Oil Corporation Vs. Indian Carbon Ltd.  INSC 92 (6 April 1988)
Sabyasachi (J) Mukharji, Sabyasachi (J) Rangnathan, S.
1988 AIR 1340 1988 SCR (3) 426 1988 SCC (3) 36 JT 1988 (2) 212 1988 SCALE
INFO : RF 1989 SC 973 (9)
Act, 1940: Sections 30 and 33-Award of Arbitrator-Reasoned Award-What
is-Arbitration clause requiring arbitrator to give reasoned award-Whether
arbitrator required to give detailed reasons-Sufficiency of reasons depends on
facts of the case-Court not to sit in appeal over award and review reasons.
respect of sale of raw petroleum coke by petitioner to respondent there were
three agreements, providing for sale, petitioner's right to shift raw petroleum
coke at the risk and expense of the respondent in case of failure of Respondent
to shift the same as agreed, and the Respondent's liability to pay interest on
the value of stock not uplifted.
was default in payment and petitioner stopped supplies to respondent, filed a
suit and obtained an order of attachment of stocks of raw petroleum coke, to
the extent of Rs.6 crores, of the Respondent. The respondent filed an appeal as
also an application for stay of the suit under Section 34 of the Arbitration
Act. Meanwhile the petitioner terminated the agreement. Thereafter the
respondent filed a suit and the Court passed an order for restoration of
appeal by the petitioner, this Court stayed the order of restoration of
supplies, and recorded the compromise terms, pursuant to which all proceedings
were withdrawn by the parties. The petitioner's claim were referred to an
Arbitrator, who passed an interim award, according to which the petitioner was
not entitled to any interest nor any shifting charges. The petitioner
challenged the said award, when it was filed in High Court. The High Court
dismissed the petition and this special leave petition is against the High
contended before this Court that the Arbitrator has failed to give a reasoned
award and so it is bad in law.
the special leave petition, this Court, ^
1. It is obligatory in England now after the Arbitration 427 Act,
1979, that the award should give reasons. The purpose of Section 12 of the Act
requiring the tribunal to furnish a statement of reasons if requested to do so
before it gave its decision is to enable the person whose property or whose
interests were affected, to know, if the decision was against him, what the
reasons were. [435B-C] 'Law of Arbitration' by Justice R.S. Bachawat. First
Edition 1983 pp. 320 and 321, referred to.
India, there has been a trend that
reasons should be stated in the award. The reasons that are set out must be
reasons which will not only be intelligible but also deal with the substantial
points that have been raised. When the arbitration clause required the
arbitrator to give a reasoned award, the sufficiency of the reasons depend upon
the facts of the particular case. He is not bound to give detailed reasons. [435C-D]
The Court does not sit in appeal over the award and review the reasons. The
Court can set aside the award only if it is apparent from the award that there
is no evidence to support the conclusions or if the award is based upon any
legal proposition which is erroneous.[435D-E]
The award in question is unassailable. According to the Arbitrator, because of
the letter dated 18th October, 1982 of the petitioner addressed to the
Respondent stating that if the outstandings and interest are not paid, further
supplies would not be made, has been acted upon by the petitioner, which had
not delivered any coke to the respondent, or made any offer to do so, the
petitioner was not entitled to the interest in respect of the period from 18th
October, 1982 onwards, nor to shifting charges in respect of any shifting on or
after 18th October, 1982. On this reasoning, he had given the award. How the
Arbitrator has drawn inference is apparent from the reasons. No proposition was
stated in the aforesaid reasons, which could be objected to as an error of law.
The reasons given by the Arbitrator meet the requirements of a reasoned award.
It is apparent that the arbitrator has not acted irrelevantly and unreasonably.
Arbitration procedure should be quick and that quickness of the decision can
always be ensured by insisting that short intelligible indications of the
grounds should be available to find out the mind of the arbitrator for his
action. This was possible in the instant case where the arbitrator has spoken
his mind, and he is clear as to how he acted 428 and why he acted in that
manner.[434H; 435A] Champsey Bhara and Company v. Jivraj Balloo Spinning and
Weaving Company Ltd., AIR, 1923 P.C. 66; Hindustan Steelworks Construction Ltd.
v. Shri C. Rajasekhar Rao, 4 JT 1987 3 S.C. 239; Siemens Engineering and
Manufacturing Company of India Ltd. v. Union of India,  Suppl. S.C.R.
