Sec. 34 of the Arbitration and Conciliation Act, 1996: Appellate proceedings in substance?

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By Kumar Shashwat

March 3, 2022

In this article, I argue a proposition that a challenge to an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996 [“the Act”] though not inform, but in substance assumes the flavour of appellate proceedings.

Section 34(2) (a) of the Act mentions certain grounds on account of which the Court can set aside the arbitral award, if the party proves that:

Moreover under section34(2)(b) of the Act the court may set aside the Award if:

Despite specific grounds mentioned in Section 34 of the Act,the proceedings under the said section assumes the nature of an appellate court. The reasons in support of this argument are elaborated herein below:

Reasoning:

In support of my argument, I have relied upon three classes of cases on propositions that (i) the qualitative nature of the appreciation of the material on record in an adjudication under Section 34 of the Act, (ii) instance where the Arbitration Court has upheld a minority Award of the Ld. Arbitrator Tribunal, and (iii) permissibility for the Arbitration Court to examine material not propounded before the Ld. Arbitrator.

The proceedings under Section 34 of the Act being of a first instance before a Court is only legal fiction since the same assumes existence of Arbitral Award, arrived at, at least theoretically, pursuant to a rigorous judicial process, akin to a civil trial, which is the first marker of an appellate proceeding.

The qualitative nature of appreciation of the Award, as well as pleading and material relied upon therein, i.e., of award being arbitrary, capricious or perverse, or when the conscience of the Court is shocked, or when the illegality is not trivial but goes to the root of the matter is when interference of the Court is warranted. Though the burden to discharge may be high, however, the qualitative nature of appreciation of material is no different from appreciation in appellate proceedings.

Ordinarily, the appellate court assumes the jurisdiction as the court of first instance in the manner of appreciation of evidence, facts, law, etc.

While, the Arbitration Court under Section 34 of the Act undertakes the same qualitative nature of analysis. However, statutorily, its jurisdiction is limited to arrive at only a singular finding that the Award is liable to be set aside.

In fact, curiously Courts have departed from the outcome mandated under Section 34 of the Act of setting aside the majority Award and have upheld award of the minority of the Tribunal.(Ssangyong Engineering And Construction Co. Ltd v. National Highways Authority Of India). This was premised on the logic under the scheme of Section 34 of the Arbitration Act, the disputes that were decided by the majority award under challenge would have to be referred afresh to another arbitration once the said award would be set aside, the Court held that adopting the said procedure would cause considerable delay. It was further observed that the same would be contrary to the objectives of the Act, namely, speedy resolution of disputes by the arbitral process.

However, in ONGC Ltd v. Interocean Shipping (India) Pvt. Ltd., 2017;ONGC Ltd v. Schlumberger Asia Services Ltd, the High Courts also adopted the course of setting aside the majority Award and upholding award of the minority, but sans any reasoning adopted for such course of action.

The Courts have also adopted a course of action, though as an exception rather than rule that ordinarily it will not examine material beyond the record of the Ld. Arbitrator. However, in the event that there are facts not stated in such record, and are relevant to the determination of issues, the Court may permit the parties to bring such facts on record by way of affidavits, wherein cross examination of persons swearing to the affidavits should not be allowed unless absolutely necessary, as the truth will emerge on a reading of the affidavits filed by both the parties (Emkay Global Financial Services Ltd v. Girdhar Sondhi)

Similarly, if certain facts were concealed, having a causative link with the facts constituting or inducing the award, such facts become relevant for the purpose of deciding adjudication under Section 34 of the Act proceedings. If such facts are discovered after the filing of challenge proceedings (underSection34),they maybe brought on record by way of amendment. (Venture Global Engineering v. Satyam Computer Services ltd and Ors.)

Thus, proceedings under Section 34 of theActhave the colour of appellate proceedings.

Conclusion

In view of the fact that (i) the Arbitration Court under Section 34 of the Act is a Court of First Instance but only as a result of a legal fiction since it assumes existence of ‘judicially’ arrived at Award (ii) the qualitative nature of the proceedings in terms of appreciation of evidence, pleadings, Award, etc, (iii) the assuming of jurisdiction to uphold “minority view” of the Tribunal, while setting aside the “majority view” (iv) permissibility of the parties to bring fresh material on record before the Arbitration Courts, germane for the issues in the Award, leads to a conclusion that a proceeding under Section 34 of Act is though not inform, but in substance, in the nature of appellate proceedings.

Kumar Shashwat is Partner, Kumar & Singh Associates, New Delhi. 

Disclaimer: The views or opinions expressed are solely of the author.

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