Chatterjee Brothers vs Rastriya Pariyajana Nirman Nigam Limited

Sanjib Banerjee, J.—The only ground urged on behalf of the petitioner in assailing the award in the present proceedings under Sections 30 and 33 of the Arbitration Act, 1940 is that notwithstanding the arbitration agreement obliging the arbitrator to give reasons in support of the award no reasons have, in fact, been furnished by the arbitrator in justification of the award.

The petitioner is a contractor who was awarded a work order following a notice inviting tender and the petitioner''s offer thereupon. The arbitration agreement is contained in Clause 16 of the document entitled "Terms and Conditions of the Contract." There is no dispute that the last sentence of the clause stipulated that the arbitrator "shall give reasons for the award."

In the rather short award, the arbitrator has narrated in the first three paragraphs before heading into the several items of claim that he had been appointed arbitrator, that pleadings had been filed by the parties, that he had heard the parties and that he would take up all the points for consideration together. Thereafter, the arbitrator has described every head of claim and has furnished a few lines under each claim and has styled them as "reason for award." These "reasons" run into eight or ten lines in a few cases and less in most of the other cases.

In respect of the first claim the arbitrator has, without any ado, jumped to a conclusion that there was due performance of the contract by the claimant for which the claimant was entitled to a certain sum. The arbitrator did not disclose the basis for his arriving at the conclusion that there was due performance by the claimant. Though it is not in the claimant''s interest to challenge this view taken by the arbitrator, the claimant questions the basis for arriving at a figure of Rs. 79,584.40 against a claim on such head of Rs. 1,72,815/-. Claims 1(a) and 1(b) have been awarded in favour of the claimant and there is no grievance on such score. The respondent has not challenged the sums awarded under such heads.

In respect of the second claim, the arbitrator has held that no cogent evidence for the loss suffered on account of the increased price of materials had been presented by the claimant and he has also found that the claim was not admissible under "clause No. 14." Claim 3(a) in respect of welding charges has been rejected on the ground that such claim was not admissible in terms of the technical specification mentioned at page 6. Claims 3(b) and 3(c) have been disallowed on the ground of they were covered items and separate claims in respect thereof could not be made.

The fourth and fifth claims related to idle charges on machinery and establishment for two separate periods and the arbitrator has found that clauses 4, 5 and 14 of the document entitled "Scope of Work and Additional Terms and Conditions" and Clause 7 of the Terms and Conditions of the Contract did not warrant such claims to be made. The arbitrator has declined to entertain claim 6 on account of loss of earning in view of Clause 9 of the Terms and Conditions of the Contract. The interest claimed under the seventh head has been rejected since the claimant failed to comply with the provisions of the contract. A further head of claim of Rs. 6.4 lakh on account of idle charge of machinery and establishment for a third period has been rejected in view of Clause 21 of the Scope of Work and Additional Terms and Conditions.

The amount awarded is Rs. 1,06,830.40 and costs of the arbitration assessed at Rs. 10,000/-. The arbitrator has also directed payment of interest at the rate of 17 per cent per annum upon the expiry of 30 days from the date of the award.

The petitioner says that in view of the specific requirement of the arbitration agreement, the arbitrator was duty-bound to furnish reasons. The petitioner has relied on a judgment reported at Raipur Development Authority Vs. M/s. Chokhamal Contractors etc. etc., where it has been held that though there is no obligation on an arbitrator to give reasons in support of his decision, but he is bound to give reasons if the arbitration agreement or the deed of submission so provides. The petitioner says that the arbitrator did not apply his mind and merely quoted from the summary of the counter-statement filed by the respondent in the reference. The petitioner refers to pages 87 and 88 of the respondent''s affidavit where the grounds given by the respondent are reflected verbatim in almost all of the heads of claim that have been rejected by the arbitrator.

The respondent says that the award is not an unreasoned award. It is submitted that the arbitration agreement required only reasons to be furnished and if there are some reasons indicated, however sketchy they may appear to the Court, the award cannot be rejected on the ground of inadequacy of reasons. The respondent contends that in every case of rejection under any head of claim, the arbitrator has cited one or more clauses of the agreement governing the parties and the mere fact that he did not elaborate thereon should not be held against the respondent for the respondent to be subjected to a further reference therefore.

The respondent refers to a judgment reported at State of Orissa Vs. Dandasi Sahu, and relies on paragraph 10 thereof for the proposition that when an arbitrator commits a mistake either in law or on facts in determining the matters referred to him and where such mistake does not appear on the face of the award and the documents appended thereto or incorporated therein, the award will neither be remitted nor set aside. The principle is not germane to the matter in issue in the present proceedings. The petitioner has assailed the award for it not having furnished reasons despite the arbitration agreement requiring reasons to be given. From the judgment next cited by the respondent, one reported at State of Rajasthan Vs. Nav Bharat Construction Company, , the respondent has relied on paragraphs 12 and 14 of the report. Paragraph 12 dealt with bias which is irrelevant in the present context. Paragraph 14 enunciated that when an arbitration agreement in a reference under the 1940 Act did not require any reasons to be given, the fact that the umpire had not given any reasons despite the two arbitrators differing could not be a ground to set aside the award. Again, the proposition does not further the respondent''s case.

In the third judgment relied upon by the respondent and reported at Goa, Daman and Diu Housing Board Vs. Ramakant V.P. Darvotkar, the respondent has referred to paragraphs 10 and 12 of the report. The Supreme Court considered a High Court order where under an award had been remitted to the arbitrator for recording reasons therefore. The Supreme Court noticed Section 16 of the 1940 Act and, at paragraph 12 of the report, concluded that the arbitrator had "considered all the specific issues raised by the parties...and came to his finding after giving cogent reasons."

