2002(2) ALL MR 745
IN THE HIGH COURT OF JUDICATURE AT BOMBAY

J.A. PATIL, J.

Mafatlal Securities Ltd. Vs. Birla Sun-Life Securities Ltd. & Anr.

Arbitration Petition No. 255 of 2000

22nd March, 2002

Petitioner Counsel: Mr. SHAILESH SHAH, Ms. MRUDULA BHATIA . C. K. BRAHMI, M/s. MAHESH MENON & CO.
Respondent Counsel: Mr. D. D. MADON, Mr. J. P. SEN, R. A. K. NAJARVIES SANI

(A) Arbitration and Conciliation Act (1996) S.31(3) - Essentials of the award - Award must state reasons unless parties have agreed that no reasons need be given or that it is an award on agreed terms.

The first and foremost requirement of the award is that it must be in writing; the second is that it must be signed by the members of the arbitral tribunal; the third is that it must state the date and the place of arbitration and the fourth is that it must state the reasons upon which it is based. The last mentioned requirement can be dispensed with if the parties have agreed that no reasons are to be given or the award is made on the agreed terms of settlement between the parties u/s. 30. In the instant case both these situations do not exist. Therefore, there is no dispute of the fact that it was obligatory on the part of the arbitral tribunal to have given the reasons. It is important to note that all the above mentioned four requirements are mandatory. [Para 4]

The court has thus a minimum supervisory role of intervention in the matters of arbitration. This being the position of an award there is a great responsibility upon the arbitrator to act with a sense of impartiality and conduct the proceedings with utmost fairness. The parties having agreed to abide by the arbitral award, repose confidence in the arbitrator. Therefore, unless it is otherwise agreed, it is a right of the parties to know the reasons upon which the award is based. The reasons given by the arbitrator may not be adequate or fully convincing. They cannot be put to judicial scrutiny like the reasons given by a trial court are subjected to scrutiny in appeal. Therefore, it is absolutely essential that an arbitral award, where there is no agreement to the contrary, must contain reasons which are indicative of the fact as to how the arbitrator has arrived at his conclusion. An award is not a judgment in the strict sense of the term. But after all it is an adjudication of the dispute between the parties. It is a solemn document which determines the rights and liabilities of the parties with reference to the dispute referred to the arbitral tribunal and carries sanctity since after a specified period it becomes final and binding on the parties and can also be enforced as if it were a decree.

1997(4) SCC 121. [Para 5]

(B) Arbitration and Conciliation Act (1996) S.34(2)(v), 31(3) - Setting aside arbitral award - Award given without stating reasons therefor - Is not an award and hence no question of setting it aside arises.

An award can be set aside under clause (v) of S.34(2) in three contingencies viz. (i) the composition of the arbitral tribunal was not in accordance with the agreement between the parties or (ii) the arbitral procedure was not in accordance with the agreement between the parties or (iii) in the absence of such an agreement, the composition of the arbitral tribunal or arbitral procedure was not in accordance with part I of the Act, 1996. It is, therefore, obvious that want of reasons is not a ground contemplated by clause (v). In fact none of the clauses of S.34 contemplates such a ground and the reason for the same, is that an adjudication of dispute without giving any reason upon which it is based is not an award at all. Hence, no question of setting aside the same arises u/s.34 of the Act, 1996. [Para 9]

Cases Cited:
T.N. Electricity Board Vs. Bridge Tunnel Construction, (1997) 4 S.C.C. 121 [Para 6]
G.Tech Stone Ltd. Vs. BFTL Finance Ltd., 2002(1) L.J. 647 [Para 7]


