Inadequacy Of Reasons In Arbitral Award And Unintelligible Awards: SC Explains Difference [Read Judgment]

The Supreme Court has, in a judgment delivered on Wednesday, highlighted the difference to be noted by the Courts between inadequacy of reasons in an award and unintelligible awards under the Arbitration and Conciliation Act, 1996.

The bench headed by Justice NV Ramana observed that ordinarily unintelligible awards are to be set aside, while the challenge on inadequacy of reasons, has to be adjudicated based on the degree of particularity of reasoning required having regard to the nature of issues falling for consideration.

In Dyna Technologies Pvt. Ltd vs. Crompton Greaves Ltd, the bench, also comprising of Justice Mohan M. Shantanagoudar and Justice Ajay Rastogi was considering an appeal against the High Court judgment which had set aside an Arbitral Award. The High Court had observed that the award does not contain sufficient reasons and the statements contained in the award does not provide any reasons, discussions or conclusion.

Referring to Sections 31 of the Act, the bench noted that the mandate under Section 31(3) of the Act is to have reasoning which is intelligible and adequate and, which can in appropriate cases be even implied by the Courts from a fair reading of the award and documents referred to thereunder, if the need be. The aforesaid provision does not require an elaborate judgment to be passed by the arbitrators having regards to the speedy resolution of dispute, it added. It observed:

When we consider the requirement of a reasoned order three characteristics of a reasoned order can be fathomed. They are: proper, intelligible and adequate. If the reasoning in the order are improper, they reveal a flaw in the decision making process. If the challenge to an award is based on impropriety or perversity in the reasoning, then it can be challenged strictly on the grounds provided under Section 34 of the Arbitration Act. If the challenge to an award is based on the ground that the same is unintelligible, the same would be equivalent of providing no reasons at all. Coming to the last aspect concerning the challenge on adequacy of reasons, the Court while exercising jurisdiction under Section 34 has to adjudicate the validity of such an award based on the degree of particularity of reasoning required having regard to the nature of issues falling for consideration. The degree of particularity cannot be stated in a precise manner as the same would depend on the complexity of the issue. Even if the Court comes to a conclusion that there were gaps in the reasoning for the conclusions reached by the Tribunal, the Court needs to have regard to the documents submitted by the parties and the contentions raised before the Tribunal so that awards with inadequate reasons are not set aside in casual and cavalier manner. On the other hand, ordinarily unintelligible awards are to be set aside, subject to party autonomy to do away with the reasoned award. Therefore, the courts are required to be careful while distinguishing between inadequacy of reasons in an award and unintelligible awards.

It further observed:

In case of absence of reasoning the utility has been provided under of Section 34(4) of the Arbitration Act to cure such defects. When there is complete perversity in the reasoning then only it can be challenged under the provisions of Section 34 of the Arbitration Act. The power vested under Section 34 (4) of the Arbitration Act to cure defects can be utilized in cases where the arbitral award does not provide any reasoning or if the award has some gap in the reasoning or otherwise and that can be cured so as to avoid a challenge based on the aforesaid curable defects under Section 34 of the Arbitration Act. However, in this case such remand to the Tribunal would not be beneficial as this case has taken more than 25 years for its adjudication. It is in this state of affairs that we lament that the purpose of arbitration as an effective and expeditious forum itself stands effaced.  

Perusing the ' muddled and confused form of the award', the bench, in the instant case, observed that it is unintelligible and cannot be sustained.

Case Details
Title : M/s Dyna Technologies Pvt Ltd vs M/s Crompton Greaves Ltd
Case No : Civil Appeal No. 2153 of 2010
Coram   : Justices N V Ramana, Mohan M. Shantanagoudar and Ajay Rastogi

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