Holding

The Supreme Court held that the awards were not vitiated for lack of recorded reasons and that the High Court’s remand under Section 16(1)(c) was improper; the awards were upheld as the Rule of Court.

Summary

The Goa, Daman and Diu Housing Board entered into four construction contracts with Ramakant V.P. Darvotkar, which were later terminated for alleged abandonment of work. The Board sued for damages, but the parties were bound by an arbitration agreement; an arbitrator was appointed and awarded the respondent sums exceeding Rs.50,000 in four awards. The Board objected, claiming the arbitrator had committed misconduct by not framing the main issue of abandonment and by failing to give reasons as required by clause 25 of the agreement. The Civil Court confirmed the awards, but the High Court set them aside and remitted them to the arbitrator for reasons, invoking Section 16(1)(c) of the Arbitration Act, 1940. On appeal, the Supreme Court held that Section 16 permits remand only where an objection to legality is apparent, and that the arbitrator had not misbehaved nor procured the awards improperly; the awards were therefore valid and the High Court’s remand was unwarranted. Consequently, the Supreme Court upheld the awards as the Rule of Court and dismissed the appeals.

Issues considered

Whether the arbitrator's failure to record reasons for awards, as required by the arbitration agreement, constitutes misconduct justifying setting aside the awards under Section 30 of the Arbitration Act, 1940.
Whether Section 16(1)(c) of the Arbitration Act, 1940 allows a court to remit an award to the arbitrator for giving reasons when the objection to legality is apparent on the face of the award.
Whether the High Court was justified in remanding the awards for reasons instead of setting them aside.

Legislation cited

Arbitration Act, 1940s. 16, s. 20, s. 30, s. 34

Subjects

ArbitrationAwardSection 16Section 30Reasons for awardMisconductContract terminationConstruction contractsRemand

Judgment

GOA, DAMAN AND DIU HOUSING BOARD
A
v.
RAMAKANT V.P. DARVOTKAR

SEPTEMBER 6, 1991

B [B.C. RAY,M.H. KANIA, K. JAGANNATHA SHETTY,
LALIT MOHAN SHARMA AND J.S. VERMA, JJ.]

Arbitration Act, 1940: Section 16-Award-When to be remitted
to Arbitrator-No a/legation of bias or illegality-High Court remand-
ing awards for giving reasons-Whether justified.
c ..--
The appellant-Housing Board, which had entered into four
contracts with the respondent for construction of tenements within a •
certain time limit, terminated them after giving notice on the ground
that the respondent had failed to complete the construction work
despite several extensions granted to him, and filed a suit in the Court
D of Civil Judge claiming damages of over Rs.4 lakhs. The respondent
filed applications under Sections 34 and 20 of the Arbitration Act, 1940,
for stay of the suit and for directions to the appellant-Board for filing
the arbitration agreement in the Court and also for appointing
arbitrator in terms of clause 25 of the agreement. As per Court's order,
the appellant filed the agreement in the Court and appointed the •
E Arbitrator.

The Arbitrator made four awards granting the claims of the
n;spondent to the extent of over Rs.8 lakhs and filed them in the Court
for making them Rule of the Court. The appellant's objections for
setting aside the awards on the ground that the Arbitrator had miscon-
i
F ducted himself by not framing the main issue, viz., whether or not the "-
claimant abandoned the work and thereby committed the breach of the
agreement, by ignoring the letter of terminatioi:i where in it was clearly
stated that the termination had. been done on account of the abandon-
ment of the work by the claimant, and failed to decide upon the question
of the abandonment of work and wholly side-tracked the issue and also
G by not giving reasons for the award as required under the agreement,
under which he was appointed, were rejected by the Civil Court, which (-
confirmed the awards and made them the Rule of the Court. The appel-
~
l'!nt's appeals against this decision was allowed by the High Court,
which set aside the Civil Court's order and sent back the awards to the
arbitrator for giving reasons, as required under dause 25 of the agree-
H ment which specifically provided that in all cases where amount of

904
HOUSING BOARD v. RAMAKANT 905

claim was Rs.50,000 and above, the Arbitrator was bound to give
A
reasons .

.>·· In the appeal before this Court, on behalf of the appellant-
Housing Board it was contended that having held that the arbitrator
was guilty of misconduct and the awards were liable to be vitiated on
that ground, the High Court ought to have set aside the awards instead B
of sending them back for recording reasons, which was totally unwar-
ranted by law.