JUDGMENT

JUDGMENT:- This is a petition under section 34 of the Arbitration and Conciliation Act, 1996 (the Act 1996, for short), for setting aside the Award made by the Sole Arbitrator on 30.3.2000. The petitioner is a member of the National Stock Exchange Ltd., (NSE). On 6.4.1998, the petitioner purchased from M/s. ION Exchange Finance Ltd., (IEFL), the securities viz., 12.50% Government of India Stock (GOI) 2004, bearing Stock Certificate No. MS 97 of aggregate face value of Rs.21.45 lacs for settlement on 13.4.1998. The petitioner issued a cheque dated 10.4.1998 for Rs. 22,49,985.83/- in favour of IEFL towards the purchase of the said securities. The said securities appeared to have originated from M/s. Premier Capital Market Services Ltd., having their office at Chennai, who were the original owners of the said securities. The securities were forwarded to the petitioner alongwith the blank transfer form. According to the petitioner in the usual course of business, acting as inter-mediary/broker, the petitioner sold the said securities as holder in due course to respondent No.2 through respondent No.1 who is a member of NSE on 7.4.1998. Respondent No.2 then submitted the stock certificate to syndicate Bank with whom it had maintained its constitutent SGL A/c. for transfer and getting credit. The Syndicate Bank however, advised respondent No.2 that as stock certificate was issued from Madras, the Reserve Bank of India in Madras would have to attest the transfer form before the same was submitted to the Syndicate Bank. Accordingly, respondent No.2 got the transfer form duly attested by the Reserve Bank of India, Madras and submitted the same to the Syndicate Bank on 20.4.1999. Thereafter, the petitioner received a letter dated 25.6.1999 of respondent No.2, stating that the Reserve Bank of India had informed that the stock certificate No. MS-97, was kept in abeyance due to receipt of a legal notice dated 11.5.1999 from the Advocate of the trustees, Haileyburia Tea Estates Limited, Employees Gratuity Fund, wherein it was informed that the said stock certificate had already been purchased by the said trustees. The petitioner thereafter received a notice dated 22.7.1999 sent on behalf of respondent No.2, whereby a demand for return of the sum of Rs.22,56,420.83 was made. The petitioner replied the said notice and informed that it had purchased the said stock certificate from IEFL and that the petitioner had acted only as an intermediary/broker by being a holder in due course. The petitioner further informed that the said stock certificate was sent to the petitioner along with a blank transfer form by IEFL and that therefore, the petitioner was not responsible for the said stock certificate for the bad delivery thereof in any manner.

2. Respondent Nos. 1 and 2 thereafter, filed Arbitration Proceedings and respondent No.3 appointed one Shri. G. Venkatramani as the sole arbitrator under the bye laws and regulation of the NSE. The petitioner filed a detailed reply to the said arbitration petition. The petitioner also lodged a claim against IEFL for refund of the price of Rs. 22,49,985.83 together with interest thereon. However, this arbitration could not be proceeded with because the IEFL filed an application in the Madras High Court, which by its order dated 9.2.2000 directed status-quo to be maintained in the said arbitration proceedings. According to the petitioner during the hearing of the arbitration proceedings filed by respondent No.2, a request was made to join the said IEFL as a party to the proceedings for appropriate and final adjudication of all issues. However, the arbitrator does not appear to have expedited this prayer made by the petitioner and he proceeded to pass the Award on 30.3.2000. A copy of the said Award was forwarded to the petitioners by respondent No.3 under a letter dated 4.4.2000 and the same was received by the petitioner on 10.4.2000.

3. By the impugned Award, the arbitrator directed the petitioner (respondent No.1 in the arbitration proceeding) to pay a sum of Rs.24,97,602.75/- with interest on the principal amount of Rs.21,45,000/- at the rate of 12 1/2% from the date of filing the application till the date of Award with further interest on the said amount at the same rate till the date of final payment. Alternatively, the arbitrator directed the petitioner to deliver to the present respondent 12.5% GOI, 2004 FV-Rs.21,45,000/- security having a good and clear title together with interest thereon from 7.4.1998 in replacement of the certificate MS-97 for 12.5% GOI 2004, FV Rs.21,45,000/-. Being aggrieved by the said Award, the petitioners have filed the present petition on various grounds which are stated in clauses (a) to (w) of para - 12 of the petition. However, probably realising that limited grounds available under section 34 of the Act, 1996, Mr. Shailesh Shah, confined his challenge to the Award to the following two grounds contained in clauses (i) & (u) of para 12 of the petition.

(i) The Award does not state the reasons upon which it is based.

(u) Inter-alia for the aforesaid reasons, the Award is also in conflict with the public policy of India.

