M/S. DYNA TECHNOLOGIES PVT. LTD. versus M/S. CROMPTON GREAVES LTD. on 18 December 2019

[2019] 15 S.C.R. 295

M/S. DYNA TECHNOLOGIES PVT. LTD.

v.

M/S. CROMPTON GREAVES LTD.

(Civil Appeal No. 2153 of 2010)

DECEMBER 18, 2019

[N. V. RAMANA, MOHAN M. SHANTANAGOUDARAND AJAY RASTOGI, JJ.]

Arbitration and Conciliation Act, 1996 – ss.31(3) and 34 –Contract entered into between a company and the respondent foran aquaculture unit to be set up by such company – Respondentinvited tenders for carrying out certain works for construction ofponds, channels, drains and associated works – Appellant gaveproposal, estimate and quotation for carrying out the work –Respondent issued work order on 15.11.94 – On 05.01.95, therespondent instructed the employees of the appellant to stop thework – Appellant claimed compensation for premature terminationof the contract – Dispute referred to Arbitral Tribunal – Claim no.3 (loss of profit), disallowed by the Arbitral Tribunal – Notquestioned by the appellant and attained finality – Only objectionis in reference to claim no.2 (losses due to unproductive use ofmachineries) which was accepted by the Arbitral Tribunal forRs. 27,78,125/- with interest @ 18% p.a.– Single Judge upheld theaward – Division Bench partly allowed the appeal and set asidethe award of the Tribunal relating to claim no.2 – Held: Mandateu/s.31(3) is to have reasoning which is intelligible and adequateand, which can in appropriate cases be even implied by the Courtsfrom a fair reading of the award and documents referred tothereunder, if the need be – In the present case, although theTribunal dealt with the claims separately under different sub-headings, the award is confusing and jumbled the contentions,facts and reasoning, without appropriate distinction– It abruptlyconcluded at the end of the factual narration, without providingany reasons – Inadequate reasoning and basing the award on theapproval of the respondent cannot be stated to be appropriateconsidering the complexity of the issue involved, and accordinglythe award is unintelligible and cannot be sustained – Legislativeintention of providing s.34 (4) was to make the award enforceable,

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Aafter giving an opportunity to the Tribunal to undo the curabledefects – When the High Court concluded that there was noreasoned award, then the award ceased to exist and the Court wasfunctus officio u/s.34 for hearing the challenge to the award – Insuch case, the High Court ought to have considered remandingthe matter to the Tribunal in the usual course but, it analyzed theBcase on merits – However, in the present case such remand to theTribunal would not be beneficial as the case has taken more than25 years for adjudication, without any end for the parties –Respondents to pay Rs. 30,00,000/- to the appellant in full andfinal settlement against claim no.2 within 8 weeks, failing whichCthe appellant will be entitled to interest at 12% p.a. until payment,for providing quietus to the litigation.Arbitration and Conciliation Act, 1996 – s.34 – Mandate of– Discussed.

Arbitration and Conciliation Act, 1996 – s.31 – RequirementDof reasoned award – Discussed.

Arbitration and Conciliation Act, 1996 – s.34 – Challengeto arbitral award – Award whether unintelligible or there isinadequacy of reasons in award – Held: If the challenge to anaward is on the ground that it is unintelligible, the same would beEequivalent of providing no reasons at all – Ordinarily unintelligibleawards are to be set aside, subject to party autonomy to do awaywith the reasoned award – In case of an award challenged onadequacy of reasons, the Court while exercising jurisdiction u/s.34has to adjudicate the validity of such award based on the degreeFof particularity of reasoning required having regard to the natureof issues falling for consideration – Courts are required to becareful while distinguishing between inadequacy of reasons in anaward and unintelligible awards.

Disposing of the appeal, the CourtG

Disposing of the appeal, the CourtG

GHELD: 1.1 Section 34 of the Arbitration Act limits achallenge to an award only on the grounds provided therein oras interpreted by various Courts. Arbitral awards should not beinterfered with in a casual and cavalier manner, unless the Courtcomes to a conclusion that the perversity of the award goes tothe root of the matter without there being a possibility ofH

alternative interpretation which may sustain the arbitral award.Section 34 is different in its approach and cannot be equated witha normal appellate jurisdiction. The mandate under Section 34is to respect the finality of the arbitral award and the partyautonomy to get their dispute adjudicated by an alternative forumas provided under the law. If the Courts were to interfere withthe arbitral award in the usual course on factual aspects, thenthe commercial wisdom behind opting for alternate disputeresolution would stand frustrated. The Courts should notinterfere with an award merely because an alternative view onfacts and interpretation of contract exists. The Courts need tobe cautious and should defer to the view taken by the ArbitralTribunal even if the reasoning provided in the award is impliedunless such award portrays perversity unpardonable underSection 34 of the Arbitration Act. [Paras 26, 27] [310-H; 311-A-D]

K.N. Sathyapalan (Dead) by Lrs. v. State of Kerala,(2007) 13 SCC 43 : [2006] 9 Suppl. SCR 864 –referred to.

