Smt. Saroj Bala vs Rajive Stock Brokers Ltd. And Anr.
2005 Latest Caselaw 463 Del

JUDGMENT

T.S. Thakur, J.

1. The respondent company is a member of the National Stock Exchange while the petitioner is a constituent who deals in stocks and shares. Disputes between the petitioner and the respondent company having arisen, the same were referred for adjudication to Col. Gujral G. Singh. who was appointed an arbitrator in terms of the bye-laws, rules and regulations of the stock exchange. Before the arbitrator as against the petitioner's claim for a sum of Rs.24,30,794/-, the respondent company made a counter claim of Rs. 3,33,691/-. By his award dated 25.02.2002, the arbitrator has rejected both the claims. While the petitioner's claim has been rejected on the ground that the same has not been substantiated, the claim made by the respondent has been turned down on the ground that the same is beyond the period of limitation prescribed for the same. Aggrieved, the petitioner has challenged the award on several grounds in so far as the same rejects her claim. The respondent company has not, however, assailed the award or appeared to contest the present application under Section 34 of the Arbitration and Conciliation Act, 1996. Consequently, the award, in so far as it rejects the claim made by the respondent, has attained finality. The only question left to be determined is whether the award in so far as it rejects the claim of the petitioner also suffers from any infirmity apparent on the face of the record so as to warrant interference with the same in the present proceedings.

2. Appearing for the petitioner, Mr. Kumar argued that the award in so far as it pertains to the claim of the petitioner, was on the face of it, unsustainable. He urged that the arbitrator was, in terms of Section 31(3) of the Arbitration and Conciliation Act, 1996, obliged to give reasons in support of his conclusion. The failure of the arbitrator to do so was, according to the learned counsel, a ground sufficient to justify setting aside of the award and remission of the matter to another arbitrator to be appointed by this court. Reliance in support of that submission was placed by Mr. Kumar upon the decisions of the Supreme Court in Tamil Nadu Electricity Board v. Bridge Tunnel Constructions and Ors. , Oil and Natural Gas Corporation Ltd. v. Saw Pipes Ltd. and the judgment of the High Court of Bombay in Vashdev Morumal Sawlani v. Yogesh Mehta and Anr. (2002) 2 Mh.LJ 76. Reliance was also placed upon a Single Bench decision of the High Court of Himachal Pradesh in Astra Construction Pvt. Ltd. v. State of Himachal Pradesh 2002 (Vol. 108) Company Cases 711.

3. Section 31(3) of the Arbitration and Conciliation Act, 1996 reads as follows:-

"(3) The arbitral award shall state the reasons upon which it is based, unless-

(a) the parties have agreed that no reasons are to be given, or

(b) the award is an arbitral award on agreed terms under section 30."

4. A plain reading of the above would show that the arbitral tribunal is under an obligation to state the reasons upon which it makes its award. That obligation would disappear only in two situations namely:-(i) where the parties have agreed that no reasons are to be given by the arbitrator or (ii) where the award is based on agreed terms under Section 30. The present case does not fall in anyone of those situations. Neither the arbitration clause on the basis whereof the reference in question was made nor any subsequent agreement arrived at between the parties at any stage prior to the making of the award, dispensed with the requirement of the arbitrator recording his reasons. It is also not a case where the award is based on agreed terms under Section 30 of the Act. There is, therefore, no gainsaying that the arbitrator was, in the instant case, obliged to state his reasons in support of the conclusions drawn by him in the award. The question is whether that requirement has been satisfied. An answer to that would necessarily depend upon how the arbitrator has dealt with the claim made before him in the impugned award. The award runs into 2 -+ pages in which the arbitrator has recalled the stands taken by each party and then addressed himself to the question whether the claim made by the petitioner was barred by limitation. One of the inferences which the arbitrator has drawn in the award after noticing the background in which the claims have been made, is that the petitioner's claim was time barred, although the award remains silent as to how and under what provision of Limitation Act, such a bar arises. What is significant is that having said that the claim is time barred, the arbitrator considers it to be prudent to examine the same on merits. While doing so, the arbitrator has, after referring to the claim and the reply of the respondent, concluded as under:-

"Examination of Accounts. I examined each and every entry on which the Applicant had based his claim and also examined the documents produced by both the parties to substantiate the claim. Bills, Contract-Notes, Statements of Accounts, Bank Statements and all other relevant documents were perused in the presence of both the parties and inferences drawn. It was conclusively proved that the Respondent's reply was correct and the Applicant did not have any case for his claim."

