Supreme Court of India: Whether The Court Has The Power To Remand The Matter To The Arbitrator To Provide Reasons In Its Award?

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In a recent case of Radha Chemicals v Union of India Civil Appeal No. 10386 of 2018 decided on 10 October 2018, the Supreme Court of India revisited the question of whether the Court has the power to remand the matter to the Arbitrator for a fresh decision. This issue was not res integra since the Supreme Court in Kinnari Mullick and Another vs. Ghanshyam Das Damani, (2018) 11 SCC 328 has inter alia held that the court while deciding a petition challenging an arbitral award under Section 34 of the Indian Arbitration and Conciliation Act, 1996 (“Act”) has no jurisdiction to remand the matter to the Arbitrator for a fresh decision. Detailed case analysis given below:

Factual Matrix

The arbitrator decided an issue in its award. This award was impugned before the Single Judge a High Court under Section 34 of the Act. The Single Judge opined that the said issue has not been decided correctly by the arbitrator and therefore the award shall be remanded back to the arbitrator to be decided afresh. This order of the Single judge was challenged before the Division Bench of the High Court which affirmed the decision of the Single judge. This order of the Division Bench was in appeal before the Supreme Court.

Issue

Whether the Court has the power to remand the matter to the Arbitrator for a fresh decision?

Kinnari Mullick and Another vs. Ghanshyam Das Damani, (2018) 11 SCC 328

Since the issue has already been decided in Kinnari Mullick by the Supreme Court, lets analyse the case with the help of IRAC method.

Issue in Kinnari Mullick

In this case the question to be decided by the Supreme Court was whether Section 34 (4) of the Act empowers the Court to relegate the parties before the Arbitral Tribunal after having set aside the arbitral award in question and more so suo moto in absence of any application made in that behalf by the parties to the arbitration proceedings?

Rule

The applicable rule was sub-clause 4 of Section 34 which states as under:

Section 34 – Application for setting aside arbitral award

(4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award.”

Application

In this case, the Division Bench of the High Court, which while applying the provisions of Section 34(4) of the Act, remitted the award to the arbitrator with the direction that he must assign the reasons to support it and thereafter hearing the parties to the dispute publish fresh award in accordance with law, without being influenced by his earlier award, which had already been set aside by the Single Bench. The Supreme Court relied on the following paragraph from its earlier dictum of MC Dermott International Incorporated v Burn Standard Co. Ltd, (2006) 11 SCC 181:

8. ….Parliament has not conferred any power of remand to the Court to remit the matter to the arbitral tribunal except to adjourn the proceedings as provided under sub-section (4) of Section 34 of the Act. The object of sub-section (4) of Section 34 of the Act is to give an opportunity to the arbitral tribunal to resume the arbitral proceedings or to enable it to take such other action which will eliminate the grounds for setting aside the arbitral award.

Conclusion

The Supreme Court held that the limited discretion available to the Court under Section 34(4) to remand an award can be exercised only upon a written application made in that behalf by a party to the arbitration proceedings and such power could not be exercised by deferring the proceedings under Section 34 of the Act. The Court made it clear that the Court cannot exercise this limited power of deferring the proceedings before it suo moto. Further, the limited remedy available under Section 34(4) is required to be invoked by the party to the arbitral proceedings before the award is set aside by the Court.

Judgement

In this case, the Court noticed and applied the decided position of law in Kinnari Mullick and held that the court while deciding a Section 34 petition has no jurisdiction to remand the matter to the Arbitrator for a fresh decision. Therefore, the Court found that the Single Judge’s judgment was contrary to the settled position of law in Kinnari Mullick and as a result of which the Court set aside both the judgments of the Single Judge as well as the Division Bench.

My Comment

Section 34(4) is pari materia with Article 34(4) Model Arbitration Law which is reproduced below:

Section 34(4) of the Indian Arbitration Act Article 34(3) of the Model Arbitration Law
(4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award.”

 

“(4) The court, when asked to set aside an award, may, where appropriate and so requested by a party, suspend the setting aside proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the arbitral tribunal’s opinion will eliminate the grounds for setting aside.”

As it is clear from the above comparison that both provisions are echo the same voice. Therefore, it would be correct to infer that three conditions to be satisfied under Section 34(4) of the Act are as follows:

  • That an application under Section 34(4) of the Act to set aside the arbitral award has been filed before the court;
  • The court considers it appropriate to remit the matter to the Tribunal;
  • That it is so requested by the party.

Position in Singapore in comparison with the Indian Arbitration Act

The position of law as settled in Kinnari Mullick is same in Singapore. In case of AKN and another v ALC and others – [2016] 1 SLR 966, the Singapore Court of Appeal addressed the issue of whether the court have the power to remit matters to the Tribunal or was the Tribunal functus officio After setting aside an award? The Court of Appeal, as regard to Art 34(4), noticed that the only express source of Court’s power to remit the matter back to the arbitral tribunal is found in Art 34(4) and prima facie such powers are limited one. In particular, Art 34(4) on its terms does not empower the court to remit any matter after setting aside an award.

The difference in the Indian Arbitration Act and the Arbitration Act  of Singapore (AA) in respect of power of a Court remit an award for want of reasons germinates from Section 50(4) of AA which states as under:

“50 Supplementary provisions to appeal under section 49

(4) If on an application or appeal it appears to the Court that the award —

(a) does not contain the arbitral tribunal’s reasons; or

(b) does not set out the arbitral tribunal’s reasons in sufficient detail to enable the Court to properly consider the application or appeal, the Court may order the arbitral tribunal to state the reasons for its award in sufficient detail for that purpose.”

Such provision is not present in Model Arbitration Law or International Arbitration Act of Singapore because there is no right of appeal under the international arbitration regime.

But if such provision was present in the Indian Arbitration Act, then in the present case, the parties may have appealed against the award asking the Court to remit the award to the arbitrators to provide reasons for its decisions. Such course of action is not available under limited scope of power provided under Section 34(4) of the Indian Arbitration Act.

Position under English Law in comparison with the Indian Arbitration Act

As per Section 52(4) of the English Arbitration Act, “the award shall contain the reasons for the award unless it is an agreed award or the parties have agreed to dispense with reasons.”

Failure to comply with this requirement as to the form of the award is a “serious irregularity” by virtue of Section 68(2)(h) of the English Arbitration Act. Section 68(3) provides for what the Court may do when serious irregularity has been found to have occurred:

“(3) If there is shown to be serious irregularity affecting the tribunal, the proceedings or the award, the court may—

(a) remit the award to the tribunal, in whole or in part, for reconsideration,

(b) set the award aside in whole or in part, or

(c) declare the award to be of no effect, in whole or in part.

The court shall not exercise its power to set aside or to declare an award to be of no effect, in whole or in part, unless it is satisfied that it would be inappropriate to remit the matters in question to the tribunal for reconsideration.”

Therefore, it is clear from the above provisions that an unreasoned award under the English Arbitration Act can be remitted to the Arbitral Tribunal to provide reasons in its award except if parties have agreed to the contrary.

Although Section 31(3) of the Indian Arbitration Act is pari materia with Section 52(4) of the English Arbitration Act, there is no equivalent of Section 68(2)(h) & 68(3) in latter Act through which an award can be remitted back to the Arbitral Tribunal to state reasons for its findings in the award.

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