuccessful in the arbitration process could turn to the courts for additional consideration and ultimately create backlogs of cases and delays in the court that the arbitration process was designed to avoid.
The Supreme Court of India has been consistent in holding that the courts should be reluctant to intervene with the decisions of an arbitrator; ONGC Ltd. v. Saw Pipes Ltd. (2003) also expressed that while arbitration awards should have a level of civility, the courts cannot avoid reviewing the award for any errors made by the arbitrator however there are limitations on the amount of review that can be given and these limitations are well established by law.
Section 34 of the arbitration law in existence at this time (following the amendment in 2015) establishes that in considering an application for an order under Section 34, the court will not act as an appellate court and will not consider “Was the arbitrator correct?” Instead, the court will consider whether or not the arbitrator acted outside the authority granted to him or her by law.
The Law: Section 34 of the Arbitration and Conciliation Act, 1996
The primary section authorizing a party to seek relief from court, regarding vacating an arbitral award, is Section 34 of the Arbitration and Conciliation Act. The competent court to file such an action will either be the Principal Civil Court (District Court) or the High Court based upon the dispute’s value and nature.
Filing within Three Months
It is crucial to adhere to deadlines; accordingly, the application to vacate an arbitral award must be filed pursuant to Section 34(3) within three months from the date the party received the arbitral award. The court may condone a delay of an additional thirty days if good cause is shown. Thereafter, there is no extension of the deadline for any reason by the court. This strict deadline has been routinely upheld in many rulings by the Supreme Court of India.
If an applicant misses the deadline, the arbitration award becomes final and enforceable, and thus will not be overturned for any reason. Therefore, it is important that parties take action.
Grounds for Setting Aside an Arbitral Award
Section 34(2) provides for the only valid reasons to set aside or challenge an award. There are two broad types of grounds for setting aside or challenging an award:
Type A – Grounds that must be proven by the party making the application. This is called the burden of proof (the burden is on the applicant).
Type B – Grounds that the court can apply to set aside or challenge an award without the party making the application needing to be specifically mentioned by that applicant (the ground can be applied by the court on its own).
Next, we will examine each of the grounds in detail below.
TYPE A: Grounds Proven By The Applicant
- Incapacity of the Party
If either party to the arbitration agreement was legally incapable of entering an agreement to form the contract at the time the arbitration agreement was made. For instance, a minor or a person of unsound mind cannot be legally bound by a contract. Therefore, arbitration agreements made with incapacitated parties are void under the Indian Contract Act, 1872. The same conclusion applies to the arbitration agreement.
- Invalid Arbitration Agreement
If the arbitration agreement is not valid under the legislation chosen by the parties to apply to the arbitration agreement (or, if no indication is made by the parties to apply a particular legislation, that the laws of India will apply), the arbitration agreement cannot be enforced, and any award made based on the invalid arbitration agreement can be set aside.
For instance, an invalid arbitration agreement includes an arbitration agreement that has been the subject of some contractual deception, where some or all elements of the arbitration agreement are missing or have been forged. Additionally, if there has not been an executed written agreement for the arbitration agreement, then the award based on that agreement will be invalid.
- Lack of Proper Notice or Inability to Present the Case
This is one of the most important practical grounds for challenging the award of an arbitrator because any one of the following possibilities could render the award subject to challenge by a party.
– A party was not given proper notice of the appointment of an arbitrator,
– A party was not provided with proper notice of the arbitration proceedings, or
– A party was not able to present its case for whatever reason.
In essence, the purpose of this ground is to ensure the observance of the fundamental principle of natural justice, that is, to ensure that both parties in an arbitration proceeding are allowed the opportunity to be fully and fairly heard.
For instance, if an arbitrator sends out hearing notices but the notices go to the wrong address and one of the parties does not appear at the hearing, the arbitrator may proceed without that party, or ex parte, and issue an award; then the party that was unable to appear at the hearing may challenge that award on the basis that it did not receive a fair opportunity to be heard.
