Holding

An award that does not contain reasons cannot be set aside or remitted by the court unless the arbitration agreement or deed of submission expressly requires the arbitrator to give reasons.

Summary

The dispute between Mis. Engineers Syndicate and the State of Bihar was referred to arbitration under an agreement. The arbitrator issued a lump‑sum award in favour of the syndicate without providing item‑wise reasons, i.e., a non‑speaking award. The Subordinate Judge set aside the award on the ground that it lacked reasons, and the High Court affirmed that order. On appeal, the Supreme Court held that under the Arbitration Act, 1940, a court cannot set aside or remit an award merely because it does not contain reasons unless the arbitration agreement expressly requires such reasons. The Court further ruled that the judiciary may not speculate on the arbitrator’s mental process or assess the justification of his view of the evidence in the absence of disclosed reasons. Consequently, the Supreme Court set aside the lower courts' orders and restored the arbitrator’s award. The decision reaffirmed the limited grounds for interference under Section 30 of the Act.

Issues considered

Whether a non‑speaking award lacking reasons can be set aside by a court under the Arbitration Act, 1940.
Whether the court may speculate on the arbitrator's reasoning in the absence of reasons.
Whether the award must be item‑wise referenced to the claims for it to be valid.
Whether Section 30 of the Arbitration Act permits setting aside an award solely on the ground of lack of reasons.

Legislation cited

Arbitration Act, 1940s. 20, s. 21, s. 30, s. 34

Subjects

ArbitrationNon‑speaking awardSection 30Arbitration Act 1940Court interferenceReasons in awardAward setting aside

Judgment

A MIS. ENGINEERS SYNDICATE
v.
STATE OF BIHARAND ORS.

JANUARY 17, 2007

B [DR.AR. LAKSHMANAN AND V.S. SIRPURKAR, JJ.]

Arbitration Act, 1940-Section JO-Non-speaking award-
Interference by court-Scope of-Held: Award without giving reasons
cannot be remitted or set aside by court being unreasoned in absence of
C any stipulation to the contrary in arbitration agreement or deed of
submission-Where no reasons are given by the arbitrator for arriving at
the conclusion, court cannot speculate nor consider whether the view of
arbitrator on evidence is justified-Thus, order of trial court setting aside
the award being non-speaking and arbitrator failed to refer the claim item
wise and objection raised, not correct and set aside.
D
Dispute arose between the parties and they invoked arbitration clause
as per the agreement. Arbitrator passed an award in favour of the appellant
and against the respondent. Trial Court set aside the award on the ground
that tile award was non-speaking and it failed to refer the claim item-wise
E and objection of the respondent. Hlgh Court upheld the order. Hence the
present appeal.

Allowing the appeal, the Court

F . HELD: It is not open to the court to speculate, where no reasons are
given by the arbitrator, as to what impelled the arbitrator to arrive at his
conclusion. The power of the court to attempt to probe the mental process
by which the arbitrator had reached his conclusion where it was not
disclosed by the terms of his award is declined. The court in dealing with
an application to set aside an award has not to consider whether the view
G of the arbitrator on the evidence is justified and that the arbitrator's
adjudication is generally considered binding between the parties, for he is
a tribunal selected by the parties and the power of the court to set aside
the award is restricted to cases set out in section 30 of the Arbitration Act.
An award can neither be remitted nor set aside merely on the ground that
H it does not contain reasons in support of the conclusion or decisions
1080
...
y

ENGINEERS SYNDICATE v. STATE [LAKSHMANAN, J.] 1081

reached in it except where the arbitration agreement or the deed of A
submission requires him to give reasons. The arbitrator or umpire is
under no obligation to give reasons in support of the decision reached by
him unless under the arbitration agreement or in the deed of submission
he is required to give such reasons and ifthe arbitrator or umpire chooses
to give reasons in support of his decision it is open to the court to set aside
the award if it finds that an error of law has been committed by the
B
arbitrator or umpire on the face of the record on going through such
reasons. Thus, the order passed by trial court and as upheld by High Court
is set aside and the award passed by the arbitrator is restored.
(Paras 8 and 10] [1083-A-F, 1084-F)
c
Raipur Development Authority and Ors. v. Mis Chokhamal Contractors
and Ors., (1989] 2 SCC 721, followed.

