What is the Scope of Section 34(4) of the Arbitration & Conciliation Act, 1996 (“Act”)

• By: Vikas Goel
• Date: 21-Mar-2022
• Post in: Arbitration

The Arbitration & Conciliation Act, 1996 (“Act”) was brought on to the statute books in the beginning of the year 1996. Undeniably, the Act and its provisions are widely used for resolution of disputes, primarily commercial. Section 34(2) provides grounds for challenging the award. It has been consistently held by several courts in India including the apex court that scope of challenge to an arbitral award under Section 34 (2) is very limited. An award can be set aside only if it contrary to public policy, suffers from patent illegality or perversity or is such that it would shock the conscience of a court of law. An arbitrator being the sole judge of law and fact is entitled to take a view on facts involved in the matter and his interpretation of a contractual term is to be respected, whenever the same is plausible one.

Till recent past, Section 34(4)[1] of the Act had not received much attention of the parties where the awards were being subjected to challenge. However, it is noticed that this provision is frequently relied upon by the party in whose favour the award has been passed in their attempt to save the award from being set aside. What exactly is the scope and ambit of section 34 (4) is not really known with clarity. The section itself is couched in such a language that the party in whose favour an award has been passed would like to propound the widest meaning to be given to the said provision with an intent of supporting the award. On the contrary, a party who has lost before the arbitrator would try to contend that scope is very limited and a ground for challenge of an award cannot be ignored by the court by remitting the matter to the arbitrator for removing such grounds.

Factual Matrix of the case

In a recent judgment, the Hon’ble Supreme Court of India had the occasion to consider the scope of Section 34(4) in the matter I-Pay Clearing Services Pvt. Ltd. Vs ICICI Bank Ltd.[2]. In this case, the arbitral tribunal had passed the award in favour of I-Pay and against ICICI Bank thereby directing bank to pay a sum of Rs. 50 crore to I-Pay with interest@18% p.a. The disputes between the parties arose out of a contract having arbitration clause. I-Pay contended that ICICI Bank illegally terminated the contract which resulted in severe losses to I-Pay. On the other hand, ICICI Bank pleaded that it was a case of contract coming to an end by accord and satisfaction and not of termination of contract and no damages could be awarded. ICICI Bank Ltd. filed a petition under Section 34 (2) before the Hon’ble Bombay High Court (“BHC”) for challenging the award. In the said proceedings, I-Pay moved an application under Section 34(4) requesting the court for remission of the award to the arbitrator enabling him to remove the gaps in the reasoning. The main issue that arose in the case was that the arbitrator had framed a specific issue as to whether “the termination of contract was illegal”. However, the arbitrator did not give any finding on the said issue, but simply refused to accept the contention of ICICI Bank Ltd. that the contract came to end by accord and satisfaction. Based on the said finding, the arbitrator awarded a sum of Rs. 50 crore together with interest @18% p.a. in favour of I-Pay. BHC rejected the application of I-Pay on the ground that since it was not a case of lack of reasonings but was a case of complete lack of finding on a contentious issue between the parties, powers under Section 34 (4) were not available.

Decision of the Apex Court

The Hon’ble Supreme Court upheld the decision of the BHC. The apex court noticed the difference ‘finding’ and ‘reason’ and held that Section 34(4) only gives discretion to the court of remitting the matter to the arbitral tribunal to give an opportunity to resume the proceeding or not, which is indicated by the expression “where it is appropriate” used therein. It was further held that such a discretion to be exercised by the court on a request made by the parties. It was further held that when an application under Section 34(4) is made, the court has to consider the same keeping the grounds raised in the application under Section 34(1) of the Act by the party who has questioned the award and the ground raised in the application filed under Section 34(4) of the Act and response thereto.

The apex court further held that mere making of an application under Section 34(4) by a party does not oblige the court to remit the matter to the tribunal. It was held that discretionary power under Section 34(4) is to be exercised where there is inadequate reasoning or to fill up the gaps in the reasoning, in support of the finding which are already recorded in the award. The court held that under the guise of additional reasons or filling up the gaps in the reasoning, no award can be remitted to the arbitrator, where there is no finding on contentious issue in the award.

On a conjoint reading of section 31, 34 (1) and 34 (2) (a), 34 (4) of the Act, the court held that in appropriate case, the court can give an opportunity to the arbitrator to resume the proceeding and to give reason or fill up the gaps in reasoning in support of finding. It was further held that if there is a patent illegality in the award, by not recording a finding on contentious issue, in such a case court should not accede to the request of the party of remitting the matter to the arbitral tribunal.

Conclusion:

While it is true that this judgement of the apex court has thrown some light on the scope of section 34 (4) of the Act and has brought in some more clarity. However, there is much to be desired. Unfortunately, the Act under Section 34 (4) does not clearly spell out what exactly is the scope of the said provision. The intention of the legislature behind enacting such a provision has to be gathered by reading other provisions of the Act. The other provisions, some of which have also been read by the apex court while passing the judgment, are Section 31, Section 33, Section 34. In my view, the power under Section 34(4) is to be exercised for supporting the award, where the award suffers from deficiencies or discrepancies, not touching upon the merit of the award and resort can be had to Section 34(4) in the situations, for instance the following:

1. where the award does not disclose the date of making the award and/or the place where the award was made.
2. The award does not provide the reasons for absence of signature of minority arbitrator, if any, or the reasons why the award has been signed by different arbitrators on different dates.
3. Where there is dispute regarding the date and/or mode of service of a signed copy of the award by tribunal to the parties.
4.  It could be exercised for correcting the computation / clerical /typographical or inadvertent errors which could have been corrected under Section 33 (1)(a), but no such steps were taken for the same.
5. To enable the tribunal to give interpretation of a specific point or part of the award, as permitted under Section 33(1)(b), but no application was made by the parties for said purpose or such steps having been initiated by one the parties, the other party did not give or refused to give its consent.
6. To enable the arbitral tribunal to pass additional award on claim(s) which though were referred to the tribunal but not considered while passing the award.
7. In a situation where the award records findings supported by reasons on a specific issue but the reasons are inadequate or there are some gaps in the reasonings recorded in the award.

However, it is quite certain that the power under Section 34(4) cannot be used in such a manner that it nullifies the provisions of Section 34. Furthermore, in my opinion, by exercising power under Section 34(4), a court cannot permit the arbitrators to change its findings or reverse the same because the Act does not permit the arbitrator to review/change its own award. Even, the Expression “will eliminate the grounds for setting aside the arbitral award” also indicates that Tribunal will maintain its award but will be able to do such corrections, modification which affirms award already published.

There are several other aspects relating to the true scope of power under Section 34(4). What kind of order is a court required to make while remitting the matter back to the award? Is the court’s order of remitting the matter to the arbitrator under Section 34(4) appealable, which it appears to be not, going by the plain language of Section 37(1)(c)? What is the remedy available once the tribunal’s order is passed on remand? Can the party making the application under Section 34(4), challenge the order passed by the arbitrator on remand?

Hopefully, in times to come, many more issues touching upon the scope and ambit of Section 34(4) will arise and be decided by courts.