Full Judgment Text
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PETITIONER:
INDIAN OIL CORPORATION
Vs.
RESPONDENT:
INDIAN CARBON LTD.
DATE OF JUDGMENT06/04/1988
BENCH:
MUKHARJI, SABYASACHI (J)
BENCH:
MUKHARJI, SABYASACHI (J)
RANGNATHAN, S.
CITATION:
1988 AIR 1340 1988 SCR (3) 426
1988 SCC (3) 36 JT 1988 (2) 212
1988 SCALE (1)965
CITATOR INFO :
RF 1989 SC 973 (9)
ACT:
Arbitration Act, 1940: Sections 30 and 33-Award of
Arbitrator-Reasoned Award-What is-Arbitration clause
requiring arbitrator to give reasoned award-Whether
arbitrator required to give detailed reasons-Sufficiency of
reasons depends on facts of the case-Court not to sit in
appeal over award and review reasons.
HEADNOTE:
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In respect of sale of raw petroleum coke by petitioner
to respondent there were three agreements, providing for
sale, petitioner’s right to shift raw petroleum coke at the
risk and expense of the respondent in case of failure of
Respondent to shift the same as agreed, and the Respondent’s
liability to pay interest on the value of stock not
uplifted.
There was default in payment and petitioner stopped
supplies to respondent, filed a suit and obtained an order
of attachment of stocks of raw petroleum coke, to the extent
of Rs.6 crores, of the Respondent. The respondent filed an
appeal as also an application for stay of the suit under
Section 34 of the Arbitration Act. Meanwhile the petitioner
terminated the agreement. Thereafter the respondent filed a
suit and the Court passed an order for restoration of
supplies.
On an appeal by the petitioner, this Court stayed the
order of restoration of supplies, and recorded the
compromise terms, pursuant to which all proceedings were
withdrawn by the parties. The petitioner’s claim were
referred to an Arbitrator, who passed an interim award,
according to which the petitioner was not entitled to any
interest nor any shifting charges. The petitioner challenged
the said award, when it was filed in High Court. The High
Court dismissed the petition and this special leave petition
is against the High Court’s order.
It was contended before this Court that the Arbitrator
has failed to give a reasoned award and so it is bad in law.
Dismissing the special leave petition, this Court,
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HELD: 1. It is obligatory in England now after the
Arbitration
427
Act, 1979, that the award should give reasons. The purpose
of Section 12 of the Act requiring the tribunal to furnish a
statement of reasons if requested to do so before it gave
its decision is to enable the person whose property or whose
interests were affected, to know, if the decision was
against him, what the reasons were. [435B-C]
’Law of Arbitration’ by Justice R.S. Bachawat. First
Edition 1983 pp. 320 and 321, referred to.
2.1 In India, there has been a trend that reasons
should be stated in the award. The reasons that are set out
must be reasons which will not only be intelligible but also
deal with the substantial points that have been raised. When
the arbitration clause required the arbitrator to give a
reasoned award, the sufficiency of the reasons depend upon
the facts of the particular case. He is not bound to give
detailed reasons. [435C-D]
2.2 The Court does not sit in appeal over the award and
review the reasons. The Court can set aside the award only
if it is apparent from the award that there is no evidence
to support the conclusions or if the award is based upon any
legal proposition which is erroneous.[435D-E]
2.3 The award in question is unassailable. According to
the Arbitrator, because of the letter dated 18th October,
1982 of the petitioner addressed to the Respondent stating
that if the outstandings and interest are not paid, further
supplies would not be made, has been acted upon by the
petitioner, which had not delivered any coke to the
respondent, or made any offer to do so, the petitioner was
not entitled to the interest in respect of the period from
18th October, 1982 onwards, nor to shifting charges in
respect of any shifting on or after 18th October, 1982. On
this reasoning, he had given the award. How the Arbitrator
has drawn inference is apparent from the reasons. No
proposition was stated in the aforesaid reasons, which could
be objected to as an error of law. The reasons given by the
Arbitrator meet the requirements of a reasoned award. It is
apparent that the arbitrator has not acted irrelevantly and
unreasonably. [432E-G; 434G-H]
2.4 Arbitration procedure should be quick and that
quickness of the decision can always be ensured by insisting
that short intelligible indications of the grounds should be
available to find out the mind of the arbitrator for his
action. This was possible in the instant case where the
arbitrator has spoken his mind, and he is clear as to how he
acted
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and why he acted in that manner.[434H; 435A]
Champsey Bhara and Company v. Jivraj Balloo Spinning
and Weaving Company Ltd., AIR, 1923 P.C. 66; Hindustan
Steelworks Construction Ltd. v. Shri C. Rajasekhar Rao, 4 JT
1987 3 S.C. 239; Siemens Engineering and Manufacturing
Company of India Ltd. v. Union of India, [1976] Suppl.