The respondent has also relied on paragraphs 33 to 35 of the Raipur Development Authority judgment. The discussion in these paragraphs was, in the context of the statute then in force, on the desirability of changing the law of the land by judicial pronouncement to make it mandatory for arbitral awards to furnish reasons in support thereof. The conclusion on such aspect is found in the following sentence at paragraph 38 of the report:

...In the result we hold that an award passed under the Arbitration Act is not liable to be remitted or set aside merely on the ground that no reasons have been given in its support except where the arbitration agreement or the deed of submission or an order made by the court such as the one u/s 20 or Section 21 or Section 34 of the Act or the statute governing the arbitration requires that the arbitrator or the umpire should give reasons for the award....

The arbitration agreement in the present case indisputably required the arbitrator to give reasons in support of the award. Even by the Raipur Development Authority dictum, an arbitrator is bound to give reasons if the agreement under which he derives authority so mandates. What is of relevance in the assessment is as to whether the few lines that the arbitrator expended in respect of the several heads of claim can be seen to be reasons that would satisfy the requirement in the arbitration agreement. Reasons are the safeguard against the ipse dixit of the decision-making process. They discuss how the mind has been applied to the matter in issue and convey the nexus between the material that has been considered and the conclusion based thereon. Reasons give the answer to the question "why" in assessing the "what" of a conclusion. Reasons justify the conclusion and when an arbitration agreement requires a speaking award to me made, the arbitrator is called upon speak up to reveal the mental process by which he reaches his conclusion. Under the 1940 Act it is not always necessary for the arbitrator to give reasons in support of an award and, when no reasons are furnished, the court cannot speculate, in proceedings under Sections 30 and 33 of that Act, as to what impelled the arbitrator to arrive at his conclusion. But when reasons are required to be furnished in terms of an arbitration agreement from which the arbitrator sustains his authority to adjudicate upon the disputes, the arbitrator is bound to furnish reasons so that the mental process by which he reached his conclusion may be probed into upon the award being challenged. An arbitral award in apparent breach of the covenant under which the arbitrator gets his jurisdiction may be questioned on its legality without any ill-motive or other error being imputed.

The arbitrator here did not bare his mind as to why he concluded that a sum of Rs. 79,584.40 was due to the petitioner under the first head of claim and not the rest of the amount as claimed. The reasons that the arbitration agreement commanded him to furnish would have given a clue as to how he assessed such amount. In respect of claim 3(a) the arbitrator referred to the technical specification mentioned in page 6, but such technical specification in page 6, which is found at page 103 of the affidavit-in-opposition, does not provide any indication as to why the claim on account of welding charges could not be received.

Clause 4 of the Scope of Work and Additional Terms provides that the contractor should have inspected and examined the sites and its surroundings and satisfied itself as to the extent and nature of work and the material necessary for the completion thereof, including the access to the site and other circumstances that may affect the work. Clause 5 requires the contractor to arrange all things necessary to execute the work. Clause 14 records that the rates fixed in the agreement would be firm till the completion of the work and the contractor would not be entitled to any additional amount on account of escalation. Clause 7 of the Terms and Conditions of the Contract stipulates that the material supplied by the contractor would be the property of the employer and may not be removed from site without the employer''s consent and the contractor would have no claim for compensation if the material was unused or wasted or damaged. These four clauses have been cited by the arbitrator in repelling the claims made on account of idle charges on machinery and establishment for the first two periods. But a reading of the clauses does not make it apparent that such claims could not have been made or entertained only by reason of these provisions in the contract. In respect of the third period claimed under the eighth head on the same score, the arbitrator has cited Clause 21 of the Scope of Work and Additional Terms and Conditions. This clause merely records that the contractor shall abide by all the laws and rules of CIWTC prevalent from time to time. There may yet be some basis for the arbitrator invoking the four clauses that he did in rejecting the fourth and fifth heads of claim and for the arbitrator relying on Clause 21 in declining the eighth head of claim, but, in the absence of it being spelt out, the nexus is not obvious.

In the Goa, Daman & Diu Housing Board, the Supreme Court held that the mere failure to give reasons despite the arbitration agreement requiring reasons to be furnished, would not, ipso facto, amount to legal misconduct unless it was otherwise demonstrated that the arbitrator had misconducted himself or the proceedings or that the award had been improperly procured. The Supreme Court was also of the view that the failure of an arbitrator to give reasons despite the agreement obliging him to state reasons may render the award susceptible u/s 16(1)(c) of the 1940 Act.

Despite the few words furnished in refusing the claims under the second head, under item Nos. 3(b) and 3(c) and under the sixth and seventh heads, they would suffice as reasons and do not require to be revisited. But there does not appear to be any reasons provided by the arbitrator in awarding as he did in respect of claims No. 1, 3(a), 4, 5 and 8 and the award is remitted to the arbitrator for him to furnish adequate reasons in support of the conclusions in respect of such matters.

The challenge to the award, in so far as it relates to claim Nos. 2, 3(b), 3(c), 6 and 7, fails. The petition succeeds in part in the arbitrator being required to furnish reasons in support of the other heads of claim as specified in the immediate preceding paragraph. The arbitrator may or may not invite any further submission and will furnish the reasons within four weeks from the date of receipt of an authenticated copy of this order. It will be open to the petitioner to challenge the award under these heads of claim upon the reasons being supplied therefore, if the petitioner is so advised and in accordance with law.

AP No. 2 of 2007 is allowed in part. The petitioner will be entitled to costs assessed at 300 GM.

Urgent certified photocopies of this judgment, if applied for, be supplied to the parties subject to compliance with all requisite formalities.