Arbitration Court Not Empowered To Embark On Fact-Finding Exercise While Deciding Application For Setting Aside Arbitral Award: Madras High Court
"While it is not necessary for an arbitral award to justify every paisa or a rupee awarded to the claimant, the broad premise on which the quantum is founded has to be discernible from award itself for the award to be meaningful or even intelligible in legal terms," observed the Madras High Court recently. A Division Bench comprising of Chief Justice Sanjib Banerjee and...
"While it is not necessary for an arbitral award to justify every paisa or a rupee awarded to the claimant, the broad premise on which the quantum is founded has to be discernible from award itself for the award to be meaningful or even intelligible in legal terms," observed the Madras High Court recently.
A Division Bench comprising of Chief Justice Sanjib Banerjee and Justice Senthilkumar Ramamoorthy slammed an Arbitration Court for upholding an unreasoned arbitral award and exceeding its jurisdiction in supplementing that award with reasons.
The Bench observed,
"The exercise undertaken to rewrite the arbitration award by ascribing reasons in support of the claims allowed and quantum awarded is not the business of the Arbitration Court and such an exercise could not have been undertaken in this jurisdiction or within the limited arena of operation permitted by Section 34 of the Act of 1996."
The Bench made it clear that in a regular appeal, it is open to the Court to embark on a fact-finding exercise, to re-read and re-appraise the evidence, to interpret the documents afresh and to do all things de novo that the Court of original jurisdiction could have done.
However, such expansive authority is not available to an Arbitration Court while dealing with a petition for setting aside an award.
"The [Arbitration] Court has to yield to the arbitrator's assessment as to the quality and the quantity of the evidence, the arbitrator's interpretation of the agreement between the parties, unless such interpretation is patently unreasonable or absurd to the meanest mind or is opposed to public policy. Even errors of law committed by arbitrators are not amenable to correction unless such errors lead to manifest miscarriage of justice," it held.
In the case at hand, the Appellants were aggrieved by the Arbitration Court's order which upheld an Arbitral award, apparently silent on the reasons for passing an award and quantifying damages, on various heads.
The argument on behalf of the Appellant was that principles of arbitration law do not permit an unreasoned order to be justified by supplementing reasons therefor upon looking into the evidence or records pertaining to the arbitral reference.
Finding merit in the Appellant's submissions, the High Court at the outset remarked, "This is a classic example of what cannot be done by an Arbitration Court when in receipt of a petition for setting aside an arbitral award."
It noted that the Arbitration Court had expended some 30 pages in constructing an order that seeks to give reasons and legal crutches to a "completely unreasoned" award, which indicated merely 6 or 7 lines as an "excuse for reasons". The award in itself did not record anything to suggest how the quantum of the claim was arrived at.
Taking strong exception to this, the Division Bench held,
"In a claim as in the present case, particularly relating to works contracts, every head of claim has to be dealt with in principle and the quantum awarded or declined has next to be justified. It will not do for merely head of claim to be explained and the quantum awarded in respect thereof not to be. Both must have reasons in support of the conclusion and, in the absence of either, the award becomes vulnerable."
It added,
"It is imperative – as has been statutorily mandated by the Act of 1996 – that reasons be furnished in support of an award unless the parties dispense therewith by agreement. Reasons indicate the application of the mind to the matters in issue and the consideration given by the Adjudicator to the facts against the milieu of the applicable law to arrive at the findings rendered at the culmination of the journey of adjudication."
In view of the above observations, the High Court set aside the impugned Award and the order passed by the Arbitration Court.
It has now appointed a retired District Judge as the Arbitrator to take up the reference on the basis of the statement of claim and statement of defence and counter-claim as already filed in course of the previous reference.
The parties have been granted the liberty to lead evidence and the Arbitrator will be entirely free to decide on the future course of action in the reference.
"The judgment and order impugned go against the most rudimentary tenets of the governing law and the jurisprudential philosophy established in this branch over the years," the Bench concluded.
Case Title: Hindustan Petroleum Corporation Ltd. v. Banu Constructions & Anr.
Read Order