DATE OF JUDGEMENT:
3rd January 2022
JUDGES:
Justice R. Subhash Reddy
Justice Hrishikesh Roy
PARTIES:
Petitioner (s): I-Pay Clearing Services Private Limited
Respondent (s): ICICI Bank Limited
SUBJECT
In the present case, dismissing the petition to set aside order from the High Court of Bombay, the Supreme Court of India held that it is not always obligatory on the part of the Court to remit the matter to the Arbitral Tribunal when the application is filed under section 34(4) of Arbitration and Conciliation Act, 1996.
OVERVIEW
1. In the present case, an appeal was filed in the Supreme Court of India, against the order of the High Court of Judicature at Bombay which by a common order dismissed an appeal against the award of the sole arbitrator.
2. In the petition before the High Court, the Respondent sought interim order to stay the award passed by learned Arbitrator that directed the respondent to pay the appellant an amount of Rs. 50 Crores along with interest calculated at the rate of 18% per annum. The award also directed the respondent to pay Rs. 50000 to pay the appellant as a cost on the application made under section 16 of Arbitration and Conciliation act 1996.
3. In the same petition, the appellant sought directions from the High Court under section 34(4) of the Arbitration and Conciliation Act to adjourn the proceedings for 3 months or any time devised by the court and direct the arbitrator to issue appropriate directions/ instructions / additional reasons and/or to take such necessary and appropriate action.
4. Relevant facts of the case:
a. The appellant is a Private Limited Company registered under the Companies Act, 1956. The appellant provides services in card personalization, transaction, and reconciliation management for Smart Card-based loyalty programs.
b. The respondent is also a company registered under the Companies Act and licensed under Banking Regulations Act, 1949. It provides banking-related facilities. Defendant no. 2 which was originally impeded in the suit was Hindustan Petroleum Corporation Limited (HPCL) a public sector company that works in refining and selling petroleum products through retail stores across India.
c. The appellant and the respondent agreed on 04th November 2002 to provide technology and manage the operations and processing of the Smart Card-based loyalty programs for HPCL. The agreement was for the benefit of HPC to improve fuel sales in their retail outlets. The appellant was contracted to develop multiple software application packages for the management of Smart Card-based loyalty programs.
d. The appellant and the respondent entered into another agreement on 4th February 2003. As per the agreement, the appellant was to develop a software for post-paid Smart Card Loyalty Program akin to a Credit Card under the name “Drive Smart Software”. To further extend the customer base of HPCL, the appellant was additionally asked to develop a “Drive Track Fleet Card” management solution for the fleet industry through a letter dated 10th December 2003
e. The appellant argued that the respondent abruptly terminated the agreement dated 4th November 2002 and due to which it suffered losses of over Rs. 50 Crores. Additionally, due to the termination of the agreement all the company’s operations were paralyzed. A total claim of Rs. 95 Crore was made by the appellant.
f. At first, the suit was filed in the High Court of Bombay but due to the arbitration clause in the agreement, the High Court referred the dispute to arbitration under Section 8 of the Arbitration and Conciliation Act. The Court appointed retd. Justice R.G Sindhakar as a sole arbitrator.
g. Aggrieved by the award of arbitration proceedings the respondent filed an application under Section 34(1) of the Arbitration Act for setting aside the award. The respondent by relying on a letter dated 1st January 2010, argued that there was accord and satisfaction between the parties and the contractual obligations between the parties were closed mutually and amicably, hence, the agreement was not abruptly terminated. (Herein referred to as “Point no. 1”) The respondent further contended that the award of the arbitrator suffers from patent illegality as there is no record to show that the agreement was abruptly terminated.
h. Under the same application, the appellant made an application for adjournment of proceedings for 3 months under section 34(4) of the arbitration act or any time devised by the court and direct the arbitrator to issue appropriate directions/ instructions / additional reasons and/or to take such necessary and appropriate action.
i. The High Court held that the arbitrator has committed jurisdictional error by not recording any findings Point no. 1 before recording findings on claims made by the appellant. The Court held that this error was not curable and hence dismissed the petition of the appellant.
5. In the appeal before the Supreme Court of India, the learned counsel for the appellant argued that although the arbitrator awarded damages due to abrupt termination of the contract, the arbitrator failed to record detailed reasons for the said Point no. 1. Thus under settled legal provisions of section 34(4) of the Arbitration Act, the award can be remitted to the arbitrator to provide reasons.
6. The counsel for the appellant relied on the judgment of the Supreme Court in the cases of Kinnari Mullick and Anr. v. Ghanshyam Das Damani, Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd. and Som Datt Builders Limited V. State of Kerala. Thus, it was submitted that all the defects in an arbitral award, which are capable of being remedied, ought to be addressed in remission proceedings if an application under Section 34(4) of the Act is filed. The provisions of section 34(4) are wide enough to be utilized when the award lacks reasoning. Hence, the counsel for the appellant pleaded for cancellation of the order of the High Court and remittance of the Arbitration Award.
7. The counsel for the respondents argued that the application of the appellants was dismissed by the High court for valid reasons and the same requires no interference as no grounds were mentioned by the appellants for the remittance of the award. Moreover, the arbitrator failed to consider relevant documentary evidence produced on behalf of the respondent and passed the award. Due to which the award suffers from perversity and patent illegality which can’t be cured under section 34(4) of the Arbitration Act. Also, The arbitrator can’t change its award as the same would be contrary to the provisions under section 34(4) and would also amount to the Arbitrator assuming the role of the court, which is only empowered to set aside the award.
LEGAL PROVISIONS
Arbitration and Conciliation act 1996:
- Section 30- Settlement of Arbitral award.
- Section 34- Application for setting aside the arbitral award.
- Section 34 (1)- Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).
- Section 34 (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 the arbitral tribunal will eliminate the grounds for setting aside the arbitral award.
ISSUES
1. Whether the High Court of Bombay erred in its judgment to dismiss the application of the appellant for remittance of the arbitral award under section 34(4) of Arbitration and Conciliation Act, 1966?
JUDGMENT
1. Explaining section 30 of the Arbitration Act, the court stated that the arbitral award shall state the reasons, upon which it is based unless parties agree that no reasons are to be given, or the award is an arbitral award on agreed terms
2. The court explained the difference between “Finding” and “Reasons” in light of cases cited by the parties. “Finding” connotes “decision on an issue” while “Reasons” connotes “links between the materials on which certain conclusions are based and the actual conclusions.” The court accepted the respondents' argument that there are no findings on Point no. 1 and the question of providing additional reasoning doesn’t arise as requested by the appellants. Under the guise of additional reasons and filling up the gaps in the reasoning, no award can be remitted to the Arbitrator, where there are no findings on the contentious issues in the award.
3. The court stated that section 34(4) makes it clear that discretion is vested with the court for remitting the matter to the Arbitral Tribunal to allow resuming the proceedings or not. Merely because an application is filed under Section 34(4) of the Act by a party, it is not always obligatory on the part of the Court to remit the matter to the Arbitral Tribunal.
4. The court dismissed the plea of the petitioner and declared that the order of the High Court requires no interference.
CONCLUSION
The court explaining the application of the section 34(4) of Arbitration and Conciliation act 1996 the Court held that it is the discretion vested with the Court for remitting the matter to Arbitral Tribunal to give an opportunity to resume the proceedings or not.
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