M/S. DYNA TECHNOLOGIES PVT. LTD. versus M/S. CROMPTON GREAVES LTD.
[2019] 15 S.C.R. 295, Supreme Court of India, 2019
Outcome: Disposed off
Segment: Ratio
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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. SHANTANAGOUDAR
AND AJAY RASTOGI, JJ.]
Arbitration and Conciliation Act, 1996 – ss.31(3) and 34 –
Contract entered into between a company and the respondent for
an aquaculture unit to be set up by such company – Respondent
invited tenders for carrying out certain works for construction of
ponds, channels, drains and associated works – Appellant gave
proposal, estimate and quotation for carrying out the work –
Respondent issued work order on 15.11.94 – On 05.01.95,  the
respondent instructed the employees of the appellant to stop the
work – Appellant claimed compensation for premature termination
of the contract – Dispute referred to Arbitral Tribunal – Claim no.
3 (loss of profit), disallowed by the Arbitral Tribunal – Not
questioned by the appellant and attained finality – Only objection
is in reference to claim no.2 (losses due to unproductive use of
machineries) which was accepted by the Arbitral Tribunal for
Rs. 27,78,125/- with interest @ 18% p.a.– Single Judge upheld the
award – Division Bench partly allowed the appeal and set aside
the award of the Tribunal relating to claim no.2 – Held: Mandate
u/s.31(3) is to have reasoning which is intelligible and adequate
and, which can in appropriate cases be even implied by the Courts
from a fair reading of the award and documents referred to
thereunder, if the need be – In
the present case, although the
Tribunal dealt with the claims separately under different sub-
headings, the award is confusing and jumbled the contentions,
facts and reasoning, without appropriate distinction– It abruptly
concluded at the end of the factual narration, without providing
any reasons – Inadequate reasoning and basing the award on the
approval of the respondent cannot be stated to be appropriate
considering the complexity of the issue involved, and accordingly
the award is unintelligible and cannot be sustained – Legislative
intention of providing s.34 (4) was to make the award enforceable,
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after giving an opportunity to the Tribunal to undo the curable
defects – When the High Court concluded that there was no
reasoned award, then the award ceased to exist and the Court was
functus officio u/s.34 for hearing the challenge to the award – In
such case, the High Court ought to have considered remanding
the matter to the Tribunal in the usual course but, it analyzed the
case on merits – However, in the present case such remand to the
Tribunal would not be beneficial as the case has taken more than
25 years for adjudication, without any end for the parties –
Respondents to pay Rs. 30,00,000/- to the appellant in full and
final settlement against claim no.2 within 8 weeks, failing which
the 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 – Requirement
of reasoned award – Discussed.
Arbitration and Conciliation Act, 1996 – s.34 – Challenge
to arbitral award – Award whether unintelligible or there is
inadequacy of reasons in award – Held: If the challenge to an
award is on the ground that it is unintelligible, the same would be
equivalent of providing no reasons at all – Ordinarily unintelligible
awards are to be set aside, subject to party autonomy to do away
with the reasoned award – In case of an award challenged on
adequacy of
reasons, the Court while exercising jurisdiction u/s.34
has to adjudicate the validity of such award based on the degree
of particularity of reasoning required having regard to the nature
of issues falling for consideration – Courts are required to be
careful while distinguishing between inadequacy of reasons in an
award and unintelligible awards.
Disposing of the appeal, the Court
HELD: 1.1 Section 34 of the Arbitration Act limits a
challenge to an award only on the grounds provided therein or
as interpreted by various Courts. Arbitral awards should not be
interfered with in a casual and cavalier manner, unless the Court
comes to a conclusion that the perversity of the award goes to
the root of the matter without there being a possibility of
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alternative interpretation which may sustain the arbitral award.
