Holding

The award is valid; a reasoned award is required but need not be detailed, and the court may not review the reasons, only set aside the award for lack of evidential support or legal error.

Summary

Indian Oil Corporation (petitioner) sold raw petroleum coke to Indian Carbon Ltd (respondent) under three agreements that provided for shifting of coke and interest on unpaid stock. After payment default, Indian Oil obtained attachment of coke, terminated the agreements and the dispute over interest and shifting charges was referred to an arbitrator, Shri A.K. Sarkar, who issued an interim award denying any interest or shifting charges, giving brief reasons based on a letter dated 18 October 1982. The petitioner challenged the award in the Bombay High Court, arguing that the arbitrator had failed to give a reasoned award as required by the arbitration clause and prevailing law. The High Court dismissed the petition, and the Supreme Court was asked to consider whether a reasoned award is mandatory and whether the award could be set aside for lack of detailed reasons. The Court held that while a reasoned award is obligatory, the reasons need only be intelligible and address the substantial points; the arbitrator is not bound to give a detailed judgment and the court cannot sit in appeal over the award’s reasons, setting it aside only for lack of evidential support or legal error. Consequently, the award was upheld and the special leave petition was dismissed.

Issues considered

Whether an arbitrator is required to give a reasoned award when the arbitration clause mandates it.
Whether the absence of detailed reasons renders an arbitral award liable to be set aside.
Whether the court may review the reasons given in an arbitral award or only set it aside on grounds of lack of evidence or error of law.

Legislation cited

Arbitration Act, 1940s. 30, s. 33, s. 34
English Arbitration Act, 1979
English Tribunal and Inquiries Acts. 12

Subjects

ArbitrationReasoned awardArbitral award set asideArbitration clauseSection 30 Arbitration Act 1940Section 33 Arbitration Act 1940Section 34 Arbitration Act 1940Supreme Court of IndiaSpecial Leave Petition

Judgment

INDIAN OIL CORPORATION
A
v.
INDIAN CARBON LTD.
\
APRIL 6, 1988
j
B [SABYASACHI MUKHARJI AND S. RANGANATHAN, JJ.]
II ,. _

c
Arbitration Act, 1940: Sections 30 and 33-Award of Arbi-'
trator-Reasoned Award-What is-Arbitration clause requiring \
arbitrator to give reasoned award-Whether arbitrator required to give
detailed reasons-Sufficiency of reasons depends on facts of the case-
Court not to sit in appeal over award and review reasons.
1- /
. '"·
In respect of sale of raw petroleum coke by Petitioner to Respon-
dent there were three
agreements, providing for sale, petitioner's right
to shift raw petroleum coke at the risk and expense of the respondent in
case of failure of Respondent to shift the same as agreed, and the
D Respondent's liability to pay interest on the value of stock not uplifted.

There was default in payment and petitioner stopped supplies to
respondent, filed a suit and obtained an order of attachment of stocks of
raw petroleum coke, to the extent of Rs.6 crores, of the Respondent.
The respondent filed an appeal as also an application for stay of the suit ')..
E under Section 34 of the Arbitration Act. Meanwhile the petitioner
terminated the agreement. Thereafter the respondent filed a suit and
the Court passed an order for restoration of supplies.

On an appeal by the petitioner, this Court stayed the order of
restoration of supplies, and recorded the compromise terms, pursuant );·
F to which all proceedings were withdrawn by the parties. The petition-
er's claim were referred to an Arbitrator, who passed an interim
award, according to which the petitioner was not entitled to any interest
nor any shifting charges. The petitioner challenged the said award,
when it was filed in High Court. The High Court dismissed the petition
and this special leave petition is against the High Court's order.
G
It was contended before this Court that the Arbitrator has failed
to give a reasoned award and so it is bad in law.

Dismissing the special leave petition, this Court,

H HELD: 1. It is obligatory in England now after the Arbitration
426
INDIAN OIL CORPN. v. INDIAN CARBON 427

Act, 1979, that the award should give reasons. The purpose of Section
A
12 of the Act requiring the tribunal to furnish a statement of reasons if
requested to do so before it gave its decision is to enable the person
whose property or whose interests were affected, to know, if the deci-
,sion was against him, what the reasons were. [435B-C]

'Law of Arbitration' by Justice R.S. Bachawat. First Edition 1983 B
pp. 320 and32 J, referred to.

