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As per the Arbitration and Conciliation Act, 1996, when an application under section 34 of the 1996 Act is moved by the Award Debtor along with the application for remitting the matter to the Arbitrator, the only power invested in the Court is to adjourn the proceedings for the limited purpose mentioned in Section 34(4) of the 1996 Act. As per the Section 34(4), the Court can defer the hearing of the objection filed under Section 34 on a written request made by a party to enable the Arbitral Tribunal to resume the arbitral proceedings so that the grounds for setting aside or in other words, the deficiencies in the arbitral award may be eliminated by the Arbitral Tribunal. The matter cannot be remanded for fresh decision by the Arbitral Tribunal which has become functus officio.

The law has also been laid in clear terms in the matter of McDermott International Inc. v. Burn Standard Co. Ltd. [(2006) 11 SCC 181]. In the matter of Radha Chemicals v Union of India [Civil Appeal No. 10386 of 2018] it was once again laid down that “the court while deciding a Section 34 (Arbitration and Conciliation Act, 1996) petition has no jurisdiction to remand the matter to the Arbitrator for a fresh decision”. The issue has been addressed in the matters of Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd. (2018) 11 SCC 328 wherein it was held that objective behind section 34(4) is to make the award enforceable and in Som Datt Builders Limited v. State of Kerala (2009) 10 SCC 259 wherein the Court held that in view of Section 34(4) of the Act, the High Court ought to give the Arbitral Tribunal an opportunity to give reasons, if the same have not been given in the original arbitral award.

Recently, in the matter of Dr. A. Parthasarathy & Ors v. E Springs Avenues Pvt. Ltd &Ors.  [SLP (C) Nos. 1805-1806/2022], the Hon’ble Supreme Court dealt with an impugned order wherein the High Court, in exercise of power under Section 37 of the 1996 Act, had set aside the award passed by the learned Arbitrator and has remanded the matter to the Arbitrator for fresh decision. While deciding the issue, the Hon’ble Supreme Court wholly relied upon its decisions in Kinnari Mullick and Anr. Vs. Ghanshyam Das Damani (2018) 11 SCC 328 and I-Pay Clearing Services Pvt. Ltd. Vs. ICICI Bank Ltd. (2022) SCC OnLine SC 4. The Court held that the High Court under section 37 of the 1996 Act either may refer the parties for fresh arbitration or may consider the appeal on merits on the basis of the material available on record within the scope and ambit of the jurisdiction under Section 37 of the 1996 Act. The Court clarified that the High Court does not have the jurisdiction to remand the matter to the same arbitrator for fresh decision/arbitration. This is otherwise permissible only by the consent of both the parties that the matter be referred to the same arbitrator.

In the Kinnari Mullick the Hon’ble Supreme Court elaborately discussed various aspects of power to remand the matter – when can the matter be remanded, what is the objective of remand and what are the limitations to the power in the light of provision under section 34(4) of the 1996 Act. The central issue involved in the case was whether Section 34(4) of the Arbitration and Conciliation Act, 1996 empowers the Court to relegate the parties back before the Arbitral Tribunal after having set aside the arbitral award in question. Additionally, it was also determined whether the court can exercise the power in absence of any specific application/prayer of the parties in this regard.

In Kinnari Mullick the award was challenged by the appellants and was set aside on the ground that it is devoid of any reasons for its findings. On appeal, the decision of the Single Bench of the Hon’ble High Court was affirmed. The Division Bench additionally suo moto decided to remand the matter back before the Ld. Arbitral Tribunal directing the Ld. Tribunal to provide reasons in support of the findings. The said part of the decision of the Division Bench was challenged before the Supreme Court.

Adverting to Section 34(4) of the 1996 Act, the Court observed that the Court can defer the hearing of the application filed under Section 34 only on a written request made by a party so that the grounds for setting aside or in other words, the deficiencies in the arbitral award may be eliminated by the arbitral tribunal. The Court cannot ive a direction suo moto. The Court added that “The quintessence for exercising power under this provision is that the arbitral award has not been set aside.” In other words, even a party cannot move an application under section 34(4) of the 1996 Act once the award has been set aside by the court. The Court explained that this is because consequent to disposal of the main proceedings under Section 34 of the 1996 Act, the Court would become functus officio.

