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Power to Eliminate Grounds for Setting Aside an Award Under S. 34(4) of the Arbitration and Conciliation Act, 1996: Reduced to Redundancy?

Mansvini Jain

Introduction

The ability of courts to nullify a final arbitral award is a crucial and often contentious intersection between the supervisory role of courts and arbitral autonomy.

Recently, the High Court of Delhi in the case of NHAI v. Trichy Thanjavur Expressway Limited ( ‘Trichy Thanjavur’) examined in detail, two important aspects of the provision on setting aside an award under section 34 of the Arbitration and Conciliation Act, 1996 (‘the Act’). The Court was considering cross-petitions under section 34 asking for the award to be set aside only to the extent of certain findings, with one petitioner also having moved an application under section 34(4) for eliminating the grounds for setting aside the award. The court took this opportunity to examine and settle preliminary questions regarding whether partially setting aside the award was permissible, and whether the scope of section 34(4) allowed for the relief sought, and for this purpose, invited open submissions from the bar..

In this article, I focus on the High Court’s discussion on section 34(4); the provision 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.”

On a plain reading, some key elements are identified:

(1) Section 34 (4) is activated on an application made by a party.

(2) Such application is to be made during the pendency of the section 34(1) proceedings, i.e. only where a petition for setting aside of an award has already been filed. Thus, the request under section 34(4) cannot lie independently.

(3) The court must consider that it is ‘appropriate’ to act on this application; hence, the powers under section 34(4) are discretionary.

(4) The court can then adjourn the section 34 proceedings, and provide an opportunity to the arbitral tribunal to resume the proceedings or take any other action as it deems fit. Hence, the tribunal also has some discretion.

(5) The arbitral tribunal must act with a view to eliminate grounds for setting aside the award.

At the same time, we must note that the language of section 34(4) does not expressly limit:

·      the grounds under section 34(2) that can be eliminated using this mechanism;

·      the factors that the court considers when determining whether it is ‘appropriate’ to pass orders; or

·      the range of actions which the arbitral tribunal can take to eliminate the grounds for setting aside the award.

However, in the Supreme Court’s judgements in Dyna Technologies v. Crompton Greaves Limited  ( Dyna Technologies’), I-Pay Clearing Services v. ICICI Limited ( I-Pay Clearing Services’) and the cases following it, section 34(4) has been read in a more constrained manner than its plain meaning suggests. For instance, I-Pay Clearing Services suggests that section 34(4) can only be used where there is an absence of, or gap in, reasoning for findings in an award. I argue that the scope and potential of section 34(4) has been further attenuated by the High Court in Trichy Thanjavur, which is not justified by the text of the provision.

The Judgement and the History

The High Court’s conclusions in Trichy Thanjavur were as follows:

(1) On receipt of an application under section 34(4), the court must be prima facie satisfied that the award suffers from a defect which is ‘curable’, and then the tribunal may be given an opportunity to take appropriate measures to “eliminate the spectre of the award itself coming to be set aside”.

(2) The discretion of the court is limited to “curable defects only”, i.e. defects which are manifest and which can be remedied without the foundation of the award or the findings being impacted.

(3) If an award is found to suffer from any of the illegalities in section 34(2)(a) or (b), it must be set aside and cannot be saved by section 34(4). Section 34(4), only operates in a “narrow window… outside of Section 34(2)”.

(4) The scope of section 34(4) extends to curative measures contained in section 33, including permitting the tribunal to render an award on a claim which has been overlooked as under section 33(4), or to provide/add reasoning (as recognised in Dyna Technologies and I-Pay Clearing Services).

(5) Section 34(4) does not permit the tribunal to revisit a finding which already stands recorded in the award.

(6) Even evident fallacies cannot be rectified as this would require the tribunal to revisit its conclusion, and this interpretation may result in expanding the recognised grounds upon which an award may be assailed.

To appreciate the High Court’s reasoning and the problems with it, it is necessary to look at the history of section 34(4). This provision was part of the Act as it was originally enacted, and was adopted almost verbatim from article 34(4) of the UNCITRAL Model Law. The High Court also extensively referred to the provision’s history, including the travaux préparatoires for the Model Law, which show India’s unqualified support for the provision. The Indian representative opined that merely because remission as a mechanism was not known in some legal systems, it was not a reason to exclude the provision. This was also the prevailing view, and the phrasing was seen as ‘advantageous’  and ‘flexible' for the court and tribunal to meet the needs of each case. The Analytical Commentary on the Model Law described the article as a remedy “placed in the framework of setting aside proceedings” and it is “only if such ‘remission’ turns out to be futile at the end of the period of time determined by the Court...would the court resume the setting aside proceedings and set aside the award”.

