Supreme Court: Explaining the provision of remission under Section 34 (4) of the Arbitration and Conciliation Act, 1996, the bench of R. Subhash Reddy* and Hrishikesh Roy, JJ has held that under guise of additional reasons and filling up the gaps in the reasoning, no award can be remitted to the Arbitrator, where there are no findings on the contentious issues in the award.
Factual Background
I-Pay Clearing Services Private Limited, the appellant, entered into an agreement with ICICI Bank Limited, the respondent, to provide technology and manage the operations and processing of the Smart Card based loyalty programs for HPCL. It was for HPCL, which was to improve fuel sales at their retail outlets. The appellant was required to develop various software application packages for management of Smart Card based loyalty programs. The said agreement was followed by another agreement, as per which, the appellant was to develop a software for postpaid Smart Card Loyalty Program akin to a Credit Card under the name “Drive Smart Software”. To further expand their customer base, the respondent requested the appellant to also develop a “Drive Track Fleet Card” management solution for the fleet industry. However, in view of sudden move by the Respondent in abruptly terminating the Service Provider Agreement dated 04.11.2002, it was alleged by the appellant that all its operations were paralyzed and that it has suffered losses of over Rs.50 crores, on account of loss of jobs of its employees, losses on account of employee retrenchment compensation, etc. The appellant made a total claim of Rs.95 crores against the respondent.
Justice R.G.Sindhakar (Retd.), who was appointed as Sole Arbitrator, passed award dated 13.11.2017, directing the respondent to pay to the appellant Rs. 50 Crores, together with interest @18% per annum from the date of award till payment and further directed to pay an amount of Rs.50,000/- towards the costs.
Aggrieved by the award of learned Sole Arbitrator, the respondent filed application under Section 34(1) of the Act for setting aside the award claiming that there was accord and satisfaction between the parties and the contractual obligations between the parties was closed mutually and amicably.
The award of the learned Arbitrator was mainly questioned on the ground that it suffers from patent illegality, inasmuch as there is no finding recorded in the award to show that the respondent-ICICI Bank has illegally and abruptly terminated the contract. It was argued that without addressing the vital issue viz. whether there was an illegal and abrupt termination of the contract or not, as pleaded, the Arbitrator has allowed the claim to the extent of Rs.50 crores, as such, the same is patently illegal and erroneous. Thus, it is pleaded that in view of settled legal position that lack of reasons or gaps in the reasoning, is a curable defect under Section 34(4) of the Act, award can be remitted to the arbitrator to give reasons.
The Bombay High Court, however, was of the view that the defect in the award is not curable, as such, there is no merit in the application filed by the appellant under Section 34(4) of the Act and dismissed the same.
Analysis
- Section 31 of the Act deals with ‘form and contents of arbitral award’. As per the same, an arbitral award shall be made in writing and shall be signed by the members of the Arbitral Tribunal. The arbitral award shall state the reasons, upon which it is based, unless parties agree that no reasons are to be given, or the award is an arbitral award on agreed terms under Section 30 of the Act.
- The recourse to a Court against an arbitral award is to be in terms of Section 34(1) of the Act. As per Section 34(2A) of the Act, if the arbitral award arising out of arbitrations other than international commercial arbitrations, is vitiated by patent illegality, same is a ground for setting aside the award.
- As per Section 34(4) of the Act, on receipt of an application under subsection (1), in appropriate cases on a request by a party, Court may adjourn the proceedings for a period determined by it in the 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.
Considering the abovementioned provisions, the Court held that when it is the specific case of the respondent that there is no finding at all, on the question as to “whether the contract was illegally and abruptly terminated by the respondent?”, remission under Section 34(4) of the Act, is not permissible.
It was explained that Section 34(4) of the Act, can 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.
Explaining the difference between ‘finding’ and ‘reasons’, the Court noticed that ‘finding is a decision on an issue’[1] and ‘reasons are the links between the materials on which certain conclusions are based and the actual conclusions’[2].
Hence, in absence of any finding on the question as to “whether the contract was illegally and abruptly terminated by the respondent?”, it cannot be said that it is a case where additional reasons are to be given or gaps in the reasoning.
Further, Section 34(4) of the Act itself makes it clear that it is the discretion vested with the Court for remitting the matter to Arbitral Tribunal to give an opportunity to resume the proceedings or not. The words “where it is appropriate” itself indicate that it is the discretion to be exercised by the Court, to remit the matter when requested by a party.
When application is filed under Section 34(4) of the Act, the same is to be considered keeping in mind the grounds raised in the application under Section 34(1) of the Act by the party, who has questioned the award of the Arbitral Tribunal and the grounds raised in the application filed under Section 34(4) of the Act and the reply thereto. 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.
It was explained that 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.
“Under guise of additional reasons and filling up the gaps in the reasoning, no award can be remitted to the Arbitrator, where there are no findings on the contentious issues in the award. If there are no findings on the contentious issues in the award or if any findings are recorded ignoring the material evidence on record, the same are acceptable grounds for setting aside the award itself. Under guise of either additional reasons or filling up the gaps in the reasoning, the power conferred on the Court cannot be relegated to the Arbitrator. In absence of any finding on contentious issue, no amount of reasons can cure the defect in the award. “
[I-Pay Clearing Services Private Limited v. ICICI Bank Limited, 2022 SCC OnLine SC 4, decided on 03.01.2021]
*Judgment by: Justice R. Subhash Reddy
Counsels
For Appellant: Senior Advocates Dr. Abhishek Manu Singhvi and Nakul Dewan,
For Respondent: Senior Advocate K.V.Vishwanathan
[1] Income Tax Officer, A Ward, Sitapur v. Murlidhar Bhagwan Das, AIR 1965 SC 342
[2] J. Ashoka v. University of Agricultural Sciences, (2017) 2 SCC 609