1989 (5) TMI 314 - SC - Companies Law

Arbitration Awards Not Void for Lack of Reasons: Supreme Court Clarifies

The Supreme Court held that an award under the Arbitration Act, 1940, is not subject to remittance or setting aside solely due to the absence of reasons, ... 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? Held that:- 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 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. Issues Involved:1. Whether an award under the Arbitration Act, 1940, is liable to be remitted or set aside merely because it does not contain reasons.Detailed Analysis:Issue 1: Liability of an Award to be Remitted or Set Aside for Lack of ReasonsThe primary question addressed is whether an award under the Arbitration Act, 1940, can be remitted under Section 16(1)(c) or set aside under Section 30(c) merely because the arbitrator or umpire did not provide reasons for the award.Historical Context and Comparative Analysis:- English Law: Historically, English commercial arbitration favored non-reasoned awards for their speed and finality. The English Arbitration Act of 1950 and subsequent 1979 Act did not mandate reasons unless specified by the arbitration agreement or directed by the court.- U.S. Law: Arbitrators in the U.S. are generally not required to provide reasons unless stipulated by statute or the arbitration agreement.- Australian Law: Similar to the U.S., Australian arbitrators are not obligated to give reasons unless required by specific statutory provisions.Indian Law of Arbitration:- The Arbitration Act, 1940, is a comprehensive code governing arbitration in India. It allows for arbitration without court intervention, with court intervention where no suit is pending, or in a suit.- Sections 15, 16, 17, and 30 of the Act outline the court's powers to modify, remit, or set aside awards. Notably, the Act does not explicitly require arbitrators to provide reasons for their awards.- Historical legislative context shows that the requirement for reasons in awards was not a part of the Indian Arbitration Act, 1899, nor the Second Schedule of the Civil Procedure Code, 1908.Judicial Precedents:- Champsey Bhara & Co. v. Jivraj Balloo Spinning and Weaving Co. Ltd.: Established that errors of law apparent on the face of the award could be grounds for setting aside the award.- Seth Thawardas Pherumal v. Union of India: Affirmed that an error of law on the face of the award falls under Section 16(1)(c) of the 1940 Act.- Jivarajbhai Ujamshi Sheth v. Chintamanrao Balaji: Held that an award could be set aside for an error of law on the face of the record but emphasized the limited scope of judicial intervention in arbitration awards.Law Commission Report:- The Seventy-sixth Report of the Law Commission of India in 1978 recommended against making it obligatory for arbitrators to provide reasons, citing potential challenges to awards and the practical difficulties faced by lay arbitrators.Supreme Court's Conclusion:- The Court noted the longstanding acceptance of non-reasoned awards in India and other jurisdictions and the importance of finality in arbitration.- It emphasized that parties could stipulate the requirement for reasons in their arbitration agreements if they so desired.- The Court concluded that it would be inappropriate to judicially mandate a requirement for reasons in awards, which would effectively amend the law. It left such policy decisions to the legislature.- The Court also highlighted the importance of reasoned awards in arbitrations involving the government and public interest, suggesting that government entities should ensure reasoned awards in their arbitration agreements.Final Holding:An award under the Arbitration Act, 1940, is not liable to be remitted or set aside merely for the lack of reasons unless:- The arbitration agreement or deed of submission requires reasons.- An order under Sections 20, 21, or 34 of the Act or the governing statute mandates reasons.The cases were remanded to the Division Bench for disposal in accordance with the Court's view.