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Judgment
S. Palanivelu, J.—The averments found in the petition filed u/s 34(1) of the Arbitration and Conciliation Act 1996, are as follows:
1.(i) The petitioner is a partnership firm engaged in engineering contract work in and around Pondicherry. The first respondent, Commissioner
invited tenders for providing and laying cement concrete pavements in the New Bus Stand in Orleanpet, Pondicherry. The petitioner was one
among the tenderers, who quoted the lowest tender which was accepted and the work was awarded for the total cost of Rs. 25,14,978/-, on
25.05.1993. Original Contract period was 12 months, however, it was reduced to 7 months. The agreement was entered to the effect that the
work had to be completed in two phases. The petitioner could not commence the work since the site was not available to them till December
1993. The first phase of work was completed on 15.10.1994 and the second phase was completed in October 1995. The payment of Rs.
2,54,495/- was made by the first respondent. However, it was not increased with the then existing schedule of rates for the second phase. As per
the calculation, the petitioner was entitled to Rs. 4,07,268/-.
1.(ii) At the request of the petitioner, the matter was referred to arbitrator, second respondent who passed award on 20-09-1999. In the award, a
compensation of Rs. 2,28,066/- was assessed to be paid to this petitioner against his claim. But without any reason the arbitrator directed the
payment less 50% thereby directing to pay Rs. 1,14,033/- alone, which is unjustified, arbitrary and contrary to all cannons of natural justice. Hence
the award is liable to be set aside. The alternative prayer is also made to direct the arbitrator to make an additional arbitral award as to claims
already made by the petitioner.
In the counter filed by the first respondent, the following are stated:
There was a little delay on account of administrative procedures and this respondent took a lenient view in the case of the petitioner and chose to
award compensation for the delay as well as for the escalation in the prices of materials and the cost of labour. The second respondent conducted
thorough enquiry, examined the documents, witnesses and finally passed the award which could be justified. The request of the petitioner is far-
fetched and the claim has to be dismissed outright.
The contents contained in the counter filed by the second respondent are thus:
The petition is not maintainable. The allegations in the petition are not in accordance with the provisions of the Arbitration Act. The second
respondent having found justification in passing the award under challenge as regards the second phase. There is a delay in work completion and
the first respondent explained extended period of work and also paid a sum of Rs. 1,68,876/- towards compensation. The petitioner has not
substantiated his enhanced rate of cost. Out of the claim amount, Rs. 1,68,876/- was already paid and the balance was Rs. 2,28,066/-. Since the
petitioner has not acted as per the agreement and without obtaining proper orders from the first respondent regarding the enhancement of rates
with respect to second phase of work, 50% of Rs. 2,28,066/- was directed to be paid by this respondent. In view of the fact that the delay was
caused only due to the administrative reasons and not by any wilful or wanton attitude of the first respondent, no interest was ordered by this
respondent. Hence the petition has to be dismissed as unsustainable.
Tenders were invited by the first respondent for providing and laying Cement concrete pavements in the New Bus Stand in Orleanpet,
Pondicherry. The petitioner, engaged in engineering constructions, also participated in the process, who quoted the lowest tender of Rs.
25,14,978/-, which was accepted by the first respondent and an agreement was also entered into between them for completion of work within 12
months, however, it was reduced to 7 months and the work was completed in two phases. First phase of work was completed on 15.10.1994
and the second phase in October 1995. The petitioner made a claim for Rs. 4,07,268/- before the first respondent and also requested to refer the
dispute to an arbitrator and the second respondent was appointed as arbitrator. By means of his award dated 20.09.1999, he fixed Rs. 2,28,066/-
payable to the petitioner but directed the first respondent to pay 50% of the above said amount. It is strongly contended by the petitioner''s side
that without assigning any reason, 50% of the amount fixed by the arbitrator has been deducted and the reason for refusing grant of interest is also
not sustainable. The arbitrator in his award, has stated that the claim for the interest of the contractors are not justifiable, since the delay caused is
only normal in observing usual but mandatory procedure in obtaining approval at higher levels/Government. In the concluding portion of the award,
there is no reason assigned whatsoever for lessening the award of Rs. 2,28,066/- by 50%.
