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Timestamp: 2019-04-23 14:16:45+00:00

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Law Web: Whether it is permissible for court to set aside non speaking arbitration award?
Whether it is permissible for court to set aside non speaking arbitration award?
The decided cases of this Court demonstrate that this Court has consistently taken the view that scope of interference in a non-speaking award is extremely limited. The Court cannot probe into the mental process of the arbitrator. The court should endeavour to support a non-speaking arbitration award provided it adhered to the parties agreement and was not invalidated due to arbitrato's misconduct.
Whatever has been mentioned by Russell in this paragraph is equally true for Indian Arbitrators.
22. It clearly emerge from the aforesaid judgment passed by the Hon'ble Apex Court that scope of interference is extremely limited in non speaking award and it is not open to Court to probe mental process of the arbitrator. The Court should endeavour to support a non-speaking arbitration award and it is not open to court to probe mental process of the arbitrator where he has not provided the reasoning for his decision. The Hon'ble Apex Court in the judgment cited hereinabove, has categorically held that arbitrator is under no obligation to give reasons in support of the decision reached by him, unless the arbitration agreement or deed of settlement so required. In the instant case, learned counsel representing the petitioners was unable to point out conditions, if any, contained in the agreement making it incumbent upon the arbitrator to assign reasons in support of his/her findings.
Himachal Pradesh Agro Industries Corporation Limited .
Sandeep Sharma, J.:— By way of instant application/objections having been filed by the objectors-petitioners (for short objectors) under Section 34(3) of the Arbitration and Conciliation Act, 1996, challenge has been laid to the award dated 20th October, 2008, passed by the Principal Secretary (Horticulture) to the Government of Himachal Pradesh, in Arbitration Case No. 1 of 2003, in respect of the dispute between the parties relating to the alleged buying back of the equity shares by the objectors in view of the sanction of the equity assistance of Rs. 40.00 lacs by the respondent-claimant (for short claimant)) to the objectors.
2. Briefly stated facts as emerge from the record are that the objectors established a company M/s. Himalayan Vegefruits Limited to set up an industrial unit for the processed fruits and vegetables at Parwanoo, District Solan, Himachal Pradesh and in this regard objectors approached claimant-Corporation for sanction of equity assistance amounting to Rs. 40.00 lacs, which was sanctioned in their favour. Pursuant to aforesaid sanction made in favour of the objectors, objectors entered into an agreement with the claimant-Corporation for direct Equity Participation Agreement on 22.3.195 and 1.4.1997 respectively. Above named objectors-company allotted 4,00,000 shares of face value of Rs. 10/- each in favour of the claimant-corporation and issued shares certificates for 4,00,000 shares in favour of the corporation on receipt of payment of Rs. 40.00 lacs.
3. It also emerge from the record that as per clause 1 and 2 of the Agreement, objectors were to buy back the shares within five years from the date of first disbursement and after expiry of three years from the date of commercial production. The claimant-Corporation vide notices dated 31.3.2000 and 11.5.2001 called upon the objectors to buy back the shares, but since objectors failed to buy back the shares, the claimant-Corporation re-called the entire equity amount of Rs. 40.00 lacs alongwith interest on 12.9.2002 and raised a demand of Rs. 1,20,91,082/-. The aforesaid amount included face value of shares i.e. Rs. 40.00 lacs and interest at the rate of 17.5% with effect from 1.4.1995 to 30.9.2002.
4. Aforesaid claim put forth by the claimant-Corporation was resisted by the objectors on the ground that agreement dated 22.3.1995 for direct equity participation agreement was for Rs. 10.00 lacs and not for Rs. 20.00 lacs, as alleged by the claimant-Corporation. Objectors further contended that in terms of the agreement, as referred above, Claimant-Corporation was required to invest in the objectors-company through their own funds and such, funds were to be arranged by the objectors-company from the Ministry of Food Processing Industries, Government of India (for short ‘MOFPI) or from National Horticulture Board, Government of India. As per objectors, Corporation never actually invested such funds after entering into agreements with the objectors. Objectors further claimed that there was a Tripartite Agreement between the corporation, ‘MOFPI’ and M/s. Himalayan Vegefruits Limited, whereby objectors received funds from ‘MoFPI’ and from National Horticulture Board under this Tripartite Agreement. Since, there was a dispute inter se parties, matter came to be referred to the learned Arbitrator in terms of Arbitration clause contained in agreement dated 22.3.1995 and 1.4.1997. As per aforesaid agreement, Financial Commissioner (Development) to the Government of Himachal Pradesh (now the Principal Secretary(Horticulture) to the Government of Himachal Pradesh) was appointed as sole Arbitrator, who vide award dated 20thAugust, 2008, passed the award in favour of claimant-Corporation and against the objectors for a sum of Rs. 40.00 lacs alongwith interest at the rate of 17.5% with half yearly rests from the date of disbursement of the aforesaid amount of Rs. 40.00 lacs by the claimant corporation till realization of the entire amount. Learned Arbitrator further ordered that on receipt of full payment, claimant-corporation shall transfer the shares in favour of the objectors or their nominee.
