Jurisprudence Of Section 34(4) – Elimination Of Grounds Of Challenge And Maintaining The Finality Of An Award

After an award is passed, the arbitral tribunal is functus officio. Under the Arbitration and Conciliation Act, 1996 (the "Act"), parties can invoke powers of the court to give or decline to give effect to the outcome of the arbitral process.

The award creditor may enforce the award before an executing court. Similarly, the award debtor may invoke the powers of the court under Section 34 of the Act to set aside the award. It is pertinent that either of the parties, if aggrieved by the award, can seek to quash the award.

The scheme of Section 34 is not that of a normal appellate jurisdiction. The court does not sit in appeal and rehear the entire matter. The court will either set aside the award or decline to interfere with the award. Alternatively, the court under Section 34(4) can adjourn the proceedings and afford the arbitral tribunal an opportunity to eliminate the grounds of challenge.

It is settled law that an award ought not to be set aside, unless there is an inexcusable perversity in the award which goes to the root of the matter. Whilst there is an array of judicial precedents which lay down principles for setting aside the award, there exist a degree of ambiguity on Section 34(4).

Section 34(4) of the Act reads as follows:

"On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in 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."

India, with some modifications, adopted the UNCITRAL Model Law on International Commercial Arbitration. Section 34(4) of the Act is a faithful adaptation of Article 34(4) of the UNCITRAL Model Law. It is, therefore, an internationally recognized concept.

To set Section 34(4) in motion, a party has to invoke the power of the court. The Supreme Court in Kinnari Mullick & Anr. vs Ghanshyam Das Damani^[1] explained that the discretion available to the court under Section 34(4) can be exercised only upon a written application made by a party. The court cannot suo moto defer the proceedings before it. Further, a party has to invoke the powers of the court before the formal disposal of the petition challenging the award. Because consequent to disposal of the main proceedings under Section 34, the court would become functus officio. In other words, the limited remedy available under Section 34(4) is required to be invoked before the award is set aside by the court.

The Bombay High Court in BMA Commodities Pvt. Ltd. vs Kaberi Mondal^[2] had held that application filed under Section 34(1) for setting aside the award itself is sufficient to pass an appropriate order under Section 34(4). It is relevant to point out that the Bombay High Court's decision is prior in time to Supreme Court's decision in Kinnari Mullick (supra).

Pursuant to invoking Section 34(4), the question arises whether the matter is remanded back for a fresh decision?

Under the old arbitration regime of India, the court was empowered to remit the award back to the arbitral tribunal for fresh consideration upon terms it deemed fit. Under Section 16 of the Arbitration Act, 1940 award could be sent back if any matter was left undermined, if any matter which was not part of the reference was determined, where the award was unclear or vague making it incapable of execution and where the objection to the legality of the award was apparent upon the face of it.

It can be seen that Section 34(4) of the 1996 Act made a departure from Section 16 of the 1940 Act. Under Section 34(4), the arbitral tribunal cannot restart proceedings to draw up a fresh award in place of the award pending challenge. The Delhi High Court in Puri Construction P. Ltd. vs Larsen And Toubro Ltd.^[3] has held that if the power to remit the matter to the arbitral tribunal is read into Section 34(4), it would render inexplicable the deliberate omission by parliament of Section 16 of the 1940 in the present Act.

The Madras High Court in MMTC vs Vicnivass Agency^[4] discussed the scope of Section 34(4) while laying distinguishing features with Section 16 of the 1940 Act. The court held that power of remand under Section 16(1) of the 1940 Act was not linked to the grounds for setting aside the award. However, the power under Section 34(4) is directly related to grounds as the object is to eliminate the grounds of challenge. Furthermore, under Section 16(1) the court would stipulate the terms of remission. Under Section 34(4), the discretion is left to the arbitral tribunal to either resume the proceedings or take such other action as in the opinion of the arbitral tribunal will eliminate the grounds for setting aside the award. Therefore, the scope of inquiry is decided by the arbitral tribunal.

The Supreme Court in Radha Chemicals vs Union of India^[5] reiterated that the court under Section 34 has no jurisdiction to remand the matter to the arbitrator for a fresh decision.

The question then arises of the circumstances under which the court may send the matter back to the arbitral tribunal. Are all awards susceptible to be sent back?

In Kinnari Mullick (supra), the Supreme Court of India held that the arbitral tribunal was empowered to take measures against the deficiencies in the award which are curable.

To simply put, the word 'curable' means 'capable of being corrected or fixed'. Therefore, the grounds of challenge should be capable of being eliminated.

For instance, absence of reasoning in an award is curable by the arbitral tribunal. The arbitral tribunal merely has to provide reasoning. However, an award is incurable if it is against the public policy of India or patently illegal. In such a case, the arbitral tribunal cannot reverse or change its decision as it would amount to a fresh award.

The Bombay High Court in BTP Structural (I) Pvt. Ltd. vs Bharat Petroleum Corp. Ltd.^[6] held that where some part of the award or issue is not considered, the court may remit back the matter to the arbitral tribunal for details and/or reasoning on a particular part or issue so referred. It is however, nowhere contemplated under Section 34(4) to send the matter back if the award is bad or void ab initio on account of breach of natural justice, equity and fair play.

The Supreme Court of India in Dyna Technologies Pvt. Ltd. vs Crompton Greaves Ltd.^[7] held that the power vested under Section 34(4) to cure defects can be utilized in cases where the arbitral award does not provide any reasoning or has some gap in the reasoning or otherwise and that can be cured so as to avoid a challenge to the award.

It is also relevant to consider that sending a matter will not serve the purpose where certain part of the award is curable but the award is fundamentally perverse. Even if certain grounds of challenge are eliminated, the award will ultimately have to be set aside.

In view thereof, Section 34(4) is not exercisable for every award under challenge. The court has to be satisfied that the grounds of challenge are curable.

After an award is sent back, the arbitral tribunal has complete discretion on the matter. Section 34(4) does not cast any limitation on the powers of the arbitral tribunal.

The Madras High Court in MMTC (supra) clarified the powers of the arbitral tribunal in respect to the Section 34(4). The language employed under Section 34(4) is "to take such other action" and "in the opinion of the arbitral tribunal" indicates sufficient elbow space to the tribunal to do whatever is necessary in its opinion to eliminate the grounds. Since there are no fetters attached, the arbitral tribunal may entertain additional evidence after resumption of the proceedings. It is also a possibility that the arbitral tribunal may choose not to take any step and stay firm with its award. The arbitral tribunal cannot be compelled to act as Section 34(4) is only an enabling provision. Therefore, the discretion to act is left to the arbitral tribunal's wisdom.

In light of the above, Section 34(4) provides an opportunity to the arbitral tribunal to address short falls or lapses in the award. An additional or supplemental award may be passed in pursuance of the same.

Therefore, in theory, the aim is to avoid an award being defeated for grounds which can otherwise be taken care of. Section 34(4) acts as an aid in maintaining the finality of the award.

On the flip side, Section 34(4) can cause delay in execution of the award. Practical difficulties such as availability of the arbitral tribunal may arise. Parties may be subjected to additional cost of the arbitral tribunal. Apart from this, the aggrieved party is at liberty to challenge the additional or supplemental award passed which opens another round of litigation. One has to evaluate multiple factors before invoking the power of the court.