- Award Deals With Disputes Not Covered by the Submission
The authority of an arbitrator comes from the agreement of arbitration. The arbitrator has limited jurisdiction to determine those matters agreed to by the parties for submission to arbitration.
If an arbitrator goes beyond what was referred to them (for example, decides on matters which were not referred to them) or issues that were not raised during the arbitration proceedings, that portion of the award may be overturned.
Example: If parties to a contract found themselves in a disagreement over the payment of dues and referred their dispute to arbitration, an arbitrator may not decide on issues of property rights because those matters were not included in the reference to arbitration.
Therefore, any award made by an arbitrator in connection with property rights in this example would be outside the arbitrator’s jurisdiction and could be opposed. The award may be challenged only on the basis of the totality of the jurisdictional defect. If the jurisdictional defect can be separated from the remainder of the award, only that jurisdictional defect can be challenged.
- Composition of the Arbitral Tribunal Was Not in Accordance With the Agreement
In arbitrary contractual agreements, parties have discretion to decide the number of arbitrators to be used and how those arbitrators should be appointed. If the agreed-upon appointment procedure is not followed (for example, the parties agree to have a tribunal of 3 arbitrators, and 1 arbitrator issues the award), the parties to the arbitration may have grounds for challenging the arbitration award
Category B: Grounds the Court Can Apply on Its Own
- Subject Matter Not Capable of Settlement by Arbitration
Certain disputes are not capable of being resolved through arbitration under Indian law. The term used to describe these types of disputes is ‘non-arbitrable’. If a court determines that an arbitrator did not have jurisdiction to decide a dispute because the subject matter falls under the non-arbitrable category, the court can set aside the award suo moto (on its own initiative).
In the Supreme Court case Vidya Drolia v. Durga Trading Corporation (2021), a four-part test was devised in order to identify whether a particular subject matter can be addressed by means of a commercial arbitration proceeding. Examples of disputes that are classified as non-arbitrable include:
- Criminal offenses – prosecution for all criminal conduct must take place at the instigation of the state; therefore, parties cannot enter into an agreement to arbitrate their exposure to criminal prosecution.
- Family law disputes (i.e., divorce, custody) – governed exclusively through the family court.
- Insolvency (including winding up proceedings) – both the courts and the NCLT have the sole jurisdiction over insolvency matters.
- Consumer protection disputes (via the Consumer Protection Act) – consumers have a statutory right to pursue their claim via a consumer forum.
- Tenancy disputes that arise under particular state rent control statutes.
- Competition law disputes – jurisdiction resides with the Competition Commission of India.
If an arbitrator makes a determination on any of the above-referenced matters, such award shall be set aside, regardless of whether the issue raised is raised before the court by the parties.
What Courts Will NOT Do
It is important to know what a court cannot do in relation to an arbitral award under the provisions of Section 34 when it considers the award.
The Court will not do the following in respect of re-examining the evidence provided to the arbitrator, substituting their own interpretation of the contract for that of the Arbitrator, setting aside the award simply because it doesn’t agree with the Arbitrator’s reasoning, treating the application as an appeal, or awarding more compensation or changing the amount of the Award.
The Supreme Court in Dyna Technologies v. Crompton Greaves (2019) made it clear that the courts must refrain from assuming the role of an Appellate Court in respect of an Arbitral Award. The issue is not whether the arbitrator erred, but whether he or she exceeded his or her legal powers.
The Process: How to File a Challenge
Step 1: Note the Date and Award
Upon receiving your arbitral award, immediately note the date. You have three months from this date in order to file your application in accordance with Section 34 of the Indian Arbitration and Conciliation Act, 1996 (the ‘Act’). Do not delay in this process.
Step 2: Identify the Grounds for Challenge
Study the award carefully with the assistance of an attorney and determine which grounds set forth in section 34(2) of the Act are met in your case. Courts generally require that you declare the specific legal grounds by which you are challenging the award; simply stating that “the award is incorrect” will likely not suffice.