5. Being aggrieved and dissatisfied with the aforesaid award passed by the learned Arbitrator, objectors have filed instant objections under Section 34(3) of Arbitration and Conciliation Act, 1996, praying therein for setting aside the award dated 20th October, 2008, passed by the learned Arbitrator.
6. In nutshell, submissions having been made by Mr. Neeraj Gupta, learned counsel representing the objectors are that award is unjust, unreasonable and is against the expressed terms of contract. Mr. Gupta, further contended that learned Arbitrator has acted contrary to the facts pleaded in the reply filed by the objectors and the award is thus opposed to the public policy of India. While referring to the impugned award passed by the learned Arbitrator, Mr. Gupta, argued that Arbitrator has travelled beyond its jurisdiction to misconstrue and misinterpret the agreement executed between the objectors and the claimant-Corporation on one hand and the Tripartite agreement executed between the claimant-Corporation, ‘MOFPI’ and M/s. Himalayan Vegefruits Limited, on the other hand. Mr. Gupta, further contended that since objectors had taken a specific stand with regard to the claim made by the claimant corporation that since corporation failed to adhere to the terms and conditions of the Bi-agreement executed with the claimant-corporation, claim put forth by the corporation on the basis of Tripartite agreement is wholly unsustainable.
7. Mr. Gupta, further contended that impugned award itself suggests that learned Arbitrator has failed to give reasons in support of his findings qua three issues, which were framed for adjudication. Reasons assigned by the learned Arbitrator, nowhere satisfy the test laid down for “Reasons” by the Hon'ble Apex Court as well as this Court in various pronouncements and as such, impugned award cannot be said to be reasoned award, as required under the provisions of Section 31(3) of the Arbitration and Conciliation Act, 1996. Mr. Gupta, also submitted that since there was a breach of conditions of such clause and condition, therefore, for all intents and purposes, the agreement required for operation with respect to equity participation ought to have been the “Tripartite Agreement” and not the agreement executed between the claimant and the objectors. As per Mr. Gupta, the Bi-Agreement, on account of non performance by the claimant corporation and otherwise in view of the Tripartite Agreement was in fact a subordinate agreement which was also subservient to the operating clauses of the Tripartite Agreement. But such aspect of the matter was neither gone into by the learned Arbitrator nor any findings have been returned in this regard and as such, impugned award is liable to be set-aside.
8. While concluding his arguments, Mr. Gupta, forcibly contended that learned Arbitrator has fallen in error while arriving at a conclusion that buy back of 4,00,000 shares is to be governed by two agreements dated 1.4.1997 and 22.3.1995. Learned counsel further contended that since learned Arbitrator has failed to return specific findings as regards to the defence made by the objectors in the reply, wherein it was specifically contended that claimant corporation failed to comply with the conditions laid in Bi-Agreement executed between itself and the objectors company and as such, learned Arbitrator has committed an error of law and jurisdiction while holding that objectors have failed to buy back the shares. With the aforesaid submissions, Mr. Gupta, contended that the impugned award being opposed to settle law and against the Public Policy of India, is liable to be set-aside.
