2019 (12) TMI 842 - SC - Indian Laws

Requirement of reasoned award and the cautionary tale for the parties - claim for payment of compensation for the losses suffered due to unproductive use of machineries - premature termination of the contract - Section 34 (4) of the Arbitration Act - HELD THAT - There is no dispute that Section 34 of the Arbitration Act limits a challenge to an award only on the grounds provided therein or as interpreted by various Courts. We need to be cognizant of the fact that 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. There is no gainsaying that 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. In this regard, we need to understand that 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 - 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. 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 - 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 our 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 us from supplementing such legal reasoning and we cannot sustain the aforesaid award as being reasoned. 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.

Issues Involved:
1. Requirement of reasoned arbitral awards.
2. Validity of claim for losses due to unproductive use of machinery.
3. Jurisdiction of courts under Section 34 of the Arbitration and Conciliation Act, 1996.
4. Interpretation and enforcement of contractual terms.
5. Appropriateness of High Court's interference with arbitral awards.

Detailed Analysis:

1. Requirement of Reasoned Arbitral Awards:
The Supreme Court emphasized the necessity for arbitral awards to be reasoned, as mandated by Section 31(3) of the Arbitration and Conciliation Act, 1996. The Court noted that the arbitral award in question did not contain sufficient reasons, leading to confusion and lack of clarity. The Tribunal's award was criticized for being a muddled mix of factual narration and claimant’s arguments without clear legal reasoning. The Court highlighted that the mandate under Section 31(3) is to provide intelligible and adequate reasoning, which can be implied from a fair reading of the award and related documents.

2. Validity of Claim for Losses Due to Unproductive Use of Machinery:
The appellant claimed compensation for losses due to unproductive use of machinery, which was initially accepted by the Arbitral Tribunal. However, the High Court set aside this claim, stating that the award lacked sufficient reasoning and that the contract terms barred such compensation. The Supreme Court noted that the Tribunal failed to provide clear reasons for accepting the claim. Despite the Tribunal’s reliance on log books and other documents, the award was deemed unintelligible and unsustainable due to inadequate reasoning.

3. Jurisdiction of Courts under Section 34 of the Arbitration and Conciliation Act, 1996:
The Supreme Court reiterated that Section 34 limits court intervention to specific grounds and does not equate to normal appellate jurisdiction. The Court emphasized that arbitral awards should not be interfered with unless there is a clear perversity going to the root of the matter. The Court also noted that Section 34(4) allows for remanding the matter to the Tribunal to cure defects in reasoning, which the High Court failed to consider adequately.

4. Interpretation and Enforcement of Contractual Terms:
The respondent argued that the contract explicitly barred compensation for unproductive use of machinery, and the Tribunal exceeded its jurisdiction by awarding such compensation. The Supreme Court acknowledged this contention but also noted the appellant's argument that such contractual clauses might be void if they contravene public policy or statutory provisions. The Court did not delve deeply into this aspect due to the lack of clear reasoning in the Tribunal's award.

5. Appropriateness of High Court's Interference with Arbitral Awards:
The Supreme Court critiqued the High Court for analyzing the case on merits after concluding that the award lacked reasons. The Court stated that the High Court should have considered remanding the matter to the Tribunal under Section 34(4) to provide an opportunity to cure the defects. The Supreme Court stressed that the High Court’s approach was not in line with the legislative intent behind Section 34(4).

Conclusion:
The Supreme Court set aside the High Court's decision and directed the respondents to pay ?30,00,000 to the appellant in full and final settlement against claim No. 2 within eight weeks, with an interest of 12% per annum for any delay. The appeal was disposed of, with no orders as to costs.

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