India’s adoption of article 34(4) must be understood in this context. Remission or remand is not an uncommon feature in the Indian system, as the Code of Civil Procedure (Order 41, Rules 23 and 23A) recognises the albeit limited power of an appellate court to remand the case if the judgment of the lower court is reversed on a preliminary point, or if a re-trial is considered necessary. Admittedly, a supervisory court does not enjoy the same powers as an appellate court in relation to an arbitral tribunal, and the parameters for remand under the CPC and the Act are also different. However, the tool of remand is useful as it saves parties from having to initiate fresh action, and the same consideration  applies to setting aside of awards as well.

Subsequently, in the 2019 decision in Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd. (‘Dyna’), the Supreme Court, for the first time, provided some guidance on the scope of section 34(4), while considering an appeal from a section 34 challenge where the arbitrator had failed to provide adequate reasoning. The Court held that section 34(4) “can be utilized in cases where the arbitral award does not provide any reasoning or if the award has some gap in the reasoning or otherwise and that can be cured so as to avoid a challenge based on the aforesaid curable defects”. In the second significant interpretation in I-Pay Clearning Services Pvt. Ltd. v. ICICI Bank Limited ('I-Pay'), the Supreme Court was dealing with a case where the ground for challenge to the award was that the arbitrator had failed to note evidence that showed accord and satisfaction between the parties. The Court confined the discretionary power available under section 34(4) to cases “where there is inadequate reasoning or to fill up the gaps in the reasoning, in support of the findings which are already recorded in the award”. It was further held that section 34(4) cannot be used and the award would have to be set aside if “there are no findings on the contentious issues in the award or if any findings are recorded ignoring the material evidence on record”.

Analysis

Coming back to Trichy Thanjavur, there are several fallacies in the High Court’s reasoning, some of which are rooted in previous decisions of the Supreme Court in Dyna and I-Pay, by which the High Court was bound. Some of these problems in the law on section 34(4) are discussed below:

There Is No Statutory Basis To Limit Section 34(4) To ‘Curable Defects’

‘Curable defects’ is not a categorisation made by the Act. Section 34(2) of the Act simply lists out the grounds on which an award may be set aside. Section 34(4) refers to “grounds for setting aside the arbitral award”, which is necessarily a reference to the grounds contained under section 34(2) without any further qualification. The language of ‘curable defects’ was first used in the context of section 34(4) in Dyna.

While creating this new classification in Dyna, the Supreme Court did not lay down any guiding definition. In fact, the language in Dyna suggested a broad understanding of the purpose of section 34(4), in stating that the “legislative intention of providing Section 34 (4) in the Arbitration Act was to make the award enforceable”. An ‘absence of reasoning’ was identified as one of the situations in which section 34(4) could be utilised. However, the Court left some room for defects which can be cured to avoid setting aside.

The ruling in Dyna ought to be assessed on its own facts. The Supreme Court was examining a decision of the Madras High Court (Crompton Greaves Limited v. Dyna Technologies Private Limited), which found that the arbitrator had failed to consider contractual terms dealing with termination, and had not provided reasons for the basis of liability. Consequently, the High Court held that remission under section 34(4) to enable the arbitrator to provide reasoning was not warranted, as the conclusion was clearly contrary to the contractual terms.

The Supreme Court noted that the High Court ought to have considered remanding the matter to the tribunal, but ultimately held that remand was not appropriate because of the length of time that had passed since the issuance of the award. The Supreme Court specifically observed that the High Court should not have “brushed aside” the provision, and proceeded to decide the section 34 petition on merits. Therefore, no general rule limiting the scope of section 34(4) was laid down in Dyna Technologies. In I-Pay, the Supreme Court referenced Dyna Technologies while limiting the discretionary power under section 34(4).

The High Court in Trichy Tanjavur held that by virtue of these judgements “the suspension of the setting aside proceedings and the remit to the AT in the meanwhile stands restricted to an opportunity being accorded to it to attend to curable defects only.”

Section 34(4) Cannot Be Read Outside of The Power or Grounds For Setting Aside Award

The Supreme Court in I-Pay Clearing Services distinguished between “grounds which are acceptable for setting aside the award itself” (such as the absence of findings), and curable defects which can remedied using section 34(4) (such as providing reasoning for an existing finding). This distinction is unsound given the terms of section 34(4), which make it evident that the power under the section is exercised to allow the tribunal to “eliminate grounds for setting aside the arbitral award”. Therefore, it is incorrect to suggest that grounds where section 34(4) can apply are somehow distinct from the grounds acceptable for setting aside an award.

