August 15, 2025

Introduction

Arbitration is often considered one of the fastest and efficient ways to settle a dispute alternative to litigation. Arbitration is preferred to resolve a dispute as it is more flexible, confidential and promises speed. However, what happens when the award doesn’t sit well with one of the parties? Can an arbitral award be challenged? Not every party is always satisfied with the outcome. Section 34 of the Arbitration and Conciliation Act, 1996, provides the legal framework for setting aside such awards in India, balancing the need for finality with the protection of justice.

In this blog, we will see how the arbitral awards can be contested, the grounds for challenge, the procedure under Section 34, timelines, and landmark judicial interpretations over the years.

Can an arbitral award be set aside?

If an arbitral award passed during an arbitration process does not serve the interests of the party or there are some fundamental mistakes, the arbitral award can be set aside. Under Section 34 of the Arbitration and Conciliation Act, 1996 an application can be filed for setting aside an arbitral award. This provision is considered a significant legal remedy in the arbitration process.

However, to ensure that parties do not abuse this legal remedy, the Supreme Court in one of the recent cases of Gayatri Balasamy vs. ISG Novasoft Technologies Limited, has limited the power of modifying the arbitral awards. The courts will now have limited powers. The court can modify the arbitral award only in certain specific circumstances rather than completely setting it aside.

The Supreme Court has put emphasis on preserving the portions of the arbitral award which are valid and while addressing the components which are flawed. This will help in avoiding an entire arbitration process again and result in saving time and cost.

Section 34 of Arbitration and Conciliation Act, 1996

If any party is not satisfied by the arbitral award, they can approach the appropriate court to set it aside. An arbitral award can be set aside only through a formal application as mentioned in Section 34. The court will set aside the arbitral award it:

The person filing the case was legally not capable or the agreement of arbitration is not valid in nature.
The party was not informed about the process of arbitration properly and hence was not able to be present for the case.
The issues covered in the award were not agreed to be included in the arbitration or were beyond the scope.
The process of arbitration or the arbitrator were not as mentioned in the arbitration agreement between the parties.
If the matter is not arbitrable in nature or goes against public policy.
In case of a non-international commercial arbitration, the award can be set aside only when there has been an obvious legal mistake.

When any party applies to set aside the arbitral awards, they have to inform the other party with prior notice before they file the application and submit an affidavit which confirms that the notice was given.

It is the duty of the court to resolve the case as fast as possible. The ideal time period is within one year from the date on which the notice is served.

Grounds for setting aside arbitral award in India

Arbitral awards in India can be set aside on specific grounds which are provided under Section 34 of the Act.

Procedural grounds for setting aside arbitral award

Incapacity of parties

Under Section 34(2)(a)(i) the arbitral award can be set aside if any party was under the incapacity. As per Section 11 of the Indian Contract Act, 1872 a person has to meet certain conditions to enter into a valid contract. The party to arbitration must have attained the age of majority which is 18 years in India. The person must be of sound mind when the arbitration process is going on and when the person has entered into the arbitration agreement. The person should not be disqualified by law to enter into a contract.

If the party does not meet any of the conditions then the arbitration agreement is not considered valid and rendering an arbitral award based on this is considered void.

Invalidity of agreement

Section 34(2)(a)(ii) talks about invalidity of the arbitration agreement. The arbitration agreement must be valid as per the law. The arbitration agreement must be in writing (Section 7). Further other requirements are also laid down in Section 10 of the Act for validity. The arbitral agreement will be considered valid only if it meets all the conditions as specified in the law which is applicable at that time.

If important conditions like mutual consent, presence of fraud or misrepresentation are present then it will be invalid. The arbitral award cannot be enforced if the agreement of arbitration is invalid. In such cases, the parties will have to use other ways to resolve their disputes.

Notice not given to parties

Section 34(2)(a)(iii) states that an arbitral award can be set aside if proper notice is not given to parties. Under Section 18(1) of the Indian Arbitration and Conciliation Act, 1996, the parties must give a written notice in relation to the arbitration procedure and appointment of the arbitrator. If there is a lack of such practice which results in the party not being able to present their case then their right to natural justice is violated. This can result in bias or unfair outcome, and the inability of the party to participate and keep their point.

In such instances, the party can challenge the arbitral award in the court under Section 34 as their natural justice was not observed.

Award beyond the scope of arbitration

If the arbitral award is beyond the scope of arbitration then such award can also be challenged under Section 34(2)(a)(iv). An award can be raised if the dispute does not fall within arbitration. For instance, the award addresses the issues which are not included in the arbitration agreement. The arbitrator has made some decisions which were beyond his powers of what was mentioned in the agreement.

Illegality in arbitral procedure

The formation of an arbitral tribunal and the way it conducts arbitration must follow what the parties have agreed, as long as it does not conflict with mandatory legal rules. Problems arise when the tribunal is not set up according to the agreed terms or when the arbitration procedure deviates from what the parties decided. Such deviations can make the award invalid, especially if they are serious and affect the fairness of the proceedings.