489; Rohtas Industries Ltd. and Another v. Rohtas Industries Staff Union and
others,  3 SCR 12 and Dewan Singh v. Champat Singh,  2 SCR 903,
referred to Bremer Handelsgesellschaft v. Westzucker,  2 Lloyd's Law
Reports 130, referred to.
APPELLATE JURISDICTION: Special Leave Petition (Civil) No. 4557 of 1988.
the Judgment and Order dated 21.3.88 of the Bombay High Court in Appeal No. 306
B.D. Sharma and R.P. Kapur for the Petitioner.
J. Sorabjee, Harsh Mittre, Harish N. Salve, Jeel Peres, D.N. Mishra and Mrs.
A.K. Verma for the Respondents.
Judgment of the Court was delivered by SABYASACHI MUKHARJI, J. This petition
under Article 136 of the Constitution challenges the judgment and order of the
Division Bench of the High Court of Bombay dated 21st March, 1988. The petitioner in this case on 23rd June, 1961, had agreed to sell to the predecessor of respondent raw
petroleum coke. There was a second agreement on 22nd April, 1971. The said agreement was arrived at between the parties whereunder
it was provided that in case the respondent failed to lift raw petroleum coke
as agreed, the petitioner would have right to shift raw petroleum coke at the
risk and expense of the respondent. There was a third agreement providing that
in case of delay in payment, the respondent would pay interest at 4 per cent
over the I.O.C. Bank borrowing rate, on the value of the stock not uplifted. It
appears that on 5th
August, 1982, the
respondent wrote a letter to the petitioner showing inability to pay the
arrears of the price against delivery of raw petroleum coke.
On 4th October, 1982 there was a stock of about 13,760
M.T.S. Of saleable raw petroleum coke lying at Gauhati Refinery. The petitioner
on 18th October, 1982 wrote to the 429 respondent that
unless the outstandings as on 1st September, 1982 and interest were paid, the petitioner would not make further supplies.
Thereafter the petitioner filed Suit No. 2187 of 1982 for payment and for
attachment before judgment.
On 21st December, 1982, it appears that there was an order
of attachment of stocks of raw petroleum coke to the extent of Rs.6 crores of
the respondent. The order was confirmed after notice. Respondent filed Appeal
No. 858 of 1983.
respondent on 20th ostler, 1983 filed an application for stay of the suit under
section 34 of the Arbitration Act, 1940 (hereinafter called 'the Act'). The
petitioner on 11th
July, 1983 terminated
the agreement with effect from 31.8.83. The respondent thereafter filed Suit
No. 122 of 1983 and applied for an order compelling the petitioner to make
supplies. The learned District Judge passed an order on 28th April, 1984 for restoration of supplies. On 7th May, 1984 in petitioner's appeal viz., Civil
Appeal No. 2476 of 1984, this Court stayed the above order. On 24th May, 1984 this Court's order setting aside
the order of the learned District Judge dated 28th April, 1984 and recorded the compromise terms. Pursuant to the
compromise, all proceedings were withdrawn by the parties.
11th December, 1984 matter relating to the petitioner's claims in respect of
interest on stocks held from 1st October, 1982 onwards and expenses of shifting
raw petroleum coke from 1st October, 1982 upto 31st August, 1983, were referred
to arbitration of Shri A.K. Sarkar, a former Chief Justice of India. On 21st August, 1986 an interim award was passed by the
learned arbitrator. Interim award was filed in the High Court of Bombay and the
petitioner challenged the said award. The learned single Judge of the High
Court dismissed the petition challenging the interim award. The Division Bench
of the High Court of Bombay upheld the order of the learned single Judge. Hence
this petition under Article 136 of the Constitution.
