Raipur Development Authority Vs. Chokhamal
Contractors [1989] INSC 178 (4 May 1989)
Venkataramiah,
E.S. (J) Venkataramiah, E.S. (J) Pathak, R.S. (Cj) Misra Rangnath Venkatachalliah,
M.N. (J) Ojha, N.D. (J)
CITATION:
1990 AIR 1426 1989 SCR (3) 144 1989 SCC (2) 721 JT 1989 (2) 285 1989 SCALE
(1)1279
CITATOR
INFO : RF 1990 SC1984 (33) D 1991 SC 945 (6) F 1992 SC 732 (2)
ACT:
Arbitration
Act, 1940: Sections 16(1)(c), 20, 21 and 30(c), 32--Award--Whether liable to be
set aside on ground that no reasons have been given--Necessity to give reasons
where statute or Court orders.
Government
Contracts: Government and their instrumentalities--Should as matter of policy
and public interest--Ensure that arbitration clause provides for speaking
awards by arbitrators.
Administrative
Law: Natural justice--Principles of--Furnishing reasons in support of
decision--Not applicable to cases arising under the law of arbitration which is
intended for settlement of private disputes.
Practice
And Procedure: Courts should be slow in taking decisions which will have effect
of shaking rights/titles which have been rounded on particular interpretation
of law.
HEAD NOTE:
The
common question arising in the instant cases which was referred to this larger
Bench is whether an award passed under the provisions of the Arbitration Act,
1940 is liable either to be remitted under section 16(1)(c) of the Act or
liable to be set aside under section 30(c) thereof merely on the ground that no
reasons have been given by the arbitrator or umpire, as the case may be, in
support of the award.
It was
urged that
(i)
subsequent to 1976 there has been a qualitative change in the law of
arbitration and that it has become necessary to insist upon the arbitrator or
the umpire to give reasons in support of the award passed by him unless the
parties to the dispute have agreed that no reasons need be given by the
arbitrator or umpire for his decision;
(ii)
since under section 16(1)(c) of the Act the legality of an award can be
questioned in Court on the basis of an error apparent on the face of an award,
the only way of ensuring that an award is in accordance with law is by
insisting upon the arbitrator or umpire to give reasons for the award and
(iii) an
arbitrator or an umpire discharges a judicial function while functioning as an
arbitrator or an umpire under the Act, and, therefore, is under an obligation
to observe rules of natural justice while discharging his duties,
(iv)
that the concept of natural justice had undergone a great deal of change in
recent years, and the requirement of giving 145 reasons for a decision should
be treated as a new rule of natural justice.
While
answering the question in the negative and remitting the cases to the Division
Bench for disposal in accordance with law, this Court,
HELD:
(1) 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. [161C-D] (2) The arbitrator or umpire shall have to give
reasons also where the court has directed in any order such as the one made
under section 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.
[161D-E]
(1) University of New South Wales v. Max Cooper & Sons Pty. Ltd. 35 Australian Law
Reports p. 219;
(2) Hodgkinson
v. Fernie & Anr., [1857] 3 C.B. (N.S.) 189=140 English Reports p. 712;
(3) Champsey
Bhara & Company v. Jivraj Balloo Spinning and Weaving Company Ltd., A.I.R.
1923 Privy Council 66,
(4);
Seth Thawardas Pherumal v. The Union of India, [1955] 2 S.C.R. 48
(5) Jivarajbhai
Ujamshi Sheth & Ors. v. Chintamanrao Balaji & Ors., [1964] 5 SCR 480
(6) Bungo
Steel Furniture Pvt. Ltd. v. Union of India, [1967] 1 SCR 633,
(7)
State of Rajasthan v. M/s. R.S. Sharma & Co.,
[1988] 4 SCC 353, referred to.
(3)
The people in India as in other parts of the world such
as England, U.S.A. and Australia have become accustomed to the
system of settlement of disputes by private arbitration and have accepted
awards made against them as binding even though no reasons have been given in
support of the awards for a long time. They have attached more importance to
the element of finality of the awards than their legality. [178D]
(4)
Courts should be slow in taking decisions which will have the effect of shaking
rights and titles which have been rounded through a long time upon the
conviction that a particular interpretation of law is the legal and proper one
and is one which will not be departed from. [179C-D] Brownsea Havel Properties
v. Pooje Corporation, [1958] Ch. 74 (C.A.), referred to. 146
(5)
Even after the passing of the English Arbitration Act, 1979 unless a court
requires the arbitrator to give reasons for the award, an award is not liable
to be set aside merely on the ground that no reasons have been given in support
of it. [180A-B]
(6)
The foundation of any arbitration proceeding is the existence of an arbitration
agreement between the persons who are parties to the dispute. It is not as if
people are without any remedy at all in cases where they find that it is in
their interest to require the arbitrator to give reasons for the award. In
cases where reasons are required, it is open to the parties to the dispute to
introduce a term either in the arbitration agreement or in the deed of
submission requiring the arbitrators to give reasons in support of the award.
But there may be many transactions in which parties to the dispute may not relish
the disclosure of the reasons for the award. [151 E] Firm Madanlal Roshanlal Mahajan
v. Hukumchand Mills Ltd. lndore, [1967] 1 S.C.R. 105; N. Chelapan v. Secretary,
Kerala State Electricity Board & Anr., [1975] 2 S.C.R. 811, referred to.
(7)
The two well recognised principles of natural justice are (i) that a Judge or
an arbitrator who is entrusted with the duty to decide a dispute should be
disinterested and unbiased (nemo judex in cause sua); and (ii) that the parties
to dispute should be given adequate notice and opportunity to be heard by the
authority (audi alteram partem). Giving reasons in support of a decision was
not considered to be a rule of natural justice either under the law of
arbitration or under administrative law. [171C]
(10) Payyavula
Vengamma v. Payyavule Kasanna & Ors., [1953] S.C.R. 119;
(11) Harvey v. Shelton, [1844] 7 Bear. 455 at p. 462;
(12) Haigh
v. Haigh. [1861] 31 L.J. Ch. 420;
(13) Som
Datt Datta v. Union of India & Ors., [1969] 2
S.C.R. 177;
(14) Bhagat
Payyavula v. The Union of India & Ors., [1967] 3
S.C.R. 302;
(15)
Siemens Engineering & Manufacturing Co. of India Ltd. v. Union of India & Anr., [1976] Supp. S.C.R. 489; (16)
Associated Cement Companies Ltd. v. P.N. Sharma & Anr., [1965] 2 S.C.R.
366; (16) A.K. Kraipak ferred to.
(8) A
distinction has to be made between statutory arbitrations and private
arbitrations. What applies generally to settlement of disputes by authorities
governed by public law need not be extended to a11 cases arising under private
law such as those arising under the law of 147 arbitration which is intended
for settlement of private disputes. [178A-B] Rohtas Industries Ltd. & Anr. v.
Rohtas Industries Staff Union & Ors., [1976] 3 S.C.R. 12, referred to.
(9) It
is no doubt true that in the decisions pertaining to Administrative Law, this
Court in cases has observed that the giving of reasons in an administrative
decisions is a 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. [179D-E]
(10)
The trappings of a body which discharges judicial functions and required to act
In accordance with law with their concomitant obligations for reasoned
decisions, are not attracted to a private adjudication of the nature of
arbitration as the latter is not supposed to exert the State's sovereign
judicial power. [180F-G]
(11)
It will not be justifiable for Governments or their instrumentalities to enter
into arbitration agreements which do not expressly stipulate the rendering of
reasoned and speaking awards. Governments and their instrumentalities should,
as a matter of policy and public and private interest if not as a compulsion of
law-ensure that wherever they enter into agreements for resolution of disputes
by resort to private arbitration, the requirement of speaking awards is
expressly stipulated and ensured. It is for Governments and their
instrumentalities to ensure in future this requirement as a matter of policy in
the larger public interest. Any lapse in that behalf might lend itself to or
perhaps justify the legitimate criticism that Government failed to provide
against possible prejudice to public-interest. [181B-D]
(12) A
decision on the question involves a question of legislative policy which should
be left to the decision of Parliament. It is significant that although nearly a
decade ago the Indian Law Commission submitted its report on the law of
arbitration specifically mentioning therein that there was no necessity to
amend the law of arbitration requiring the arbitrator to give reasons,
Parliament has not chosen to take any step in the direction of the amendment of
the law of arbitration. [178H; 179G-H]
(13)
In the circumstances and particularly having regard to the various reasons
given by the Indian Law Commission for not recommending to the Government to
introduce an amendment in the Act requiring the arbitrators to give reasons for
their awards, it may not be 148 appropriate to take the view that all awards which
do not contain reasons should either be remitted or set aside.
[178G]
& CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 3 137-39 of 1985 etc.
etc.
