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PETITIONER: INDIAN OIL CORPORATION

       Vs.

RESPONDENT: INDIAN CARBON LTD.

DATE OF JUDGMENT06/04/1988

BENCH: MUKHARJI, SABYASACHI (J) BENCH: MUKHARJI, SABYASACHI (J) RANGNATHAN, S.

CITATION:  1988 AIR 1340            1988 SCR  (3) 426  1988 SCC  (3)  36        JT 1988 (2)   212  1988 SCALE  (1)965  CITATOR INFO :  RF         1989 SC 973  (9)

ACT:      Arbitration Act,  1940: Sections  30  and  33-Award  of Arbitrator-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.

HEADNOTE: %      In respect  of sale of raw petroleum coke by petitioner to respondent  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 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 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 of   restoration  of   supplies,  and   recorded  the compromise terms,  pursuant to  which all  proceedings  were withdrawn  by  the  parties.  The  petitioner’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.      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,

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^      HELD: 1.  It is  obligatory in  England now  after  the Arbitration 427 Act, 1979,  that the  award should give reasons. The purpose of Section 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  decision  was against him, what the reasons were. [435B-C]      ’Law of  Arbitration’ by  Justice R.S.  Bachawat. First Edition 1983 pp. 320 and 321, 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 the reasons depend upon the facts  of the  particular case.  He is not bound to give detailed reasons. [435C-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 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.[435D-E]      2.3 The award in question is unassailable. According to the Arbitrator,  because of  the letter  dated 18th October, 1982 of  the 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 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. The 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]      2.4 Arbitration  procedure should  be  quick  and  that quickness of the decision can always be ensured by insisting that short intelligible indications of the grounds should be available to  find 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 428 and why he acted in that manner.[434H; 435A]      Champsey Bhara  and Company  v. Jivraj  Balloo 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. 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  Handelsgesellschaft  v.  Westzucker,  [1981]  2 Lloyd’s Law Reports 130, referred to.

JUDGMENT:

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    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.      F.S. Nariman,  B.D.  Sharma  and  R.P.  Kapur  for  the Petitioner.      Soli J.  Sorabjee, Harsh  Mittre, Harish N. Salve, Jeel Peres, D.N. Mishra and Mrs. A.K. Verma for the Respondents.      The Judgment of the Court was delivered by      SABYASACHI 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  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 the risk and expense of  the respondent.  There  was  a  third  agreement providing that  in case  of delay in payment, the respondent would pay  interest at  4 per  cent  over  the  I.O.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  Gauhati Refinery. The petitioner on 18th October, 1982 wrote to the 429 respondent that unless the outstandings as on 1st September, 1982 and  interest 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 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 confirmed after notice.  Respondent filed  Appeal  No.  858  of  1983. Thereafter  respondent   on  20th   ostler,  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  petitioner’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  proceedings were  withdrawn by the parties. On 11th  December, 1984  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  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.

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    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  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 arbitrator to arrive at the conclusion he did reach, but it was a speaking 430 award. The  learned Judge  however, held  that  it  was  not necessary to  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.I.R. 1923 P.C. 66 that it was not necessary that all  awards should  be speaking  awards.  See  in  this connection the  observations  of  this  Court  in  Hindustan Steelworks Construction  Ltd. v. Shri C.Rajasekhar Rao, 4 JT 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 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 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 reasons.      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 upliftment  being so  regulated  that  the 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 regulated  that the accumulated quantity  of coke in the refinery coke yard does not fall  below 2500 tons and does not exceed 4500 tons. The other history  of the  matter, it was recited that the order dated 24th 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 1st August,  1983 would  be referred to the arbitration of a retired Judge  of the  Supreme Court  mutually acceptable to the parties.  Two preliminary  issues, the arbitrator framed were, namely, (1) Is the