Section 34 is different in its approach and cannot be equated with
a normal appellate jurisdiction. The mandate under Section 34
is to respect the finality of the arbitral award and the party
autonomy to get their dispute adjudicated by an alternative forum
as provided under the law. If the Courts were to interfere with
the arbitral award in the usual course on factual aspects, then
the commercial wisdom behind opting for alternate dispute
resolution would stand frustrated. The Courts should not
interfere with an award merely because an alternative view on
facts and interpretation of contract exists. The Courts need to
be cautious and should defer to the view taken by the Arbitral
Tribunal even if the reasoning provided in the award is implied
unless such award portrays perversity unpardonable under
Section 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 to
judicial proceedings before the Court. A party under Indian
Arbitration Law can opt for an arbitration before any person,
even those who do not have prior legal experience as well. The
intention of the legislature to provide for a default rule, should
be given rational meaning in light of commercial wisdom inherent
in the choice of arbitration. [Paras 30] [312-C]
1.3  The mandate under Section 31(3) of the Arbitration
Act is to have reasoning which is intelligible and adequate and,
which can in appropriate cases be even implied by the Courts
from a fair reading of the award and documents referred to
thereunder, if the need be. The aforesaid provision does not
require an elaborate judgment to be passed by the arbitrators
having regards to the speedy resolution of dispute. Three
characteristics of a reasoned order can be fathomed: proper,
intelligible and adequate. If the reasoning in the order are
improper, they reveal a flaw in the decision-making process. If
the challenge to an award is based on impropriety or perversity
in the reasoning, then it can be challenged strictly on the
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grounds provided under Section 34 of the Arbitration Act. If the
challenge to an award is based on the ground that the same is
unintelligible, the same would be equivalent of providing no
reasons at all. The Court while exercising jurisdiction under
Section 34 has to adjudicate the validity of such an award based
on the degree of particularity of reasoning required having
regard to the nature of issues falling for consideration. The
degree of particularity cannot be stated in a precise manner as
the same would depend on the complexity of the issue. Even if
the Court comes to a conclusion that there were gaps in the
reasoning for the conclusions reached by the Tribunal, the Court
needs to have regard to the documents submitted by the parties
and the contentions raised before the Tribunal so that awards
with inadequate reasons are not set aside in casual and cavalier
manner. On the other hand, ordinarily unintelligible awards are
to be set aside, subject to party autonomy to do away with the
reasoned award. Therefore, the courts are required to be careful
while distinguishing between inadequacy of reasons in an award
and unintelligible awards. [Paras 35, 36] [313-F-H; 314-A-D]
Raipur Development Authority v. Chokhamal
Contractors AIR 1990 SC 1426 : [1989] 3 SCR
144 ; S. Harcharan Singh v. Union of India (1990) 4
SCC 647 : [1990] 1 Suppl. SCR 76 ; Som Datt Builders
Ltd. 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, after
giving an opportunity to the Tribunal to undo the curable defects.
This provision cannot be brushed aside and the High Court
could not have proceeded further to determine the issue on
merits. In case of absence of reasoning the utility has been
provided under of Section 34(4) of the Arbitration Act to cure
such defects. When there is complete perversity in the reasoning
then only it can be challenged under the provisions of Section
34 of the Arbitration Act. The power vested under Section 34
(4) of the Arbitration Act to cure defects can be utilized in cases
where the arbitral award does not provide any reasoning or if
the award has some gap in the reasoning or otherwise and that
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can be cured so as to avoid a challenge based on the aforesaid
curable defects under Section 34 of the Arbitration Act.
However, in this case such remand to the Tribunal would not
be beneficial as this case has taken more than 25 years for its
adjudication. When the High Court concluded that there was no
reasoned award, then the award ceased to exist and the Court
was functus officio under Section 34 of the Arbitration Act for
hearing the challenge to the award under the provisions of
Section 34 and come to a conclusion that the arbitration award
was not in terms of the agreement. In such case, the High Court
ought to have considered remanding the matter to the Tribunal
in the usual course. However, the High Court analyzed the case
on merits, but, for different reasons, the validity of High Court’s
interference not go into.  Although the Arbitral Tribunal has dealt
with the claims separately under different sub-headings, the
award is confusing and has jumbled the contentions, facts and
reasoning, without appropriate distinction. The Tribunal
rendered the award with narration of facts with references to the
annexures wherever it relied upon by it. The Tribunal abruptly
concluded at the end of the factual narration, without providing
any reasons. Interestingly, the factual narration is coupled with
the claimant’s argument, which is bundled together. A close
reading of the same is required to separate the same wherein
the Arbitral Tribunal has mixed the
arguments with the premise
it intended to rely upon for the claimant’s claim. Further, it has
reduced the reasons for respondent’s defense. In spite of
independent application of mind based on the documents relied
upon, but cannot sustain the award in its existing form as there
is a requirement of legal reasoning to supplement such
conclusion. In this context, the complexity of the subject matter
stops the Court from supplementing such legal reasoning and
the 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 reasoning
and basing the award on the approval of the respondent herein
cannot be stated to be appropriate considering the complexity
of the issue involved herein, and accordingly the award is
unintelligible and cannot be sustained. In any case, the litigation
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has been protracted for more than 25 years, without any end for
the parties. In totality of the matter, it is considered appropriate
to direct the respondents to pay a sum of Rs. 30,00,000/-
(Rupees Thirty Lakhs only) to the appellant in full and final
settlement against claim No. 2 within a period of 8 weeks, failing
which the appellant will be entitled to interest at 12% per annum
until payment, for providing quietus to the litigation.  [Paras 43,
44] [316-F-H; 317-A]
Russell on Arbitration, 23rd edn. (2007) – referred to.