1.2 Arbitration proceedings are not per se comparable tojudicial proceedings before the Court. A party under IndianArbitration Law can opt for an arbitration before any person,even those who do not have prior legal experience as well. Theintention of the legislature to provide for a default rule, shouldbe given rational meaning in light of commercial wisdom inherentin the choice of arbitration. [Paras 30] [312-C]

1.3 The mandate under Section 31(3) of the ArbitrationAct is to have reasoning which is intelligible and adequate and,which can in appropriate cases be even implied by the Courtsfrom a fair reading of the award and documents referred tothereunder, if the need be. The aforesaid provision does notrequire an elaborate judgment to be passed by the arbitratorshaving regards to the speedy resolution of dispute. Threecharacteristics of a reasoned order can be fathomed: proper,intelligible and adequate. If the reasoning in the order areimproper, they reveal a flaw in the decision-making process. Ifthe challenge to an award is based on impropriety or perversityin the reasoning, then it can be challenged strictly on the AB

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Agrounds provided under Section 34 of the Arbitration Act. If thechallenge to an award is based on the ground that the same isunintelligible, the same would be equivalent of providing noreasons at all. The Court while exercising jurisdiction underSection 34 has to adjudicate the validity of such an award basedon the degree of particularity of reasoning required havingBregard to the nature of issues falling for consideration. Thedegree of particularity cannot be stated in a precise manner asthe same would depend on the complexity of the issue. Even ifthe Court comes to a conclusion that there were gaps in thereasoning for the conclusions reached by the Tribunal, the CourtCneeds to have regard to the documents submitted by the partiesand the contentions raised before the Tribunal so that awardswith inadequate reasons are not set aside in casual and cavaliermanner. On the other hand, ordinarily unintelligible awards areto be set aside, subject to party autonomy to do away with the reasoned award. Therefore, the courts are required to be carefulDwhile distinguishing between inadequacy of reasons in an awardand unintelligible awards. [Paras 35, 36] [313-F-H; 314-A-D]

Raipur Development Authority v. ChokhamalContractors AIR 1990 SC 1426 : [1989] 3 SCR144 ; S. Harcharan Singh v. Union of India (1990) 4ESCC 647 : [1990] 1 Suppl. SCR 76 ; Som Datt BuildersLtd. v. State of Kerala, (2009) 4 ARB LR 13 SC –referred to.

1.4 The legislative intention of providing Section 34 (4)in the Arbitration Act was to make the award enforceable, afterFgiving an opportunity to the Tribunal to undo the curable defects.This provision cannot be brushed aside and the High Courtcould not have proceeded further to determine the issue onmerits. In case of absence of reasoning the utility has beenprovided under of Section 34(4) of the Arbitration Act to cureGsuch defects. When there is complete perversity in the reasoningthen only it can be challenged under the provisions of Section34 of the Arbitration Act. The power vested under Section 34(4) of the Arbitration Act to cure defects can be utilized in caseswhere the arbitral award does not provide any reasoning or ifthe award has some gap in the reasoning or otherwise and thatH

can be cured so as to avoid a challenge based on the aforesaidcurable defects under Section 34 of the Arbitration Act.However, in this case such remand to the Tribunal would notbe beneficial as this case has taken more than 25 years for itsadjudication. When the High Court concluded that there was noreasoned award, then the award ceased to exist and the Courtwas functus officio under Section 34 of the Arbitration Act forhearing the challenge to the award under the provisions ofSection 34 and come to a conclusion that the arbitration awardwas not in terms of the agreement. In such case, the High Courtought to have considered remanding the matter to the Tribunalin the usual course. However, the High Court analyzed the caseon merits, but, for different reasons, the validity of High Court’sinterference not go into. Although the Arbitral Tribunal has dealtwith the claims separately under different sub-headings, theaward is confusing and has jumbled the contentions, facts andreasoning, without appropriate distinction. The Tribunalrendered the award with narration of facts with references to theannexures wherever it relied upon by it. The Tribunal abruptlyconcluded at the end of the factual narration, without providingany reasons. Interestingly, the factual narration is coupled withthe claimant’s argument, which is bundled together. A closereading of the same is required to separate the same whereinthe Arbitral Tribunal has mixed the arguments with the premiseit intended to rely upon for the claimant’s claim. Further, it hasreduced the reasons for respondent’s defense. In spite ofindependent application of mind based on the documents reliedupon, but cannot sustain the award in its existing form as thereis a requirement of legal reasoning to supplement suchconclusion. In this context, the complexity of the subject matterstops the Court from supplementing such legal reasoning andthe aforesaid award cannot be sustained as being reasoned.[Paras 37-41] [314-E-H; 315-A-D, G-H; 316-A-B]

1.5 From a perusal of the award, the inadequate reasoningand basing the award on the approval of the respondent hereincannot be stated to be appropriate considering the complexityof the issue involved herein, and accordingly the award isunintelligible and cannot be sustained. In any case, the litigation AB

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Ahas been protracted for more than 25 years, without any end forthe parties. In totality of the matter, it is considered appropriateto direct the respondents to pay a sum of Rs. 30,00,000/-(Rupees Thirty Lakhs only) to the appellant in full and finalsettlement against claim No. 2 within a period of 8 weeks, failingBwhich the appellant will be entitled to interest at 12% per annumuntil payment, for providing quietus to the litigation. [Paras 43,44] [316-F-H; 317-A]

Russell on Arbitration, 23[rd] edn. (2007) – referred to.

