Jai Singh vs Dda & Others
2008 Latest Caselaw 1534 Del

     *IN THE HIGH COURT OF DELHI AT NEW DELHI

+                    OMP No. 152/2002


%                                    Date of decision : 04.09.2008


JAI SINGH                                          ....... Petitioner
                               Through: Mr Sudhanshu Batra with
                               Mr Bhuwan Gugnani, Advocates


                                  Versus



DDA & OTHERS                                      ....... Respondents
                                 Through : Mr Bhupesh Narula, Advocate.


CORAM :-
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW

1.       Whether reporters of Local papers may       YES
         be allowed to see the judgment?

2.       To be referred to the reporter or not?      YES

3.       Whether the judgment should be reported           YES
         in the Digest?


RAJIV SAHAI ENDLAW, J.

1. The questions which fall for consideration in this petition under

Section 34 of the Arbitration and Conciliation Act, 1996 are two

folds.

Firstly, whether the expressions -

"(a) the claimants have failed to establish incontrovertibly the claim

in terms of the agreement......"

"(b) the claim is not in terms of the agreement; besides was not

established incontrovertibly......"

OMP 152/2002 Page No 1 of 14 used by an arbitrator for disallowing the claim can constitute

reasons for disallowing the claims; and

Secondly, if in pursuance to such an award, the claimant

accepts the amounts awarded by the arbitrator (mostly on

admissions of the respondents), can the claimant be debarred from

challenging the award.

2. The arbitration proceedings were governed by the 1996 Act.

The Arbitration proceedings were in pursuance to an arbitration

agreement which itself provided that "in all cases where the amount

of the claim in dispute is Rs 50,000/- (Rupees fifty thousand only) and

above, the arbitrator will give reason for the award."

3. The counsel for the respondent contended that from the

perusal of record of arbitration proceedings it will be found that the

claims of the petitioner were not in terms of the contract and/or

were not established and thus the award stating so amounted to

giving reasons for rejection of the claim. Reliance was placed on

Gujrat Water Supply And Sewerage Board V Unique

Erectors(Gujrat) Pvt Ltd. AIR 1989 S.C. 973 where record of

arbitration proceedings was seen by the Apex Court to determine

whether the arbitrator had committed an error or not and it was held

that it is not obligatory for the arbitrator to give reasons for his

decision, as long as the arbitrator has indicated his mind and where

the award cannot be called unintelligible. The respondent has

similarly relied upon the judgment of a Single Judge of the Patna

High Court in State of Bihar v Shri Gopal Chandra Palit 1996 (2)

OMP 152/2002 Page No 2 of 14 Arbitration Law Reporter 30 holding that the court cannot probe the

mental process of the arbitrator and speculate.

4. Needless to state that both the aforesaid judgments, relied

upon by the counsel for the respondent, are under 1940 Act. Section

31(3) of the 1996 Act, in contradistinction to the 1940 Act, requires

the arbitral award to state the reasons upon which it is based unless

the parties have agreed that no reasons are to be given or the

arbitral award is on agreed terms under Section 30 of the Act.

Neither of the exceptions apply to the present case. On the contrary

the contract expressly was to give reasons. Section 28(3) of the 1996

Act further provides that the arbitral tribunal shall decide in

accordance with the terms of the contract. The terms of the

contract, as aforesaid, also required the arbitrator to give reasons.

The Apex Court in Oil & Natural Gas Corporation Ltd. v. SAW

Pipes Ltd. AIR 2003 SC 2629 has already held that an award which

is contrary to the terms of the agreement between the parties is

liable to be set aside under Section 34 of the Act. Thus, if it is found

that the expression used by the arbitrator for rejecting claims does

not tantamount to giving reasons, the award would be contrary to

the terms of the contract between the parties.

5. The Oxford's English Dictionary defines reason as a cause,

explanation or justification or as a good or obvious cause to do

something or as logic or a premise of an argument in support of a

belief. The Black's Law Dictionary defines reason as a faculty of

mind by which it distinguishes truth from falsehood, good from evil

and which enables the possessor to deduce inferences from facts or

OMP 152/2002 Page No 3 of 14 from propositions. Websters Dictionary also defines reason as the

cause that makes a phenomenon intelligible.

6. Reason is the foundation, explanation, consideration,

rationale or a ground for an action. It is the statement of a fact

employed as an argument to justify or condemn some act. It is a fact

or circumstance forming a ground or motive leading or sufficient to

lead a person to reject or adopt some course of action or belief.

7. What has to be examined is, whether the arbitrator saying that

the claim is rejected because it is not in accordance with the

agreement or that it has not been established fulfills the requirement

of law of the Award stating reasons on which it is based. In my view,

these expressions cannot constitute foundation or explanation and do

not enable inferences to be drawn and do not make the phenomenon

of rejection of claim intelligible and thus cannot be held to constitute

"Reasons". They are at best conclusions based on reasons, which the

Award does not state. Thus, there is no compliance of terms of

contract or of law, requiring reasons to be stated.

