An arbitral award ignoring material pleadings and recording no reasons violates Section 31(3).

The parties entered into a Memorandum of Agreement dated 12 May 1998 under which the respondent was to market the petitioner’s “NutKing” products abroad and finance the procurement of raw materials, production, and packing.

The respondent claimed to have advanced ₹50,00,000 to the petitioner.

Disputes arose concerning repayment of the advance and alleged losses, following which arbitration was invoked and a sole arbitrator was appointed by the Court on 14 December 2004.

The petitioner initially participated in the arbitration and filed a defence, but was proceeded ex parte after failing to appear.

The ex parte order was recalled subject to costs of ₹30,000, which the petitioner did not pay.

By award dated 15 February 2006, the arbitrator awarded ₹42,50,000 to the respondent, with interest, and ₹2,50,000 towards costs.

The respondent commenced enforcement proceedings in 2017, after which the petitioner claimed to have learned of the award and filed the present petition under Section 34 of the Arbitration and Conciliation Act, 1996.

Whether the petitioner could rely in Section 34 proceedings on the alleged non-existence of the proprietorship concern at the time of commencement of arbitration, when that ground had not been raised before the arbitrator or pleaded in the Section 34 petition?

Whether the arbitral award was liable to be set aside under Section 34 because it failed to give reasons dealing with the petitioner’s pleaded defences, contrary to Section 31(3) of the Arbitration and Conciliation Act, 1996?

Whether the alleged settlement between the parties and its purported effect under Section 62 of the Indian Contract Act, 1872 invalidated or otherwise affected the respondent’s claim?

Section 31(3) of the Arbitration and Conciliation Act, 1996 requires an arbitral award to state the reasons on which it is based, unless the parties have agreed otherwise or the award is based on agreed terms.

The reasons need not be as elaborate as those in a judicial judgment, but they must be intelligible, adequate, and sufficient to demonstrate fair consideration of the controversy.

The Court relied on Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd., (2019) 20 SCC 1, which held that reasons may in appropriate cases be gathered from a fair reading of the award and referred documents, but must nevertheless be intelligible and adequate.

It also relied on Som Datt Builders Ltd. v. State of Kerala, (2009) 10 SCC 259, which held that merely recording the parties’ submissions or referring to documents is not a substitute for reasons.

A party cannot ordinarily advance before the Section 34 court a ground that was neither raised before the arbitral tribunal nor pleaded in the Section 34 petition.

The Court declined to permit the petitioner to rely on the alleged cessation of the proprietorship concern because that contention had not been raised before the arbitrator or in the original Section 34 petition; the order permitting production of additional documents did not amount to permission to introduce an unpleaded ground.

However, the petitioner had raised several substantive defences before the arbitrator, including the non-binding nature of the MOA, non-fulfilment of contractual conditions, limitation, and settlement.

Despite this, the award merely allowed ₹42,50,000 against the claimed advance of ₹50,00,000, along with interest and costs, without discussing or adjudicating those defences.

Applying Section 31(3) and the principles in Dyna Technologies and Som Datt Builders, the Court held that the absence of reasons was not a mere procedural defect: it demonstrated that the arbitrator had failed to provide a reasoned determination of the controversies raised by the petitioner.

The award dated 15 February 2006 was therefore held to be patently illegal and was set aside.

The petition was allowed, with liberty to the parties to pursue remedies available in accordance with law.