[Raghav Bhatia is an Advocate practising at the Supreme Court of India]
Recently, in I-Pay Clearing Services Pvt. Ltd. v ICICI Bank Limited, the Supreme Court of India has observed that under section 34(4) of the Arbitration and Conciliation Act, 1996 (“Act”), a court cannot remit the matter back to arbitral tribunal where no findings at all have been recorded.
I-Pay Clearing Services Pvt. Ltd. (“I-Pay”) had entered into a contract with ICICI Bank (“the Bank”) on 04.11.2002 to provide technology and manage the operations and processing of loyalty programs for Hindustan Petroleum Corporation Limited.
Disputes arose between the parties when I-Pay alleged that due to the Bank’s act of abruptly terminating the agreement, it had suffered huge losses. Initially, a civil suit was filed by I-Pay. However, as there was an arbitration clause in the agreement, the matter was referred for arbitration under section 8 of the Arbitration Act, and a sole arbitrator was appointed.
The sole arbitrator passed an award dated 13.11.2017 directing the Bank to pay I-Pay a sum of Rs. 50,00,00,000/- (Rupees Fifty Crores) along with interest @ 18% P. A. from the date of award till payment and further directed to pay costs of Rs. 50,000 (Rupees Fifty Thousand).
The Bank challenged the said award before the Bombay High Court under section 34(1) of the Act. Relying on letters exchanged between the parties, the contention of the Bank before the High Court was that there was accord and satisfaction between the parties and the contractual obligations between the parties had been settled amicably and mutually. Accordingly, it was argued that the award in question suffers from patent illegality as there was no finding recorded in the award to show that the Bank had illegally and abruptly terminated the contract.
In the same petition, I-Pay had prayed under section 34(4) of the Act that the proceedings may be adjourned for a period of three months by directing the arbitrator to issue additional reasons and/or to take such necessary and appropriate action and thus it was prayed that the award may not be set aside.
The High Court held that as there was no finding recorded at all in the award, the defect in the award was not curable and accordingly, the application under section 34(4) of the Act was dismissed. The said order of the High Court was challenged before the Supreme Court.
The issue before the Supreme Court was whether in the given facts of the case the matter could be remitted back to the arbitral tribunal under section 34(4) of the Act.
The Supreme Court observed that under section 34(4) of the Act, on receipt of challenge to the award under section 34(1), in appropriate cases and on request by a party, the court is empowered to adjourn the proceedings for a period determined by it to give an opportunity to the arbitral tribunal to resume the arbitral proceedings or take some action which will eliminate the grounds for setting aside the arbitral award.
The Bank’s primary argument before the Supreme Court was that there was documentary evidence before the arbitral tribunal showing that there was accord and satisfaction between the parties and accordingly there was no abrupt termination or breach on their part. Thus, in view of the omission to consider the said evidence, the award of the arbitrator suffers from patent illegality and is thus liable to be aside under section 34(2A) of the Act. More importantly, there are no findings recorded at all in the award and thus the matter cannot be remitted back to the arbitral tribunal.
The Supreme Court observed that the language of section 34(4) of the Act is similar to that of Article 34(4) of the UNCITRAL Model Law on International Commercial Arbitration.
Earlier pronouncements of the Supreme Court on the interpretation of section 34(4) of the Arbitration Act, such as Kinnari Mullick v. Ghanshyam Das Damani, Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd. and Som Datt Builders Ltd. v. State of Kerala were distinguished because in all those cases, there was either a lack of reason in the arbitral award or no reasons provided at all.
However, in the present case, there was no finding provided at all and therefore section 34(4) of the Act was completely inapplicable. Courts have the power to allow remission under section 34(4) only in those cases where reasoning is not provided on the finding already given or to fill up the gaps in the reasoning of the award. Thus, in doing so, the Supreme Court emphasised on the difference between a finding in the award and reasons in support of the same.
It was further observed by the Supreme Court that under section 34(4), the power of the Court to remit the matter to arbitral tribunal to give an opportunity to resume the proceedings is discretionary. Merely because an application has been filed under section 34(4), the court is not bound to remit the matter to arbitral tribunal. If there are no findings on an issue in the award or if any finding is recorded ignoring the material evidence on record, the same become adequate grounds for setting aside of the award itself.
In view of the above, as no findings at all were provided in the award in question, the Supreme Court refused to exercise the discretionary power under section 34(4) of the Arbitration Act.
In the opinion of the author, the Supreme Court has missed an opportunity to give courts wider power under section 34(4) of the Arbitration Act. There is nothing in section 34(4) which prevents remission of a matter on the ground that no findings at all were provided in the arbitral award.
On the contrary, the Supreme Court itself says that under section 34(4), in appropriate cases on request by a party, the court is empowered to adjourn the proceedings for a period determined by it to give an opportunity to the arbitral tribunal to resume the arbitral proceedings or take some action which will eliminate the grounds for setting aside the arbitral award. If no findings provided in the award is a ground to set aside the award, the court could have considered remitting the matter back to the arbitral tribunal.
Setting aside of the award will only prolong the dispute between the parties. However, remission in such cases would allow the arbitral tribunal to give findings and adequate reasoning in support of the same. If a party is aggrieved by such findings and/or reasoning, it always has the option of challenging the award under section 34 of the Arbitration Act.
It would be interesting to see if the Supreme Court changes its stances on this view. For now, a two-judge bench of the Supreme Court has authoritatively decided this issue.
– Raghav Bhatia