I-Pay Clearing Services: Shedding Light On The Scope Of Section 34(4) Of The Arbitration Act

2. This article intends to examine the scope of exercise of power by a court under Section 34(4) and discuss whether the same is compatible with the statutory framework intended under the UNCITRAL Model Law.

Power of remission under the Arbitration Act, 1940

3. Section 16 of the Arbitration Act, 1940 ("1940 Act") empowered a court to remit an award to the arbitral tribunal for reconsideration where:

• where the award has left undetermined any of the matters referred to arbitration, or where it determines any matter not referred to arbitration and such matter cannot be separated without affecting the determination of the matters referred; or

• where the award is so indefinite as to be incapable of execution; or
  

• where an objection to the legality of the award is apparent upon the face of it.
  

4. The power of a court to remit an award, under the 1940 Act, is thus expansive. It includes where the award is perverse or illegal on the face of it. The purpose of an enquiry under Section 16 is to have a fresh award upon reconsideration of the previous award. The power under Section 16, however, is circumscribed to the grounds enumerated in the said provision.

The statutory regime under the Arbitration and Conciliation Act, 1996

5. The 1996 Act does not explicitly speak of remittance of an award for reconsideration to the arbitral tribunal.^[2] However, as stated above, it does provide a machinery under Section 34(4), where a set-aside court may adjourn the proceedings giving the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as would eliminate the grounds for setting aside the award.

6. The grounds for setting aside an award under Section 34(2)(b) includes (i) where the subject matter of the award is not capable of settlement by arbitration under the Indian law and (ii) the award being opposed to public policy of India. Similarly, Section 34(2A) provides that an award (except in international commercial arbitration) could be set aside if it is patently illegal on the face of record.

7. Can a court exercise power under Section 34(4) to enable the arbitral tribunal to remove such grounds for setting aside of an award?

8. The judgment of the Supreme Court in Kinnari Mullick v. Ghanshyam Das Damani^[3] throws some light on the scope of exercise of power under Section 34(4). The court held that the power under Section 34(4) is to enable the arbitral tribunal to remove "curable" defects. What could be possible "curable defects" is, however, not discussed in the said judgment; possibly as the said issue did not directly arise.

9. The decision in Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd.^[4] gives a little more clarity on the subject. The court, while following an earlier decision^[5] held that "curable defects" of an award could be lack of reasoning in the award or if the award has some gap in the reasoning. However, when the award suffers from complete perversity in the reasoning, the said defect can only be considered for setting aside of the award under Section 34(1).

10. The aforesaid judicial interpretation clearly suggests that Section 34(4) is not meant to enable the arbitral tribunal to decide the dispute afresh. This is in sharp contrast from the Section 16 regime that existed under the 1940 Act. The provision is not intended to provide a second opportunity to the arbitral tribunal to re-hear the matter and pass a new award altogether. The scope is limited to enable the arbitral tribunal to remove "curable defects".

11. The recent decision of the Supreme Court in I-Pay Clearing Services Private Limited v. ICICI Bank Limited^[6] sheds significant light on the scope of exercise of power under Section 34(4). In this case ICICI Bank had challenged an award inter alia on the ground that the arbitrator awarded Rs.50 Crores without giving any finding on the principal issue as to whether the termination of the contract was valid or not. I-Pay filed an application under Section 34(4) seeking a direction to the arbitrator to issue appropriate additional reasons or take other appropriate steps. The High Court dismissed the said application against which the matter reached the Supreme Court. It was held that when the arbitrator did not record any finding on the main issue of validity of termination, it was not a case for exercise of power under Section 34(4). The power could be exercised to enable the recording of reasons or fill any gap in the reasoning. There is a difference between "reasoning" and "finding". The power cannot be exercised when the award suffers from lack of finding as no amount of reasoning can cure the defect in an award, which is sans finding. If there are no findings on the contentious issues in the award or if findings are recorded ignoring the material evidence on record, the same are grounds for setting aside the award itself. Where the award is prima facie patently illegal, the court would not exercise power under Section 34(4) and would set it aside under Section 34(1). I-Pay's appeal was dismissed.

12. I-Pay squarely covers the issue that when a set-aside court prima facie finds the award to be patently illegal on the face of record, the power under Section 34(4) is not to be exercised; for the same is not a "curable defect". The reasoning can also be extended to some of the other grounds for setting aside of an award. If an award deals with a dispute which cannot be settled in arbitration, then there is absolutely no basis to exercise power under Section 34(4). Similarly, if an award is opposed to public policy of India, it would be wholly incongruous to send the matter back to an arbitrator, which passed such an award at the first instance.

13. The Working Group of the UNCITRAL Model Law in its Seventh Secretariat Note noted - "The Court, where appropriate and so requested by a party, would invite the arbitral tribunal, whose continuing mandate is thereby confirmed, to take appropriate measures for eliminating a certain remediable defect which constitutes a ground for setting aside…"^[7] The view adopted by the court in I-Pay appears to be consistent with the UNCITRAL Model Law that the power under Section 34(4) is only intended for "certain remedial defects". The arbitral tribunal, in the garb of being granted an opportunity to eliminate the grounds for setting aside the award, cannot review or rewrite its own award.

Author: Saurabh Mishra is an Advocate on Record of Supreme Court of India. Views are personal.