Case Law Reference
[2006] 9 Suppl. SCR 864
referred to
Para 20
[1989] 3 SCR 144
referred to
Para 31
[1990] 1 Suppl. SCR 76
referred to
Para 32
(2009) 4 ARB LR 13 SC
referred to
Para 33
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2153
of 2010.
From the Judgment and Order dated 27.04.2007 of the High
Court of Judicature at Madras in O.S.A. No. 234 of 2001.
Ms. Renu Gupta, Ms. Akshaya Ganpath, Ms. Diksha Rai,  Advs.
for the Appellant.
Ramesh Singh, Pankaj Jain, Bijoy Kumar Jain, Advs. for the
Respondent.
The Judgment of the Court was delivered by
N. V. RAMANA, J.
1. The question involved herein revolves around the requirement
of reasoned award and the cautionary tale for the parties and arbitrators
to have a clear award, rather than to have an award which is muddled
in form and implied in its content, which inevitably leads to wastage of
time 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 dated
27.04.2007, passed by the High Court of Judicature at Madras whereby
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the High Court partly allowed the appeal filed by the respondent and
set aside the award of Arbitral Tribunal relating to claim no. 2 for
payment of compensation for the losses suffered due to unproductive
use of machineries.
3. Brief facts of the case are that a contract was entered into
between DCM Shriram Aqua Foods Limited (hereinafter referred to
as ‘DCM’ in short) and M/s. Crompton Greaves Limited (hereinafter
referred to as “CGL” in short) for an aquaculture unit to be set up by
such Principal, namely, DCM. CGL invited tenders for carrying out
certain works for construction of ponds, channels, drains and associated
works.  The appellant M/s Dyna Technologies Pvt. Ltd. gave its
proposal, estimate and quotation for carrying out the work. Thereafter,
the respondent CGL placed a letter of intent dated 25th July, 1994,
relevant portions of which are as under:
“10.In the event that you are forced to keep your equipment and
manpower idle due to non availability of work fronts due to
reasons attributable to DCM or due to legal disturbances not
connected with you, you shall be compensated as follows:
(i) Maximum seven days of stoppage of work without any
compensation.
(ii) CGL reserves the right to advice you to demobilize partially
or fully in lieu of paying compensation for such delays.
Under such circumstances, you shall be paid such
compensation towards transportation of equipment to Site
at mutually agreed rates.
(iii) Suitable time extension shall be
given to complete the work
to compensate the delay caused due to the stoppage of
work.
11. Storage & Security: you will be responsible to provide
necessary 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 at
actuals. You will be responsible to tap the same to your required
place.
A format work order will be charged subsequently which will
cover other General Terms and Conditions. Labour rules,
Workmen Compensation etc. which may not be covered by this
LOI and the same shall also be part of this LOI.”
M/S. DYNA TECHNOLOGIES PVT. LTD. v.
M/S. CROMPTON GREAVES LTD. [N. V. RAMANA, J.]
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4. The appellant made certain queries and clarifications, and by
letter dated 10th October, 1994, CGL amended the contract as suggested
by the appellant company. Thereafter, CGL issued work order on 15th
November, 1994 setting out the terms and conditions of the work,
material portions of which are stated as under:
“2. Termination of contract:
The Company reserves the right to terminate this work at any
stage without payment of compensation due to any of the
following reasons:
a. If the original contract between the client and the company
is terminated/suspended.
b. The company is unable to proceed with the work due to
reasons like non-availability of work fronts, delay in
availability of materials or delay in receipt of payments
from clients etc.
c. If the contractor is not able to carry out work to the
satisfaction of the company’s clients representatives.
d. If the contractor is unable to ensure adequate progress as
required by the company and their purchaser.
e. Upon termination of this contract/work order, all rights and
obligation of the parties, shall cease provided that the
termination shall not relieve the contractor of any of his
obligations which may have accrued upto the date of
termination.
Upon termination of this contract/work order due to default on
the part of the contractor, he /it shall indemnify the company
against all losses incurred by the company as a result of such
termination.”
5. After
commencement of the work, the respondent CGL on 5th
January, 1995 instructed the employees of the appellant company to
stop the work.
6. The appellant company claimed compensation for such
premature termination of the contract and ultimately the dispute was
referred to Arbitral Tribunal consisting of three Arbitrators.
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7. The appellant-claimant made the following claims:-
(1)
Losses due to idle charges.
(2)
Losses due to unproductivity of the men and machineries
which 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 claims
totalling to Rs. 54,21,170.45 initially on 21st June, 1997 and revised to
Rs. 53,83,980.45 on 5th July, 1997.
