ARBITRAL AWARD
The Arbitration and Conciliation Act, 1996
INTRODUCTION TO ARBITRAL AWARD
An Arbitral Award is the final decision rendered by an arbitral tribunal in an arbitration proceeding. It is analogous to a judgment passed by a court and has binding effect on the parties to the dispute. The Arbitration and Conciliation Act, 1996 governs the form, content, and enforcement of arbitral awards in India.
The concept of arbitral awards is fundamental to alternative dispute resolution (ADR) mechanisms, providing parties with a faster and more efficient means of resolving commercial and civil disputes outside the traditional court system.
DEFINITION AND LEGAL FRAMEWORK
What is an Arbitral Award?
An arbitral award is a written decision made by an arbitrator or panel of arbitrators that conclusively determines the rights and obligations of parties in a dispute. Under the Arbitration and Conciliation Act, 1996, it represents the final resolution of the matters referred to arbitration.
Legislative Framework
The Arbitration and Conciliation Act, 1996 was enacted to consolidate and amend the law relating to domestic arbitration, international commercial arbitration, enforcement of foreign arbitral awards, and conciliation. The Act is based on the UNCITRAL Model Law on International Commercial Arbitration.
Key Provisions
- Section 31: Form and contents of arbitral award
- Section 32: Termination of proceedings
- Section 33: Correction and interpretation of award; additional award
- Section 34: Application for setting aside arbitral award
- Section 36: Enforcement of arbitral award
SECTION 31: FORM AND CONTENTS OF ARBITRAL AWARD
Section 31(1) - Written and Signed Award
An arbitral award must be made in writing and signed by the members of the arbitral tribunal. This ensures authenticity and enforceability of the award.
Section 31(2) - Majority Signature
In proceedings with more than one arbitrator, signatures of the majority of all members suffice, provided the reason for any omitted signature is stated.
Section 31(3) - Reasoned Award
The arbitral award must state the reasons upon which it is based, unless:
- The parties have agreed that no reasons are to be given, OR
- The award is an arbitral award on agreed terms under Section 30
Section 31(4) - Date and Place
The award must state its date and the place of arbitration as determined under Section 20. The award is deemed to have been made at that place.
Section 31(5) - Delivery
After the arbitral award is made, a signed copy must be delivered to each party.
Section 31(6) - Interim Award
The arbitral tribunal may make an interim arbitral award on any matter with respect to which it may make a final arbitral award.
Section 31(7) - Interest
The tribunal may include interest at a reasonable rate on monetary awards for the period between the cause of action and the date of the award. Post-award interest is 2% higher than the current rate prevalent on the date of award.
TYPES OF ARBITRAL AWARDS
1. Final Award
A final award is the conclusive determination of all claims, counter-claims, and issues referred to arbitration. It brings the arbitral proceedings to an end.
2. Interim Award
An interim award decides specific issues or matters during the course of arbitration proceedings without terminating the arbitration. It addresses particular aspects while the main proceedings continue.
3. Partial Award
A partial award conclusively determines some but not all of the claims submitted to arbitration. The remaining claims are decided in subsequent awards.
4. Award on Agreed Terms (Section 30)
When parties settle their dispute during arbitration, the tribunal may record the settlement as an award on agreed terms. This has the same status and effect as any other arbitral award.
5. Default Award
If a party fails to communicate its statement of claim or defense without showing sufficient cause, the tribunal may proceed with arbitration and make an award based on available evidence.
ESSENTIAL REQUIREMENTS OF ARBITRAL AWARD
Mandatory Requirements
1. Writing Requirement
The award must be in written form. Oral awards are not valid under the Act.
2. Signature Requirement
Must be signed by arbitrator(s). For multi-member tribunals, majority signatures are sufficient with reasons for omissions stated.
3. Reasoning Requirement
Must contain reasons for the decision unless parties waive this requirement or it is an award on agreed terms.
4. Date and Place
Must state the date of award and place of arbitration.
5. Delivery to Parties
Signed copy must be delivered to each party after the award is made.
PRACTICAL EXAMPLES
Example 1: Construction Dispute
Scenario:
ABC Construction Company entered into a contract with XYZ Corporation to build a commercial complex for Rs. 50 crores. Disputes arose regarding delay penalties and quality of work.