main contention urged before us was that it was necessary in the present trend
of law for the learned arbitrator to have given a reasoned award. The
Arbitration Act, 1979 in England so enjoins. The arbitrator,
according to the petitioner has failed to do so. Hence the award was bad and as
such the decision of the High Court was wrong and leave should be granted from
the said decision and the matter be referred to the Constitution Bench as
several cases are pending on this point.
learned single Judge of the High Court in his decision had observed that the
award was undoubtedly not an elaborately reasoned award setting out all the
reasons which prompted the learned arbitrator to arrive at the conclusion he
did reach, but it was a speaking 430 award. The learned Judge however, held
that it was not necessary to examine this aspect since even if it was a
speaking order, it was not bad in law. It is true that the law as it stands upto
date since the decision of Champsey Bhara and Company v. Jivraj Balloo Spinning
and Weaving Company Ltd., A.I.R. 1923 P.C. 66 that it was not necessary that
all awards should be speaking awards. See in this connection the observations
of this Court in Hindustan Steelworks Construction Ltd. v. Shri C.Rajasekhar Rao,
4 JT 1987 3 S.C. 239.
the law both in England and India was that an arbitrator's award might be set
aside for error of law appearing on the face of it, though the jurisdiction was
not lightly to be exercised. Since question of law could always be dealt with
by means of a special case this is one matter that could be taken into account
when deciding whether the jurisdiction to set aside an award on this ground
should be exercised or not. The jurisdiction was one that existed at common law
independently of statute. In order to be a ground for setting aside the award,
an error in law on the face of the award must be such that there could be found
in the award, or in any document actually incorporated with it, some legal
proposition which was the basis of the award and which was erroneous. See Halsbury's
Laws of England, 4th edition. paragraph 623, page 334. The law has undergone a
sea change in England. It is obligatory in England now after the Arbitration
Act, 979, that the award should give reasons.
instant case. the arbitrator has set out the history in the interim award. The
arbitrator has stated that the agreement dated 22nd April. 1970 provided that I.C.L..
uplift all available coke produced at the Gauhati Refinery by which name also
the Noonmati Refinery was called. the said upliftment being so regulated that
the quantity uplifted every week was equivalent to the production of coke at
the refinery in the previous week and that whereas it was thereby further
provided that the upliftment by I.C.L. shall also be as regulated that the
accumulated quantity of coke in the refinery coke yard does not fall below 2500
tons and does not exceed 4500 tons. The other history of the matter, it was
recited that the order dated 24th May, 1984 was passed by consent of the
parties by this Court that the claim of the Indian oil Corporation for interest
on stocks said to have been held in the Gauhati Refinery from 1st October, 1982
onwards and its claim for expenses of shifting the coke from 1st October, 1982 upto
3 1st August, 1983 would be referred to the arbitration of a retired Judge of
the Supreme Court mutually acceptable to the parties. Two preliminary issues,
the arbitrator framed were, namely, (1) Is the 431 claimant entitled to charge
any interest on unlifted stock of raw petroleum coke in view of its letter
dated October 18, 1982? and (2) Is the claimant entitled
to any shifting charges in view of its letter dated 18th October, 1982? The gist of the letter dated 18th October, 1982 is set out in the arbitration agreement. The arbitrator in
his award pro- to observe as follows:
whereas it is not in dispute between the parties that since the said letter of 18th October, 1982, I.O.C. had not delivered or
offered to deliver any raw petroleum coke for I.C.L.
therefore, having heard counsel for the parties and perused the documents and
statements filed by them, the despatch and receipt of none of which is
disputed, and having considered thereafter, I adjudge, hold and award as
letter dated 18th
October, 1982 is no
bar to Indian oil Corporation's claim for shifting charges and interest in
respect of the period from 1st October, 1982
to 17th October, 1982.
of the said letter which has been admittedly acted upon by the Indian oil
Corporation Ltd. which had not delivered any coke to Indian Carbon Ltd. Or made
any offer to do so the Indian oil Corporation Ltd. is not entitled to the
interest claimed in respect of the period from 18th October, 1982 onwards nor to shifting charges in respect of any shifting
done on or after 18th
The aforesaid grounds are the reasons of the arbitrator for making the award.
