Unreasoned Arbitral Awards Are Opposed To Public Policy U/S 34 Of Arbitration & Conciliation Act: Calcutta HC [Read Judgment]

The Calcutta High Court has set aside an arbitral award that it found to be bereft of proper reasoning and application of mind and has asked the claimant party to pursue his claim afresh, in accordance with the law.

The bench of Justice Sanjib Banerjee and Justice Kausik Chanda held that an award that is not based on reasons whatsoever, would amount to being an award that is opposed to public policy.

"The award cannot stand on the ground that it does not provide any reasons in support of any head of claim. Such a ground also amounts to the award being opposed to public policy within the meaning of the relevant expression in Section 34 of the Act."

The impugned award was passed in arbitration proceedings instituted against the termination of a contract for construction of roads. While the state had claimed that the claimant-Respondent deliberately delayed the project and extracted additional expenses from them, the Respondent had submitted that it was the State which was to blame for the delay in the work as the land was not made available to him within reasonable time.

Upholding the Respondent's claim, the arbitrator had passed an award for a sum in excess of Rs. 15 crore, under ten heads.

In appeal, the high court evaluated each of the heads and concluded that none of the heads could be sustained, due to lack of objective grounds made out in support thereof.

"the arbitral award in this case falls well short of what was required of it by the governing statute as and by way of reasons. The bases of the claims under the individual heads are not alluded to in any discussion, whether as to the issues or as to the heads of claim. In a few cases the subjective satisfaction of the arbitrator is revealed in the use of the expression "fair estimate" without any objective grounds indicated for such subjective satisfaction. The reasons that the governing statute mandates to be furnished are the objective bases on which the subjective formation of opinion is founded: the subjective opinion matters little and counts for nothing if there is no objective basis thereto," the bench said.

The court noted that the contents of the contractor's notes of argument were substantially reproduced in the arbitral award and as such, the arbitral award did not reflect the act of assessment or adjudication, which is the sine qua non of the process of arbitration.

It said that even if the contractor's claim was based on some estimation, the arbitrator's acceptance had to clearly demonstrate why such extent of estimation was justified.

"Even if the language and the unintelligible expression as evident from what is quoted above are ignored, what is apparent is that an estimate of the damages was disclosed and the arbitrator made an estimation of such estimate without indicating the basis of how the contractor had made its estimation or even how the arbitrator arrived at the "fair estimate" thereof. The nature of reasons that the applicable statute mandates should be furnished in course of assessment, is singularly lacking in the adjudication on the issue and the relevant head of claim," the court said.

The court proceeded with the State's argument to delete copied portion from the award and assess whether what remained in the award could stand the test of reasonability and proper adjudication.

To this end, the award was disapproved in the following words,

"…even if the first of the three parts of the award is disregarded on the copying count since such part contains only the narrative and the facts, the business end of the award would not have any legs to stand on if what has been copied in the award from the contractor's notes is deleted therefrom and the reasoning part of the award is assessed on such basis."

Therefore, holding the award to be opposed to public policy, the high court set aside the award and asked the contractor to refund the entire amount received by him, together with interest thereon. He was also directed to pay and bear the expenses of the proceedings before the arbitrator and in the court.

Case Details:
Case Title: State of West Bengal v. Bharat Vanijya Eastern Private Limited
Case No.: APO No. 349/2017 and GA No. 2170/2017
Quorum: Justice Sanjib Banerjee and Justice Kausik Chanda
Appearance: Senior Advocate Tilak Bose and Advocates Ratul Das,Arindam Mandal, Tirthankar Das, Jishnu Choudhury, and Paritosh Sinha (for Petitioner); Senior Advocate Dhruba Ghosh and Advocates Reetobroto Mitra, Sarajit Mitra and Madhurima Halder (for Respondent)

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