It is the quintessence of the learned Counsel for the appellant that as per the provisions of the Arbitration and Conciliation Act 1996 (in short
''Act''), the award does not contain required reasons for arriving at the award amount and also for deducting 50% in the said award and also for
rejecting the claim for interest and hence it is not sustainable.
Conversely, Ms. R. Mala, learned Counsel appearing for the first respondent would submit that unless misconduct on the part of the arbitrator is
alleged and established, the award could not be set aside and that the counter of the second respondent contains reasons for his decision.
In the award, it is nowhere stated for what reason 50% of the award amount should be deducted. But only in the counter filed by the second
respondent, it is stated that since the petitioner has not acted as per the agreement and without obtaining order from the first respondent as to
enhancement of rates during the second phase of work, he is not entitled for 50% of the award. Insofar as the rejection of claim of interest is
concerned, the second portion of the award contains reasons which are to the effect that the delay was caused by the official procedures in
obtaining approval at higher level. However, for the default caused, the arbitrator/umpire has directed payment of interest at 10% per annum. He
has allowed 90 days for payment of award amount and in default, it shall carry interest at the rate of 10% till the date of settlement.
Learned counsel for the appellant would rely upon a decision of the Honourable Supreme Court of India in Oil and Natural Gas Corporation
Ltd. Vs. SAW Pipes Ltd., , in which it is held that if the award is contrary to the substantive provisions of law or the provisions of the Act or
against the terms of the contract, it would be patently illegal, which could be interfered u/s 34 of the Act. However, such failure of procedure
should be patent affecting the rights of the parties. It is further observed as under:
Section 24 provides for hearing of the parties. Under Sub-section (1)(a) of Section 28 there is a mandate to the arbitral Tribunal to decide the
dispute in accordance with the substantive law for the time being in force in India. Admittedly, substantive law would include the Indian Contract
Act, the Transfer of Property Act and other such laws in force. Under Sub-section (3), arbitral Tribunal is directed to decided the dispute in
accordance with the terms of the contract and also after taking into account the usage of the trade applicable to the transaction. u/s 31(3) the
award has to be reasoned. The question is whether the award could be set aside, if the arbitral Tribunal has not followed the mandatory procedure
prescribed under Sections 24, 28 or 31, which affects the rights of the parties. If it is held that such award could not be interfered, it would be
contrary to basic concept of justice. If the arbitral Tribunal has not followed the mandatory procedure prescribed under the Act, it would mean that
it has acted beyond its jurisdiction and thereby the award would be patently illegal which could be set aside u/s 34.
He also garnered support from a decision of the Supreme Court in K.P. Poulose Vs. State of Kerala and Another, , wherein Their Lordships
have held that if any decision of the arbitrator are rationally inconsistent, the award would suffer from a manifest error apparent ex facie.
Repelling the arguments of the learned Counsel for the appellant, armed with the authorities of the Supreme court, the learned Counsel for the
first respondent would submit that unless any ground is found available as provided u/s 34 of the Act, the award could not be set aside and that no
such grounds are available in the present matter. Section 34 of the Act sets out grounds upon which an arbitral award could be set aside. The
enumeration in Section 34 of the Act goes thus:
Application for setting aside arbitral award. -
(1) Recourse to a court against an arbitral award may be made only by an application for setting aside such award in accordance with Sub-section
(2) and Sub-section (3).
(2) An arbitral award may be set aside by the court only if-
(a) The party making the application furnishes proof that-
(i) A party was under some incapacity, or
(ii) The arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the
time being in force; or
(iii) The party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was
otherwise unable to present his case; or
(iv) The arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains
decisions on matters beyond the scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award
which contains decisions on matters not submitted to arbitration may be set aside; or
(v) The composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such
agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance
with this Part; or
(b) The court finds that-
(i) The subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) The arbitral award is in conflict with the public policy of India.