Chapter VII of the Act, 1996 contemplates recourse against the arbitral award. Section 34 provides for filing of an application for setting aside the arbitral award and it reads as under:-

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

(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 of 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.

4. Turning to the first contention of Shri. Shah, Shri. Madon fairly conceded that the arbitral award does not contain any reasons. Shri. Madon, however, submitted that on this ground, the award need not be set aside. He pointed out the provisions of Section S.31(4) and prayed for adjourning the proceedings so as to enable the arbitral tribunal to resume the arbitral proceedings and incorporate in the award its reasons so as to eliminate the ground of want of reasons for setting aside the award. I shall deal with this part of the submissions of Shri. Madon a little later. But first I would like to consider the question whether it is necessary for the arbitral tribunal to give reasons upon which its conclusions are based and what is the effect if no such reasons are given. Section 31 deals with the form and contents of arbitral award and the relevant clauses thereof are clauses 1 to 3, which read as under :-

Section 31 :- Clauses 1 to 3 :-

S.31 - (1) An arbitral award shall be made in writing and shall be signed by the members of the arbitral tribunal.

(2) For the purposes of sub-section (1), in arbitral proceedings with more than one arbitrator, the signatures of the majority of all the members of the arbitral tribunal shall be sufficient so long as the reason for any omitted signature is stated.

(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.

The first and foremost requirement of the award is that it must be in writing; the second is that it must be signed by the members of the arbitral tribunal; the third is that it must state the date and the place of arbitration and the fourth is that it must state the reasons upon which it is based. The last mentioned requirement can be dispensed with if the parties have agreed that no reasons are to be given or the award is made on the agreed terms of settlement between the parties u/s. 30. In the instant case both these situations do not exist. Therefore, there is no dispute of the fact that it was obligatory on the part of the arbitral tribunal to have given the reasons. It is important to note that all the abovementioned four requirements are mandatory. The impugned award is thus, what is called, a non-speaking award.

5. The arbitrator is a private judge of the parties and he has a quasi-juridical status. The decision given by the arbitrator in the form of award has to be judicial and not arbitrary. For this purpose he is bound to give both the parties due opportunity, allow them to lead evidence and also hear them. The parties by arbitration agreement bind themselves to abide by the decision of the arbitrator viz. Award. There is no appeal provided against an award and it can be set aside only on certain limited grounds specified in S.34 and S.16(6). Section 5 restricts the scope of judicial intervention only where it is provided in Part I. The award becomes enforceable u/s. 36 after the period of limitation of 3 months as prescribed by Section 34(3) has expired or application to set aside the Award is rejected by the court. This 3 months period can be extended by 30 days only where the applicant proves to the satisfaction of the court that he was prevented by sufficient cause from making an application under section 34. The Court has thus a minimum supervisory role of intervention in the matters of arbitration. This being the position of an award there is a great responsibility upon the arbitrator to act with a sense of impartiality and conduct the proceedings with utmost fairness. The parties having agreed to abide by the arbitral award, repose confidence in the arbitrator. Therefore, unless it is otherwise agreed, it is a right of the parties to know the reasons upon which the award is based. The reasons given by the arbitrator may not be adequate or fully convincing. They cannot be put to judicial scrutiny like the reasons given by a trial court are subjected to scrutiny in appeal. Therefore, it is absolutely essential that an arbitral award, where there is no agreement to the contrary, must contain reasons which are indicative of the fact as to how the arbitrator has arrived at his conclusion. An award is not a judgment in the strict sense of the term. But after all it is an adjudication of the dispute between the parties. It is a solemn document which determines the rights and liabilities of the parties with reference to the dispute referred to the arbitral tribunal and carries sanctity since after a specified period it becomes final and binding on the parties and can also be enforced as if it were a decree. The Act, 1996, therefore, aims to secure transparency of the award by requiring the arbitrator to give reasons upon which it is based. Thus giving of reasons, is one of the basic features of an award unless the parties agree for dispensing with the reasons or where the award is based on a settlement between the parties.

6. In T.N. Electricity Board vs. Bridge Tunnel Construction (1997) 4 S.C.C. 121), the Supreme Court has observed in paragraphs 33 and 34 as under :-

"33. Parliament has expressed the legislative judgment that the award shall state reasons upon which it is based unless the parties have agreed otherwise or the award is covered on agreed terms under Section 30 of the new Act.