S.C.R. 489; Rohtas Industries Ltd. and Another v. Rohtas
Industries Staff Union and others, [1976] 3 SCR 12 and Dewan
Singh v. Champat Singh, [1970] 2 SCR 903, referred to
Bremer Handelsgesellschaft v. Westzucker, [1981] 2
Lloyd’s Law Reports 130, referred to.
JUDGMENT:
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CIVIL APPELLATE JURISDICTION: Special Leave Petition
(Civil) No. 4557 of 1988.
From the Judgment and Order dated 21.3.88 of the Bombay
High Court in Appeal No. 306 of 1988.
F.S. Nariman, B.D. Sharma and R.P. Kapur for the
Petitioner.
Soli J. Sorabjee, Harsh Mittre, Harish N. Salve, Jeel
Peres, D.N. Mishra and Mrs. A.K. Verma for the Respondents.
The Judgment of the Court was delivered by
SABYASACHI MUKHARJI, J. This petition under Article 136
of the Constitution challenges the judgment and order of the
Division Bench of the High Court of Bombay dated 21st March,
1988. The petitioner in this case on 23rd June, 1961, had
agreed to sell to the predecessor of respondent raw
petroleum coke. There was a second agreement on 22nd April,
1971. The said agreement was arrived at between the parties
whereunder it was provided that in case the respondent
failed to lift raw petroleum coke as agreed, the petitioner
would have right to shift raw petroleum coke at the risk and
expense of the respondent. There was a third agreement
providing that in case of delay in payment, the respondent
would pay interest at 4 per cent over the I.O.C. Bank
borrowing rate, on the value of the stock not uplifted. It
appears that on 5th August, 1982, the respondent wrote a
letter to the petitioner showing inability to pay the
arrears of the price against delivery of raw petroleum coke.
On 4th October, 1982 there was a stock of about 13,760
M.T.S. Of saleable raw petroleum coke lying at Gauhati
Refinery. The petitioner on 18th October, 1982 wrote to the
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respondent that unless the outstandings as on 1st September,
1982 and interest were paid, the petitioner would not make
further supplies. Thereafter the petitioner filed Suit No.
2187 of 1982 for payment and for attachment before judgment.
On 21st December, 1982, it appears that there was an order
of attachment of stocks of raw petroleum coke to the extent
of Rs.6 crores of the respondent. The order was confirmed
after notice. Respondent filed Appeal No. 858 of 1983.
Thereafter respondent on 20th ostler, 1983 filed an
application for stay of the suit under section 34 of the
Arbitration Act, 1940 (hereinafter called ’the Act’). The
petitioner on 11th July, 1983 terminated the agreement with
effect from 31.8.83. The respondent thereafter filed Suit
No. 122 of 1983 and applied for an order compelling the
petitioner to make supplies. The learned District Judge
passed an order on 28th April, 1984 for restoration of
supplies. On 7th May, 1984 in petitioner’s appeal viz.,
Civil Appeal No. 2476 of 1984, this Court stayed the above
order. On 24th May, 1984 this Court’s order setting aside
the order of the learned District Judge dated 28th April,
1984 and recorded the compromise terms. Pursuant to the
compromise, all proceedings were withdrawn by the parties.
On 11th December, 1984 matter relating to the petitioner’s
claims in respect of interest on stocks held from 1st
October, 1982 onwards and expenses of shifting raw petroleum
coke from 1st October, 1982 upto 31st August, 1983, were
referred to arbitration of Shri A.K. Sarkar, a former Chief
Justice of India. On 21st August, 1986 an interim award was
passed by the learned arbitrator. Interim award was filed in
the High Court of Bombay and the petitioner challenged the
said award. The learned single Judge of the High Court
dismissed the petition challenging the interim award. The
Division Bench of the High Court of Bombay upheld the order
of the learned single Judge. Hence this petition under
Article 136 of the Constitution.