From
the Judgment and Order dated 10.4.1985 of the Madhya Pradesh High Court in
Misc. Appeal Nos. 176 to 178 of 1983.
F.S. Nariman,
G.L. Sanghi, Aspi Chimoi, A.L. Pandiya, Rajan Karanjawala, S.C. Sharma, Ms. Meenakshi
Arora, Manik Karanjawala, N. Nettar, G.S. Narayana, R.K. Mehta, Shri Narain, Sandeep
Narain, D.P. Mohanty, Ashok Kumar Panda, R.K. Patri and Jatinder Sethi for the
Appellants.
Soli
J. Sorabjee, A.K. Sen, M.H. Baig, Raja Ram Agarwalla, P.A. Choudhary, A.K. Ganguli,
M.C. Bhandare, S. Ganesh, P.S. Shroff, Randeep Singh, Shrjawala, R. Sasiprabhu,
S.S. Shroff, S.A. Shroff, Arun Madan, R.K. Sahoo, J.D.B. Raju, M.M. Kshatriya,
T.V.S.N. Chari, T. Sridharan, Ms. Mridula Ray, S.K. Sahoo, N.D.B. Raju, Aruneshwar
Gupta, P.P. Juneja, S.K. Bagga, P.N. Mishra, H.J. Zaveri and B.S. Chauhan for
the Respondents.
Milan Banerjee, P.P. Rao, A. Mariarputham,
C.M. Nayar, A.K. Chakravorty, Mrs. J. Wad. Mrs. Aruna. Mathur for the
Intervener.
The
Judgment of the Court was delivered by VENKATARAMIAH, J. The common question
which arises for consideration in these cases which are very neatly argued by
learned counsel on both the sides is whether an award passed Under the
provisions of the Arbitration Act, 1940 (hereinafter referred to as 'the Act')
is liable either to be remitted under section 16(1)(c) of the Act or liable to
be set aside under section 30(c) thereof merely on the ground that no reasons
have been given by the arbitrator or umpire, as the case may be, in support of
the award.
Ordinarily
all disputes arising under a contract have to be settled by courts established
by the State. Section 28 of the Indian Contract Act, 1872 provides that every
agreement by which any party thereto is restricted absolutely from enforcing
his rights under or in respect of 149 any contract, by the usual legal
proceedings in the ordinary tribunals, or which limits the time within which he
may thus enforce his rights, is void to that extent. Exception 1 to the said
section 28, however, provides that the .said section shall not render illegal a
contract by which two or more persons agree that any dispute which may arise
between them in respect or any subject or class of subjects shall be referred
to arbitration, and that only the amount awarded in such arbitration shall be
recoverable in respect of the dispute so referred.
A
brief history of the English Law of Arbitration, is given in the learned
treatise--The Law and Practice of Commercial Arbitration in 'England by Sir Michael J. Mustill and
Stewart C. Boyd. For centuries commercial men preferred to use arbitration
rather than the courts to resolve their business disputes on account of the
inherent advantages in the settlement of disputes by arbitration. They
preferred this alternative method of settlement of disputes to the ordinary
method of settlement through courts because arbitration proceedings were found
to be cheap and quick. It was no doubt true that the courts repeatedly
expressed doubts as to the wisdom of this preference as reflected by the
current opinion that arbitration was an ineffective procedure, not that it was
undesirable in itself. The commercial community, has been however, insisting on
the right to arbitration and has always exhibited an interest in seeing that
the system is made to work as well as possible. This led to repeated statutory
intervention. Accordingly laws were passed from time to time to make the arbitration
proceedings effective.
The
English Arbitration Act of 1950 and the English Arbitration Act, 1979 are the
two major pieces of legislation which now control the arbitration proceedings
in England. The legal requirements of an award
under English Law are succinctly given in 'the Hand Book of Arbitration
Practice' by Ronald Bernstein (1987). English Law.. does not impose any legal
requirement as to the form of valid award but if the arbitration agreement
contains any requirement to the form of the award the award should meet those
requirements. The award must be certain. It could be either interim or final.
An
award without reasons is valid. "The absence of reasons does not
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." Section 1 of the English
Arbitration Act, 1979, however, pro150 vides that if it appears to the High
Court that an award does not or does not sufficiently set out the reasons for
the award in sufficient detail to enable the court to consider any question of
law arising out of it, the court has power to order the arbitrator or umpire to
give reasons or further reasons.
In the
United States of America as a general rule an arbitration award must contain
the actual decision which results from an arbitrator's consideration of the
matter submitted to them but the arbitrator need not write opinion with any
specificity as a court of law does unless otherwise provided by a statute or by
the submission itself. Arbitrators are not required to state in the award each
matter considered or to set out the evidence or to record findings of facts or
conclusions of law. They need not give reasons for their award and conclusions
or the grounds which form the basis for the arbitration determination, describe
the process by which they arrived at their decision or the rationale of the
award. Although such matters are not required, the award is not necessarily
invalidated because it sets out the reasons or the specific findings, matters,
or conclusions on which it is based and faulty reasoning if disclosed does not
by itself vitiate the award. (See Corpus Juris Secundum, Vol. VI pp. 324-325).
In
Australia too an arbitrator, unless required under section 19 of the Australian
Arbitration Act, 1902 to state in a special case a question of law is under no
obligation in law to give his reasons for his decision (vide University of New
South Wales v. Max Cooper & Sons Pvt. Ltd., 35 Australian Law Reports p.
219).
An
instructive survey of the Indian Law of Arbitration is to be found in the
learned lecture delivered by Nripendra Nath Sircar in the Tagore Law Lectures
series of the Calcutta University entitled "Law of Arbitration in British India". After referring to the
provisions of the Bengal Regulation Act and the Madras Regulation Act, the
learned lecturer traces the history of the Law of Arbitration in India in
detail commencing with Act VIII of 1859 which codified the procedure of civil
courts. Sections 3 12 to 325 of Act VIII of 1859 dealt with arbitration between
parties to a suit while sections 326 and 327 dealt with arbitration without the
intervention of a court. These provisions were in operation when the Indian
Contract Act, 1872, which permitted settlement of disputes by arbitration under
section 28 thereof as stated at the commencement of this judgment came into
force. Act VIII of 1859 was followed by later codes relating to Civil
Procedure, namely, Act X of 1877 and Act XIV of 1882 but not much change was
brought 151 about in the law relating to arbitration proceedings. It was in the
year 1899 that an Indian Act entitled the Arbitration Act of 1899 came to be
passed. It was based on the model of the English Act of 1889. The 1899 Act
applied to cases where if the subject-matters submitted to arbitration were the
subject of a suit, the suit could whether with leave or otherwise, be
instituted in a Presidency town. Then came the Code of Civil Procedure of 1908.
Schedule II to the said Code contained the provisions relating to the law of
arbitration which extended to the other parts of British India.
The
Civil Justice Committee in 1925 recommended several changes in the arbitration
law and on the basis of the recommendations by the Civil Justice Committee, the
Indian Legislature passed the Act, i.e., the Arbitration Act of 1940, which is
currently in force. The salient provisions of the Act which are relevant for
purposes of this case are these.
The
Act as its preamble indicates is a consolidating and amending Act and is an
exhaustive code in so far as the law relating to arbitration is concerned. An
arbitration may be without intervention of a court or with the intervention of
a court where there is no suit pending or it may be an arbitration in a suit.
Unless there is an arbitration agreement to submit any present and future
differences to arbitration to which a person is a party, he cannot be compelled
to have a dispute in which he is concerned settled by arbitration. The
foundation of any arbitration proceeding is therefore the existence of an
arbitration agreement between the persons who are parties to the dispute. Every
arbitration agreement unless a different intention is expressed therein, shall
be deemed to include the provisions set out in the First Schedule to the Act in
so far as they are applicable to the reference. The parties to an arbitration
agreement may agree that any reference thereunder shall be to an arbitrator or
arbitrators to be appointed by a person designated in the agreement either by
name or as the holder for the time being of any office or appointment. The
authority of an appointed arbitrator or umpire cannot be revoked except with
the leave of the court, unless a contrary intention is expressed in the
arbitration agreement. An arbitration agreement does not come to an end by
death of parties thereto but shall in such event be enforceable by or against
the legal representative of the deceased. The authority of an arbitrator does
not stand revoked by the death of any party by whom he was appointed. In any of
the following cases (a) where an arbitration agreement provides that the
reference shall be to one or more arbitrators to be appointed by consent of the
parties, and all the parties do not after differences have arisen, concur in
the appointment or appointments; or (b) if any appointed arbitrator or umpire
neglects 152 or refuses to act, or is incapable of acting, or dies, and the
arbitration agreement does not show that it was intended that the vacancy
should not be supplied and the parties or the arbitrators, as the case may be',
do not supply the vacancy; or (c) where the parties or the arbitrators are
required to appoint an umpire and do not appoint him any party may serve the
other parties or the arbitrators, as the case may be, with a written notice to
concur in the appointment or appointments or in supplying the vacancy. If the
appointment is not made within fifteen clear days after the service of the said
notice, the court may on the application of the party who gave the notice and
after giving the other parties an opportunity of being heard, appoint an
arbitrator or arbitrators or umpire, as the case may be, who shall have like
power to act on the reference, and to make an award as if he or they had been
appointed by consent of all parties.
The
Court may on an application of any party to a reference remove an arbitrator or
umpire who fails to use all reasonable dispatch in entering on and proceeding
with the reference and making an award. The court may remove an arbitrator or
umpire who has misconducted himself or the proceedings.
Where
the court removes an umpire who has not entered on the reference or one or more
arbitrators (not being all the arbitrators), the court may on the application
of any party to the arbitration agreement, appoint persons to fill the
vacancies. The arbitrators or umpire shall, unless a different intention is
expressed in the agreement have power to administer oath to the parties and
witnesses appearing;
state
a special case for the opinion of the court on any question of law involved, or
state the award, wholly or in part, in the form of a special case of such
question for the opinion of the court; make the award conditional or in the
alternative; correct in an award any clerical mistake or error arising from any
accidental slip or omission; and administer to any party to the arbitration
such interrogatories as may, in the opinion of the arbitrators or umpire, be
necessary. Section 14 of the Act provides that when the arbitrators or umpire
have made their award, they shall sign it and shall give notice in writing to
the parties of the making and signing thereof and of the amount of fees and
charges payable in respect of the arbitration and award.
While
an award should contain the decision of the arbitrators or umpire of the case,
as the case may be, the Act does not say in express terms that an award should
contain the reasons in support of the decision. The arbitrators or umpire shall
at the request of any party to the arbitration agreement or any person claiming
under such party or if so directed by the court and upon payment of the fees
and charges due in respect of the arbitration and award and of the costs and
charges of filing the award, cause the award or a signed copy of it, together
with any depositions and documents 153 which may have been taken and proved
before them, to be filed in court, and the court shall thereupon give notice to
the parties of the filing of the award. Sections 15, 16, 17 and 30 of the Act
which are relevant for purposes of this case read as follows:
15.
Power of the Court to modify award.--The Court may by order modify or correct
an award-(a) where it appears that a part of the award is upon a matter not
referred to arbitration and such can be separated from the other part and does
not affect the decision on the matter referred, or (b) where the award is
imperfect in form, or contains any obvious error which can be amended without
affecting such decision; or (c) where the award contains a clerical mistake or
an error arising from an accidental slip or omission.
16.
Power to remit award. (1) The Court may from time to time remit the award or
any matter referred to arbitration to the arbitrators or umpire for
reconsideration upon such terms as it thinks fit-(a) where the award has left
undetermined any of the matters referred to arbitration, or where it determines
any matter not referred to arbitration and such matter cannot be separated
without affecting the determination of the matters; or (b) where the award is
so indefinite as to be incapable of execution; or (c) where an objection to the
legality of the award is apparent upon the face of it.
(2)
Where an award is remitted under subsection (1) the Court shall fix the time
within which the arbitrator or umpire shall submit his decision to the Court.
(3) An
award remitted under sub-section (1) shall become void on the failure of the
arbitrator or umpire to reconsider 154 it and submit his decision within the
time fixed.
17.
Judgment in terms of award. Where the Court sees no cause to remit the award or
any of the matters referred to arbitration for reconsideration or to set aside
the award, the Court shall, after the time for making an application to set
aside the award has expired, or such application having been made, after
refusing it, proceed to pronounce judgment according to the award, and upon the
judgment so pronounced a decree shall follow and no appeal shall lie from such
decree except on the ground that it is in excess of, or not otherwise in
accordance with, the award.
30.
Grounds for setting aside award.--An award shall not be set aside except on one
or more of the following grounds, namely:
(a) that
an arbitrator or umpire has misconducted himself or the proceedings;
(b) that
an award has been made after the issue of an order by the Court superseding the
arbitration or after arbitration proceedings have become invalid under section
35;
(c) that
an award has been improperly procured or is otherwise invalid.
Section
15 of the Act deals with the power of the Court to modify award. Section 16 of
the Act deals with its power to remit an award and section 30 of the Act deals
with the power of the Court to set aside an award. Section 17 of the Act
provides that where the court sees no cause to remit the award or any of the
matters referred to arbitration for reconsideration or to set aside the award,
the court shall, after the time for making an application to set aside the
award has expired, or such application having been made, after refusing it,
proceed to pronounce judgment according to the award, and upon the judgment so
pronounced a decree shall follow and no appeal shall lie from such decree
except on the ground that it is in excess of, or not otherwise in accordance
with, the award. The period for getting an award remitted for reconsideration
or for setting it aside is prescribed under Article 119 of the Limitation Act,
1963.
Section
39 of the Act provides that an appeal shall lie from the following orders
passed under the Act; (1) 155 superseding an arbitration; (2) on an award
stated in the form of a special case; (3) modifying or correcting an award; (4)
filing or refusing to file an arbitration agreement; (5) staying or refusing to
stay legal proceedings where there is an arbitration agreement; and (6) setting
aside or refusing to set aside an award and from no others to the court authorised
by law to hear appeals from original decree of the court passing the orders.
Section 46 of the Act makes the Act applicable to statutory arbitrations, save
in so far as is otherwise provided by any law for the time being in force, the
provisions of the Act apply to all statutory arbitrations. These are broadly
the provisions of the Act which govern an arbitration proceeding.
In
many of the cases in which awards are passed by arbitrators under auspices of
institutions like Chambers of Commerce it may not be necessary for the parties
to the disputes to go to the Court to get rules issued in terms of the awards
since persons against whom awards are made would be willingly complying with
the awards for it would be in their interest to do so in order to maintain
their prestige in the business world. But in other cases where there is no
guarantee of ready compliance with the awards by those against whom they are
made it becomes necessary to take appropriate steps under the Act to get the
awards filed in the Court under section 14 of the Act and to seek the
assistance of the Court in getting decrees passed in terms of the awards so
that the decrees can be executed through court for the realisation of the
fruits of the award. At the same time the Act provides the necessary machinery
for getting the award remitted to the arbitrators or the umpire, as the case
may be, for reconsideration or for getting the award set aside in cases falling
under section 30 thereof. Under the Indian Arbitration Act, 1899 which applied
to areas lying within the Presidency towns section 14 provided as follows:
"14.
Where an arbitrator or umpire has misconducted himself, or an arbitration or
award has been improperly procured, the Court may set aside the award."
This section was couched in the same language in which section 11(2) of the
English Arbitration Act, 1889 was couched. Para 15 of the Second Schedule to
the Code of Civil Procedure, 1908 which was applicable to the rest of British
India read as follows:
"15
........ But no award shall be set aside except on one of the following
grounds, namely:
156
(a) corruption or misconduct of the arbitrator or umpire:
(b) either
party having been guilty of fraudulent concealment of any matter which he ought
to have disclosed, or of wilfully misleading or deceiving the arbitrator or
umpire;
(c)
the award having been made after the issue of an order by the Court superseding
the arbitration and proceeding with the suit or after the expiration of the
period allowed by the Court, or being otherwise invalid."
Then
followed the Act, i.e., the Indian Arbitration Act, 1940 which extended to the
whole of the British
India w.e.f. July 1, 1940 superseding the Indian Arbitration
Act, 1899 and the Second Schedule to the Code of Civil Procedure, 1908. Section
30 of the Act provides that an award shall not be set aside except on one or
more of the following grounds, namely:
(a) that
an arbitrator or umpire has misconducted himself or the proceedings;
(b) that
an award has been made after the issue of an order by the Court superseding the
arbitration or after arbitration proceedings have become invalid under section
35;
(c) that
an award has been improperly procured or is otherwise invalid.
It may
be noticed that the general ground, namely, the award being 'otherwise invalid'
for setting aside an award which appeared for the first time in the Second
Schedule to the Civil Procedure Code, 1908 was not to be found either in the
Indian Arbitration Act, 1899 or in the English Arbitration Act, 1889 which
contained inter alia two grounds for setting aside an award, namely:
(i) that
an arbitrator or an umpire had misconducted himself; and (ii) the award had
been improperly procured.
In
connection with the English Arbitration Act, 1889 and the Indian 157
Arbitration Act, 1899 certain principles had become wellsettled although
neither of these statutes made reference to illegality or error apparent on the
face of the award.