9. Mr. Balwant Kukreja, learned counsel representing claimant-Corporation, supported the impugned award and stated that there is no illegality and infirmity of the same, rather learned Arbitrator has dealt with each and every aspect of the matter very carefully while passing the award and as such, same deserves to be upheld. While refuting the aforesaid contention having been made by the learned counsel for the objectors, Mr. Kukreja, invited attention of this Court to clause 1 and 2 of the agreement to suggest that objectors were to buy back the shares within five years from the date of first disbursement and after expiry of three years from the date of commercial production and since petitioners/objectors failed to do the same, they were called upon by the claimant corporation to buy back the same vide repeated notices. But since no heed was paid to the aforesaid notices, claimant corporation finally recalled the entire equity amount of Rs. 40.00 lacs alongwith interest and raised a demand of Rs. 1,20,91,082. Learned counsel further stated that amount of Rs. 40.00 lac was not invested or funds were not provided to the petitioner as alleged, rather in terms of tripartite agreement executed amongst Ministry of Food Processing Industry, Government of India, H.P. Agro Industries Corporation Limited and Himalayan Vegefruits Limited, a sum of Rs. 20.00 lacs was provided by Ministry of Food Processing Industry, Government of India to H.P. Agro Industries Corporation Limited for further investment in Himalayan Vegefruits Limited and as per clause 1 of the agreement, remaining amount of Rs. 20.00 lacs was to be provided by the claimant corporation to M/s. Himalayan Vegefruits Limited. Learned counsel representing the claimant corporation contended that there is no scope of interference as far as this court is concerned, especially when it clearly emerge from the record that award is based on the proper appreciation of evidence and documents adduced on record by the respective parties.
10. Learned counsel further contended that though findings returned by the learned Arbitrator are based upon the correct appreciation of the material adduced on record by the respective parties, but even if it is presumed that the decision of the arbitrator is erroneous, same is not liable to be interfered by filing objections under Section 34 of the Act. Since, Arbitrator has not acted in violation of any law and as such impugned award passed by the learned Arbitrator deserve to be upheld.
11. I have heard learned counsel for the parties and have carefully gone through record.
“Under the law, the arbitrator is made the final arbiter of the dispute between the parties. The award is not open to challenge on the ground that the Arbitrator has reached a wrong conclusion or has failed to appreciate facts.
In terms of the 1996 Act, a departure was made so far as the jurisdiction of the court to set aside an arbitral award is concerned vis-a-vis the earlier Act. Whereas under Sections 30 and 33 of the 1940 Act, the power of the court was wide, Section 34 of the 1996 Act brings about certain changes envisaged thereunder. Section 30 of the Arbitration Act, 1940 did not contain the expression “error of law…”. The same was added by judicial interpretation.
While interpreting Section 30 of the 1940 Act, a question has been raised before the courts as to whether the principle of law applied by the arbitrator was (a) erroneous or otherwise or (b) wrong principle was applied. If, however, no dispute existed as on the date of invocation, the question could not have been gone into by the Arbitrator.
The 1996 Act makes provision for the supervisory role of courts, for the review of the arbitral award only to ensure fairness. Intervention of the court is envisaged in few circumstances only, like, in case of fraud or bias by the arbitrators, violation of natural justice, etc. The court cannot correct errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is desired. So, scheme of the provision aims at keeping the supervisory role of the court at minimum level and this can be justified as parties to the agreement make a conscious decision to exclude the court's jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it.
The arbitral award can be set aside if it is contrary to (a) fundamental policy of Indian law;(b) the interests of India; (c) justice or morality; or (d) if it is patently illegal or arbitrary. Such patent illegality, however, must go to the root of the matter. The public policy violation, indisputably, should be so unfair and unreasonable as to shock the conscience of the court. Lastly where the Arbitrator, however, has gone contrary to or beyond the expressed law of the contract or granted relief in the matter not in dispute, would come within the purview ofSection 34 of the Act.
What would constitute public policy is a matter dependant upon the nature of transaction and nature of statute. For the said purpose, the pleadings of the parties and the materials brought on record would be relevant to enable the court to judge what is in public good or public interest, and what would otherwise be injurious to the public good at the relevant point, as contradistinguished from the policy of a particular government.
15. Careful perusal of the aforesaid judgments passed by the Hon'ble Apex Court clearly suggest that jurisdiction of this Court is limited while considering the award Under Section 34 of the Act. The award passed by the Arbitrator can only be interfered in case of fraud or bias, violation of the principles of natural justice etc. Apart from above, interference on the ground of “patent illegality” is permissible only if the same is going to the root of the matter. The public policy, violation should be so unfair and unreasonable as to shock the conscience of the Court. In the aforesaid judgment passed by the Hon'ble Apex Court, it has been held that what would constitute ‘public policy’ is a matter dependent upon the nature of the transaction and the statute.
