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TMI Blog1989 (5) TMI 314X X X X Extracts X X X X X X X X Extracts X X X X ..... ation or the umpire should give reasons for the award. These cases will now go back to the Division Bench for disposal in accordance with law and the view expressed by us in this decision. - C.A. 3137 OF 1985 - - - Dated:- 4-5-1989 - E. S. VENKATARAMIAH, R.S. PATHAK, RANGNATH MISRA, M.N. VENKATACHALLIAH AND N.D. OJHA, JJ. JUDGMENT The common question which arises for consideration in these cases which are very neatly argued by learned counsel on both the sides is whether an award passed Under the provisions of the Arbitration Act, 1940 (hereinafter referred to as the Act ) is liable either to be remitted under section 16(1)(c) of the Act or liable to be set aside under section 30(c) thereof merely on the ground that no reasons have been given by the arbitrator or umpire, as the case may be, in support of the award. Ordinarily all disputes arising under a contract have to be settled by courts established by the State. Section 28 of the Indian Contract Act, 1872 provides that every agreement by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... content to have an answer Yes or No; or a figure of X. Such an award is wholly effective; indeed, in that it cannot be appealed as being wrong in law it may be said to be more effective than a reasoned award." Section 1 of the English Arbitration Act, 1979, however, provides that if it appears to the High Court that an award does not or does not sufficiently set out the reasons for the award in sufficient detail to enable the court to consider any question of law arising out of it, the court has power to order the arbitrator or umpire to give reasons or further reasons. In the United States of America as a general rule an arbitration award must contain the actual decision which results from an arbitrator s consideration of the matter submitted to them but the arbitrator need not write opinion with any specificity as a court of law does unless otherwise provided by a statute or by the submission itself. Arbitrators are not required to state in the award each matter considered or to set out the evidence or to record findings of facts or conclusions of law. They need not give reasons for their award and conclusions or the grounds which form the basis for the arbitration determina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed several changes in the arbitration law and on the basis of the recommendations by the Civil Justice Committee, the Indian Legislature passed the Act, i.e., the Arbitration Act of 1940, which is currently in force. The salient provisions of the Act which are relevant for purposes of this case are these. The Act as its preamble indicates is a consolidating and amending Act and is an exhaustive code in so far as the law relating to arbitration is concerned. An arbitration may be without intervention of a court or with the intervention of a court where there is no suit pending or it may be an arbitration in a suit. Unless there is an arbitration agreement to submit any present and future differences to arbitration to which a person is a party, he cannot be compelled to have a dispute in which he is concerned settled by arbitration. The foundation of any arbitration proceeding is therefore the existence of an arbitration agreement between the persons who are parties to the dispute. Every arbitration agreement unless a different intention is expressed therein, shall be deemed to include the provisions set out in the First Schedule to the Act in so far as they are applicable to the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng all the arbitrators), the court may on the application of any party to the arbitration agreement, appoint persons to fill the vacancies. The arbitrators or umpire shall, unless a different intention is expressed in the agreement have power to administer oath to the parties and witnesses appearing; state a special case for the opinion of the court on any question of law involved, or state the award, wholly or in part, in the form of a special case of such question for the opinion of the court; make the award conditional or in the alternative; correct in an award any clerical mistake or error arising from any accidental slip or omission; and administer to any party to the arbitration such interrogatories as may, in the opinion of the arbitrators or umpire, be necessary. Section 14 of the Act provides that when the arbitrators or umpire have made their award, they shall sign it and shall give notice in writing to the parties of the making and signing thereof and of the amount of fees and charges payable in respect of the arbitration and award. While an award should contain the decision of the arbitrators or umpire of the case, as the case may be, the Act does not say in express ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application to set aside the award has expired, or such application having been made, after refusing it, proceed to pronounce judgment according to the award, and upon the judgment so pronounced a decree shall follow and no appeal shall lie from such decree except on the ground that it is in excess of, or not otherwise in accordance with, the award. 30. Grounds for setting aside award.