5. It is evident from the above that the arbitrator has, apart from stating that the perusal of statements of accounts, bank statements and other relevant documents conclusively proved that the respondent's reply was correct and the claimant had no case, omitted to give any reasons for that conclusion.

6. The obligation to record reasons has a salutary purpose to serve. The parties to a lis whether before a court or a domestic forum chosen by the parties like the arbitrator, are entitled to know the reasons that led to the success or the failure of a claim brought before it. The need for disclosure of reasons in support of the conclusions is essential also because it is the disclosure of reasons alone that can effectively demonstrate that the arbitrator or the court before whom the matter was brought had applied its mind. Application of mind by the authority deciding an issue in controversy, is a sine qua non for a proper exercise of the jurisdiction vested in any authority determining the rights and obligations of the parties. The duty to act judicially arises from the nature of the jurisdiction exercised by the authority. Implicit in the duty to act judicially is the obligation to pass an order only after due and proper application of mind.. Application of mind in turn can be demonstrated by the disclosure of the mind which is best done by recording reasons for the conclusion drawn by the authority. That apart, an award made by an arbitral tribunal is open to challenge before the court under Section 34 of the Act. The decision of the Supreme court in Oil and Natural Gas Commission (supra) has dealt with and elucidated the scope and parameters of the jurisdiction of the court to examine the validity of the arbitral awards. Disclosure of reasons except in cases where parties agree that the same need not be recorded would, therefore, provide a vital key to the court exercising jurisdiction under Section 34 of the Act to examine whether the award suffers from any illegality to call for modification or setting aside of the same. The necessity of recording reasons cannot, thus, be undermined, having regard especially to the fact that arbitration as an alternative dispute resolution mechanism is catching up and cases involving stakes and issues of far reaching importance in the commercial world are being referred for adjudication by arbitration.

7. Judged in the above background, the award made by the arbitrator, does not, in my opinion, satisfy the requirements of Section 31(3) inasmuch as the arbitrator has not, apart from saying that the claims have not been established, recorded any reason why the same have not been proved. Simply stating that the arbitrator has perused and compared statements of accounts and other documents from which it is proved that the respondent's reply was correct and the applicant did not have any case for his claim is not in my opinion tantamount to recording reasons in support of the award or the conclusion drawn therein. The arbitrator was required to broadly indicate, if not in minute detail the reasons for which he considered the claim to be unsupported or disproved by the documentary evidence placed before him. This the arbitrator has obviously failed to do leaving no option for me except to set aside the award.

8. I accordingly allow this petition, set aside the award made by the arbitrator in so far as the same rejects the claim of the petitioner claimant before him. Having regard to the nature of the controversy and keeping in view the need for providing an independent forum to resolve the disputes, I direct that the claim made by the petitioner shall stand remitted and referred to the arbitration of Justice P.N. Nag, former Judge of this Court. Keeping in view the nature of the claim and the fact that it is going to be a second round of litigation for the parties, I direct that the arbitrator shall be entitled to claim a fee of Rs. 5500/- per hearing subject to an optimum of Rs. One lakh. The parties shall deposit the amount in equal proportions during the course of the arbitration proceedings as and when directed by the arbitrator. Since the respondent is not represented, the arbitrator shall issue notice to it before proceeding further. The records of the erstwhile arbitrator shall be sent to the new arbitrator to ensure that the same reaches the arbitrator within six weeks from today.

9. No costs.