The authors are Advocates at Karanjawala & Co. They practice Arbitration as well as before the Hon'ble High Court of Delhi.

This Article seeks to examine Section 34(4) of the Arbitration and Conciliation Act,1996.

An Arbitral Award passed under Section 31 of the Arbitration and Conciliation Act,1996 (referred to as the '1996 Act') is essentially a statement of 'determination of issues' by an arbitral tribunal and as a matter of deliberate legal construct no provision for appeal against the award is present in the 1996 Act is based on the UNCITRAL Model law. However, Section 34 of the 1996 Act allows an aggrieved party to pray for setting aside the arbitral award. The powers of the supervising court to set aside an Arbitral Award have been crystallized in the limited grounds provided under Section 34 of the 1996 Act and also by judicial pronouncements in this regard.

Nevertheless, the supervising courts do not have the power to alter or modify or remand back the award for reconsideration to the arbitral tribunal. As per the settled position of law the duty of the court is limited to set aside the award if it does not withstand the legal scrutiny mandated under Section 34 of the 1996 Act. However, in certain cases the courts have altered or modified the Arbitral award before upholding or remanding it to the Arbitral Tribunal.

For the purpose of this article, in order to delve further into the less oft used provision, we focus on the subject matter of Section 34(4) of the 1996 Act which empowers the Court, where appropriate and so requested by a party, to adjourn the proceedings under Section 34(1) of the 1996 Act for setting aside the Arbitral Award, for a period of time determined by it. The purpose of this provision is to give the arbitral tribunal an opportunity to take steps that in its opinion will eliminate the grounds available for setting aside an award.

Section 34(4) of the Act is produced hereunder-

Section 34(4) - "(4) 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."

Section 34(4) of the Act, therefore, empowers the court to merely adjourn the proceedings challenging the arbitral award. In a given scenario, in order to eliminate the defects in the arbitral award, an appropriate court can either set aside the award under section 34(1) or adjourn the proceedings under section 34(4). The conditions pre-requisite for the court to adjourn the proceedings under section 34(4) are – (i) an application under section 34 (1) of the Act to set aside the award; (ii) subsequent determination by the court that the same is appropriate; and (iii) request by a party in this regard. The court cannot exercise its powers suo moto under this Provision.

In the case of MMTC v. Vicnivass Agency 1 the Madras High Court adjudicated upon the scope of section 34(4) of the Act and observed its departure from the provision of remand provided under section 16 of the 1940 Arbitration Act. The Court gave a wider interpretation to section 34(4) of the Act even though the said Section does not provide substantive grounds for remand in contrast to section 16 of the 1940 Act, which provided three grounds for remittal, namely, (i) where the award has left undetermined any of the matters referred to arbitration or where it determines any matter not referred to arbitration and such matter cannot be separated without affecting the determination of the matters referred to; or (ii) where the award is so indefinite as to be incapable of execution; or (iii) where an objection to the legality of the award is apparent on the face of it.

While section 16 of the 1940 Act empowered courts to remit the award back to the tribunal for reconsideration in order to remove the defects, section 34(4) of the Act does not expressly grant such power of remission to the courts to which such application for setting aside the award is made. The MMTC ruling (supra) also provided that the power under section 34(4) of the Act is inextricably intertwined with the grounds for setting aside the award under section 34(2), since the very object of section 34 (4) of the Act is to eliminate the grounds for setting aside the award. Since the amended Act seeks to limit the role of judiciary in arbitral proceedings, the Madras High Court aptly highlighted in the MMTC ruling that , "the scope of the enquiry under section 34 (4) of the 1996 Act is left to the discretion of the arbitral tribunal and is not to be dictated by the court which considers the application under section 34(1)".

The scope of Section 34(4) of the Arbitration and Conciliation Act, 1996 as laid down by the Apex Court :

The Supreme Court has interpreted Section 34 (4) of the Act in Kinnari Mullick and Another vs. Ghanshyam Das Damani2 wherein the Ld . Single Judge of the Hon'ble High Court had set aside the arbitral award due to lack of reason, which was also upheld by the Ld. Division Bench in appeal. However, the Division Bench suo moto decided to relegate the parties back to the arbitral tribunal with a direction to the arbitral tribunal to assign reasons in support of its award. Therefore, the substantial question of law before the Hon'ble Supreme Court was whether a court, under Section 34(4) of the Act, is empowered to remand the parties back before the arbitral tribunal with a direction to assign reasons in support of the arbitral award, especially when the arbitral award has been set aside by the Single Judge, and the Division Bench has concurred with that finding.