This logical fallacy was carried forward in Trichy Thanjavur, where the High Court stated that section 34(4) can be used to eliminate the “spectre” (i.e. the risk or possibility) of the award being set aside, and yet that the provision cannot be used where grounds for setting aside are made out under section 34(2). What the High Court failed to note is that there can be no possibility of an award being set aside except for the grounds under section 34(2). Therefore, to hold that section 34(4) exists in a ‘window’ outside of section 34(2) makes little sense.

Given the scheme envisaged under section 34, it is evident that the scope of section 34(4) grounds will always overlap with section 34(2), and cannot be distinct. The scheme would be as follows: 

(1) An application is made by a party for setting aside the award under section 34(1).

(2) Such an application must relate to one or more of the grounds enumerated under section 34(2). No other grounds are available under the Model Law framework.

(3) An application under section 34(4), if made, will be filed within the same setting-aside proceeding. This application, too, will relate to one of the section 34(2) grounds urged in the petition.

(4) Therefore, the ground(s) which the tribunal can attempt to eliminate if permitted by the court, will necessarily be ground(s) enumerated under sub-section (2).

The distinction made by the Supreme Court and followed by the High Court is, therefore, artificial.

Conflating the Scope of Section 34(4) with Correction and Interpretation of Awards Under Section 33 Results in Redundancy

Since the High Court’s understanding was that the grounds for setting aside do not apply in case of section 34(4) (despite the provision stating as much), a vacuum is created in the space where section 34(4) can actually apply. In an entirely new innovation, the High Court supplied these grounds by borrowing from the contents of an altogether different provision- section 33 of the Act. Section 33 deals with applications made to the tribunal itself for correction of clerical or typographical errors in the award, for interpretation of the award, or for requests for additional awards.

In interpreting a legislation, each provision thereof should be given effect; two provisions do not exist for the same purpose and cannot be interpreted so as to render one of them redundant. Section 33 already provides a time interval – i.e. within 30 days from receipt of the award - for parties to apply to the tribunal for corrections or interpretation or additional awards on claims not considered in the award. The effect of conflating the scope of section 33 and section 34(4), as done by the High Court, is -

·    to extend the 30 day time period in section 33 to the longer timeline under section 34, i.e. of 3 months with an additional 30 days of condonable delay; and

·    to allow parties to approach another forum, i.e. the section 34 court, to make the same requests for correction, interpretation, etc. which they could have (and indeed in some cases may have already) brought to the arbitral tribunal under section 33.

There is No Statutory Basis to Suggest that an Arbitral Tribunal Cannot Revisit its Findings Upon Remittal Under Section 34(4)

The Supreme Court in I-Pay Clearing Services stated that the award cannot be altered by the tribunal once rendered, and this is reiterated by the High Court in Trichy Thanjavur. While reasoning can be added or supplemented, findings cannot be changed. As discussed above, the language of section 34(4) allows the tribunal to take any action which, in the opinion of the tribunal, would eliminate the grounds for setting aside. This language does not suggest that the tribunal is barred from revisiting its findings or altering the award, if that would eliminate the concerned ground highlighted by the court.

Undoubtedly, the arbitral tribunal has some discretion after an order under section 34(4) is issued. It may decline to take any action, provide supplementary reasoning, conduct additional hearings, or correct its findings. The discretion of the tribunal was correctly appreciated, for instance, by the Madras High Court in MMTC v. Vicvinass Agency, while distinguishing between the scope of remission under the present legislative regime, and that under the Arbitration Act, 1940.  The Madras High Court noted that the older legislation gave greater power to the court to modify the award, remit, etc. On the other hand, the Model Law-based section 34(4) instead leaves the tribunal with relatively greater room to determine its subsequent steps.

However, this discretion is not unbounded. It is also not a recognition of an inherent power of the tribunal to review the award suo moto or otherwise. Any steps taken by the tribunal must be with a view to eliminate the grounds which are identified in the order of the court. The court will specify which finding, issue, or claim the tribunal may reconsider.

It may be instructive to examine how another common law system following the Model Law framework has dealt with the issue of the tribunal’s powers on remission. Singapore makes a fitting example, given its robust arbitration regime and its complete adoption of the Model Law for international commercial arbitration. The limits on discretion of the tribunal were succinctly explained by the Singapore Court of Appeal in CKH v. CKG, where the Court was specifically considering the question of “whether and how far a party may, on a remission under Article 34(4)”. The award had failed to consider the existence and quantum of a debt, and the judge below had remitted the matter with limited terms of reference, and a schedule of remitted matters. Upon remission, the parties disagreed as to whether the issues raised by them fell within the scope of remission. The Court of Appeal stated, confirming the lower court’s judgement, that “the Tribunal’s jurisdiction is only revived “to the extent of” the remission ordered” and outside of this, neither can the parties seek to, nor can the Tribunal itself, “re-open or expand the subject matter of the award or arbitration”. After issuing the original award, the tribunal is “functus officio, save to the extent that the order for remission gives it revived power”. This, in my submission, is the correct way of reading article 34(4) of the Model Law -adopted under section 34(4) - in accordance with its terms, and balancing any concerns about giving the tribunal broad powers of review. 

