By: Abhishek Shah & Siddharth

Trivedi
B.Com LLB Sem:IX

Section 34 of Arbitration and

Conciliation Act, 199
Application for setting aside arbitral award.
(1) Recourse to a Court against an arbitral award may be made only by an application for
setting aside such award in accordance with sub-section (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court only if
(a) the party making the application furnishes proof that
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties have
subjected it or, failing any indication thereon, under the law for the time being in force;
or
(iii) the party making the application was not given proper notice of the appointment of
an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the
submission to arbitration, or it contains decisions on matters beyond the scope of the submission to
arbitration:
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so
submitted, only that part of the arbitral award which contains decisions on matters not submitted to
arbitration may be set aside; or
(v) 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 provision of this Part from
which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part;
or
(b)the Court finds that
(i)the subject-matter of the dispute is not capable of settlement by arbitration
under the law for the time being in force, or
(ii)the arbitral award is in conflict with the public policy of India.

Explanation. Without prejudice to the generality of sub-clause (ii) it is hereby

declared, for the avoidance of any doubt, that an award is in conflict with the
public policy of India if the making of the award was induced or affected by fraud
or corruption or was in violation of section 75 or section 81.
3)An application for setting aside may not be made after three months have
elapsed from the date on which the party making that application had received the
arbitral award or, if a request had been made under section 33, from the date on
which that request had been disposed of by the arbitral tribunal: Provided that if
the Court is satisfied that the applicant was prevented by sufficient cause from
making the application within the said period of three months it may entertain the
application within a further period of thirty days, but not thereafter.
(4)On receipt of an application under sub-section (1), the Court may, where it is
appropriate and it is so requested by a party, adjourn the proceedings for a period
of time determined by it in order to give the arbitral tribunal an opportunity to
resume the arbitral proceedings or to take such other action as in the opinion of
arbitral tribunal will eliminate the grounds for setting aside the arbitral award.

Incapacity of party S. 34(2)

(a)(i)
If a party to an arbitration is not capable of looking
after his own interest and he is not represented by a
person who can protect his interest the award will
not be binding and maybe set aside on his
application.
A minor or a person of unsound mind is not capable
of binding himself by a contract, and therefore, an
award under such contract does not bind him.
To protect the interest of such party, section 9 of the
act enables him to apply to the court for the
appointment of a guardian for the purpose of the
arbitration proceedings.

Invalidity of agreement S. 34 (2) (a)

(ii)
If the arbitration agreement is invalid, the
reference thereunder and consequently the
award on the basis of such reference would
be invalid and can be set aside. The validity
of an arbitration agreement can be
challenged on any grounds on which the
validity of the contract may be challenged.
The Delhi High Court in the case of National
Research Development Corp V. Silicon
Ceramica ltd[AIR 1998 Del 52], observed that
,

 where the very foundation of the

reference becomes shaken on the ground
of invalidity of the agreement containing
the arbitration clause, the participation of
the party in arbitration proceedings
culminating in the award will be of no
consequence and he would be entitled to
move an application for declaration that
the arbitration agreement does not exist
or the same is a nullity or void ab initio.

Notice not given to the party, unable to present the

case S. 34 (2) (a) (iii)

Section 34(2) (a) (iii) permits to

challenge an award on three
grounds:
1. The party was not given proper
notice of the appointment of an
arbitrator, or
2. The party was not given proper
notice of the arbitration
proceedings, or
3. The party was for some reason

No notice of appointment of
arbitrator
Section 12 gives a party the right to challenge the
appointment of an arbitrator on the ground of his
integrity and impartiality being doubtful. If the
parties is not given notice of the appointment of
an arbitrator he is deprived of this valuable right.
In Dulal Poddar V. Executive Engineer, [(2004) 1
SCC 73] the appointment of an arbitrator at the
behest of the appellant without sending the notice
to the respondents, Ex parte award was given by
the arbitrator was held illegal and hence liable to
be set aside

No notice of the
proceedings
Section 23 of the act deals with the Statements of claim
and defense, here it is essential that the parties be given
proper notice of the arbitral proceedings so that they may
file their statements of claim and defense as required under
the act. Under section 23(1) the arbitral tribunal has to
determine the time within the statements must be filed.
This determination must be communicated to the parties by
a proper notice.
Further section 24(2) mandates that the party shall be
given the sufficient advance notice of any hearing and of
any meeting of the Tribunal for the purpose of inspection of
documents or goods or property. Non compliance to these
obligation would render the award illegal and liable to be
set aside.

