An application for setting aside an arbitral award is a critical stage in the arbitration process.

It
allows a party to challenge the validity of the award before a court. However, the grounds for such a
challenge are deliberately limited and narrowly construed to uphold the sanctity and finality of
arbitral awards, in line with the pro-arbitration stance adopted internationally and under the
Arbitration and Conciliation Act, 1996 (as amended).

Section 34 of the Act lays down the exhaustive grounds on which a court may set aside an arbitral
award. These grounds can be broadly categorized as follows:

1. Incapacity of a Party (Section 34(2)(a)(i)):

If a party to the arbitration agreement was under some incapacity (e.g., minority, unsoundness
of mind) at the time of entering into the agreement, the award can be set aside.

Case Law: While specific Indian case laws directly on this ground in the context of setting aside
awards are less frequent, the principle aligns with general contract law. If a contract (which
includes an arbitration agreement) is voidable due to the incapacity of a party, any award
arising from it can be challenged.

2. Invalidity of the Arbitration Agreement (Section 34(2)(a)(ii)):

If the arbitration agreement itself is invalid under the law to which the parties have subjected it
or, failing any indication thereon, under the law for the time being in force in India, the award
can be set aside. This could include issues like lack of consent, fraud, coercion, or if the
agreement is void ab initio.

Case Law: In S.N. Prasad, Hitek Engineers (P) Ltd. v. Monnet Finance Ltd. (2011) 1 SCC 320,
the Supreme Court reiterated that the existence and validity of the arbitration agreement are
prerequisites for the arbitral tribunal's jurisdiction. If the agreement is found to be invalid, the
award is unsustainable.

3. Lack of Proper Notice or Inability to Present Case (Section 34(2)(a)(iii)):

If the applicant was not given proper notice of the appointment of an arbitrator or of the arbitral
proceedings, or was otherwise unable to present their case, the award can be set aside. This
ground is rooted in the principles of natural justice.

Case Law: In Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd. (2019) 20 SCC 1, the
Supreme Court emphasized the importance of providing adequate opportunity to parties to
present their case. Denial of a fair hearing due to lack of notice or inability to present evidence
can lead to the setting aside of the award.
 Case Law: In R.S. Jiwani (M/s.) v. Ircon International Ltd. (2010) 1 SCC 738, the Supreme
Court set aside an award where one party was not given a fair opportunity to present its
evidence and cross-examine witnesses.

4. Award Beyond the Scope of Submission (Section 34(2)(a)(iv)):

If the arbitral award deals with a dispute not contemplated by or not falling within the terms of
the submission to arbitration, or if it contains decisions on matters beyond the scope of the
submission to arbitration, the award can be set aside. However, if the decisions on matters
within the scope can be separated from those not within the scope, only the latter part of the
award may be set aside.

Case Law: In Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran (2012) 5 SCC 306, the
Supreme Court held that the arbitrator cannot travel beyond the contract and the agreed terms
of reference. An award that decides on matters outside the scope of the arbitration agreement
is liable to be set aside.

5. Composition of Arbitral Tribunal or Arbitral Procedure Not in Accordance with Agreement (Section
34(2)(a)(v)):

If the composition of the arbitral tribunal or the arbitral procedure was not in accordance with
the agreement of the parties, unless such agreement was in conflict with a mandatory provision
of Part I of the Act, the award can be set aside. Failing such agreement, if the composition or
procedure was not in accordance with Part I of the Act, the award can also be set aside.

Case Law: In Arasmeta Captive Power Company Pvt. Ltd. v. Lafarge India Pvt. Ltd. (2013) 15
SCC 414, the Supreme Court upheld the setting aside of an award where the appointment of
the sole arbitrator was contrary to the agreed procedure between the parties.

6. Non-Arbitrability of the Subject Matter (Section 34(2)(b)(i)):

If the court finds that the subject matter of the dispute is not capable of settlement by
arbitration under the law for the time being in force, the award can be set aside. This refers to
categories of disputes that are considered inherently non-arbitrable due to public policy reasons
or statutory exclusions (e.g., criminal matters, matrimonial disputes, insolvency
proceedings).

Case Law: In Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd. (2011) 5 SCC 532, the
Supreme Court laid down categories of disputes that are generally considered non-arbitrable,
emphasizing that disputes relating to rights in rem are typically reserved for public fora.

Case Law: In Vidya Drolia v. Durga Trading Corporation (2021) 2 SCC 1, the Supreme Court
further clarified the scope of non-arbitrability, particularly concerning allegations of fraud,
 holding that only serious fraud that vitiates the arbitration agreement itself or has implications
for public policy would render a dispute non-arbitrable.

7. Conflict with Public Policy of India (Section 34(2)(b)(ii)):

If the court finds that the arbitral award is in conflict with the public policy of India, it can be set
aside. The scope of "public policy of India" has been narrowly interpreted by the courts
following amendments to the Act. An award is now considered to be in conflict with public policy
only if:

It was induced or affected by fraud or corruption.

It is in contravention with the fundamental policy of Indian law. This contravention must be
so fundamental as to amount to a breach of the core values of India's national policy, as
enshrined in its laws.

It is in conflict with the most basic notions of morality or justice.

Case Law: The interpretation of "public policy of India" has evolved significantly. In ONGC Ltd.
v. Saw Pipes Ltd. (2003) 5 SCC 705, the court had a broader interpretation. However,
subsequent amendments and judgments like Associate Builders v. Delhi Development Authority
(2015) 3 SCC 49 and Ssangyong Engineering & Construction Co. Ltd. v. NHAI (2019) 15 SCC
131 have narrowed its scope. The "patent illegality appearing on the face of the award" was a
ground under the old interpretation but is no longer a standalone ground unless it falls under
the fundamental policy of Indian law.

Case Law: Vijay Karia v. Prysmian Cavi E Sistemi S.R.L. (2020) 11 SCC 1 further clarified the
limited scope of interference on the ground of public policy, especially in the context of foreign
awards.

8. Patent Illegality Appearing on the Face of the Award (Proviso to Section 34(2)(b)(ii)):

For domestic awards (arbitration taking place in India), an additional ground for setting aside
is patent illegality appearing on the face of the award. However, an award shall not be set aside
merely on the ground of an erroneous application of the law or by re-appreciating evidence.
The illegality must go to the root of the matter.

Case Law: The Supreme Court in Ssangyong Engineering & Construction Co. Ltd. v. NHAI
(2019) 15 SCC 131 clarified that patent illegality must be a glaring illegality that goes to the
basis of the award. Minor errors in the application of law or appreciation of evidence are not
grounds for setting aside.

Important Procedural Aspects:

The court, while considering an application for setting aside an award, cannot go into the merits
of the dispute and re-appreciate the evidence. The scope of judicial review is limited to the
grounds specified in Section 34.

The filing of an application for setting aside does not automatically stay the enforcement of the
award. The court has the discretion to grant a stay of the operation of the arbitral award on
such conditions as it may deem fit (Section 36(2)).

In conclusion, Section 34 of the Arbitration and Conciliation Act, 1996 provides a limited and
exhaustive list of grounds for challenging an arbitral award. The courts have consistently
emphasized a restrictive approach to setting aside awards to promote arbitration as an effective and
final dispute resolution mechanism. The focus is on ensuring procedural fairness, adherence to the
arbitration agreement, and preventing awards that are fundamentally flawed or contrary to the public
policy of India.

Sources and related content