Section 34(4) and the Power to Remit: Where Did the Law Finally Settle?

This article traces the development of the law on Section 34(4) over the years and analyses whether the law laid down in Gayatri Balasamy finally settled the controversy or created further confusion.

Introduction

Although the judgment of the Supreme Court in Gayatri Balasamy v. ISG Novasoft Technologies Ltd.¹ (Gayatri Balasamy) is renowned as an authority on the legal principles governing the severability and modification of arbitral awards, another important matter addressed in the judgment is the court’s power to remit an arbitral award (award) to the Arbitral Tribunal (AT) in proceedings to set aside the award. This power is found under Section 34(4), Arbitration and Conciliation Act, 1996 (Act), and the primary objective of the provision is to eliminate the need to set aside an award and make it enforceable by granting the AT an opportunity to cure any defects. There has been some divergence in the views taken by various courts on their scope and powers under Section 34(4) of the Act. This article traces the development of the law on Section 34(4) over the years and analyses whether the law laid down in Gayatri Balasamy finally settled the controversy or created further confusion.

Position under the 1940 Act

Section 16(1), Arbitration Act, 1940 (1940 Act) allows the Court to remit an award under certain circumstances. However, this provision is not analogous to Section 34(4) of the Act. There are six distinguishing features between the court’s powers under Section 16(1) of the 1940 Act and Section 34(4) of the Act, which have been identified in MMTC v. Vicnivass Agency² (MMTC) and later reiterated in Raitani Engg. Works (P) Ltd. v. Union of India³ (Raitani).

However, in Sicom Ltd. v. Shamrao Vithal Co-Operative Bank Ltd.⁴ (Sicom) and Ambica Construction v. Union of India⁵ (Ambica), the courts remitted the dispute to the AT for fresh award, after setting aside the award already passed by the AT, akin to the scope under Section 16(1) of the 1940 Act, which created some ambiguity in the law related to Section 34(4) of the Act. This ambiguity was resolved in subsequent judgments, which are addressed below.

Scenarios in which remission is permissible under Section 34(4) of the Act

It is settled law that it is the court’s discretion to allow or reject a party’s request for remission under Section 34(4). It has also been consistently held that such discretion must be exercised judiciously, i.e. only in cases when the defect in the award is “curable”. However, till date, there is no judgment which provides an exhaustive list of defects which can be considered curable. Therefore, the various circumstances in which courts have allowed a request for remission must be studied to gather what constitutes a “curable” defect.

A study of the jurisprudence on Section 34(4) of the Act prior to the decision of the Supreme Court in I-Pay Clearing Services (P) Ltd. v. ICICI Bank Ltd.⁶ (I-Pay) reveals a broad range of defects which were considered “curable” by the courts. A few examples of these curable defects are:

1. Violation of principles of natural justice (PNJ), recognised in the case of MMTC⁷.

2. Lack of reasons in the award or gaps in reasoning, recognised in Som Datt Builders Ltd. v. State of Kerala⁸ and Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd.⁹ (Dyna).

3. Failure to consider certain issues, such as jurisdictional objections or counterclaims, as in the case of Sicom¹⁰ and Rajendra A. Shah v. Angel Capital and Debt Market Ltd.¹¹ (Angel Capital), respectively.

However, there was a change in jurisprudence with the decision of the Supreme Court in I–Pay. I-Pay restricted the exercise of the court’s discretion in favour of remission to cases where the award suffered from inadequate reasoning or gaps in reasoning, and barred remission in cases where the award did not contain any findings on certain issues. This is a clear departure from the Sicom case¹² and Angel Capital case¹³. The necessary corollary of I-Pay is also that the only action which can be taken by the AT upon remission of the Award is providing reasons to support the findings in the award.

Although the I-Pay case¹⁴ was silent on whether there can be remission in a case involving violation of PNJ, the findings in I-Pay were relied on in Union of India v. Additional Commissioner¹⁵ to refuse a request for remission in a fact situation very similar to the one in MMTC case¹⁶.