16. It is quite evident from the reading of aforesaid judgments, referred hereinabove, that Court while deciding objections, if any, filed under Section 34 of the Act, against the award passed by the learned Arbitrator, does not sit in the appeal over the findings recorded by learned Arbitrator and there cannot be reappraisal of the evidence, on the basis of which learned Arbitrator has passed the award. In terms of Section 34 of the Act, court can consider the objections only, if the award is in any manner against the “public policy”, which certainly has to be liberally interpreted keeping in view the facts of the case. But interestingly, in the present case, perusal of objections filed by the petitioner nowhere suggests that award is against public policy. Perusal of objections filed by the objectors shows that neither there are any specific allegations that the award was against ‘public policy’ nor it has been clarified as to which findings or objections made by the learned Arbitrator are against public policy save and except general allegations that the award is against the expressed terms of contract and is unjust, unreasonable, unsustainable and patently illegal.
17. This Court after carefully gone through the pleadings/objections having been filed by the objector, has no hesitation to conclude that objections are vague in nature and by no stretch of imagination, same cannot be termed to be against public policy. Perusal of impugned award passed by learned Arbitrator certainly compels this Court to agree with the contention having been made by Mr. Balwant Kukreja, learned counsel representing the claimant-Corporation that each and every aspect of the matter has been dealt with carefully by the learned Arbitrator while deciding the claims/counter-claims of the parties concerned. Learned Arbitrator taking note of claim as well as written statement having been filed by the respective parties formulated points for determination. It clearly emerges from the award that all the issues raised by the objectors/petitioners were taken for adjudication by the learned Arbitrator while passing the award. Apart from above, this Court having carefully gone through the impugned award finds that all the arguments having been made by the learned counsel representing the objectors/petitioners in the present petition stands answered in the impugned award. Learned Arbitrator while holding Claimant Corporation entitled to a sum of Rs. 40.00 lacs alongwith interest has specifically taken note of agreements dated 22.3.1995 and 1.4.1997. Similarly, this Court finds that issue with regard to investment of funds in direct equity participation by Claimant Corporation has been carefully examined by the arbitrator by taking note of the reply/written statement filed by the objectors/petitioners. While retuning findings qua issue No. 3 i.e. “whether a Tripartite Agreement was executed between the parties and Bi Agreement between the parties was never complied, if so, what are its effects?”, learned Arbitrator has rightly come to the conclusion that claimant corporation after execution of tripartite agreement dated 21.4.1995 entered into an agreement dated 1.4.1997 for Rs. 20.00 lacs each. Vide aforesaid agreement, as referred above, MOFPI, Government of India provided an amount of Rs. 20 lacs to H.P. Agro Industries Corporation Limited and by second agreement an amount of Rs. 20.00 lac was to be provided to H.P. Agro Industries Corporation to the petitioners/objectors in terms of sanction letter dated 15.2.1995. Since, equity sum of Rs. 40.00 lacs was provided to petitioners vide aforesaid agreements, learned Arbitrator rightly held that buy back of 4,00,000/- shares is/was to be governed by these two agreements dated 1.4.1997. Otherwise also perusal of clause 1 and 2 of the agreement, suggest that objectors/petitioners were to buy back the shares from the date of first disbursement and after expiry of three years from the date of commercial production. Since, objectors failed to buy back the shares, claimant-Corporation recalled the entire equity amount with up to date interest in terms of agreements arrived inter se parties. It also emerge from the record that buyback of shares so invested by the claimant-corporation was to be governed by the agreements for buy back of shares as agreed vide agreement dated 1.4.1997. Since, petitioners/objectors failed to buy back the shares inspite of the notice which was duly acknowledged by them vide their letter dated 17.9.2012, learned Arbitrator rightly not found any fault with the action of claimant-Corporation in recalling the entire equity amount of Rs. 40.00 lacs. It also emerge from the record that petitioners/objectors in the written statement filed before the learned Arbitrator specifically requested for deferment of the buyback of shares, meaning thereby they were liable to buy back the share held by H.P. Agro Industries Corporation Limited.
