India - Section 34(4) Of The Arbitration And Conciliation Act, 1996 – A Fly In The Ointment? (Part I).

Legal News & Analysis - Asia Pacific - India - Dispute Resolution

29 May 2020
 

Introduction
 

The recourse available to a party seeking to challenge an arbitral award is provided for in Section 34 of the Arbitration and Conciliation Act, 1996 (the “Arbitration Act”). Section 34(2) of the Arbitration Act has undergone a few statutory amendments, and has been the subject of innumerable judgments, which highlight the contours within which a challenge to an arbitral award is available. Given that party autonomy and finality of awards are hallmarks of the arbitral process, both the Parliament as well as the judiciary have strived for minimal judicial interference with arbitral awards and arbitration proceedings. This has been done by tightening and limiting the scope and interpretation of the grounds available under Section 34(2) of the Arbitration Act.

 

A challenge thrown under Section 34(2) of the Arbitration Act is the only recourse an aggrieved party (in an India seated arbitration) has against an arbitral award. If the party is able to shoehorn its challenge into any of the limited grounds available under the said section, and it finds the approval of the court, the award will be set aside. However, the award holder also has an often-overlooked option; through an application to the court under Section 34(4) of the Arbitration Act, he can seek to have the grounds for setting aside an award eliminated. The said provision enables the court to adjourn the proceedings pending before it under Section 34(2) of the Arbitration Act, and give the arbitral tribunal an opportunity to resume the arbitral proceedings or take such other action as in the opinion of the arbitral tribunal will eliminate the grounds for setting aside the award.

 

This post examines the contours of Section 34(4) of the Arbitration Act, when it may be resorted to, the requirements for its invocation and the scope of the powers conferred upon the court thereunder.

 

Legislative Antecedents

 

The court could, under Section 16 of the Arbitration Act, 1940 (“1940 Act”), remit an award for reconsideration by the arbitral tribunal on such terms as the court thought fit. However, such a power could be exercised only upon three considerations viz. (a) where the award had not determined any of the matters referred to arbitration or had determined any matter not referred to arbitration and such matter could not be separated without affecting the determination of the matters referred; (b) where the indefinite nature of the award made it incapable of execution; and (c) where an objection to the legality of the award was apparent on the face of it. The purpose of an enquiry under Section 16(1) of the 1940 Act was to have a fresh award upon reconsideration of the previous award.[1] Section 16 of the 1940 Act also required the court to fix the time within which the arbitral tribunal was to submit its decision and provided that the award would become void if the arbitral tribunal failed to reconsider it and submit its decision within the time fixed.

 

The 1940 Act was replaced by the Arbitration Act which more or less follows the UNCITRAL Model Law on International Commercial Arbitration (“UNCITRAL Model Law”).[2] Article 34(4) of the UNCITRAL Model Law provides for suspension of setting aside proceedings by the court for a period of time determined by it, where appropriate and so requested by a party, 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 available for setting aside an award. This is the genesis of Section 34(4) of the Arbitration Act.

 

Unlike Section 16 of the 1940 Act, Section 34(4) of the Arbitration Act does not confer upon the court the power to remand the matter to the arbitral tribunal for a fresh decision.[3] The scope of the court’s powers under Section 34(4) appears to fall within a narrower compass, as set out below.

 

Who, When and How: Pre-conditions for invoking Section 34(4) of the Arbitration Act

 

Judicial precedent has clarified, to some extent, the nature and scope of the pre-conditions for invoking Section 34(4) of the Arbitration Act. Some of the relevant clarifications are as below:

 

  1. Section 34(4) of the Arbitration Act must be invoked by a party before the award is set aside by the court. Once the main proceedings under Section 34 of the Arbitration Act are disposed of, the court becomes functus officio[4]
     

  2. If the party fails to request the court to defer the Section 34 proceedings before the award is formally set aside, then the party is precluded from moving an application under Section 34(4) of the Arbitration Act. [5]
     

  3. The application under Section 34(4) of the Arbitration Act must be in writing, by a party to the arbitration proceedings. [6]
     

