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.

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