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Unintelligible Arbitral awards would be equivalent of providing no reasons at all, should be set asi


The appeal was brought to the Supreme Court of India before the bench constating of Honourable Justice N.V. Ramana, Honourable Justice Mohan M. Shantanagoudar and Honourable Justice Ajay Rastogi.

This appeal was filed against the final order and judgment dated 27.04.2007, passed by the High Court of Judicature at Madras whereby the High Court partly allowed the appeal filed by the respondent and set aside the award of Arbitral Tribunal relating to claim no. 2 for payment of compensation for the losses suffered due to unproductive use of machineries.


Learned counsel for the appellant submitted that the Arbitral Tribunal comprising of three Arbitrators had looked into the entire material available on record and recorded a finding in reference to claim no. 2 (losses suffered due to unproductive use of machineries) based on the case set up by the parties taking note of Section 73 of the Indian Contract Act, 1872 and relying on the evidence including appraisal of the log books approved by the respondent and held that actual losses/expenses were incurred by the appellant. Learned counsel further submitted that the Division Bench of the High Court did not hold that the evidence relied upon by the Arbitral Tribunal, i.e., the log books were not proper or were lacking quality. As a matter of fact, there was no challenge to the same in the appeal filed by the respondent under Section 37 of the Arbitration Act and only the liability was questioned. The learned counsel further submitted that the only submission of the learned counsel for the respondent before the Arbitral Tribunal and also before the learned Single Judge of the High Court was that there was no provision under the contract granting compensation for loss incurred for unproductive use of machinery and that the Arbitral Tribunal has exceeded its jurisdiction. Learned counsel also submitted that Section 73 of the Contract Act confers a right which is for public interest/benefit and contractual clause, if any, which takes away such a right unilaterally of a party is violative of Section 23 of the Contract Act. The law which is made for an individual’s benefit can be waived by only by such individual, however, where law is for public interest or has policy element, then such rights cannot be waived by an individual person inasmuch as such rights are a matter of public policy/public interest. Learned counsel further submitted that a contractual provision which is in contravention of a specific statutory provision, if allowed to be implemented, the same will result in frustration of a right conferred by law or if the contractual clause is immoral or opposed to public policy, in such cases the contractual clause is invalid and void ab initio and cannot be enforced to disentitle appellant in claiming the actual loss which has been suffered by it and established before the Arbitral Tribunal and which the respondent is under an obligation to reimburse. In the given circumstances, claim no. 2 which has been set aside by the High Court needs interference by this Court. The learned counsel in support has placed reliance on the judgment of this Court in K.N. Sathyapalan (Dead) by Lrs. v. State of Kerala, (2007) 13 SCC 43.


Per contra, learned counsel for the respondent, while supporting the findings recorded by the High Court in the impugned judgment, submitted that the claim which has been disallowed by the High Court in the impugned judgment was basically a claim for payment of compensation or damages on account of premature termination of contract and neither the Arbitral Tribunal nor the learned Single Judge of the High Court has considered/examined the terms of the contract in appreciating the right of the claimant to claim compensation of damages and the corresponding liability of the respondent to pay/settle the claim. According to him, as per the terms of contract, no such compensation was payable.

Learned counsel further submitted that it is well settled that the Arbitral Tribunal cannot travel beyond the terms of contract to award compensation. As a matter of fact, in the present case, the terms of contract expressly prohibit that no compensation is payable if the contract is terminated on account of termination of the project. In the face of such express prohibition, the Arbitral Tribunal has exceeded its jurisdiction and committed a manifest error in directing the payment of compensation even without disclosing the basis of arriving at such a conclusion. Learned counsel for the respondent submitted that Section 34(2) (a)(iv) of the Arbitration Act clearly envisages that such an award can be set aside if the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration. When there is a specific exclusion/prohibition in the contract, it was not open for the Tribunal to travel beyond the terms of contract in passing an award which has been taken note of by the Division Bench of the High Court in the impugned judgment and has been rightly set aside, supported by cogent reasons. The learned counsel further submitted that what has been observed by the Division Bench of the High Court in the impugned judgment is based on settled principles of law and needs no interference.


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.

Thereby, after inferring the facts and circumstances of the case, this Honourable Court gave its judgment as under,

“From the facts, we can only state that from a perusal of the award, in the facts and circumstances of the case, it has been rendered without reasons. However, the muddled and confused form of the award has invited the High Court to state that the arbitrator has merely restated the contentions of both parties. From a perusal of the award, the inadequate reasoning and basing the award on the approval of the respondent herein cannot be stated to be appropriate considering the complexity of the issue involved herein, and accordingly the award is unintelligible and cannot be sustained. In any case, the litigation has been protracted for more than 25 years, without any end for the parties. In totality of the matter, we consider it appropriate to direct the respondents to pay a sum of Rs. 30,00,000/ (Rupees Thirty Lakhs only) to the appellant in full and final settlement against claim No. 2 within a period of 8 weeks, failing which the appellant will be entitled to interest at 12% per annum until payment, for providing quietus to the litigation. In view of the conclusions reached, the appeal is disposed of to the extent indicated herein. There shall be no orders as to the costs.”

View/Download Judgment:M s Dyna Technologies Pvt. Ltd. v. M s Crompton Greaves Ltd.

– Tanvi Srivatsan

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