TaxTMI 
TaxTMI 
1989 (5) TMI 314
X X X X Extracts X X X X
X X X X Extracts X X X X
....n respect of 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 expresse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ude 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 or refuses to act, or is incapable of acting, or d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion 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 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s 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) 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 p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion 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, name....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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. "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 th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ovided 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... reached his conclusion where it is not disclosed by the terms of his, award. "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 o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ficult 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. 4.45. There are, it seems to us, several consideration that are relevant in determining the question whether an arbitrator should ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iving 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, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g the arbitrator or umpire to give reasons for the award. 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 m....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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, 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 Co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 Cent....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re 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. 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rd 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 enforcin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ven 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 making 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he 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 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 arbit....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld 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 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 o....