Arbitration Process:
A sole arbitrator was appointed as per the arbitration clause in the contract. After examining evidence, conducting hearings, and considering submissions from both parties, the arbitrator passed an award.
Arbitral Award Components:
- Written document signed by the arbitrator
- Reasoned findings on delay and quality issues
- Award amount: Rs. 2 crores in favor of ABC Construction
- Interest at 12% per annum from cause of action till award date
- Post-award interest as per Section 31(7)(b)
- Date: 15th March 2024; Place: New Delhi
Example 2: Commercial Agreement Dispute
Scenario:
A supplier (M/s Patel Industries) supplied raw materials worth Rs. 75 lakhs to a manufacturing company (Sharma Manufacturing Ltd.). The manufacturer refused to pay, citing quality defects.
Arbitration Process:
A three-member arbitral tribunal was constituted. After technical inspection, documentary evidence, and oral arguments, the tribunal passed a majority award (2:1 decision).
Arbitral Award Components:
- Signed by two arbitrators (majority), with dissenting opinion attached
- Detailed reasoning examining quality test reports
- Award: Rs. 60 lakhs to supplier (partial acceptance)
- Interest at 10% per annum
- Costs of arbitration split equally
LANDMARK CASE LAW
Som Datt Builders Ltd. v. State of Kerala (2009) 10 SCC 259
Facts:
Som Datt Builders Limited entered into a contract with the State of Kerala for construction work on National Highway-47, involving four-laning and strengthening of various road stretches. The work was to be completed within 42 months, but delays occurred. Disputes arose regarding extension of time, claims for compensation, and payment delays. The matter was referred to arbitration.
Arbitral Award:
The arbitral tribunal passed an award on December 20, 2003, granting various claims to the contractor. The State of Kerala filed a petition under Section 34 to set aside the award, arguing that it lacked adequate reasoning.
Issues:
- Whether an arbitral award lacking detailed reasons violates Section 31(3) of the Arbitration and Conciliation Act, 1996?
- What constitutes a "reasoned award" under the Act?
- Can a court remand the matter to the arbitral tribunal for providing supplementary reasons?
Supreme Court Judgment:
The Supreme Court held that Section 31(3) mandates that an arbitral award must state the reasons upon which it is based. The Court emphasized that:
- The requirement of reasons is not an empty formality
- It ensures that the arbitral tribunal deals fairly and legitimately with the issues presented
- While detailed judgments like courts are not required, the award must explain the process leading to conclusions
- A reasoned award should be proper, intelligible, and adequate
- If an award lacks adequate reasoning, courts have discretion under Section 34(4) to remand the matter to the arbitral tribunal for supplementary reasons or clarification
Legal Principles Established:
1. Transparency Requirement: Reasoned awards ensure transparency and allow parties to understand the basis of the decision.
2. Judicial Review Standard: Courts can examine whether reasons are adequate without reviewing the merits of the decision.
3. Remand Power: Under Section 34(4), courts can remand matters to the tribunal for clarification or supplementary reasoning.
4. Balance: The requirement balances finality of arbitration with fairness and natural justice.
Significance:
This landmark judgment clarified the scope and importance of Section 31(3), establishing that while arbitral tribunals need not write elaborate judgments, they must provide sufficient reasoning to demonstrate fair consideration of issues. The case has been cited extensively in subsequent arbitration matters across India.