Case Law Reference

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From the Judgment and Order dated 27.04.2007 of the HighCourt of Judicature at Madras in O.S.A. No. 234 of 2001.

EMs. Renu Gupta, Ms. Akshaya Ganpath, Ms. Diksha Rai, Advs.for the Appellant.

Ramesh Singh, Pankaj Jain, Bijoy Kumar Jain, Advs. for theRespondent.FThe Judgment of the Court was delivered by

N. V. RAMANA, J.

1. The question involved herein revolves around the requirementof reasoned award and the cautionary tale for the parties and arbitratorsGto have a clear award, rather than to have an award which is muddledin form and implied in its content, which inevitably leads to wastage oftime and resources of the parties to get clarity, and in some cases,frustrate the very reason for going for an arbitration.

2. This appeal is filed against the final order and judgment datedH27.04.2007, passed by the High Court of Judicature at Madras whereby the High Court partly allowed the appeal filed by the respondent andset aside the award of Arbitral Tribunal relating to claim no. 2 forpayment of compensation for the losses suffered due to unproductiveuse of machineries.

3. Brief facts of the case are that a contract was entered intobetween DCM Shriram Aqua Foods Limited (hereinafter referred toas ‘DCM’ in short) and M/s. Crompton Greaves Limited (hereinafterreferred to as “CGL” in short) for an aquaculture unit to be set up bysuch Principal, namely, DCM. CGL invited tenders for carrying outcertain works for construction of ponds, channels, drains and associatedworks. The appellant M/s Dyna Technologies Pvt. Ltd. gave itsproposal, estimate and quotation for carrying out the work. Thereafter,the respondent CGL placed a letter of intent dated 25[th] July, 1994,relevant portions of which are as under:

“10.In the event that you are forced to keep your equipment andmanpower idle due to non availability of work fronts due toreasons attributable to DCM or due to legal disturbances notconnected with you, you shall be compensated as follows:

(i) Maximum seven days of stoppage of work without anycompensation.

(ii) CGL reserves the right to advice you to demobilize partiallyor fully in lieu of paying compensation for such delays.Under such circumstances, you shall be paid suchcompensation towards transportation of equipment to Siteat mutually agreed rates.

(iii) Suitable time extension shall be given to complete the workto compensate the delay caused due to the stoppage ofwork.

11. Storage & Security: you will be responsible to providenecessary stores, office and labour camps for your staff at site.Only open area for construction of above will be given to you.Electricity will be provided at one point on chargeable basis atactuals. You will be responsible to tap the same to your requiredplace.

A format work order will be charged subsequently which willcover other General Terms and Conditions. Labour rules,Workmen Compensation etc. which may not be covered by thisLOI and the same shall also be part of this LOI.”

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A4. The appellant made certain queries and clarifications, and byletter dated 10[th] October, 1994, CGL amended the contract as suggestedby the appellant company. Thereafter, CGL issued work order on 15[th]November, 1994 setting out the terms and conditions of the work,material portions of which are stated as under:

B“2. Termination of contract:

The Company reserves the right to terminate this work at anystage without payment of compensation due to any of thefollowing reasons:

a. If the original contract between the client and the companyis terminated/suspended.

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b. The company is unable to proceed with the work due toreasons like non-availability of work fronts, delay inavailability of materials or delay in receipt of paymentsfrom clients etc.

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c. If the contractor is not able to carry out work to thesatisfaction of the company’s clients representatives.

d. If the contractor is unable to ensure adequate progress asrequired by the company and their purchaser.

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e. Upon termination of this contract/work order, all rights andobligation of the parties, shall cease provided that thetermination shall not relieve the contractor of any of hisobligations which may have accrued upto the date oftermination.

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Upon termination of this contract/work order due to default onthe part of the contractor, he /it shall indemnify the companyagainst all losses incurred by the company as a result of suchtermination.”

5. After commencement of the work, the respondent CGL on 5[th]January, 1995 instructed the employees of the appellant company tostop the work.

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6. The appellant company claimed compensation for suchpremature termination of the contract and ultimately the dispute wasHreferred to Arbitral Tribunal consisting of three Arbitrators.

7. The appellant-claimant made the following claims:-

(1) Losses due to idle charges.

(2) Losses due to unproductivity of the men and machinerieswhich could not work due to hindrances.

(3) Loss of profit as the contract got dissolved and

(4) Interest on the above claims and

(5) Costs.

