M/s Jain Enterprises vs UOI and Others

Mukundakam Sharma, C.J.—This appeal is against the judgment and order passed by the learned Single Judge dismissing objections filed under Sections 30 and 33 of the Arbitration Act, 1940. Disputes having arisen between the parties, the same were referred to the Board of Arbitrators in terms of the arbitration clause. The arbitration clause did not require the arbitrators to give reasons. Disputes were with regard to supply of 25,000 sum of 65 mm gauge hand broken stone ballast duty stacked and to be loaded into Rail Borne Trucks at TKD.

The said Board of Arbitrators considered both the claims and counter claims of the parties and thereafter passed an award on 12th May, 2004.

A copy of the said award is placed on record. A bare perusal of the aforesaid award reveals that the said award is a non-reasoned award. The Board of Arbitrators have given their final conclusion with the following statement:

AND WHEREAS, after having heard and duly considered the disputes and differences and all the arguments and evidences from both the parties and having gone through all the material, papers and documents submitted and produced before us in connection with aforesaid disputes and differences, we do award and direct as under:

Below the above quoted paragraph, there is a tabulated statement indicating the claims made, the amount awarded with remarks.

Counsel appearing for the appellant submits that the learned Arbitrators did not take into consideration the letter of the respondents dated 12th November, 1992. It is stated that if the aforesaid document was taken into consideration, it would have been established that there was no default on the part of the appellant in making the supplies of 25,000 cum of 65 mm gauge hand broken stone ballast duty stacked and to be loaded into Rail Borne Trucks at TKD.

Since the award is a non-speaking award, it is not possible to make any probe with regard to the mental process of the learned Arbitrators. It is also not possible from the records placed before us to find out and establish as to how the learned Arbitrators came to the conclusions, for no reasons have been recorded, which would disclose as to whether or not the aforesaid letter was taken notice of by the learned Arbitrators. The said letter dated 12th November, 1992 records that progress of the appellant was very poor and he had supplied only 2983.05 cum of blast out of 25000 cum as per contract awarded on 6th June, 1992. This letter does not conclusively establish the claim of the appellant. Moreover, the Arbitrators may have considered some other papers and documents to reach their final conclusion.

The learned Single Judge considered the aforesaid position and on consideration of the records, it was held by the learned Single Judge that the award being a non-speaking award, it was not possible for the court to re-appreciate the evidence, nor it could be challenged on the ground urged.

Another contention, which was raised was with regard to payment of interest. This again cannot be examined and scrutinised by the court in absence of reasons in the award. Whether interest should be awarded is a matter of discretion. Though the arbitrators had allowed claim for refund of earnest money / security deposit and directed refund of recoveries wrongly made, other claims made by the appellant towards damages and alleged illegal termination have been rejected. Learned arbitrators have not decided the counter claim made by the respondent on the ground that they were not part of reference.

Jurisdiction of the Court under Sections 30 and 33 of the Arbitration Act, 1940 is limited. It is well settled that an award cannot be set aside merely on the ground of absence of reasons unless the arbitration agreement requires an arbitrator to give reasons. Under the Arbitration Act, 1940 it was not mandatory for the Arbitrator to give reasons. No speaking awards have been held to be valid (Refer Secretary, Irrigation Department, Government of Orissa and others Vs. G.C. Roy, ).

This Court cannot examine the award sitting as Appellate Court while deciding objections under Sections 30 and 33 of the Arbitration Act. We cannot go into the mental process by which the Arbitrators had reached the conclusions mentioned by him in the award as the award is non-speaking. It is not a case in which the Arbitrators did not observe rules of natural justice or had conducted the proceedings in haste or had refused to accept evidence or examine witnesses. It cannot be also said that the Arbitrators have misconducted themselves. It cannot also be said that the award is liable to be set aside on the ground of error on the face of the award. Even an erroneous decision given by an Arbitrator cannot be set aside unless the error is apparent on the face of the award. Arbitration is a result of a contract.

In this connection we may refer to the decision in M/s. Arosan Enterprises Ltd. Vs. Union of India and Another, wherein the Supreme Court has held thus:

Turning attention on to the other focal point, namely the interference of the Court, be it noted that Section 30 of the Arbitration Act, 1940 providing for setting aside an award of an arbitrator is rather restrictive in its operation and the statute is also categorical on that score. The use of the expression "shall" in the main body of the section makes it mandatory to the effect that the award of an arbitration shall not be set aside excepting for the grounds as mentioned therein to wit: (i) arbitrator or umpire has misconducted himself; (ii) award has been made after the supersession of the arbitration or the proceedings becoming invalid; and (iii) award has been improperly procured or otherwise invalid.

The above-noted three specific provisions u/s 30 thus can only be taken recourse to in the matter of setting aside of an award. The legislature obviously had in its mind that the arbitrator being the Judge chosen by the parties, the decision of the arbitrator as such ought to be final between the parties.

Be it noted that by reason of a long catena of cases, it is now a well-settled principle of law that reappraisal of evidence by the court is not permissible and as a matter of fact exercise of power by the court to reappraise the evidence is unknown to proceedings u/s 30 of the Arbitration Act. In the event of there being no reasons in the award, question of interference of the court would not arise at all. In the event, however, there are reasons, the interference would still be not available within the jurisdiction of the court unless of course, there exist a total perversity in the award or the judgment is based on a wrong proposition of law. In the event however two views are possible on a question of law as well, the court would not be justified in interfering with the award.