In Bharat Sanchar Nigam Ltd. vs. Maharashtra Knowledge Corporation Ltd. (2019), part of the award was set aside because the arbitrator failed to review important facts before making a decision. This resulted in the tribunal being formed in a way that violated the terms of the contract.

Substantive grounds for setting aside arbitral award

Public policy violation or patent illegality

An arbitral award can be set aside if it goes against India’s public policy. Courts in India interpret “public policy” broadly to cover situations where the award is based on fraud or corruption, violates fundamental rights, goes against basic standards of morality or decency, or enforces illegal contracts or actions that threaten India’s sovereignty or security. Considering public policy ensures that arbitration remains a fair and just way to resolve disputes, in line with both legal principles and societal values.

Dispute is not arbitrable

Section 34(2)(b)(i) states if the dispute is not arbitrable in nature then the arbitral award can be challenged. The court can set aside an arbitral award if the dispute cannot be resolved through arbitration according to the law. Some disputes cannot be settled by arbitration and must be decided by a court. These include criminal cases (murder, rape etc), matrimonial matters, and issues related to insolvency or bankruptcy. Such disputes need judicial oversight to protect public interest and ensure that the law is properly followed.

Limitation of filing an application for setting aside arbitral award

Section 34(3) gives a strict timeline which is to be followed for filing an application for setting aside an arbitral award. A party has to apply within three months from the date on which the award was received for setting aside an arbitral award. The court may on his discretion give the party an extension if there is sufficient cause. An additional thirty days may be given by the court. However, no other extension beyond these additional days will be provided.

Judicial interpretations of Section 34

National Highways Authority of India vs. M. Hakeem (2021)

The Supreme Court in this case said that under Section 34 of the Arbitration Act, courts cannot change or rewrite an arbitral award. Only the Supreme Court itself can modify an award, and that too only to do complete justice between the parties.

Ssangyong Engineering & Construction Co. Ltd. vs. NHAI (2019)

The court in this case made it clear that “public policy” cannot be used as an excuse to re-examine the merits of the case. This means courts must not interfere with the tribunal’s actual findings unless there’s a valid legal reason.

Narayan Prasad Lohia vs Nikunj Kumar Lohia & Ors (2002)

The Supreme Court in this case held that if the composition or procedure of the arbitral tribunal does not match the parties’ agreement but still follows the Arbitration Act, the award cannot be challenged. However, if there is no agreement on the tribunal’s composition or procedure and it also does not follow the Act, the award can be challenged. The Court clarified that Section 10 of the Act is a flexible (derogable) provision.

Associate Builders vs. Delhi Development Authority (2015)

The Supreme Court held that an arbitral award can be cancelled if it goes against the basic principles of justice or morality. This case explained exactly how “public policy” works under Section 34.

K.K. Modi vs K.N. Modi & Ors (1998)

The Supreme Court in this case explained that for an arbitration agreement to be valid, the tribunal’s decision should be final and binding, its power must come from the parties’ agreement, a court order, or a law, and it should decide the rights of the parties fairly and without bias. The agreement must be enforceable by law, deal with a dispute that already exists, and clearly require arbitration instead of only mentioning it as an option.

ONGC vs. Western Geco International Ltd. (2014)

The court ruled that an award can be set aside under public policy if it breaks the fundamental policy of Indian law. This judgment played a key role in defining what “public policy” means for arbitration.

Dulal Poddar vs. Executive Engineer, Dona Canal Division and Ors. 2003

In the present case the court said that if an arbitrator is appointed at the request of one party without informing the other party, and the tribunal gives a decision without hearing both sides, such a decision is illegal and can be cancelled.

Venture Global Engineering vs. Satyam Computer Services Ltd. (2010)

The court in this case said that the “patent illegality” rule applies only to domestic awards. International awards are judged by less strict rules, so they are harder to challenge in Indian courts.

Conclusion

Arbitration provides a faster and more flexible alternative to litigation, but fairness demands a mechanism to challenge flawed awards. Section 34 of the Arbitration and Conciliation Act, 1996, serves this purpose by allowing limited judicial intervention. Courts focus on procedural fairness, validity of agreements, and compliance with public policy while respecting arbitral finality. Recent judgments have emphasized preserving valid portions of awards to save time and costs. This balanced approach ensures arbitration remains efficient while safeguarding justice for all parties involved.

Frequently asked questions (FAQs)

What documents are required when applying under Section 34 of Arbitration and Conciliation Act, 1996?

There are a few documents which are required to be submitted by the party such as original arbitral award, agreement of arbitration, evidence which supports the grounds on which the application is being filed, proof of serving the notice to another party.

Can only part of an arbitral award be set aside?

Yes, any party to the arbitration can challenge a part of an arbitral award. The courts can also after looking into it can set only the defective part of an arbitral award aside while preserving the other valid portions.

Grounds for setting arbitral award aside