Once Decision Is Made In A S. 34 Application, Court Has No Power To Remit Matter To Arbitrator: Telangana High Court

The bench of Justices P. Naveen Rao and J. Sreenivas Rao observed that since the Arbitrator had failed to frame an issue on the counter-claims made by the party and had failed to consider all the documents filed before him, the award was not sustainable and was set aside under Section 34. After the said decision was made in the Section 34 application, the issue of remitting the matter to the Arbitrator does not arise, the Court said.

The Court thus dismissed the claimant/appellant’s contention that the matter must be remitted to the Sole Arbitrator to cure the defects of non-consideration of the counter-claims by resuming the arbitral proceedings, in the appeal filed by it under Section 37 of the A&C Act.

As per Section 34(4) of the A&C Act, if the Court deems it appropriate and it is so requested by a party, it may adjourn the proceedings in the case to give the Arbitral Tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of Arbitral Tribunal would eliminate the grounds for setting aside the arbitral award.

After certain disputes arose between the appellant, M/s. Sri Rama Constructions, and the respondent, M/s. Max Infra (I) Ltd, under an agreement (work order), the respondent terminated the agreement. The appellant invoked the arbitration clause. While holding that the respondent was not justified in terminating the ‘work order’, the Arbitral Tribunal passed an award allowing certain claims raised by the appellant while disallowing the rest. Both the parties filed applications under Section 34 of the A&C Act before the Commercial Court, challenging the arbitral award.

The Commercial Court set aside the award on the ground that the counter-claim of the respondent as well as the voluminous documents filed by it in support of its assertions, was not considered by the Arbitrator. Holding that the award passed by the Arbitrator suffered from patent illegality and went against the public policy of India, the Commercial Court set aside the award.

Against this, the appellant filed an appeal under Section 37 of the A&C Act before the Telangana High Court.

The appellant, Sri Rama Constructions, submitted before the High Court that once the Arbitrator had concluded that the termination of the contract was arbitrary and illegal, the question of non-consideration of the counter-claim does not arise.

It added that the Commercial Court could have exercised its power under Section 34(4) of the A&C Act and remitted the matter to the Arbitral Tribunal to cure the defects of non-consideration of the counter-claims, by resuming the arbitral proceedings.

It thus pleaded that the matter must be remitted to the Sole Arbitrator for re-consideration of the issue, and to cure defects of the award, if any, under the provisions of Section 34(4).

To this, the respondent, Max Infra, argued that Section 34 (4) of the A&C Act cannot cure patent illegality. It averred that the matter may be remitted to the Arbitrator only if there is a lacuna in the award but not when there is patent illegality. Further, once the award is set aside, Section 34(4) has no application, it pleaded.

The Court observed that though the respondent made counter-claims, the Arbitrator did not frame an issue on the counter-claims and failed to return a finding on the same. Further, the Arbitrator had not looked into all the documents presented by the parties, the Court took note.

Referring to the arbitral award, the Court said, “A reading of the above excerpts shows that while considering the pleading of the respondents, the Learned Arbitrator has not made any note or observation with respect to the counter-claim of the respondent.”

“Therefore, in the framing of issues and in the passing of the award, there is no discussion or decision with respect to the counterclaim of the Respondent anywhere in the award. There is no discussion on all the documents presented by the parties,” the Court concluded.

The bench reckoned that the Commercial Court, while setting aside the arbitral award, had held that it could not remand the matter back to the Sole Arbitrator for fresh consideration as he was engaged in a constitutional post.

While holding that the Commercial Court may not be right in its reason for not remitting the matter to the Arbitrator, the Court ruled that once a decision is made in a Section 34 application, the Court has no power to remit the matter back to the Arbitrator.

Noting that during the pendency of the Section 34 application, no request was made for remitting the matter to the Arbitrator, the bench held that the recourse under Section 34(4) is available only upon a written application made by a party and not suo-moto. Thus, after a decision is made in a Section 34 application, the issue of remitting the matter to the Arbitrator does not arise. Only course available to the Court in the application under Section 34 is to set aside or to uphold the award, the Court said.

“Admittedly, the Arbitrator has not framed issue on counterclaim, has not considered voluminous documents filed before him and has not recorded finding on counter-claim made by the respondent. Therefore, Award is not sustainable. Further, during the pendency of Section 34 application no request was made for remitting the matter to the Arbitrator. Therefore, the Court below could not have remitted the matter to the Arbitrator to deal with counter-claim,” the Court ruled.

The bench thus concluded that there was no error in the decision of the Commercial Court in setting aside the award and in granting liberty to the parties to take recourse to fresh arbitral proceedings.

The Court thus dismissed the appeal.

Case Title: M/s. Sri Rama Constructions vs. M/s. Max Infra (I) Ltd

Citation: 2023 LiveLaw (Tel) 9

Dated: 02.03.2023

Counsel for the Appellant: Mr. K. Prabhakar

Counsel for the Respondent: Mr. A. Venkatesh

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