9. The following is a summary of the final claims:-
(1)
Idle Charges for machineries
and demobilisation as approved
by Respondent
…Rs.  4,18,551.50
(2)
Losses due to unproductive
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 received
Rs. 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 claim
no. 1 in reference to the losses due to idle charges is concerned, it was
finally settled amicably by the parties and the balance towards the
interest component also stands paid.
M/S. DYNA TECHNOLOGIES PVT. LTD. v.
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11. So far as claim no. 3 in reference to loss of profit is
concerned, the same was disallowed by the Arbitral Tribunal and it was
later not questioned by the appellant-claimant and that attained finality.
12. The only objection is in reference to claim no. 2, i.e., losses
due to unproductive use of machineries which was accepted by the
Arbitral Tribunal for a sum of Rs. 27,78,125/- with interest @ 18% p.a.
vide its award dated 30th April, 1998 and Correction to award dated
5th May, 1998.
13. Aggrieved by the award passed by the Tribunal, an original
petition was filed before the learned Single Judge of the High Court of
Judicature at Madras, questioning the award under Section 34 of the
Arbitration and Conciliation Act, 1996 (hereinafter “Arbitration Act”),
by the respondent. The learned Single Judge, while upholding the award
of the Tribunal, observed as under:
“7.Thus the Arbitrators have given a specific finding that
the amount paid as compensation is actually the amount
expended by the fourth respondent and therefore the
petitioner is liable to reimburse the loss sustained by the
fourth respondent. Therefore, this contention is also not
acceptable.
 …
9. Further, the learned counsel for the petitioner took this court
to various portions of the Award and tried to convince this Court
that the Arbitrators have not decided the issue fully appreciating
the evidence on record. In the judgment of the Supreme Court
reported in M/s Sundarsan Trading Company v. Government of
Kerala (AIR 1989 Supreme Court 890) it has been clearly held
that the power of the Arbitrator in respect of the interpretation
of the contract in a matter for arbitration, the Arbitrator can pass
the Award by taking a particular view of the contract and hence,
the Court cannot substitute its own decision. Therefore, this Court
cannot reappraise the evidence and substitutes its views and set
aside the Award. Also in the case of Tamil Nadu Civil Supplies
Corporation Limited v. Albert and Company (2000 (III) CTC 83),
this Court has held that as per Section 34 of the Act, the Award
of the Arbitrator can be set aside only on the limited grounds
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and the Award cannot be interfered with simply because another
view is possible on the available materials. The arbitrator is a
Judge of choice of parties and this Court cannot set aside unless
it suffers from error apparent on the face of the record. It cannot
be set aside even if the Court can come to different conclusion
on the same facts. The learned counsel for the petitioner has
not pointed out any such ground. It cannot also be said that the
Award is perverse or has error apparent on the face of the
record. Therefore, the Award passed by the Arbitrator is not
illegal or invalid and cannot be set aside. Therefore, the petition
is dismissed.”
(emphasis supplied)
14. Aggrieved by the aforesaid decision of the learned Single
Judge, the respondent appealed before the Division Bench in O.S.A
No. 234 of 2001. As aforementioned, the High Court vide impugned
order partly allowed the appeal and set aside the award of the Tribunal
relating to claim no. 2. The High Court was of the opinion that the award
does not contain sufficient reasons and the statements contained in
paragraph 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 following
manner:
“18. It is of course true that an Arbitrator cannot be expected to
write a detailed judgment as in a law Court. However, the present
Act contemplates that the award of the Arbitrator should be
supported by reason. The decision relied upon by
the counsel for
the respondent, rendered on the basis of the Arbitration Act, 1940,
cannot be pressed into service keeping in view the specific
provision contained in the Act. Moreover, even assuming that the
ratio of the said decision is applicable, we cannot cull out any
underlying reason in the award for directing payment of
compensation. The basis for the right of the claimant and the
basis of the liability of the present appellant have not been
indicated anywhere within four corners of the award and in spite
of the best efforts it is not possible to discover even any latent
reason in the award.
19. It was also contended that the discussion in para 3.1(g) of
the award contains the basis and reason given by the Tribunal.
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We have carefully gone through such paragraph as well as the
preceding and subsequent paragraphs. In our considered opinion,
the statements recited in para 3.1 including para 3.1(g) are only
substance of the submissions/claim made by the claimant and
para 3.1(g) cannot be construed as a conclusion or even the
reasoning given by the Tribunal.”