18. After having gone through the findings returned by the learned Arbitrator on the basis of evidence adduced on record by the respective parties, this Court sees no reasons to interfere with the impugned award in the instant proceedings by re-appreciating the evidence, as it would amount to hear the appeal as against the judgment of civil Court. At the cost of repetition, it may be observed that jurisdiction of this Court is limited and award can be set-aside only if it is against the “public policy”, but unfortunately neither any material has been placed on record nor any argument has been made on behalf of the petitioner to substantiate that how the award is against the public policy. Needless to say, question of interpretation of the agreement and its terms and sufficiency of evidence was within the domain of the Arbitrator and actually objections having been filed by the petitioners/objectors deserve to be dismissed being unsustainable in the eyes of law.
20. It clearly emerge from the aforesaid judgment that the concept of public policy connotes some matter which concerns public good and the public interest. Similarly, award/judgment/decision likely to adversely affect the administration of justice has been also termed to be against “public policy”.
“10.In Sudarsan Trading Co. v. Govt. of Kerala (1989) 2 SCC 38 in para 29 at page 53, Sabyasachi Mukharji, J. speaking for the Court observed that the court in a non-speaking award cannot probe into the reasoning of the award. The Court further observed that only in a speaking award may the court look into the reasoning of the award, and it is not open to the court to probe the mental process of the arbitrator and speculate, where no reasons are given by the arbitrator as to what impelled him to arrive at his conclusion. Furthermore, the reasonableness of the arbitrator's reasons cannot be challenged. The arbitrators appraisement of the evidence is never a matter for the court to entertain.
11. This Court in State of A.P. v. R.V. Rayanim (1990) 1 SCC 433 in para 6 at page 437, dealt with a non-speaking award. The court observed that it is not open to the court to probe the mental process of the arbitrator where he has not provided the reasoning for his decision.
12. This Court, in Bijendra Nath Srivastava v. Mayank Srivastava (1994) 6 SCC 117 in para 20 at page 133 and para 31 at page 138, observed that the arbitrator is under no obligation to give reasons in support of the decision reached by him, unless the arbitration agreement or deed of settlement so required. If the arbitrator or umpire chooses to give reasons in support of his decision, then it would be open to the court to set aside the award upon finding an error of law. The reasonableness of the reasons given by the arbitrator cannot, however, be challenged. It is not open to the court to look for the reasons and proceed to examine whether they were right or erroneous. The arbitrator is the sole judge of the quality as well as the quantity of the evidence. It will not be for the court to take upon itself the task of being a judge of the evidence before the arbitrator. The Court should approach an award with a desire to support it, if that is reasonably possible, rather than to destroy it by calling it illegal.
13. In New India Civil Erectors (P) Ltd. v. Oil & Natural Gas Corporation (1997) 11 SCC 75 in para 7 at page 78, the Court observed while dealing with a non-speaking award that the attempt of the court should always be to support the award within the letter of law.
14. In Rajasthan State Mines & Minerals Ltd. v. Eastern Engineering Enterprises (1999) 9 SCC 283 in para 44 at page 309, the Court observed that in a non-speaking award the jurisdiction of the court is limited. It is not open to the court to speculate where no reasons are given by the arbitrator as to what impelled the arbitrator to arrive at his conclusion. It is also not possible to admit to probe the mental process by which the arbitrator has reached his conclusion where it is not disclosed by the terms of the award. Similar view has been taken in the following cases, namely, State of Bihar v. Hanuman Mal Jain (1997) 11 SCC 40, P.V. Subha Naidu v. Govt. of A.P. (1998) 9 SCC 407, Star Construction and Transport Co. v. India Cements Ltd. (2001) 3 SCC 351 and D.D. Sharma v. Union of India (2004) 5 SCC 325.
15. The decided cases of this Court demonstrate that this Court has consistently taken the view that scope of interference in a non-speaking award is extremely limited. The Court cannot probe into the mental process of the arbitrator. The court should endeavour to support a non-speaking arbitration award provided it adhered to the parties agreement and was not invalidated due to arbitrato's misconduct.
23. Consequently, in view of the aforesaid detailed discussion made hereinabove as well as law laid down by the Hon'ble Apex Court, this Court sees no reason to interfere with the well reasoned award passed by the learned Arbitratior and as such present petition is accordingly dismissed alongwith pending applications, if any.

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