 In State of Gujarat V. B.B Chauhan [ AIR 2003

NOC 211]
The award was passed by the arbitrator without
considering the question whether proper notice
was served on the other party. Thus the same
was illegal and liable to be set aside.
Similarly in Sona Finance(P) Ltd V. Tirupati Paper
Mills(P) Ltd, [(2003) 4 RAJ 719] here an Ex-parte
award was passed without giving any notice
and the same was set aside.

Award beyond scope of reference

S.34(2) (a) (iv)
The reference of a dispute under an agreement
defines the limit of the authority and jurisdiction of
the arbitrator. The arbitrators authority has its source
in the reference. He cannot traverse beyond the
reference, if he does so he acts without jurisdiction.
In S. Harcharan Singh V. Union of India [(1990) 4 SCC
647] it was observed by the Supreme Court that the
jurisdiction of the arbitrator is limited by the
reference and if the arbitrator has assumed
jurisdiction not possessed by him, the award to the
extent to which it is beyond the arbitrators
jurisdiction would be invaild and liable to be set aside.

 Section 34(2) (a) (iv) provides that the arbitral award is

liable to be set aside under the below mentioned conditions:
1. It is not contemplated by the reference, or
2. It does not fall within the terms of the reference, or
3. It contains a decision in matters beyond the reference.
Here in the case of Union of India V. Om Prakash Baldev [ AIR
2000 J&K 79] the claim in a government contract related to
the assessment of the value of the tools, materials and plants
lying at the site and the contract specified an authority which
was to carry out such assessment, an assessment and
determination by the arbitrator was by the arbitrator of the
same was inoperative and liable to be set aside.

Matters that does not fall within the

terms of reference
In another case of Gbangbola V.
Smith & Sheriff Ltd [ (2000) 3 ALL ER
730 (QB), here the award as to costs
included in matters were not raised
by the parties and was also, the
affected party applied for setting
aside. The court observed that it
could provide the relief of setting
aside only that part of the award as
to cost which was uncertain and was

Decision beyond the

reference
In Rajinder Kishan Khanna V. Union of India
[(1998) 2 SCC 129, the parties to writ petition
agreed to transfer their disputes and differences
alleged in the writ to arbitration. The relief sought
in the writ petition included damages for
destruction of houses, corps and orchards. The
arbitrator awarded a sum of money for the
potential loss of the land. The Supreme Court held
that the award was outside the scope of reference
to arbitration. In the writ petition there was no
such claim and no averments or particulars in that
behalf.

Illegality in composition of tribunal or

in arbitral procedure S. 34(2) (a) (v)
An application under section 34 for setting
aside the arbitral award can be made on the
following grounds:
1. The composition of the Tribunal was not in
accordance with the agreement; or
2. The procedure agreed by the parties was not
followed in the conduct of proceedings; or
3. In absence of agreement as to the
procedure, the procedure by the Act was not
followed.

 Section 10 and 11 of the act deals with the composition

of arbitral tribunal and matters of appointment.
(2)Subject to sub-section (6), the parties are free to agree
on a procedure for appointing the arbitrator or arbitrators.
(3)Failing any agreement referred to in sub-section (2), in
an arbitration with three arbitrators, each party shall
appoint one arbitrator, and the two appointed arbitrators
shall appoint the third arbitrator who shall act as the
presiding arbitrator.
(4)If the appointment procedure in sub-section (3) applies
and(a)a party fails to appoint an arbitrator within thirty
days from the receipt of a request to do so from the other
party; or

 (b)the two appointed arbitrators fail to agree on the

third arbitrator within thirty days from the date of
their appointment, the appointment shall be made,
upon request of a party, by the Chief Justice or any
person or institution designated by him.
(5)Failing any agreement referred to in sub-section
(2), in an arbitration with a sole arbitrator, if the
parties fail to agree on the arbitrator within thirty
days from receipt of a request by one party from the
other party to so agree the appointment shall be
made, upon request of a party, by the Chief Justice
or any person or institution designated by him.

 In ONGC Ltd V. Saw Pipe Ltd, [(2003) 5 SCC 705] Supreme

Court observed that,
In Section 34(2)(a)(v) of the act, the composition of the
arbitral tribunal should be in accordance with the agreement.
Similarly, the procedure which is required to be followed by the
arbitrators should also be in accordance with the agreements
of the parties. If there is no such agreement then it should be
in accordance with the procedure prescribed in Part I of the
act, i.e. Section 2 to 43.
Section 34 read conjointly with the other provisions of the Act
indicates that the legislative intent could not be that if the
award is in contravention of the provisions of the Act, still
however, it could not be set aside by the court. If the tribunal
has not followed the mandatory prescribed procedure 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.

