Grounds for challenge in Arbitration
Grounds for Challenge to an Arbitral Award (Setting Aside)
Legal Framework:
Section 34 of the Arbitration and Conciliation Act, 1996 provides the grounds and procedure to apply to a court to set aside (challenge) an arbitral award.
1. Who can file the challenge?
A party against whom the arbitral award is passed.
The application must be made within three months from the date of receipt of the award.
2. When can an award be challenged?
The court will set aside the arbitral award only if one or more of the grounds specified in Section 34(2) exist.
3. Grounds for Challenge (Section 34(2))
The court may set aside the award if the party making the application proves that:
| Ground | Explanation |
|---|---|
| (a) Incapacity of a party | At the time of making the arbitration agreement, the party was under some incapacity (e.g., minor, unsound mind). |
| (b) Invalid arbitration agreement | The arbitration agreement is not valid under the law to which the parties have subjected it, or failing any indication, under Indian law. |
| (c) Improper notice or inability to present case | The party was not given proper notice of the appointment of the arbitrator or the arbitration proceedings or was otherwise unable to present their case. |
| (d) Award deals with a dispute not contemplated or beyond scope | The award deals with issues not covered by the arbitration agreement or contains decisions beyond the scope (ultra vires). |
| (e) Composition of tribunal or procedure not in accordance | The composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or the Act, unless such violation was not prejudicial to the applicant. |
| (f) The award is in conflict with public policy of India | The award is in conflict with the public policy of India. This is a crucial and often litigated ground. |
Explanation of Key Grounds
Incapacity & Invalid Agreement (a & b): Protects parties who never validly consented to arbitration.
Notice and Fair Hearing (c): Ensures natural justice — parties must get a chance to be heard.
Excess of Jurisdiction (d): Tribunal cannot decide disputes beyond what parties agreed.
Procedural Irregularities (e): If tribunal formation or procedure is unfair or violates party agreement.
Public Policy (f): The broadest ground; includes illegal contracts, fraud, corruption, and awards contrary to morality or law.
4. Public Policy: Broad Interpretation
The Supreme Court in several cases has interpreted “public policy” widely, including:
Awards in violation of fundamental principles of justice.
Awards that are patently illegal or fraudulent.
Awards against the interest of sovereignty and integrity of India.
Awards in contravention of statutory provisions.
5. Case Law on Grounds for Challenge
📌 Renusagar Power Co. Ltd. v. General Electric Co. (1994) 1 SCC 644
Held that awards are subject to public policy and courts can set aside awards violating Indian law.
📌 Bharat Aluminum Co. Ltd. (BALCO) v. Kaiser Aluminum Technical Services (2012) 9 SCC 552
The Supreme Court narrowed down “public policy” to fraud, corruption, violation of Indian law, etc., for setting aside awards under Section 34.
📌 Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd. (2003) 5 SCC 705
Expanded the grounds under “public policy” to include violation of natural justice, arbitrator’s misconduct, and patent illegality.
6. Procedure for Challenge
Application filed before the court having jurisdiction.
Court may stay enforcement of the award during the challenge.
Court examines the grounds strictly to prevent frivolous challenges and uphold arbitration as an effective dispute resolution.
7. Other Grounds Not Available for Challenge
Errors of fact or law by arbitrator are generally not grounds for challenge.
Mere disagreement with the tribunal’s findings is insufficient.
Summary Table of Grounds for Setting Aside Award (Section 34(2))
| Ground | Description |
|---|---|
| Incapacity of party | Party lacked capacity to enter agreement |
| Invalid arbitration agreement | Arbitration agreement not valid |
| Improper notice | Party not given proper notice or chance to present case |
| Award beyond scope | Decision on matters outside arbitration agreement |
| Tribunal composition/procedure | Tribunal not constituted or procedure not followed |
| Public policy violation | Award conflicts with public policy of India |
Conclusion
The grounds to challenge an arbitral award are limited and strictly construed to uphold the principle of finality and effectiveness of arbitration. The court intervenes only in cases of serious procedural irregularities or illegality.
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