34. Thus, the law on the award, as governed by the new Act, is the other way about the pre-existing law; it mandates that the award should state the reasons upon which it is based. In other words, 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 of the new Act, the award should state the reasons in support of determination of the liability/ non-liability. Thereby, legislature has not accepted the ratio of the Constitution Bench in the Chokhamal Constructors case that the award, being in the private law field, need not be a speaking award even where the award relates to the contract of private parties or between person and the Government or public sector undertakings. The principle is the same, namely, the award is governed by Section 31(3)."

7. Reference may also be made to the decision of a learned single Judge of this Court (D. K. Deshmukh, J) in G. Tech Stone Ltd., vs. BFIL Finance Ltd., 2002(1) L.J. 647 wherein there were three arbitrators out of whom two delivered and signed the majority award Ex.V. The third arbitrator gave his own dissenting award. Alongwith the copy of the majority award, the petitioner therein also received an order Exh.X signed by all the three arbitrators in terms of the majority award. The petitioner filed a petition u/s.34 of the Act, 1996 for setting aside the award Ex.V. The respondent opposed the petition contending inter-alia that it was not Ex.'V' but Exh.'X' which was the final award. The petitioner then took out a chamber summons seeking an amendment to set aside Exh.'X' which was described as the final award. In that context the learned Judge observed that Ex.'X' could be termed as an arbitral award because as per the provisions of sub-section 3 of 31, the arbitral award has also to disclose the reasons.

8. The aforesaid two decisions thus make it clear that an award, in order to be such, must contain the reasons upon which it is based. Otherwise, it cannot be termed as an award. Consequently, if a document styled as an award not containing such reasons, though signed by the arbitrators and making adjudication of the dispute referred to them, cannot be set aside u/s.34. Since it is not an award.

9. This brings me to the submission of Shri. Madon which is based upon the provisions of S.34(4) and which are quoted above. According to Shri. Madon, the court should adjourn the present proceeding and remit the award back to the arbitrators with a direction to require them to give their reasons in support. It is not possible to agree with Shri. Madon for two reasons. The first is that the document dated 30.3.2000 Exh.I does not amount to an award for the aforesaid reasons. Hence, there is no question of setting it aside u/s.34 which contemplates setting aside of award only. Assuming for a moment that Exh.I amounts to an award then the submission of Shri. Madon is that the provisions of sub-section 4 of section 3 can be pressed into service to enable the arbitral tribunal to take such steps as in its opinion would enable it to eliminate the grounds for setting aside the arbitral award. According to Shri. Madon, non giving of reasons is a ground under clause (v) of sub section 2 of section 34.

A plain perusal of the said provision makes it clear that an award can be set aside under clause (v) in three contingencies viz. (i) the composition of the arbitral tribunal was not in accordance with the agreement between the parties or (ii) the arbitral procedure was not in accordance with the agreement between the parties or (iii) in the absence of such an agreement, the composition of the arbitral tribunal or arbitral procedure was not in accordance with part I of the Act, 1996. It is, therefore, obvious that want of reasons is not a ground contemplated by clause (v). In fact none of the clauses of S.34 contemplates such a ground and the reason for the same, in my opinion, is that an adjudication of dispute without giving any reason upon which it is based is not an award at all. Hence, no question of setting aside the same arises u/s.34 of the Act, 1996.

10. In the view which I have taken of the matter, it is not necessary for me to deal with the second ground viz. that the award is in conflict with the public policy of India.

11. Since the alleged award is not liable to be set aside u/s.34, there can be no question of granting any relief in terms of prayer (a). However, as I have held that the alleged award Exh.I is not an arbitral award, a declaration to that effect deserves to be granted in view of prayer (d) which is "For such and further reliefs as the nature and circumstances of the case may require". It is, therefore, declared that the alleged award Exh.I dated 30th March, 2000 is not an arbitral award for the purpose of S.34 of the Arbitration and Conciliation Act, 1996.

12. The petition is accordingly disposed of with no order as to costs. C.C. expedited.

Order accoredingly.