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Setting Aside Arbitral Award

Updated: May 16


Setting Aside Arbitral Award
Setting Aside Arbitral Award

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Challenging Arbitral Awards


In the intricate landscape of arbitration law in India, the provision for setting aside arbitral awards stands as a crucial mechanism for parties dissatisfied with arbitration outcomes. This provision, entrenched in Section 34 of the Arbitration and Conciliation Act, 1996, delineates the grounds upon which a party can petition the court to invalidate an arbitral award.



Grounds for Annulment


Section 34(2) of the Act meticulously outlines the circumstances under which an arbitral award may be annulled by the court. This section serves as a safeguard against potential injustices while upholding the finality of arbitration. The grounds for setting aside an arbitral award encompass various scenarios:



  • Procedural Irregularities: Parties can seek annulment if they can substantiate procedural irregularities that undermine the fairness of the arbitration process. These irregularities may include situations where a party was incapacitated, the arbitration agreement was rendered invalid, or a party was denied adequate notice or the opportunity to present their case effectively.


  • Adherence to Scope: Arbitral awards risk nullification if they transcend the boundaries delineated by the arbitration agreement. Awards addressing disputes beyond the agreed-upon scope or making decisions on matters outside the arbitration's purview are susceptible to challenge.


  • Legal Limitations: The court may intervene if the subject matter of the dispute is deemed legally incapable of arbitration under Indian law. This provision acts as a safeguard against arbitrations involving matters beyond the scope of permissible arbitration under Indian legal frameworks.


  • Public Policy Considerations: Perhaps the most critical ground for setting aside an arbitral award is if it contravenes the public policy of India. This provision indicates the state's commitment to ensuring that arbitration outcomes align with fundamental principles of justice, morality, and the overarching interests of society.

 
 

Interpreting 'Public Policy'


The concept of 'public policy' within the context of arbitration has been subject to extensive judicial interpretation, reflecting the dynamic nature of societal norms and values.



The landmark case of Renusagar Power Co. Ltd. v. General Electric Co. laid the foundation for defining 'public policy' in arbitration. The Supreme Court identified three pillars constituting public policy: adherence to fundamental Indian legal principles, preservation of national interests, and upholding justice and morality.



Subsequent judgments, notably ONGC Ltd v. Saw Pipes Ltd, expanded the scope of 'public policy' by incorporating the concept of patent illegality. While this expansion aimed to bolster the integrity of arbitration, it also led to an increase in challenges against arbitral awards, raising concerns about the efficiency and effectiveness of the arbitration process in India.




Public Policy in Enforcement of Foreign Awards


Within the framework of international conventions like the Geneva and New York Conventions, the concept of public policy plays a pivotal role in determining the enforceability of arbitral awards. 



While the Geneva Convention allowed for refusal of enforcement based on the illegality of the contract, the New York Convention raised the bar, requiring enforcement to be contrary to the public policy of the enforcing country. India, being an early signatory to the New York Convention, swiftly integrated its principles into its domestic legal system.



In Indian jurisprudence, the Supreme Court has wielded the public policy exception judiciously, particularly when evaluating objections to the enforcement of foreign awards. Notably, in Renusagar Power Company Ltd. v. General Electric Company, the Court delineated the contours of 'public policy,' emphasising its interpretation within the Indian legal framework rather than an international standard.



The Court's stance reflects a deliberate choice for a narrow interpretation of public policy, aligning with the objectives of the Foreign Awards Act to bolster international trade and commerce. 



This approach, reminiscent of both the Model Law and the New York Convention, advocates for a restrained judicial review to prevent undue hindrance to cross-border transactions.



Accordingly, the Court outlined specific grounds under which enforcement of foreign awards could be resisted, emphasising the fundamental policy of Indian law, the interests of India, or considerations of justice and morality. 



Importantly, the threshold for invoking the public policy exception necessitates more than a mere violation of Indian law, requiring a substantial departure from established norms.



Moreover, a clear distinction was drawn between the award itself and its enforcement. While the latter must align with India's public policy, no scrutiny of the award's merits would transpire, in adherence to the principles of the New York Convention.



Recognizing the divergence in standards applied to domestic and foreign awards, the Court highlighted the need for a nuanced approach, tailored to the international context.



Striking a Balance


The provisions for setting aside arbitral awards reflect India's commitment to fostering a robust arbitration ecosystem that balances the finality of arbitration with the imperative of fairness and justice. By delineating clear grounds for intervention, the law seeks to maintain the integrity of arbitration while safeguarding against potential miscarriages of justice.

 
 



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