8. The aforementioned claims are listed in the statement of claimstotalling to Rs. 54,21,170.45 initially on 21[st] June, 1997 and revised toRs. 53,83,980.45 on 5[th] July, 1997.

9. The following is a summary of the final claims:-

(1) Idle Charges for machineriesand demobilisation as approvedby Respondent …Rs. 4,18,551.50

(2) Losses due to unproductiveuse of machineries use of machineries…Rs. 45,85,286.00(3)Loss of profit…Rs. 20,89,925.00(4)And (5) Interest and Costs… to be assessed Rs. 70,93,763.33

Deduct Payment already receivedRs. 17,09,782.88

Balance due

Rs. 53,83,980.45+Interest and costs

10. It may be relevant to note at this stage that so far as claimno. 1 in reference to the losses due to idle charges is concerned, it wasfinally settled amicably by the parties and the balance towards theinterest component also stands paid.

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A11. So far as claim no. 3 in reference to loss of profit isconcerned, the same was disallowed by the Arbitral Tribunal and it waslater not questioned by the appellant-claimant and that attained finality.

12. The only objection is in reference to claim no. 2, i.e., lossesdue to unproductive use of machineries which was accepted by theBArbitral Tribunal for a sum of Rs. 27,78,125/- with interest @ 18% p.a.vide its award dated 30[th] April, 1998 and Correction to award dated5[th] May, 1998.

13. Aggrieved by the award passed by the Tribunal, an originalpetition was filed before the learned Single Judge of the High Court ofCJudicature at Madras, questioning the award under Section 34 of theArbitration and Conciliation Act, 1996 (hereinafter “Arbitration Act”),by the respondent. The learned Single Judge, while upholding the awardof the Tribunal, observed as under:

“7.Thus the Arbitrators have given a specific finding thatDthe amount paid as compensation is actually the amountexpended by the fourth respondent and therefore thepetitioner is liable to reimburse the loss sustained by thefourth respondent. Therefore, this contention is also notacceptable.

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9. Further, the learned counsel for the petitioner took this courtto various portions of the Award and tried to convince this Courtthat the Arbitrators have not decided the issue fully appreciatingthe evidence on record. In the judgment of the Supreme Courtreported in M/s Sundarsan Trading Company v. Government ofKerala (AIR 1989 Supreme Court 890) it has been clearly heldthat the power of the Arbitrator in respect of the interpretationof the contract in a matter for arbitration, the Arbitrator can passthe Award by taking a particular view of the contract and hence,the Court cannot substitute its own decision. Therefore, this Courtcannot reappraise the evidence and substitutes its views and setaside the Award. Also in the case of Tamil Nadu Civil SuppliesCorporation Limited v. Albert and Company (2000 (III) CTC 83),this Court has held that as per Section 34 of the Act, the Awardof the Arbitrator can be set aside only on the limited grounds F

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and the Award cannot be interfered with simply because anotherview is possible on the available materials. The arbitrator is aJudge of choice of parties and this Court cannot set aside unlessit suffers from error apparent on the face of the record. It cannotbe set aside even if the Court can come to different conclusionon the same facts. The learned counsel for the petitioner hasnot pointed out any such ground. It cannot also be said that theAward is perverse or has error apparent on the face of therecord. Therefore, the Award passed by the Arbitrator is notillegal or invalid and cannot be set aside. Therefore, the petitionis dismissed.”

14. Aggrieved by the aforesaid decision of the learned SingleJudge, the respondent appealed before the Division Bench in O.S.ANo. 234 of 2001. As aforementioned, the High Court vide impugnedorder partly allowed the appeal and set aside the award of the Tribunalrelating to claim no. 2. The High Court was of the opinion that the awarddoes not contain sufficient reasons and the statements contained inparagraph 3.1 (a) to 3.1 (g) of the award does not provide any reasons,discussions or conclusion. The High Court has observed in the followingmanner:

“18. It is of course true that an Arbitrator cannot be expected towrite a detailed judgment as in a law Court. However, the presentAct contemplates that the award of the Arbitrator should besupported by reason. The decision relied upon by the counsel forthe respondent, rendered on the basis of the Arbitration Act, 1940,cannot be pressed into service keeping in view the specificprovision contained in the Act. Moreover, even assuming that theratio of the said decision is applicable, we cannot cull out anyunderlying reason in the award for directing payment ofcompensation. The basis for the right of the claimant and thebasis of the liability of the present appellant have not beenindicated anywhere within four corners of the award and in spiteof the best efforts it is not possible to discover even any latentreason in the award.

19. It was also contended that the discussion in para 3.1(g) ofthe award contains the basis and reason given by the Tribunal.

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AWe have carefully gone through such paragraph as well as thepreceding and subsequent paragraphs. In our considered opinion,the statements recited in para 3.1 including para 3.1(g) are onlysubstance of the submissions/claim made by the claimant andpara 3.1(g) cannot be construed as a conclusion or even theBreasoning given by the Tribunal.”

