Report No. 176
2.26.1 Two Additional grounds for setting aside the award only in case of purely domestic arbitration between Indian nationals:
Proposed section 34A The provision is proposed to be confined to "purely domestic arbitration" between Indian nationals. The two grounds, as per our proposals, are (i) substantial error of law apparent on the face of award, (ii) absence of reasons. These two grounds are to be included in the application under Section 34 (1). For ground (i) a further separate application seeking is proposed, rigid conditions are laid for the grant of leave as is in the English Act of 1996.
Now, in the context of our proposals, the present applications for setting aside arbitral awards are to be filed, under sec. 34 only if (i) a party was under some incapacity or (ii) the arbitration agreement is not valid (iii) absence of notice at time of appointment of arbitrators or of arbitral proceedings or was otherwise unable to present his case or (iv) if award deals with a dispute not contemplated or not falling within the terms of the submission, or it contains decisions on matters beyond the scope of the submission to arbitrators and (v) if composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of parties, or was not in accordance with Part I.
Clause (b) of sub-section (2) of section 34 refers to other aspects, viz., (i) the subject matter of dispute being not capable of settlement by arbitrator under the law for the time being in force and the arbitral award being in conflict with 'public policy' of India. 'Explanation' below sub-section (2) of section 34 states that an award will be in breach of 'public policy' if it is induced by fraud or bribery.
These are the grounds of attack permitted by section 34.
We have already stated that more supervision is necessary in case of purely domestic arbitration. Lord Mustill stated in Coppee - Lavalin SA/N.V vs Ken Ren Chemicals and Fertilisers Ltd. (In liquidation) 1994(2) All ER 449 at 466 (HC) as follows:
"Whatever view is taken regarding the correct balance of the relationship between international arbitration and national courts, it is impossible to doubt that at least in some instances the intervention of the Court may be not only permissible but highly beneficial."
Redfern & Hunter (3rd edn.) (para 1.18), speaking about purely domestic arbitration, pointed out:
"some control (and even "supervision") of the arbitral process by the local courts was considered desirable. By contrast, one of the major features of the Model Law (which was designed to provide for international commercial arbitration) is that it imposes strict limits on the extent to which a national court may intervene in the arbitration proceedings." (See also the views of the Law Commission of South Africa (set out in para 1.4 of this report)
During the discussions which took place after the release of the Consultation Paper (Annexure -II), it was therefore suggested that under the arbitration law grounds for attacking a purely domestic award could be slightly wider than those in international arbitration. It was, however, agreed that there should be no appeal on merits of the award as under the Code of Civil Procedure.
But some jurists opined that, after all, arbitration was a matter of choice of the parties and there must be least court intervention and it was not necessary to make any changes to expand the provisions relating to recourse to the award, even in regard to purely domestic arbitration. In the 2nd edition, while adverting to the need for stricter control in the matter of purely domestic arbitration, Redfern and Hunter stated (paras 14 and 15) as follows:
"Amongst states which have a developed arbitration law, it is generally recognized that more freedom may be allowed in an international arbitration than is commonly allowed in a domestic arbitration. The reason is evident.
Domestic arbitration usually takes place between the citizens or residents of the same state, as an alternative to proceedings before the Courts of that state it is natural that a state should wish (and even need) to exercise firmer control over such arbitrations, involving its own residents or citizens than it would wish (or need) to exercise in relation to international arbitrations which may only take place within the state's territory because of geographical convenience"
We shall take up these two grounds separately and examine if they can be added as additional grounds to set aside awards which are purely domestic between Indian nationals: