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TMI Blog1989 (5) TMI 314X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 prefer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 commenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 or refuses to act, or is incapable of acting, or dies, and the arbitration agreement does not show that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase 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 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 con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration 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) 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 arbitrati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 procu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. "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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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, untrammelle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ator 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, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Chancellor from the duty to give reasons but the Council on Tribunals must be consulted on any proposal to do so. As already stated, 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' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ond 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. 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 Arbitrati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 repeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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., [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bitrator 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 statute a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 legisla ture 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 secti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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