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The main contention urged before us was that it was
necessary in the present trend of law for the learned
arbitrator to have given a reasoned award. The Arbitration
Act, 1979 in England so enjoins. The arbitrator, according
to the petitioner has failed to do so. Hence the award was
bad and as such the decision of the High Court was wrong and
leave should be granted from the said decision and the
matter be referred to the Constitution Bench as several
cases are pending on this point.
The learned single Judge of the High Court in his
decision had observed that the award was undoubtedly not an
elaborately reasoned award setting out all the reasons which
prompted the learned arbitrator to arrive at the conclusion
he did reach, but it was a speaking
430
award. The learned Judge however, held that it was not
necessary to examine this aspect since even if it was a
speaking order, it was not bad in law. It is true that the
law as it stands upto date since the decision of Champsey
Bhara and Company v. Jivraj Balloo Spinning and Weaving
Company Ltd., A.I.R. 1923 P.C. 66 that it was not necessary
that all awards should be speaking awards. See in this
connection the observations of this Court in Hindustan
Steelworks Construction Ltd. v. Shri C.Rajasekhar Rao, 4 JT
1987 3 S.C. 239.
Previously the law both in England and India was that
an arbitrator’s award might be set aside for error of law
appearing on the face of it, though the jurisdiction was not
lightly to be exercised. Since question of law could always
be dealt with by means of a special case this is one matter
that could be taken into account when deciding whether the
jurisdiction to set aside an award on this ground should be
exercised or not. The jurisdiction was one that existed at
common law independently of statute. In order to be a ground
for setting aside the award, an error in law on the face of
the award must be such that there could be found in the
award, or in any document actually incorporated with it,
some legal proposition which was the basis of the award and
which was erroneous. See Halsbury’s Laws of England, 4th
edition. paragraph 623, page 334. The law has undergone a
sea change in England. It is obligatory in England now after
the Arbitration Act, 979, that the award should give
reasons.
In the instant case. the arbitrator has set out the
history in the interim award. The arbitrator has stated that
the agreement dated 22nd April. 1970 provided that I.C.L..
will uplift all available coke produced at the Gauhati
Refinery by which name also the Noonmati Refinery was
called. the said upliftment being so regulated that the
quantity uplifted every week was equivalent to the
production of coke at the refinery in the previous week and
that whereas it was thereby further provided that the
upliftment by I.C.L. shall also be as regulated that the
accumulated quantity of coke in the refinery coke yard does
not fall below 2500 tons and does not exceed 4500 tons. The
other history of the matter, it was recited that the order
dated 24th May, 1984 was passed by consent of the parties by
this Court that the claim of the Indian oil Corporation for
interest on stocks said to have been held in the Gauhati
Refinery from 1st October, 1982 onwards and its claim for
expenses of shifting the coke from 1st October, 1982 upto 3
1st August, 1983 would be referred to the arbitration of a
retired Judge of the Supreme Court mutually acceptable to
the parties. Two preliminary issues, the arbitrator framed
were, namely, (1) Is the
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431
claimant entitled to charge any interest on unlifted stock
of raw petroleum coke in view of its letter dated October
18, 1982? and (2) Is the claimant entitled to any shifting
charges in view of its letter dated 18th October, 1982? The
gist of the letter dated 18th October, 1982 is set out in
the arbitration agreement. The arbitrator in his award pro-
to observe as follows:
"And whereas it is not in dispute between the
parties that since the said letter of 18th
October, 1982, I.O.C. had not delivered or offered
to deliver any raw petroleum coke for I.C.L.
Now, therefore, having heard counsel for the
parties and perused the documents and statements
filed by them, the despatch and receipt of none of
which is disputed, and having considered
thereafter, I adjudge, hold and award as follows:
The letter dated 18th October, 1982 is no bar to
Indian oil Corporation’s claim for shifting
charges and interest in respect of the period from
1st October, 1982 to 17th October, 1982.