8. Reliance can be placed on the Division Bench Judgment of this

court in College of Vocational Studies v S.S. Jaitely AIR 1987

Delhi 134 holding that in the reasoned award what is expected from

the arbitrator is that he should indicate his mind whereby it can be

ascertained as to how he arrived at a particular conclusion; the

arbitrator is required to indicate the trend of his thought process but

not his mental meanderings. It was further held in the said

judgment that mere conclusion and verdict would not be sufficient

OMP 152/2002 Page No 4 of 14 and reasons are the links on the material, documentary or oral

evidence, adduced before the arbitrator on which certain inferences

are drawn and conclusions are made and that there must be some

rational nexus between the two indicated in the award. The counsel

for the petitioner has also relied upon Jajodia (Overseas) Pvt. Ltd.

v. Industrial Development Corporation of Orissa Ltd 1993 (2)

SCC 106 where also it was held that mere giving of answers to the

issues in the award would not constitute a speaking and a reasoned

award.

9. The reliance by the counsel for the respondent on Gujarat

Water Supply & Sewerage Board (supra) is misconceived. In that

case the arbitral record was looked into to determine whether an

issue, on account of non decision whereof the award was sought to

be set aside, had been given up or not and not to find out the

reasons. Moreover, when the 1996 Act requires the award to state

the reasons, the said requirement cannot be said to be fulfilled by

arguing that though the award gives conclusions only, the reasons

for such conclusions can be deciphered from the arbitral record.

10. It cannot also be lost sight of that the arbitration arises from

standard form contract between the respondent as one of the largest

employers and the petitioner as contractor. Generally such

contractors are at the same time awarded several or successively

awarded contracts by the respondent. Such contractors work in

close contact with the officials of respondent. The arbitration is also

of officers/nominees of the respondent. To my mind, the awards in

claims of Rs 50,000/- or more are required to give reasons so as to

OMP 152/2002 Page No 5 of 14 give a finality to the award, if the parties are satisfied with the

reasons. From the award in the present case, there is no scope for

the petitioner to satisfy himself as to the correctness of the

conclusions reached by the arbitrator and the advisability of

challenging the same.

11. There is yet another aspect of the matter. The arbitral awards

are subject to challenge before the court. The scope of challenge

has now been laid down in Saw Pipes Ltd (supra). The award on

the face of it ought to enable the court to determine whether it is in

accordance with law. However, if the arbitrator merely states that

the claim is not in accordance with agreement or has not been

established, in the name of "stating reasons", the court will be

compelled to peruse the records to determine whether the

conclusions reached by the arbitrator are in accordance with law or

not. This is not the scope of enquiry while entertaining challenges or

objections to arbitral awards.

12. The requirement to state reasons in the award cannot be

undermined. The Apex Court in S.N. Mukherjee v Union of India

(1990) 4 SCC 594 included the recording of clear and explicit

reasons by authorities exercising quasi judicial function in the

principles of natural justice. Again, notwithstanding constitution

Bench judgment in Raipur Development Authority v Chokamal

Contractors (1989) 2 SCC 721 (holding that till the legislature

amends the law, arbitrators are not required to give reasons), in

M.L. Jaggi v MTNL (1996) 3 SCC 119, without even amendment of

law, the Apex Court held that the arbitrator under Section 7B of the

OMP 152/2002 Page No 6 of 14 Telegraph Act is enjoined to give reasons in support of his decisions.

Now, the law has been amended and the arbitral award is required

to state reasons, the importance of which even the constitution

bench of Apex Court had emphasized. The said important

requirement cannot be permitted to be whittled down by allowing

conclusions in the garb of reasons, in the arbitral awards.

13. The expressions used by the arbitrator for disallowing most of

the claims of the claimant are to be interpreted in the light of the

aforesaid position. Can they be stated to the reasons for not allowing

the claims. The counsel for the respondent contends that the same

does constitute reasons inasmuch as the arbitrator has disallowed

the claim on two grounds/reasons - firstly that it is not in terms of

the agreement and secondly that it was not established

incontrovertibly by the petitioner/claimant. He contends that this

court cannot go into the sufficiency of the reasons. In my view,

merely stating that the claim is not in terms of the agreement or has

not been established does not link the material before the arbitrator

to the conclusion and does not make the phenomenon of such

conclusion intelligible. The counsel for the respondent contends that

the entire voluminous record which is now before this court was

before the arbitrator and the award itself discloses about 50

hearings which were held and, in the circumstances, it ought to be

held that the arbitrator, on perusal of the entire material/record

before him, has found the claims not to be in terms of the agreement

and/or having not been established by the petitioner.

