Not Always Obligatory To Remit Matter To Arbitration Tribunal Merely Because A Party Filed Application U/s 34(4) Arbitration Act: Supreme Court

The Supreme Court observed that merely because an application is filed under Section 34(4) of the Arbitration and Conciliation Act by a party, it is not always obligatory on the part of the Court to remit the matter to Arbitral Tribunal. 

"When it prima facie appears that there is a patent illegality in the award itself, by not recording a finding on a contentious issue, in such cases, Court may not accede to the request of a party for giving an opportunity to the Arbitral Tribunal to resume the arbitral proceedings.", the bench comprising Justices R. Subhash Reddy and Hrishikesh Roy observed.

The court said that the discretionary power conferred under Section 34(4) of the Act, is to be exercised where there is inadequate reasoning or to fill up the gaps in the reasoning, in support of the findings which are already recorded in the awar

As per Section 34(4) of the Act, upon a request by a party, the Court may adjourn the proceedings for a period determined by it in the order 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, will eliminate the grounds for setting aside the arbitral award.

In this case, an Arbitration award was passed by the Arbitrator in a dispute between I-Pay Clearing Services Private Limited and ICICI Bank Limited. The latter challenged the award by filing a petition under Section 34 of the Arbitration Act. The Arbitrator has framed five points for determination and Point No.1 was, "Whether the contract was illegally and abruptly terminated by the respondent?". The main ground in the application filed under Section 34(1) of the Act by the ICICI Bank, is that the  Arbitrator without recording any finding on Point No.1,  awarded Rs.50 crores to the I-Pay.  In the said proceedings, I-Pay filed an application under Section 34(4) of the Act, for adjourning the proceedings for a period of three months by directing the  Arbitrator to issue appropriate directions/ instructions / additional reasons and / or to take such necessary and appropriate action. The High Court held that the defect in the award is not curable, as such, there is no merit in the application filed under Section 34(4) of the Act and dismissed the same.

In appeal before the Supreme Court, it was contended that lack of reasons or gaps in the reasoning, is a curable defect under Section 34(4) of the Act, and therefore the award can be remitted to the arbitrator to give reasons. That the provision under Section 34(4) of the Act can be utilised in cases where the arbitral award does not provide any reasoning or if the award has some gaps in the reasoning. According to ICICI bank, as the Arbitrator has passed the award by ignoring important and relevant evidence on record, it suffers from perversity and patent illegality, which cannot be cured on remittal under Section 34(4) of the Act by the Arbitrator. Under guise of adding reasons, the Arbitrator cannot take contrary view against the award itself, it was contended.

The court, while dismissing the appeal made the following observations:

It is the discretion vested with the Court for remitting the matter to Arbitral Tribunal to give an opportunity to resume the proceedings or not. 

Further, Section 34(4) of the Act itself makes it clear that it is the discretion vested with the Court for remitting the matter to Arbitral Tribunal to give an opportunity to resume the proceedings or not. The words "where it is appropriate" itself indicate that it is the discretion to be exercised by the Court, to remit the matter when requested by a party. When application is filed under Section 34(4) of the Act, the same is to be considered keeping in mind the grounds raised in the application under Section 34(1) of the Act by the party, who has questioned the award of the Arbitral Tribunal and the grounds raised in the application filed under Section 34(4) of the Act and the reply thereto. Merely because an application is filed under Section 34(4) of the Act by a party, it is not always obligatory on the part of the Court to remit the matter to Arbitral Tribunal. The discretionary power conferred under Section 34(4) of the Act, is to be exercised where there is inadequate reasoning or to fill up the gaps in the reasoning, in support of the findings which are already recorded in the award. Under guise of additional reasons and filling up the gaps in the reasoning, no award can be remitted to the Arbitrator, where there are no findings on the contentious issues in the award. If there are no findings on the contentious issues in the award or if any findings are recorded ignoring the material evidence on record, the same are acceptable grounds for setting aside the award itself.

In absence of any finding on contentious issue, no amount of reasons can cure the defect in the award. 

Under guise of either additional reasons or filling up the gaps in the reasoning, the power conferred on the Court cannot  be relegated to the Arbitrator. In absence of any finding on contentious issue, no amount of reasons can cure the defect in the award. A harmonious reading of Section 31, 34(1), 34(2A) and 34(4) of the Arbitration and Conciliation Act, 1996, make it clear that in appropriate cases, on the request made by a party, Court can give an opportunity to the arbitrator to resume the arbitral proceedings for giving reasons or to fill up the gaps in the reasoning in support of a finding, which is already rendered in the award. But at the same time, when it prima facie appears that there is a patent illegality in the award itself, by not recording a finding on a contentious issue, in such cases, Court may not accede to the request of a party for giving an opportunity to the Arbitral Tribunal to resume the arbitral proceedings. Further, as rightly contended by the learned counsel appearing for the respondent, that on the plea of 'accord and satisfaction' on further consideration of evidence, which is ignored earlier, even if the arbitral tribunal wants to consciously hold that there was 'accord and satisfaction' between the parties, it cannot do so by altering the award itself, which he has already passed.

Click here to Read/Download Judgment