15. Having come to a conclusion that the arbitral award wasdeficient due to the lack of reasoning, the High Court proceeded furtherto note that the option of Section 34 (4) of the Arbitration Act was notnecessary as the compensation could not have been claimed consideringCthe fact that the work order has provision barring claim no. 2, in thefollowing manner:

“20. Learned counsel for the respondent has relied upon Section34(4) of the Arbitration Act and has submitted that in case if thisCourt finds that the Arbitral Tribunal has not given reason, evenDthough it is so required under Section 31(3) by invoking jurisdictionunder Section 31(4), this Court can give opportunity to the ArbitralTribunal to resume the arbitral proceedings or to take action asin the opinion of the Arbitral Tribunal would eliminate the groundsfor setting aside the arbitral award.

21. We do not think that the present case is a fit case whereEthe Arbitral Tribunal can be called upon to give reasons in supportof its conclusion. This is because, in our considered opinion, theterms of the contract clearly exclude the possibility of paymentof any compensation on account of premature termination of thecontract as envisaged in para C. 2(a).”F16. Thereafter, the High Court proceeded further to note that thearbitral proceeding was beyond the competence of the Tribunal byconsidering the conditions under the work order.

17. Learned counsel for the appellant submits that the Arbitral Tribunal comprising of three Arbitrators has looked into the entireGmaterial available on record and recorded a finding in reference to claimno. 2 (losses suffered due to unproductive use of machineries) basedon the case set up by the parties taking note of Section 73 of the IndianContract Act, 1872 (hereinafter “Contract Act”) and relying on theevidence including appraisal of the log books approved by the respondentHand held that actual losses/expenses were incurred by the appellant.

In the given circumstances it was not open for the High Court in appealto reappraise and substitute its own view in contravention of the clauseof the agreement pursuant to which the arbitral dispute was raised anda finding came to be recorded in acceptance of the claim with regardto the losses suffered by the appellant due to unproductive use ofmachineries and the interference made by the High Court is beyondthe scope of Section 37 of the Arbitration Act.

18. Learned counsel further submits that the Division Bench ofthe High Court did not hold that the evidence relied upon by the ArbitralTribunal, i.e., the log books were not proper or were lacking quality.As a matter of fact, there was no challenge to the same in the appealfiled by the respondent under Section 37 of the Arbitration Act and onlythe liability was questioned. The learned counsel further submitted thatthe only submission of the learned counsel for the respondent beforethe Arbitral Tribunal and also before the learned Single Judge of theHigh Court was that there was no provision under the contract grantingcompensation for loss incurred for unproductive use of machinery andthat the Arbitral Tribunal has exceeded its jurisdiction. This issue wasexamined by the Tribunal and confirmed by the Single Judge of the HighCourt, after examining the objections raised by the respondent underSection 34 of the Arbitration Act. The learned counsel for the appellantcontented that interference at the appellate stage is beyond the scopeof Section 37 of the Arbitration Act and in the given circumstances,claim no. 2 which has been set aside by the Division Bench of the HighCourt under the impugned judgment deserves to be interfered by thisCourt.

19. Learned counsel also submits that Section 73 of the ContractAct confers a right which is for public interest/benefit and contractualclause, if any, which takes away such a right unilaterally of a party isviolative of Section 23 of the Contract Act. The law which is made foran individual’s benefit can be waived by only by such individual,however, where law is for public interest or has policy element, thensuch rights cannot be waived by an individual person inasmuch as suchrights are a matter of public policy/public interest.

20. Learned counsel further submits that a contractual provisionwhich is in contravention of a specific statutory provision, if allowedto be implemented, the same will result in frustration of a rightconferred by law or if the contractual clause is immoral or opposed to AB

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Apublic policy, in such cases the contractual clause is invalid and voidab initio and cannot be enforced to disentitle appellant in claiming theactual loss which has been suffered by it and established before theArbitral Tribunal and which the respondent is under an obligation toreimburse. In the given circumstances, claim no. 2 which has been setaside by the High Court needs interference by this Court. The learnedBcounsel in support has placed reliance on the judgment of this Court inK.N. Sathyapalan (Dead) by Lrs. v. State of Kerala, (2007) 13 SCC43.

21. Per contra, learned counsel for the respondent, whilesupporting the findings recorded by the High Court in the impugnedCjudgment, submits that the claim which has been disallowed by the HighCourt in the impugned judgment is basically a claim for payment ofcompensation or damages on account of premature termination ofcontract and neither the Arbitral Tribunal nor the learned Single Judgeof the High Court has considered/examined the terms of the contractDin appreciating the right of the claimant to claim compensation ofdamages and the corresponding liability of the respondent to pay/settlethe claim. According to him, as per the terms of contract, no suchcompensation was payable.

