Section 34 of Arbitration and Conciliation act 1996

Introduction 

Arbitration has become a widely favoured method of dispute resolution in India, offering parties an efficient, confidential, and adaptable alternative to lengthy court litigation. Yet, situations may arise where an arbitral award appears unjust, unreasonable, or contrary to law. In such cases, Section 34 of the Arbitration and Conciliation Act provides a limited scope for judicial intervention, allowing a challenge only on specific, well-defined grounds. Understanding these grounds is crucial for parties seeking to balance the finality of arbitration with the need for fairness and legal integrity in the process. 

Limited Grounds for Challenge 

• Section 34 makes it clear that challenging an arbitral award is not easy—and that's by design.  
• The law recognizes only specific grounds under which a court may set aside an award, preserving the finality that makes arbitration attractive in the first place. 

Grounds Based on Party Application - Section 34(2)(a) 

A party can seek to set aside an award by establishing from the tribunal's record that: 

• Incapacity or Invalid Agreement: If a party lacked legal capacity to enter arbitration, or if the arbitration agreement itself is invalid under applicable law, the award can be challenged. 
• Denial of Natural Justice: If a party wasn't given proper notice of arbitrator appointments or proceedings, or was otherwise prevented from presenting their case, this constitutes a valid ground for setting aside the award. 
• Scope Issues: When an award addresses disputes outside the arbitration agreement's scope, that portion may be set aside. Importantly, if separable, only the problematic part is removed while the rest remains valid. 
• Procedural Irregularities: If the tribunal's composition or the arbitration procedure violated the parties' agreement (unless that agreement itself conflicted with mandatory legal provisions), the award may be challenged. 

Grounds Based on Court's Own Findings - Section 34(2)(b) 

The court can set aside an award if it determines that: 

• Non-Arbitrable Subject Matter: The dispute itself isn't capable of resolution through arbitration under Indian law. 
• Public Policy Violation: The award conflicts with India's public policy, which includes situations involving fraud, corruption, violations of fundamental policy, or conflicts with basic notions of morality and justice. Crucially, public policy grounds don't permit courts to review the merits of the dispute itself. 

Patent Illegality - Section 34(2A) 

• For domestic arbitrations (excluding international commercial arbitrations), courts can set aside awards suffering from patent illegality visible on the award's face. However, mere errors in applying law or evidence appreciation don't justify setting aside an award. 

Strict Time Limits - Section 34(3) 

• Time is of the essence. Applications must be filed within three months of receiving the award. Courts may allow an additional thirty days if sufficient cause prevented timely filing, but absolutely no extensions beyond that period. 

Procedural Requirements - Sections 34(5) & 34(6) 

• Recent amendments mandate that applicants must provide prior notice to the other party before filing, confirmed by affidavit. Courts must dispose of these applications expeditiously—within one year of serving notice. 

Opportunity for Correction - Section 34(4) 

• Before setting aside an award, courts may adjourn proceedings to allow the tribunal an opportunity to resume proceedings or take corrective action that eliminates the grounds for challenge. 

Conclusion 

Section 34 strikes a delicate balance between finality in arbitration and justice. While it provides necessary safeguards against fundamentally flawed awards, its limited grounds and strict timelines ensure that arbitration remains an efficient alternative to litigation. Parties considering challenging an arbitral award must carefully evaluate whether their concerns fall within these narrow grounds and act swiftly within the prescribed time limits.