15. Having come to a conclusion that the arbitral award was
deficient due to the lack of reasoning, the High Court proceeded further
to note that the option of Section 34 (4) of the Arbitration Act was not
necessary as the compensation could not have been claimed considering
the fact that the work order has provision barring claim no. 2, in the
following manner:
“20. Learned counsel for the respondent has relied upon Section
34(4) of the Arbitration Act and has submitted that in case if this
Court finds that the Arbitral Tribunal has not given reason, even
though it is so required under Section 31(3) by invoking jurisdiction
under Section 31(4), this Court can give opportunity to the Arbitral
Tribunal to resume the arbitral proceedings or to take action as
in the opinion of the Arbitral Tribunal would eliminate the grounds
for setting aside the arbitral award.
21. We do not think that the present case is a fit case where
the Arbitral Tribunal can be called upon to give reasons in support
of its conclusion. This is because, in our considered opinion, the
terms of the contract
clearly exclude the possibility of payment
of any compensation on account of premature termination of the
contract as envisaged in para C. 2(a).”
16. Thereafter, the High Court proceeded further to note that the
arbitral proceeding was beyond the competence of the Tribunal by
considering 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 entire
material available on record and recorded a finding in reference to claim
no. 2 (losses suffered due to unproductive use of machineries) based
on the case set up by the parties taking note of Section 73 of the Indian
Contract Act, 1872 (hereinafter “Contract Act”) and relying on the
evidence including appraisal of the log books approved by the respondent
and held that actual losses/expenses were incurred by the appellant.
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In the given circumstances it was not open for the High Court in appeal
to reappraise and substitute its own view in contravention of the clause
of the agreement pursuant to which the arbitral dispute was raised and
a finding came to be recorded in acceptance of the claim with regard
to the losses suffered by the appellant due to unproductive use of
machineries and the interference made by the High Court is beyond
the scope of Section 37 of the Arbitration Act.
18. Learned counsel further submits that the Division Bench of
the High Court did not hold that the evidence relied upon by the Arbitral
Tribunal, 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 appeal
filed by the respondent under Section 37 of the Arbitration Act and only
the liability was questioned. The learned counsel further submitted that
the only submission of the learned counsel for the respondent before
the Arbitral Tribunal and also before the learned Single Judge of the
High Court was that there was no provision under the contract granting
compensation for loss incurred for unproductive use of machinery and
that the Arbitral Tribunal has exceeded its jurisdiction. This issue was
examined by the Tribunal and confirmed by the Single Judge of the High
Court, after examining the objections raised by the respondent under
Section 34 of the Arbitration Act. The learned counsel for the appellant
contented that
interference at the appellate stage is beyond the scope
of 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 High
Court under the impugned judgment deserves to be interfered by this
Court.
19. Learned counsel also submits that Section 73 of the Contract
Act confers a right which is for public interest/benefit and contractual
clause, if any, which takes away such a right unilaterally of a party is
violative of Section 23 of the Contract Act. The law which is made for
an individual’s benefit can be waived by only by such individual,
however, where law is for public interest or has policy element, then
such rights cannot be waived by an individual person inasmuch as such
rights are a matter of public policy/public interest.
20. Learned counsel further submits that a contractual provision
which is in contravention of a specific  statutory provision, if allowed
to be implemented, the same will result in frustration of a right
conferred by law or if the contractual clause is immoral or opposed to
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public policy, in such cases the contractual clause is invalid and void
ab initio and cannot be enforced to disentitle appellant in claiming the
actual loss which has been suffered by it and established before the
Arbitral Tribunal and which the respondent is under an obligation to
reimburse. In the given circumstances, claim no. 2 which has been set
aside by the High Court needs interference by this Court. The learned
counsel in support has placed reliance on the judgment of this Court in
K.N. Sathyapalan (Dead) by Lrs. v. State of Kerala, (2007) 13 SCC
43.
21. Per contra, learned counsel for the respondent, while
supporting the findings recorded by the High Court in the impugned
judgment, submits that the claim which has been disallowed by the High
Court in the impugned judgment is basically a claim for payment of
compensation or damages on account of premature termination of
contract and neither the Arbitral Tribunal nor the learned Single Judge
of the High Court has considered/examined the terms of the contract
in appreciating the right of the claimant to claim compensation of
damages and the corresponding liability of the respondent to pay/settle
the claim. According to him, as per the terms of contract, no such
compensation was payable.
22. Learned counsel further submits that it is well settled that
the Arbitral Tribunal cannot travel beyond the terms of contract to
award compensation. As a matter of fact, in
the present case, the terms
of contract expressly prohibit that no compensation is payable if the
contract is terminated on account of termination of the project. In the
face of such express prohibition, the Arbitral Tribunal has exceeded its
jurisdiction and committed a manifest error in directing the payment of
compensation even without disclosing the basis of arriving at such a
conclusion.
