| CITATION | 2022 SCC ONLINE SC 4 |
| DATE OF JUDGEMENT | 3rd January 2022 |
| COURT | Supreme Court of India |
| APPELLANT | I Pay Clearing Services Pvt. Ltd. |
| RESPONDENT | ICICI Bank Ltd. |
| BENCH | Justice R. Subhash Reddy, Justice Hrishikesh Roy |
| CASE NO. | SLP(C)24278 of 2019 |
| CASE TYPE | CIVIL APPEAL No.7 of 2022 |
INTRODUCTION
The cornerstone of the Indian legal system is natural justice, and an arbitration decision, like a court ruling, must uphold these ideals. The case of Maneka Gandhi v. UOI established the legal precedent that an order that lacks rationale is deemed unconstitutional due to its violation of natural justice principles. The goal of India’s arbitration law is to resolve disputes quickly and to give relatively few grounds for challenging a judgement. As a result, Section 34(4) of the Act, which permits an arbitral tribunal to correct a curable flaw in an award upon a party’s application, has found a significant place in the Arbitration and Conciliation Act, 1996. The aforementioned authority is intended to preserve the integrity of an award that, despite having a “finding”, is not sufficiently supported by “ reasons”. According to Section 34(4), the Court may adjourn the proceedings for a while to give the Tribunal a chance to resume proceedings or take any necessary action to remove the grounds for setting aside the award if a party opposing Section 34 proceedings files an application seeking a tribunal’s resumption of proceedings to do so.
This clause permits a tribunal to meet again even after the arbitral proceedings are concluded with the issuance of an award. This is carried out to correct flaws and maintain the credibility of an award. The Hon’ble Supreme Court of India’s ruling in I- Pay Clearing Services Pvt. Ltd. V. ICICI Bank Ltd. affirms the general rule that Section 34(4) may be used to cure a lack of reasons; however, it also stipulates that Section 34(4) cannot be used to cure a lack of a finding on a specific issue.
FACTS
- A Service Provider Agreement was signed by I-Pay Clearing Services Pvt. Ltd. (“I-Pay”) and ICICI Bank Ltd. (“ICICI”) concerning the technology, administration, and running of a loyalty program based on Smart Cards for Hindustan Petroleum Corporation Ltd.
- The agreement was terminated by ICICI, leading to a dispute that was sent to arbitration and heard by a Sole Arbitrator.
- In a judgment made by the Ld. Sole Arbitrator, ICICI was ordered to pay INR 50 crores in damages, along with interest at the rate of 18% per annum from the date of the award until realization.
- Since the Award made no mention of whether ICICI terminated the agreement abruptly and improperly, ICICI Bank challenged it under Section 34 of the Act before the Hon’ble Bombay High Court on the grounds of patent illegality. Strangely, despite the fact that the issue had been raised, there was no particular finding in the award. ICICI contended that the Award was obviously unlawful and incorrect because it lacked an answer regarding the precise nature of the violation.
- I-Pay filed a notice of motion under Section 34(4) of the Act while the Section 34 petition was pending. The High Court denied the application by order dated July 16, 2019, citing the lack of a determination regarding the termination’s validity. It was decided that this flaw could not be fixed since the Award did not specify the precise breach that led to the award of damages.
- I-Pay contested this order in front of the Hon’ble Supreme Court of India.
ISSUES RAISED
- The question aroused whether an arbitral award can be remitted to the arbitrator if the award contains no findings on the matter in dispute.
- Issue rose before the court that whether court has the right to cancel the decision, if a request is presented to return the matter to the arbitrator under section 34(4)?
CONTENTIONS OF APPELANT
The appellant claimed that the defendant terminated the Service Provider contract illegally and abruptly, and the arbitrator agreed with the appellant stating that there was no agreement and satisfaction between the parties. The arbitrator, however, did not provide sufficient reasons to support this claim. As a result, the award was requested to be returned to the arbitrator.
The appellant continued that the purpose of returning the case to arbitration is to remove the defects or deficiencies and finally confirm the award. The appellant then prayed that the Court should set aside the impugned judgment of the Hon’ble Bombay High Court and direct the arbitral tribunal to set aside the award..
