Section 34 Arbitration Act does not impose obligation on court to remit matter to arbitral tribunal: Supreme Court

Section 34(4) of the Arbitration Act does not impose any obligation on the court to remit a matter to the arbitral tribunal for resuming arbitral proceedings, the Supreme Court held on Monday [IPay Clearing Services Private Limited v. ICICI Bank Limited]..Instead, it vests the court with discretion to remit a matter to the arbitral tribunal to give an opportunity to resume the proceedings, a Bench of Justices R Subhash Reddy and Hrishikesh Roy held.“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,” the judgment said..The Court was hearing an appeal filed by I-Pay Clearing Services Private Limited (appellant), a private company engaged in the business of providing card personalization, transaction and reconciliation management for smart card based loyalty programs.It had entered into an agreement with ICICI bank (respondent) for providing technology and managing the operations and processing of the smart card based loyalty programs for another company, Hindustan Petroleum Corporation Limited (HPCL).However, the respondent allegedly terminated the agreement with the appellant on November 4, 2002. This, the appellant claimed, was done illegally and it suffered a loss of ₹50 crores due to the same..The matter was referred for arbitration and the sole arbitrator retired Justice RG Sindhakar passed an award in favour of appellant directing the respondent bank to pay ₹50 crores to the appellant along with interest at 50 percent per annum..Aggrieved by the award of the arbitrator, the respondent-bank filed application under Section 34(1) of the Act for setting aside the award. In the said application, it was the case of the respondent that there was accord and satisfaction between the parties and the contractual obligations between the parties was closed mutually and amicably.It was highlighted that one of the questions framed by the arbitrator “whether the contract was illegally and abruptly terminated by the respondent?”However, the arbitrator without recording any finding on that point proceeded to award Rs. 50 crores to the appellant, the bank contended in its Section 34 plea..The appellant meanwhile took out a notice of motion under Section 34(4) of the Act, for adjourning the proceedings before the High Court and remitting the matter back to the arbitrator to issue appropriate directions/ instructions / additional reasons and / or to take such necessary and appropriate action.The High Court, however, did not agree with the appellant and held that until a finding was recorded by the arbitrator on the point of illegal termination of contract, the arbitrator could not have proceeded to make the award of ₹50 crores.It, therefore, dismissed the notice of motion leading to the present appeal before the Supreme Court..It was the case of the appellant that though the arbitrator had awarded compensation/damages on the ground that the respondents terminated the contract between the parties was illegally, detailed reasons were not recorded by the arbitrator..Senior Counsel AM Singhvi appearing for the appellant, contended that it is settled legal position that lack of reasons or gaps in the reasoning is a curable defect under Section 34(4) of the Act, and the matter can be remitted to the arbitrator to give reasons.It was submitted 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..Senior Counsel KV Viswanathan appearing for the respondent-bank submitted that the notice of motion moved by the appellant was dismissed by the High Court by assigning valid reasons and in view of the same, no interference is called for.He further argued that no grounds were made out in the application filed by the appellant for remitting the matter to the arbitrator, and in fact, the arbitrator has not considered the relevant documentary evidence produced on behalf of the respondent and passed the award.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, it was contended..After considering contentions by both parties, the Court found strength in the respondent's case. The Bench considered the provisions of the Act that the appellant relied on and discussed Section 34(4) which made it clear that on receipt of an application under sub-section (1), the Court may adjourn proceedings to give the arbitral tribunal an opportunity to resume arbitral proceedings or eliminate the grounds for setting aside the arbitral award..Attention was drawn to the judgment in Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd., amongst others, where the top court had held that the legislative intent behind this provision was to make the award enforceable, after giving an opportunity to the tribunal to undo the curable defects.However, it was clarified within this judgment itself that this provision was not applicable to patent illegality in the award, but only to deficiency in the award due to lack of reasoning for a finding which was already recorded in the award..Pursuant to this discussion, the Court examined the facts of the appeal, finding that Section 34 (4) of the Act could only be resorted to record reasons on the finding already given in the award or to fill up the gaps in the reasoning of the award..It was reasoned that since there was no finding on the question, “whether the contract was illegally and abruptly terminated by the respondent?” such remission under this provision was impermissible.“In absence of any finding on point no.1, as pleaded by the respondent and further, it is their case that relevant material produced before the Arbitrator to prove ‘accord and satisfaction’ between the parties, is not considered, and the same amounts to patent illegality, such aspects are to be considered by the Court itself,” observed the Bench..In fact, it was observed that the provision itself clarified that the decision to remit a matter to the tribunal was discretionary and the words “where it is appropriate” spelt this out..Therefore, the Court concluded that in the absence of any finding on contentious issue, no amount of reasons could cure the defect in the award and under the guise of either additional reasons or filling up the gaps in the reasoning, power conferred on the Court mustn’t be relegated to the arbitrator..Considering the circumstances, the Court prima facie found patent illegality in the award and stated, “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.”.Consequently, the appeal was dismissed..[Read Judgment].Follow Bar and Bench channel on WhatsAppDownload the Bar and Bench Mobile app for instant access to the latest legal news.