OMP 152/2002 Page No 7 of 14

14. In my view, holding so would tantamount to allowing the

arbitrator to act as an amiable compositeur without the parties

having agreed to do so. Section 28(2) provides that the arbitral

tribunal shall decide ex aequo et bono or as amiable compositeur

only if the parties have expressly authorized it to do so. Russell on

Arbitration 21st Edition at page 163 reads as under:

"The Tribunal has a duty to decide a dispute in accordance with the legal rights of the parties, rather than in what the tribunal considers a fair and reasonable way, unless there is specific agreement between the parties to the contrary. The tribunal may be specifically instructed by the arbitration agreement to decide the disputes on some basis other than the law; an agreement to this effect has generally become known as an "equity clause". For example, the parties may agree that the tribunal is to decide the dispute in accordance with concepts variously known as "honourable engagement", "amiable compositeur" "equity", "ex aequo et bono", the "general principles of law recognized by civilized nations" or the "lex mercatoria". The expression "lex mercatoria" is not found in arbitration clauses, and some commentators have doubted whether it has any meaning. Those who do assign it a meaning differ as to whether it is a separate body of international commercial law or equivalent to freedom from strict legal constraint. Various wordings are encountered in arbitration agreements, and each has to be carefully interpreted."

Black's Law Dictionary defines the term "Ex aequo et bono" as "in justice & fairness" or according to equity and good conscience. The word, "amiable compositeur" is a French term. It means a person who adopts a flexible approach brimful with fairness and reality. Section 46 (i) (b) of the English Arbitration Act 1996 permits the arbitrator to decide the dispute in accordance with such other considerations as are agreed or determined. RUSSELL on ARBITRATION, 21st Edn. at page 164 states as under on the subject.

"The courts will interpret the new statutory provisions allowing a tribunal to decide a dispute in accordance with such other considerations as are agreed or determined as obliging them to uphold equity clauses.

In agreeing that a dispute shall be resolved this way,

OMP 152/2002 Page No 8 of 14 the parties are in effect excluding any right to appeal to the court, there being no question of law to appeal.

Special transitional provisions apply to equity clauses to prevent retrospective changes to their meaning, Section 46(i) (b) of the Arbitration Act, 1996 does not apply to arbitration agreements that were made before the Act came into force (on January 31, 1997)."

Sir Michael J. Mustill and Stewart C. Byod in "Commercial Arbitration" IInd Edn. at page 606 state as follows:

"A commercial arbitration agreement may contain a stipulation or a clause by which arbitrators are empowered not to apply strict or settled principles of law in the settlement of a dispute referred to them, but instead to settle such dispute by the application of what they may deem to be fair and reasonable. In other words, such arbitrators are then meant to act as amiables compositeurs. Considering that an agreement between the parties to an arbitration reference constitutes an essential basis for the establishment of conduct of a commercial arbitration, one would expect any such stipulation on clause in an arbitration agreement to be observed by arbitrators without judicial intervention. Obviously commercial arbitrators cannot be presumed to be entitled to settle a dispute referred to them by applying what they deem to be fair and reasonable, in the absence of a specific authorization in an arbitration agreement. As an English appellant court Judge had occasion to stress in a recent symposium on international commercial arbitration. "The arbitrator must not act as amiable compositeur unless authorized to do so."

15. The legislature obviously was not satisfied with merely

requiring the arbitral award to state reasons but also expressly

provided that, as under the 1940 Act, a mere statement of the

arbitrator to the effect that on consideration of entire material or in

the entirety of the facts and circumstances of the case or on perusal

of the evidence or that no case is made out, the arbitrator shall not

be entitled to make an award. Such expressions are used only by an

amiable compositeur, whom the parties have chosen owing to his

familiarity with the disputes and who, if so authorized by the parties,

OMP 152/2002 Page No 9 of 14 is permitted by the 1996 Act to make an award in such fashion.

However, an arbitrator who is not an amiable compositeur is not

permitted under the Act to decide the matter using such expression.

16. In my view, the requirement of the arbitral award under the

1996 Act to give reasons is something more than the requirement

even in an agreement of arbitration of a reasoned award. The

constitution bench of Apex Court in Raipur Development

Authority (supra), in para 37 emphasised the need to give reasons

by holding:

"37. There is, however, one aspect of non-speaking awards in non-statutory 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 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

OMP 152/2002 Page No 10 of 14 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."

17. The Apex Court recently in Mc Dermott International Inc V

Burn Standard Co. Ltd & Ors (2006) SLT 345 has quoted with

approval the following passage from Bachawat's Law of Arbitration

and Conciliation, Fourth Edition, pages 855-856:

".......Reason is a ground or motive for a belief or a course of action, a statement in justification or explanation of belief or action. It is in this sense that the award must state reasons for the amount awarded.

