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22 March 2018
Section 34 of the Arbitration and Conciliation Act 1996 sets out the conditions for setting aside an arbitral award. In this context, the term 'arbitral award' has always been understood as an award rendered by the majority members of an arbitral tribunal. However, recent decisions of the Bombay High Court and the Delhi High Court, while setting aside the award of the arbitral tribunal, have upheld the so-called 'minority award', in variance with the act and established precedent. This article examines the two decisions and their correctness in this context.
In any legal system, a majority court decision is considered that court's final decision on the issue or dispute. The same rule applies even in the case of adjudication by arbitral tribunals and is in fact expressly recognised under Section 31 of the Arbitration and Conciliation Act 1996 (as amended), which deals with the form and content of the Arbitral Award. Section 31 states as follows:
"31. Form and contents of arbitral award
(1) An arbitral award shall be made in writing and shall be signed by the members of the arbitral tribunal.
(2) For the purposes of sub-section (1), in arbitral proceedings with more than one arbitrator, the signatures of the majority of all the members of the arbitral tribunal shall be sufficient so long as the reason for any omitted signature is stated.
(3) The arbitral award shall state the reasons upon which it is based, unless—
(a) the parties have agreed that no reasons are to be given, or
(b) the award is an arbitral award on agreed terms under section 30."
It can be inferred from the above that where there is more than one arbitrator in an arbitral proceeding, the majority's decision will be upheld, provided that reasons for the omitted signature are stated, unless otherwise agreed to between the parties or if the award is an arbitral award on agreed terms under Section 30. Therefore, in an arbitral proceeding with more than one arbitrator, only the arbitral award signed by the majority of the arbitrators would be considered as an arbitral award that is enforceable by the courts under the act (similar to how only a decision of the majority of the court has a binding effect on the parties), even if the findings rendered by the minority are found to be factually and legally more sound.
In BSNL v Acome(1) the Delhi High Court relied on the 176th Report of the Law Commission to categorically hold that a minority decision of an arbitral tribunal, being in the nature of an opinion, has no efficacy as an award and cannot be enforced. According to the court, in respect of the finding of the minority member of an arbitral tribunal:
"It has no bearing on the rights and obligations of the parties as determined by the majority of arbitrators. Consequently, it is incapable of, and not required to be challenged or objected to as an award under Section 34 of the Act. Only when the award of the majority of arbitrators is received, which the award of the Tribunal, it would give a cause to the aggrieved part/parties to object to the same. Limitation would therefore begin to run from the time the majority award is communicated to the part concerned."
In fact, in Axios Navigation v Indian Oil Corporation Ltd,(2) the Bombay High Court held in no uncertain terms that:
"The dissenting view, if any, cannot be treated as an award. Omission of the dissenter member's signature will not make the award invalid. But in a situation where the dissenter member is also permitted to give reasons and/or expressed his dissenting opinion separately, still the majority assenting opinion shall be treated as an award."
The abovementioned decisions are in line with the Supreme Court, which decisively held in Common Cause v Union of India(3) that "the view taken by the minority cannot be cited as the law laid down by the Constitution Bench nor can it be followed in the face of the opinion of the majority to the contrary". It would follow from this decision that a decision by the minority or a dissenting member is not an 'award' in terms of Section 31 of the act.
However, the Bombay High Court in ONGC Ltd v Interocean Shipping (India) Pvt Ltd(4) and the Delhi High Court in Modi Entertainment v Prasar Bharati,(5) while deciding on applications for setting aside arbitral awards under Section 34 of the act, and while setting aside the respective arbitral awards under challenge, surprisingly upheld the findings of the minority member of the arbitral tribunal.
The factual matrix leading up to the petition in both of these cases is relevant to the limited extent that the courts have termed the findings rendered by the majority as a 'majority award' and the finding of the minority as a 'minority award'. In both cases, the only issue under consideration before the courts was the challenge to the so-called 'majority award'. However, in both cases, the courts travelled beyond the statutory mandate of Section 34 and the strict limits set by precedent on setting aside and enforcement of arbitral awards and while setting aside the majority award simultaneously passed an order upholding the findings of the minority member of the arbitral tribunal as being the minority award.
Section 34 of the act, which deals with an application for setting aside of an arbitral award, provides in the relevant portion, as follows:
"34. 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."