22. Learned counsel further submits that it is well settled thatEthe Arbitral Tribunal cannot travel beyond the terms of contract toaward compensation. As a matter of fact, in the present case, the termsof contract expressly prohibit that no compensation is payable if thecontract is terminated on account of termination of the project. In theface of such express prohibition, the Arbitral Tribunal has exceeded itsjurisdiction and committed a manifest error in directing the payment ofFcompensation even without disclosing the basis of arriving at such aconclusion.

23. Learned counsel for the respondent submits that Section34(2)(a)(iv) of the Arbitration Act clearly envisages that such an awardcan be set aside if the award deals with a dispute not contemplated byGor not falling within the terms of the submission to arbitration. Whenthere is a specific exclusion/prohibition in the contract, it was not openfor the Tribunal to travel beyond the terms of contract in passing anaward which has been taken note of by the Division Bench of the HighCourt in the impugned judgment and has been rightly set aside, supportedby cogent reasons. The learned counsel further submitted that whatHhas been observed by the Division Bench of the High Court in the

M/S. CROMPTON GREAVES LTD. [N. V. RAMANA, J.]

impugned judgment is based on settled principles of law and needs nointerference.

24. We have heard learned counsel for the parties and with theirassistance perused the material available on record.

25. Before we devolve into the contractual issues, we need toobserve certain pointers on the jurisdiction of the court under Section34 of the Arbitration Act. Section 34 as it stood before the AmendmentAct of 2015, was as follows- “34 Application for setting aside arbitral award. —

(1) Recourse to a Court against an arbitral award may be madeonly by an application for setting aside such award in accordancewith sub-section (2) and sub-section (3).

(2) An arbitral award may be set aside by the Court only if—

(a) the party making the application furnishes proof that—

(i) a party was under some incapacity, or

(ii) the arbitration agreement is not valid under thelaw to which the parties have subjected it or,failing any indication thereon, under the law forthe time being in force; or

(iii) the party making the application was not givenproper notice of the appointment of an arbitratoror of the arbitral proceedings or was otherwiseunable to present his case; or

(iv) the arbitral award deals with a dispute notcontemplated by or not falling within the termsof the submission to arbitration, or it containsdecisions on matters beyond the scope of thesubmission to arbitration:

Provided that, if the decisions on matterssubmitted to arbitration can be separated fromthose not so submitted, only that part of thearbitral award which contains decisions onmatters not submitted to arbitration may be setaside; or A

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(v) the composition of the arbitral tribunal or thearbitral procedure was not in accordance withthe agreement of the parties, unless suchagreement was in conflict with a provision ofthis Part from which the parties cannotderogate, or, failing such agreement, was not inaccordance with this Part; or (b) the Court finds that—

(i) the subject-matter of the dispute is not capableof settlement by arbitration under the law forthe time being in force, or

(ii) the arbitral award is in conflict with the publicpolicy of India.

Explanation. —Without prejudice to the generality of sub-clause(ii) it is hereby declared, for the avoidance of any doubt, that anaward is in conflict with the public policy of India if the makingof the award was induced or affected by fraud or corruption orwas in violation of section 75 or section 81.

(3) An application for setting aside may not be made after threemonths have elapsed from the date on which the party makingthat application had received the arbitral award or, if a requesthad been made under section 33, from the date on which thatrequest had been disposed of by the arbitral tribunal: Providedthat if the Court is satisfied that the applicant was prevented bysufficient cause from making the application within the said periodof three months it may entertain the application within a furtherperiod of thirty days, but not thereafter.

(4) On receipt of an application under sub-section (1), the Courtmay, where it is appropriate and it is so requested by a party,adjourn the proceedings for a period of time determined by it inorder to give the arbitral tribunal an opportunity to resume thearbitral proceedings or to take such other action as in the opinionof arbitral tribunal will eliminate the grounds for setting aside thearbitral award.

26. There is no dispute that Section 34 of the Arbitration Act limitsa challenge to an award only on the grounds provided therein or as interpreted by various Courts. We need to be cognizant of the fact thatarbitral awards should not be interfered with in a casual and cavaliermanner, unless the Court comes to a conclusion that the perversity ofthe award goes to the root of the matter without there being a possibilityof alternative interpretation which may sustain the arbitral award.Section 34 is different in its approach and cannot be equated with anormal appellate jurisdiction. The mandate under Section 34 is to respectthe finality of the arbitral award and the party autonomy to get theirdispute adjudicated by an alternative forum as provided under the law.If the Courts were to interfere with the arbitral award in the usual courseon factual aspects, then the commercial wisdom behind opting foralternate dispute resolution would stand frustrated.

27. Moreover, umpteen number of judgments of this Court havecategorically held that the Courts should not interfere with an awardmerely because an alternative view on facts and interpretation ofcontract exists. The Courts need to be cautious and should defer tothe view taken by the Arbitral Tribunal even if the reasoning providedin the award is implied unless such award portrays perversityunpardonable under Section 34 of the Arbitration Act.