Dispute not arbitrable S. 34(2) (b)

(i)
Section 34(2) (b) (i) deals with the disputes which cannot be
decided by the arbitral tribunal and if at all such disputes are
referred to the arbitral tribunal then award so passed is illegal
and liable to be set aside.
In Booz Allen & Hamilton Inc. vs. SBI Home Finance Ltd. & Ors.
[(2011) 5 SCC 532] the Supreme Court carved out six categories
of cases which are not capable for being decided by private
arbitration under the Arbitration Act even though parties agreed
for their settlement through private arbitration.
(i) disputes relating to rights and liabilities which give rise to or
arise out of criminal offences;
(ii) matrimonial disputes relating to divorce, judicial separation,
restitution of conjugal rights, child custody;
(iii) guardianship matters;

(iv) insolvency and winding up matters;

(v) testamentary matters (grant of probate, letters
of administration and succession certificate); and
(vi) eviction or tenancy matters governed by
special statutes where the tenant enjoys statutory
protection against eviction.
Supreme Court of India inShri Vimal Kishor Shah
Vs Jayesh Dinesh Shah & Ors has added one more
category in the list (vii), namely, cases arising out
of Trust Deed and the Trust Act

Public policy : Fraud and corruption

S.34 (2) (b) (ii)
Section 34(2) (b) (ii) provides that an application for setting
aside the arbitral award can be made if the arbitral award is
in conflict with the public policy of India.
The term public policy was rightly explained in the case of
Rail India Technical and Economic Services Ltd V. Ravi
Constructions,[ AIR 2002 NOC 30], it was observed that, the
term public policy is not defined either in Arbitration and
Conciliation Act, 1996 or in the Contract Act 1872,. The
reason is that these expressions are incapable of precise
definition. The concept has been taken to connote larger
public interest or public good. Speaking broadly it would
mean policy of law. Whatever would tend to abstract public
justice or violate a statue, whatever is against good morals
is against public policy.

 The explanation given in the (2) of (b) of section 34 was

replaced by the following
Explanation 1-For the avoidance of any doubt, it is clarified
that an awards is in conflict with the public policy of India ,
only of,1. The making if the award was induced or affected by fraud or
corruption or was in violation of section 75 or section 81; or
2. It is in contravention with the fundamental policy of indian
law; or
3. It is in conflict with the most basic notions of morality or
justice.
. Explanation 2- for the avoidance of doubt, the test as to
whether there is a contravention with the fundamental policy
of Indian law shall not entail a review on merits of the
dispute.

Section 34 (2A)
An arbitral award arising out of arbitration
other than International commercial
arbitration, may also be set aside by the
court, if it finds that the award is vitiated
by a patent illegality appearing on the
face of the award:
Provided that an awards shall not be set
aside merely in the ground of an
erroneous application of the law or by reappreciating of evidence

Limitation for filing application for

setting aside S. 34 (3)
Sub-section (3) prescribes the limitation of three
months for filing an application for setting aside an
award. The application cannot be made after the
expiry of the three months1. From the date on which the party received the
arbitral award, or
2. From the date of disposal of application under
section 33 if made, for the correction, interpretation
or making of additional award.
The proviso to sub-section (3) empowers the court to
extend, for sufficient cause, the time by a further
maximum period of thirty days.

Opportunity to tribunal to eliminate

ground for setting aside award S.34 (4)
When an application under sub-section (1)
of section 34 has been, the Court may,
where it is appropriate and it is so requested
by a party, adjourn the proceedings for a
period of time determined by it in order to
give the arbitral tribunal an opportunity to
resume the arbitral proceedings or to take
such other action as in the opinion of
arbitral tribunal will eliminate the grounds
for setting aside the arbitral award

Section 34(5) Amendment

An application under this section
shall be filed by a party only after
issuing a prior notice to the other
party and such application shall be
accompanied by an affidavit by the
application endorsing compliance
with the requirements.

Section 34(6) Amendment

An application under this section
shall be disposed of expeditiously,
and in any event, within a period of
one year from the date on which the
notice referred to in sub-section (5) is
served upon the other party.