2017 (4) TMI 1623 - SC - Indian Laws

Power of Court to relegate the parties before the Arbitral Tribunal after having set aside the arbitral award in question and moreso suo moto in absence of any application made in that behalf by the parties to the arbitration proceedings - Section 34 (4) of the Arbitration and Conciliation Act, 1996 - HELD THAT - On a bare reading of provision of Section 34, 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 proceedings to facilitate the Arbitral Tribunal by resuming 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. The quintessence for exercising power under this provision is that the arbitral award has not been set aside - 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 Sub-Section 4 of Section 34. 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 - 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 Division Bench of the High Court of Karnataka in the case of BHASKAR INDUSTRIAL DEVELOPMENT LIMITED VERSUS. SOUTH WESTERN RAILWAY 2016 (3) TMI 1462 - KARNATAKA HIGH COURT has expounded 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 arbitral award. A priori, it must follow that the Division Bench committed manifest error in issuing direction in the concluding part of the impugned judgment, as reproduced hereinbefore in paragraph No. 7. Such direction could not have been issued in the fact situation of the present case. The impugned direction suffers from the vice of jurisdictional error and thus cannot be sustained. Appeal allowed.

Summary

Issues Involved:
1. Jurisdiction of the Arbitral Tribunal.
2. Validity of the arbitral award due to lack of reasons.
3. Power of the Court under Section 34(4) of the Arbitration and Conciliation Act, 1996 to remit the award to the Arbitral Tribunal.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Arbitral Tribunal:
The Appellants challenged the jurisdiction of the Arbitral Tribunal, asserting that the arbitrator was not properly appointed as a Sole Arbitrator. They contended that the Respondent's letter did not specify the appointment of a Sole Arbitrator nor did it call upon them to appoint their nominee arbitrator. The Appellants filed an application under Section 16 of the Act, challenging the composition and jurisdiction of the Arbitral Tribunal, which was rejected by the arbitrator through an interim award. The Appellants further raised this issue before the High Court, which was dismissed by the learned Single Judge, reserving the right to challenge the competence of the Arbitral Tribunal under Section 34 if necessary. The Division Bench also rejected the Appellants' contention regarding the inappropriate and illegal constitution of the Arbitral Tribunal.

2. Validity of the Arbitral Award Due to Lack of Reasons:
The arbitral award directed the Appellants to execute and register appropriate deeds as proposed by the Respondent but lacked any reasoning for allowing the Respondent's claim. The Appellants filed an application under Section 34 of the Act to set aside the award due to the absence of reasons. The learned Single Judge allowed the application, setting aside the award, noting that it was "completely lacking in reasons" and contained "unacceptable expressions" like "I feel that the claim is justified." The Division Bench affirmed this finding, emphasizing that Section 31 requires the Tribunal to assign reasons, and the award suffered from a lack of reasoning.

3. Power of the Court Under Section 34(4) of the Arbitration and Conciliation Act, 1996:
The Division Bench, while dismissing the Respondent's appeal, suo moto decided to remit the award back to the Arbitral Tribunal with a direction to assign reasons, citing Section 34(4). The Appellants challenged this direction, arguing that Section 34(4) allows the Court to defer proceedings only upon a written request by a party to the arbitration proceedings before the award is set aside. The Supreme Court agreed with the Appellants, stating that the Court cannot exercise this power suo moto and that the Division Bench committed a jurisdictional error. The Court emphasized that the limited discretion under Section 34(4) can only be exercised before the award is set aside and upon a formal written application by a party.

Conclusion:
The Supreme Court quashed the direction of the Division Bench to remit the award back to the Arbitral Tribunal, citing jurisdictional error. The award was set aside, and the parties were left to pursue their remedies in accordance with law. The appeal was allowed to the extent indicated, with no order as to costs.