State of M.P. vs International Construction Company, Engineers and Contractors

K.K. Lahoti, J.

This is an appeal u/s 39 of the Arbitration Act, 1940 by the defendant challenging the judgment and decree dated 16.9.1987 passed in Civil Suit No. l-B of 1985 by which the District Judge, Hoshangabad refused to set aside the award passed by the arbitrator though modified the award insofar as it relates to interest by reducing it to 6% from 12% per annum.

The State challenged the judgment and decree passed by the District Judge and the award passed by the arbitrator on the following grounds:

(i) That the award is non-speaking award and the arbitrator committed an error in not passing a speaking award.

(ii) The Court below erred in not considering the fact that the award which was without reasons and discussions of evidence ought to have been set aside by the Court.

Learned counsel appearing for the respondent supported the award and submitted-

(i) That as per order of reference, it was not necessary to the arbitrator to pass a reasoned award, until and unless directed to do so.

(ii) That when no reasons have been assigned in award, then it was not necessary on the part of the Court to consider the case on merits and to set aside the award.

To appreciate the rival contention of the parties, it will be appropriate to refer facts of the case.

(a) That, the Superintending Engineer, Tawa Right Bank Canal Division invited tenders for the construction of exit channel for Tawa Right Bank Canal Tunnel on 3.7.1974 and respondent submitted a tender for Rs. 1,24,46,000/- which was accepted. An agreement was entered between the parties. Thereafter, a work order was issued on 17.9.1974. The contract between the parties provided settlement of disputes and differences out of or under the contract through arbitration.

(b) There were certain disputes and differences between the parties and were referred to the Superintending Engineer concerned, according to para 3.3.29 of the agreement. The Superintending Engineer rejected the claim of the respondent. Thereafter, respondent filed an application before the District Judge, Hoshangabad u/s 20 of the Arbitration Act, 1940 (hereinafter referred to as the ''Act'') seeking direction against the State to file arbitration agreement and for appointment of an arbitrator. The appellant submitted a panel of 3 names for the appointment of the arbitrator out of which respondent/ plaintiff gave its consent for the appointment of Shri V.M. Chitale, Retired Secretary of Irrigation Department. The District Judge, Hoshangabad on 29.1.1985 appointed Shri V.M. Chitale as sole arbitrator and referred the dispute consisting 13 claims raised by the respondent for adjudication with a direction to submit an award within a period of four months.

(c) That, within a period of 4 months, proceedings could not be completed and extension of time was sought from the Court, which was extended from time to time at the request of the arbitrator and within extended period arbitrator had passed award dated 20.7.1986 and filed in the Court on 28.7.1986. The Court on filing of the award issued notices to both the parties alongwith copy of the award and intimated them to file objection, if any.

(d) Respondent/ plaintiff had not filed any objection while appellant preferred an objection u/s 30 of the Arbitration Act on 26.08.1986. Respondent filed reply of the objection and thereafter, the District Judge by the impugned order decided the objection and sustained the objection of the appellant in so far as it relates to award of interest @ 12% per annum by the arbitrator from the date of award dt. 20.7.1986 till the date of payment, by reducing it to 6% per annum from the date of award till date of realization, and remaining objections were turned down.

Before appreciating the contention of the parties, it will also be profitable to refer award passed by the arbitrator. Before the arbitrator, various claims were preferred. The arbitrator allowed the claims of the respondents in respect of the following disputes:

Claim

Amount awarded by the arbitrator

Claim 1(A) (i)-

For amount payable due

to delays in payment of bills - Rs. 48,883/-

Rs. 33,017/-

Claim3(A)-

For amount payable towards losses-sustained for labour that could not be effectively utilized due to the defaults of the department - Rs. 16,09,218/-

Rs. 15,51,010/-

Claim5(A)-

For amount payable towards the extra expenditure incurred by contractor due to increased cost - Rs. 27,00,000/-

Rs. 10,93,008 -

Claim no.6(A)-

Amount payable towards the extra expenditure incurred for the removal of silt and slush accumulated in exit channel Rs. 11,07,303/-

Rs. 4,14,357/-

Claim No. 9(A)-

For amount payable for the extra expenditure incurred due to change of design and delay in issue of working drawings Rs. 19,97,187/-

Rs. 17,13,436/-

Claim 11(1 & 2)-

For amount payable towards losses sustained due to wrongful withholding of amounts - Rs. 5,784/-

Rs. 3,822/-

Total

Rs. 48,08,650/-

On the aforesaid amount, arbitrator awarded interest @ 12% per annum from flic date of award i.e. 20.7.1986 to the date of payment or decree by the Court whichever is earlier.

The arbitrator rejected the rest of the claims of the respondent which are referred in the award as claimed: 1A (ii), 1 A(iii), 1(B), 2(A), 2(B), 3(B), 4(A), 4(B), 5(B), 6(A), 7(A), 7(B), 8(A), 8(B), 9(B), 10(A), 10(B), 12(A), 12(B) and 13.

From the perusal of the award passed by the Arbitrator, it is apparent that the award is unreasoned award and has been passed on each count referring the heads of dispute.