On behalf of the respondent, it ~as contended that the High
Court's order remanding the awards for recording reasons clearly fell
-• within the purview of Sec. 16(1)(c) of the Arbitration Act~ as the objec- C
tion to the legality of the award was apparent on the face of it, and not
within the provisions of Sec. 30 of the Act, inasmuch as the arbitrator
had not misconducted himself or the proceedings and the awards in
question had not been improperly procured.

Dismissing the appeals and confirming the awards, this Court, D

HELD: 1.1 Section 16 empowers the Court to remit the award to
the Arbitrator for reconsideration only in three cases specified therein.
Clause (c) of Sub-Section (1) provides that the award shall be remitted
to the Arbitrator by the Court where an objection to the legality of the
award is apparent on the face of it. 171 OD I E

1.2 No doµbt, in the instant case, the High Court has come to a
finding that the Arbitrator was guilty of misconduct for his failure to
give reasons as required but there is nothing to show that the Arbitrator
misconducted himself or the proceeding in any other manner, nor is
there anything to show that the awards have been improperly procured F
nor any allegation, far less, any finding, that the Arbitrator was biased
or unfair or he had not heard both the parties or he had not fairly
considered the submissions of the parties in making the awards in.
question. [710E]

1.3 It is evident from the four awards made by the Arbitrator . G
that the Arbitrator has 'considered all the specific issues raised by the
parties in the arbitration proceedings and came to his finding after
giving cogent re~ons. The awards cannot under any circumstances be
considered to be made by the Arbitrator without recording any reasons
for the same. In such circumstances, it cannot be held that the
Arbitrator has misconducted himself or in the proceedings in the matter H
906 SUPREME COURT REPORTS [1991] 3 S.C.R.

A of giving the awards. The decision of the High Court remitting the awards
back to the Arbitrator for giving reasons is set aside and the awards made
by the Arbitrator are upheld and llll!de Rule of the Court. [710F-G, 711A]

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. ""'
3236-39 of 1984.
B
From the Judgment and Order dated 7.2.1983 of the Bombay
High Court in F.C.A. Nos. 35/B, 36/B. 37/B & 38/B of 1981.

Ashok H. Desai, Solicitor General, Ravinder Narain, Aditya
Narain, Rajan Narain, S. Sukumaran, D.N. Mishra and Pallav
Sishodia for the Appellant.
c
G.L. Sanghi, S.K. Mehta, Dhruv Mehta and Aman Vachher for
the Respondent.

The Judgment of the Court was delivered by
D
RAY, J. The above four appeals on special leave by the appellant
were filed against the judgment and order dated February 7, 1983
made by the Panaji Bench of the Bombay High Court in First Civil ~
Appeal Nos. 35/B to 38/B of 1981 disposing of all the four appeals field by ·
the appellant against the judgment and order of the learned Civil
E Judge, Senior Division, Panaji, Goa dated 26.8.1981 confirming four
different awards by an arbitrator appointed in pursuance to the agree-
ment between the parties. Appeal No. 35 of 1981 relates to the award,
awarding· to the respondent agaili'st the appellant Rs.2,75,091.13.
Appeal No. 36 of 1981 relates to an award, awarding to the respondent ).
a sum of Rs.1,88,968.36. Appeal No. 37 of 1981 relates to an award,
F awarding to the respondent Rs.3,36,230.36 and Appeal No. 38 of 1981
relates to an award, awarding to the respondent Rs.46,321.32.

The facts leading to these appeals are as follows:

The appellant Goa, Daman & Diu Housing Board entered into
G two contracts on 15.3.72, and one contract each on 11.7.73 and on
4. 7. 73 with the respondent for the constructicYn of tenements at Vasgo-
da-Gama, Goa. The appellant accepted two tenders of the respondent
on 9.3.72 and remaining two on 24.2.73. There was a time limit in all
the aforesaid four contracts for the completion of the work referred to
therein. Several extensions were granted to the respondent for comp-
H leting the work out the respondent failed to compleie the construction
HOUSING BOARD v. RAMAKANT [RAY, J.l 907