In
one of the cases frequently referred to in later decisions, namely, Hodgkinson
v. Fernie and another, [1857] 3 C.B. (N.S.) 189= 140 English Reports. p. 712 it
was recognised that the principle had been firmly established that where an
error of law appeared on the face of the award or upon some paper accompanying
or forming part of the award that constituted a ground for setting aside the
award. Williams, J. who agreed with Cockburn, C.J. in the said decision
observed thus:
"I
am entirely of the same opinion. The law has for many years been settled, and
remains so at this day, that, where a cause or matters in difference are
referred to an arbitrator, whether a lawyer or a layman, he is constituted the
sole and final judge of all questions both of law and of fact. Many cases have
fully established that position, where awards have been attempted to be set
aside on the ground of the admission of an incompetent witness or the rejection
of a competent one. The court has invariably met those applications by saying,
'You have constituted your own tribunal; you are bound by its decision.' The
only exceptions to that rule, are cases where the award is the result of
corruption or fraud, and one other, which, though it is to be regretted, is
now, I think, firmly established, viz. where the question of law necessarily
arises on the face of the award, or upon some paper accompanying and forming
part of the award. Though the propriety of this latter may very well be
doubted, I think it may be considered as established." In Champsey Bhara
& Company v. Jivraj Balloo Spinning and Weaving Company Ltd., A.I.R. 1923
Privy Council, 66 which was a case arising from the High Court of Bombay, the
Privy Council following the decision in Hodgkinson v. Fernie, (supra) observed
thus:
"Now
the regret expressed by Williams, J., in Hodgkinson v. Fernie, (2) has been
repeated by more than one learned Judge, and it is certainly not to be desired
that the exception should be in any way extended. An error in law on the face
of the award means, in their Lordships' view, that you can find in the award or
a document actually incorporated thereto, as for instance, a note appended by
the arbitrator stating the reasons for his judgment, some legal proposi158 tion
which is the basis of the award and which you can then say is erroneous."
The ground arising out of an error of law apparent on the face of the award
prima facie appears to fall either under section 16(1)(c) of the Act, which
empowers the Court to remit the award to the arbitrator where an objection to
the legality of the award which is apparent upon the face of it is successfully
taken, or under section 30(c) of the Act which empowers the Court to set aside
an award if it is 'otherwise invalid'. The following two decisions relied on
the said two provisions of law respectively.
This
Court in Seth Thawardas Pherumal v. The Union
of India, [1955] 2 SCR 48 approved the view
expressed in the case of Champsey Bhara & Company (supra) in the following
words at pages 53-54 thus:
"In
India this question is governed by
section 16(1)(c) of the Arbitration Act of 1940 which empowers a Court to remit
an award for reconsideration 'where an objection to the legality of the award
is apparent upon the face of it'.
This
covers cases in which an error of law appears on the face of the award. But in
determining what such an error is, a distinction must be drawn between cases in
which a question of law is specifically referred and those in which a decision
on a question of law is incidentally material (however necessary) in order to
decide the question actually referred. If a question of law is specifically
referred and it is evident that the parties desire to have a decision from the
arbitrator about that rather than one from the Courts, then the Courts will not
interfere, though even there, there is authority for the view that the Courts
will interfere if it is apparent that the arbitrator has acted illegally in
reaching his decision, that is to say, if he has decided on inadmissible
evidence or on principles of construction that the law does not countenance or
something of that nature.
See
the speech of Viscount Cave in Kelantan Government v. Duff Development Co., [1923] A.C. 395 at page 409. But that is not a
matter which arises in this case.
The
law about this is, in our opinion, the same in England as here and the principles that govern this class of case
have been reviewed at length and set out with clarity by the House of Lords in
F.R. Absalom Ltd. v. Great 159 Western (London) Garden Village Society, [1933] A.C. 592 and in Kelantan Government v. Duff
Development Co., [1923] A.C. 395. In Durga Prasad v. Sewkishendas, 54 C.W.N.
74, 79) the Privy Council applied the law expounded in Absalom's case [1933]
A.C. 592 to India:
see
also Champsey Bhara & Co. v. Jivraj Balloo Spinning and Weaving Co., 50
I.A. 324, 330 & 331 and Saleh Mahomed Umer Dossal v. Nathoomal Kessamal, 54
I.A. 427, 430. The wider language used by Lord Macnaghten in Ghulam Jilani v.
Muhammad Hassan, 29 I.A. 51, 60 had reference to the revisional powers of the
High Court under the Civil Procedure Code and must be confined to the facts of
that case where the question of law involved there, namely limitation, was
specifically referred. An arbitrator is not a conciliator and cannot ignore the
law or misapply it in order to do what he thinks is just and reasonable. He is
a tribunal selected by the parties to decide their disputes according to law
and so is bound to follow and apply the law, and if he does not, he can be set
right by the Courts provided his error appears on the face of the award. The
single exception to this is when the parties choose specifically to refer a
question of law as a separate and distinct matter." In Jivarajbhai Ujamshi
Sheth and Others v. Chintamanrao Balaji and Others, [1964] 5 SCR 480 this Court
held that an award can be set aside on the ground of error of law apparent on
the face of the record under section 30 of the Act but it qualified the above
legal position by saying that the Court while dealing with the application for
setting aside an award has no power to consider whether the view of the
arbitrator on the evidence was justified according to this Court. The
arbitrator's justification was generally considered binding between the parties
for it was a tribunal selected by the parties and the power of the Court to set
aside the award was restricted to cases set out in section
30.
The Court further observed that it was not open to it to speculate, where no
reasons are given by the arbitrator, as to what impelled the arbitrator to
arrive at his conclusion.
The
Court declined to recognise the power of the Court to attempt to probe the
mental process by which the arbitrator had reached his conclusion where it was
not disclosed by the terms of his award. The relevant part of the above
decision reads thus:
"An
award made by an arbitrator is conclusive as a judgment between the parties and
the Court is entitled to 160 set aside an award if the arbitrator has misconducted
himself in the proceedings or when the award has been made after the issue of
an order by the Court superseding the arbitration or after arbitration
proceedings have become invalid under section 35 of the Arbitration Act or
where an award has been improperly procured or is otherwise invalid:
s. 30
of the Arbitration Act. An award may be set aside by the Court on the ground of
error on the face of the award, but an award is not invalid merely because by a
process of inference and argument it may be demonstrated that the arbitrator
has committed some mistake in arriving at his conclusion. As observed in Champsey
Bhara and Company v. Jivraj Ballo Spinning and Weaving Company Ltd., L.R. 50
I.A. 324 at p. 331:
'An
error in law on the face of the award means, in their Lordships' view, that you
can find in the award or a document actually incorporated thereto, as for
instance a note appended by the arbitrator stating the reasons for his
judgment, some legal proposition which is the basis of the award and which you
can then say is erroneous. It does not mean that if in a narrative a reference
is made to a contention of one party, that opens the door to seeing first what
that contention is, and then going to the contract on which the parties' rights
depend to see if that contention is sound.' The Court in dealing with an
application to set aside an award has not to consider whether the view of' the
arbitrator on the evidence is justified. The arbitrator's adjudication is
generally considered binding between the parties, for he is a tribunal selected
by the parties and the power of the Court to set aside the award is restricted
to cases set out in s.30. It is not open to the Court to speculate, where no
reasons are given by the arbitrator, as to what impelled the arbitrator to
arrive at his conclusion. On the assumption that the arbitrator must have
arrived at his conclusion by a certain process of reasoning, the Court cannot
proceed to determine whether the conclusion is right or wrong. It is not open
to the Court to attempt to probe the mental process by which the arbitrator has
reached his conclusion where it is not disclosed by the terms of his,
award." 161 The same view was expressed by this Court in Bungo Steel
Furniture Pvt. Ltd. v. Union of India, [1967] 1 S.C.R. 633.
There
have been a number of decisions of this Court on the above question and it is
not necessary to refer to all of them except to refer to a recent decision in
State of Rajasthan v. M/s. R.S. Sharma and Co., [1988] 4 S.C.C. 353 decided by Sabyasachi
Mukharji and S. Ranganathan, JJ.
It is
now well-settled that an award can neither be remitted nor set aside merely on
the ground that it does 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 under section 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.
The
Law Commission of India, however, had occasion to consider the question whether
it should be made obligatory on the part of the arbitrator or umpire to give
reasons in support of the award in the course of its Seventy-sixth Report on
Arbitration Act, 1940 which was submitted in 1978.
The
relevant part of the report of the Law Commission on the above question reads
thus:
"4.42A.
Before leaving section 14, it is necessary to deal with one suggestion that has
been made to the effect that an arbitrator must be required to give reasons for
the award. This suggestion was made by the Public Accounts Committee (1977-78),
Sixth Lok Sabha, Ninth Report, dealing with the Forest Department, Andaman. The suggestion has been brought to our
notice by the Ministry of Law. The Committee, after expressing its unhappiness
over the manner in which certain arbitration cases which formed the
subject-matter of the Report had been pursued, and after noting the delay that
took place in the disposal of cases, made the following observations:
162
'In this distressing story, Government has repeatedly suffered loss. In the
first arbitration case, Government's claim for royalty on shortfall of
extraction was not upheld. As the arbitrator's award gave no reasons,
Government could not even find out why their claim was rejected. It will be
strange if Government really finds itself so helpless in such case. The
Committee would like Government to make up its mind and amend the law in such a
manner that it would be obligatory on the arbitrator to give reasons for his
award.