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431 claimant entitled  to charge  any interest on unlifted stock of raw  petroleum 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 set out in the arbitration  agreement. The arbitrator in his award pro- to observe as follows:           "And whereas  it is  not in  dispute  between  the           parties  that   since  the  said  letter  of  18th           October, 1982, I.O.C. had 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 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   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 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           October, 1982."      The aforesaid grounds are the reasons of the arbitrator for making  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 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 432 in exercise of a quasi-judicial function, it must record its reasons in  support  of  the  order  it  makes.  This  Court observed further  that every  quasi-judicial order  must  be supported by reasons.      In  Rohtas   Industries  Ltd.  and  Another  v.  Rohtas Industries Staff  Union and  others, [1976]  3 SCR  12 where this Court  was concerned with an award under section 10A of the Industrial  Disputes Act, 1947. This Court observed that there was  a need  for a  speaking order  where considerable numbers are  affected in  their substantial  rights. It  was further reiterated that in such a situation a speaking order may well be a facet of natural justice or fair procedure. In Dewan Singh  v. Champat  Singh, [1970] 2 SCR 903, this Court reiterated that  it was  an implied  term of the arbitration agreement that  the arbitrators  must decide  the dispute in accordance with  the ordinary  law and  they  cannot  decide disputes on  the basis  of  their  personal  knowledge.  The proceedings, it was held, before the arbitrators were quasi- judicial  proceedings   and  they   must  be   conducted  in accordance with  the principles  of natural justice. It was, therefore,  obligatory   to  give   reasons.  As   mentioned

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hereinbefore there  has been  since then  trend that reasons should be  stated in  the award and the question whether the reasons are  necessary  in  ordinary  arbitration  agreement between the  parties has  been referred  to the  Constituion Bench.      In this  case, however,  we are  in agreement  with the High Court  of Bombay that reasons were stated in the award. We have  set out hereinbefore the three grounds, namely, (1) The letter  dated 18th October, 1982 is no bar to Indian oil Corporation’s claim  for shifting  charges and  interest  in respect of  the  period  from  1st  October,  1982  to  17th October, 1982.  (2) The inference drawn from the contents of the letter  and (3)  Because of  the said  letter which  has admittedly been  acted upon  by the  Indian oil  Corporation Ltd., and  which had  not delivered  any coke  to the Indian Carbon Ltd.  Or made  any offer to do so. For these reasons, the arbitrator held that the Indian oil Corporation Ltd., is not entitled  to interest  claimed in  respect of the period from 18th October, 1982 onwards nor to shifting charges from 18th October,  1982. These  are the  reasons for  giving the award. No  error of  law was  pointed out  in those reasons. Indeed no  proposition of  law was  stated in  the aforesaid reasons, which  could be  objected to  as an  error of  law. There was, however, no error of fact. It was a possible view to take.  It could  not be  urged that  it was an impossible view to  take. The arbitrator has made his mind known on the basis of  which he  has  acted  that,  in  our  opinion,  is sufficient to  meet the  requirements even  if it be reasons should be stated in the award. It is one thing to say that 433 reasons should  be stated  and another thing to state that a detailed 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,  [1981]  2  Lloyd’s  Law Reports 130.  There Lord Donaldson speaking for the court at pages 132 and 133 of the report observed as follows:           "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 hearing they will be           in a  position to  give a decision and the reasons           for that  decision.  They  should  do  so  at  the           earliest possible  moment. The  parties will  have           made  their   submissions  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  "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".                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  GAFTA Contract  100 at  US. $Z  per  ton           c.i.f. Bremen.  X claimed damages for non-delivery           and we  were  appointed  arbitrators".  The  award

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         could then  briefly tell  the factual story as the           arbitrators saw  it. Much  would be  common 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  alternative version and           have rejected it, e.g., "The shippers 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  arbitrators  should  end  with  their           conclusion  as   to  the   resulting  rights   and           liabilities of the parties. There is nothing about 434           this which  is remotely  technical,  difficult  or           time consuming.                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  of the  art  of           giving  a   judgment  lies   in  telling  a  story           logically,  coherently  and  accurately.  This  is           something which  requires skill,  but it  is not a           legal skill  and it is not necessarily 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 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 subsequent 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 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 not  difficult to draw and above           all it  is  something  which  can  and  should  be           produced promptly and quickly at the conclusion 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. "      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  procedure should be  quick and  that quickness  of  the  decision  can always   be ensured  by insisting  that  short  intelligible indications of the grounds

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435 should be  available to  find out the mind of the arbitrator for his  action. 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 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 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. 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 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. G.N.                                Petition dismissed. 436