Section 34 of the Arbitration and Conciliation Act, 1996 is a narrow gate, and Section 37 appeals test whether the court below kept it narrow. In Small Farmers Agri Business Consortium v. Vanilla India Producer Company Ltd. (FAO (COMM) 133/2024, decided 9 October 2026), a Division Bench of the Delhi High Court partly reversed a District Judge who had set aside an arbitral award in its entirety. The award against the borrower company was restored — the company had appeared, defended and simply not led evidence — but the portion fastening joint and several liability on its directors, who were neither parties to the loan agreement nor guarantors, was rightly severed and annulled. The judgment is a compact tour of three recurring battlegrounds: limitation, the "unable to present its case" ground, and personal liability of directors in awards.
The dispute
A 2005 venture capital assistance arrangement advanced Rs. 23.39 lakh to an agri-business producer company alongside a bank term loan. Under the agreement, the assistance converted into a repayable loan on the earlier of the term loan’s recovery or its scheduled end date. The bank began recovery proceedings in 2010; the consortium demanded repayment in 2012 and, on refusal, went to arbitration. The sole arbitrator’s 2017 award directed payment by the company and its directors jointly and severally. In 2024, a District Judge allowed the Section 34 petition and set the award aside wholesale — finding the award was not properly notified and the directors could not be personally liable. The consortium appealed under Section 37.
What the Division Bench decided
Time under Section 34(3) runs from receipt of the signed award under Section 31(5). The appellant could not prove earlier delivery, so the challenge was in time.
The respondents appeared, filed a defence and chose not to lead evidence. Setting aside under Section 34(2)(a)(iii) on “inability to present the case” was unsustainable.
Having participated before the arbitrator without objection, the respondents could not attack the appointment later — Section 4 waiver and the Section 13 route foreclose it.
Non-signatory directors with no guarantee cannot be saddled with joint and several liability; that portion of the award was severable and was annulled.
The severability holding
The most practically significant part of the judgment is its treatment of the award as divisible. The Bench recorded the foundational company-law principle — “a company being a juristic entity is distinct from its Directors and Shareholders” — and held the directors’ liability separable from the company’s. The result: the District Judge’s judgment was set aside insofar as it annulled the award against the company, and upheld insofar as it protected the directors. Execution continues against the company before the executing court, with liberty to bring any amounts realised — including under a post-award one-time settlement with the bank — to that court’s notice, without reopening the merits.
The Bench also enforced the discipline of stages: points on interest, stamping and unilateral appointment, never raised before the tribunal or the Section 34 court, could not be raised for the first time in a Section 37 appeal. Arbitration objections decay quickly; each forum forecloses what was available but unused in the one before. The Court noted the respondents were “blowing hot and cold” — a posture appellate courts punish.
Lessons for award-holders and respondents
Serve the signed award formally and keep the proof. Limitation is the award-holder’s friend only if delivery under Section 31(5) can be established. Dispatch by a verifiable mode, with acknowledgment, is cheap insurance.
Claimants: name the right respondents. If personal liability of promoters or directors matters, obtain personal guarantees and make the guarantors parties to the arbitration agreement. An award cannot create liability the contract never did.
Respondents: participate as if every stage is the last. Appear, object to appointment immediately if at all, lead evidence, and raise every ground before the tribunal. The grounds saved for later are, in law, grounds abandoned.
Provisions involved
| Provision | Subject |
|---|---|
| Section 31(5) | Delivery of signed award — the trigger for limitation |
| Section 34(2)(a)(iii) | Setting aside for inability to present one’s case |
| Section 34(2)(a)(iv) proviso | Severability of decisions beyond the submission to arbitration |
| Section 37 | Appeal against orders setting aside or refusing to set aside awards |
| Sections 4 and 13 | Waiver of objections; challenge procedure for arbitrators |
Frequently Asked Questions
When does limitation start for a Section 34 challenge?
From the date the party receives a signed copy of the award under Section 31(5) — not from the date of pronouncement. The Division Bench held the challenge was within time because the award-holder could not prove earlier delivery of the signed award. Parties enforcing awards should therefore preserve proof of service of the signed copy; the three-month-plus-thirty-day window runs from that event.
What does "unable to present its case" require under Section 34(2)(a)(iii)?
Genuine deprivation of opportunity — not a party's own forensic choices. The respondents had appeared before the arbitrator, filed a defence, and then failed to lead evidence. The Bench held that a party which had the opportunity and did not use it cannot later plead inability; nor could it attack the arbitrator's appointment for the first time after participating without protest, given Section 4 waiver and Section 13's scheme.
Why were the directors not liable under the award?
Because a company is a juristic entity distinct from its directors and shareholders. The directors were not signatories to the loan agreement and had furnished no personal guarantee, so an award making them jointly and severally liable travelled beyond the arbitration agreement as regards them. That portion was severable and was struck down, while the award against the company survived.
Can part of an arbitral award be set aside while the rest is enforced?
Yes, where the offending portion is severable — the proviso to Section 34(2)(a)(iv) reflects the principle, and courts apply severability more broadly where distinct liabilities can be disentangled. Here the directors' liability was cleanly separable from the company's, so the award remains enforceable against the company alone, with execution continuing before the executing court.