The True Interpretation of Section 34(4) is in Line With the Principle of Minimal Judicial Interference

Allowing section 34(4) to operate as per its terms would not mean that the courts are permitted greater powers of interference. The concern expressed by the High Court in Trichy Thanjavur was that “what M. Hakeem proscribes under Section 34(2) cannot be introduced by way of a side wind and read into Section 34(4)”. The Supreme Court in NHAI v. M. Hakeem ('M. Hakeem'), in a case where the lower court had enhanced the compensation for land acquisition given in the impugned award, rightly held that modification of an award by a court is not permissible. However, what the Delhi High Court in Trichy Thanjavur failed to note was that M. Hakeem was not dealing with modification of the award by the tribunal when permitted by the court under section 34(4). In fact, the Court observed that “the limited remedy under Section 34 is …to set aside an award or remand the matter under the circumstances mentioned in Section 34 of the Arbitration Act, 1996”, which in fact affirms the power of remand under section 34(4).

What M. Hakeem proscribed, in principle, was a breach by courts of the statutorily circumscribed limits of judicial interference. Section 34(4) is very much a part of the statutory scheme itself. Section 34(4) also does not give powers to the court to direct the tribunal to make any specific modifications. The court’s role would be to identify the defect which may result in the award being set aside, define the scope of re-consideration, and then allow the tribunal to take such steps as it deems fit. It is possible that the tribunal may not take any steps, or may fail to eliminate the ground even after acting. The court, depending on the effect of the steps taken by the tribunal, may either proceed to set aside the award or a part of it, or sustain it.

The above process is illustrated by the history of a recent decision of the Supreme Court in Unibros v. All India Radio. The Delhi High Court held that the arbitrator’s finding on a claim for loss of profitability was without evidence, and remitted that claim for reconsideration to the arbitrator (this decision preceded Dyna Technologies and I-Pay Clearing Services). The arbitrator reaffirmed the same finding without addressing the defect highlighted, and the ‘second award’ on this claim was set aside by the court. A division bench of the High Court, as well as the Supreme Court, upheld the decision setting aside this part of the award.

The other concern highlighted in Trichy Thanjavur was that an expansive interpretation of section 34(4) may result in opening up grounds on which awards may be assailed. However, the High Court’s reasoning, as carried forward from I-Pay Clearing Services, invites precisely this danger by creating a new statutorily rootless field of ‘curable defects’ outside of section 34(2), and potentially including section 33 grounds under the section 34 framework. ‘Curable defects’ may include the absence of, or gaps in reasoning, as in Dyna Technologies, and corrections under section 33 or additional awards as introduced by Trichy Thanjavur. However, this category is inexhaustible and remains vulnerable to expansion in future cases.  

It is interesting to note that none of the ‘curable defects’ identified by courts are grounds which would otherwise permit a party to move a section 34(1) petition for setting aside an award. It is now possible that enterprising parties who do not have a genuine attack against an award, or have missed the time period available under section 33, can delay enforcement of an award by filing a section 34(1) petition, along with an application under 34(4) asking for the tribunal to resume proceedings to eliminate sundry ‘curable defects’.

Conclusion

The Delhi High Court’s discussion in Trichy Thanjavur on the scope of section 34(4) adds further confusion to an already muddled field. Section 34(4) ought to be construed, as with any statute, primarily by giving effect to its plain terms. As per its terms, section 34(4) can be used for the elimination of any ground for setting aside an award under section 34(2) of the Act, if considered appropriate in the facts of a case. The tribunal’s power upon remission is circumscribed by the court and would not amount to a complete power of review. The court may also set a time period for the tribunal to take action. If upon the expiry of the time period, the grounds which threatened the award stand eliminated, the award may be sustained and executed. If the grounds for setting aside still exist, then the court may proceed to set aside the award. Therefore, the courts’ ‘watchful gaze’ is not entirely blinded. 

Even on a purposive construction, empowering the tribunal to take steps to potentially save the award from being set aside is in line with the principle of deference to the parties’ choice of arbitration and minimal judicial intervention. Resort to section 34(4), when requested and when deemed appropriate by the court, would ensure that at least in some cases, the process is not reset to square one because of the award or some of its findings being set aside. As the finality of awards, and general expediency are important goals for an arbitration regime, the option of using the curative tool under section 34(4) should remain open where proper, and not entirely reduced to an ‘appendix’ within the framework of section 34.

 

Mansvini Jain is an Associate at Keystone Partners, New Delhi.

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