The order of reference by the Court reads thus-

Form No. 2

Civil Suit No.l-B of 1984 International Construction Company, Engineers and Constructors, represented by its Managing Partner Shri P. Venkateshwara Babu, Chinaogirala, Krishna District (Andhra Pradesh)... Plaintiff Versus State of Madhya Pradesh Through Collector, Hoshangabad. Upon reading the application presented on the 17th day of January, 1984, it is ordered that the following matter in difference arising in this suit, namely:

Claim Nos. I to XIII enclosed with Letter No. ICK/SDCC/99/151, dated 31.12.1981 Be referred for determination to Shri V.M. Chitale, Retired Irrigation Secretary, Near Bus Stop-10, Behind Old Compion School, Arera Colony, Bhopal, who is hereby appointed as arbitrator and such arbitrator is to make his award in writing within 4 months from the date of receipt of this Order of reference. Liberty to apply. Given under my hand and the seal of the Court this 29th day of January, 1985.

Encl: Claim with letter

Sheets 1 to 16

Sd/-(29.1.85) (S.P. Shrivastava)

District Judge, Hoshangabad

From the perusal of the order of reference, it is apparent that the order of reference does not say that he arbitrator has to pass a reasoned award or reasons are required in the award. Arbitration clause in the agreement reads thus-

3.3.29 Clause 29 Decision of Superintending Engineer, to be final except where otherwise specified in the contract.

The decision of the Superintending Engineer of the Circle for the time being in respect of all questions and disputes relating to the meaning of the specification, designs, drawings and instructions herein force mentioned and as a quality of workman ship or material used on the work or as to any other question, claim, right, matter or thing whatsoever, in any way arising out of or relating to the contract, designs, drawings, specifications, estimates, instructions, orders, or those conditions or other wise concerning the work or execution of failure to execute the same, whether arising during the progress of the work or after the completion abandonment or thereof, shall be final.

Provided that if any party to the contract is dissatisfied with the final decision of the Superintending Engineer, in respect of any matter, he may, within 28 days after receiving notice of such decision, give notice in writing to the Superintending Engineer, requiring that the matter may be referred to arbitration and furnishing detailed particulars of the dispute or difference and specifying clearly the point at issue. If any party fails to give such notice within the period of 28 days as stipulated above; the decision of the Superintending Engineer already given shall be conclusive, final and binding on the parties.]

In case an arbitration is to be held, it shall be effected by an arbitrator to be appointed by the State Government out of panel of three names suggested by the State Government to the contractor, who shall give his concurrence within a period of one month from the date of communication. In case the contractor does not communicate his concurrence, the State Government shall appoint an arbitrator whose decision shall be conclusive, final and binding on the parties.

If the work under the contract has not been completed, when a dispute is referred to arbitration, work shall continue during the arbitration proceedings if it is reasonably possible and no payment due to the contractor should be withheld on account of arbitration proceedings unless it is required by the arbitrator." Aforesaid arbitration clause also does not provide any reasoned award. Now legal position in this regard may be seen.

Recently, in Rajendra Construction Company Vs. Maharashtra Housing and Area Development Authority and Others, , the Apex Court following its earlier various judgments held thus-

Having given anxious and thoughtful consideration to the rival contentions of the parties, in our opinion, the appeals deserve to be allowed partly. The main question, according to us, is as to whether the sole Arbitrator was required to record reasons in support of the awards made by him. If that was the duty on the part of the Arbitrator, the contention of MHADA must be upheld by holding that the order passed by the High Court was in accordance with law and no fault can be found against the decision. If, on the other hand, there was no such requirement of law and Arbitrator was not bound to record reasons in support of the awards, they could not have been set aside ''merely'' on the ground of non-recording of reasons and the High Court ought no to have interfered with the said awards and set them aside reversing the judgment and order passed by the trial Court.

The learned counsel for RCC drew our attention to the relevant case law on the point. We would refer to only few of them. Raipur Development Authority Vs. M/s. Chokhamal Contractors etc. etc., is indeed the leading decision of this Court on the point. A Constitution Bench of this Court was called upon to consider an identical issue which has been raised before us, i.e. whether an award passed under the (old) Act was liable to be set aside u/s 30 or to be remitted u/s 16 of the Act "merely" on the ground that no reasons had been recorded by the Arbitrator in support of the award.

After considering the relevant provisions of law, legal position in England, America and Australia and after referring to leading decisions on the point, this Court held that an award passed under the (old) Act was not liable to be set aside or remitted only on the ground that no reasons had been recorded in support of such award. The Court also referred to the Hand Book of Arbitration Practice by Ronald Bernstein wherein it was stated.''

The absence of reasons does no invalidate an award. In many arbitrations the parties want a speedy decision from a tribunal whose standing and integrity they respect, and they are 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.

