The focus of India's rapidly evolving arbitration regime appears to be concentrated on factors, including among other things, ensuring that arbitrations are completed in a timely manner and that the arbitrators that are appointed are impartial. While these factors are significant, the importance of substantive and procedural clarity in terms of what happens after an award is passed is also crucial; for example, the process for:
- seeking clarification of an ambiguous award;
- challenging an award; and
- executing an award.
Any party pursuing arbitration in India is seeking a holistic view and clarity regarding the substantive and procedural facets under the Arbitration and Conciliation Act 1996. The appointment of an arbitrator, seeking interim protection and the conclusion of arbitration proceedings culminating in an award does not always mean that a successful party can realise its claims or that an unsuccessful party is completely defeated. This update provides a concise guide for the procedural aspects to be kept in mind after the pronouncement of an arbitral award.
This update examines the relevant statutory provisions contained in the Arbitration and Conciliation Act, their essential meaning and related legal application with respect to the probable outcomes and possible courses of action available to a party after the pronouncement of an arbitral award.
Correction and interpretation of an arbitral award
As soon as an arbitral award is pronounced, if any discrepancy appears in the award, either party can approach the arbitral tribunal under Section 33 of the Arbitration and Conciliation Act within 30 days from the date of the award.
Section 33 of the act provides that either party can file an application or request that the arbitral tribunal, with notice to the other party, correct any computational, clerical or typographical error or other error of a similar nature. The definition of what constitutes a 'clerical error' was clarified in Bangaru Reddy v The State,(1) in which the court stated that:
A 'clerical error' is an error which can be explained only by considering it as a slip or mistake. Apart from correction of such errors as are popularly known as purely clerical, supply of omissions of consequential orders too may be permissible in certain cases as they are in the nature of clerical omissions; but certainly, such omissions as would demand judicial consideration or determination are beyond the scope of that term.
Further, under Section 33 of the Arbitration and Conciliation Act, parties may also request clarification or interpretation of a specific point or part of the award if it is ambiguous or requires clarification. In State of Arunachal Pradesh v Damani Construction, the Supreme Court held that a party can request the arbitral tribunal's interpretation of a specific point or part of an arbitral award only upon consent of the other party.(2)
Application for an additional award
Section 33 of the Arbitration and Conciliation Act also provides an option for arbitration parties to request that the arbitral tribunal pass an additional award if any claim submitted for determination is omitted or not adjudicated on by the tribunal in their award. The tribunal will consider the granting of an additional award within 60 days from receiving such a request.
Challenging and staying enforcement
If a party is aggrieved by the award passed by the arbitral tribunal, an application may be made under Section 34 of the Arbitration and Conciliation Act to the appropriate court to set aside a portion or the whole of the award.
The period for challenging an arbitral award under Section 34 is 90 days from the date of receipt of the award, which can be extended by a maximum of 30 days if sufficient cause is shown by the party challenging the award. Section 34, Clause 2(e) of the act provides the requirements for the appropriate court which has jurisdiction to hear award challenges:
The principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not include any civil court of grade inferior to such principal Civil Court, or any Court of Small Causes.
Under Section 34(5) of the act, prior notice must be issued to the other party before an application for setting aside the arbitral award is filed. Further, under Section 34 of the act, the application must be accompanied with an affidavit from the applicant or petitioner, which states compliance with the condition of sending prior notice.
Section 34 prescribes the grounds on which a challenge of an award can be entertained and set aside. The Apex Court in India has provided a strict interpretation of the necessary grounds required for a challenge or setting aside of an award to be requested.(3) The necessary grounds include the following:
- A party was under some incapacity.
- The arbitration agreement between the parties was not valid under the law to which the parties subjected it or, failing any indication thereon, under the law in force.
- The party making the application was not given proper notice of the appointment of an arbitrator or the arbitral proceedings, or was otherwise unable to present its case.
- 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.
- The composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties.
- The subject matter of the dispute is not capable of settlement by arbitration under the law in force.
- The arbitral award is in conflict with public policy.
- There was patent illegality in the award.
The act clarifies the limited grounds of public policy and clearly states that an arbitral award cannot be set aside merely on the grounds of an erroneous application of the law or as a result of a reinterpretation of evidence.
In light of the 2015 amendment to the Arbitration and Conciliation Act, a challenge to the arbitral award by a party would not ipso facto entail an automatic stay on the operation of the arbitral award. There is no substantive right vested in a judgment debtor to resist execution.(4) Therefore, in addition to challenging the award, the aggrieved party is also required to file a separate application in the court, which shows sufficient cause to seek an injunction on the execution or operation of the award. While adjudicating such an application, the courts may direct the challenging party to deposit any amount of money, as part of the arbitral award, as it deems fit.
Appealing an unfavourable order
Under Section 34 of the Arbitration and Conciliation Act, if the outcome of an award challenge is not in favour of the challenging party, the party may seek remedy available under Section 37 of the act, which provides the ability to appeal such an order. The grounds for appeal under this section are even more restrictive than those available under Section 34. However, Section 37(3) of the act also prescribes that "no second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall affect or take away any right to appeal to the Supreme Court". Therefore, the aggrieved party is not left remediless and may pursue the matter before the Supreme Court. While the act does not prescribe a limitation period within which an appeal must be filed, the limitation period to file an appeal under Section 37 of the act is 90 days from the date of receipt of the order (under the Limitation Act 1963).
Enforcement and execution of an arbitral award
Under Section 36 of the act, an arbitral award is enforceable under the Code of Civil Procedure 1908 in the same manner as a decree of the court, once the timeframe for applying to set aside the award under Section 34 of the act has expired.
In Sundaram Finance Ltd v Abdul Samad and Ors, the Supreme Court provided a comprehensive analysis of the execution of an arbitral award.(5) The court concluded that the enforcement of an arbitral award through its execution could be filed in any court in the country in which the decree can be executed and there is no need for a transfer order from the court which would have jurisdiction over the arbitral proceedings. The court also clarified that once the arbitral award has been made and the period of challenge under Section 34 has lapsed, the arbitral proceedings then stand concluded.
Further, since arbitral awards are deemed to be decrees for the purpose of enforcement, and the Limitation Act applies to arbitration, the limitation period for the enforcement of an arbitral award is 12 years.
Given that the recent trend in Indian arbitration is to streamline the existing legislative framework in line with international institutions, such as the Singapore International Arbitration Centre and the London Court of International Arbitration procedural ease and clarity are crucial if India is to become a global arbitration destination.
For further information on this topic please contact Ajay Bhargava, Shalini Sati Prasad or Meher Tandon at Khaitan & Co by telephone (+91 22 6636 5000) or email ([email protected], [email protected] or [email protected]). The Khaitan & Co website can be accessed at www.khaitanco.com.
Endnotes
(3) Associate Builders v DDA, (2015 3 SCC 49); McDermott International Inc v Burn Standard Co Ltd, (2006 11 SCC 181); MSK Projects (I) (JV) Ltd v State of Rajasthan, (2011 10 SCC 573); Rashtriya Ispat Nigam Ltd v Dewan Chand Ram Saran, (2012 5 SCC 306); SAIL v Gupta Brother Steel Tubes Ltd, (2009 10 SCC 63); and Sumitomo Heavy Industries Ltd v ONGC Ltd, (2010 11 SCC 296).
(4) National Aluminum Company Ltd v Presteel and Fabrication Pvt Ltd, (2004 1 SCC 540).
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