23. Learned counsel for the respondent submits that Section
34(2)(a)(iv) of the Arbitration Act clearly envisages that such an award
can be set aside if the award deals with a dispute not contemplated by
or not falling within the terms of the submission to arbitration. When
there is a specific exclusion/prohibition in the contract, it was not open
for the Tribunal to travel beyond the terms of contract in passing an
award which has been taken note of by the Division Bench of the High
Court in the impugned judgment and has been rightly set aside, supported
by cogent reasons. The learned counsel further submitted that what
has been observed by the Division Bench of the High Court in the
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impugned judgment is based on settled principles of law and needs no
interference.
24. We have heard learned counsel for the parties and with their
assistance perused the material available on record.
25. Before we devolve into the contractual issues, we need to
observe certain pointers on the jurisdiction of the court under Section
34 of the Arbitration Act. Section 34 as it stood before the Amendment
Act of 2015, was as follows-
“34 Application for setting aside arbitral award. —
(1) Recourse to a Court against an arbitral award may be made
only by an application for setting aside such award in accordance
with 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 the
law to which the parties have subjected it or,
failing any indication thereon, under the law for
the time being in force; or
(iii) the party making the application was not given
proper notice of the appointment of an arbitrator
or of the arbitral proceedings or was otherwise
unable to present his case; or
(iv) the arbitral award deals with a dispute not
contemplated by or not falling within the terms
of the submission to arbitration, or it contains
decisions on matters beyond the scope of the
submission to arbitration:
Provided that, if the decisions on matters
submitted to arbitration can be
separated from
those not so submitted, only that part of the
arbitral award which contains decisions on
matters not submitted to arbitration may be set
aside; or
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(v) the composition of the arbitral tribunal or the
arbitral procedure was not in accordance with
the agreement of the parties, unless such
agreement was in conflict with a provision of
this Part from which the parties cannot
derogate, or, failing such agreement, was not in
accordance with this Part; or
(b) the Court finds that—
(i) the subject-matter of the dispute is not capable
of settlement by arbitration under the law for
the time being in force, or
(ii) the arbitral award is in conflict with the public
policy of India.
Explanation. —Without prejudice to the generality of sub-clause
(ii) it is hereby declared, for the avoidance of any doubt, that an
award is in conflict with the public policy of India if the making
of the award was induced or affected by fraud or corruption or
was in violation of section 75 or section 81.
(3)An application for setting aside may not be made after three
months have elapsed from the date on which the party making
that application had received the arbitral award or, if a request
had been made under section 33, from the date on which that
request had been disposed of by the arbitral tribunal: Provided
that if the Court is satisfied that the applicant was prevented by
sufficient cause from making the application within the said period
of three months it may entertain the application within a further
period of thirty days, but not thereafter.
(4) On receipt of an application under
sub-section (1), the Court
may, where it is appropriate and it is so requested by a party,
adjourn the proceedings for a period of time determined by it in
order to give the arbitral tribunal an opportunity to resume the
arbitral proceedings or to take such other action as in the opinion
of arbitral tribunal will eliminate the grounds for setting aside the
arbitral award.
26. There is no dispute that Section 34 of the Arbitration Act limits
a challenge to an award only on the grounds provided therein or as
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interpreted by various Courts. We need to be cognizant of the fact that
arbitral awards should not be interfered with in a casual and cavalier
manner, unless the Court comes to a conclusion that the perversity of
the award goes to the root of the matter without there being a possibility
of alternative interpretation which may sustain the arbitral award.
Section 34 is different in its approach and cannot be equated with a
normal appellate jurisdiction. The mandate under Section 34 is to respect
the finality of the arbitral award and the party autonomy to get their
dispute adjudicated by an alternative forum as provided under the law.
If the Courts were to interfere with the arbitral award in the usual course
on factual aspects, then the commercial wisdom behind opting for
alternate dispute resolution would stand frustrated.
27. Moreover, umpteen number of judgments of this Court have
categorically held that the Courts should not interfere with an award
merely because an alternative view on facts and interpretation of
contract exists. The Courts need to be cautious and should defer to
the view taken by the Arbitral Tribunal even if the reasoning provided
in the award is implied unless such award portrays perversity
unpardonable under Section 34 of the Arbitration Act.
28. Having established the basic jurisprudence behind Section 34
of the Arbitration Act, we must focus on the analysis of the case. The
primary contention of the learned counsel appearing on
behalf of the
appellant is that the award by the learned Tribunal was perverse for
want of reasons. The necessity of providing reasons has been provided
under 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 under
section 30.”
