Case: State Of U.P  Vs. M/S Combined Chemicals Company Pvt.Ltd

reasonable opportunity of hearing. 22.However, we find merit in the submission of learned Senior Counsel appearing for the appellants that the award of the Arbitrator was vitiated by an error apparent and reasons assigned by the trial Court and the High Court for refusing to annul the same are legally unsustainable. A reading of the award shows that after adverting to the claim made by the respondent and the proceedings held by him on various dates, the Arbitrator referred to the affidavit of Shri A.K. Saigal, Managing Director of the respondent and passed the award without assigning any reason whatsoever and without even recording a finding that the respondent had suffered loss/damages on account of the failure of appellant No.3 to place supply order in furtherance of the acceptance letter dated 16.11.1985. The casual manner in which the Arbitrator decided the dispute is evident from paragraph 10 of the Award, which is extracted below: “10. I have heard the learned Counsel for the claimant and the representatives of the opposite party No. 3 at length and carefully perused the records and I am of the certain opinion that the claimant is entitled to receive Rs. 23,56,500/- from the opposite party Nos. 1 and 2 which said amount also comprises of Rs. 12,300/- as cost of these proceedings details whereof are given hereunder:AWARDThe claim of the claimant is allowed to the extent of Rs. 23,44,200/- with interest thereon at the rate of 6% per annum with effect from the date of this award till the date of payment or the decree which is earlier.The claimant is also awarded Rs. 12,300/- being the cost of this arbitration as per details given below:(a)Cost of non-judicial stamp for awardRs. 6,500/-(b)Arbitration fee paid by the claimantRs. 2,800/-(c)Typing and office expenses for arbitration paid by the claimantRs. 500/-(d)Cost awarded to the claimant on account of Counsel feeRs. 2,500/-TotalRs. 12,300/-” 23.In our view, the Arbitrator was duty bound to examine the tenability of the claim made by the respondent under different heads and decide the same by assigning some reasons, howsoever briefly. His failure to do so constituted a valid ground for setting aside the award and the trial Court committed a serious error by making the award Rule of the Court. Unfortunately, the High Court also overlooked this lacuna in the award and approved the judgment of the trial Court. In RaipurDevelopment Authority & Ors. v. M/s. Chokhamal Contractors & Ors., (1989) 2 SCC 721 ( this was a case under the Arbitration Act, 1940), a Constitution Bench of this Court considered the question whether the Arbitrator is required to give reasons and held as under: “.... We do appreciate the contention, urged on behalf of the parties who contend that it should be made obligatory on the part of the Arbitrator to give reasons for the award, that there is no justification to leave the small area covered by the law of arbitration out of the general rule that the decision of every judicial and quasi-judicial body should be supported by reasons. But at the same time it has to be borne in mind that what applies generally to settlement of disputes by authorities governed by public law need not be extended to all cases arising under private law such as those arising under the law of arbitration which is intended for settlement of private disputes.... The trappings of a body which discharges judicial functions and is 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 eyebrows 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.” The same view was reiterated in Tamil Nadu Electricity Board v. Bridge Tunnel Constructions, II (1997) CLT 149 (SC)=(1997) 4 SCC 121 , and Punjab SEB v. Punjab Pre-Stressed Concrete Works (supra). In the second judgment, the Court referred to some of the earlier judgments and observed: “After hearing Counsel on both sides, we are of the view that the award is liable to be set aside because when it is a non-speaking one, it is not known whether any part of the award made by the Arbitrator related to Claim I. In our view, the price of the poles was firm and not liable to be increased. The fact that the delivery schedule was changed cannot be a ground to get over the clause prohibiting increase in the price of the poles. Once Claim I is not tenable, the award has to be set aside inasmuch as it is not possible to say that the award did not relate to Claim I. This is a sufficient reason for setting aside the award and remitting the matter back to the Arbitrator.”

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]we find that the bid given by the respondent was unequivocally accepted by the competent authority and the letter of acceptance was issued for and on behalf of the Governor by treating it to be a contract. Thus, there was substantial compliance of Article 299 of the Constitution. The execution of formal agreement was optional and was not sine qua non for supply of the goods by the respondent. In our view, if the acceptance letter is read along with other documents in the light of the conduct of the parties, it becomes clear that an agreement was executed between the competent authority and thefind merit in the submission of learned Senior Counsel appearing for the appellants that the award of the Arbitrator was vitiated by an error apparent and reasons assigned by the trial Court and the High Court for refusing to annul the same are legally unsustainable. A reading of the award shows that after adverting to the claim made by the respondent and the proceedings held by him on various dates, the Arbitrator referred to the affidavit of Shri A.K. Saigal, Managing Director of the respondent and passed the award without assigning any reason whatsoever and without even recording a finding that the respondent had suffered loss/damages on account of the failure of appellant No.3 to place supply order in furtherance of the acceptance letter dated 16.11.1985. The casual manner in which the Arbitrator decided the dispute is evident from paragraph 10 of the Award, which is extractedI have heard the learned Counsel for the claimant and the representatives of the opposite party No. 3 at length and carefully perused the records and I am of the certain opinion that the claimant is entitled to receive Rs. 23,56,500/- from the opposite party Nos. 1 and 2 which said amount also comprises of Rs. 12,300/- as cost of these proceedings details whereof are given hereunder:AWARDThe claim of the claimant is allowed to the extent of Rs. 23,44,200/- with interest thereon at the rate of 6% per annum with effect from the date of this award till the date of payment or the decree which is earlier.The claimant is also awarded Rs. 12,300/- being the cost of this arbitration as per details given below:(a)Cost of non-judicial stamp for awardRs. 6,500/-(b)Arbitration fee paid by the claimantRs. 2,800/-(c)Typing and office expenses for arbitration paid by the claimantRs. 500/-(d)Cost awarded to the claimant on account of Counsel feeRs. 2,500/-TotalRs.our view, the Arbitrator was duty bound to examine the tenability of the claim made by the respondent under different heads and decide the same by assigning some reasons, howsoever briefly. His failure to do so constituted a valid ground for setting aside the award and the trial Court committed a serious error by making the award Rule of the Court. Unfortunately, the High Court also overlooked this lacuna in the award and approved the judgment of the trial Court. In RaipurDevelopment Authority & Ors. v. M/s. Chokhamal Contractors & Ors., (1989) 2 SCC 721 ( this was a case under the Arbitration Act, 1940), a Constitution Bench of this Court considered the question whether the Arbitrator is required to give reasons and held asWe do appreciate the contention, urged on behalf of the parties who contend that it should be made obligatory on the part of the Arbitrator to give reasons for the award, that there is no justification to leave the small area covered by the law of arbitration out of the general rule that the decision of every judicial and quasi-judicial body should be supported by reasons. But at the same time it has to be borne in mind that what applies generally to settlement of disputes by authorities governed by public law need not be extended to all cases arising under private law such as those arising under the law of arbitration which is intended for settlement of private disputes.... The trappings of a body which discharges judicial functions and is 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 thesovereign 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 eyebrows 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