Section 31 of the Act provides the statutory requirements for the arbitral award which contains reasons and also lists exceptions to this rule.
The relevant provisions for the purpose of this proceedings u/s 31 of the Act are as follows:
Form and contents of arbitral award. �
(1) An arbitral award shall be made in writing and shall be signed by the members of the arbitral tribunal.
(2) For the purposes of Sub-section (1), in arbitral proceeding with more than one arbitrator, the signatures of the majority of all the members of
the arbitral tribunal shall be sufficient so long as the reason for any omitted signature is stated.
(3) The arbitral award shall state the reasons upon which it is based, unless-
(a) The parties have agreed that no reasons are to be given, or
(b) The award is an arbitral award on a-reed terms u/s 30.
[Sub-sections 4 to 7(a) omitted]
Sub-Section 7(b) of the Act reads as follows:
7.(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of eighteen per centum per
annum from the date of the award to the date of payment.
Learned counsel for the first respondent also cited a decision of the Supreme Court in 2007 SAR (Civil) 795 Markfed Vanaspathi & Allied
Industries v. Union of India, wherein Their Lordships concluded that the decided cases of the court (Supreme Court) demonstrate that the Court
has consistently taken the view that scope of interference in a non-speaking award is extremely limited, that the court cannot probe into the mental
process of the arbitrator and the Court should endeavour to support a non-speaking arbitration award provided it adhered to the parties''
agreement and was not invalidated due to arbitrator''s misconduct. It is also held as follows:
Arbitration is a mechanism or a method of resolution of disputes that unlike court takes place in private, pursuant to agreement between the
parties. The parties agree to be bound by the decision rendered by a chosen arbitrator after giving hearing. The endeavour of the Court should be
to honour and support the award as far as possible.
As per the Supreme Court, it is the settled legal position that the scope of interference is extremely limited to a non-speaking award and even
though the award is a non-speaking one, the court cannot explore the mental process of the umpire. In Marfed Vanaspathi''s case (supra), earlier
decisions of the Supreme Court have also been incorporated which are as follows:
This Court in State of A.P. v. R.V. Rayanim (1990) 1 SCC 433 in para 6 at page 437, dealt with a non-speaking award. The Court observed
that it is not open to the court to probe the mental process of the arbitrator where he has not provided the reasoning for his decision.
This Court in Bijendra Nath Srivastava (Dead) through LRs. Vs. Mayank Srivastava and others, , observed that the arbitrator is under no
obligation to give reasons in support of the decision reached by him, unless the arbitration agreement or deed of settlement so required. If the
arbitrator or umpire chooses to give reasons in support of his decision, then it would be open to the court to set aside the award upon finding an
error of law. The reasonableness of the reasons given by the arbitrator cannot, however, be challenged. It is not open to the court to look for the
reasons and proceed to examine whether they were right or erroneous. The arbitrator is the sole judge of the quality as well as the quantity of the
evidence. It will not be for the court to take upon itself the task of being a judge of the evidence before the arbitrator. The court should approach
an award with a desire to support it, if that is reasonably possible, rather than to destroy it by calling it illegal.
In New India Civil Erectors (P) Ltd. v. Oil & Natural Gas Corporation (1997) 2 SCC 75 in para 7 at page 78, the Court observed while
dealing with a non-speaking award that the attempt of the court should always be to support the award within the letter of law.
In Rajasthan State Mines and Minerals Limited Vs. Eastern Engineering Enterprises and Another, , the Court observed that in a non-speaking
award the jurisdiction of the court is limited. 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. It is also not possible to admit to probe the mental process by which the arbitrator has reached
his conclusion where it is not disclosed by the terms of the award. Similar view has been taken in the following cases, namely, State of Bihar v.