--An award shall not be set aside except on one or more of the following grounds, namely: (a) that an arbitrator or umpire has misconducted himself or the proceedings; (b) that an award has been made after the issue of an order by the Court superseding the arbitration or after arbitration proceedings have become invalid under section 35; (c) that an award has been improperly procured or is otherwise invalid. Section 15 of the Act deals with the power of the Court to modify award. Section 16 of the Act deals with its power to remit an award and section 30 of the Act deals with the power of the Court to set aside an award. Section 17 of the Act provides that where the court sees no cause to remit the award or any of the matters referred to arbitration for reconsideration or to set aside the aw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay be, for reconsideration or for getting the award set aside in cases falling under section 30 thereof. Under the Indian Arbitration Act, 1899 which applied to areas lying within the Presidency towns section 14 provided as follows: "14. Where an arbitrator or umpire has misconducted himself, or an arbitration or award has been improperly procured, the Court may set aside the award." This section was couched in the same language in which section 11(2) of the English Arbitration Act, 1889 was couched. Para 15 of the Second Schedule to the Code of Civil Procedure, 1908 which was applicable to the rest of British India read as follows: "15 ........ But no award shall be set aside except on one of the following grounds, namely: (a) corruption or misconduct of the arbitrator or umpire: (b) either party having been guilty of fraudulent concealment of any matter which he ought to have disclosed, or of wilfully misleading or deceiving the arbitrator or umpire; (c) the award having been made after the issue of an order by the Court superseding the arbitration and proceeding with the suit or after the expiration of the period allowed by the Court, or being otherwise invalid. "T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The court has invariably met those applications by saying, You have constituted your own tribunal; you are bound by its decision. The only exceptions to that rule, are cases where the award is the result of corruption or fraud, and one other, which, though it is to be regretted, is now, I think, firmly established, viz. where the question of law necessarily arises on the face of the award, or upon some paper accompanying and forming part of the award. Though the propriety of this latter may very well be doubted, I think it may be considered as established. " In Champsey Bhara Company v. Jivraj Balloo Spinning and Weaving Company Ltd., A.I.R. 1923 Privy Council, 66 which was a case arising from the High Court of Bombay, the Privy Council following the decision in Hodgkinson v. Fernie, (supra) observed thus: "Now the regret expressed by Williams, J., in Hodgkinson v. Fernie, (2) has been repeated by more than one learned Judge, and it is certainly not to be desired that the exception should be in any way extended. An error in law on the face of the award means, in their Lordships view, that you can find in the award or a document actually incorporated thereto, as for insta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn (London) Garden Village Society, [1933] A.C. 592 and in Kelantan Government v. Duff Development Co., [1923] A.C. 395. In Durga Prasad v. Sewkishendas, 54 C.W.N. 74, 79) the Privy Council applied the law expounded in Absalom s case [1933] A.C. 592 to India: see also Champsey Bhara Co. v. Jivraj Balloo Spinning and Weaving Co., 50 I.A. 324, 330 331 and Saleh Mahomed Umer Dossal v. Nathoomal Kessamal, 54 I.A. 427, 430. The wider language used by Lord Macnaghten in Ghulam Jilani v. Muhammad Hassan, 29 I.A. 51, 60 had reference to the revisional powers of the High Court under the Civil Procedure Code and must be confined to the facts of that case where the question of law involved there, namely limitation, was specifically referred. An arbitrator is not a conciliator and cannot ignore the law or misapply it in order to do what he thinks is just and reasonable. He is a tribunal selected by the parties to decide their disputes according to law and so is bound to follow and apply the law, and if he does not, he can be set right by the Courts provided his error appears on the face of the award. The single exception to this is when the parties choose specifically to refer a question o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not mean that if in a narrative a reference is made to a contention of one party, that opens the door to seeing first what that contention is, and then going to the contract on which the parties rights depend to see if that contention is sound. The Court in dealing with an application to set aside an award has not to consider whether the view of the arbitrator on the evidence is justified. The arbitrator s adjudication is generally considered binding between the parties, for he is a tribunal selected by the parties and the power of the Court to set aside the award is restricted to cases set out in s.30. It is not open to the Court to speculate, where no reasons are given by the arbitrator, as to what impelled the arbitrator to arrive at his conclusion. On the assumption that the arbitrator must have arrived at his conclusion by a certain process of reasoning, the Court cannot proceed to determine whether the conclusion is right or wrong. It is not open to the Court to attempt to probe the mental process by which the arbitrator