ARBITRAL AWARD PROCESS FLOWCHART
(Sole Arbitrator or Panel)
• Statement of Claim
• Statement of Defense
• Evidence & Hearings
• Arguments
(Section 31)
• Written & Signed
• Reasoned
• Date & Place
• Delivered to Parties
DISPUTE RESOLVED
(Within 3 months + 30 days)
COMPARISON TABLES
Table 1: Types of Arbitral Awards
| Type of Award | Definition | Characteristics | Legal Provision |
|---|---|---|---|
| Final Award | Conclusive determination of all claims and disputes | • Ends arbitration proceedings • Binding on all parties • Enforceable as decree |
Section 31, 32 |
| Interim Award | Decision on specific matters during proceedings | • Decides particular issues • Proceedings continue • Can be modified |
Section 31(6) |
| Partial Award | Conclusive decision on some claims | • Decides part of dispute • Remaining claims pending • Enforceable independently |
Section 31(6) |
| Award on Agreed Terms | Settlement recorded as award | • Parties settled during arbitration • No reasoning required • Same status as other awards |
Section 30 |
| Default Award | Award when party fails to participate | • Based on available evidence • Party failed to submit claim/defense • Proper notice required |
Section 25 |
Table 2: Grounds for Setting Aside Arbitral Award (Section 34)
| Ground | Description | Sub-section |
|---|---|---|
| Incapacity of Party | Party under incapacity or arbitration agreement invalid under applicable law | Section 34(2)(a)(i) |
| Improper Notice | Party not given proper notice of arbitrator appointment or proceedings | Section 34(2)(a)(ii) |
| Breach of Natural Justice | Party unable to present case due to procedural violations | Section 34(2)(a)(iii) |
| Beyond Scope | Award deals with dispute not contemplated or beyond arbitration terms | Section 34(2)(a)(iv) |
| Improper Composition | Composition of tribunal or arbitral procedure not per agreement | Section 34(2)(a)(v) |
| Non-Arbitrable Subject Matter | Subject matter not capable of settlement by arbitration under Indian law | Section 34(2)(b)(i) |
| Public Policy Violation | Award in conflict with public policy of India | Section 34(2)(b)(ii) |
| Patent Illegality | Award vitiated by patent illegality appearing on face (domestic awards) | Section 34(2A) |
Table 3: Timeline for Arbitral Award Process
| Stage | Timeline | Remarks |
|---|---|---|
| Arbitration Proceedings | 12 months from date tribunal enters upon reference | Can be extended by 6 months by mutual consent (Section 29A) |
| Award Delivery | Immediately after award is made | Signed copy to each party (Section 31(5)) |
| Correction/Interpretation | Within 30 days of receipt of award | Party can request correction or interpretation (Section 33) |
| Challenge under Section 34 | Within 3 months of receipt of award + 30 days extension possible |
Court can condone delay up to 30 days with sufficient cause |
| Enforcement (if unchallenged) | After expiry of challenge period or dismissal of challenge | Award becomes executable as decree (Section 36) |
| Appeal | Limited grounds under Section 37 | No second appeal; only Supreme Court appeal possible |
QUESTIONS & ANSWERS
Question 1: What are the mandatory requirements for a valid arbitral award under Section 31?
Answer: Under Section 31 of the Arbitration and Conciliation Act, 1996, a valid arbitral award must satisfy the following mandatory requirements:
- Writing Requirement: The award must be in writing.
- Signature: The award must be signed by the members of the arbitral tribunal. In case of multiple arbitrators, signatures of majority members are sufficient, provided reasons for any omitted signature are stated.
- Reasoning: The award must state the reasons upon which it is based, unless parties agreed otherwise or it is an award on agreed terms under Section 30.
- Date and Place: The award must state the date when it was made and the place of arbitration as determined under Section 20.
- Delivery: After the award is made, a signed copy must be delivered to each party.
These requirements ensure the authenticity, enforceability, and transparency of the arbitral award.
Question 2: What is the difference between an interim award and a final award?
Answer: The key differences between interim and final awards are:
| Aspect | Interim Award | Final Award |
|---|---|---|
| Definition | Decides specific issues during proceedings | Conclusively determines all claims |
| Effect on Proceedings | Proceedings continue after award | Terminates arbitral proceedings |
| Scope | Deals with particular matters only | Covers all referred disputes |
| Modification | Can be reconsidered in final award | Binding and conclusive |
| Example | Award on preliminary objection to jurisdiction | Award determining all monetary and other claims |
Question 3: On what grounds can an arbitral award be challenged under Section 34?
Answer: An arbitral award can be challenged under Section 34 on the following limited grounds:
A. Under Section 34(2)(a) - Party Furnishes Proof That:
- Incapacity: A party was under incapacity or the arbitration agreement is invalid under applicable law.
- Improper Notice: Party was not given proper notice of arbitrator appointment or proceedings, or was unable to present case.
