Union Of India vs Pradeep Kumar Jain

Sanjay Yadav, J.—Heard.

Order-dated 9.3.2010 passed by Sixth Additional District Judge, Bhopal in Arbitration Case No. 37/07, is being assailed vide this appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (for short ''the Act'').

Vide impugned order, an objection under Section 34 of the Act against Award dated 10.4.2007 has been negatived.

Dispute pertaining to Contract Agreement No. BPL/W/A/Q/ 2003-04/7 relating to grinding, polishing of kota stone on Platform No. 1 at Bhopal Railway Station was referred to sole Arbitrator Shri Ashok Kumar, Deputy Chief Engineer (HQ).

Whereas, claimant furnished his statement of claims. The respondent (present appellant), despite of repeated opportunities did not file its defence. On the basis of pleadings, the Arbitrator while dwelling on five claims namely-

(i) Work done but not paid from 1.10.2003.

(ii) Non payment of Security Deposit and FDR

(iii) Pendente lite interest @ 10% per annum

(iv) Cost of reference to arbitration

(v) Business loss of turnover for non-awarding other work per year

-passed an Award of Rs.1,51,500/- along with interest @ 12% per annum.

Appellant-Union of India and its functionaries raised an objection under Section 34 of the Act that the Award being not a reasoned award, is liable to be set aside. The trial Court declined to interfere vide impugned order which is now being challenged on the self-same ground that the Arbitration has failed to assign reason for passing the award as to the claims by the contractor.

Relying on sub-section (3) of Section 31 of the Act, it is contended by learned counsel for the appellant that it being obligatory on the Arbitrator to assign reason in support of the conclusion drawn and since the Arbitrator has failed to assign reasons, the Award is liable to be set aside. Reliance is placed on the decision in Tamil Nadu Electricity Board Vs. M/s. Bridge Tunnel Constructions and others, ; M/s. Gora Lal v. Union of India AIR 2004 SC 4956 and Anand Brothers P. Ltd. Vs. Union of India (UOI), in support of the contentions.

Considered the submissions.

Sub-section (3) of Section 31 of the Act envisages:

(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 agreed terms under Section 30.

In Union of India (UOI) Vs. Mohan Lal Capoor and Others, , it has been held-

28.... Reasons are the links ''between the materials on which certain conclusions are based and the actual conclusions. They disclose how the mind is applied to the subject matter for a decision whether it is purely administrative or quasi-judicial. They should reveal a rational nexus between the facts considered and the conclusions reached. -Only in this way can opinions or decisions recorded be shown to be manifestly just and reasonable. We think that it is not enough to say that preference should be given because a certain kind of process was gone through by the Selection Committee.. 11. As regard to the duty cast on the Arbitrator to assign reasons, following decisions by Supreme Court can be noted - In T.N. Electricity Board (supra), it was held -

Thus, the law on the award, as governed by the new Act, is other way about of the pre-existing law; it mandates that the award should state the reasons upon which it is based. In other words, unless (a) the parties have agreed that no reasons are to be given or (b) the award is an arbitral award on agreed terms under Section 30 of the new Act, the award should state the reasons in support of determination of the liability/non-liability. Thereby, legislature has not accepted the ratio of the Constitution Bench in the Chokhamal Contractor''s case that the award, being in the private law field, need not be a speaking award even where the award relates to the contract of private parties or between person and the Government or public sector undertakings. The principle is the same, namely the award is governed by Section 31(3). 12. In M/s. Gora Lal (supra) it is held:

The point for determination in this case is : Whether the Arbitrator ought to have given reasons in support of his findings, along with the sum awarded, on each item of dispute. To decide this point, we have to go by the text and the context of Clause 70 of the arbitration agreement quoted above. Under the said Clause, the Arbitrator was required to identify each individual item of dispute and give his findings thereon along with the sum awarded. In this context, one has to read the word "findings" with the expression "on each item of dispute" and if so read it is clear that the word "finding" denotes "reasons" in support of the said conclusion on each item of dispute. The word "finding" has been defined in ''Words and Phrases''. Permanent Edition 17, West Publishing Co.'' to mean "an ascertainment of facts and the result of investigations... 13. In Anand Brothers Private Limited (supra), it is held-

Reference may also be made to The Arbitration and Conciliation Act, 1996 which has repealed the Arbitration Act of 1940 and which seeks to achieve the twin objectives of obliging the Arbitral Tribunal to give reasons for its arbitral award and reducing the supervisory role of Courts in arbitration proceedings. Section 31(3) of the said Act obliges the arbitral tribunal to state the reasons upon which it is based unless the parties have agreed that no reasons be given or the arbitral award is based on consent of the parties. There is, therefore, a paradigm shift in the legal position under the new Act which prescribes a uniform requirement for the arbitrators to give reasons except in the two situations mentioned above. The change in the legal approach towards arbitration as an Alternative Dispute Resolution Mechanism is perceptible both in regard to the requirement of giving reasons and the scope of interference by the Court with arbitral awards. While in regard to requirement of giving reasons the law has brought in dimensions not found under the old Act, the scope of interference appears to be shrinking in its amplitude, no matter judicial pronouncements at time appear to be heading towards a more expansive approach, that may appear to some to be opening up areas for judicial review on newer grounds falling under the caption "public policy" appearing in Section 34 of the Act. We are referring to these developments for it is one of the well known canons of interpretation of statues that when an earlier enactment is truly ambiguous in that it is equally open to diverse meanings, the later enactment may in certain circumstances serve as the parliamentary exposition of the former. (See: Ram Kishan Ram Nath v. Janpad Sabha AIR 1962 SC 1073 and Ghanshyam Dass and Others Vs. Dominion of India and Others, .