Bharat Coking Coal Ltd. v. Annapurna Construction, [2003] 8 SCC
154, distinguished.
D
Rajendra Construction Co. v. Maharashtra Housing and Area
Development Authority and Ors., [2005) 6 SCC 678, referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 266 of2007.

From the Judgment and Final Order dated 30.9.2004 of the High Court E
of Judicature at Patna in C.R. No. 2035/2001.

Uday U. Lalit, Sr. Adv., Manoj K. Srivastava and K.L. Taneja for the
Appellant.

Nishakant Pandey and Gopal Singh for the Respondents. F

The Judgment of the Court was delivered by

... DR. AR. LAKSHMANAN, J. : I. Leave granted .

2. The case on hand arise under the Arbitration Act, 1940. G

3. This appeal is directed against the final judgment dt.30.09.2004
passed by the High Court of Judicature at Patna in C.R.No.2035 of 2001.

4. The short facts leading to the filing of this appeal are as under :· H
1082 SUPREME COURT REPORTS (2007] 1 S.C.R

A The appellant made an agreementNo.58 F-2of1980-81 with respondent
No.2 acted on behalf of respondent No. I for the construction of 'C' type
six blocks quarters at Sherpur Colony Gandak Project Muzaffarpur for the
total consideration of an amount of Rs.19,02,428.21. Since there is dispute
between the parties, the appellant had to resort to the court of Subordinate
Judge, Muzaffarpur to invoke the arbitration clause of the aforesaid agreement.
B The 1st Subordinate Judge vide its order dt. 02.04.1988 in Misc. Case No.
5/86 appointed the respondent No.4 as an arbitrator to arbitrate and adjudicate
the dispute and to pass the award. The appellant laid the total claim of
Rs.15,77,073 before the arbitrator.

C 5. The arbitrator made the award on 04.07.1988 in favour of the
appellant for Rs.8,53,837 only as consolidated and lump sum amount for all
claims of t.lie appellant and against the respondents along with interest at
the rate of 12% per annum till the date of realisation.

6. The High Court on 30.09.2004, affirmed the award passed by the
D Subordinate Judge and rejected the appeal filed by the respondents against
which the respondent preferred an appeal in this Court. This Court vide its
Order dt.16.08.1996, directed the learned Subordinate Judge to dispose of the
objection of the State (the respondent herein) on merits. Pursuant to this
Order, the learned Subordinate Judge set aside the impugned order on the
E ground that the award was non-speaking and the award failed to refer the
claim item-wise and objection of the respondents. The High Court affirmed
the impugned judgment of the learned Subordinate Judge. Aggrieved against
the said order, the appellant has come before this Court by way of an SLP.

7. We have heard Mr.U.U.Lalit, learned senior counsel appearing for
F the appellant and Mr.Nishakant Pandey, learned counsel for the respondents. f ' ..
Mr. Lalit, learned senior counsel submitted that the order passed by the
learned Subordinate Judge, as affrrmed by the High Court, is not correct and
that the award can be set aside on the ground of error of law apparent on
the face of the record under Section 30 of the Act but it qualified the above
G legal position that the court while dealing with the application for setting
aside an award has no power to consider whether the view of the arbitrator
on the evidence was justified.

