Supreme Court rules on Arbitration and Conciliation Act

Supreme Court rules on Arbitration and Conciliation Act

Not always obligatory to remit matter to arbitration tribunal if a party files an application under the Act

The Supreme Court has observed that merely because an application is filed under the Arbitration and Conciliation Act, it is not always obligatory on the part of the court to remit the matter to the arbitral tribunal.

The bench comprising Justice R Subhash Reddy and Justice Hrishikesh Roy observed, "When prima facie it appears that there is a patent illegality in the award, by not recording a finding on a contentious issue, the court may not accede to the request of a party for giving an opportunity to the tribunal to resume the arbitral proceedings."

The court held that the discretionary power conferred under the Act was to be exercised where there was inadequate reasoning or to fill up the gaps in the reasoning in support of the findings already recorded in the award.

As per the Act, upon a request by a party, the court might adjourn the proceedings for a period determined by it in order to give the tribunal an opportunity to resume the arbitral proceedings or to take action to eliminate the grounds for setting aside the arbitral award.

In this case, the arbitrator in a dispute passed the arbitration award between I-Pay Clearing Services and ICICI Bank. The latter challenged the award by filing a petition under the Arbitration Act.

The ICICI Bank wanted to know whether the contract was illegally and abruptly terminated by the respondent. It said that the respondent, without recording any finding, awarded Rs.50 crores to I-Pay. In the proceedings, I-Pay filed an application under the Act for adjourning the proceedings for a period of three months by directing the arbitrator to issue appropriate directions/instructions/additional reasons and/or to take necessary and appropriate action.

Earlier, the High Court had dismissed the case. It held that the defect in the award was not curable and there was no merit in the application filed under the Act.

In the appeal before the Supreme Court, it was contended that lack of reasons or gaps in the reasoning, was a curable defect under the Act. Hence, the award could be remitted to the arbitrator to provide reasons.

According to the ICICI Bank, as the arbitrator had passed the award by ignoring important and relevant evidence on record, it suffered from perversity and patent illegality, which could not be cured on remittal under the Act. It added that under the guise of adding reasons, the arbitrator could not take a contrary view against the award.

Dismissing the appeal, the court observed that the discretion vested with the court for remitting the matter to the arbitral tribunal to give an opportunity to resume the proceedings or not. It maintained that in absence of any finding on the contentious issue, no amount of reasons could cure the defect in the award.

The counsels for I-Pay were senior advocates Dr. Abhishek Manu Singhvi and Nakul Dewan and the counsels for ICICI Bank was senior advocate K V Vishwanathan.