work undertaken by him under the said four contracts. On July 1, 1975
A
the appellant issued a notice to the respondent under clause 3 of the
said contract for exercising the right of termination in view of the fact
that the respondent was unable to fulfil the contractual obligation of
compl~ting the construction work in spite of the various extensions
granted to the respondent. On July 14, 1975, the Engineer-in-Charge
of the appellant Board exercised its unilateral right of terminating the B
contract under clause 3 of the agreement in view of the fact that the
respondent did not c,pmplete the work of construction undertaken by
him in spite of various extentions granted to him. On July 31, 1975, the
Chairman of the appellant board confirmed that all the four contracts
stood rescinded. On May 17, 1976, the respondent served a notice to
the appellant on the ground that the appellant had rescinded the work C
contracts. The respondent stated therein various reasons why the work
could not be completed. Thereafter in April, 1978, the appellant filed
a suit claiming damages for a sum of Rs.4,38,786.96 with interest
against the respondent in the Court of the Civil Judge, Senior Division,
Panaji, Goa. Subsequently, an application was filed by the respondent
under section 34 of the Arbitration Act for stay of the suit. Respon- D
dent also made another application to the Court under section 20 of
the Arbitration Act for directing the Housing Board to file the arbitra-
tion agreement fa Court and 'in pursuance of clause 25 of the agree-
ment to appoint an arbitrator. Accordingly, the Court by its order
dated 28.2.1979 had the agreement between the parties filed in court
and directed the Housing Board to appoint an arbitrator. On March E
29, 1979 Shri J.S. Pinto, retired Superintending Engineer was
appointed as Arbitrator.

The Arbitrator on March 23, 1981 submitted four awards grant-
ing the claims of the respondent as stated hereinbefore on the basis
that the appellant was responsible for the slow progress and nQn com- F
pletion of work and the work could not be completed as the contract was
terminated by the appellant, the Housing Board. The said award was
filed in the Court of Civil Judge, Senior Division, Panaji, by the
Arbitrator on 31st March, 1981 for making the award Rule of the
Court. The appellant submitted his objections for setting aside the
awards on April 27, 1981 on the grounds inter alia that the Arbitrator G
had misconducted himself by not framing the main issue i.e. whether
or not the· claimant abandoned the work and thereby committed
breach of the agreement. The Arbitrator misconducted himself by
ignoring the letter of termination wherein it was clearly stated that the
termination has been done on account of the abandonment of the work
by the claimants; the learned Arbitrator failed io decide upon the H
908 SUPREME COURT REPORTS I 1991] 3 S.C.R.
A question of the abandonment of work and has wholly side tracked the
issue; the learned Arbitrator misconducted himself by not giving
reasons for the award as required under the agreement under which he
was appointed. '°"
The learned Civil Judge, Senior Division, Panaji by his Order
B
dated 26th August, 1981 rejected all the objections raised on behalf of
the appellant against the said awards and confirmed the same. All the
four impugned awards have been made Rule of the Court.

The appellant thereafter filed the aforesaid First Civil Appeal
Nos. 35/B, 36/B, 37/B and 38/B of 1981 against the said Order of the
c learned Civil Judge, Senior Division, Panaji, Goa on the ground-that
the Civil Judge did not consider that the Arbitrator misconducted
himself in making the awards without recording any reasons for the
same, even though the claim was Rs.50,000 and above as provided in
clause 25 of the agreement between the parties and as such the awards
should have been set-aside by the Court.
D
The High Court held that having regard to the clause 25 of the
terms of the agreement specifically providing that in all cases where
amount of claim in dispute is Rs.50,000 and above the arbitrator was
bound to give reasons for his award. The statements that has been
made by the Arbitrator while giving his findings could not be con-
E
sidered to be the reasoning for his finding of the award. The Court also
held that:

"The award no where contains any reasoning for the same
nor does it even obliquely mentions that in giving his find- )
ings the Arbitrator has even sought to adopt the reasoning
F of either of the parties. In our view as the obligation of the
Arbitrator under Clause 25 of the agreement stands, the
reasons should appear to be so in this case."

It was further held that as the arbitrator failed to give reasons for
the award it would be a misconquct on his part and the award was
G liable to be vitiated on that ground. The Court allowed all the appeals.
The order of the lower court was set-aside and the awards were
remanded back to the arbitrator for giving reasons for the same as
required under clause 25 of the arbitration agreement and thereafter
to file the same in the court of Civil Judge, Panaji, within eight weeks
after the order is served on him.
H
HOUSING BOARD '· RAMAKANT [RAY, J.J 909

Against this judgment and order the impugned appeals by
A
special leave were filed.