2.1 In India, there has been a trend that reasons should be stated
in the award. The reasons that are set out must be reasons which will
not only be intelligible but also deal with the substantial points that have
been raised. When the arbitration clause required the arbitrator ·to
give a reasoned award, the sufficiency of tile reasons depend upon
c
the facts of the particular case. He is not bound to give detailed
reasons. [43SC-D)

2.2 The Court does not sit in appeal over the award and review
the reasons. The Court can set aside the award only if it is ap- D
parent from the award that there is no evidence to support the con-
clusions or if the award is based upon any legal proposition which is
erroneous. [4350-E]

2.3 The award in question is unassailable. According to the
Arbitrator, because of the letter dated 18th October, 1982 of the E
petitioner addressed to the Respondent stating that if the outstandings
and interest are not paid, further supplies would not be made, has been
acted upon by the petitioner, which had not delivered any coke to the
respondent, or made any offer to do so, the petitioner was not entitled
to the interest in respect of the period from 18th October, 1982
onwards, nor to shifting charges in respect of any shifting on or after F
18th October, 1982. On this reasoning, he had given the award. How
the Arbitrator has drawn inference is apparent from the reasons. No
proposition was stated in the aforesaid reasons, which could be objected
to as an error of law. Tbe reasons given by the Arbitrator meet the
requirements of a reasoned award. It is apparent that the arbitrator has
not acted irrelevantly and unreasonably. [432E-G; 434G-H] G

2.4 Arbitration procedure should be quick and that quickness of
the decision cau always be ensured by insisting that short intelligible
indications of the grounds should be available to imd out the mind of
the arbitrator for his action. This was possible in the instant case where
the arbitrator has spoken his mind, and he is clear as to how he acted H
428 SUPREME COURT REPORTS 119881 3 s.c.R.

A and why he acted in that manner. [434H; 435A)
I
Champsey Bhara and Company v. Jivraj Ba/loo Spinning and
Weaving Company Ltd., AIR, 1923 P.C. 66; Hindustan Steelworks
Construction Ltd. v. Shri C. Rajasekhar Rao, 4 JT 1987 3 S.C. 239;
Siemens Engineering and Manufacturing Company of India Ltd. v.
B Union of India, [1976) Suppl. S.C.R. 489; Rohtas Industries Ltd. and
Another v. Rohtas Industries Staff Union and Others, [1976] 3 SCR 12
and Dewan Singh v. Champat Singh, [1970) 2 SCR 903, referred to.

Bremer Hande/sgesellschaft v. Westzucker, [1981) 2 Lloyd's Law
Reports 130, referred to.
c CIVIL APPELLATE JURISDICTION: Special Leave Petition
(Civil) No. 4557 of 1988.

From the Judgment and Order dated 21.3.88 of the Bombay·
High Court in Appeal No. 306 of 1988.
D
F.S. Nariman, B.D. Sharma and R.P. Kapur for the Petitioner.

Soli J. Sorabjee, Harsh Mittre, Harish N. Salve, Jee! Peres,
D.N. Mishra and Mrs. A.K. Verma for the Respondents.

E The Judgment of the Court was delivered by

SABY ASACHI MUKHARJI, J. This petition under Article 136
of the Constitution challenges the judgment and order of the Division
Bench of the High Court of Bombay dated 21st March, 1988. The
petitioner in this case on 23rd June, 1961, had agreed to sell to the \ ~
F predecessor of respondent raw petroleum coke. There was a second /
agreement on 22nd April, 1971. The said agreement was arrived at
between the parties whereunder it was provided that in case the
respondent failed to lift raw petroleum coke as agreed, the petitioner
would have right to shift raw petroleum coke at tbe risk and expense of
the respondent. There was a third agreement providing that in case of
G delay in payment, the respondent would pay interest at 4 per cent over
the 1.0.C. Bank borrowing rate, on the value of the stock not uplifted.
It appears that on 5th August, 1982, the respondent wrote a letter to
the petitioner showing inability to pay the arrears of the price against
delivery of raw petroleum coke. On 4th October, 1982 there was a
stock of about 13,760 M.T.S. of saleable raw petroleum coke lying at
H Gauhati Refinery. The petitioner on 18th October, 1982 wrote to the
INDIAN OIL CORPN. v. INDIAN CARBON [MUKHARJI, J.J 429