Step 3: Prepare and File an Application
File your official application under Section 34 of the Act in the appropriate court. Your application must include:
- A complete description of the arbitration proceeding, including the entire arbitral process and agreements used
- A clearly declared legal ground for challenge
- Attach any evidence filed in relation to the challenge (i.e., agreements between parties, arbitral awards, notices, etc)
A court fee must accompany your application upon filing.
Step 4: Stay of Enforcement
Once you file your application, you may also wish to seek a Stay on Enforcement of the Award. The 2021 Amendment has introduced a significant change: the court will no longer automatically grant a Stay. You will have to make a separate Application and convince the Court that there are prima facie grounds for granting the Stay due to Fraud or Corruption. For any other ground, the Court has discretion to grant or deny the Stay and may put conditions on the Stay, such as requiring the filing of a portion of the Award amount.
Step 5: Hearing and Judgment
The court hears both sides and decides whether any of the grounds for setting aside are made out. If the court sets aside the award, the matter may go back to arbitration (before the same or a new tribunal). If the application fails, the award stands and can be enforced.
Case Studies
Illustration 1: Violating the Right to Fair Hearings–Bharat Coal Company Ltd. v. L.K. Ahuja and Co.
In this case, an arbitrator continued hearing and awarding without allowing the respondent any opportunity to defend itself. The court ruled that the denial of an opportunity for an alleged wrongful act is a severe violation that goes directly to the root of the proceedings. On these facts, the court held that due process of law had been violated and, therefore, the award issued was set aside on the basis of the party having no chance to defend itself under Section 34(2)(a)(iii).
This case is an excellent illustration of the fact that arbitration gives rise to rights that are non-negotiable as much as they would be in a court.
Illustration 2: Violating Terms of the Patent–Oil and Natural Gas Corporation v. Saw Pipes Ltd.
This case has become one of the most often cited cases in respect of arbitration in India. In this instance, an arbitrator awarded damages while ignoring an expressly defined contractual clause (i.e., a liquidated damages clause). The Supreme Court held that to ignore any specifically defined contractual provision constitutes a patent illegality, and therefore, the award was set aside on this basis. The court also noted that an award that is patently illegal (i.e., illegal on its face) is offensive to the court’s conscience.
This case was the basis for the addition of the ‘patent illegality’ basis for an award in the 2015 amendment.
Appeals Against the Section 34 Order
Once an application for a Section 34(1)(b) under the ICC Act before a District or High Court has been decided, a party unhappy with that decision can appeal to the applicable High Court or Supreme Court under Section 37 of the ICC Act for a review of the original decision and to also challenge any of the arbitrators’ substantive decisions in the first instance.
An appeal under Section 37 is limited, as a party cannot appeal to an appeals court based on the merits of the underlying dispute or seek to reopen the merits of that dispute. The appellate court is limited to whether the District Court or High Court applied all applicable Section 34 principles appropriately.
The Supreme Court has made it clear in BGS SGS SOMA JV v. NHPC Ltd. (2019) that second appeals, or letters patent appeals, from High Courts concerning arbitrationes/awards will generally not be available; nor will there be public sources (outside the ICC Act) that would support an appeal based on an alleged incorrect determination made by an arbitrator.
Practical Tips for Parties
For the party challenging the award:
Once the ICC Court decides the application, you must act immediately to file — three months pass quickly.
Arbitration should be viewed as a final and binding process, not as an intermediate step leading to more litigation.
Courts will be very strict with respect to the limited grounds available for an appeal.
Your challenge should be based on a clear, demonstrable violation of some law — such as missing evidence, fraud, or a lack of jurisdiction — rather than on your mere disagreement with the outcome.