Meanwhile,
it should be ascertained whether in an award which sets out no reasons the
aggrieved party would have no remedy whatever.' 4.43. We have also been
informed that the Public Accounts Committee (1975-76), in its 210 Report, has
observed as follows (Public Accounts Committee'19776, 210th Report, page 136, para
5.17):
'Incidentally,
the Committee also find that under the Arbitration Act,
the Arbitrator is not bound to give any reason for the award.
The
result is that often it becomes difficult to challenge such non-speaking awards
on any particular ground. The Committee are of the view that it should be made
obligatory on arbitrators to give detailed reasons for their awards so that
they may, if necessary, stand the test of objective judicial scrutiny. The
Committee desire that this aspect should be examined and the necessary
provision brought soon on the statute book.' 4.44. We' have given careful
consideration to the suggestion that the arbitrator should be required to give
reasons. And we appreciate the embarrassment that must be caused to the
Government by such awards in the cases referred to by the Public Accounts
Committee in its Report referred to above. We are also not unmindful of the
fact that the public interest might sometimes suffer by awards which are not
supported by reasons. But we regret that we are unable to persuade ourselves to
accept the suggestion for amending the law. Our reasons for this conclusion
will be set out presently.
These
reasons are, in our view, weighy enough to override other considerations.
163
4.45. There are, it seems to us, several consideration that are relevant in
determining the question whether an arbitrator should be required by law to
give reasons for the award.
The
scheme of the Arbitration Act is to provide a domestic forum, for speedy and
substantial justice, untrammelled by legal technicalities, by getting the
dispute resolved by a person in whom the parties havefull faith and confidence.
The award given by such a person under the scheme of the Act can be assailed
only on very limited ground like those mentioned in section 30 of the Act. The
result is that most of the awards at present are made rules of the court
despite objections to their validity by the party against whom those awards
operate. To have a provision making it obligatory for the arbitrator to give
reasons for the award would be asking for the introduction of an infirmity in
the award which in most cases is likely to prove fatal.
Many
honest awards would thus be set aside.
Once
the arbitrators are compelled to give reasons in support of the award, the
inevitable effect of that would be that the validity of most of the awards
would be challenged on the ground that the reasons, or at least some of them,
are bad and not germane to the controversy. Sometimes, if four reasons are
given in support of the award and one of the reasons is shown to be not correct
or not germane, the award would be challenged on the ground that it is
difficult to predicate as to how far the bad reason which is not germane has
influenced the decision of the arbitrator.
Many
awards would not survive court scrutiny in such circumstances.
4.46.
It is also noteworthy that in a large number of cases the arbitrators would be
laymen. Although their final award may be an honest and conscientious
adjudication of the controversy and dispute, they may not be able to insert
reasons in the award as may satisfy the legal requirements and the scrutiny of
the court. The arbitrators having been chosen by the parties, it would, in our
opinion, be not correct to put extra burden on them of also giving reasons
which are strictly rational and germane in the eye of law in support of their
award. Once the parties have voluntarily 164 chosen the arbitrators, presumably
because they have faith in their impartiality, the law should not insist upon
the recording of reasons by them in their award.
4.47.
The previous experience, in fact, points out that it is awards incorporating
reasons which have generally been quashed in court.
The
awards not giving reasons have survived the attack on their validity, unless
the arbitrator is otherwise shown to have misconducted himself or his award
suffers from some other technical defect.
Once
we have the compulsion for the incorporation of reasons in the award given by
the arbitrators, validity of most of the awards, in our opinion, would not be
able to survive in court. As such, the object of the Arbitrations Act would be
substantially defeated.
4.48.
Once Parliament provides that reasons shall be given, that must clearly be read
as meaning that proper, adequate, reasons must be given; the reasons that are
set out, whether they are right or wrong, must be reasons which not only will
be intelligible, but also can reasonably be said to deal with the substantial
points that have been raised. If the award in any way fails to comply with the
statutory provisions, then it would be a ground for saying that the award was
bad on the face of it, as Parliament has required that reasons shall be
incorporated (Of. Re Poyser & Mills Arbitration, (1964) 2 Q.B. 467; (1963)
1 All E.R. 6 12, 6 16 (Megaw J. ).
It is
well established that where the arbitrator gives reasons for a conclusion of
law, courts can go into those reasons. (Champsey Bhara & Co. v. J.B.
Spinning & Weaving Co. Ltd., A.I.R. 1923 P.C. 66; S. Dutt v. University of
Delhi, A.I.R. 1958 S.C. 1050.
4.49.
It is sometimes stated that since an arbitrator is bound to apply the law,
there should be some means of ensuring that he applied the law correctly.
However, it is also to be remembered that parties resort to an arbitration
voluntarily and select or agree to a particular arbitrator, because, inter alia,
165 (i) they have faith in him, and (ii) the proceedings will be more speedy
and free from technicalities than in the courts.
The
object Of achieving speed and informality is likely to be largely frustrated if
a statutory provision makes it compulsory to give reasons for the award. The
general rule is that the parties cannot object to the decision given by their
own judge, except in case of misconduct and the like. (Government of Kelantan
v. Duff Development Co. Ltd., [1923] A.C. 395; Russell (1970), pages 359,360).
This
general principle should not be departed from unless weighty reasons exist for
such departure.
No
doubt, it is desirable that the award should be correct in law. But the
fundamental question is, how far should the finality of the award yield to the
desirability of legal correctness, and what procedural requirements should be
insisted upon to ensure that the award is sound in law? In this connection,
reference may be made to the observations of Barwick C.J. (of the High Court of
Australia).
Tata
Products Pvt. Ltd. v. Hutcheson Bros. Pvt. Ltd., [1972] 127 C.L.R. 253, 258;
(1972) Australia Law Journal Reports 119 (Australia). He observed that 'finality in
arbitration in the award of the lay arbitrator is more significant than legal
propriety in all his processes in reaching that award.' The importance which
the law attaches to the finality of arbitration goes against the suggestion now
put forth for giving reasons for an award. A requirement that the reasons for
an award should be given would open too wide a door for challenging the award,
even if the grounds for setting aside are, by statute, restricted in other
respects.
4.50.
For these reasons, we are not inclined to recommend a provision requiring the
arbitrator to give reasons for the award.
Thus
it is seen that the Law Commission did not recommend the inclusion of a
provision in the Act requiting the arbitrator or umpire to give reasons for the
award.
166 It
is not disputed that in India it had been firmly established till the year 1976
that it was not obligatory on the part of the arbitrator or the umpire to give reasons
in support of the award when neither in the arbitration agreement nor in the
deed of submission it was required that reasons had to be given for the award
(vide Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills Ltd., Indore, [1967]
1 S.C.R. 105; Bungo Steel Furniture Pvt. Ltd. v. Union of India, (supra) and N.
Chellappan v. Secretary, Kerala State Electricity Board & Another, [1975] 2
S.C.R. 811. It is, however, urged by Shri Fali S. Nariman, who argued in
support of the contention that in the absence of the reasons for the award, the
award is either liable to be remitted or set aside, that subsequent to 1976
there has been a qualitative change in the law of arbitration and that it has
now become necessary to insist upon the arbitrator or the umpire to give
reasons in support of the award passed by them unless the parties to the
dispute have agreed that no reasons need be given by the arbitrator or the
umpire for his decision. Two main submissions are made in support of the above
contention. The first submission is that an arbitrator or an umpire discharges
a judicial function while functioning as an arbitrator or an umpire under the
Act, and, therefore, is under an obligation to observe rules of natural justice
while discharging his duties, as observed by this Court in Payyavula Vengamma
v. Payyavula Kesanna and others, [1953] S.C.R. 119. This Court relied in that
decision upon the observations made by Lord Langdale M.R. in Harvey v. Shelton, [1844] 7 Beav. 455 at p. 462 which read thus:
"It
is so ordinary a principle in the administration of justice, that no party to a
cause can be allowed to use any means whatsoever to influence the mind of the
Judge, which means are not known to and capable of being met and resisted by
the other party, that it is impossible, for a moment, not to see, that this was
an extremely indiscreet mode of proceeding, to say the very least of it. It is
contrary to every principle to allow of such a thing, and I wholly deny the
difference which is alleged to exist between mercantile arbitrations and legal
arbitrations. The first principle of justice must be equally applied in every
case.