28. Having established the basic jurisprudence behind Section 34of the Arbitration Act, we must focus on the analysis of the case. Theprimary contention of the learned counsel appearing on behalf of theappellant is that the award by the learned Tribunal was perverse forwant of reasons. The necessity of providing reasons has been providedunder Section 31 of the Arbitration Act, which reads as under:

“31. Form and contents of arbitral award.- …

(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 undersection 30.”

Under the UNCITRAL Model Law the aforesaid provision isprovided as under:

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312SUPREME COURT REPORTS

A“(2) The award shall state the reasons upon which it is based,unless the parties have agreed that no reasons are to be givenor the award is an award on agreed terms under article 30.”

29. Similar to the position under the Model Law, India also adoptsa default rule to provide for reasons unless the parties agree otherwise.BAs with most countries like England, America and Model Law, Indianlaw recognizes enforcement of the reasonless award if it has been soagreed between the parties.

30. There is no gainsaying that arbitration proceedings are notper se comparable to judicial proceedings before the Court. A partyunder Indian Arbitration Law can opt for an arbitration before anyCperson, even those who do not have prior legal experience as well. Inthis regard, we need to understand that the intention of the legislatureto provide for a default rule, should be given rational meaning in lightof commercial wisdom inherent in the choice of arbitration.

31. A five-Judge Constitution Bench of this Court in the case ofDRaipur Development Authority v. Chokhamal Contractors, AIR 1990SC 1426, considered the scope of Section 30 of the Arbitration Act,1940 and held as under:

“It is now well settled that an award can neither be remitted norset aside merely on the ground that it does not contain reasonsEin support of the conclusion or decisions reached in it exceptwhere the arbitration agreement or the deed of submissionrequires him to give reasons. The arbitrator or umpire is underno obligation to give reasons in support of the decision reachedby him unless under the arbitration agreement or in the deed ofFsubmission he is required to give such reasons and if the arbitratoror umpire chooses to give reasons in support of his decision it isopen to the Court to set aside the award if it finds that an errorof law has been committed by the arbitrator or umpire on theface of the record on going through such reasons. The arbitratoror umpire shall have to give reasons also where the court hasGdirected in any order such as the one made Under Section 20 orSection 21 or Section 34 of the Act that reasons should be givenor where the statute which governs an arbitration requires himto do so.”

32. A three-Judge Bench of this Court in another case of S.HHarcharan Singh v. Union of India, (1990) 4 SCC 647, reiterated its earlier view that the arbitrator’s adjudication is generally consideredbinding between the parties for he is a Tribunal selected by the partiesand the power of the Court to set aside the award is restricted to casesset out in Section 30 of the Arbitration Act, 1940.

33. However, the ratio of Chokhamal case (supra) has notfound favour of the Legislature, and accordingly Section 31(3) has beenenacted in the Arbitration Act. This Court in Som Datt Builders Ltd.v. State of Kerala, (2009) 4 ARB LR 13 SC, a Division Bench of thisCourt has indicated that passing of a reasoned award is not an emptyformulation under the Arbitration Act.

34. It may be relevant to note Russell on Arbitration, 23[rd] edn.(2007), wherein he notes that:

“If the Court can deduce from the award and the materials beforeit, which may include extracts from evidence and the transcriptof hearing, the thrust of the tribunal’s reasoning then noirregularity will be found….Equally, the court should bear in-mind that when considering awards produced by nonlawyer arbitrators, the court should look at the substanceof such findings, rather than their form, and that oneshould approch a reading of the award in a fair, and not in”an unduly literal way.

35. The mandate under Section 31(3) of the Arbitration Act isto have reasoning which is intelligible and adequate and, which can inappropriate cases be even implied by the Courts from a fair reading ofthe award and documents referred to thereunder, if the need be. Theaforesaid provision does not require an elaborate judgment to be passedby the arbitrators having regards to the speedy resolution of dispute.

36. When we consider the requirement of a reasoned order threecharacteristics of a reasoned order can be fathomed. They are: proper,intelligible and adequate. If the reasoning in the order are improper, theyreveal a flaw in the decision-making process. If the challenge to anaward is based on impropriety or perversity in the reasoning, then itcan be challenged strictly on the grounds provided under Section 34 ofthe Arbitration Act. If the challenge to an award is based on the ground A

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Athat the same is unintelligible, the same would be equivalent of providingno reasons at all. Coming to the last aspect concerning the challengeon adequacy of reasons, the Court while exercising jurisdiction underSection 34 has to adjudicate the validity of such an award based onthe degree of particularity of reasoning required having regard to the Bnature of issues falling for consideration. The degree of particularitycannot be stated in a precise manner as the same would depend onthe complexity of the issue. Even if the Court comes to a conclusionthat there were gaps in the reasoning for the conclusions reached bythe Tribunal, the Court needs to have regard to the documents submittedby the parties and the contentions raised before the Tribunal so thatCawards with inadequate reasons are not set aside in casual and cavaliermanner. On the other hand, ordinarily unintelligible awards are to beset aside, subject to party autonomy to do away with the reasonedaward. Therefore, the courts are required to be careful whiledistinguishing between inadequacy of reasons in an award andDunintelligible awards.

