Redefining Finality in Arbitration: An Examination of Appellate Arbitral Tribunals in India

Written by - Kanchan Sharma, Faculty of Law, Delhi University

Introduction

A key principle distinguishing arbitration from litigation is the principle of finality, that is, the arbitral award is final, conclusive, and enforceable. It cannot be re-litigated or ‘appealed’ on merits, with only limited grounds under the Arbitration and Conciliation Act 1996 (1996 Act) to challenge the validity of the award and decide whether it must be set aside or not.

However, concerns over the quality, fairness, and consistency of arbitral awards raise questions about allowing limited review or appeal without compromising arbitration’s core principles. This has been the backdrop behind the debate for the inclusion of the Appellate Arbitral Tribunals (AAT) within the Act.

With the Draft Arbitration and Conciliation Amendment Bill 2024 (Draft Bill 2024), the Parliament has introduced changes to make the act more comprehensive, efficient, and address the concerns regarding reviewal of arbitral awards without any court interference and procedural delays by establishing the concept of AAT as under Section 34A of the Draft Bill 2024.

This mechanism, though novel to the Indian Arbitration legislation, can be found to have existence in some international institutions, like JAMS Appeal Procedure, AAA Appeal Procedure, and CPR Appeal Procedure. However, the mechanism in these international institutions is usually very specialized and hence has not been adopted in most jurisdictions, making it rare and largely unprecedented.

Overview of the Appellate Arbitral Tribunal mechanism as under Section 34A of the Draft bill 2024 [1]

The Section 34A states that the arbitral institutions may, provide for an appellate arbitral tribunal to entertain applications made under Section 34, for setting aside an arbitral award, and the appellate arbitral tribunal while deciding an application under Section 34 shall follow such procedure, as may be specified by the Arbitral Council of India (ACI).

The Draft Bill 2024 also amends Section 34 to include the option of opting for AAT to adjudicate upon an application under Section 34 for setting aside of an arbitral award, stating that the when the parties to the dispute opt for institutional arbitration, the institution may provide for an AAT, which would possess the same powers as a court while adjudicating upon the application under Section 34.

If parties opt for this mechanism, they effectively transfer the power of setting aside awards from the courts to the AAT, and hence an application under Section 34, cannot be then made to the court. However, parties retain the right to move to the court under Section 37.

Comparison with Judicial Review as under 1996 Act

Under the current Section 34 mechanism, once an application is made to the court, procedural laws as applicable in civil litigation are to be followed, which may not align with the expectations of the parties who entered into arbitration for disputes’ resolution. Introduction of AAT in place of Judicial review enables the parties to get their award adjudicated upon according to the arbitration-specific procedures, ensuring a tailored and flexible adjudication.

By situating the appellate mechanism within the arbitration framework rather than the judicial system, the Bill seeks to preserve the integrity and autonomy of arbitration while addressing parties’ concerns about the fairness and quality of awards. By requiring mutual agreement, the Bill avoids imposing a mandatory layer of review that could dilute arbitration’s advantages.

Two-tier arbitration system as in Centrotrade Minerals & Metals V. Hindustan Copper Ltd. [2](Centrotrade)

While both models, aforementioned case and the provision of AAT, introduce a second level of review within arbitration, they are fundamentally different in terms of structure, scope, applicability, and judicial intervention.

The powers and limitations of the AAT shall be the same as that of the court, as under Section 34, therefore to call such an institution as ‘appellate’ is misleading, since the AAT, like the court, cannot adjudicate upon the merits of the case or sit in appeal over the award, but can only decide the validity of the award on the basis of the fixed grounds mentioned under Section 34.

In Centrotrade, the Apex court upheld the validity of two-tier arbitration clauses, stating that enforcement of an award as in Section 35 only comes to play once the arbitration proceeding as a whole has been completed. This proceeding would also include the second clause or the appellate clause of the arbitration.

It was further held that even though the parties hold the right to move to the court to challenge the award, it does not berate their right to mutually agree to put a clause within the arbitration clause to take a second look at the award given by the arbitrator in question, before choosing to move to the court under Section 34. 

The position put forward by the court under this judgement allows parties another chance at hearing the same matter on merit, whereas such is not the case under the statutory provision proposed under the Draft Bill 2024. The introduction of AAT is merely a replacement or an option against taking an application under Section 34 to the court for setting aside of the award, but neither the court or the AAT can go into the merits of the case on which the award has been issued. 

Secondly, option to choose for AAT instead of the court is only available for the cases of institutional arbitration, however, under the judgement, the two-tier system is permissible in both, institutional and ad-hoc arbitrations. Hence, the two-tier arbitration model as upheld in this case, and the provision for AAT in the Draft Bill 2024, serve distinct purposes.

Procedural and Practical Challenges

Since the procedure to be followed by the AAT is to be set by the ACI, it negates the essence of choosing institutional arbitration in place of ad-hoc arbitration, since the procedures and rules set by the institution hold no place in deciding the working of the AAT. The introduction of AAT is a welcome step; however, it hinges on certain ambiguities mentioned hereafter, which might pose as challenges during the practical application of AAT provisions.

• Stay on the enforcement of the Award

Though the act makes an amendment to Section 34, and adds Section 34A, it does not make any change to the Section 36 of the Act which grants the power to the courts to stay the enforcement of an arbitral award while an application under Section 34 is pending. Hence, without further amendments in the bill, the current interpretation would mean that in order to get a stay on the enforcement of the award, an application will have to be made under Section 36 before of the court, even if the application under Section 34 is pending before the AAT. This will cause multiplicity of proceedings, and make the purpose of AAT, that is to avoid judicial proceedings, redundant.

• Exclusion of Ad-hoc Arbitrations

Since the procedure for the AAT is to be provided by the ACI, the exclusion of the option for opting for AAT from Ad-hoc arbitrations undermines the arbitration jurisprudence, especially in a nation where a major number of arbitrations are conducted ad-hoc.[3]

• Limitation period for enforcement of award

Section 29A prescribes that the award in matters other than international commercial arbitration is to be made by the arbitral tribunal within a period of twelve months from the date of completion of pleadings. This can be extended, if both parties consent to it, but for a period of not more than 6 months. Further extension may be granted by the court. The contention arises when this timeline is applied to the appellate process, as the time spent in AAT could exceed the given limit. This raises the question of whether the limitation period for enforcement should begin from the date of the initial arbitral award or the final one.

Conclusion

Owing to the ambiguities that exist in the draft bill, there are several practical implications yet to be cleared, for example whether conflicts between courts and AAT will arise while deciding upon appeals arising out of ad hoc and institutional arbitrations, respectively, and if awards passed by the AAT shall be confidential, or be available as public records as is the case with court decrees.

While the introduction of the AAT is a welcome change that enforces the principles of arbitration, that are, party autonomy and minimal judicial intervention; the lack of clarity regarding certain provisions and practical aspects of the working of the AAT, coupled with the lack of precedents, pose questions regarding its success in the Indian arbitration framework.

[1] The Arbitration and Conciliation (Amendment) Bill 2024, Section 34A

[2] 2020 SCC OnLine SC 479

[3] 2024 SCC OnLine Blog Exp 28 https://www.scconline.com/blog/post/2024/04/05/an-edge-of-the-institution-over-ad-hoc-arbitration/ (Accessed 26th Feb, 2025)‘Corporate Attitudes & Practices towards Arbitration in India’, Pricewaterhouse Coopers (2013), available at https://www.pwc.in/assets/pdfs/publications/2013/corporate-attributes-and-practicestowards-arbitration-in- india.pdf (Accessed 26th Feb, 2025)