has reached his conclusion where it is not disclosed by the terms of his, award. "The same view was expressed by this Court in Bungo Steel Furnitur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observations: In this distressing story, Government has repeatedly suffered loss. In the first arbitration case, Government s claim for royalty on shortfall of extraction was not upheld. As the arbitrator s award gave no reasons, Government could not even find out why their claim was rejected. It will be strange if Government really finds itself so helpless in such case. The Committee would like Government to make up its mind and amend the law in such a manner that it would be obligatory on the arbitrator to give reasons for his award. Meanwhile, it should be ascertained whether in an award which sets out no reasons the aggrieved party would have no remedy whatever. 4.43. We have also been informed that the Public Accounts Committee (1975-76), in its 210 Report, has observed as follows (Public Accounts Committee 19776, 210th Report, page 136, para 5.17): Incidentally, the Committee also find that under the Arbitration Act, the Arbitrator is not bound to give any reason for the award. The result is that often it becomes difficult to challenge such non-speaking awards on any particular ground. The Committee are of the view that it should be made obligatory on arbitrators to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son which is not germane has influenced the decision of the arbitrator. Many awards would not survive court scrutiny in such circumstances. 4.46. It is also noteworthy that in a large number of cases the arbitrators would be laymen. Although their final award may be an honest and conscientious adjudication of the controversy and dispute, they may not be able to insert reasons in the award as may satisfy the legal requirements and the scrutiny of the court. The arbitrators having been chosen by the parties, it would, in our opinion, be not correct to put extra burden on them of also giving reasons which are strictly rational and germane in the eye of law in support of their award. Once the parties have voluntarily chosen the arbitrators, presumably because they have faith in their impartiality, the law should not insist upon the recording of reasons by them in their award. 4.47. The previous experience, in fact, points out that it is awards incorporating reasons which have generally been quashed in court. The awards not giving reasons have survived the attack on their validity, unless the arbitrator is otherwise shown to have misconducted himself or his award suffers from some o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that the award is sound in law? In this connection, reference may be made to the observations of Barwick C.J. (of the High Court of Australia). Tata Products Pvt. Ltd. v. Hutcheson Bros. Pvt. Ltd., [1972] 127 C.L.R. 253, 258; (1972) Australia Law Journal Reports 119 (Australia). He observed that finality in arbitration in the award of the lay arbitrator is more significant than legal propriety in all his processes in reaching that award. The importance which the law attaches to the finality of arbitration goes against the suggestion now put forth for giving reasons for an award. A requirement that the reasons for an award should be given would open too wide a door for challenging the award, even if the grounds for setting aside are, by statute, restricted in other respects. 4.50. For these reasons, we are not inclined to recommend a provision requiring the arbitrator to give reasons for the award. Thus it is seen that the Law Commission did not recommend the inclusion of a provision in the Act requiting the arbitrator or umpire to give reasons for the award. It is not disputed that in India it had been firmly established till the year 1976 that it was not obligatory o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the representations made on both sides, and you must not, in the administration of justice, in whatever form, whether in the regularly constituted Courts or in arbitrations, whether before lawyers or merchants, permit one side to use means of influencing the conduct and the decisions of the Judge, which means are not known to the other side." This Court also relied on the decision in Haigh v. Haigh, [1861] 31 L.J. Ch. 420 which required an arbitrator to act fairly in the course of its duties. The two well recognised principles of natural justice are (i) that a Judge or an arbitrator who is entrusted with the duty to decide a dispute should be disinterested and unbiased (nemo judex in cause sua); and (ii) that the parties to dispute should be given adequate notice and opportunity to be heard by the authority (audi alteram partem) (See Administrative Law by H.W.R. Wade, Part V and Judicial Review of Administrative Action by S.A. de Smith, Third Edition, Chapter 4). Giving reasons in support of a decision was not considered to be a rule of natural justice either under the law of arbitration or under administrative law. In Som Datt Datta v. Union of India and Ors., [1989] 2 S.C.R. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this case led to an anomalous result, for it meant that the opportunity for certiorari depended on whether or not the statutory tribunal chose to give reasons for its decision, in other words, to make a speaking order . Not all tribunals, by any means, were prepared to do so and a superior court had no power to compel them to give reasons except when the statute required it. This incongruity was remedied by the Tribunals and Inquiries Act, 1958 (s. 12), (6 7 Elizabeth 2 c. 66), which provides that on request a subordinate authority must supply to a party genuinely interested the reasons for its decision. Section 12 of the Act states that when a tribunal mentioned in the First Schedule of the Act gives a decision it must give a written or oral statement of the reasons for the decision, if requested to do so on or before the giving or notification of the decision. The statement may be refused or the specification of reasons restricted on grounds of national security, and the tribunal may refuse to give the statement to a person not principally concerned with the decision if it thinks that to give it would be against the interest of any person primarily concerned. Tribunals ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of a tribunal entailed upon it an obligation to give reasons for arriving at a decision for or against a party. The decisions of tribunals in India are subject to the supervisory powers of the High Courts under Art. 227 of the Constitution and of appellate powers of this Court under Art. 136. It goes without saying that both the High Court and this Court are placed under a great disadvantage if no reasons are given and the revision is dismissed curtly by the use of the single word rejected , or, dismissed . In such case, this Court can probably only exercise its appellate jurisdiction satisfactorily by examining the entire records of the case and after giving a hearing come to its conclusion on the merits of the appeal. This will certainly be a very unsatisfactory method of dealing with the appeal. Ordinarily, in a case like this, if the State Government gives sufficient reasons for accepting the application of one party and rejecting that of the others, as it must, and the Central Government adopts the reasoning of the State Government, this Court may proceed to examine whether the reasons given are sufficient for the purpose of upholding the decision. But, when the reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in causa sua); and (ii) that the parties to dispute should be given adequate notice and opportunity by the authority (audi alteram partem). For the first time this Court laid down that the rule requiring reasons in support of an order is a third principle of natural justice. It may be as observed in Bhagat Raja s case (supra) that the Court may require a tribunal to give reasons in support of its order in order to make the exercise of power of the High Courts under Articles 226 and 227 of the Constitution of India and the powers of this Court under Article 136 of the Constitution of India effective. It is further urged relying upon the decisions of this Court in Associated Cement Companies Ltd. v. P.N. Sharma and Another, [1965] 2 S.C.R. 366 and A.K. Kraipak Ors. etc. v. Union of India Ors., [1970] 1 S.C.R. 457 that the concept of natural justice had undergone a great deal of Change in recent years. It is argued that while originally there were two rules of natural justice in course of time many more subsidiary rules had come to be added to the rules or natural justice and, therefore, in the same way the requirement of giving reasons for a decision should be treated as a new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rules of natural justice or action in excess of jurisdiction. In the case of the English Courts these powers are conferred by sections 22, 23 and 24 of the Arbitration Act, 1950. Powers of review 4. Most systems of law adopt the philosophy that the parties, having chosen their own tribunal, must accept its decisions "with all faults". Accordingly, they make no, or very little, provision for a review by the Courts of arbitral decisions which may be based upon erroneous conclusions of fact or law. Until recently the law of Scotland was based upon this philosophy. However, this has never been the approach of the law of England or of some systems derived from the law. English law provides for two different forms of review, namely by motion to set aside the award for error on its face and by a reference to the High Court of an award in the form of a special case. (a) Setting aside an award for error on its face 5. Under English law the Courts have jurisdiction to set aside any arbitral award if it appears from the award itself or from documents incorporated in the award that the arbitrator has reached some erroneous conclusion of fact or law. The Court cannot correct the erro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court could, in appropriate cases, order him to do so. This would be no great burden on the arbitrator provided that the application was made promptly. He would have had some reasons for making the award and all that he would need to do would be to summarize them in ordinary language. Nothing formal would be required. 28. Armed with the reasons for an award, the unsuccessful party could apply to the Court for leave to appeal. The right of appeal could be restricted to questions of law arising out of the decision, leaving all questions of fact to be decided finally by the arbitrator. Furthermore, unlike the position when the Court is being asked to order an arbitrator to state an award in the form of a special case, the Court would know whether any particular question of law really arose for. decision since both it and the parties would have access to the facts as found by the arbitrator. Additional restrictions could be imposed on the circumstances in which leave to appeal would be given and in which a further appeal to the Court of Appeal would be permitted. 