- Beyond Scope: Award deals with disputes not contemplated by or beyond the scope of submission to arbitration.
- Improper Composition: Composition of tribunal or arbitral procedure was not in accordance with parties' agreement.
B. Under Section 34(2)(b) - Court Finds That:
- Non-Arbitrable: Subject matter is not capable of settlement by arbitration under Indian law.
- Public Policy: Award is in conflict with public policy of India.
C. Under Section 34(2A) - For Domestic Awards:
- Patent Illegality: Award is vitiated by patent illegality appearing on the face of the award.
Note: Challenge must be filed within 3 months of receiving the award, extendable by 30 days with sufficient cause.
Question 4: What is the significance of Som Datt Builders case in relation to arbitral awards?
Answer: Som Datt Builders Ltd. v. State of Kerala (2009) 10 SCC 259 is a landmark judgment that established important principles regarding reasoned arbitral awards under Section 31(3).
Key Significance:
- Reasoning Requirement: The Supreme Court held that the requirement of stating reasons in awards is not an empty formality but ensures fair and legitimate dealing with issues.
- Standard of Reasoning: While arbitral tribunals need not write elaborate judgments like courts, they must provide sufficient reasoning to explain the process leading to conclusions.
- Adequate Reasoning: A reasoned award should be proper, intelligible, and adequate to demonstrate consideration of parties' contentions.
- Remand Power: Courts have discretion under Section 34(4) to remand matters to the tribunal for supplementary reasons or clarification if the award lacks adequate reasoning.
- Transparency and Justice: The judgment emphasized that reasoned awards promote transparency and allow parties to understand the basis of decisions.
Impact: This case has been extensively cited in subsequent arbitration matters and set the standard for what constitutes a properly reasoned award under the Act.
Question 5: What powers does an arbitral tribunal have regarding interest on monetary awards?
Answer: Section 31(7) of the Arbitration and Conciliation Act, 1996 grants the arbitral tribunal discretionary powers regarding interest on monetary awards:
Section 31(7)(a) - Pre-Award Interest:
- Unless otherwise agreed by parties, the tribunal may include interest at a reasonable rate
- On the whole or any part of the money for which award is made
- For the whole or any part of the period between:
- The date on which cause of action arose, AND
- The date on which the award is made
- The rate must be reasonable considering circumstances of the case
Section 31(7)(b) - Post-Award Interest:
- Amount awarded carries interest from the date of award to date of payment
- Rate: 2% higher than the current rate of interest prevalent on the date of award
- Unless the award directs otherwise
Important Case Law: In Hyder Consulting (UK) Ltd. v. Governor, State of Orissa (2015) 2 SCC 189, the Supreme Court held that tribunals have broad discretion to award interest for pre-award period, pendente lite, and post-award on whole or part of money awarded.
Limitations: If the agreement prohibits award of interest, the arbitrator cannot award it (Chittaranjan Maity v. Union of India (2017) 9 SCC 611).
Question 6: What is an award on agreed terms under Section 30?
Answer: An award on agreed terms is a special type of arbitral award provided under Section 30 of the Arbitration and Conciliation Act, 1996.
Definition:
When parties settle their dispute during the course of arbitral proceedings, the arbitral tribunal can record the settlement as an award on agreed terms.
Key Features:
- Settlement During Arbitration: Parties reach a settlement after arbitration has commenced
- Recording by Tribunal: The settlement is recorded by the arbitral tribunal in the form of an award
- Form: Must comply with Section 31 requirements (written, signed, dated, place mentioned)
- Status Declaration: Must state that it is an arbitral award
- No Reasoning Required: Unlike other awards, reasoning is not required (exception under Section 31(3)(b))
- Same Status and Effect: Has the same status and effect as any other arbitral award on the substance of the dispute
- Enforceable: Can be enforced like any other arbitral award
Benefits:
- Voluntary resolution of dispute
- Saves time and costs
- Preserves business relationships
- Legally enforceable settlement
Example: If in a commercial dispute between Company A and Company B under arbitration, they decide to settle with Company A paying Rs. 50 lakhs to Company B in installments, the tribunal will record this settlement as an award on agreed terms, making it legally enforceable.