Hanuman Mal Jain (1997) 2 SCC 40, P.V. Subba Naidu and Others Vs. Government of A.P. and Others, , Star Construction and Transport Co.
and Others Vs. The India Cements Ltd., and D.D. Sharma Vs. Union of India (UOI), .
In Sudarsan Trading Co. Vs. Government of Kerala and Another, , it is held by the Apex Court that the Court may look into the reasoning of
the award only in a speaking award and it is not open to the Court to probe the mental process of the arbitrator and speculate, where no reasons
are given by the arbitrator as to what impelled him to arrive at his conclusion and the reasonableness of the arbitrator''s reasons cannot be
challenged and that the arbitrator''s appraisement of the evidence is never a matter for the Court to entertain.
Learned counsel for the respondent also cited a Division Bench decision of this Court reported in Eastern Trading Company, Eastern
Chemicals and Minerals Pvt. Ltd., Universal Enterprises and Amka Trading Company Vs. Kalpana Lamps and Components Ltd. and S.
Nandagopal, , in which the learned Judges, after following the principles laid down by the Supreme Court, have reached the conclusion that except
on the grounds as incorporated in Section 34 of the Act, the Court cannot take role of an arbitrator and pass an award. The following is the
operative portion of the Judgment:
It is a well established legal principle that so long as the arbitrator has decided the matter in accordance with the terms of the contract and has
acted within his authority, and according to the principle of fair play, the award of the arbitrator is ordinarily final and conclusive and power of the
Court to set aside the award is restricted to the instances set out u/s 34 of the Arbitration and Conciliation Act and the reappraisal of the evidence
by the Court is not permissible. Useful reference can be had to the Judgments of the Supreme Court in M/s. Ispat Engineering and Foundry
Works, B.S. City, Bokaro Vs. M/s. steel Authority of India Ltd., B.S. City, Bokaro, and Oil and Natural Gas Corporation Ltd. Vs. SAW Pipes
Ltd., .
As per the well nigh established legal principles, normally an arbitral award is final and conclusive and apart from the grounds mentioned in
Section 34 of the Act, no other ground could be found out by the Court for setting aside the award and even if the award is found not to be based
on reason, the Court cannot make an attempt to assess the mental calibre of the arbitrator at the time of passing the award and that too the extent
possible the Court shall take endeavour to support the award, when no misconduct on the part of the arbitrator is awarded. As far as the present
award under challenge is concerned, there is no contention that it was passed in contravention to the agreement in between the parties and that it is
the end-product of the misconduct of the arbitrator. This Court is unable to find out any ground which matches anyone of those contained in
Section 34 of the Act. Absence of adducing reasons in the award is not one among the grounds found in Section 34 of the Act, but it is the
statutory requirement u/s 31 of the Act. However, mere non-mentioning of the reasons would not make the award illegal as per the decision of the
Supreme Court in Markfed Vanaspathi & Allied Industries case (supra). This Court, under law, cannot examine the reasons for the failure on the
part of the arbitrator to furnish reasons in his award.
The requirement of presence of reasons is to facilitate scrutiny by the Court in an application for setting aside the award. While the court looks
for the existence of reasons in the award as required by Section 31(3) of the Act, it is also bound to bear in mind the jurisdiction to entertain the
challenge to an award which must be on any of the grounds available in Section 34 of the Act.
The Court below has rendered necessary findings that the Act does not give power to the Court to travel beyond the limits given u/s 34(1) and
(2) of the Act and the powers are limited and hence the petition is not maintainable.
This Court does not find any legal infirmity in the order impugned. As an award without sufficient reasons is liable to be set aside is not covered
by Section 34 of the Act, the appellant is not entitled for the claims. As for the refusal to allow interest, the reasons assigned by the arbitrator is
convincing. Hence, the Civil Miscellaneous Appeal is liable to be dismissed in view of the discussions and observations following the ratio laid
down by the Supreme Court. The Order of the Principal District Judge, Pondicherry is confirmed.
In fine, the Civil Miscellaneous Appeal is dismissed. No costs.