In the matter of I-Pay Clearing, the appellant, along with the application under section 34, moved an application under section 34(4) seeking directions to adjourn the proceedings for a period of three months and direct the learned Arbitrator to issue appropriate directions with regard to an issue where the Arbitrator had failed to give its findings. The main objection was filed on the ground that the Arbitrator has failed to record detailed reasons for its findings and thus, the same is patently illegal and erroneous. The High Court dismissed the application under section 34(4) of the 1996 Act on the ground that the defect in the arbitral award is not curable. The appellant preferred an appeal before the Hon’ble Supreme Court against the said order of dismissal of application under section 34(4) of the 1996 Act.

The Court explained that there is a difference between a finding and reasons. Findings are the decision on an issue. Reasons are the links between the materials on which certain findings are based and the actual findings. Section 34(4) of the Act, can be resorted to record reasons on the finding already given in the award or to fill up the gaps in the reasoning of the award. However, when prima facie it is case of patent illegality, as was pleaded by the respondent also, the same is required to be considered by the Court itself. Further, the Court has discretion to decide on the question as to whether a good case has been made out for relegating the parties back to the arbitral tribunal under section 34(4) of the 1996 Act i.e. showing that “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 is not obligatory on the Court to remit the matter in all the cases where party makes an application. The Court further clarified that, “If there are no findings on the contentious issues in the award or if any findings are recorded ignoring the material evidence on record, the same are acceptable grounds for setting aside the award itself…. A harmonious reading of Section 31, 34(1), 34(2A) and 34(4) of the Arbitration and Conciliation Act, 1996, make it clear that in appropriate cases, on the request made by a party, Court can give an opportunity to the arbitrator to resume the arbitral proceedings for giving reasons or to fill up the gaps in the reasoning in support of a finding, which is already rendered in the award.” Therefore, we may conclude that the law is more than settled as to the limited purpose for which and in limited circumstances in which a matter may be relegated to the Arbitral Tribunal by the Court exercising its discretionary jurisdiction under section 34(4) of the 1996 Act on application moved by a party in this regard. Needless to say this is different from the power of the Arbitral Tribunal to correct the award under section 33 of the 1996 Act and to make an additional award under section 33(4) of the 1996 Act where the parties can move an application directly before the Arbitral Tribunal and seek an appropriate remedy.

An important question came for consideration before Hon’ble High Court in Delhi in Union of India v. Om Vajrakaya Construction Company [O.M.P. (COMM) 299/2021 & I.A. 12966/2021] when a petition under section 34 was filed challenging the arbitral award inter alia on the ground that the Ld. Arbitral Tribunal granted pendent lite or pre-award interest and arbitration cost which was allegedly in contravention of the express terms of the agreement between the parties. The contractual clause provided that where the arbitral award is for the payment of money, no interest shall be payable on whole or any part of the money for any period till the date on which the award is made and that the cost shall be borne by respective parties.

To address the first issue that the award of pendent lite interest runs contrary to the express provision in the contract, the Hon’ble Delhi High Court relied on the judgments of Hon’ble Supreme Court in Union of India v Bright Power Projects India (P) Ltd [2015 9 SCC 695] wherein it was held that award of pre-reference interest would not be permissible when the award of such interest is contracted out by the parties. The view was once again affirmed in  Jaiprakash Associates Limited v. Tehri Hydro Development Corporation (India) Ltd [2019 17 SCC 786]. Therefore, the award to the extent it granted the pre-award interest was set aside.