Because of the said letter which has been
admittedly acted upon by the Indian oil
Corporation Ltd. which had not delivered any coke
to Indian Carbon Ltd. Or made any offer to do so
the Indian oil Corporation Ltd. is not entitled to
the interest claimed in respect of the period from
18th October, 1982 onwards nor to shifting charges
in respect of any shifting done on or after 18th
October, 1982."
The aforesaid grounds are the reasons of the arbitrator
for making the award. The award is that the Indian oil
Corporation is not entitled to any interest nor any shifting
charges. The reasons for the said conclusion are the
aforesaid three factors mentioned by the arbitrator. How the
arbitrator has drawn inference is apparent from the reasons.
It is to be noted that this Court has been insisting on the
arbitrators to give some indications to indicate how the
mind of the arbitrator acts. This Court in the case of
Siemens Engineering and Manufacturing Company of India Ltd.
v. Union of India, [1976] Suppl. S.C.R. 489 was concerned
with the decision of the Collector of Customs. This Court
observed that where an authority makes an order
432
in exercise of a quasi-judicial function, it must record its
reasons in support of the order it makes. This Court
observed further that every quasi-judicial order must be
supported by reasons.
In Rohtas Industries Ltd. and Another v. Rohtas
Industries Staff Union and others, [1976] 3 SCR 12 where
this Court was concerned with an award under section 10A of
the Industrial Disputes Act, 1947. This Court observed that
there was a need for a speaking order where considerable
numbers are affected in their substantial rights. It was
further reiterated that in such a situation a speaking order
may well be a facet of natural justice or fair procedure. In
Dewan Singh v. Champat Singh, [1970] 2 SCR 903, this Court
reiterated that it was an implied term of the arbitration
agreement that the arbitrators must decide the dispute in
accordance with the ordinary law and they cannot decide
disputes on the basis of their personal knowledge. The
proceedings, it was held, before the arbitrators were quasi-
judicial proceedings and they must be conducted in
accordance with the principles of natural justice. It was,
therefore, obligatory to give reasons. As mentioned
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hereinbefore there has been since then trend that reasons
should be stated in the award and the question whether the
reasons are necessary in ordinary arbitration agreement
between the parties has been referred to the Constituion
Bench.
In this case, however, we are in agreement with the
High Court of Bombay that reasons were stated in the award.
We have set out hereinbefore the three grounds, namely, (1)
The letter dated 18th October, 1982 is no bar to Indian oil
Corporation’s claim for shifting charges and interest in
respect of the period from 1st October, 1982 to 17th
October, 1982. (2) The inference drawn from the contents of
the letter and (3) Because of the said letter which has
admittedly been acted upon by the Indian oil Corporation
Ltd., and which had not delivered any coke to the Indian
Carbon Ltd. Or made any offer to do so. For these reasons,
the arbitrator held that the Indian oil Corporation Ltd., is
not entitled to interest claimed in respect of the period
from 18th October, 1982 onwards nor to shifting charges from
18th October, 1982. These are the reasons for giving the
award. No error of law was pointed out in those reasons.
Indeed no proposition of law was stated in the aforesaid
reasons, which could be objected to as an error of law.
There was, however, no error of fact. It was a possible view
to take. It could not be urged that it was an impossible
view to take. The arbitrator has made his mind known on the
basis of which he has acted that, in our opinion, is
sufficient to meet the requirements even if it be reasons
should be stated in the award. It is one thing to say that
433
reasons should be stated and another thing to state that a
detailed judgment to be given in support of an award. Even
if it be held that it is obligatory to state the reasons, it
is not obligatory to give a detailed judgment. This question
was considered by the Court of Appeal in England in Bremer
Handelsgesellschaft v. Westzucker, [1981] 2 Lloyd’s Law
Reports 130. There Lord Donaldson speaking for the court at
pages 132 and 133 of the report observed as follows:
"It is of the greatest importance that trade
arbitrators working under the 1979 Act should
realize that their whole approach should now be
different. At the end of the hearing they will be
in a position to give a decision and the reasons
for that decision. They should do so at the
earliest possible moment. The parties will have
made their submissions as to what actually
happened and what is the result in terms of their
respective rights and liabilities. All this will
be fresh in the arbitrators’ minds and there will
be no need for further written submission by the
parties. No particular form of award is required.
Certainly no one wants a formal "Special Case".