The position has again changed with Gayatri Balasamy case¹⁷, wherein it has been held that upon remission under Section 34(4), the AT can record additional evidence, afford a party an opportunity to present its case if previously denied, or take any other corrective measure necessary to cure the defect. The Court has further found that while it is the AT’s discretion whether to take any action at all after remission, the AT has the authority to “vary, correct, review, add to, or modify the award”. The necessary implication of these findings in Gayatri Balasamy is that there can once again be remission of the award to the AT in a broad range of scenarios, including violation of PNJ and failure to consider material issues. In other words, I-Pay‘s restrictive interpretation of “curable” defects has been implicitly overruled and broadened by Gayatri Balasamy.

Gayatri Balasamy also identifies some practical considerations to be borne in mind by the Court when deciding whether to allow a request for remission, which are as below:

1. Is the defect in the award inherently irreparable? What is the proportionality between the harm caused by the defect and the means available to remedy it?

2. Is there any lack of confidence in the AT’s ability to arrive at a fair and balanced decision upon remission?

3. Will remission serve the interests of the parties, in terms of savings of time and costs?

Based on the findings in Gayatri Balasamy case¹⁸, it can also be inferred that Section 34(4) constitutes an exception to the principle of finality of awards, i.e. that there can be no review or modification of the award by the AT after it is passed, and that review and modification of the award is permissible when it is a consequence of some action taken by the AT to cure the defects in the award after remission under Section 34(4).

Nature of request to be made by a party seeking remission

It is clear from the plain language of Section 34(4) of the Act that the Court does not have any suo motu powers of remission, and that the award can be remitted to the AT only upon a request made by a party. This position has also been recognised in the MMTC case¹⁹, Raitani case²⁰ and Kinnari Mullick v. Ghanshyam Das Damani²¹ (Kinnari Mullick).

However, in Kinnari Mullick, the Supreme Court also took the view that the application or request for remission made by a party under Section 34(4) must mandatorily be in writing, which was subsequently followed in Indo-Rama Synthetics India Ltd. v. IFFCO Tokio General Insurance Co. Ltd.²². This position has now been overruled in Gayatri Balasamy, wherein it has been held that the Court may exercise powers under Section 34(4) even based on an oral request made by a party.

Remission to AT after setting aside of award

In some cases, the courts remitted the dispute to the AT after setting aside or quashing the award.²³ In 2015, the case of Raitani²⁴ held that the award could be remitted to the AT only when proceedings under Section 34 of the Act were still pending and that once the award was set aside, there was no question of remitting the award to the AT.²⁵ This view was ultimately affirmed in Kinnari Mullick case²⁶ in 2018 and reiterated in Parthasarathy v. E-Springs Avenues (P) Ltd.²⁷

The Gayatri Balasamy case²⁸ has disagreed with the position set out in Kinnari Mullick. Gayatri Balasamy takes the view that even if the award is set aside by the Court dealing with proceedings under Section 34, the Court hearing an appeal under Section 37 of the Act can also exercise the power and jurisdiction to remit the matter to the AT, since the appellate jurisdiction under Section 37 is coterminous with the jurisdiction of the Court deciding objections under Section 34.

Concluding remarks

Section 34(4) is a provision which is not often resorted to by parties defending a challenge against an award. Effective application of Section 34(4) in cases where the defects in the award are curable will aid in providing closure and finality to the dispute and can be especially beneficial in disputes involving parties which do not have the monetary resources to defend endless challenges against the award or to initiate and fight fresh arbitration proceedings from scratch. Moreover, in cases where an award is challenged for alleged violations of PNJ by the AT, remission will serve the interests of both parties, since the party alleging the violation will get an opportunity to put forth its case and the other party will be saved the time, expense and efforts of going through fresh arbitration proceedings. The widening of the scope of Section 34(4) in the Gayatri Balasamy case²⁹ is a welcome development, which is reflective of a pro-arbitration stance aimed at preserving awards.