With regards to the issue of awarding the cost when the contract stipulated that the cost shall be borne by respective parties, the Court referred to the relevant provision of the Arbitration and Conciliation Act, 1996 (“1996 Act”). The Arbitral Tribunal had awarded costs of the arbitral proceedings, which included the Arbitral Tribunal’s fees paid by respondent and the counsel fee paid, limited to the Arbitral Tribunal’s fee. The Court observed that the objection against the prayer of cost was not raised by the party earlier and is liable to be rejected on this ground alone. The objection is also without any merits. Referring to Section 31A which contains provisions regarding determination of costs, the Court reiterated that “Unlike the power of the Arbitral Tribunal to award interest under Section 31 (7)(a) of the A&C Act, which is subject to the contract between the parties, there are no such fetters on the discretion of the Arbitral Tribunal to award costs under Section 31A of the A&C Act. The only exception being any agreement between the parties regarding costs which is entered into after the disputes have arisen.”

The Court explained that while the power to award interest under Section 31 (7)(a) of the 1996 Act is subject to the contract between the parties, the Arbitral Tribunal has discretion to award costs under Section 31A(5) of the 1996 Act except in the event of parties entering into an agreement regarding costs after the dispute has arisen. The Court further elaborated that Section 31A of the 1996 Act gives discretion to the Arbitral Tribunal as well as the Court to award cost and such power/discretion has an overriding effect over any contrary provisions in the contract as well as provisions contained in the Code of Civil Procedure, 1908. While applying the principle to the facts of the case, the Court held that although the agreement between the parties provided that parties would bear their own costs, it was not a valid agreement by virtue of Section 31A(5) of the 1996 Act as it was not entered into after the disputes arose.

An appeal against the order of the Hon’ble High Court of Orissa, declining to appoint an arbitrator under section 11(6) of the Arbitration and Conciliation Act, 1996,  was filed before the Hon’ble Supreme Court in the matter of Durga Welding Works v. Railway Electrification [(2022) 3 SCC 98].

The parties entered into a contract agreement pursuant to a tender floated by the appellant. The agreement had an arbitration clause. On dispute having arisen between the parties, the appellant served a legal notice dated 03.08.2009 for appointment of arbitrator and settlement of claim. Since the parties failed to appoint an arbitrator, the Appellant filed an application under section 11(6) of the 1996 Act for appointment of an arbitrator. However, just after filing of the arbitration petition, the appellant forgot to take any action in furtherance to the application and no notice was served to the respondents at any stage.

In the meanwhile the respondents responded to the legal notice dated 03.08.2009 and suggested two names of arbitrators as an option in their response dated 28.01.2010. The appellant filed an application seeking to restrain the respondents from proceeding to appoint an arbitrator since the matter was pending in the Court under section 11(6) of the 1996 Act. The said application also remained unattended by the appellant and no further action was taken.

Subsequently, the appellant itself on 28.08.2010 selected two officers from the panel suggested by the respondents and accordingly, the respondents constituted an Arbitration Tribunal vide letter dated 24.09.2010. The appellant thereafter not only appeared before the Arbitral Tribunal but also preferred statement of claim. The respondents submitted their statement of defence. Thereafter, the appellant moved an application before the Tribunal stating that the Arbitral Tribunal was not nominated within the stipulated time and hence, the constitution of the Arbitral Tribunal was not valid and that the Tribunal should not proceed with the arbitration proceedings.

The Appellant, however, till this point of time had not proceeded with the application under section 11(6) of the 1996 Act filed in 2009. On the other hand, the Arbitral Tribunal conducted the arbitral proceedings wherein the Appellant did not participate any further. Consequently, while an award dated 21.06.2013 was passed by the Ld. Arbitral Tribunal ex-parte rejecting the claims of the Appellant, the notices in the application under section 11(6) were only issued in 2016. In the light of the peculiar facts of the case, the Hon’ble High Court dismissed the arbitration petition filed under section 11(6) by an order dated 26.07.2019.

The Hon’ble Supreme Court while deciding the issue expounded the law on the issue which has been long settled by the courts in the following terms:

“11. The exposition of legal principles is indeed well settled by this Court in Datar Switchgears Ltd. v. Tata Finance Ltd. [Datar Switchgears Ltd. v. Tata Finance Ltd., (2000) 8 SCC 151] followed in Punj Lloyd Ltd. v. Petronet MHB Ltd. [Punj Lloyd Ltd. v. Petronet MHB Ltd., (2006) 2 SCC 638] that once an application under Section 11(6) of the Act has been filed for appointment of an arbitrator before the High Court, the respondents forfeited their right to appoint an arbitrator and the High Court alone holds jurisdiction to appoint an arbitrator in exercise of power under Section 11(6) of the Act.”

