India: No More Reverse Passes: SC Reiterates that Appeal Against Arbitration Award cannot result in remand of matter back to the arbitral tribunal after the award is given

Last Updated: 18 October 2018
Article by Piyush Joshi and Telma Raju

By Piyush Joshi & Telma Raju*

On 10.10.2018, a division bench of the Supreme Court of India in its judgment in the matter of Radha Chemicals v Union of India, has clarified and reaffirmed that "the court while deciding a Section 34 (Arbitration and Conciliation Act, 1996) petition has no jurisdiction to remand the matter to the Arbitrator for a fresh decision".[1]

Background

A sole arbitrator had rendered an award in light of its holding that limitation would not stand in the way of a decision on merits. An application under s. 34 of the A&C Act was filed before the learned Single Judge of the High Court of Calcutta for setting aside the said award. The learned Single Judge of the High Court of Calcutta held that the point of limitation had not been decided correctly and therefore remanded the matter to the sole arbitrator to decide the point of limitation afresh. The learned Single Judge also held that a new arbitrator would have to be appointed in order to decide the matter afresh as the whereabouts of the original arbitrator was not known. An appeal before a Division Bench of the High Court of Calcutta against the judgment of the learned Single Judge, was dismissed by the Division Bench.

The present appeal in the matter of Radha Chemicals v Union of India was filed before the Hon'ble Supreme Court of India against the judgment of the Division Bench of the High Court of Calcutta that dismissed the appeal from the judgment of the learned Single Judge of the High Court of Calcutta.

The Hon'ble Supreme Court in its judgment explained that: "This Court in a series of judgments culminating in Kinnari Mullick and Another vs. Ghanshyam Das Damani, (2018) 11 SCC 328 held that the court while deciding a Section 34 petition has no jurisdiction to remand the matter to the Arbitrator for a fresh decision. It is, therefore, clear that the learned Single Judge's judgment is contrary to this judgment as a result of which both the judgments of the Single Judge as well as the Division Bench have to be set aside".[2] (emphasis supplied)

The Supreme Court relegated the matter to the stage of the original s.34 petition, to be heard on its merits within the parameters laid by the Hon'ble Supreme Court for a decision under s. 34 of the A&C Act.

Evolution of Jurisprudence

As noted by the Supreme Court in its judgment, it relied on a previous holding in Kinnari Mullick and Another vs. Ghanshyam Das Damani, (2018) 11 SCC 328 ("Kinnari Mullick"). The question before the court in Kinnari Mullick was whether s. 34 (4) of the A&C Act empowers the court to relegate the parties before the Arbitral Tribunal after having set aside the arbitral award, and more so suo motu in the absence of any application made in that behalf by the parties to the arbitration proceedings.[3]

The case in Kinnari Mullick arose from the judgment of the Division Bench of the High Court of Calcutta in an application under s. 34 of the A&C Act. The Division Bench had held that s. 34 of the A&C Act empowers the court to remit the award to the arbitrator at a stage when the award was under challenge, to eliminate the ground for setting aside of the arbitral award. The Division Bench, in light of this holding, remitted the award back to the arbitrator with a direction to assign reasons to support the award. An appeal was filed before the Supreme Court against the direction issued by the Division Bench to send back the award to the arbitral tribunal for assigning reasons.

The Hon'ble Supreme Court observed that referred s. 34 (4) of the A&C Act is the repository of the power of the court in this regard. s. 34(4) of the A&C Act reads as follows:

"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."

The Court then relied on its earlier decision in MC Dermott International Incorporated v Burn Standard Co. Ltd, (2006) 11 SCC 181, and referring to the decisions of various High Courts including Bhaskar Industrial Development Ltd. v. South West Railway, 2016 SCC Online Kar 8330, MMTC v Vicnivass Agency, 2008 SCC Online Mad 584; Raitani Engg Works (P) Ltd. v Union of India, 2015 SCC Online Gau 494, held as follows:[4]

  1. the court can defer the hearing on an application filed under s. 34 of the A&C Act for setting aside the award on a written request made by a party 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;
  2. the quintessence for exercising power under s. 34(4) of the A&C Act is that the arbitral award has not been set aside;
  3. the power under s. 34(4) of the A&C Act can be exercised if challenge to the award has been set up under s. 34 of the A&C Act about the deficiencies in the arbitral award which may be curable by allowing the arbitral tribunal to take such measures which can eliminate the grounds for setting aside the arbitral award;
  4. 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; (emphasis supplied)
  5. the limited discretion available to 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 motu by the court.

Conclusion

The Supreme Court vide its judgment dated in Radha Chemicals v Union of India, has clarified and reaffirmed  that the court while deciding an application under s. 34 of the A& C Act has no jurisdiction to remand the matter to the Arbitrator for a fresh decision. The arbitration award once issued can only be set aside and it will be for the relevant party to initiate fresh arbitration proceedings if the award is set aside under s. 34 A&C Act.

Effectively, the Supreme Court has categorically affirmed that s. 34 A&C cannot be used to obtain a "second shot" to improve the pleadings and proceedings. Hence "back passing"  to the tribunal after the arbitration award is no longer an option.

This also imposes an obligation on the Parties to ensure that the pleadings, proceedings and arguments in the course of arbitration are such so as to protect the award from a s. 34 A&C Act challenge.

* Piyush Joshi is a Partner and Telma Raju is an Associate at Clarus Law Associates.


[1] Radha Chemicals v Union of India, Civil Appeal No. 10386 of 2018 (Para 5)

[2] Ibid.

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

[4] Kinnari Mullick and Another vs. Ghanshyam Das Damani, (2018) 11 SCC 328 (Paras 15, 16)


* Piyush Joshi is a Partner and Telma Raju is an Associate at Clarus Law Associates.


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