The award is that the Indian oil Corporation is not entitled to any interest nor
any shifting charges. The reasons for the said conclusion are the aforesaid
three factors mentioned by the arbitrator. How the arbitrator has drawn
inference is apparent from the reasons.
to be noted that this Court has been insisting on the arbitrators to give some
indications to indicate how the mind of the arbitrator acts. This Court in the
case of Siemens Engineering and Manufacturing Company of India Ltd. v. Union of
India,  Suppl. S.C.R. 489 was concerned with the decision of the
Collector of Customs. This Court observed that where an authority makes an
order 432 in exercise of a quasi-judicial function, it must record its reasons
in support of the order it makes. This Court observed further that every
quasi-judicial order must be supported by reasons.
Industries Ltd. and Another v. Rohtas Industries Staff Union and others, 
3 SCR 12 where this Court was concerned with an award under section 10A of the
Industrial Disputes Act, 1947. This Court observed that there was a need for a
speaking order where considerable numbers are affected in their substantial
rights. It was further reiterated that in such a situation a speaking order may
well be a facet of natural justice or fair procedure. In Dewan Singh v. Champat
Singh,  2 SCR 903, this Court reiterated that it was an implied term of
the arbitration agreement that the arbitrators must decide the dispute in
accordance with the ordinary law and they cannot decide disputes on the basis
of their personal knowledge. The proceedings, it was held, before the
arbitrators were quasi- judicial proceedings and they must be conducted in
accordance with the principles of natural justice. It was, therefore, obligatory
to give reasons. As mentioned hereinbefore there has been since then trend that
reasons should be stated in the award and the question whether the reasons are
necessary in ordinary arbitration agreement between the parties has been
referred to the Constituion Bench.
this case, however, we are in agreement with the High Court of Bombay that
reasons were stated in the award.
have set out hereinbefore the three grounds, namely, (1) The letter dated 18th
October, 1982 is no bar to Indian oil Corporation's claim for shifting charges
and interest in respect of the period from 1st October, 1982 to 17th October,
1982. (2) The inference drawn from the contents of the letter and (3) Because
of the said letter which has admittedly been acted upon by the Indian oil
Corporation Ltd., and which had not delivered any coke to the Indian Carbon
Ltd. Or made any offer to do so. For these reasons, the arbitrator held that
the Indian oil Corporation Ltd., is not entitled to interest claimed in respect
of the period from 18th October, 1982 onwards nor to shifting charges from 18th
October, 1982. These are the reasons for giving the award. No error of law was
pointed out in those reasons.
no proposition of law was stated in the aforesaid reasons, which could be
objected to as an error of law.
was, however, no error of fact. It was a possible view to take. It could not be
urged that it was an impossible view to take. The arbitrator has made his mind
known on the basis of which he has acted that, in our opinion, is sufficient to
meet the requirements even if it be reasons should be stated in the award. It
is one thing to say that 433 reasons should be stated and another thing to
state that a detailed judgment to be given in support of an award. Even if it
be held that it is obligatory to state the reasons, it is not obligatory to
give a detailed judgment. This question was considered by the Court of Appeal
in England in Bremer Handelsgesellschaft v. Westzucker,
 2 Lloyd's Law Reports 130. There Lord Donaldson speaking for the court
at pages 132 and 133 of the report observed as follows:
is of the greatest importance that trade arbitrators working under the 1979 Act
should realize that their whole approach should now be different. At the end of
the hearing they will be in a position to give a decision and the reasons for
that decision. They should do so at the earliest possible moment. The parties
will have made their submissions as to what actually happened and what is the
result in terms of their respective rights and liabilities. All this will be
fresh in the arbitrators' minds and there will be no need for further written
submission by the parties. No particular form of award is required.
no one wants a formal "Special Case".
is necessary is that the arbitrators should set out what, on their view of the
evidence, did or did not happen and should explain succinctly why, in the light
of what happened, they have reached their decision and what that decision is.
