A Bench of the Supreme Court comprising Justices R. Subhash Reddy and Justice Hrishikesh Roy have held that there exists a difference between a 'finding' and 'reason' in an arbitral award, and the discretion given to the Court to provide an opportunity to the Arbitral Tribunal to fill the gaps in the award under Section 34(4) of the Arbitration and Conciliation Act, 1996 cannot be exercised in circumstances where no reasons at all have been recorded in the award.

The Appellant and the Respondent entered into an agreement to provide technology and manage the operations and processing of Smart Card loyalty programs for HPCL, akin to a Credit Card under the name of 'Drive Smart Software'.

The Respondent requested the Appellant to develop a 'Drive Track Fleet Card' for the fleet industry, and requested the Appellant to treat it as an extension of the Service Provider Agreement and named it the 'Drive Track Program'.

Aggrieved by the sudden move by the Respondent herein, in abruptly terminating the Service Provider Agreement causing it to suffer losses of over Rs.50 crores, the Appellant moved the Bombay High Court for appointment of an Arbitrator, claiming damages amounting to Rs. 95 crores for loss of jobs of its employees, retrenchment compensation, etc. The Bombay High Court appointed sole arbitrator, Mr. Justice R.G. Sindhakar, who awarded damages amounting to Rs. 50 crores with interest at 18% p.a. along with a cost of Rs. 50,000 on the ground of losses suffered by the Appellant on account of abrupt termination of the contract.

Against this award, the Respondent moved the High Court by an application under Section 34(1), seeking setting aside of the award on the ground that it suffers from patent illegality, as no findings were recorded in the award for illegal and abrupt termination of the contract.

The Appellant filed an application under Section 34(4) of the Act to allow remittance of the award to the arbitrator in order to fill gaps in the reasoning.

The Bombay High Court dismissed the application of the Appellant under Section 34(4) on the ground that no reasons have been recorded in the award, and set aside the same on account of patent illegality. Thereafter, the Appellant approached the Apex Court.

Senior Counsels Dr. Abhishek Manu Singhvi and Mr. Nakul Dewan, appearing for the Appellants relied on Kinnari Mullick and Anr. v. Ghanshyam Das Damani, Dyna Technologies Pvt. Ltd. v.Crompton Greaves Ltd. and also on Som Datt Builders Limited v. State of Kerala and contended that Section 34(4) is broad and enables the Arbitrator to take steps to eliminate grounds for setting aside the award.

They relied on AKN & Anr. v. ALC & Ors. and argued that Section 34(4) of the 1996 Act is akin to Article 34(4) of the UNCITRAL Model Law on International Commercial Arbitration. In the abovementioned case, it was held that remission is a 'curative alternative' to setting aside the award.

Advocate K.V. Vishwanathan, appearing for the Respondent pointed out the difference between 'findings' and 'reasons', and relied on ITO, A Ward, Sitapur v. Murlidhar Bhagwan Das in this regard.

Decision:

The Court discussed the 'form and contents of the arbitral award' under Section 31 of the Act and noted that the award shall state the 'reasons' on which it is based.

The Court differentiated between 'reasons' and 'findings' by noting that-

It is clear from the aforesaid judgment that 'finding is a decision on an issue'. Further, in the judgment in the case of J. Ashoka v. University of Agricultural Sciences and Ors., this Court has held that 'reasons are the links between the materials on which certain conclusions are based and the actual conclusions'. In absence of any finding on point no.1, as pleaded by the respondent and further, it is their case that relevant material produced before the Arbitrator to prove 'accord and satisfaction' between the parties, is not considered, and the same amounts to patent illegality, such aspects are to be considered by the Court itself. It cannot be said that it is a case where additional reasons are to be given or gaps in the reasoning, in absence of a finding on point no.1 viz. "whether the contract was illegally and abruptly terminated by the respondent?"

Since in the present case, no findings on the contentious issues in the award have been recorded, Section 34(4) cannot apply as the same can only come into force when there are 'inadequacies' in the award. It can only be applied in cases where additional reasons are to be given or gaps have to be filled. The Court cannot allow the Arbitral Tribunal to change the award, the Bench held.

The Court, upholding the decision of the High Court of Bombay, noted that on a harmonious reading of Section 31, 34(1), 34(2A) and 34(4) of the 1996 Act make it clear that in appropriate cases, the Court can give an opportunity to the Arbitrator to resume proceedings to fill in gaps in the reasoning in support of a finding. But when there is a prima facie patent illegality in the award itself, the Court may not accede to the request of a party to remit the award to the Tribunal to resume arbitral proceedings.


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Supreme CourtSection 34 of Arbitration and Conciliation Act

Nitya Bakshi