Except
in the few cases where exceptions are unavoidable, both sides must be heard,
and each in the presence of the other. In every case in which matters are
litigated, you must attend to the representations made on both sides, and you
must not, in the administration of justice, in whatever form, whether in the
regularly constituted Courts or in ar167 bitrations, whether before lawyers or
merchants, permit one side to use means of influencing the conduct and the
decisions of the Judge, which means are not known to the other side." This
Court also relied on the decision in Haigh v. Haigh, [1861] 31 L.J. Ch. 420 which required an arbitrator to act fairly in
the course of its duties. The two well recognised principles of natural justice
are (i) that a Judge or an arbitrator who is entrusted with the duty to decide
a dispute should be disinterested and unbiased (nemo judex in cause sua); and
(ii) that the parties to dispute should be given adequate notice and
opportunity to be heard by the authority (audi alteram partem) (See
Administrative Law by H.W.R. Wade, Part V and Judicial Review of Administrative
Action by S.A. de Smith, Third Edition, Chapter 4).
Giving
reasons in support of a decision was not considered to be a rule of natural
justice either under the law of arbitration or under administrative law.
In Som
Datt Datta v. Union of India and Ors., [1989] 2 S.C.R. 177 a Constitution Bench
of this Court held that there was no obligation on the part of an
administrative or statutory tribunal to give reasons for the order passed by
it. The relevant part of the said decision in which this Court considered the
prevailing legal decision in England at the
time reads thus:
"In
the present case it is manifest that there is no express obligation imposed by
s. 164 or by s. 165 of the Army Act on the confirming authority or upon the
Central Government to give reasons in support of its decision to confirm the
proceedings of the Court Martial. Mr. Dutta has been unable to point out any
other section of the Act or any of the rule made therein from which necessary
implication can be drawn that such a duty is cast upon the Central Government
or upon the confirming authority. Apart from any requirement imposed by the
statute or statutory rule either expressly or by necessary implication, we are
unable to accept the contention of Mr. Dutta that there is any general
principle or any rule of natural justice that a statutory tribunal should
always and in every case give reasons in support of its decision.
In
English law there is no general rule apart from the statutory requirement that
the statutory tribunal should 168 give reasons for its decision in every case.
In Rex.. v. Northumberland Compensation Appeal Tribunal, [1952] 1 K.B.
338,
it was decided for the first time by the Court of Appeal that if there was a
'speaking order' a writ of certiorari could be granted to quash the decision of
an inferior court or a statutory tribunal on the ground ,of error on the face
of record. In that case, Denning, L.J. pointed out that the record must at
least contain the document which initiates the proceedings; the pleadings, if
any, and the adjudication, but not the evidence, nor the reasons, unless the
tribunal chooses to incorporate them in its decision. It was observed that if
the tribunal did state its reasons and those reasons were wrong in law, a writ
of certiorari might be granted by the High Court for quashing the decision. In
that case the statutory tribunal under the National Health Service Act, 1946
had fortunately given a reasoned decision;
in
other words, made a 'speaking order' and the High Court could hold that there
was an error of law on the face of the record and a writ of certiorari may be
granted for quashing it. But the decision in this case led to an anomalous
result, for it meant that the opportunity for certiorari depended on whether or
not the statutory tribunal chose to give reasons for its decision, in other
words, to make a 'speaking order'. Not all tribunals, by any means, were
prepared to do so and a superior court had no power to compel them to give
reasons except when the statute required it. This incongruity was remedied by
the Tribunals and Inquiries Act, 1958 (s. 12), (6 & 7 Elizabeth 2 c. 66), which provides that on
request a subordinate authority must supply to a party genuinely interested the
reasons for its decision. Section 12 of the Act states that when a tribunal
mentioned in the First Schedule of the Act gives a decision it must give a
written or oral statement of the reasons for the decision, if requested to do
so on or before the giving or notification of the decision. The statement may
be refused or the specification of reasons restricted on grounds of national
security, and the tribunal may refuse to give the statement to a person not
principally concerned with the decision if it thinks that to give it would be
against the interest of any person primarily concerned. Tribunals may also be exempted
by the Lord Chancellor from the duty to give reasons but the Council on
Tribunals must be consulted on any proposal to do so. As already stated, 169
there is no express obligation imposed in the present case either by s. 164 or
by s. 165 of the Indian Army Act on the confirming authority or on the Central
Government to give reasons for its decision. We have also not been shown any
other section of the Army Act or any other statutory rule from which the
necessary implication can be drawn that such a duty is cast upon the Central
Government or upon the confirming authority. We, therefore, reject the argument
of the petitioner that the order of the Chief of the Army Staff, dated May 26, 1967 confirming the finding of the Court
Martial under s. 164 of the Army Act or the order of the Central Government
dismissing the appeal under s. 165 of the Army Act are in any way defective in
law." It is, however, urged that this Court omitted to notice an earlier
decision of a Constitution Bench of this Court in Bhagat Raja v. The Union of India & Ors., [1967] 3 S.C.R.
302
and therefore, the decision in Som Datt Datta, (supra) should be considered as
a decision per in curjam. The point involved in Bhagat Raja' case (supra) was
whether in dismissing a revision petition filed under the Mines & Minerals
(Regulation and Development) Act, 1957 and the rules made thereunder, the Union
of India was bound to make a speaking order. This Court held that under the
Mines & Minerals (Regulation and Development) Act, 1957 the Central
Government while deciding a revision petition was required to act judicially as
a tribunal and an appeal could be filed against the said decision before this
Court under Article 136 of the Constitution of India. In order to make the
right of appeal effective it was necessary that the Central Government should
pass a reasoned order so that this Court might decide whether the case had been
properly decided by the Central Government or not and in the absence of the
reasons the order of the Central Government was liable to be reversed. The
relevant part of the judgment of this Court in Bhagat Raja's, case (supra)
reads thus:
"Let
us now examine the question as to whether it was incumbent on the Central
Government to give any reasons for its decision in review. It was argued that
the very exercise of judicial or quasi judicial powers in the case of a
tribunal entailed upon it an obligation to give reasons for arriving at a
decision for or against a party. The decisions of tribunals in India are subject to the supervisory
powers of the High Courts under Art. 227 of the Constitution and 170 of
appellate powers of this Court under Art. 136. It goes without saying that both
the High Court and this Court are placed under a great disadvantage if no
reasons are given and the revision is dismissed curtly by the use of the single
word 'rejected', or, 'dismissed'. In such case, this Court can probably only
exercise its appellate jurisdiction satisfactorily by examining the entire
records of the case and after giving a hearing come to its conclusion on the
merits of the appeal. This will certainly be a very unsatisfactory method of
dealing with the appeal. Ordinarily, in a case like this, if the State
Government gives sufficient reasons for accepting the application of one party
and rejecting that of the others, as it must, and the Central Government adopts
the reasoning of the State Government, this Court may proceed to examine
whether the reasons given are sufficient for the purpose of upholding the
decision.
But,
when the reasons given in the order of the State Government are scrappy or
nebulous and the Central Government makes no attempt to clarify the same, this
Court, in appeal may have to examine the case de novo without anybody being the
wiser for the review by the Central Government. If the State Government gives a
number of reasons some of which are good and some are not, and the Central
Government merely endorses the order of the State Government without specifying
those reasons which according to it are sufficient to uphold the order of the
State Government, this Court, in appeal, may find it difficult to ascertain
which are the grounds which weighed with the Central Government in upholding
the order of the State Government. In such circumstances, what is known as a
'speaking order' is called for." A careful reading of this decision shows
that it is not based on the ground that the order of the Central Government was
not in conformity with the principles of natural justice but on the ground that
the order of the Central Government was subject to the supervisory powers of
the High Courts under Article 227 of the Constitution of India and the
appellate powers of this Court under Article 136 of the Constitution of India.
It is no doubt true that in Siemens Engineering & Manufacturing Co. of
India Limited v. Union of India & Anr., [1976] Supp. SCR 489 a Bench of
three Judges of this Court held that every quasi judicial order of a tribunal
must be supported by reasons and the rule requiring the reasons to be given in
support of the order 171 was like the principles of audi alteram partem, a
basic principle of natural justice which must involve every quasi judicial
process and that the said rule should be observed in this proper spirit. In
that case again the order whose validity had been questioned in this Court in
an appeal filed under Article 136 of the Constitution of India was an order
passed by the Central Government under the Customs Act. A reading of the
decision in this case shows that this Court felt that the rule requiring
reasons in support of an order was a rule not covered by the principle audi alteram
partem but an independent principle of natural justice. We have already
observed that the two recognised principles of natural justice were (i) that a
Judge or an umpire who is entrusted with the duty to decide a dispute should be
disinterested and unbiased (nemo judex in causa sua); and (ii) that the parties
to dispute should be given adequate notice and opportunity by the authority (audi
alteram partem). For the first time this Court laid down that the rule
requiring reasons in support of an order is a third principle of natural
justice. It may be as observed in Bhagat Raja's case (supra) that the Court may
require a tribunal to give reasons in support of its order in 'order to make
the exercise of power of the High Courts under Articles 226 and 227 of the
Constitution of India and the powers of this Court under Article 136 of the
Constitution of India effective. It is further urged relying upon the decisions
of this Court in Associated Cement Companies Ltd. v. P.N. Sharma and Another,
[1965] 2 S.C.R. 366 and A.K. Kraipak & Ors. etc. v. Union of India &
Ors., [1970] 1 S.C.R. 457 that the concept of natural justice had undergone a
great deal of Change in recent years. It is argued that while originally there were
two rules of natural justice in course of time many more subsidiary rules had
come to be added to the rules or natural justice and, therefore, in the same
way the requirement of giving reasons for a decision should be treated as a new
rule of natural justice.