It will be critical to gather and maintain comprehensive records of all aspects of the arbitration process, including any notices sent by the parties; any written submissions made by each party to the arbitrator(s); any evidence presented by each party to the arbitrator; any transcripts prepared in connection with your arbitration; and the complete award issued by the arbitrator(s)
For the party defending the award:
- Oppose the stay application vigorously — enforcement should not be delayed unless there is a genuine case.
- Ensure that the arbitral record (documents, notices, procedural orders) is complete and available to the court.
- Argue the limited scope of judicial review firmly — remind the court it is not sitting in appeal.
Recent Developments: The Push Toward Less Interference
Over time, India has been striving toward a pro-arbitration and pro-enforcement culture, including enacting the 2015 amendment, a significant reform in defining public policy while limiting judicial interference with arbitration awards, the 2019 amendment permitting new institutional modes of arbitration, and establishing timeframes for the arbitrability of certain claims.
Due to multiple Supreme Court decisions, including Haryana Space Application Center v. Pan India Consultans (2021), clarifying that courts have limited jurisdiction in analyzing Section 34 claims, judges cannot reach beyond Section 34 when performing their duties as a court or a judge.
The Government of India has outlined its goal and aspirations to advance its agenda of making India a global center for arbitration in Policy Documents and through the establishment of the New Delhi International Arbitration Center (NDIAC), which requires that the Indian Court interpret arbitration-supportive, not arbitration-obstructive.
Conclusion
A tribunal will create an arbitral award that resolves disputes between parties quickly and enforceably. Relying on judicial review of an arbitrator’s ruling is not a way to have a second chance to fight again; it is meant to be a limited safety valve to remedy fundamental wrongful conduct.
According to Section 34 of India’s Arbitration and Conciliation Act of 1996, the ability to set aside an arbitral award is based on limited grounds regarding (i) incapacity, (ii) an invalid agreement, (iii) lack of notice, (iv) exceeding the scope of the agreement, (v) improper composition of the tribunal, (vi) non-arbitrability, (vii) contrary to public policy, (viii) fraud, and (ix) “patent” illegality. The nature of each of these grounds has developed over time based on various Supreme Court and High Court decisions.
If you are thinking about challenging an arbitral award, remember the following advice: Act quickly, identify the proper ground for appeal, and do not expect the Judge to retry or otherwise reconsider your original case. Indian Courts have adopted a firm commitment to limiting judicial intervention in arbitrations; this is very beneficial for businesses in India as well as the efficacy of its dispute resolution system over time.
Timeliness is critical if you believe there is a legitimate legal defect in an arbitral award. Consult with a competent arbitration attorney right away, as time is of the essence, and the available grounds for appeal have been carefully defined.
References and Sources
- The Arbitration and Conciliation Act, 1996 (as amended in 2015, 2019, and 2021) — Ministry of Law and Justice, Government of India. Available at: https://www.indiacode.nic.in
- ONGC Ltd. v. Saw Pipes Ltd. — (2003) 5 SCC 705 — Supreme Court of India
- Associate Builders v. Delhi Development Authority — (2015) 3 SCC 49 — Supreme Court of India
- Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd. — (2019) 20 SCC 1 — Supreme Court of India
- Vidya Drolia & Ors. v. Durga Trading Corporation — (2021) 2 SCC 1 — Supreme Court of India
- BGS SGS SOMA JV v. NHPC Ltd. — (2020) 4 SCC 234 — Supreme Court of India
- Haryana Space Application Centre (HARSAC) v. Pan India Consultants Pvt. Ltd. — (2021) 3 SCC 103 — Supreme Court of India
- Swiss Timings Ltd. v. Commonwealth Games 2010 Organising Committee — (2014) 6 SCC 677 — Supreme Court of India
- Law Commission of India — 246th Report on Amendments to the Arbitration and Conciliation Act, 1996 (August 2014). Available at: https://lawcommissionofindia.nic.in
- Ministry of Law and Justice — New Delhi International Arbitration Centre (NDIAC): https://ndiac.gov.in
