Arbitration and Conciliation Act, 1996 – ss.31(3) and 34 – Contract entered into between a company and the respondent for an aquaculture unit to be set up by such company – Respondent invited tenders for carrying out certain works for construction of ponds, channels, drains and associated works – Appellant gave proposal, estimate and quotation for carrying out the work – Respondent issued work order on 15.11.94 – On 05.01.95, the respondent instructed the employees of the appellant to stop the work – Appellant claimed compensation for premature termination of the contract – Dispute referred to Arbitral Tribunal – Claim no.
3 (loss of profit), disallowed by the Arbitral Tribunal – Not questioned by the appellant and attained finality – Only objection is in reference to claim no.2 (losses due to unproductive use of machineries) which was accepted by the Arbitral Tribunal for Rs. 27,78,125/- with interest @ 18% p.a.– Single Judge upheld the award – Division Bench partly allowed the appeal and set aside the award of the Tribunal relating to claim no.2 – Held: Mandate u/s.31(3) is to have reasoning which is intelligible and adequate and, which can in appropriate cases be even implied by the Courts from a fair reading of the award and documents referred to thereunder, if the need be – In the present case, although the Tribunal dealt with the claims separately under different subheadings, the award is confusing and jumbled the contentions, facts and reasoning, without appropriate distinction– It abruptly concluded at the end of the factual narration, without providing any reasons – Inadequate reasoning and basing the award on the approval of the respondent cannot be stated to be appropriate considering the complexity of the issue involved, and accordingly the award is unintelligible and cannot be sustained – Legislative intention of providing s.34 (4) was to make the award enforceable, after giving an opportunity to the Tribunal to undo the curable defects – When the High Court concluded that there was no reasoned award, then the award ceased to exist and the Court was functus officio u/s.34 for hearing the challenge to the award – In such case, the High Court ought to have considered remanding the matter to the Tribunal in the usual course but, it analyzed the case on merits – However, in the present case such remand to the Tribunal would not be beneficial as the case has taken more than
25 years for adjudication, without any end for the parties – Respondents to pay Rs. 30,00,000/- to the appellant in full and final settlement against claim no.2 within 8 weeks, failing which the appellant will be entitled to interest at 12% p.a. until payment, for providing quietus to the litigation.
Arbitration and Conciliation Act, 1996 – s.34 – Mandate of – Discussed.
Arbitration and Conciliation Act, 1996 – s.31 – Requirement of reasoned award – Discussed.
Arbitration and Conciliation Act, 1996 – s.34 – Challenge to arbitral award – Award whether unintelligible or there is inadequacy of reasons in award – Held: If the challenge to an award is on the ground that it is unintelligible, the same would be equivalent of providing no reasons at all – Ordinarily unintelligible awards are to be set aside, subject to party autonomy to do away with the reasoned award – In case of an award challenged on adequacy of reasons, the Court while exercising jurisdiction u/s.34 has to adjudicate the validity of such award based on the degree of particularity of reasoning required having regard to the nature of issues falling for consideration – Courts are required to be careful while distinguishing between inadequacy of reasons in an award and unintelligible awards.
Disposing of the appeal, the Court
HELD: 1.1 Section 34 of the Arbitration Act limits a challenge to an award only on the grounds provided therein or as interpreted by various Courts. Arbitral awards should not be interfered with in a casual and cavalier manner, unless the Court comes to a conclusion that the perversity of the award goes to the root of the matter without there being a possibility of alternative interpretation which may sustain the arbitral award. Section 34 is different in its approach and cannot be equated with a normal appellate jurisdiction. The mandate under Section 34 is to respect the finality of the arbitral award and the party autonomy to get their dispute adjudicated by an alternative forum as provided under the law. If the Courts were to interfere with the arbitral award in the usual course on factual aspects, then the commercial wisdom behind opting for alternate dispute resolution would stand frustrated. The Courts should not interfere with an award merely because an alternative view on facts and interpretation of contract exists. The Courts need to be cautious and should defer to the view taken by the Arbitral Tribunal even if the reasoning provided in the award is implied unless such award portrays perversity unpardonable under Section 34 of the Arbitration Act. [Paras 26, 27] [310-H; 311-AD]
K.N. Sathyapalan (Dead) by Lrs. v. State of Kerala, (2007) 13 SCC 43 : [2006] 9 Suppl. SCR 864 –
referred to.
