Section 35 and the Finality–Contest Dichotomy in Indian Arbitration Law

Section 35 and the Finality–Contest Dichotomy in Indian Arbitration Law

Introduction

Section 35 occupies a pivotal yet often misunderstood position in the statutory architecture of Indian arbitration. Under the Arbitration Act, 1940 it functioned as a procedural valve designed to avert a clash between parallel court actions and arbitral proceedings. With the advent of the Arbitration and Conciliation Act, 1996 (“1996 Act”), Section 35 was recast to proclaim the finality and binding effect of an arbitral award. The present article offers a doctrinal and jurisprudential analysis of both avatars of Section 35, synthesising authoritative case law—including McDermott International, Western Geco, and NHAI v. M. Hakeem—together with earlier decisions under the 1940 Act such as Shiva Jute Baling and Security & Finance. Particular attention is paid to the interaction of Section 35 with Sections 34 and 36 of the 1996 Act, as well as to the emerging questions on enforcement against non-signatories.

Legislative Evolution of Section 35

Section 35, Arbitration Act 1940

The 1940 provision rendered “all further proceedings in a pending reference… invalid” when two cumulative conditions were met: (i) the institution of legal proceedings on the whole subject-matter of the reference, and (ii) notice of such proceedings to the arbitral tribunal.[1] Its object was to forestall overlapping adjudicatory tracks within the same legal system, leaving the court to decide whether to stay the suit under Section 34 or nullify the reference under Section 35.

Section 35, Arbitration and Conciliation Act 1996

In radical contrast, the 1996 Act—modelled on the UNCITRAL framework—re-imagined Section 35 to read: “Subject to this Part, an arbitral award shall be final and binding on the parties and persons claiming under them respectively.”[2] The provision no longer concerns the validity of arbitral proceedings; instead, it establishes the award’s substantive finality, qualified only by the limited recourse under Section 34 and the enforcement mechanics under Section 36.

Judicial Construction of Section 35 (1940 Act)

  • Shiva Jute Baling Ltd. v. Hindley & Co. (1959) – The Supreme Court clarified that arbitral proceedings survive unless the whole subject-matter is already sub judice and notice is duly served.[3]
  • Security & Finance (P) Ltd. v. G.S. Puri (1968) – Reaffirmed the two prerequisites and held that Section 35 does not prohibit the arbitrator from continuing; it merely invalidates post-notice proceedings, thereby preserving any steps taken prior to notice.[4]
  • Banwarilal Garodia v. Joylal Hargulal (1956, Cal HC) – Exemplified the invocation of Section 35 as a ground for setting aside an award, the High Court underscoring that the suit and reference must mirror each other in scope.[5]
  • Foreign-seated Arbitrations – The Calcutta line of cases (Mury Exportation[6] and Michel Golodetz[7]) held Section 35 inapplicable where the arbitration is governed by the Arbitration (Protocol & Convention) Act, 1937, reasoning that the mischief of competing domestic fora does not arise in an international context.

Judicial Construction of Section 35 (1996 Act)

Finality and Binding Effect

High-Court executions such as Cholamandlam Investment v. Manita Bai Nishad and its companion cases treat an unchallenged award as a decree the moment Section 34 limitation expires, citing Section 35 as the statutory source of that conversion.[8]

Interplay with Section 34

The Supreme Court in Project Director, NHAI v. M. Hakeem reiterated that courts cannot modify an award under Section 34; they may only set it aside. Although the decision turned primarily on Section 34, it fortified Section 35’s finality by rejecting any judicial power to re-write the award—once Section 34 review is exhausted, Section 35 crystallises the award’s conclusiveness.[9]

Persons “Claiming Under” a Party

The phrase was expansively construed in Cheran Properties v. Severn Trent, allowing enforcement against a nominee entity. The Supreme Court drew a direct line to Section 35’s text to bind “persons claiming under” the award-debtor, although the decision concerned Section 36 enforcement.[10] Subsequent High-Court cases—such as the 2025 U.P. Rajya Vidyut Utpadan Nigam Ltd. v. Adani Enterprises petition—deploy Section 35 both as sword and shield, either to rope in non-signatories or to resist such extension.[11]

Section 35, Public Policy, and Limited Review

While Section 35 itself is silent on public-policy control, its operation is inseverable from Section 34(2)(b) and, in the enforcement stage, from the public-policy reservations of Section 48 (for foreign awards). Decisions such as Western Geco and McDermott International exemplify how public-policy review under Section 34 constitutes the sole statutory derogation from the Section 35 mandate. Once an award survives that scrutiny, Section 35 cements its status erga omnes as between the parties.