respondent that unless the outstandings as on 1st September, 1982 and
A
jnterest were paid, the petitioner would not make further supplies.
, · Thereafter the petitioner filed Suit No. 2187 of 1982 for payment and
( for attachment before judgment. On 21st December, 1982, it appears
J that there was an order of attachment.of stocks of raw petroleum coke
· ; to the extent of Rs.6 crores of the respondent. The order was con-
-J. '. firmed after notice. Respondent filed Appeal No. 858 of 1983. There- B
! after respondent on 20th October, 1983 filed an application for stay of
the suit under section 34 of the Arbitration Act, 1940 (hereinafter
called 'the Act'). The petitioner on 11th July, 1983 terminated the
agreement with effect. from 31.8.83. The respondent thereafter filed
Suit No. 122 of 1983 and applied for an order compelling the petitioner
to make supplies. The learned District Judge passed an order on 28th
April, 1984 for restoration of supplies. On 7th May, 1984 in petition- c
I er's appeal viz., Civil Appeal No. 2476 of 1984, this Court stayed the
above order. On 24th May, 1984 this Court's order setting aside the
order of the learned District Judge dated 28th April, 1984 and
recorded the compromise terms. Pursuant to the compromise, all pro-
ceedings were withdrawn by the parties. On 11th December, 1984 D
matter relating to the petitioner's claims in respect of interest on stocks
held from 1st October, 1982 onwards and expenses of shifting raw
petroleum coke from 1st October, 1982 upto 31st August, 1983, were
referred to. arbitration of Shri A. K. Sarkar, a former Chief Justice of
India. On 21st August, 1986 an interim award was passed by the
learned arbitrator. Interim award was filed in the High Court of E
Bombay and the petitioner challenged the said award. The learned
single Judge of the High Court dismissed the petition challenging the
interim award. The Division Bench of the High Court of Bombay
upheld the order of the learned single Judge. Hence this petition under
Article 136 of the Constitution.
-~· F
The main contention urged before us was that it was necessary in
the present trend of law for the learned arbitrator to have given a
reasoned award. The Arbitration Act, 1979 in England so enjoins. The
arbitrator, according to the petitioner has failed to do so. Hence the
award was bad and as such the decision of the High Court was wrong
and leave should be granted from the said decision and the matter be G
referred to the Constitution Bench as several cases are pending on this point.

The learned single Judge of the High Court in his decision had
observed that the award was undoubtedly not an elaborately reasoned
award setting out all the reasons which prompted the learned arbi-
trator to arrive at the conclusion he did reach, but it was a speaking H
430 SUPREME COURT REPORTS [1988] 3 S.C.R.

award. The learned Jtidge however, held that it was not necessary to.
A
examine this aspect since even if it was a speaking order, it was not bad
in law. It is true that the law as it stands upto date since the decision of
Champsey Bhara and Company v. Jivraj Balloo Spinning and Weaving
Company Ltd., A.LR. 1923 P.C. 66 that it was not necessary that all
awards should be speaking awards. See in this connection the observa-
B tions of this Court in Hindustan Steelworks Construction Ltd. v. Shri.C.
Rajasekhar Rao, 4 IT 1987 3 S.C. 239.

Previously the~ law both in England and India was that an
arbitrator's award might be set aside for error of law appearing on the
face of it, though the jurisdiction was not lightly to be exercised. Since
question of law could always be dealt with by means of a special case
c this is one matter that could be taken into account when deciding
whether the jurisdiction to set aside an award on this ground should be
exercised or not. The jurisdiction was one that existed at common law
independently of statute. In order to be a ground for setting aside the
award, an error in law on the face of the award must be such that there
o could be found in the award, or in any document actually incorporated
with it, some legal proposition which was the basis of the award and
which was erroneous. See Halsbury's Laws of England, 4th edition,
paragraph 623, page 334. The law has undergone a sea change in
England. It is obligatory in England now after the Arbitration Act,
979, that the award should give reasor:s.
E
In the instant case, the arbitrator has set out the history in the
interim award. The arbitrator has stated that the agreement dated
22nd April, 1970 provided that I.C.L. will uplift all available coke
produced at the Gauhati Refinery by which name also the Noonmati
Refinery was called, the said up-liftment being so regulated that the
F quantity uplifted every week was equivalent to the production of coke
at the refinery in the previous week and that whereas it was thereby
further provided that the upliftment by I.C.L. shall also be as reg-
ulated that the accumulated quantity of coke in. the refinery coke yard
does not fali below 2500 ions and does not exceed 4500 tons. The
other history of the matter, it was recited that the order dated 24th
G May, 1984 was passed by consent of the parties by this Court that the
claim of the Indian Oil Corporation for interest on stocks said to have
been held in the Gauhati Refinery from 1st October, 1982 onwards
and its claim for expenses of shifting the coke from 1st October, 1982
upto 3 Jst August, 1983 would be referred to the arbitration of a retired
Judge of the Supreme Court mutually acceptable to the parties. Two
H preliminary issues, the arbitrator framed were, namely, (1) Is the
INDIAN OIL CORPN. v. INDIAN CARBON [MUKHARJI, J.J 431