The
second main submission made in support of the necessity of giving reasons for
the award is that since the arbitrator or umpire is required to make an award
in accordance with law as held by this Court in Seth Thawardas Pherumal's case
(supra) and several other cases decided by this Court and since under section
16(1)(c) of the Act the legality of an award can be questioned in Court on the
basis of an error apparent on the face of an award the only way of ensuring
that an award is in accordance with law is by insisting upon the arbitrator or
umpire to give reasons for the award. It is urged that if no reasons are
disclosed it would not be possible for the Court to find out whether an award
has been passed in accordance with law or not.
172
Our attention is drawn to the existence of the safeguard in the English Law of
Arbitration (before the English Arbitration Act, 1979) for ensuring that an
arbitrator deciding a dispute judicially and in accordance with the requirement
of the parties to the agreement that the dispute be decided according to law in
the form of the power of the Court to compel the arbitrator to state his award
in the form of a special case under section 21 of the Arbitration Act, 1950.
It is
submitted that the provision with regard to the statement of the case by an
arbitrator to the Court contained in clause (b) of section 13 of the Act, i.e.,
the Indian Arbitration Act, 1950, being one which could be exercised at the
option of the arbitrator and there being no power for the Court to compel the
arbitrator to state a case for its decision, the only way of ensuring that the
arbitrator kept within the bounds of law is to compel him to give reasons for
his award. Our attention is also drawn to the Report on Arbitration made by the
Commercial Court Committee presided over by Justice Donaldson (now Master of
Rolls) in which certain recommendations were made in order to improve the
procedure which was prevailing in England with regard to the power of judicial
review of the decisions of the arbitrators. In the course of the said report,
the Commercial Court Committee has observed thus:
"Supervisory
powers
3. All
systems of law provide for some degree of judicial supervision of arbitral
proceedings and awards.
These
powers enable the Courts to intervene in cases of fraud or bias by the
arbitrators, contravention of the rules of natural justice or action in excess
of jurisdiction. In the case of the English Courts these powers are conferred
by sections 22, 23 and 24 of the Arbitration Act, 1950.
Powers
of review
4.
Most systems of law adopt the philosophy that the parties, having chosen their
own tribunal, must accept its decisions "with all faults".
Accordingly, they make no, or very little, provision for a review by the Courts
of arbitral decisions which may be based upon erroneous conclusions of fact or
law. Until recently the law of Scotland was based upon this philosophy.
However, this has never been the approach of the law of England or of some
systems derived from the law. English law provides for two different forms of
review, namely by motion to set aside the award for 173 error on its face and
by a reference to the High Court of an award in the form of a special case.
(a)
Setting aside an award for error on its face
5.
Under English law the Courts have jurisdiction to set aside any arbitral award
if it appears from the award itself or from documents incorporated in the award
that the arbitrator has reached some erroneous conclusion of fact or law. The
Court cannot correct the error. It can only quash the award leaving the parties
free to begin the arbitration again.
6. As
a result of the existence of this power, English arbitrators customarily avoid
giving any reasons for their awards, confining themselves that A should pay B a
specified sum. Where the parties wish to know the reasons for the award or the
arbitrator wishes to give them, this is achieved by giving the reasons in a
separate document which expressly states that it is not part of the award and
by obtaining an undertaking from the parties that they will not seek to refer
to or use the reasons for the purposes of any legal proceedings. The general
pattern is, however, that English awards are given without reasons.
7. In
this important respect English arbitral awards differ from those of most other
countries. In the case of arbitrations held under the laws of Belgium, the
Federal Republic of Germany, France, Italy and the Netherlands, the giving of
reasons is normally obligatory. When it comes to enforcing an English arbitral
award in a foreign country, there is always some doubt whether objection may
not be taken to it on the ground that it is "unmotivated", to use the
continental term, although the Committee knows of no case in which this
objection has yet been upheld.......
..........................................................
The
alternative of judicial review based on reasoned awards
25.
The existing obstacle to a judicial review based upon reasoned awards is the
power and the duty of the Court to set aside awards for error on their face.
This 174 obstacle could easily be removed and this system would then have
considerable attractions.
26. In
every case an arbitrator would be free to give reasons for his award. This would
in itself be an improvement, if arbitrators took advantage of the facility.
The
making of an award is, or should be, a rational process.. Formulating and
recording the reasons tends to accentuate its rationality. Furthermore,
unsuccessful parties will often, and not unreasonably, wish to know why they
have been unsuccessful. This change in the law would make this possible.
27.
Given a reasoned award, an unsuccessful party could know whether he had a just
cause for complaint. Where no reasons were given initially and he thought that
an error had been made, he could ask for reasons to be supplied. If the
arbitrator refused to supply them, the Court could, in appropriate cases, order
him to do so. This would be no great burden on the arbitrator provided that the
application was made promptly. He would have had some reasons for making the
award and all that he would need to do would be to summarize them in ordinary
language. Nothing formal would be required.
28.
Armed with the reasons for an award, the unsuccessful party could apply to the
Court for leave to appeal. The right of appeal could be restricted to questions
of law arising out of the decision, leaving all questions of fact to be decided
finally by the arbitrator. Furthermore, unlike the position when the Court is
being asked to order an arbitrator to state an award in the form of a special
case, the Court would know whether any particular question of law really arose
for. decision since both it and the parties would have access to the facts as
found by the arbitrator. Additional restrictions could be imposed on the
circumstances in which leave to appeal would be given and in which a further
appeal to the Court of Appeal would be permitted.
29. An
additional advantage of a change to reasoned awards lies in the fact that this
would tend to assimilate English awards to those made in other countries, thus
mak175 ing English awards more acceptable and readily enforceable abroad.
30.
Finally, there would be the great advantage that every award would be a final
award and immediately enforceable as such, subject only to the right of the
Court in appropriate cases to impose a stay of execution pending an appeal.
Such a stay could, of course, be granted subject to conditions, such as that
the amount awarded be brought into Court.
31. In
a word, a system of judicial review based upon reasoned awards would place very
grave obstacles in the way of those seeking unmeritoriously to avoid meeting
their just obligations, would improve the standard of awards and would render
them more easily and speedily enforceable. The same system is used for the
review of decisions of the industrial tribunals and of the restrictive
Practices Court and has worked well.
Recommendations
on judicial review
32. In
the light of these considerations the Committee makes the recommendations set
out below.
33.
The system of judicial review based upon the special case procedure should be
replaced by one based upon reasoned awards. This would involve comparatively
minor amendments to the 1950 Act. Section 21 would be repealed and the Court
would be deprived of the power and duty to set an award aside because of errors
of fact or law on the face of the award. Arbitrators would be encouraged to
give reasons for their awards, but would only be obliged to do so if it was
necessary for the purposes of the new review procedure.
A new
section 21 would define the right of appeal to the High Court.
34.
The new fight of appeal would be confined to questions of law, all decisions on
questions of fact being for the arbitrator alone." After the submission of
the report the British Parliament enacted the Arbitration Act, 1979.
Sub-sections (1), (2), (5) and (6) of section 176 1 of the English Arbitration
Act, 1979 which are material in this case read thus:
"1.
Judicial review of arbitration awards--(1) In the arbitration Act 1950 (in this
Act referred to as 'the principal Act') section 21 (statement of case for a
decision of the High Court) shall cease to have effect and, without prejudice
to the right of appeal conferred by sub-section (2) below, the High Court shall
not have jurisdiction to set aside or remit an award on an arbitration
agreement on the ground of errors of fact or law on the face of the award.
(2)
Subject to sub-section (3) below, an appeal shall lie to the High Court on any
question of law arising out of an award made on an arbitration agreement; and
on the determination of such an appeal the High Court may by order-(a) confirm,
vary or set aside the award; or (b) remit the award to the reconsideration of
the arbitrator or umpire together with the court's opinion on the question of
law which was the subject of the appeal; and where the award is remitted under
paragraph (b) above the arbitrator or umpire shall, unless the order otherwise
directs, make his award within three months after the date of the order.
...........................................................
