Annual Arbitration Review 2018

Radha Chemicals v Union of India

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Judgment:  Radha Chemicals v. Union of India

 

Citation:MANU/SCOR/31276/2018

 

Court: Supreme Court of India

 

Coram: Rohinton Fali Nariman and Navin Sinha, JJ.

 

Date: October10, 2018

 

Overview:This case revolved around whetherthe Court has jurisidiction to remand the matter back to the arbitral tribunal for “fresh consideration” when deciding a challenge to an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996. (“Act”). The Court concluded that such a power cannot be exercised by a Court i.e. that courts cannot remand matters back to the arbitral tribunal for fresh consideration when deciding a challenge under Section 34. The rationale for this is that Court is to act as an arbiter on the challenge to the arbitral award on the grounds mentioned under Section 34 of the Act and not relegate the matter back to the Arbitral Tribunal to decide the challenge.

 

Issue: Whether the Court under Section 34 of the Arbitration and Conciliation Act, 1996 has jurisdiction to remand the matter to the arbitrator for fresh decision?

 

Factual background:

A contract for supply of goods was entered into from 1987 till 1991 between Radha Chemicals  (“Appellant-Respondent”) and Union of India (the Respondent-Petitioner, the “UOI”). On a contractual dispute arising between the parties, the Appellant-Respondent sent a notice for the matter to be referred to arbitration in 2004. On the conclusion of the arbitral proceedings, the award was passed in favour of the Appellant-Respondent for a sum of Rs. 21,60,440/- (Rupees twenty-one lakh sixty thousand four hundred and forty only) along with 12% interest per annum.

This award was subsequently challenged under Sec 34 of the Act before Single judge of the Calcutta High Court. The Respondent contended that the arbitral award ought to be set aside as the claim of the Appellant was barred under Section 14 of the Limitation Act, 1963. The Appellant on the other hand contended that a writ petition was filed in the year 1993 against the Respondent to make the payments owed to the Appellant and the same was disposed of in 2002. This period was to be excluded under the Limitation Act and thus the claim was not barred.

The Single Judge of the Calcutta High Court remitted the arbitral award back for fresh consideration by a new arbitrator to decide the point of limitation afresh. From this order, an appeal was sought before the Division Bench of the High Court which was dismissed in 2017. The doors of the Supreme Court were subsequently knocked against this ruling.

Analysis:

The Supreme Court while setting aside the decision of the Ld., Single Bench and the Division Bench  of the Calcutta High Court held:

“… that the court while deciding a Section 34 petition has no jurisdiction to remand the matter to the Arbitrator for a fresh decision. It is, therefore, clear that the learned Single Judge’s judgment is contrary to this judgment as a result of which both the judgments if the Single Judge as well as the Division Bench have to be set aside.”[1]

The Court is empowered to decide a challenge to the validity of an arbitral award pursuant to Section 34. This implies that the Court is to act as an arbiter on the challenge to the arbitral award on the grounds mentioned under Section 34 of the Act and not relegate the matter back to the Arbitral Tribunal to decide the challenge. The Court is not empowered to remand the matter back to the Arbitral Tribunal. A number of rulings exist on the matter which have crystallized this point of law with the latest being Kinnari Mullick and Another vs. Ghanshyam Das Damani.[2]

 

While the court  under section 34 is empowered to defer the hearings challenging the arbitral award on an application made by one of the parties in order to give the Arbitral Tribunal an opportunity to resume the arbitral proceedings or to take such other actions as in the opinion of the Arbitral Tribunal will eliminate the grounds for the setting aside of the arbitral award. The rationale is to allow the arbitral tribunals to cure any grounds which may exist for setting aside the arbitral award in order to ensure their efficient functioning.

 

The scope of this provision although allows for the removal of the grounds of challenge to the award, a fresh consideration of the matter as was done in the case at hand is not contemplated here. In the case of Kinnari, the Court had concluded that 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 sec 34(4) of the Act. Even this power of adjournment of proceedings can be exercised only upon a written application made by a party, which has to be made before the arbitral award is set aside and such discretion cannot be exercised suo moto by the court.[3]Thus, the Act does not comprehend the setting aside of an arbitral award and the matter to be relegated back to the arbitral tribunal for fresh consideration by a new arbitrator and therefore the decisions of the Hon’ble High Court of Calcutta are inconsistent with the legislative intent and current jurisprudence around sec 34 of the Act.

 

Conclusion:

It has been correctly held by the Supreme Court in this case that the Court under Section 34 of the Act lacks jurisdiction to remand the matter back to the arbitral tribunal for fresh consideration. Where an arbitral award is set aside, the parties can enter into fresh arbitration on their own accord and the process of remanding the case back to the arbitrators is incorrect. Allowing such a process would have blurred the existing differences between civil procedure and arbitration which in essence makes the process of arbitration which aims at finality of proceedings to be rendered moot.

[1]Radha Chemicals v Union of India, MANU/SCOR/31276/2018.

[2]Kinnari Mullick and Another vs. Ghanshyam Das Damani, Civil Appeal No. 5072 of 2017.

[3] Indu Malhotra, O.P Malhotra on The Law & Practice of Arbitration and Conciliation3rd Edition (2014).

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