The rationale of the requirement of reasons is that reasons assure that the arbitrator has not acted capriciously. Reasons reveal the grounds on which the Arbitrator reached the conclusion which adversely affects the interests of a party. The contractual stipulation of reasons means, as held in Poyser and Mills' Arbitration In Re, "proper adequate reasons". Such reasons shall not only be intelligible but shall be a reason connected with the case which the Court can see is proper. Contradictory reasons are equal to lack of reasons.

The meaning of the word "reason" was explained by the Kerala High Court in the context of a reasoned award..........

"Reasons are the links between the materials on which certain conclusions are based and the actual conclusions....."

A mere statement of reasons does not satisfy the requirements of Section 31(3). Reasons must be based upon the materials submitted before the arbitral tribunal. The Tribunal has to give its reasons on consideration of the relevant materials while the irrelevant material may be ignored.........

Statement of reasons is mandatory requirement unless dispensed with by the parties or by a statutory provision."

OMP 152/2002 Page No 11 of 14

18. Having held so, and the award being without reasons, becomes

liable to be set aside as held by the Apex Court in Saw Pipes Ltd

(supra) also.

.

19. The second submission of the counsel for the respondent also

does not find favour with me. An award can be on several claims, as

is in the present case. A claimant ought not to be prevented from

receiving the amounts awarded for the fear of losing the right to

challenge the award insofar as with respect to the claims disallowed.

When the statue confers a right on a party to an arbitration to

challenge the same, the said right cannot be taken away merely for

the reason of the party accepting payments under that part of the

award which is neither challenged by him nor by the opposite party.

In fact, the 1996 Act itself recognizes setting aside of the award in

part in proviso to Section 34 (2) (iv).

20. It is not the case of the respondent that the petitioner accepted

the payments allowed by the arbitrator to the petitioner in full and

final settlement. The reliance by the counsel for the respondent on

Ramsahai Sheduram v. Harishchandra Dullchandji and Anr.

AIR 1963 M.P.143 is misconceived. In that case the court found that

the party objecting to the award had benefited from part of the

award. In that case, the award was found to be in relation to all the

claims and counter claims and thus it was held that piecemeal

challenge was not permissible. However in the present case though

the respondent had also made the counter claims before the

arbitrator, which were dismissed by the arbitrator in a similar

fashion as the claims to which objection is filed, i.e. without giving

OMP 152/2002 Page No 12 of 14 any reason, but the respondent has not objected to the award. It is

thus not the case of the respondent that by the reason of the

petitioner having accepted payments allowed/awarded by the

arbitrator, the respondent has suffered any prejudice.

21. Even otherwise, an important right can be given up only with full

knowledge. The petitioner in the present case cannot be imputed

the knowledge that by accepting the monies awarded it would lose

its statutory right to object to the award with respect to the claims

which were disallowed by the arbitrator. The Apex Court in Pulin

Behari Lal Vs. Mahadeb Dutta and Ors. (1993)1SCC629 has held

that in the case of a waiver of any provision of a statute, it is

necessary that there was a conscious relinquishment of the

advantage of such provisions of the statute.

In this regard, it may also be noticed that the total claims of the

petitioner/claimant before the arbitrator were in the sum of Rs

1,90,14224.34 and only a sum of Rs 20,5736.06 has been allowed by

the arbitrator to the claimant.

22. I have in Sharma Enterprises v National Building

Construction Corporation Ltd & Anr (OMP 144/2003 decided on

20.08.2008) already held that while setting aside the award where

the court, on the basis of the material and without any intricate

inquiry, is able to arrive at a finding, the court is empowered to

modify the award. However, I do not find the same to be possible in

the present case. As such there is no option but to give the arbitral

tribunal an opportunity to resume the arbitral proceedings to

OMP 152/2002 Page No 13 of 14 adjudicate the items b, c, e, g, i and k of claim No.1 and of the items

of claims No 2 to 8 afresh on the basis of record/material available to

the earlier arbitrator. It is clarified that the parties shall not be

entitled to lead any further evidence before the arbitrator and would

address arguments on the existing records. The arbitrator shall give

a reasoned award, in terms of above, on the aforesaid claims of the

petitioner.

23. The respondent is directed to appoint an arbitrator within four

weeks and considering that the matter has already remained

pending for long, the arbitrator, so appointed by the respondent,

shall make a reasoned award within 16 weeks thereafter. The

arbitral record be returned to the respondent for being made

available to the new arbitrator.

With the aforesaid directions, the petition is allowed.

                                          RAJIV SAHAI ENDLAW
                                               JUDGE
September 04, 2008
M




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