[Arbitration Act] Requirement To Provide Reasons By Arbitrator U/s 31(3) Hinges On Pleadings And Available Documents On Record: Allahabad High Court

Section 31(3) of the Arbitration and Conciliation Act, 1996:

"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 sub-section (4) of section 30."

Brief Facts:

The Appellant entered into an agreement with the Respondent following a tender floated for the construction of the Left Side Officer's Camp Office. Allegedly, despite a scheduled completion, the Respondent completed the work on 15.10.2014 after extensions.

Disputes arose, leading to arbitration as per the contract terms. The sole arbitrator awarded the claimant INR 17,37,261 along with interest, which the Appellant objected to, resulting in the application under Section 34 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), which was subsequently rejected by the Commercial Court. Feeling aggrieved, the Appellant approached the Allahabad High Court (“High Court”) and filed an appeal under Section 37 of the Arbitration Act.

The Appellant argued that the arbitrator's award lacked justification and constituted patent illegality, contending that the Respondent failed to substantiate its claim adequately. It argued that the Arbitrator's failure to provide reasons for the award, as required by Section 31(3) of the Arbitration Act, constituted a grave error.

In response, the Respondent contended that the award was reasoned, stating the framing of 14 issues by the arbitrator and the detailed discussion leading to the allowance of the Respondent's claims.

Observations by the High Court:

The High Court noted that the objections presented by the Appellant lacked specificity and detail. Although references were made to annexures in various paragraphs, they were not appended. Moreover, the objections raised before the Commercial Court under Section 34 of the Arbitration Act were general, lacking in substance, and seemingly made for the sake of disputing the claim of the Respondent.

The High Court emphasized that the Arbitrator framed 14 issues and provided detailed discussion and reasoning in the award. In the absence of any concrete material or arguments presented by the Appellant to demonstrate factual inaccuracies or grounds for patent illegality in the award, the High Court held that there was no basis for interference.

Furthermore, the High Court highlighted the limited scope of appellate proceedings under Section 37 and emphasized that awards are not to be set aside unless they suffer from patent illegality. While acknowledging the requirement for arbitral awards to contain reasons as per Section 31(3) of the Arbitration Act, the High Court reiterated that such reasons must be based on the pleadings and documents available on record. Since the Appellant failed to plead its case effectively, the High Court found no merit in their challenge to the award.

Drawing from precedents, including the judgments in Delhi Airport Metro Express Private Limited v. Delhi Metro Rail Corporation Limited,

The High Court held that awards by technical experts are not subject to the same level of scrutiny as those prepared by legally trained minds (referred to Delhi Airport Metro Express Private Limited Vs. Delhi Metro Rail Corporation Limited reported in 2022 (1) SCC 131).

Consequently, the High Court held that the Appellant failed to demonstrate any patent illegality warranting interference.

Case Title: State of U.P. vs Nath Construction And Another

Case Number: APPEAL UNDER SECTION 37 OF ARBITRATION AND CONCILIATION ACT 1996 DEFECTIVE No. - 167 of 2022

Counsel for Appellant : Siddharth Singh Shrinet

Counsel for Respondent : Jagat Narayan Mishra

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