By- Vaibhav Nishad
INTRODUCTION
Take a case where the parties decide to settle the dispute on agreed terms while the dispute is still under arbitration proceedings. The parties seek permission from the arbitral tribunal to pass an award based on the agreed terms. The tribunal is in consensus with the settlement proposed by the parties and passes an “arbitral award on agreed terms”, also called Consent Award. Now, reflect on whether such an application to set aside the Consent Award should be allowed, considering that the parties have already settled the dispute on agreed terms. If the application is to be allowed, should the grounds to set aside the consent award be the same as against any other arbitral award passed under the ordinary course of arbitration?
The discussion derives its relevance because of a recent judgement by the Delhi High Court in Nuovo Pignone International SRL v. Cargo Motors Private Limited. The Hon’ble Court following a pro-arbitration approach, rejected the contention that the foreign consent award is not enforceable under the Arbitration and Conciliation Act 1996 in India and weighed the enforceability of the foreign consent awards on the same footprint as that of a domestic consent award. The judgement further strengthened the approach of the courts in India in actively enforcing the consent awards and not allowing the parties to make a mockery of an arbitral award on agreed terms. The Ministry of Law & Justice recently established a sixteen-member expert committee, chaired by Dr. T.K. Vishwanathan, to suggest reforms to the Arbitration and Conciliation Act 1996. The prime objective of the committee is to recommend statutory measures to limit the requirement for parties to seek judicial intervention in arbitration. Narrowing down the redundant grounds to set aside consent award under Section 34 of the Arbitration and Conciliation Act 1996(hereinafter ‘the Act’) can significantly limit the judicial intervention in arbitration.
THE LANDSCAPE OF CONSENT AWARD IN INDIA
Section 30 of the Act outlines the provisions for the “arbitral award on agreed terms” in India. Section 30 explains that if parties come up with the idea to settle the dispute on specific agreed terms, the arbitral tribunal shall terminate the proceedings and, if requested by the parties, shall pass an “arbitral award on agreed terms”, generally termed as Consent Award.
It is imperative to note that Section 30 (4) of the Act gives the “arbitral award on agreed terms” the same status and effect as any other arbitral award, meaning that the procedure applicable to arbitral award passed under the ordinary course of arbitration is also applicable on consent awards. Therefore, an application for setting aside consent award can be sought under Section 34 of the Act. Section 73 of the Act also deals with the settlement agreement, which is also considered a consent award. Section 74 of the Act gives the settlement agreement under Section 73 the same status and effect as that of an arbitral award on agreed terms under Section 30.
NEED FOR AN ALTERNATIVE PROCEDURE FOR THE RECOURSE AGAINST CONSENT AWARD
After studying the laws pertaining to the consent awards in the Act, it is clear by Section 30(4) and Section 74 of the Act that the procedure for enforcement, recourse against the arbitral award and appeals is the same for consent award as that of any other arbitral award passed in the ordinary course of the arbitration.
What makes the consent award under both Section 30 and Section 73 different from any other arbitral award is that it is passed with the consent of both parties and on terms agreed upon by the parties themselves and it is not an arbitral award enforced on parties by the arbitral tribunal based on terms formulated after looking into the merits of the dispute. The significant difference in the parties agreement on the terms of the consent award raises the question of whether there is a need for an alternate recourse against the consent award.
Section 34 of the Act works as a first step for recourse against an arbitral award. It provides grounds on which arbitral award may be set aside. The grounds specified under Section 34 help narrow down the judicial intervention in arbitration proceedings to only specific scenarios, upholding the true spirit of the arbitration and providing the parties with an efficient Alternate Dispute Resolution mechanism by fulfilling the objectives of the arbitration.
The fact that the parties have already agreed on terms on which the consent award is formulated gives reasonable justification to further narrow down the grounds to set aside a consent award under Section 30 and Section 73 of the Act and leave parties with no unnecessary scope to maliciously challenge the consent award and intentionally jeopardise the settlement agreement.
