Understanding the Process of Setting Aside Arbitration Awards

Arbitration is widely valued for its speed, flexibility, and finality. But what happens when an arbitration award is flawed – perhaps tainted by procedural irregularities, jurisdictional overreach, or a violation of public policy? The law recognises that finality cannot come at the cost of fairness. That is precisely why the mechanism for setting aside arbitration awards exists. Under Indian law, Section 34 of the Arbitration and Conciliation Act, 1996 provides the exclusive legal route for parties who wish to challenge a domestic arbitral award before a court. This provision strikes a careful balance – preserving the autonomy of the arbitration process while ensuring that awards do not violate fundamental principles of law and justice.

What does “setting aside” an arbitration award mean? 🔗

Setting aside an arbitration award means that a court declares the award to be invalid or unenforceable. It is the primary form of recourse available against a domestic arbitral award under Indian law. Importantly, setting aside is not the same as an appeal. A court hearing a Section 34 application does not sit as an appellate court – it cannot re-examine the merits of the dispute or reassess the evidence. The scope of judicial review is deliberately narrow and limited to specific grounds laid out in the statute.

When an award is set aside, the parties are generally free to initiate fresh arbitration proceedings if they wish to resolve the dispute again. The Supreme Court confirmed this in NHAI v. M. Hakeem (2021), holding that courts exercising power under Section 34 can only set aside an award – they cannot modify, vary, or remit it. This position was the established law for several years, though recent developments have introduced some nuance, as discussed later.

Grounds for setting aside an arbitral award under Section 34 🔗

The grounds for challenging an arbitral award are exhaustive and cannot be expanded by judicial interpretation. They are divided into two categories: those that must be proved by the applicant (the party seeking to set aside the award), and those that the court can raise on its own.

Grounds requiring proof by the applicant 🔗

Under Section 34(2)(a), an award can be set aside if the party making the application proves any of the following:

Incapacity of a party: If one of the parties to the arbitration agreement was under some legal incapacity – for example, being a minor or a person of unsound mind – the resulting award can be challenged.

Invalid arbitration agreement: If the arbitration agreement itself is not valid under the law that governs it, or under Indian law in the absence of such indication, the award stands on shaky legal ground and can be set aside.

Lack of proper notice: If the party challenging the award was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings, or was otherwise unable to present its case, this constitutes a serious procedural violation. The principle of natural justice – giving every party a fair opportunity to be heard – is fundamental.

Award beyond the scope of submission: If the award deals with disputes that were not contemplated by or do not fall within the terms of the submission to arbitration, it can be challenged. However, the law contains an important provision on severability here: if the portion of the award dealing with matters beyond scope can be separated from the rest, only that portion needs to be set aside, not the entire award.

Improper composition of the tribunal or procedure: If the composition of the arbitral tribunal or the arbitral procedure did not conform to the agreement between the parties (unless such agreement conflicted with a mandatory provision of the Act), the award can be challenged.

Grounds the court can raise on its own 🔗

Under Section 34(2)(b), a court may set aside an award on two additional grounds without requiring the applicant to furnish proof:

Non-arbitrability of the subject matter: If the dispute is of a nature that cannot legally be resolved through arbitration under Indian law, the award can be set aside. Certain categories of disputes – such as those involving criminal offences, matrimonial matters, or insolvency – are generally considered non-arbitrable.

Conflict with the public policy of India: This is perhaps the most frequently invoked and debated ground. After the 2015 Amendment to the Act, the scope of “public policy” has been explicitly defined. An award is considered to be in conflict with public policy only if its making was induced or affected by fraud or corruption, if it contravenes the fundamental policy of Indian law, or if it conflicts with the most basic notions of morality or justice.

The concept of “patent illegality” 🔗

One of the most significant developments in Indian arbitration law has been the evolution of “patent illegality” as a ground for setting aside awards. The term was first introduced by the Supreme Court in the landmark case of ONGC v. Saw Pipes (2003). In that case, the Court held that an award suffering from an obvious legal error that goes to the root of the matter is “patently illegal” and can be treated as being against public policy.

The Saw Pipes judgment significantly expanded the scope of judicial review of arbitral awards. It allowed courts to examine whether the arbitrator had correctly applied the law or the terms of the contract – something that critics argued was essentially an appeal on merits disguised as a public policy challenge. This raised concerns that Indian courts were becoming too interventionist, potentially undermining the efficiency and finality that arbitration is supposed to offer.

To address these concerns, the Arbitration and Conciliation (Amendment) Act, 2015 introduced Section 34(2A), which made patent illegality a separate, standalone ground for setting aside awards. Crucially, this ground applies only to domestic arbitral awards – not to awards arising from international commercial arbitrations. The amendment also clarified that an award cannot be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence. The illegality must be apparent on the face of the award and must go to the root of the matter.

The Supreme Court further refined this position in Patel Engineering v. NEEPCL, holding that patent illegality is available as a ground for setting aside a domestic award if the arbitrator’s decision is perverse or so irrational that no reasonable person would have arrived at it, or if the construction of the contract is one that no fair-minded person would adopt.

Time limit for filing a setting aside application 🔗

Section 34(3) imposes strict timelines. An application to set aside an arbitral award must be filed within three months from the date the applicant received the award. If a request for correction, interpretation, or an additional award was made under Section 33, the three-month period runs from the date that request was disposed of.

The court may extend this period by up to 30 additional days if the applicant can show that sufficient cause prevented them from filing within the original three-month window. However, no extension beyond this 30-day period is permitted under any circumstances. This strict timeline reflects the legislative intent to preserve the finality of arbitral awards and prevent prolonged challenges.