The Hon'ble Supreme Court observed thus:

"On bare reading of this provision, it is amply clear that the Court can defer the hearing of the application filed under Section 34 for setting aside the award on a written request made by a party to the arbitration proceeding to facilitate the Arbitral Tribunal by resuming the arbitral proceedings or to take such other action as in the opinion of the Arbitral Tribunal will eliminate the grounds for setting aside the arbitral award. The quintessence for exercising power under this provision is that the arbitral award has not been set aside. Further, the challenge to the said award has been set up under Section 34 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. No power has been vested 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 sub-section 4 of Section 34."

The Hon'ble Supreme Court also relied on McDermott International Inc. Vs. Burn Standard Ltd.3, wherein the Hon'ble Court observed that :-

"8..... parliament has not conferred any power of remand to the Court to remit the matter to the arbitral tribunal except to adjourn the proceedings as provided under Sub-section (4) of Section 34 of the Act. The object of Sub-section (4) of Section 34 of the Act is to give an opportunity to the arbitral tribunal to resume the arbitral proceedings or to enable it to take such other action which will eliminate the grounds for setting aside the arbitral award."

The Hon'ble Supreme Court also observed in Kinnari Mullick (Supra) that-

"In any case, the limited discretion available to the Court under Section 34(4) can be exercised only upon a written application made in that behalf by a party to the arbitration proceedings. It is crystal clear that the Court cannot exercise this limited power of deferring the proceedings before it suo moto. Moreover, before formally setting aside the award, if the party to the arbitration proceedings fails to request the Court to defer the proceedings pending before it, then it is not open to the party to move an application Under Section 34(4) of the Act. For, consequent to disposal of the main proceedings Under Section 34 of the Act by the Court, it would become functus officio. In other words, the limited remedy available Under Section 34(4) is required to be invoked by the party to the arbitral proceedings before the award is set aside by the Court."

The Hon'ble Supreme Court had also relied on MMTC Vs. Vicnivass Agency4, wherein the Madras High Court while dealing with the purport of Section 34(4) of the Act had observed:

"(C)........... On the other hand, Section 34(4) of the new Act, does not prescribe any condition precedent on the substance of the matter but prescribes three procedural conditions namely that there should be an application Under Section 34(1) of the new Act and that a request should emanate from a party and the Court considers it appropriate to invoke the power Under Section 34(4) of the new Act."

Again, in paragraph 22 (e) (IV) of the reported judgment, it observed thus:

"But under the 1996 Act, the Court has only two sets of powers after the award is pronounced viz.

(i) to set aside the award Under Section 34(2); or

(ii) to adjourn the proceedings to enable the arbitral tribunal to resume the proceedings or take such other action as in the opinion of the tribunal will eliminate the grounds for setting aside the arbitral award."

The judgement in Kinnari Mullick was relied upon by the Hon'ble Supreme Court in Radha Chemicals Vs. Union of India5, wherein the Ld. Single Judge of the Hon'ble High Court while disposing the application under Section 34 of the 1996 Act had held that the point of limitation had not been decided correctly and directed to remand the matter to the sole arbitrator to decide the point of limitation afresh. The learned Single Judge had also held that a new arbitrator would have to be appointed in order to decide the matter afresh. The Ld. Division Bench upheld the judgment of the learned Single Judge in appeal. The Order of the Ld. Division Bench was challenged before the Hon'ble Supreme Court, wherein it was observed 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."

Therefore, in view of aforesaid judicial pronouncements the position of law with respect to Section 34 (4) of 1996 Act can be summarized as follows:

  1. Upon a written request by one of the parties, the appropriate Court may adjourn the proceedings under Section 34(4) of the Act, for setting aside the award, to give the Arbitral Tribunal an opportunity to take any action which in the opinion of the Tribunal will eliminate the grounds for setting aside the arbitral award;
  2. It is quintessential in order to exercise power under Section 34(4); that the arbitral award has not already been set aside.
  3. 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 Section 34(4).
  4. The limited discretion available to the Court under this section can be exercised only upon a written application made by a party before the arbitral award has been set aside and such discretion cannot be exercised suo moto by the Court.
  5. There is no compulsion or obligation placed upon the arbitral tribunal to do a certain act or refrain from it as per the directions given to it by the supervisory court under Section 34(4) of the Act. The tribunal may choose to not take any further action and leave it to the Court to decide the matter under Section 34(2) of the 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. On the other hand, it may also be the case that the arbitral tribunal may entertain additional evidence after the arbitral proceedings resume. All that is required is the subjective satisfaction of the arbitral tribunal that the venture undertaken by it would eliminate the ground for setting aside the award.

Footnotes

1. ( 2009) 1 MLJ 199

2. (2018) 11 SCC 328

3. (2006) 11 SCC 181

4. Supra at 1

5. (Civil Appeal No. 10386 OF 2018)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.