  4. The power under Section 34(4) of the Arbitration Act cannot be exercised by the court suo motu.[7]
     

The scope of Section 34(4) of the Arbitration Act

 

The most comprehensive analysis of Section 34(4) of the Arbitration Act till date appears to have been by the Madras High Court over ten years ago, in MMTC v. Vicnivass Agency.[8] The issue in MMTC (supra) was the arbitrator’s consideration of an affidavit and a document filed by one party after the conclusion of the arbitral proceedings. The arbitrator decided the matter on the basis of this document without furnishing a copy thereof, or providing an opportunity to deal with the same, to the other party. The award was challenged under Section 34 of the Arbitration Act before the District Court, Tuticorin. On an application under Section 34(4) of the Arbitration Act, the District Court remitted the matter back to the arbitrator for fresh consideration after giving sufficient opportunity to both sides and kept the award in abeyance for six months.

 

In appeal, the Madras High Court held that the District Court was right in exercising its power under Section 34(4) of the Arbitration Act, given that (a) the lack of opportunity to one party to challenge the affidavit filed by the other party prima facie is a ground for setting aside the award; (b) the ground so made out was capable of elimination by the arbitrator; and (c) the occasion to invoke Section 34(4) of the Arbitration Act, so as to remove the incapacity or inability of the party to present his case, had arisen. It also held that the remission of the matter for fresh consideration was not strictly in tune with Section 34(4) of the Arbitration Act since the power thereunder is not akin to the power under Section 16 of the 1940 Act.

 

Some of the principles which were highlighted by the Madras High Court are as follows:

 

  1. Section 34 of the Arbitration Act has created a dichotomy between what the court could do while dealing with an application to set aside an award under Section 34(1) of the Arbitration Act and what the arbitral tribunal could do under Section 34(4).
     

  2. The power under Section 34(4) of the Arbitration Act is different from the power under Section 16 of the 1940 Act insofar as the former does not speak of remitting the award for reconsideration.
     

  3. The remand under Section 16 of the 1940 Act was upon such terms as the court may think fit i.e. the court used to fix the terms of reference. However, Section 34(4) of the Arbitration Act leaves it to the discretion of the arbitral tribunal to determine the scope of enquiry to eliminate the grounds for setting aside the award.
     

  4. There is no restriction placed upon the arbitral tribunal as to what it should do under Section 34(4) of the Arbitration Act. The arbitral tribunal may even refuse to do anything further and leave it to the court to decide the matter under Section 34(2) of the Arbitration Act, since Section 34(4) is only an enabling provision and not strictly an order of remand so as to compel the arbitrator to do something. The arbitral tribunal may also entertain additional evidence after resumption of the arbitral proceedings. All that is required is the subjective satisfaction of the arbitral tribunal that the venture undertaken by it would eliminate the grounds for setting aside the award.
     

It could be argued that MMTC (supra) accords a great deal of discretion to the arbitral tribunal, significantly more than what is contemplated under Section 34(4) of the Arbitration Act. Even assuming that the discretion of the arbitral tribunal is as wide as has been interpreted in MMTC (supra), an issue that remains at large is the circumstances in which the court can or should exercise its power under Section 34(4) of the Arbitration Act. Section 34(4) itself is conspicuously silent in this regard, and simply provides that the court may exercise this power “where it is appropriate”. This leaves room for many questions and ambiguities, some of which are highlighted in Part II of this post.

 

 

 

For further information, please contact:

 

Aditya Mehta, Partner, Cyril Amarchand Mangaldas

aditya.mehta@cyrilshroff.com

 

[1] MMTC v. Vicnivass Agency 2009 (1) MLJ 199

[2] Preamble and Statement of Objects and Reasons to the Arbitration Act.

[3] Radha Chemicals v. Union of India (Order dated 10th October 2018 passed by the Supreme Court in Civil Appeal No. 10386 of 2018)

[4] Kinnari Mullick & Ors. v. Ghanshyam Das Damani (2018) 11 SCC 328

[5] Ibid

[6] Ibid

[7] Ibid

[8] 2009 (1) MLJ 199