In Datar Switchgears Ltd the respondent failed to pay the amount claimed under the legal notice and further did not appoint the arbitrator as stipulated in the arbitration clause conditionally invoked under the legal notice. The respondent, however, filed an application under section 9 of the 1996 Act for seeking interim reliefs. The 1^st respondent thereafter also appointed the 2^nd respondent as an arbitrator in November 1999 by invoking arbitration clause. Subsequently, the appellant filed an arbitration application before Hon’ble Bombay High Court praying for appointment of another arbitrator. 1^st respondent opposed this application. The petition was rejected by the Court as not maintainable as the arbitrator had already been appointed by the first respondent. The Court held that “An application under sub-section (6) of Section 11 can be filed when there is a failure of the procedure for appointment of an arbitrator.” As per the arbitration clause there was no failure of the respondent as the arbitration clause gave unfettered right to the respondent to appoint an arbitrator and there was no necessity of putting the appellant to notice or taking its consent. The Court framed the issue whether for purposes of Section 11(6) the party to whom a demand for appointment is made, forfeits his right to do so if he does not appoint an arbitrator within the reasonable time or time stipulated.

In the said matter the Court held that “So far as cases falling under Section 11(6) are concerned — such as the one before us — no time limit has been prescribed under the Act, whereas a period of 30 days has been prescribed under Section 11(4) and Section 11(5) of the Act. In our view, therefore, so far as Section 11(6) is concerned, if one party demands the opposite party to appoint an arbitrator and the opposite party does not make an appointment within 30 days of the demand, the right to appointment does not get automatically forfeited after expiry of 30 days. If the opposite party makes an appointment even after 30 days of the demand, but before the first party has moved the court under Section 11, that would be sufficient. In other words, in cases arising under Section 11(6), if the opposite party has not made an appointment within 30 days of demand, the right to make appointment is not forfeited but continues, but an appointment has to be made before the former files application under Section 11 seeking appointment of an arbitrator. Only then the right of the opposite party ceases. We do not, therefore, agree with the observation in the above judgments that if the appointment is not made within 30 days of demand, the right to appoint an arbitrator under Section 11(6) is forfeited.” Since in that case the respondent made the appointment before the appellant filed the application under Section 11(6), though it was beyond 30 days from the date of demand, the appointment of the arbitrator by the respondent was held as valid. The Court further relied on the settled law that ‘court cannot interpose and interdict the appointment of an arbitrator’ generally, whom the parties have chosen under the terms of the contract and that due importance has to be given to such procedure as agreed by the parties.

In  Punj Lloyd Ltd.   the respondent had not made appointment as per the arbitration clause within the time stipulated in the notice invoking arbitration till the date of filing of the application under section 11(6) of the 1996 Act by the appellant and therefore, the application for the appointment of arbitrator was allowed by the Hon’ble Supreme Court while applying the principles laid down in Datar Switchgears Ltd.

The Court, after referring to the settled law laid down by the Supreme Court, took the view that although the appointment of an arbitrator was undisputedly made by the respondents after the appellant filed arbitration petition under Section 11(6) of the 1996 Act, however, the matter in hand had peculiar facts and circumstances that the on one hand Appellant slept over its arbitration application filed in 2009 and notices were issued only in 2016  and on the other hand appellant did not participate in the arbitral proceedings before the Tribunal constituted with the consent of  the appellant, and therefore, the High Court did not commit any error in declining to exercise its jurisdiction under Section 11(6) of the Act for appointment of an arbitrator and dismissing the arbitration petition. The Court held that although there is a settled law that after the application has been filed for appointment of an arbitrator under Section 11(6) of the Act, the respondents are deemed to have forfeited their right to appoint an arbitrator under the arbitration clause, however, the law would not be applicable to the facts of the present matter.