Essentiality of “reasoned award” in Arbitration
The bench comprising of Justice N.V.Ramana and Justice
V.Ramasubramanian of Hon’ble Supreme Court of India in the judgment dated December
18, 2019, in the matter of M/S Dyan Technologies Private Limited .v.
M/S Crompton Greaves Limited.[1]
observed that “the award passed
by the Arbitrator is unintelligible, ambiguous, muddled and without reasons
hence, cannot be sustained.”
FACTS
A contract was
entered between DCM Shriram Aqua Foods Limited (hereinafter referred to as ‘DCM’) and M/s.
Crompton Greaves Limited (hereinafter
referred to as Respondent
Company) to set up aquaculture, namely, DCM. Respondent Company invited
bids for carrying out works like construction of ponds, channels, drains and
associated works. M/s Dyna Technologies Pvt. Ltd. (hereinafter referred to as the Appellant Company) was
successful bidder, gave its proposal, estimate, and quotation for carrying out
the said work. Further, on 15th November, 1994 Respondent Company
issued work order, listing out the terms and conditions of the contract. Thereafter,
on 5th January 1995, after commencement of work, the Respondent Company
ordered the employees of the Appellant Company to close the work. The
Appellant Company claimed compensation for such premature termination of the
contract without giving any prior notice and ultimately the dispute was
referred to the Arbitral Tribunal consisting of three Arbitrators.
The Appellant Company/claimant
made the following claims
(1) losses suffered by
the claimant due to idle charges;
(2) losses suffered due
to unproductivity of the men and machinery;
(3) loss of profit due
to premature termination of contract;
(4) collective interest
on the above claims; and
(5) other costs incurred.
The aforementioned claims are listed in the statement of claims totalling
to INR.53,83,980.45/-(Fifty Three Lakh Eighty Three Thousand Five Hundred
Eighty only)
As far as the Award was concerned, the only objection raised was with regard
to the claim no. 2. as mentioned above. Aggrieved by the Award of the Tribunal,
an original petition was filed
before the learned single judge of the High Court of Judicature at Madras under
Section 34 of Arbitration and Conciliation Act, 1996.
When learned single judge upheld the award passed by
Tribunal, the respondent filed an appeal before the Divisional Bench, Madras. The Divisional
Bench of Madras partly allowed the appeal and set aside the Award of tribunal relating
to Claim No.2.
Unsatisfied by the decision of High Court as well, the Appellant
preferred an appeal before the Apex Court.
ISSUES
The Hon’ble Apex Court considered the following Questions of
Law and Fact:
- Whether the High Court has jurisdiction
to entertain the application under Section 34 of Arbitration and Conciliation Act? - Whether the award passed by Arbitration
Tribunal was right in granting compensation when the same has not been
specified in the contract?
SUBMISSIONS
The learned counsel further submitted that the award by the learned
Arbitrator was unreasonable, perverse and without adhering to the settled
principle of law. Section 31 of the Arbitration and Conciliation Act, 1996 clearly
states that “the arbitral award should be
reason based”. The learned counsel further submits that the only contention
of counsel for the respondent was that there was no specific provision under
the contract granting compensation for loss incurred due to unproductive use of
machinery and that the Arbitral Tribunal has exceeded its jurisdiction by
awarding the compensation. Learned counsel also submits that the purpose of Section
73 of Contract Act confers that the right which is for public interest, if any
clause, which takes away any right unilaterally of a party is violative of the
Contract Act.[2]
On the other hand, the learned
counsel for the Respondent Company contended that Arbitral Tribunal has no right to proceed beyond the terms
of the contract to award compensation. In the present scenario, the terms of the
contract clearly state that compensation is not payable if the contract is
concluded due to the termination of the project. In the face of such express prohibition, the
Arbitral Tribunal has exceeded its jurisdiction and committed apparent error by
directing the payment of compensation without displaying any reasons.
Learned
counsel for the Respondent Company further submits that Section 34(2)
of the Arbitration
and Conciliation Act clearly envisages
that an award can be set aside if the award deals with a dispute not
contemplated by or not falling within the arena of arbitration act. With a specific
exclusion/prohibition in the contract, it is not allowed for the Tribunal to
travel beyond the terms of the contract. The same has been considered by the
Division Bench of the High Court in the impugned judgment and has been rightly
set aside by convincing reasons.
JUDGMENT
While deciding the present case the
court considered the following precedents:
In Raipur Development Authority v. Chokhamal Contractors,[3] the constitutional bench held that the arbitrator or umpire
shall have to give reasons also where the court has directed in any order such
as the one made under Section 20 or Section
21 or Section
34 of the Act that
reasons should be given or where the statute which governs an arbitration
requires him to do so.”
InSom Datt Builders
Ltd. v. State of Kerala[4], a Division Bench indicated
that 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.
By examination of
award it is noted that the inadequate reasoning and incomprehensive decision leads
to unintelligible, muddled, ambiguous impact. Hence, cannot be sustained in the
eyes of the law. The Hon’ble Supreme
Court rightly observed that the award passed by the Tribunal is not in accordance
with Section 31 of the Act, hence the same needs to be set aside.
Further, it is held that compensation is payable on hire charges and
expenses incurred.
Observation
The reasoned award ensures the nature and quality of righteousness that
is being dispensed by the arbitrator:
- The use of
reasoned awards ameliorates the quality of the decision. - Reasoned
awards provide a more comprehensive and satisfactory explanation regarding the
award passed by Arbitrator. - Reasoned
awards amplify the credibility of the entire process of arbitration in the eyes
of law.
Conclusion
The Hon’ble High Court,
keeping in mind the law laid down by the Supreme Court in the various judgments
and having regard to the facts of the case, was of the opinion that the award
passed by the tribunal must contain proper and adequate reasoning. If the reasoning
of the award is improper, it would further divulge a defect in the decision-making
process. In case of the lack of reasoning, the efficacy has been provided under
Section 34(4) of the Act to antidote defects. When there is unreasonableness in
the award passed by the Tribunal then the same can be challenged under Section
34 of the Act. If the award passed by the tribunal is based on the ground
of unintelligible and ambiguous factors, then the same would be equivalent to no
reason award. Therefore, under Section 34, the Court has to determine the soundness
of an award based on the distinctiveness by providing the reasons in an elaborated
manner to avoid complexities involved.
- [1] Civil appeal no. 2153/2010
- [2] https://indiankanoon.org/doc/1625889/
- [3] AIR 1990 SC 1426
- [4] (2009) 4 ARB LR 13 SC
Contributed By – Priyanka Ajjanavar
Designation – Associate
King Stubb & Kasiva,
Advocates & Attorneys
New Delhi | Mumbai | Bangalore | Chennai | Hyderabad | Kochi
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