CONTENTIONS OF RESPONDENT
The respondent contented that the appellant has not presented a substantial basis for returning the case to arbitration. It was further argued that the Arbitral Tribunal did not consider the respondent’s relevant documentary evidence. The defendant claimed that the letter sent to the court on 01.06.2010 was signed by both parties for the conclusion/settlement of the contract and led to the agreement and fulfilment of his contractual obligations/requirements. The Arbitral Tribunal, on the other hand, ignored the letter/evidence and awarded the defendant without even giving sufficient reasons for its decision.
It was claimed that the award does not include a “find” that the defendant wrongly cancelled the service provider contract. It argued that, first, failure to provide this essential evidence is grounds for invalidating the patent in domestic arbitration and, second, it cannot do so even if the arbitrator decides to issue an award during the submission process..
JUDGEMENT
The Hon’ble Supreme Court ruled that when the Respondent in the arbitration procedures did not receive a decision on a particular claim, remission under Section 34(4) of the Act is inadmissible. The Act’s Section 34(4), which permits award to be remanded for reconsideration before the same Arbitral Tribunal, the court stated, can only be applied to document the logic behind earlier rulings or to close any gaps in the award.
The relevant letter and evidence presented before the arbitrator showing “accord and satisfaction” between the parties were not taken into consideration because the Arbitral Tribunal did not make a specific finding in its Award, a argued by the respondent. This approach essentially amounts to patent illegality. Such factors need the use of judicial reasoning, and the court itself must assess them.
The Court further stated that Section 34(4) of the Act clearly gives the Court the authority to choose whether or not to refer the case to the Arbitral Tribunal for one last opportunity to continue the proceedings. By itself, the phrase “when it is appropriate” implies that the Court has the power to remit the case at a party’s request.
The Hon’ble Supreme Court dismissed the appeal without overturning the Hon’ble Bombay High Court’s decision, citing the ruling in J. Ashoka v. University of Agricultural Sciences and Ors. In which it was held that reasons are the connections between the materials on which particular conclusions are based and the actual conclusions.
ANALYSIS
The obvious has been established by the Hon’ble Supreme Court. A party’s ability to request remission so that a tribunal might correct deficiencies that are curable would not allow the tribunal to alter the award by replacing its findings under the guise of providing justification. The legislature could not have intended for a Tribunal to be able to sit and correct its own award by adding findings on important matters without which the award would be erroneous. By removing the grounds for contesting an award, Section 34(4) was intended to protect the sacredness of an award. The goal was not to alter the award in a way that would render 34(1) unnecessary. Therefore, the structure of Section 34(4) allows the Tribunal to give specific justification for whatever findings it makes, even in cases when the findings are unambiguous. On the other hand, courts must deny the request under Section 34(4) to replace a finding with a justification in the event that the Tribunal does not record a judgement on a material issue but yet award a hefty compensation. The arguments mentioned by the party contesting the award in their application under Section 34(1) must be taken into consideration when filing an application under Section 34(4).
The Supreme Court’s insightful observation in this case is that the authority granted by Section 34(4) of the Act is discretionary rather than mandatory. When there is a gap in the explanation that has to be filled in or when the reasoning is insufficient, such discretion should be used. An application made pursuant to Section 34(4) cannot be a pretentious attempt to modify the award or its conclusions.
CONCLUSION
According to the aforementioned ruling failing to include “reasons” for a “finding” in the arbitral award is a curable fault, but failing to include “findings” in the arbitral award is not. The aforementioned ruling is noteworthy in terms of an Arbitral Tribunal’s ability to issue an award. It establishes a crucial rule requiring Arbitral Tribunals to record their “findings” about each of the issues raised in the arbitration case. When such problems are crucial to determine the claims, failing to record a “finding” could lead to the arbitral decision being set aside under Section 34 of the Act on the grounds of patent illegality.
REFERENCE
https://indiankanoon.org/doc/147536379/
https://www.latestlaws.com/judgements/bombay-high-court/2023/january/2023-latest-caselaw-174-bom
Written by Surbhi Singh an intern under legal vidhiya.
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