It is trite that a finding can be both; a finding of fact or a finding of law. It may even be a finding on a mixed question of law and fact. In the case of a finding on a legal issue the Arbitrator may on facts that are proved or admitted explore his options and lay bare the process by which he arrives at any such finding. It is only when the conclusion is supported by reasons on which it is based that one can logically describe the process as tantamount to recording a finding. It is immaterial whether the reasons given in support of the conclusion are sound or erroneous. That is because a conclusion supported by reasons would constitute a "finding" no matter the conclusion or the reasons in support of the same may themselves be erroneous on facts or in law. It may then be an erroneous finding but it would nonetheless be a finding. What is important is that a finding presupposes application of mind. Application of mind is best demonstrated by disclosure of the mind; mind in turn is best disclosed by recording reasons. That is the soul of every adjudicatory process which affects the rights of the parties. This is true also in the case of a finding of fact where too the process of reasoning must be disclosed in order that it is accepted as a finding in the sense the expression is used in Clause 70.

Thus, imperative it is for the Arbitrator to give reasons.

In the case at hand, evidently, the Arbitrator has only recorded the conclusion.

As to the claims, the Arbitrator has recorded -

6.1 Work done but not paid from 01.10.03 Amount claimed - Rs. 70,000/-

As per the aforementioned claim, Claimant executed the work valued of Rs.70,000/-. In support of above, claimant has filed only his statement of claims without any supporting documents. Respondent did not submit statement of defence against above despite Tribunal''s direction vide letter of even no. dated 21.9.2005, 2.6.2006, 15.6.2006, 29.6.2006, 14.7.2006, 14.7.2006, 17.8.2006, 13.9.2006, 27.9.2006. In this regard claimant requested Tribunal to call for Site Order Book/Progress Register/M.B. From respondent and which were directed by Tribunal to respondent to submit vide letter of even No. dated 18.04.2006, 17.08.2006, 13.09.2006, 27.09.2006. However, respondent neither submitted above nor appeared in hearings except on 02.06.06 and 27.09.06. Therefore, on account of failure of Respondent in defending above, full amount of Rs. 70,000/- is awarded to Claimant against the claim.

6.2 Non payment of SD and FDR - amount claimed Rs. 9,000/-.

Since work has already been completed by claimant in all respect, therefore, contractor is entitled for payment of Security deposit and Earnest Money. As no more detail of Security deposit and FDR is furnished by the claimant during hearings, as such Tribunal directs to Respondent for payment of Rs. 9,000/- towards SD and FDR so deposited, to Claimant.

6.3 Pendente lite interest @ 18% P.A.

Claimant has requested to award interest @ 18% over the amount awarded under claim no. 6.1, 6.2 and 6.5 from 01.10.2003 to date of actual payment by Respondent. As per contract condition, no interest is payable on delayed payment and hence Tribunal finds no reason to award the interest which is in conformity to the recent Judgment passed by Hon''ble Apex Court.

6.4 Cost of reference to Arbitration - amount claimed Rs.1,00,000/-

The dispute arose on account of non-payment of work executed by claimant as per Para 6.1, for which Tribunal having satisfied has directed respondent to pay Rs.70,000/- to claimant. To get his dues, claimant had approached at various levels to Railway Administration and to Hon''ble Court for appointment of arbitrator and to get dispute resolved for which claimant deserved to be compensated suitably. Considering material facts, Tribunal directs to pay Rs. 60,000 lump sum towards legal charges, expenses in lodging, boarding, transport etc. Further Respondent did not deposit the fee for this Arbitration case, therefore amount of Rs. 2,500/- towards fee has been taken from claimant. This amount has been added for payment to the claimant by Respondent. The total amount payable against this claim comes to Rs. (60,000+2,500) i.e. Rs. 62,500/-, which Tribunal directs to be paid to Claimant by Respondent.

6.5 Business loss of Turn over for non awarding of other work per year Rs. 50,000/-.

Claimant failed to put any material record in support of his claim, however business loss approximately at the rate of 10% per annum on amount due to be paid is considered justified and hence Rs. 10,000/- is awarded to claimant.

Evident it is from the conclusions drawn by the Arbitrator that despite of acknowledging the fact that the claimant has not filed any document in support of his claim yet, the Arbitrator went on to compensate the contractor.

In respect of claim as to business loss of turnover for non-awarding other work per year, despite of recording a finding that claimant failed to put any material record in support of his claim, the Arbitrator went on to award Rs.10,000/- to the claimant.

Similarly, in respect of cost of reference to arbitration, the Arbitrator has awarded a sum on the basis of assumptions and presumptions based on the findings in respect of claim no. (i). Thus, apparent it is that no reason has been ascribed by the

Arbitrator to arrive at conclusion of entitlement of claimant for the claim as sought.

The award, therefore, does not stand the scrutiny on the touchstone of sub-section (3) of Section 31 of the Act and the principle of law culled out from the judicial pronouncements. It being not sustainable is, accordingly, set aside. Necessary corollary being that the impugned order-dated 9.3.2010 is also set aside.

Taking into consideration the stipulation as envisaged in sub-section (4) of Section 34 of the Act, which provides -

(4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award.

(Emphasis supplied)

The matter is relegated to the Arbitrator to pass reasoned Award within thirty days from the date of communication of this order.

Appeal is allowed to the extent above. No costs.