(5)
Subject to sub-section (6) below, if an award is made and, on an application
made by any of the parties to the reference-(a) with the consent of all the
other parties to the reference, or (b) subject to section 3 below, with the
leave of the court, it appears to the High Court that the award does not or
does not sufficiently set out the reasons for the award, the 177 court may
order the arbitrator or umpire concerned to state the reasons for his award in
sufficient details to enable the court, should an appeal be brought under this
section, to consider any question of law arising out of the award.
(6) In
any case where an award is made without any reason being given, the High Court
shall not make an order under sub-section (5) above unless it is satisfied-(a)
that before the award was made one of the parties to the reference gave notice
to the arbitrator or umpire concerned that a reasoned award would be required;
or (b) that there is some special reason why such a notice was not given."
Section 2 of the said Act of 1979 empowered the High Court to determine any
preliminary point of law arising in the course of an arbitration reference
under certain circumstances. It is urged that in view of the fact that similar
safeguards which are available in the English Law do not exist in the Indian
Law, it is necessary that this Court should hold that there is an implied
obligation on the part of the arbitrator or umpire to give reasons for the
award unless the parties to the dispute agree that no such reasons need be
given.
A
reference was made in the course of the arguments to the decision of this Court
in Rohtas Industries Ltd. & Anr. v. Rohtas Industries Staff Union and Ors., [1976] 3 S.C.R.
12 in
which an award passed by the arbitrators under section 10-A of the Industrial
Disputes Act, 1947 had been struck down by the High Court in part and appeals
filed against the decision of the High Court were under consideration by this
Court. In that case the appellants contended that an award under section 10-A
of the Industrial Disputes Act, 1947 was equivalent to an award made in a
private arbitration and was not amenable to correction under Article 226 of the
Constitution of India. But this Court rejected this said contention by
observing at page 26 thus:
"
.... Suffice it to say that a reference to arbitration under s. 10A is
restricted to existing or apprehended industrial disputes. Be it noted that we
are not concerned with a private arbitration, but a statutory one governed by
the Industrial Disputes Act, deriving its validity, enforceability 178 and
protective mantle during the pendency of the proceedings, from s. 10A.
A
distinction was thus made between statutory arbitrations under section 10-A of
the Industrial Disputes Act and private arbitrations. It is not necessary to
refer to the other cases cited before us which have a bearing on section 10-A
of the Industrial disputes Act, 1947.
The
question which arises for consideration in these cases is whether it is
appropriate for this Court to take the view that any award passed under the
Act, that is, the Indian Arbitration Act, 1940 is liable to be remitted or set
aside solely on the ground that the arbitrator has not given reasons thus
virtually introducing by a judicial verdict an amendment to the Act when it has
not been the law for nearly 7/8 decades. The people in India as in other parts of the world such
as England, U.S.A. and Australia have become accustomed to the
system of settlement of disputes by private arbitration and have accepted
awards made against them as binding even though no reasons have been given in
support of the awards for a long time. They have attached more importance to
the element of finality of the awards than their legality. Of course when
reasons are given in support of the awards and those reasons disclose any error
apparent on the face of the record people have not refrained from questioning
such awards before the courts. It is not as if that people are without any
remedy at all in cases where they find that it is in their interest to require
the arbitrator to give reasons for the award. In cases where reasons are
required, it is open to the parties to the dispute to introduce a term either
in the arbitration agreement or in the deed of submission requiring the
arbitrators to give reasons in support of the awards. When the parties to the
dispute insist upon reasons being given, the arbitrator is, as already observed
earlier, under an obligation to give reasons. But there may be many
arbitrations in which parties to the dispute may not relish the disclosure of
the reasons for the awards. In the circumstances and particularly having regard
to the various reasons given by the Indian Law Commission for not recommending
to the Government to introduce an amendment in the Act requiring the
arbitrators to give reasons for their awards we feel that it may not be
appropriate to take the view that all awards which do not contain reasons
should either be remitted or set aside. A decision on the question argued
before us involves a question of legislative policy which should be left to the
decision of Parliament. It is a well-known rule of construction that if a
certain interpretation has been uniformly put upon the meaning of a 179 statute
and transactions such as dealings in property and making of contracts have
taken place on the basis of that interpretation, the Court will not put a
different interpretation upon it which will materially affect those
transactions. We may refer here to the decision of the Court of Appeal rendered
by Lord Evershed M.R. in Brownsea Havel Properties v. Poole Corpn., [1958] Ch.
574 (C.A.) in which it is observed thus:
"There
is well-established authority for the view that a decision of long standing, on
the basis of which many persons will in the course of time have arranged their
affairs, should not lightly be disturbed by a superior court not strictly bound
itself by the decision." Courts should be slow in taking decision which
will have the effect of shaking rights and titles which have been rounded
through a long time upon the conviction that a particular interpretation of law
is the legal and proper one and is one which will not be departed from.
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 a 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 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 and
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. As stated elsewhere in the course
of this judgment if the parties to the dispute feel that reasons should be
given by the arbitrators for the awards it is within their power to insist upon
such reasons being given at the time when they enter into arbitration agreement
or sign the deed of submission.
It is
significant that although nearly a decade ago the Indian Law Commission
submitted its report on the law of arbitration specifically mentioning therein
that there was no necessity to amend the law of arbitration requiring the
arbitrators to give reasons, Parliament has not chosen to take any step in the
direction of the amendment of the 180 law of arbitration. Even after the
passing of the English Arbitration Act, 1979 unless a court requires the
arbitrators to give reasons for the award (vide sub-sections (5) and (6) of
section 1 of the English Arbitration Act, 1979, an award is not liable to be
set aside merely on the ground that no reasons have been given in support of
it.
It is true
that in two cases one decided by the High Court of Delhi and another decided by
the High Court of Orissa there are some observations to the effect that it
would be in the interests of justice if the arbitrators are required to give
reasons for their awards because in recent years the moral standards of
arbitrators are going down. But generally this Court and all the High Courts
have taken the view that merely because the reasons are not given an award is
not liable to be remitted or set aside except where the arbitration agreement
or the deed of submission, or an order made by the court such as the one under
section 20 or section 21 or section 34 of the Act or the statute governing the
arbitration requires that the arbitrator or umpire should give reasons for the
award. The arbitrators or umpire have passed the awards which are involved in
the cases before us relying on the law declared by this Court that the awards
could not be questioned merely on the ground that they have not given reasons.
At the same time it cannot also be said that all the awards are contrary to law
and justice.
In
this situation it would be wholly unjust to pass an order either remitting or
setting aside the awards, merely on the ground that no reasons are given in
them, except where the arbitration agreement or the deed of submission or an
order made by the court such as the one under section 20 or section 21 or
section 34 of the Act or the statute governing the arbitration required that
the arbitrator or the umpire should give reasons for the award.
There
is, however, one aspect of non-speaking awards in nonstatutory arbitrations to
which Government and Governmental authorities are parties that compel
attention. The trappings of a body which discharges judicial functions and required
to act in accordance with law with their concomitant obligations for reasoned
decisions, are not attracted to a private adjudication of the nature of
arbitration as the latter, as we have noticed earlier, is not supposed to exert
the State's sovereign judicial power. But arbitral awards in disputes to which
the State and its instrumentalities are parties affect public interest and the
matter of the manner in which Government and its instrumentalities allow their
interest to be affected by such arbitral adjudications involve larger questions
of policy and public interest. Government and its instrumentalities cannot
simply allow large financial interests of the 181 State to be prejudicially
affected by non-reviewable--except in the limited way allowed by the
Statute--non-speaking arbitral awards. Indeed, this branch of the system of
dispute-resolution has, of late, acquired a certain degree of notoriety by the
manner in which in many cases the financial interests of Government have come
to suffer by awards which have raised eye-brows by doubts as to their rectitude
and propriety. It will not be justifiable for Governments or their
instrumentalities to enter into Arbitration agreements which do not expressly
stipulate the rendering of reasoned and speaking awards. Governments and their
instrumentalities should, as a matter of policy and public interest--if not as
a compulsion of law--ensure that wherever they enter into agreements for
resolution of disputes by resort to private arbitrations, the requirement of
speaking awards is expressly stipulated and ensured. It is for Governments and
their instrumentalities to ensure in future this requirement as a matter of
policy in the larger public interest. Any lapse in that behalf might lend
itself to and perhaps justify, the legitimate criticism that Government failed
to provide against possible prejudice to public-interest.
Having
given our careful and anxious consideration to the contentions urged by the
parties we feel that law should be allowed to remain as it is until the
competent legislature amends the law. 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 under section 20 or section 21 or section 34 of the
Act or the statute governing the arbitration requires that the arbitration or
the umpire should give reasons for the award. These cases will now go back to
the Division Bench for disposal in accordance with law and the view expressed
by us in this decision.
R.S.S.
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