This case comment is a part of our Annual Arbitration Review of the year 2017.

Judgment name: Kinnari Mullick and Another v. Ghanshyam Das Damani

Citation: Civil Appeal No.5172 of 2017

Court: Supreme Court of India

Coram: Dipak Misra J, A.M Khanwilkar J. and Mohan M. Shantanagoudar J.

Date: 20th April 2017

Keywords: Awards, Suo Moto Relegation, UNICITRAL Model Law, Section 34.

Overview

Awards made by the arbitral tribunal cannot be challenged on merits, and their conclusions cannot be appealed by re-assessing or re-appreciating the evidence.[i] To set aside an award, the only recourse a party is left with is to file an application under Section 34 of The Arbitration and Conciliation Act, 1996 (“the Act”). Further, various grounds are laid down in Section 34 of the Act for setting aside of the award, subject to a party making an application for the same.

Section 34(4) of the Act provides a unique opportunity for the tribunal to eliminate grounds for setting aside the award. In this case, the Division Bench of the High Court affirming the findings of the Single Judge ruled that the award did not contain any reason whatsoever, and the arbitrator was asked to assign reason to its order. This ruling by the Apex Court clarifies that after setting aside the award, the court has no power to suo moto relegate parties back to the tribunal. Moreover, this matter becomes of high importance, as the Hon’ble Supreme Court has saved the parties from going back to the aberrant tribunal, which had given an award without any reason.

In this case, it is clearly reiterated that the court does not have the power to suo moto relegate the parties back to the tribunal. But what has not been answered is that after setting aside the award – can in appeal, the court relegate the parties back to the tribunal on a written application by one party. The powers of the appellate court under the Civil Procedure Code, 1908, would have to be analysed to answer the above.

Issue

Whether Section 34(4) of the Act empowers the court to relegate the parties before the Arbitral Tribunal after having set aside the arbitral award in question and more so suo moto in the absence of any application made on that behalf by the parties to the arbitration proceedings?

Facts

Appellants and respondents get into an agreement to develop some property. Respondents claim to have signed a contract with the appellants to get possession of a part of the developed property, which the appellants contested. The dispute was referred to an arbitrator by the respondent. The appellants were not given a chance to appoint their arbitrator; neither were they notified that the respondents were going to appoint a sole arbitrator.

The appellants filed an application challenging the composition of the arbitral tribunal under Section 16 of the Act. The arbitrator rejected the said application by an interim award. The sole arbitrator issued an award, and the appellants filed a challenge petition under Section 34 for setting aside the award. The challenge petition was allowed on the finding that the impugned award did not disclose any reason in its support. Subsequently, the award was set aside, and the parties were left to pursue remedies in accordance with the law.

The respondents appealed before the division bench of the High Court. The bench affirmed the findings of the single judge that the award did not contain any reason whatsoever. The division bench suo moto decided to relegate the parties before the Arbitral Tribunal by sending the award back with a direction to assign reasons in support of its award.

The appellants have filed a special leave petition before the Supreme Court to challenge remission of the award to the arbitrator without the filing of any such application by either party.

Analysis

On an application made under 34(1) of the Act, the court can adjourn the arbitral proceedings, which can take action to eliminate the grounds to set aside the award. The resumed proceedings can only be relating to the grounds raised in the aforesaid application. Section 34 is modelled on Article 34(4) of the UNICITRAL Model Law, and as with the overall scheme of the 1996 Act, it reflects the express legislative intention of curtailing judicial intervention.[ii]

The power to adjourn the proceedings are narrow and are provided for under Section 34(4) of the Act. The appellant rightly relied on the McDermott International Inc. case to reiterate this point, “…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 court also relied on the MMTC judgment, which clearly stated that the court has two sets of powers after the arbitral award is pronounced. The first was to either set aside the award under Section 34(2) of the Act, which they had done in this case. Alternatively, to adjourn the proceedings to enable the 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. Therefore, making it clear that the power of the court under Section 34 of the Act is not to remand the matter to the Arbitral Tribunal after setting aside the award. The court cited the Bhaskar Industrial Development case to reach this conclusion.

It would have been interesting to see if the division bench overturned the decision of setting aside the award. As such, a decision would have reiterated the powers of an appellate court. The bench, being the appellate court, had the same powers and duties as the court of original jurisdiction as per Section 107(2) of the Civil Procedure Code, 1908. So, the issue that still remains unanswered is whether a party could have filed an application under Section 34(4) of the Act along with the appeal. Therefore, because of the failure of the respondent to file such an application before the Division Bench, the issue has not been contended.

Conclusion

The pro-active approach taken by the Division Bench surely had a jurisdictional error. This is one of those instances where taking an anti-arbitration approach could be good to meet the ends of justice as it would inevitably protect the parties from being obliged to knock the doors of errant Arbitral Tribunals, which had already failed to render an award-worthy of passing the muster of Section 34 of the Act.

[i] Indu Malhotra, O.P Malhotra, The Law & Practice of Arbitration and Conciliation (3rd edn, 1407-1409 2014).

[ii] Indu Malhotra, O.P Malhotra,The Law & Practice of Arbitration and Conciliation (3rd edn, 1258-1261 2014).