The power to remand: Section 34(4) 🔗

Section 34(4) gives the court an interesting option. Instead of setting aside the award outright, the court can, where appropriate, adjourn the Section 34 proceedings and give the arbitral tribunal an opportunity to resume proceedings and take steps that would eliminate the grounds for setting aside the award. This “remand” power is remedial in nature – it allows defects to be cured without throwing out the entire arbitration process.

However, this power has limits. If the award is hit by the grounds mentioned in Section 34(2) – such as fraud, corruption, or serious jurisdictional issues – Section 34(4) cannot be used to cure those fundamental defects. The court must set aside the award in such cases.

Can courts modify an arbitral award? 🔗

For many years, the settled position was that courts could only set aside an award – fully or partially – but could not modify its contents. This was emphatically stated by the Supreme Court in NHAI v. M. Hakeem (2021).

However, this position underwent a significant shift in 2025. In Gayatri Balasamy v. ISG Novasoft Technologies Ltd. (2025), a five-judge Constitution Bench of the Supreme Court held by a 4:1 majority that courts do possess a limited power to modify arbitral awards under Section 34. The majority reasoned that the statute is silent on modification rather than expressly prohibiting it, and that the power to set aside (the greater power) includes the power to modify (the lesser power). Modifications are permissible in narrow circumstances – such as severing invalid portions, correcting manifest errors, or adjusting interest awarded. The Court emphasised that this power cannot be used for a merits-based review of the award.

Difference between domestic and foreign awards 🔗

An important distinction exists between domestic and foreign arbitral awards. A domestic award – one arising from an arbitration seated in India – can be challenged and set aside under Section 34. A foreign award, on the other hand, cannot be set aside by an Indian court. The only recourse available against a foreign award is to resist its enforcement under Section 48 of the Act, which lists grounds similar to (but not identical with) those in Section 34.

Additionally, the ground of patent illegality under Section 34(2A) is available only for purely domestic arbitrations between Indian parties. It does not apply to awards arising from international commercial arbitrations, even if those arbitrations are seated in India. This distinction was a deliberate legislative choice aimed at making India a more attractive seat for international arbitration by limiting the scope of judicial intervention in cross-border disputes.

Appeals against Section 34 orders 🔗

Once a court passes an order under Section 34 – whether setting aside the award or refusing to set it aside – an appeal lies under Section 37 of the Act. No second appeal is available from the Section 37 order. However, parties can approach the Supreme Court by way of a Special Leave Petition under Article 136 of the Constitution. This appellate structure ensures that while parties have recourse against adverse orders, the process does not spiral into an endless cycle of litigation.

Key landmark cases at a glance 🔗

Renusagar Power Plant v. General Electric (1994): The Supreme Court adopted a narrow interpretation of “public policy,” limiting it to three categories – fundamental policy of Indian law, interests of India, and morality or justice.

ONGC v. Saw Pipes (2003): The Court expanded the public policy ground to include “patent illegality,” significantly broadening the scope of judicial review of arbitral awards.

Ssangyong Engineering v. NHAI (2019): The Court, interpreting the 2015 Amendment, narrowed the scope of patent illegality and held that courts cannot conduct a merits-based review of arbitral awards.

Delhi Airport Metro Express v. DMRC (2022): The Court reiterated that patent illegality must go to the root of the matter and that courts cannot interfere simply because a different interpretation of the contract is possible.

Gayatri Balasamy v. ISG Novasoft (2025): A Constitution Bench recognised a limited power of courts to modify arbitral awards, departing from the earlier position in Hakeem.

Why does this mechanism matter? 🔗

The ability to set aside an arbitral award serves as an essential safety valve. Without it, parties would have no recourse against awards that are fundamentally flawed – whether because the arbitrator exceeded their jurisdiction, the process was tainted by fraud, or the outcome offends basic principles of justice. At the same time, the deliberately narrow and exhaustive nature of the grounds ensures that this mechanism is not misused as a backdoor appeal on merits.

Over the years, Indian law has progressively moved towards limiting judicial interference in arbitration – through the 2015 Amendment and the consistent line of Supreme Court decisions that emphasise minimal intervention. The goal is clear: to make arbitration a reliable, efficient, and final method of dispute resolution while maintaining essential judicial oversight.

What do you think? Does the current framework under Section 34 strike the right balance between finality of awards and fairness to parties, or should courts have even less (or more) room to intervene? With the Supreme Court now recognising a limited power to modify awards after the Gayatri Balasamy decision, do you think this will strengthen or weaken India’s reputation as an arbitration-friendly jurisdiction?

References

1. https://www.indiacode.nic.in/show-data?actid=AC_CEN_3_46_00004_199626_1517807323919&orderno=38
2. https://amlegals.com/ground-for-setting-aside-arbitral-award-under-section-34/
3. https://www.lexology.com/commentary/arbitration-adr/india/khaitan-co/judicial-interference-in-arbitration-section-34-saga
4. https://indiankanoon.org/doc/919241/
5. https://www.livelaw.in/lawschoolcolumn/patent-illegality-in-setting-aside-arbitral-awards-is-india-becoming-a-robust-seat-for-arbitration-221421
6. https://corporate.cyrilamarchandblogs.com/2020/05/supreme-court-reaffirms-the-scope-of-patent-illegality/
7. https://www.scconline.com/blog/post/2025/05/02/modification-of-arbitral-awards-supreme-court-section-34/
8. https://globalarbitrationreview.com/insight/know-how/challenging-and-enforcing-arbitration-awards/report/india
9. https://thearbitrationdigest.com/critical-analysis-of-the-ground-of-patent-illegality-in-setting-aside-an-arbitral-award/