Section 35 within the Statutory Matrix of the 1996 Act

  1. Section 32 (Termination of Proceedings) – An award that purports to be final under Section 32(1) triggers Section 35; conversely, an order terminating the mandate under Section 32(2) is not an award and therefore falls outside Section 35, as analysed in M/s Pandit Munshi & Associates v. Union of India.[12]
  2. Section 36 (Enforcement) – The legislative logic is sequential: Section 34(b) provides the challenge window; Section 35 declares finality; Section 36 grants the execution lever. The 2015 Amendment, by deleting the automatic-stay regime, reinforced Section 35’s finality, making execution the norm absent a Section 34-imposed stay.
  3. Section 37 (Appeals) – Appeals lie only against orders under Section 34 or Section 36, not against the award itself, further insulating the award post-Section 35.

Critical Reflections

From Dilatory Device to Finality Clause

The metamorphosis of Section 35 illustrates India’s transition from a litigation-centric to an arbitration-centric ethos. Under the 1940 Act the provision was susceptible to strategic suits that paralysed arbitration; under the 1996 Act it is the anchor of finality, subject only to circumscribed judicial review.

Non-Signatories and Corporate Groups

Although the statutory text is broad, indiscriminate extension risks eroding privity principles. Courts must balance the efficacy promised by Section 35 against due-process safeguards, ensuring that only those genuinely “claiming under” a party are bound.

Need for Clarificatory Amendments?

Two lacunae merit legislative attention: (i) explicit guidance on the temporal relationship between Section 29-A (time-limits) and Section 35, as divergent High-Court views have emerged; and (ii) statutory articulation of the principles governing award-binding effect on successors and assignees to reduce satellite litigation.

Conclusion

Section 35 has journeyed from a procedural shield (1940 Act) to a substantive sword (1996 Act). Contemporary jurisprudence— grounded in McDermott International, Western Geco, and NHAI v. Hakeem—confirms that once the Section 34 window closes, the arbitral award attains an “imperium” immune from merits review, enforceable in rem against parties and legitimate successors. The coherence of India’s arbitration regime thus crucially hinges on a robust and consistently applied Section 35, balancing finality with the narrow but essential supervisory jurisdiction of the courts.

Footnotes

  1. Arbitration Act, 1940, s. 35.
  2. Arbitration and Conciliation Act, 1996, s. 35.
  3. Shiva Jute Baling Ltd. v. Hindley & Co. Ltd. (Supreme Court, 1959).
  4. Security & Finance (P) Ltd. v. G.S. Puri (Supreme Court, 1968).
  5. Banwarilal Garodia v. Joylal Hargulal (1956 SCC OnLine Cal 38).
  6. Mury Exportation v. D. Khaitan & Sons (1956 SCC OnLine Cal 66).
  7. Michel Golodetz v. Serajuddin & Co. (Calcutta HC, 1958).
  8. Cholamandlam Investment & Finance Co. Ltd. v. Manita Bai Nishad (Chhattisgarh HC, 2016) and companion cases.
  9. Project Director, NHAI v. M. Hakeem (2021 INSC 344, SC).
  10. Cheran Properties (P) Ltd. v. Severn Trent Water Purification Inc. (2018) 16 SCC 413.
  11. U.P. Rajya Vidyut Utpadan Nigam Ltd. v. Adani Enterprises (Allahabad HC, 2025).
  12. Pandit Munshi & Associates Ltd. v. Union of India (2014 SCC OnLine Del 1898).