In Part I and II of this post, we have analysed the contours of Section 34(4) of the Arbitration and Conciliation Act, 1996 (“the Act”), and the questions and ambiguities that may arise in its applicability. The purpose of this blog is to further analyse the limited scope of Section 34(4) of the Act, in light of the Hon’ble Supreme Court’s judgement in I-Pay Clearing Services Pvt. Ltd. v. ICICI Bank Limited case, wherein it is observed that failure on the part of the arbitral tribunal in providing findings on contentious issues in the award is not a “curable defect” under Section 34(4) of the Act, and is an acceptable ground for setting the award aside (instead).
Vide an arbitral Award passed in the proceedings between the parties (Award), the Respondent, ICICI Bank, was directed to pay the Appellant, I-Pay Clearing Services Pvt. Ltd., monetary sums along with interest and costs, as a consequence of the Respondent terminating a contract executed between the parties. The Respondent challenged the Award under Section 34(1) of the Act before the Bombay High Court. The challenge was mainly on the ground that the Award suffers from patent illegality i.e., there was no finding recorded in the Award to the effect that the Respondent had illegally and abruptly terminated the contract between the parties.
In its Petition, the Respondent also filed a Notice of Motion, inter alia, seeking interim orders for a stay on the effect, operation, implementation, and execution of the Award. In the same Petition, the Appellant filed a Notice of Motion, under Section 34 (4) of the Act, inter alia, seeking directions to adjourn the proceedings and further direct the Ld. Arbitrator to issue appropriate directions/ instructions/ additional reasons and/ or to take such necessary and appropriate action.
The High Court, by a common order, passed a conditional order in the Notice of Motion filed by the Respondent and dismissed the Notice of Motion filed by the Appellant under Section 34(4) of the Act. The High Court was of the view that the defect in the award was not curable, and as such, there was no merit in the Application filed by the Appellant under Section 34(4) of the Act, seeking remission of the proceedings.
Being aggrieved by the said Order of dismissal, the Appellant preferred an Appeal before the Supreme Court.
ARGUMENTS ADVANCED BY THE APPELLANT
On behalf of the Appellant, it was submitted that inspite of awarding compensation and damages in view of the illegal and abrupt termination of the contract by the Respondent, the Ld. Arbitrator had omitted to give adequate reasons in support thereof. It was further argued that the lack of reasons or gaps in reasoning was a curable defect under Section 34(4) of the Act, and the Award could be remitted to the Ld. Arbitrator to provide adequate reasons. It was further argued that all defects in an arbitral award, which are capable of being remedied, ought to be addressed in remission proceedings, if an application under Section 34(4) of the Act is filed.
The Counsel for the Appellant placed reliance on the judgments passed by the Hon’ble Supreme Court in Kinnari Mullick and Anr. v. Ghanshyam Das Damini, Som Datt Builders Limited v. State of Kerala, Dyna Technologies Pvt. Ltd v. Crompton Greaves Ltd to contend that the language of Section 34(4) of the Act is couched in very wide terms and provides for remission of the matter to enable the Arbitrator to take such steps, as may be necessary for elimination of grounds for setting aside the award. It was argued that the intention behind Section 34(4) of the Act is to make awards enforceable, after giving opportunity to the Tribunal to undo curable defects. It was also argued that Section 34(4) of the Act can be utilised in cases where the arbitral award does not provide any reasoning or in cases where the award has some gaps in its reasoning.
The Counsel for the Appellant further placed reliance on the judgment of the Hon’ble Singapore High Court in AKN & Anr. v. ALC & Ors. to contend that remission is a ‘curative alternative’ to set aside the award and referred to the judgment of the said High Court in Permasteelisa Pacific Holdings Ltd v. Hyundai Engineering & Construction Co. Ltd.
It was accordingly submitted that the impugned order be set-aside, and directions be issued for remitting the proceedings to the Ld. Arbitrator for consideration of the issue.
ARGUMENTS ADVANCED BY THE RESPONDENT
On behalf of the Respondent, it was submitted that the Appellant was not entitled to any compensation/ damages, as claimed for, since there was full accord and satisfaction between the parties with respect to the termination of the contract, and that the Ld. Arbitrator had failed to consider relevant documentary evidence. Therefore, the Award suffered from perversity and patent illegality, which could not be cured on remittal under Section 34(4) of the Act by the Ld. Arbitrator. It was argued that the Ld. Arbitrator cannot take a contrary view against the Award, under the guise of adding reasons, which would be contrary to the provision of Section 34(4) of the Act and would amount to the Arbitrator assuming the role of the Court, which alone is empowered to set-aside the award.
Consequently, it was submitted that the findings recorded on the plea of accord and satisfaction in the said award, without considering the entire evidence on record, constituted patent illegality, and the same could be considered only by the Court while considering the Application filed under Section 34(1) of the Act.
FINDINGS OF THE COURT
The Supreme Court held that Section 34(4) of the Act can be resorted to, to record reasons on the findings already given in the award or to fill gaps in the reasoning of the award and not where there is no finding at all. To enunciate the difference between the words ‘finding’ and ‘reasons’, the Court relied on the case of Income Tax Officer, A Ward, Sitapur v. Murlidhar Bhagwan Das, where the court held a finding to be a decision on an issue; and the J. Ashoka v. University of Agricultural Sciences and Ors. case, wherein it was held that reasons are the links between the materials on which certain conclusions are based and the actual conclusions. The Court accordingly held that in the absence of any finding by the Ld. Arbitrator, it could not be said that it is a fit case where additional reasons are required to be given or that there are gaps in reasoning.
Further, the Court distinguished the judgment passed by it in the cases of Dyna Technologies Pvt. Ltd. (supra), Som Datt Builders Limited (supra) and Kinnari Mullick (supra) and observed that the words “where it is appropriate” in Section 34(4) of the Act indicate that the Court had discretionary powers to remit a matter when requested by a party. Merely because an application is filed under Section 34(4) of the Act, 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 gaps in the reasoning, in support of the findings that are already recorded in the award.
An Application filed under Section 34(4) of the Act is to be considered keeping in mind the grounds raised in the Application under Section 34(1) of the Act.
Under the guise of additional reasons and filling the gaps in reasoning, no award can be remitted to the Arbitrator, or the power conferred on the Court cannot be relegated 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 findings are recorded ignoring the material evidence on record, the same are acceptable grounds for setting aside the award itself. In the absence of any finding on a 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, makes it clear that in appropriate cases, on the request made by a party, the Court can give an opportunity to the arbitrator to resume the arbitral proceedings for giving reasons or to fill 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 – not recording a finding on a contentious issue – in such cases, the Court may not accede to the request of a party to give the Arbitral Tribunal the opportunity to resume arbitral proceedings.
Accordingly, the Supreme Court dismissed the Appeal.
The legislative intent of Section 34(4) of the Act is to make the award enforceable, after granting an opportunity to the Tribunal to undo “curable defects”. The judgement in I-Pay furthers this intent by indicating clear restrictions in the use of this provision by a party to proceedings. The said judgement clarifies that the power vested under Section 34(4) of the Act to cure defects can be utilised in cases where the arbitral award does not provide any reasoning or if the award has some gaps in the reasoning or otherwise and that can be cured so as to avoid a challenge under Section 34 of the Act.
 Section 34(4) of the Arbitration and Conciliation Act, 1996 – A Fly in the Ointment? (Part II) | India Corporate Law (cyrilamarchandblogs.com)
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