(emphasis supplied)

The Court then proceeded to state (SCC p.736, para 19)

It is now well settled that an award can neither be remitted nor set aside merely on the ground that it is not contain reasons in support of the conclusion or decisions reached in it except where the arbitration agreement or the deed of submission requires him to give reasons. The arbitrator or umpire is under no obligation to give reasons in support of the decision reached by him unless under the arbitration agreement or in the deed of submission he is required to give such reasons and if the arbitrator or umpire chooses to give reasons in support of his decision it is open to the court to set aside the award if it finds that an error of law has been committed by the arbitrator or umpire on the face of the record on going through such reasons. The arbitrator or umpire shall have to give reasons also where the court has directed in any order such as the one made u/s 20 or Section 21 or Section 34 of the Act that reasons should be given or where the statute which governs an arbitration requires him to do so.

In the opinion of this Court, it could not be disputed that in India, it has been ''firmly established'' that it was not obligatory on the Arbitrator or Umpire to record reasons in support of the award when "neither any arbitration agreement nor any deed of submission" required reasons to be recorded. In that case also, it was urged, as has been done in the instant case, that if no reasons are disclosed by the Arbitrator, it would not be possible for the court to find out whether the award passed is in accordance with law. The Court, however, negatived the contention observing that if the parties wanted reasons to be recorded in support of the award to be passed by Arbitrator or Umpire it was open to them to make a provision in the agreement/contract itself to that effect. But in the absence of any stipulation in the contract, the court could not say that Arbitrator was duty bound to record reasons and if reasons are not recorded in support of the award, the award was vulnerable and liable to be set aside or should be remitted to the Arbitrator. According to this Court, such as an order would amount to virtually introducing by judicial verdict an amendment to the Act. No doubt, if the reasons are recorded by the Arbitrator or Umpire in support of the award, they can be considered by the court and if those reasons disclose an error apparent on the face of the record, the award can be set aside by a competent court of law. But in the absence of such requirement under the agreement itself, the party could not insist for reasons in support of the award nor a court of law can interfere with non speaking award.

It was, however, urged that recording of reasons in support of the order is part and parcel of ''natural justice'' and on that count also, unreasoned award should be treated as null and void and ineffective. We are unable to uphold the argument. A similar contention was raised in Chokhamal and negatived by this Court observing that the said doctrine applies to Administrative Law field. In the decisions pertaining to Administrative Law, this Court has always insisted for recording of reasons in support of the order or decision. The Court observed that it would apply to "public law" field and not to "private law" field like Arbitration agreement.

The Court stated: (SCC pp.751 -52, para 35)

it is no doubt true that in the decisions pertaining to Administrative Law, this Court in some cases has observed that the giving of reasons in an administrative decision is 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 not 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 an 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.

(emphasis supplied)

This Court note that a consistent view has been taken by all courts that an award was not liable to be set aside merely because reasons were not given except where the arbitration agreement or the deed of submission or an order made by the court under Sections 20. 21 or 34 of the Act of the statute governing the arbitration required the Arbitrator or Umpire to give reasons for the award.

In our opinion, the ratio in Chokhamal applies to the case on hand. The law laid down in that case has been reiterated by this Court in many cases. [See Tamil Nadu Electricity Board Vs. M/s. Bridge Tunnel Constructions and others, , M/s. Kundale and Associates Vs. M/s. Konkan Hotels (P) Ltd., , Build India Construction System Vs. Union of India (UOI), ].

In T.N. Electricity Board, this Court considered the old Act as well as new Act and Particularly sub-section (3) of Section 31 of the new Act which provides for recording of reasons by Arbitrator in support of the award (a) the parties have agreed that no reasons are to be given, or (b) the award is an arbitral award on agreed terms u/s 30. The Court noted that Parliament had expressed the legislative judgment that the award must state reasons upon which it is passed unless the parties have agreed otherwise or the award is on agreed terms.

The present awards are not under the new Act but under the old Act. It is, therefore, obvious that they could not have been set aside by the High Court on the ground that they were not supported by reasons and were not speaking awards.

The Apex Court in Rajasthan State Mines and Minerals Limited Vs. Eastern Engineering Enterprises and Another, , Karam Singh Lai Vs. Union of India 2002 Arb. WLJ 377, Pure Helium India Pvt. Ltd. Vs. Oil and Natural Gas Commission, and D.D. Sharma Vs. Union oflndia 2004 Arb. WLJ 449 has taken the similar view.

As per settled law by the Apex Court where the award is non-speaking award, interference of the Court is not permissible until and unless the award is beyond jurisdiction of the arbitrator. The jurisdiction of the Court for interference is limited. Only when the arbitrator acts beyond his jurisdiction, the award can be set aside. The Court cannot speculate where no reasons are given by arbitrator as to what impelled to the arbitrator to arrive at his conclusions. It is not open to the Court to probe the mental process by which the arbitrator has reached his conclusion, where it is not disclosed by the terms of the award. If the arbitrator has committed mere error of fact or law in reaching his conclusion on the disputed question submitted for adjudication, then the Court cannot interfere. In the present case when the order of reference or arbitration clause does not provide for a reasoned award then arbitrator was not expected to pass a reasoned award and if award is a non-speaking order, then merely on this ground the Court cannot interfere in this appeal. The only question which has been agitated before this Court has no substance and this appeal being devoid of merit is dismissed with no order as to costs.