8. In support of the said contention, the learned senior counsel placed
strong reliance on the Judgment of this Court in Raipur Development
H
I
(

ENGINEERS SYNDICATE v. STATE [LAKSHMANAN, J.] 1083

Authority and Others v. Mis Chokhamal Contractors and Others reported A
in (1989) 2 SCC 721 (Five Judges Bench). The learned senior counsel invited
our attention to some of the Judgments referred to in the said Judgment and
in particular paras 14, 16, 17, 19 and 38 also. This Court, in the above
Judgment has categorically held that it was not open to the High Court to
speculate where no reasons are given by the arbitrator, a~ to what impelled
the arbitrator to arrive at his conclusion. The court declined to recognise the
B
power of the court to attempt to probe the mental process by which the
arbitrator had reached his conclusion where it was not disclosed by the
terms of his award. It is also further observed in the said judgment that the
court in dealing with an application to set aside an award has not to consider
whether the view of the arbitrator on the evidence is justified and that the c
arbitrator's adjudication is generally considered binding between the parties,
for he is a tribunal selected by the parties and the power of the court to set
aside the award is restricted to cases set out in Section 30. It is also further
observed that it is not open to the court to speculate, where no reasons are
given by the arbitrator, as to what impelled the arbitrator to arrive at his
conclusion. This Court in para 19 of the above Judgment has also observed
D
as under :-

"It is now well settled that an award can neither be remitted
nor set aside merely on the ground that it does not contain reasons
in support of the conclusion or decisions reached in it except where E
the arbitration agreement or the deed of submission requires him to
give reasons. The arbitrator or umpire is under no obligation to give
reasons in support of the decision reached by him unle.ss under the
arbitration agreement or in the deed of submission he is required
to give such reasons and if the arbitrator or umpire chooses to give
reasons in support of his decision it is open to the court to set F
y
aside the award if it finds that an error of law has been committed
by the arbitrator or umpire on the face of the record on going
through such reasons. The arbitrator or umpire shall have to give
reasons also where the court has directed in any order such as the
one made under Section 20 or Section 21 or Section 34 of the Act G
that reasons should be given or where the statute which governs
an arbitration requires him to do so."

9. The learned senior counsel then relied upon the Judgment of this
Court in Rajendra Construction Co. v. Maharashtra Housing & Area
H
1084 SUPREME COURT REPORTS [2007] 1 S.C.R.

A Development Authority and Others reported in [2005] 6 SCC 678 in which
similar question arose for consideration by this Court. In the said case, the
High Court concluded that the awards were vitiated under Section 30 of the
Act and observed that the view taken by the sole arbitrator which has been
made rule of the court by the trial court is unsustainable on the ground that
it suffers from errors apparent on the face of the record and the sole
B arbitrator misdirected the proceedings, in as-much-as, he was required to
adjudicate upon the issues framed by the trial court and give reasons thereof
in respect of the claims allowed by him. The said observation made by the
High Court was not countenanced by this Court as could be seen from para
23 of the said Judgment at page 687. This Court also observed· that the
C present awards are not under the new Act but under the old Act and it is,
therefore, obvious that they could not have been set aside by the High
Court on the ground that they were not supported by reasons and were not
speaking awards.

10. Learned counsel appearing for the respondents placed his reliance
D on a Judgment in Bharat Coking Coal Ltd v. Annapurna Construction
repmted in [2003] 8 SCC 154. This judgment was rendered on 29.08.2003 by
a Division Bench comprising of two Judges of this Court. Before the Bench, 1
the Judgment reported in [1989] 2 SCC 721 (supra) was also cited. However,
the Court has not followed the said principle laid down in [ 1989] 2 SCC 721
E (supra) on the ground that the case on hand reported in [2003] 8 sec 154
stands on a different footing, namely, that the arbitrator while passing the
award in relation to some in terms failed and/or neglected to take into
consideration the relevant clauses of the contract, nor did he take into
consideration the relevant materials for the purpose of arriving at a correct
finding and that such an order would amount to misdirection in law. The said
F question was not involved in the present case. The Judgment reported in .
[2003] 8 SCC 154 (supra) is not a case of silent or non-speaking award.
Following the principles laid down in [l 989] 2 sec 721 (supra), we allow the
appeal filed by the appellant herein and set aside the order passed by the
learned Subordinate Judge and as affirmed by the High Court. In the result,
the award passed by the arbitrator dt.04.07 .1988 is restored and the appellant
G
will be entitled to the amount awarded by the said award. The award of the
arbitrator dt.04.07 .1988 is made a rule of court.

No costs.

N.J. Appeal allowed.