37. At this juncture it must be noted that the legislative intentionof providing Section 34 (4) in the Arbitration Act was to make theaward enforceable, after giving an opportunity to the Tribunal to undothe curable defects. This provision cannot be brushed aside and theEHigh Court could not have proceeded further to determine the issueon merits.

38. In case of absence of reasoning the utility has been providedunder of Section 34(4) of the Arbitration Act to cure such defects. WhenFthere is complete perversity in the reasoning then only it can bechallenged under the provisions of Section 34 of the Arbitration Act.The power vested under Section 34 (4) of the Arbitration Act to curedefects can be utilized in cases where the arbitral award does notprovide any reasoning or if the award has some gap in the reasoningGor otherwise and that can be cured so as to avoid a challenge basedon the aforesaid curable defects under Section 34 of the ArbitrationAct. However, in this case such remand to the Tribunal would not bebeneficial as this case has taken more than 25 years for its adjudication.It is in this state of affairs that we lament that the purpose of arbitrationas an effective and expeditious forum itself stands effaced.H

39. It may be noted that when the High Court concluded thatthere was no reasoned award, then the award ceased to exist and theCourt was functus officio under Section 34 of the Arbitration Act forhearing the challenge to the award under the provisions of Section 34and come to a conclusion that the arbitration award was not in termsof the agreement. In such case, the High Court ought to haveconsidered remanding the matter to the Tribunal in the usual course.However, the High Court analyzed the case on merits, but, for differentreasons and we need not go into the validity of High Court’sinterference.

40. Coming back to the award, we need to see whether the awardof the Arbitral Tribunal can be sustained in the instant case. Althoughthe Arbitral Tribunal has dealt with the claims separately under differentsub-headings, the award is confusing and has jumbled the contentions,facts and reasoning, without appropriate distinction. The Tribunalrendered the award with narration of facts with references to theannexures wherever it relied upon by it. The Tribunal abruptly concludedat the end of the factual narration, without providing any reasons, inthe following manner:

“(3) Claim for unproductive usage of machineries ….

(g) All the above facts clearly establish that themachineries deployed by the Claimant had to dounproductive work by shifting from one place to anotherto suit the availability of work.The contract contemplatesonly payment for actual turnover of earthwork and for thisthey had received amount totaling to Rs. 1709782.88.TheClaimant claims that the hire charges paid to the machineries,men and engineers should be reimbursed to him. He has giventhe actual expenses in his claim statement.

41. Interestingly, the factual narration is coupled with theclaimant’s argument, which is bundled together. A close reading of thesame is required to separate the same wherein the Arbitral Tribunalhas mixed the arguments with the premise it intended to rely upon for A

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Athe claimant’s claim. Further, it has reduced the reasons for respondent’sdefense. In spite of our independent application of mind based on thedocuments relied upon, but cannot sustain the award in its existing formas there is a requirement of legal reasoning to supplement suchconclusion. In this context, the complexity of the subject matter stops Bus from supplementing such legal reasoning and we cannot sustain theaforesaid award as being reasoned.

42. It may be beneficial to reduce the concluding paragraph ofthe award, which reads as under:

“3.4. The above arguments and various authorities quoted byCthem have been studied by the Tribunal and we are convincedthat the compensation is payable on the hire charges andexpenses incurred by the claimant based on the claims made byhim in June 95 and now submitted by the claimant in his revisedclaim petition on 05.07.1997. We are convinced that theDmachineries have been actually mobilized from the letterR-3, R-8 and R-10 issued by DCM reporting on thenumber of machineries deployed by Claimant. The Claimantshave produced the log books and bills for the various machineriesand modified their claims. The tribunal had perused the logEbooks and idle wages approved in C-7 by Respondent andthe claims made in R-17.”

43. From the facts, we can only state that from a perusal of theFaward, in the facts and circumstances of the case, it has been renderedwithout reasons. However, the muddled and confused form of theaward has invited the High Court to state that the arbitrator has merelyrestated the contentions of both parties. From a perusal of the award,the inadequate reasoning and basing the award on the approval of therespondent herein cannot be stated to be appropriate considering theGcomplexity of the issue involved herein, and accordingly the award isunintelligible and cannot be sustained.

44. In any case, the litigation has been protracted for more than25 years, without any end for the parties. In totality of the matter, weHconsider it appropriate to direct the respondents to pay a sum of

M/S. CROMPTON GREAVES LTD. [N. V. RAMANA, J.]

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Rs. 30,00,000/- (Rupees Thirty Lakhs only) to the appellant in full andfinal settlement against claim No. 2 within a period of 8 weeks, failingwhich the appellant will be entitled to interest at 12% per annum untilpayment, for providing quietus to the litigation.

45. In view of the conclusions reached, the appeal is disposedof to the extent indicated herein. There shall be no orders as to theBcosts.

Divya Pandey

Appeal disposed of.

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