Arbitration Law

Supreme Court Re-iterates, Court Cannot Remand Matter Back to The Arbitral Tribunal Under Section 34

The Hon’ble Supreme Court of India has, in the case of Radha Chemicals v. Union of India held that in deciding a challenge to an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996 (“Act”), the Court has no jurisdiction to remand the matter back to the arbitral tribunal for “fresh consideration”. This buttresses the practices developed to this effect by various high courts that have many a times erroneously treated arbitral proceedings in the same manner as civil suits.

 

Facts of the Case

In this case, the Appellant, M/s Radha Chemicals was a supplier of goods to the Union of India. When the disputes arose, the Appellant sent a notice for the matter to be referred to arbitration in the year 2004. Consequently, the sole arbitrator made an award in favour of the Appellant in 2007 to the tune of Rs. 21,60,440/- along with interest of 12 % per annum.

Upon challenge to the arbitral award under Section 34 of the Act before the Ld. Single judge of the Hon’ble Calcutta High Court, the Respondent contended that the arbitral award ought to be set aside as the claim of the Appellant was barred under Section 14 of the Limitation Act, 1963. Contrarily, the Appellant contested this assertion by pointing out that within the relevant period, a writ petition was filed in the year 1993 against the Respondent to make the payments owed to the Appellant and the same was disposed off in 2002. This period was to be excluded under the Limitation Act and thus the claim was not barred.

The Ld. Single Judge remitted the arbitral award back for fresh consideration by a new arbitrator to decide the point of limitation afresh. From this order, an appeal was sought before the Division Bench of the High Court which was dismissed in 2017. Thus, the present appeal was sought before the Hon’ble Supreme Court.

 

Issue Before the Court

Whether the Court under Section 34 of the Act has jurisdiction to remand a matter back to the arbitral tribunal for fresh consideration?

 

Decision of the Court

The Hon’ble Supreme Court held that a Court in deciding a challenge to the arbitral award under Section 34 of the Act, lacks jurisdiction to remand a matter back to the arbitral tribunal for fresh consideration. On this note, the Hon’ble Apex Court overturned the judgement of the learned single judge and division bench of the Hon’ble Calcutta High Court contrary to this holding. Further, the court remanded the matter back to the Ld. Single Judge to hear the matter as to the application of limitation under Section 34 of the Act on merits.

Under Section 34 of the Act, the Court is vested with the power to decide a challenge to the validity of the arbitral award. This implies that the Court is to act as an arbiter on the challenge to the arbitral award on the grounds mentioned under Section 34 of the Act and not relegate the matter back to the Arbitral Tribunal to decide the challenge. The Court has to decide such challenge on merits and give its decision. The Court lacks jurisdiction in deciding the challenge, to remand the matter back to the Arbitral Tribunal. The same had been held by the Hon’ble Apex Court in a series of judgements culminating in the recent decision of Kinnari Mullick and Another vs. Ghanshyam Das Damani(“Kinnari”).

 

Comment

Section 34(4) of the Act must be considered in the present analysis. Under Section 34(4) of the Act the Court has the power to allow the Arbitral Tribunal to resume the arbitral proceedings or to take such other actions that would eliminate the very grounds of the challenge to the arbitral award. The same is reproduced hereunder:

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.

On bare perusal of the provision, it is clear that the Court is empowered to defer the hearings challenging the arbitral award on an application made by one of the parties in order to give the Arbitral Tribunal an opportunity to resume the arbitral proceedings or to take such other actions as in the opinion of the Arbitral Tribunal will eliminate the grounds for the setting aside of the arbitral award.  The intent behind this provision is to take conservative action in order to ensure that where the grounds for setting aside the arbitral award can be “cured” by the arbitral tribunal itself in the first place rather than setting aside the arbitral award, in certain cases.

While this provision allows for the removal of the grounds of challenge to the award, this does not allow for fresh consideration of the matter as was done in the present matter. The Kinnari Court had concluded that no power has been invested by the Parliament in the court to remand the matter to the arbitral tribunal except to adjourn the proceedings for the limited purpose mentioned in s.34(4) of the A&C Act. Further, the limited discretion available to the Court under s. 34(4) of the A&C Act can be exercised only upon a written application made by a party made before the arbitral award is set aside and such discretion cannot be exercised by suo motuby the court. Thus, the Act does not comprehend the setting aside of an arbitral award and the matter to be relegated back to the arbitral tribunal for fresh consideration by a new arbitrator and therefore the decisions of the Hon’ble High Court of Calcutta cannot find shelter under Section 34(4) of the Act.

 

Conclusion

In the facts and stipulations of the present matter, the Hon’ble Apex Court rightly concluded that the Court under Section 34 of the Act lacks jurisdiction to remand the matter back to the arbitral tribunal for fresh consideration. Where an arbitral award is set aside, the parties can enter into fresh arbitration on their accord and the Court clearly lacks jurisdiction to remand the matter back to the Arbitral Tribunal for fresh consideration.

The Hon’ble Court has corrected the deviance in the law and practice of arbitration so as to ensure that the parties’ power to challenge the arbitral award does not hamper the certainty of the arbitral process and that a clear distinction be drawn between arbitral proceedings and civil suits, a sacrosanct line that is many a times crossed in the practice of arbitration law before the Hon’ble High Courts of the country.

Siddharth is the Founder of CorpLexia and serves as its Editor. He is a student of BBA LL.B (Hons.) and has a special focus on corporate, commercial, insolvency, arbitration, securities and competition laws. He can be reached at siddharth@corplexia.com

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