1.2 Arbitration proceedings are not per se comparable to judicial proceedings before the Court. A party under Indian Arbitration Law can opt for an arbitration before any person, even those who do not have prior legal experience as well. The intention of the legislature to provide for a default rule, should be given rational meaning in light of commercial wisdom inherent in the choice of arbitration. [Paras 30] [312-C]
1.3 The mandate under Section 31(3) of the Arbitration Act is to have reasoning which is intelligible and adequate and, which can in appropriate cases be even implied by the Courts from a fair reading of the award and documents referred to thereunder, if the need be. The aforesaid provision does not require an elaborate judgment to be passed by the arbitrators having regards to the speedy resolution of dispute. Three characteristics of a reasoned order can be fathomed: proper, intelligible and adequate. If the reasoning in the order are improper, they reveal a flaw in the decision-making process. If the challenge to an award is based on impropriety or perversity in the reasoning, then it can be challenged strictly on the grounds provided under Section 34 of the Arbitration Act. If the challenge to an award is based on the ground that the same is unintelligible, the same would be equivalent of providing no reasons at all. The Court while exercising jurisdiction under Section 34 has to adjudicate the validity of such an award based on the degree of particularity of reasoning required having regard to the nature of issues falling for consideration. The degree of particularity cannot be stated in a precise manner as the same would depend on the complexity of the issue. Even if the Court comes to a conclusion that there were gaps in the reasoning for the conclusions reached by the Tribunal, the Court needs to have regard to the documents submitted by the parties and the contentions raised before the Tribunal so that awards with inadequate reasons are not set aside in casual and cavalier manner. On the other hand, ordinarily unintelligible awards are to be set aside, subject to party autonomy to do away with the reasoned award. Therefore, the courts are required to be careful while distinguishing between inadequacy of reasons in an award and unintelligible awards. [Paras 35, 36] [313-F-H; 314-A-D] Raipur Development Authority v. Chokhamal
Contractors AIR 1990 SC 1426 : [1989] 3 SCR
144 ; S. Harcharan Singh v. Union of India (1990) 4 SCC 647 : [1990] 1 Suppl. SCR 76 ; Som Datt Builders Ltd. v. State of Kerala, (2009) 4 ARB LR 13 SC – referred to.
1.4 The legislative intention of providing Section 34 (4) in the Arbitration Act was to make the award enforceable, after giving an opportunity to the Tribunal to undo the curable defects. This provision cannot be brushed aside and the High Court could not have proceeded further to determine the issue on merits. In case of absence of reasoning the utility has been provided under of Section 34(4) of the Arbitration Act to cure such defects. When there is complete perversity in the reasoning then only it can be challenged under the provisions of Section
34 of the Arbitration Act. The power vested under Section 34
(4) of the Arbitration Act to cure defects can be utilized in cases where the arbitral award does not provide any reasoning or if the award has some gap in the reasoning or otherwise and that can be cured so as to avoid a challenge based on the aforesaid curable defects under Section 34 of the Arbitration Act. However, in this case such remand to the Tribunal would not be beneficial as this case has taken more than 25 years for its adjudication. When the High Court concluded that there was no reasoned award, then the award ceased to exist and the Court was functus officio under Section 34 of the Arbitration Act for hearing the challenge to the award under the provisions of Section 34 and come to a conclusion that the arbitration award was not in terms of the agreement. In such case, the High Court ought to have considered remanding the matter to the Tribunal in the usual course. However, the High Court analyzed the case on merits, but, for different reasons, the validity of High Court’s interference not go into. Although the Arbitral Tribunal has dealt with the claims separately under different sub-headings, the award is confusing and has jumbled the contentions, facts and reasoning, without appropriate distinction. The Tribunal rendered the award with narration of facts with references to the annexures wherever it relied upon by it. The Tribunal abruptly concluded at the end of the factual narration, without providing any reasons. Interestingly, the factual narration is coupled with the claimant’s argument, which is bundled together. A close reading of the same is required to separate the same wherein the Arbitral Tribunal has mixed the arguments with the premise it intended to rely upon for the claimant’s claim. Further, it has reduced the reasons for respondent’s defense. In spite of independent application of mind based on the documents relied upon, but cannot sustain the award in its existing form as there is a requirement of legal reasoning to supplement such conclusion. In this context, the complexity of the subject matter stops the Court from supplementing such legal reasoning and the aforesaid award cannot be sustained as being reasoned. [Paras 37-41] [314-E-H; 315-A-D, G-H; 316-A-B]
1.5 From a perusal of the award, the inadequate reasoning and basing the award on the approval of the respondent herein cannot be stated to be appropriate considering the complexity of the issue involved herein, and accordingly the award is unintelligible and cannot be sustained. In any case, the litigation has been protracted for more than 25 years, without any end for the parties. In totality of the matter, it is considered appropriate to direct the respondents to pay a sum of Rs. 30,00,000/(Rupees Thirty Lakhs only) to the appellant in full and final settlement against claim No. 2 within a period of 8 weeks, failing which the appellant will be entitled to interest at 12% per annum until payment, for providing quietus to the litigation. [Paras 43, 44] [316-F-H; 317-A]
Russell on Arbitration, 23 rd edn. (2007) – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
This page is for informational and research purposes only and does not constitute legal advice. Consult a qualified advocate for advice specific to your situation.