All that is necessary is that the arbitrators
should set out what, on their view of the
evidence, did or did not happen and should explain
succinctly why, in the light of what happened,
they have reached their decision and what that
decision is. This is all that is meant by a
"reasoned award".
For example, it may be convenient to begin by
explaining briefly how the arbitration came about-
"X sold to Y 200 tons of soyabean meal on the
terms of GAFTA Contract 100 at US. $Z per ton
c.i.f. Bremen. X claimed damages for non-delivery
and we were appointed arbitrators". The award
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could then briefly tell the factual story as the
arbitrators saw it. Much would be common ground
and would need no elaboration. But when the award
comes to matters in controversy, it would be
helpful if the arbitrators not only gave their
view of what occurred, but also made it clear that
they have considered any alternative version and
have rejected it, e.g., "The shippers claimed that
they shipped 100 tons at the end of June. We are
not satisified that this is so", or as the case
may be. "We are satisfied that this was not the
case". The arbitrators should end with their
conclusion as to the resulting rights and
liabilities of the parties. There is nothing about
434
this which is remotely technical, difficult or
time consuming.
It is sometimes said that this involves
arbitrators in delivering judgments and that this
is something which requires legal skills. This is
something of a half truth. Much of the art of
giving a judgment lies in telling a story
logically, coherently and accurately. This is
something which requires skill, but it is not a
legal skill and it is not necessarily advanced by
legal training. It is certainly a judicial skill,
but arbitrators for this purpose are Judges and
will have no difficulty in acquiring it. Where a
1979 Act award differs from a judgment is in the
fact that the arbitrators will not be expected to
analyse the law and the authorities. It will be
quite sufficient that they should explain how they
reached their conclusion, e.g., "We regarded the
conduct of the buyers, as we have described it, as
constituting a repudiation of their obligations
under the contract and the subsequent conduct of
the sellers, also as described, as amounting to an
acceptance of that repudiatory conduct putting an
end to the contract". It can be left to others to
argue that this is wrong in law and to a
professional Judge, if leave to appeal is given,
to analyse the authorities. This is not to say
that where arbitrators are content to set out
their reasoning on questions of law in the same
way as Judges, this will be unwelcome to the
Courts. Far from it. The point which I am seeking
to make is that a reasoned award, in accordance
with the 1979 Act, is wholly different from an
award in the form of a special case. It is not
technical, it is not difficult to draw and above
all it is something which can and should be
produced promptly and quickly at the conclusion of
the hearing. That is the time when it is easiest
to produce an award with all the issues in mind."
See the observations in Russel on Arbitration,
20th Edn., page 291 Reasons for the Award and the
decision referred to therein. "
In a case of this nature, issues are simple, points are
fresh and facts are clear, the reasons given by the
arbitrator, in our opinion, meet the requirements of a
reasoned award. It is apparent that the arbitrator has not
acted irrelevantly or unreasonably. Arbitration procedure
should be quick and that quickness of the decision can
always be ensured by insisting that short intelligible
indications of the grounds
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435
should be available to find out the mind of the arbitrator
for his action. This was possible in the instant case. In
the instant case the arbitrator has spoken his mind, and he
is clear as to how he acted and why he acted in that manner.
The purpose of section 12 of the English Tribunal and
Inquiries Act which required the statutory tribunal to
furnish a statement of the reasons if requested to do so
before it gave its decision was to enable a person whose
property or whose interests were affected to know if the
decision was against him what the reasons were. Justice R.S.
Bachawat in his Law of Arbitration, First Edition 1983,
pages 320 and 321 states that the provision was read as
meaning that proper and adequate reasons must be given. The
reasons that are set out must be reasons which will not only
be intelligible but also deal with the substantial points
that have been raised. When the arbitration clause required
the arbitrator to give a reasoned award and the arbitrator
does give his reasons in the award, the sufficiency of the
reasons depend upon the facts of the particular case. He is
not bound to give detailed reasons. The Court does not sit
in appeal over the award and review the reasons. The Court
can set aside the award only if it is apparent from the
award that there is no evidence to support the conclusions
or if the award is based upon any legal proposition which is
erroneous.
Judges in that light, the award in question was
unassailable in the instant case.
In the aforesaid view of the matter, we are of the
opinion that the High Court was right in the view it took.
The special leave petition fails and is accordingly
dismissed.
G.N. Petition dismissed.
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