chlimant entitled to charge any interest on unlifted stock of raw
A
r)~troleum coke in view of its letter dated October 18, 1982? and (2) Is
the claimant entitled to any shifting charges in view of its letter dated
/ 18th October, 1982? The gist of the letter dated 18th October, 1982 is

l
'
set out in the arbitration agreement. The arbitrator in his award pro-
ceeded to observe as follows: · ·
B
"And whereas it is not in dispute between the parties that
since the said letter of 18th October, 1982, I.O.C. bad not
delivered or offered to deliver any raw petroleum coke for
I.C.L.

Now, therefore, having heard counsel for the parties and
perused the documents and statements filed by them, the c
despatch and receipt of none of which is disputed, and
having considered thereafter, I adjudge, hold and award as
follows:

The letter dated 18th October, 1982 is no bar to Indian Oil D
Corporation's claim for shifting charges and interest in
respect of the period from 1st October, 1982 to 17th
October, 1982.

Because of the said letter which has been admittedly acted
upon by the Indian Oil Corporation Ltd. which had not E
delivered any coke to Indian Carbon Ltd. or made any
offer to do so the Indian Oil Corporation Ltd. is not
entitled to the interest claimed in respect of the period
from 18th October, 1982 onwards nor to shifting charges in
respect of any shifting done on or after 18th Octa ber,
1982." F

The aforesaid grounds are the reasons of the arbitrator for mak-
ing the award. The award is that the Indian Oil Corporation is not
entitled to any interest nor any shifting charges. The reasons for the
said conclusion are the aforesaid three factors mentioned by the
arbitrator. How the arbitrator has drawn inference is apparent from G
the reasons. It is to be noted that this Court has been insisting on the
arbitrators to give some indications to indicate how the mind of the
arbitrator acts. This Court in the case of Siemens Engineering and
Manufacturing Company of India Ltd. v. Union of India, [1976] Suppl.
S.C.R. 489 was concerned with the decision of the Collector of
Customs. This Court observed that where an authority makes an order H
INDIAN OIL CORPN. v. INDIAN CARBON [MUKHARJI, J.] 433

/ reasons should be stated and another thing to state that a detailed
A
judgment to be.given in support of an award. Even if it be held that it is
obligatory to state the reasons, it is not obligatory to give a detailed
/ judgment. This question was considered by the Court of Appeal in
England in Bremer Handelsgesellschaft v. Westzucker, I1981 I 2 Lloyd's
Law Reports 130. There Lord Donaldson speaking for the court at
pages 132 and 133 of the report observed as follows: B

"It is of the greatest importance that trade arbitrators
working under the 1979 Act should realize that their whole
approach should now be different. At the end of the hear-
ing they will be in a position to give a .decision and the
reasons for that decision. They should do so at the earliest· C
possible moment. The parties will have made their submis-
sions as to what actually happened and what is the result in
terms of their respective rights and liabilities. All this will
be fresh in the arbitrators' minds and there will be no need
for .further written submission by the .parties. No particular
form of award is required. Certainly no one wants a formal D
"Special Case". All that is necessary is that the arbitrators
should set out what, on their view of the evidence, did or
did not happen and should explain succinctly why, in the
light of what happened, they have reached their decision
and what that decision is. This is all that is meant by a
"reasoned award". E