29. An additional advantage of a change to reasoned awards lies in the fact that this would tend to assimilate English ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und of errors of fact or law on the face of the award. (2) Subject to sub-section (3) below, an appeal shall lie to the High Court on any question of law arising out of an award made on an arbitration agreement; and on the determination of such an appeal the High Court may by order-- (a) confirm, vary or set aside the award; or (b) remit the award to the reconsideration of the arbitrator or umpire together with the court s opinion on the question of law which was the subject of the appeal; and where the award is remitted under paragraph (b) above the arbitrator or umpire shall, unless the order otherwise directs, make his award within three months after the date of the order. .......................................................... (5) Subject to sub-section (6) below, if an award is made and, on an application made by any of the parties to the reference-- (a) with the consent of all the other parties to the reference, or (b) subject to section 3 below, with the leave of the court, it appears to the High Court that the award does not or does not sufficiently set out the reasons for the award, the court may order the arbitrator or umpire concerned to state the reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other cases cited before us which have a bearing on section 10-A of the Industrial disputes Act, 1947. The question which arises for consideration in these cases is whether it is appropriate for this Court to take the view that any award passed under the Act, that is, the Indian Arbitration Act, 1940 is liable to be remitted or set aside solely on the ground that the arbitrator has not given reasons thus virtually introducing by a judicial verdict an amendment to the Act when it has not been the law for nearly 7/8 decades. The people in India as in other parts of the world such as England, U.S.A. and Australia have become accustomed to the system of settlement of disputes by private arbitration and have accepted awards made against them as binding even though no reasons have been given in support of the awards for a long time. They have attached more importance to the element of finality of the awards than their legality. Of course when reasons are given in support of the awards and those reasons disclose any error apparent on the face of the record people have not refrained from questioning such awards before the courts. It is not as if that people are without any remedy at all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision is a rule of natural justice by an extension of the prevailing rule. It would be in the interest of the world of commerce that the said rule is confined to the area of Administrative Law. We do appreciate the contention, urged on behalf of the parties who contend that it should be made obligatory on the part of the arbitrator to give reasons for the award, that there is no justification to leave the small area covered by the law of arbitration out of the general rule that the decision of every judicial and quasi-judicial body should be supported by reasons. But at the same time it has to be borne in mind that what applies generally to settlement of disputes by authorities governed by public law need not be extended to all cases arising under private law such as those arising under the law of arbitration which is intended for settlement of private disputes. As stated elsewhere in the course of this judgment if the parties to the dispute feel that reasons should be given by the arbitrators for the awards it is within their power to insist upon such reasons being given at the time when they enter into arbitration agreement or sign the deed of submission. It is significant that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trappings of a body which discharges judicial functions and required to act in accordance with law with their concomitant obligations for reasoned decisions, are not attracted to a private adjudication of the nature of arbitration as the latter, as we have noticed earlier, is not supposed to exert the State s sovereign judicial power. But arbitral awards in disputes to which the State and its instrumentalities are parties affect public interest and the matter of the manner in which Government and its instrumentalities allow their interest to be affected by such arbitral adjudications involve larger questions of policy and public interest. Government and its instrumentalities cannot simply allow large financial interests of the State to be prejudicially affected by non-reviewable except in the limited way allowed by the Statute--non-speaking arbitral awards. Indeed, this branch of the system of dispute- resolution has, of late, acquired a certain degree of notoriety by the manner in which in many cases the financial interests of Government have come to suffer by awards which have raised eye-brows by doubts as to their rectitude and propriety. It will not be justifiable for Govern ..... X X X X Extracts X X X X X X X X Extracts X X X X
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