(emphasis supplied)
Under the UNCITRAL Model Law the aforesaid provision is
provided as under:
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“(2) The award shall state the reasons upon which it is based,
unless the parties have agreed that no reasons are to be given
or the award is an award on agreed terms under article 30.”
29. Similar to the position under the Model Law, India also adopts
a default rule to provide for reasons unless the parties agree otherwise.
As with most countries like England, America and Model Law, Indian
law recognizes enforcement of the reasonless award if it has been so
agreed between the parties.
30. There is no gainsaying that arbitration proceedings are not
per se comparable to judicial proceedings before the Court. A party
under Indian Arbitration Law can opt for an arbitration before any
person, even those who do not have prior legal experience as well. In
this regard, we need to understand that the intention of the legislature
to provide for a default rule, should be given rational meaning in light
of commercial wisdom inherent in the choice of arbitration.
31. A five-Judge Constitution Bench of this Court in the case of
Raipur Development Authority v. Chokhamal Contractors, AIR 1990
SC 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 nor
set aside merely on the ground that it does not contain reasons
in support of the conclusion or decisions reached in it except
where the arbitration agreement or the deed of submission
requires him to give reasons. The arbitrator or umpire is under
no obligation to give reasons in support of the decision reached
by him unless under the arbitration agreement or in the deed of
submission he is required to give such reasons and if the arbitrator
or umpire chooses to give reasons in support of his decision it is
open to the Court to set aside the award if it finds that an error
of law has been committed by the arbitrator or umpire on the
face of the record on going through such reasons. The arbitrator
or umpire shall have to give reasons also where the court has
directed in any order such as the one made Under Section 20 or
Section 21 or Section 34 of the Act that reasons should be given
or where the statute which governs an arbitration requires him
to do so.”
32. A three-Judge Bench of this Court in another case of S.
Harcharan Singh v. Union of India, (1990) 4 SCC 647, reiterated
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its earlier view that the arbitrator’s adjudication is generally considered
binding between the parties for he is a Tribunal selected by the parties
and the power of the Court to set aside the award is restricted to cases
set out in Section 30 of the Arbitration Act, 1940.
33. However, the ratio of Chokhamal case (supra) has not
found favour of the Legislature, and accordingly Section 31(3) has been
enacted 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 this
Court has indicated that passing of a reasoned award is not an empty
formulation under the Arbitration Act.
34. It may be relevant to note Russell on Arbitration, 23rd edn.
(2007), wherein he notes that:
“If the Court can deduce from the award and the materials before
it, which may include extracts from evidence and the transcript
of hearing, the thrust of the tribunal’s reasoning then no
irregularity will be found….Equally, the court should bear in
mind that when considering awards produced by non-
lawyer arbitrators, the court should look at the substance
of such findings, rather than their form, and that one
should approch a reading of the award in a fair, and not in
an unduly literal way.”
(emphasis supplied)
35. The mandate under Section 31(3) of the Arbitration Act is
to have reasoning which is intelligible and adequate and, which can in
appropriate cases be even implied by the Courts from a fair reading of
the award
and documents referred to thereunder, if the need be. The
aforesaid provision does not require an elaborate judgment to be passed
by the arbitrators having regards to the speedy resolution of dispute.
36. When we consider the requirement of a reasoned order three
characteristics of a reasoned order can be fathomed. They are: proper,
intelligible and adequate. If the reasoning in the order are improper, they
reveal a flaw in the decision-making process. If the challenge to an
award is based on impropriety or perversity in the reasoning, then it
can be challenged strictly on the grounds provided under Section 34 of
the Arbitration Act. If the challenge to an award is based on the ground
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that the same is unintelligible, the same would be equivalent of providing
no reasons at all. Coming to the last aspect concerning the challenge
on adequacy of reasons,  the Court while exercising jurisdiction under
Section 34 has to adjudicate the validity of such an award based on
the degree of particularity of reasoning required having regard to the
nature of issues falling for consideration. The degree of particularity
cannot be stated in a precise manner as the same would depend on
the complexity of the issue. Even if the Court comes to a conclusion
that there were gaps in the reasoning for the conclusions reached by
the Tribunal, the Court needs to have regard to the documents submitted
by the parties and the contentions raised before the Tribunal so that
awards with inadequate reasons are not set aside in casual and cavalier
manner. On the other hand, ordinarily unintelligible awards are to be
set aside, subject to party autonomy to do away with the reasoned
award. Therefore, the courts are required to be careful while
distinguishing between inadequacy of reasons in an award and
unintelligible awards.
37. At this juncture it must be noted that the legislative intention
of providing Section 34 (4) in the Arbitration Act was to make the
award enforceable, after giving an opportunity to the Tribunal to undo
the curable defects. This provision cannot be brushed aside and the
High Court could not have proceeded
further to determine the issue
on merits.