For example, it may be convenient to ·begin by
explaining briefly how the arbitration came about- "X
sold to Y 200 tons of soyabean meal on the terms of
GAFfA Contract 100 at US. $Z per ton c.i.f. Bremen. X
l claimed damages for non-delivery and we were appointed F
arbitrators". The award could then briefly tell the factual
story as the arbitrators saw it. Much would be cominon
ground and would need no elaboration. But when the
award comes to matters in controversy, it would be helpful
if the arbitrators not only gave their view of what occurred,
but also made it clear that they have considered any G
alternative version and have rejected it, e.g., "The ship-
pers claimed that they shipped 100 tons at the end of June.
We are not satisified that this is so", or as the case may be:
"We are satisfied that this was not the case". The arbi-
trators should end with their conclusion as to the resulting
rights and liabilities of the parties. There is nothing about H
434 SUPREME COURT REPORTS I1988] 3 S.C.R.

this which is remotely technical, difficult or time consum- \
A
ing.

It is sometimes said that this involves arbitrators in
\
delivering judgments and that this is something which
requires legal skills. This is something of a half truth. Much
B of the art of giving a judgment lies in telling a story logi-
cally, coherently and accurately. This is something which
requires skill, but' it is not a legal skill and it is not necessar-
ily advanced by legal training. It is certainly a judicial skill,
but arbitrators for this purpose are Judges and will have no
difficulty in acquiring it. Where a 1979 Act award differs
from a judgment is in the fact that the arbitrators will not
c be expected to analyse the law and the authorities. It will
be quite sufficient that they should explain how they
reached their conclusion,. e.g., "We regarded the conduct
of the buyers, as we have described it, as constituting a
repudiation of their obligations under the contract and the
D sub,sequent conduct of the sellers, also as described, as
amounting to an acceptance of that repudiatory conduct
putting an end to the contract". It can be left to others to
argue that this is wrong in law and to a professional Judge,
if leave to appeal is given, to analyse the authorities. This is
not to say that where arbitrators are content to set out their
E reasoning on questions of law in the same way as Judges,
this will be unwelcome to the Courts. Far from it. The point
which I am seeking to make is that a reasoned award, in
accordance with the 1979 Act, is wholly different from an
award in the form of a special case. It is not technical, it is

F
not difficult to draw and above all it is something which can
and should be produced promptly and quickly at the conc-
lusion of the hearing. That is the time when it is easiest to
)
produce an award with all the issues in mind." See the
observations in Russel on Arbitration, 20th Edn., page 291
Reasons for the Award and the decision referred to
therein."
G
In a case of this nature, issues are simple, points are fresh and
facts are clear, the reasons given by the arbitrator, in our opinion,
meet the requirements of a reasoned award. It is apparent that the
arbitrator has not acted irrelevantly or unreasonably. Arbitration pro-
cedure should be quick and that quickness of the decision can always
H be ensured by insisting that short intelligible indications of the grounds
INDIAN OIL CORPN. v. INDIAN CARBON IMUKHARJI, J.J 435
)'
ihould be available to find out the mind of the arbitrator for his action. A
This was possible in the instant case. In the instant case the arbitrator
has spoken his mind, and he is clear as to how he acted and why he
acted in that manner.

The purpose of section 12 of the English Tribunal and Inquiries
B
Act which required the statutory tribunal to furnish a statement of the
reasons if requested to do so before it gave its decision was to enable a
person whose property or whose interests were affected to know if the
decision was against him what the reasons were. Justice R.S. Bachawat
in his Law of Arbitration, First Edition 1983, pages 320 and 321 states
that the provision was read as meaning that proper and adequate
reasons must be given. The reasons that are set out must be reasons c
which will not only be intelligible but also deal with the substantial
points that have been raised. When the arbitration clause required the
arbitrator to give a reasoned award and the arbitrator does give his
reasons in the award, the sufficiency of the reasons depend upon the
facts of the'particular case. He is not bound to give detailed reasons.
D
The Court does not sit in appeal over the award and review the
reasons. The Court can set aside the award only if it is apparent from
the award that there is no evidence to support the conclusions or if the
award is based upon any legal proposition which is erroneous .
... Judges in that light, the award in question was unassailable in the
E
instant case.

In the aforesaid view of the matter, we are of the opinion that the
High Court was right in the view it took.· The special leave petition
fails and is accordingly dismissed.

i G.N. Petition dismissed.
F