The proceedings in question arise regarding an Award passed under the Arbitration Act, 1940. The claimant and the opposite party had entered into a contract agreement dated 5th February 1985 for construction of Sutlej Yamuna Link Canal (Punjab) and in that respect to carrying out the earthwork, drainage behind lining and cement concrete lining of RD 71.50 to 72.50 km. The estimated cost of the project was at Rs.31 lakhs and the contract amount for the work was fixed at Rs.59,86,732/. The work concerned was to be executed in eight months.
In respect of the said contract, the claimant contended that during execution, the scope of work was considerably increased on account of a substantial increase of earthwork, sloughing of banks, rebuilding of banks with self-draining material, several decisions by the department concerning the rebuilding of banks and changes in the strata encountered during excavation due to incorrect geological data observations by the department before inviting tender. In that view, the claimant had raised a demand for the additional payment which was disputed by the opposite party, which led to an arbitral dispute.
Since the agreement provided for the resolution of disputes by arbitration the claimant took recourse to the same. In that background, the claimant had sought additional payment in the claim statement filed before the Arbitrator. The opposite party filed their objections disputing the claim put forth by the claimant. The learned Arbitrator on considering the rival contentions passed the Award dated 31st August 1994 and awarded the amount as claimed by the claimant to be paid by the opposite party with interest at the rate of eighteen percent per annum as also the future interest at eighteen percent per annum from the date of the Award to the date of payment.
As required under Act, 1940 the said Award was to be made a ‘Rule of Court’ for which purpose the Award was presented before the Court of the Senior SubJudge, Ropar. The opposite party filed objections in the said proceedings and contended that the award passed by the Arbitrator is not sustainable as the Arbitrator had misconducted himself by awarding the amounts which were not payable as per the contract and the learned Arbitrator had not indicated reasons for the decision. The learned SubJudge through the judgment and decree dated 21st October 1995 accepted the objections to the extent of rejection of Claim No.1 and reduction of interest to twelve percent per annum and in other respects the Award was made the ‘Rule of Court’. The opposite party however continued to remain aggrieved insofar as the noninterference concerning other claims and, therefore, filed an appeal before the District Judge. The claimant preferred the cross-appeal insofar as the rejection of Claim No.1 by the learned SubJudge and reduction of interest.
The learned District Judge through judgment dated 6th November 2007 rejected the cross-appeal filed by the claimant and permitted the appeal filed by the opposite party (State of Punjab) and set aside the amount awarded under Claim Nos.2, 3, 8, 12, and 16. The claimant, therefore, contending to be aggrieved preferred the Revision Petitions before the High Court. It is in the said proceedings the High Court has rejected the remaining claim except for Claim No.1 as indicated above. It is in that circumstance the claimant is before this Court in this appeal.
The issue in the present case was whether an unreasoned award passed contrary to the agreement between the parties which required the Arbitrator to pass a reasoned Award is sustainable.
Unlike the Arbitration & Conciliation Act, 1996, the Arbitration Act of 1940, contained no provisions relating to arbitrator giving reasons for the award. It may be noted that the Apex Court in the case of Indian Oil Corporation v. Indian Carbon Ltd. observed that it is one thing to say that reasons should be stated and another thing to state that a detailed judgment is given in support of an award. Even if it be held that it is obligatory to state the reasons, it is not mandatory to give a detailed judgment in an award.
However, the Constitution Bench of the Apex Court in Raipur Development Authority and Ors. etc. v. Chokhamal Contractors and Ors. etc. upheld that arbitrator was not obliged to give reasons for his award except where arbitration agreement or deed of submission requires him to give reasons. This decision of the Constitution Bench of the Apex Court set at rest the controversy and held that the arbitrator need not give reasons in support of his award while at the same time carving out an exception to the rule that in case the agreement between the parties stipulates the award to be reasoned, then the arbitrator is required to pass a reasoned award. However, the Constitutional Bench also noted another decision of the Apex Court in Siemens Engineering and Manufacturing Company of India Ltd. v. Union of India it was inter alia held that where an authority makes an order in exercise of a quasi-judicial function it must record its reasons in support of the order it makes.
The above exception is supported by the Apex Court decision of Gora Lal vs. Union of India wherein the Court held that where the agreement of the parties required the arbitrator to indicate his findings along with the sums awarded, separately on each item of the dispute and where the arbitrator did not record findings on each item, the same was held to be a ground for setting aside of the award. In the instant case, there was a similar circumstance provided in the agreement between the parties which required the Arbitrator to pass the Award in a particular manner whereunder the reasons were required to be assigned. However, the arbitrator had not assigned any reasons for its conclusion but had unilaterally in a cryptic fashion awarded the claim.
The award was passed in favor of Claimant and in the challenge, was partially upheld by the Court of the Senior Sub-Judge. The parties filed an appeal and cross-appeal before the Court of District Judge who rejected Claimant’s cross-appeal and partially set aside the award. The Claimant preferred a revision before the High Court which concurred with the Court of District Judge in its decision. Aggrieved Claimant appeal against the order of the High Court in the Apex Court in the instant case.
The Apex Court albeit concurred with the view of the High Court that the act of arbitrator in passing an unreasoned award was not justified, the Apex Court noted that in this scenario, the appropriate course in the normal circumstance ought to have been to set aside the Award and remit the matter to the Arbitrator to make a fresh consideration which was not duly followed by the Appellate Courts below.
The Court further noted that such a course ought to have been adopted by the Apex Court as well. But keeping in view the time-lapse since the claim was made under the Arbitration Act, 1940 in respect of an agreement dated 5th December 1985 and the claim before the Arbitrator itself was of the year 1994, the Court examined the matter concerning the validity of the claim in an appeal and opened the award which in itself an exception.