Firstly, suppose the party challenge the consent award on the ground that the arbitration agreement between the parties is not valid under the law. If we shed light on this scenario, the High Court of Bombay has ruled that the arbitrator can get jurisdiction to pass the award on agreed terms only if the parties make the request and not otherwise. Therefore, when it’s the parties request which is giving the jurisdiction to the arbitral tribunal to pass a consent award, the ground of an invalid arbitration agreement to set aside the consent award clearly results in a redundant provision and loses its sanctity. Similarly, some other grounds, such as objection to the appointment of arbitrators and composition of the tribunal, do not hold substance to set aside a consent award because when the parties have themselves submitted to the jurisdiction of the arbitral tribunal, no such ground will suffice to set aside the consent award.
There have been several instances in the Indian Judiciary where the courts have repeatedly emphasised minimum judicial intervention in arbitration proceedings as one of the most critical objectives of arbitration. The courts have been especially cautious in allowing applications to set aside consent awards and have given significance to the already agreed terms based on which the arbitral tribunal passed the consent award.
In Pandi Devi Oil Pvt Ltd v Shakti Int’l Pvt Ltd, the High Court of Bombay rejected the contention of the appellant to set aside the consent award because it ruled that there existed no valid grounds to allow the appeal. In the case of Sandeep Khanna v NAFED, the High Court of Delhi had gone to the extent where once the consent award is passed, the petitioner is not allowed to raise any counterclaims, and it is assumed that the petitioner had admitted the counterclaims when he agreed on passing of the consent award.
Coming back to the first question from where the post started, whether an application to set aside a consent award should be allowed, the answer to which has to be yes, because completely barring recourse against a consent award will affect the parties’ right to appeal significantly and is too colloquial. But, considering whether the grounds to set aside the consent award be the same as any other arbitral award is a topic of deliberation. From the analysis of grounds to set aside consent award under Section 34 of the Act and scrutiny of the recent view of the Indian Judiciary on the consent award, it is reasoned to narrow down further the grounds available for recourse against consent award in the Act.
THE WAY FORWARD: GROUNDS ON WHICH THE APPLICATION TO SET ASIDE THE CONSENT AWARD SHOULD BE STILL ALLOWED
Settlement under Section 30 of the Act is an agreement between the parties to resolve the matter on terms they can agree upon. Therefore, if the settlement agreement is violative of the Indian Contract Act 1872, the application to set aside consent award can be allowed can be set aside. Section 28 of the Act lays down the provision of substantive laws to be applied in arbitration proceedings, which allows the application of the Indian Contract Act in arbitration. The Supreme Court has historically applied the Indian Contract Act to set aside arbitral awards and non-adherence to Indian Contract Act has also been considered as a “patent illegality”.
Further, grounds under Section 34 of the Act, such as the incapacity of the party, arbitral award beyond the matters submitted to arbitration, and award against public policy, can still stand valid to set aside consent awards. In a recent judgement of the Calcutta High Court, the Hon’ble court has also considered the grounds of fraud, coercion and undue influence valid to set aside. In their paper, Yaraslau Kryvoi and Dmitry Davydenko have also discussed money laundering, abuse of one’s rights, bribery, financing terrorism, and breaches of competition law or covering illegal activities as more possible grounds which can make the consent award illegal. More grounds to set aside consent award is a matter of deliberation which is further scope of research on this topic.
If the suggested reforms are implemented in the form of a provision in the Act which provides for narrow grounds to set aside the consent award, the enforceability of the consent award can be strengthened to the extent where the parties cannot intentionally revert back from the agreed terms on which the dispute was settled and subsequently help reduce the work of already overburdened courts in India.
( Vaibhav Nishad is a law undergraduate at Gujarat National Law University, Gandhinagar. The author may be contacted via email at vaibhav21bbl037@gnlu.ac.in ).
Cite as: Vaibhav Nishad, Strengthening the Enforceability of Consent Awards in Arbitration: Rethinking Grounds for Set-Aside, 2023, 28 August 2023) <https://rmlnlulawreview.com/2023/08/28/strengthening-the-enforceability-of-consent-awards-in-arbitration-rethinking-grounds-for-set-aside/> date of access.
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