This is all that is meant by a "reasoned award".
example, it may be convenient to begin by explaining briefly how the
arbitration came about- "X sold to Y 200 tons of soyabean meal on the
terms of GAFTA Contract 100 at US. $Z per ton c.i.f. Bremen. X claimed damages for non-delivery
and we were appointed arbitrators". The award could then briefly tell the
factual story as the arbitrators saw it. Much would be common ground and would
need no elaboration. But when the award comes to matters in controversy, it would
be helpful if the arbitrators not only gave their view of what occurred, but
also made it clear that they have considered any alternative version and have
rejected it, e.g., "The shippers claimed that they shipped 100 tons at the
end of June. We are not satisified that this is so", or as the case may
be. "We are satisfied that this was not the case". The arbitrators
should end with their conclusion as to the resulting rights and liabilities of
the parties. There is nothing about 434 this which is remotely technical,
difficult or time consuming.
sometimes said that this involves arbitrators in delivering judgments and that
this is something which requires legal skills. This is something of a half
truth. Much of the art of giving a judgment lies in telling a story logically,
coherently and accurately. This is something which requires skill, but it is
not a legal skill and it is not necessarily advanced by legal training. It is
certainly a judicial skill, but arbitrators for this purpose are Judges and will
have no difficulty in acquiring it. Where a 1979 Act award differs from a
judgment is in the fact that the arbitrators will not be expected to analyse
the law and the authorities. It will be quite sufficient that they should
explain how they reached their conclusion, e.g., "We regarded the conduct
of the buyers, as we have described it, as constituting a repudiation of their
obligations under the contract and the subsequent conduct of the sellers, also
as described, as amounting to an acceptance of that repudiatory conduct putting
an end to the contract". It can be left to others to argue that this is
wrong in law and to a professional Judge, if leave to appeal is given, to analyse
the authorities. This is not to say that where arbitrators are content to set
out their reasoning on questions of law in the same way as Judges, this will be
unwelcome to the Courts. Far from it. The point which I am seeking to make is
that a reasoned award, in accordance with the 1979 Act, is wholly different
from an award in the form of a special case. It is not technical, it is not
difficult to draw and above all it is something which can and should be
produced promptly and quickly at the conclusion of the hearing. That is the
time when it is easiest to produce an award with all the issues in mind."
See the observations in Russel on Arbitration, 20th Edn., page 291 Reasons for
the Award and the decision referred to therein. " In a case of this
nature, issues are simple, points are fresh and facts are clear, the reasons
given by the arbitrator, in our opinion, meet the requirements of a reasoned
award. It is apparent that the arbitrator has not acted irrelevantly or
unreasonably. Arbitration procedure should be quick and that quickness of the
decision can always be ensured by insisting that short intelligible indications
of the grounds 435 should be available to find out the mind of the arbitrator
for his action. This was possible in the instant case. In the instant case the
arbitrator has spoken his mind, and he is clear as to how he acted and why he
acted in that manner.
purpose of section 12 of the English Tribunal and Inquiries Act which required
the statutory tribunal to furnish a statement of the reasons if requested to do
so before it gave its decision was to enable a person whose property or whose
interests were affected to know if the decision was against him what the
reasons were. Justice R.S. Bachawat in his Law of Arbitration, First Edition
1983, pages 320 and 321 states that the provision was read as meaning that proper
and adequate reasons must be given. The reasons that are set out must be
reasons which will not only be intelligible but also deal with the substantial
points that have been raised. When the arbitration clause required the
arbitrator to give a reasoned award and the arbitrator does give his reasons in
the award, the sufficiency of the reasons depend upon the facts of the
particular case. He is not bound to give detailed reasons. The Court does not
sit in appeal over the award and review the reasons. The Court can set aside
the award only if it is apparent from the award that there is no evidence to
support the conclusions or if the award is based upon any legal proposition
which is erroneous.
in that light, the award in question was unassailable in the instant case.
aforesaid view of the matter, we are of the opinion that the High Court was
right in the view it took.
special leave petition fails and is accordingly dismissed.