The common phraseology "error apparent on the face of the record" does not itself, however, mean and imply closer scrutiny of the merits of documents and materials on record. The court as a matter of fact, cannot substitute its evaluation and come to the conclusion that the arbitrator had acted contrary to the bargain between the parties. If the view of the arbitrator is a possible view the award or the reasoning contained therein cannot be examined. In this context, reference may be made to one of the recent decisions of this Court in the case of State of Rajasthan Vs. Puri Construction Co. Ltd. and Another, wherein this Court relying upon the decision of Sudarsan Trading Co. Vs. Government of Kerala and Another, observed in para 31 of the Report as below:

A court of competent jurisdiction has both right and duty to decide the lis presented before it for adjudication according to the best understanding of law and facts involved in the lis by the judge presiding over the court. Such decision even if erroneous either in factual determination or application of law correctly, is a valid one and binding inter partes. It does not, therefore, stand to reason that the arbitrator''s award will be per se invalid and inoperative for the simple reason that the arbitrator has failed to appreciate the facts and has committed error in appreciating correct legal principle in basing the award. An erroneous decision of a court of law is open to judicial review by way of appeal or revision in accordance with the provisions of law. Similarly, an award rendered by an arbitrator is open to challenge within the parameters of several provisions of the Arbitration Act. Since the arbitrator is a judge by choice of the parties and more often than not a person with little or no legal background, the adjudication of disputes by an arbitration by way of an award can be challenged only within the limited scope of several provisions of the Arbitration Act and the legislature in its wisdom has limited the scope and ambit of challenge to an award in the Arbitration Act. Over the decades, judicial decisions have indicated the parameters of such challenge consistent with the provisions of the Arbitration Act. By and large the Courts have disfavoured interference with arbitration award on account of error of law and fact on the score of misappreciation and misreading of the materials on record and have shown definite inclination to preserve the award as far as possible. As reference to arbitration of disputes in commercial and other transactions involving substantial amount has increased in recent times, the Courts were impelled to have fresh look on the ambit of challenge to an award by the arbitrator so that the award does not get undesirable immunity. In recent times, error in law and fact in basing an award has not been given the wide immunity as enjoyed earlier, by expanding the import and implication of "legal misconduct" of an arbitrator so that award by the arbitrator does not perpetrate gross miscarriage of justice and the same is not reduced to mockery of a fair decision of the lis between the parties to arbitration. Precisely for the aforesaid reasons, the erroneous application of law constituting the very basis of the award and improper and incorrect findings of fact, which without closer and intrinsic scrutiny, are demonstrable on the face of the materials on record, have been held, very rightly, as legal misconduct rendering the award as invalid. It is necessary, however, to put a note of caution that in the anxiety to render justice to the party to arbitration, the court should not reappraise the evidences intrinsically with a close scrutiny for finding out that the conclusion drawn from some facts, by the arbitrator is, according to the understanding of the court, erroneous. Such exercise of power which can be exercised by an appellate Court with power to reverse the finding of fact, is alien to the scope and ambit of challenge of an award under the Arbitration Act. Where the error of finding of facts having a bearing on the award is patent and is easily demonstrable without the necessity of carefully weighing the various possible viewpoints, the interference with award based on erroneous finding of fact is permissible. Similarly, if an award is based by applying a principle of law which is patently erroneous, and but for such erroneous application of legal principle, the award could not have been made, such award is liable to be set aside by holding that there has been a legal misconduct on the part of the arbitrator. In ultimate analysis it is a question of delicate balancing between the permissible limit of error of law and fact and patently erroneous finding easily demonstrable from the materials on record and application of principle of law forming the basis of the award which is patently erroneous. It may be indicated here that however objectively the problem may be viewed, the subjective element inherent in the judge deciding the problem, is bound to creep in and influence the decision. By long training in the art of dispassionate analysis, such subjective element is, however, reduced to minimum. Keeping the aforesaid principle in mind, the challenge to the validity of the impugned award is to be considered with reference to judicial decisions on the subject.

In P.V. Subba Naidu and Others Vs. Government of A.P. and Others, , the Supreme Court has held as under: 6. In the case of K.R. Raveendranathan Vs. State of Kerala and Another, } this Court, relying upon the decision in Hindustan Construction Co. Ltd. Vs. State of Jammu and Kashmir, has held that the court by purporting to construe the contract cannot take upon itself the burden of saying that it was contrary to the contract and as such beyond jurisdiction. This is precisely what has been done in the present case. In the case of Sudarsan Trading Co. v. Govt. of Kerala (supra) this Court has made a distinction between error apparent on the face of the award and lack of jurisdiction. It has held that only in a speaking award can the court look into the reasoning of the arbitrator. It is not open to the court to probe the mental processes of the arbitrator, or speculate on what impelled an arbitrator to arrive at his conclusion. An award can be set aside on the ground that the arbitrator, in making it, had exceeded his jurisdiction. But by purporting to construe the contract, the court could not take upon itself the burden of saying that this was contrary to the contract and as such beyond jurisdiction. The same view has been reiterated in Hindustan Construction Co. Ltd. v. State of J&K (supra).

In that view of the matter, we find no infirmity in the order passed by the learned Single Judge. The appeal has no merit and is dismissed.