From the above, it is evident that Section 34 deals only with setting aside arbitral awards and lays down the limited circumstances in which an application may be made to the court to set aside the arbitral award. In terms of the provision, if the court is satisfied that the conditions for setting aside are met, the arbitral award will be set aside. Therefore, from a reading of the provision, it becomes apparent that the court's power under Section 34 is limited to either setting aside the arbitral award or plainly refusing to do so.
Notably, Section 34 falls under Chapter VII of Part I of the act (entitled "Recourse against arbitral award"). A combined reading of the heading of the chapter and Section 34, the only section under this chapter, makes it apparent that the sole statutory recourse against an arbitral award is an application for setting it aside. Therefore, a court cannot overstep its jurisdiction and power available to it under this chapter by setting aside the award or going one step further and replacing the award sought to be set aside with its own opinion, which could be the award passed by the minority member of the arbitral tribunal.
Further, in McDermott International v Burn Standard Company(6) the Supreme Court held that a court, in an application under Section 34 of the act, cannot correct an award and can only quash the award under challenge. Keeping this in mind, the decisions of the Bombay and Delhi High Courts appear to be flawed, as in an application under Section 34, instead of setting aside the award or upholding the award, the courts have substituted the award (passed by the majority of the arbitral tribunal) and substituted it with the award passed by the minority member of the arbitral tribunal. Therefore, such a decision appears to be inconsistent with the law laid down by the Supreme Court.
In view of the above Supreme Court decision, what stands out in the decisions of the Bombay and Delhi High Courts is the fact that the impugned award was the majority award (which, in terms of the act, ought of have been the only award in any case). However, the courts upheld the minority award, and in doing so failed to discuss the legal position of what constitutes an award and whether a finding of the minority member of the arbitral tribunal can even be termed as an award that is capable of being upheld.
However, this is not to say that the dissenting opinion cannot be relied on by a party while making submissions for setting aside a majority award. As the Bombay High Court noted in Axios Navigation:
"though for the purpose of finality and/or decision, the majority assenting opinion shall be treated as an award, yet the dissenting Arbitrator's reasoned opinion cannot be overlooked while deciding the objection/contention raised by the loosing [sic] party/petitioner who has challenged the majority opinion."
Thus, it can be safely inferred that while only the majority award is treated as an award in terms of Section 31 of the act, the opinion of the minority can be referred to while deciding on whether the majority award ought to be set aside.(7)
In view of this clear decision, the question is then one of enforceability. It would follow from the above decision that as only the majority award is an 'award' in terms of Section 31 of the act, only it is capable of being enforced.
However, the decisions of the Bombay and Delhi High Courts, in upholding the findings of the minority member of the arbitral tribunal in an application for setting aside of an arbitral award (passed by the majority of the arbitral tribunal), is contrary to the established line of precedent and provisions of law.
The aforesaid orders of the Bombay and Delhi High Court appear to be inconsistent with the established position of law. Further, the crucial question of what constitutes an arbitral award was not addressed by the courts, thereby leading to ambiguity. Such a finding by the courts runs contrary to the purpose of constituting tribunals with an odd number of members, as mandated by Section 10(1) of the act. If the findings of the minority member could also be upheld by the courts, the purpose of appointing an odd number of members to enable a majority view stands defeated.
Further, the award that was sought to be set aside in the aforesaid two applications under Section 34 was the award as passed by the majority of the tribunal. The findings of the minority member of the arbitral tribunal should have merely assisted the court in coming to its finding as to whether the impugned awards sought to be set aside were contrary to the public policy of India or were patently illegal. Thus, the high courts have overstepped their jurisdiction by not merely setting aside the said awards of the majority of members of the arbitral tribunal, but in fact upholding the view of the minority member.
The judgments of the Bombay and Delhi High Courts have been challenged and are currently pending. It remains to be seen whether the same are overturned on appeal in these proceedings.
For further information on this topic please contact Chakrapani Misra, Ravitej Chilumuri or Deekshitha Ganesan at Khaitan & Co by telephone (+91 11 4151 5454) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The Khaitan & Co website can be accessed at www.khaitanco.com.
(7) The ratio in Chowgule Brothers v Rashtirya Chemicals Fertilizers Limited, 2006 (3) ArbLR 457 (Bom) was distinguished in Axios Navigation on the grounds that it was under the Arbitration Act 1940, which had a different scheme from the Arbitration and Conciliation Act 1996.
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