38. In case of absence of reasoning the utility has been provided
under of Section 34(4) of the Arbitration Act to cure such defects. When
there is complete perversity in the reasoning then only it can be
challenged under the provisions of Section 34 of the Arbitration Act.
The power vested under Section 34 (4) of the Arbitration Act to cure
defects can be utilized in cases where the arbitral award does not
provide any reasoning or if the award has some gap in the reasoning
or otherwise and that can be cured so as to avoid a challenge based
on the aforesaid curable defects under Section 34 of the Arbitration
Act. However, in this case such remand to the Tribunal would not be
beneficial 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 arbitration
as an effective and expeditious forum itself stands effaced.
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39. It may be noted that when the High Court concluded that
there was no reasoned award, then the award ceased to exist and the
Court was functus officio under Section 34 of the Arbitration Act for
hearing the challenge to the award under the provisions of Section 34
and come to a conclusion that the arbitration award was not in terms
of the agreement. In such case, the High Court ought to have
considered remanding the matter to the Tribunal in the usual course.
However, the High Court analyzed the case on merits, but, for different
reasons and we need not go into the validity of High Court’s
interference.
40. Coming back to the award, we need to see whether the award
of the Arbitral Tribunal can be sustained in the instant case. Although
the Arbitral Tribunal has dealt with the claims separately under different
sub-headings, the award is confusing and has jumbled the contentions,
facts and reasoning, without appropriate distinction. The Tribunal
rendered the award with narration of facts with references to the
annexures wherever it relied upon by it. The Tribunal abruptly concluded
at the end of the factual narration, without providing any reasons, in
the following manner:
“(3) Claim for unproductive usage of machineries
….
(g) All the above facts clearly establish that the
machineries deployed by the Claimant had to do
unproductive work by shifting from one place to another
to suit the availability of work.The contract contemplates
only payment for
actual turnover of earthwork and for this
they had received amount totaling to Rs. 1709782.88. The
Claimant claims that the hire charges paid to the machineries,
men and engineers should be reimbursed to him. He has given
the actual expenses in his claim statement.
(emphasis supplied)
41. Interestingly, the factual narration is coupled with the
claimant’s argument, which is bundled together. A close reading of the
same is required to separate the same wherein the Arbitral Tribunal
has mixed the arguments with the premise it intended to rely upon for
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the claimant’s claim. Further, it has reduced the reasons for respondent’s
defense. In spite of our independent application of mind based on the
documents relied upon, but cannot sustain the award in its existing form
as there is a requirement of legal reasoning to supplement such
conclusion. In this context, the complexity of the subject matter stops
us from supplementing such legal reasoning and we cannot sustain the
aforesaid award as being reasoned.
42. It may be beneficial to reduce the concluding paragraph of
the award, which reads as under:
“3.4. The above arguments and various authorities quoted by
them have been studied by the Tribunal and we are convinced
that the compensation is payable on the hire charges and
expenses incurred by the claimant based on the claims made by
him in June 95 and now submitted by the claimant in his revised
claim petition  on 05.07.1997. We are convinced that the
machineries have been actually mobilized from the letter
R-3, R-8 and R-10 issued by DCM reporting on the
number of machineries deployed by Claimant. The Claimants
have produced the log books and bills for the various machineries
and modified their claims. The tribunal had perused the log
books and idle wages approved in C-7 by Respondent and
the claims made in R-17.”
(emphasis supplied)
43. From the facts, we can only state that from a perusal of the
award, in the facts and circumstances of the case, it has been
rendered
without reasons. However, the muddled and confused form of the
award has invited the High Court to state that the arbitrator has merely
restated the contentions of both parties. From a perusal of the award,
the inadequate reasoning and basing the award on the approval of the
respondent herein cannot be stated to be appropriate considering the
complexity of the issue involved herein, and accordingly the award is
unintelligible and cannot be sustained.
44. In any case, the litigation has been protracted for more than
25 years, without any end for the parties. In totality of the matter, we
consider it appropriate to direct the respondents to pay a sum of

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Rs. 30,00,000/- (Rupees Thirty Lakhs only) to the appellant in full and
final settlement against claim No. 2 within a period of 8 weeks, failing
which the appellant will be entitled to interest at 12% per annum until
payment, for providing quietus to the litigation.
45. In view of the conclusions reached, the appeal is disposed
of to the extent indicated herein. There shall be no orders as to the
costs.
Divya Pandey
Appeal disposed of.
M/S. DYNA TECHNOLOGIES PVT. LTD. v.
M/S. CROMPTON GREAVES LTD. [N. V. RAMANA, J.]