The learned counsel on behalf of the appellants has contended
that the High Court acted illegally in not considering at all that the
arbitrator did not record any reasons for making awards allowing the
claims each of which exceeds Rs.50,000 as provided under clause 25 of B
the arbitration agreement and as such the arbitrator has misconducted
himself in the proceedings and instead of sending the awards made by
the arbitrator to him for recording his reasons ought to have set-aside
the awards under section 30 of the Arbitration Act. It has also been
contended that the High Court though it held that the arbitrator was
guilty of misconduct and the awards made by him were liable to be C
vitiated on that ground yet inspite of setting aside the awards they
were sent to the arbitrator for recording reasons which is totally
unwarranted by law.

The learned counsel appearing on behalf of the respondent, on
the other hand, submitted that the awards made by the arbitrator after D
hearing the parties cannot be said to be illegal or unwarranted as the
same were made after considering all papers and documents filed by
the parties and after duly hearing the parties. As such there was no
illegality nor any misconduct committed in making the awards. The
arbitrator has fairly considered the issues and made the awards in
question. The misconduct, if any, on the part of the arbitrator does not E
concern with the probity and impartiality of the arbitrator. The only
allegation against the arbitrator is that he has not recorded the reasons
for the awards made by him as per tenn of clause 25 of the arbitration
agreement. It has, therefore, been contended by the learned counsel
on behalf of the respondent that the order of the High Court in
remanding the awards to the arbitrator for recording reasons clearly F
falls within the purview 0f section 16( l)(c) of the Arbitration Act, 1940
as the objection to the legality of the award is apparent on the face of
it. It does not fall within the provision of section 30 of the said act in as
much as the arbitrator has not misconducted himself or the proceed-
ings and the awards in question have not been improperly procured.
Several decisions have been cited at the bar in support of the respec- G
tive contentions advanced by the counsel for the parties.

Before considering the question whether the directions made by
the High Court in remitting the award to the Arbitrator for giving
reasons do fall within the purview of Section 16 of the Arbitration Act,
1940, it is appropriate to set out the relevant provisions of section H
16(1):-
910 SUPREME COURT REPORTS (1991] 3 S.C.R.

"Sec. 16( 1): The Court may from time to time remit the
A
award or any matter r~ferred to arbitration to the arbitra-
. tors or umpire for reconsideration upon such terms as it
thinks fit--

(a) where the award has left undetermined any of the mat-
B ters referred to arbitration, or where it determines any
matter not referred to arbitration and such matter cannot
he separated without affecting the determination of mat-
ters referred; or

(b) where the award is so indefinite as to be ineapable of
execution; or •
c
(c) where an objection to the legality of the award is appa-
rent upon the face of it."

Section 16 empowers the Court to remit the award to the Ar-
o bitrator for reconsideration only in three cases specified therein.
Clause (c) of Section 16( 1) provides that the award shall be remitted to
the Arbitrator by the Court where an objection to the legality of the
award is apparent on the face of it. Of course, the High Court has
come to a finding that the Arbitrator was guilty of misconduct for his
failure to give reasons as required. There is, however, nothing to show
E that the Arbitrator misconducted himself or the .proceedings in any
other manner nor there is anything to show that the awards have been
improperly procured. There is no allegation, far less, any finding, that
the Arbitrator was biased or unfair or he has not heard both the parties
or he has not fairly considered the submissions of the parties in making
the awards in question. In our opinion, it is evident from the four
F awards made by the Arbitrator that the Arbitrator has considered all
the specific issues raised by the parties in the arbitration proceedings
and came to his finding after giving cogent reasons. The above awards
cannot under any circumstances be considered to be made by the
Arbitrator without recording any reasons for the same. Therefore, in
such circumstances, it is not proper to hold that the Arbitrator has
G misconducted himself or in the proceedings in the matter of giving the
awards.

In these circumstances, we are unable to hold that the four
awards made by the Arbitrator are bad for not recording reasons. We,
therefore, uphold the said awards and we do not think it necessary to
H decide the question as regards the scope of Section 30 or Section 16·of
HOUSING BOARD v. RAMAKANT (RAY, J.] 911

the Arbitration Act. The decision of the High Court remitting the A
awards back to the Arbitrator for giving reasons is set aside and the
awards made by the Arbitrator are upheld. Let these awards be made
.> rule of the Court. The appeals are, therefore, dismissed. There will be
no order as to costs.
B
N.P.V. Appeals dismissed.