When Can Court Remand Arbitral Award To Tribunal Under S.34/37 Arbitration Act ? Supreme Court Explains

The Supreme Court Constitution Bench recently held that the powers of Courts to remand arbitral awards back to the Tribunal under S. 34(4) of the Arbitration and Conciliation Act 1996 cannot be seen as a straight-jacket formula. The Court observed that an award should be remitted back only if there is a possibility to correct a defect in the award, but if the entire award suffers from substantial injustice and patent illegality, remittance should be avoided. The Constitution Bench (by 4:1)held that Appellate Courts have limited powers to modify arbitral awards while exercising powers under either Section 34 or 37 of the Arbitration and Conciliation Act, 1996.The bench led by CJI Sanjiv Khanna, comprising Justices BR Gavai,Sanjay Kumar, AG Masih and KV Viswanathan delivered the verdict.The Court held that the power of remand under S. 34(4) of the Act is of restrictive nature for the Courts. While the remand give flexibility to the tribunals to make amends in the award, when it comes to modification powers, such a flexibility is taken away from the tribunals. S.34(4) reads : "(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 arbitral tribunal will eliminate the grounds for setting aside the arbitral award."S. 34(1) provides that the Court can only set aside an award when such an application is made. Considering the same, the majority held that a great deal of caution has to be taken by Courts while exercising the powers of modification just as a sculptor works with his/her chisel to shape his art. The Court explained : "The power of remand permits the court only to send the award to the tribunal for reconsideration of specific aspects. It is not an open-ended process; rather, it is a limited power, confined to limited circumstances and issues identified by the court." "Upon remand, the arbitral tribunal may proceed in a manner warranted by the situation – including recording additional evidence, affording a party an opportunity to present its case if previously denied, or taking any other corrective measures necessary to cure the defect.In contrast, the exercise of modification powers does not allow for such flexibility. Courts must act with certainty when modifying an award – like a sculptor working with a chisel, needing precision and exactitude. Therefore, the argument that remand powers make modification unnecessary is misconceived. They are distinct powers and are to be exercised differently." Analysing that S.34(4) is derived from UNICITRAL Model Law, the Court held that the provision is discretionary in nature. This is understood from the term 'may' mentioned in the provision. Thus the power to remit the matter back to the tribunal is upon the discretion of the Court when it views the possibility of correcting a defect in the award which could prevent the setting aside of the whole award instead. Tribunal's Powers Under S.34 Cannot Be Used To Rewrite Or Set Aside Entire Award : Bench Explains While the Court acknowledged that the Tribunal has flexibility in correcting the curable defects, S.34(4) however, cannot be used as a tool by the Tribunal to completely set aside the award or rewrite it. If the Court is of the opinion that the defect in the award is of such a nature that cannot be corrected by the Tribunal, it should not remit the award back to the Tribunal. In a way, the Court culled that the test to decide on remittance is the extent of the defect and legal means available to correct it. "It is clear that Section 34(4) does not authorize the arbitral tribunal to rewrite the award on merits or to set it aside. Rather, it serves as a curative mechanism available to the tribunal when permitted by the court. The primary objective is to preserve the award if the identified defect can be cured, thereby avoiding the need to set aside the award. Accordingly, a court may not grant a remand when the defect in the award is inherently irreparable. A key consideration is the proportionality between the harm caused by the defect and the means available to remedy it." The Court also expanded on the aspect of proportionality and explained that in cases where there appears to be substantial injustice, patent illegality -such awards cannot be remitted back. Additionally, the Tribunal has to be trusted to make fair decisions while considering a remitted order. "While exercising this power, the court must also remain mindful that the arbitral tribunal has already rendered its decision. If the award suffers from serious acts of omission, commission, substantial injustice, or patent illegality, the same may not be remedied through an order of remand. Clearly, there cannot be a lack of confidence in the tribunals' ability to come to a fair ...

When Can Court Remand Arbitral Award To Tribunal Under S.34/37 Arbitration Act ? Supreme Court Explains

Anmol Kaur Bawa

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