STATE OF KERALA v. T. P. GEORGE — 1983 DIGILAW 175 (KER)

Judgment :- 1. The appellants are the State of Kerala and the Superintending Engineer, Kottarakkara. The respondent was the claimant in the arbitration proceedings. He is a contractor. He entered into an agreement with the appellant on 22-8-1977 to execute the work called the "K.I.P. main canal driving a tunnel at Nedumparambu between CH. 27870 to 28500 H". The estimated amount was 1,25,79,747/-. Probable amount of contract was fixed at Rs. 29,64,537/-. The work was awarded at 19.5 per cent above the estimate rate. The work involved the construction of a tunnel for a total length of 610 metres. Certain disputes arose in respect of the work in 1979. The respondent filed an application for reference to an arbitrator on 29-6-1979. A substantial part of the work was by then over. The arbitrator to whom reference was made, passed bis award on 30-11-1979. The respondent claimed additional payments on different counts in the arbitration proceedings. He was awarded a sum of Rs. 1,20,000/-. Subsequently on 3-4-1980 the respondent made another application for reference claiming amounts which according to the appellants were covered in the earlier reference. The arbitrator again passed an award substantially allowing the claim despite opposition by the appellants. The award was filed in court. The appellants prayed that the award be set aside or remanded to the arbitrator. The objections were overruled by the court below and a decree in accordance with the award granting 6 percent interest was passed. This appeal is directed against the said decree passed on 22nd September 1980. 2. The appellants' case rests on the following grounds. (1) The second arbitration proceedings are barred by constructive res judicata. The arbitrator has not considered this plea while making the award. (2) The claims covered by the second reference were the subject matter of the first reference. The respondent is therefore barred from re-agitating such claims in a second reference. (3) Both the references were made when more than 90 percent of the work was over. Therefore, the claims in respect of the loss due to nonavailability of plastic materials, failure of non-supply of electricity and claims in respect of losses due to accidents were not made bona fide and were not allowable. 3. (3) Both the references were made when more than 90 percent of the work was over. Therefore, the claims in respect of the loss due to nonavailability of plastic materials, failure of non-supply of electricity and claims in respect of losses due to accidents were not made bona fide and were not allowable. 3. The respondent meets these objections on the short plea that a consideration of these disputed questions of fact is possible only if the various pieces of evidence and terms of the contract are looked into. The arbitrator has not discussed the evidence. He has not incorporated the terms of the contract in the award. The award is a non-speaking one. A catena of decisions has laid down that the court's jurisdiction does not extend to an investigation of the facts and evidence. 4. The appellants' counsel took us through the various terms of the contract and other materials in the files. His main contention is that the claims made by the respondent and allowed by the arbitrator related to matters which the respondent was not in law entitled to agitate over again and that he had not put forward those claims in the earlier reference. Claim No.1 relates to non-availability of plastic materials. Claim No. 2 non-supply of electricity, Claim No. 4 losses due to accidents. Claim No. 6 losses due to labour strike etc. He took us through the terms of the agreement to inform us that some of the claims were beyond the stipulations contained in the agreement. He submits that the arbitrator exceeded his jurisdiction in allowing those claims. 5. He invited us to the following decisions to outline the nature of the powers of the arbitrator: Hari Singh v. Kankinarah Co. Ltd. (AIR. 1921 Cal. 657), Abdul Halim v. Ismail (AIR. 1925 Patna 465) and State v. Babulal (AIR. 1974 M.P. 179). He also took us through the decision reported in Upper Ganges Valley Electricity Supply Co. Ltd. v. The U. P. Electricity Board (AIR. 1973 SC. 683). According to him, there was an error apparent on the face of the award, and that the arbitrator had misconducted himself. In short his case is that the arbitrator is guilty of legal misconduct. 6. The respondent's counsel submits that the arbitrator has not discussed any evidence in the award and as such investigation into the evidence by this court is not permissible. In short his case is that the arbitrator is guilty of legal misconduct. 6. The respondent's counsel submits that the arbitrator has not discussed any evidence in the award and as such investigation into the evidence by this court is not permissible. None of the terms of the contract was incorporated in the award. Consideration of the terms of the award was also therefore tabooed so far as this court is concerned. He invited us to a decision of this court in Alwaye Municipality v. K. A. Kochunny & Company (1982 KLT. 669) to tell us of the limited jurisdiction of this court in considering non-speaking awards. 7. We have gone through the award in the case. The award opens as follows: "Whereas certain differences arose between the Claimant and the Respondents out of a Contract in writing for the work of "KIP. Main Canal Driving Down a Tunnel at Nedurnparambu between Ch.27870 M, to 28500 M " under Contract Agreement No. 18/77-78 dated; 22-8-1977; And Whereas I am empowered to act as Arbitrator as per the said Agreement; Now, Therefore, I. K. Kesavan Poti, having taken upon myself the burden of the reference and having heard and duly weighed and considered the allegations and evidence produced by both parties before me. do, hereby make and publish the final Award, in writing of and concerning the matter referred to me." After this the arbitrator has awarded various amounts on each of the counts. From the above, it is clear that the arbitrator has not incorporated in the award any or the terms of the agreement. No question of law was referred to him. He did not formulate any question of law himself. The award thus is one without giving any reason and without any discussion. The various submissions raised by the appellants before us relate to disputes touching the details of the work done and claims based upon the various terms of the contract. For an effective adjudication of these disputes the court has necessarily to consider the terms of the contract and the evidence of the work done and the materials supplied etc. Such an investigation is not permissible in law. For an effective adjudication of these disputes the court has necessarily to consider the terms of the contract and the evidence of the work done and the materials supplied etc. Such an investigation is not permissible in law. To effectively consider and decide each of the claims made by the respondent and to test the propriety of the amounts awarded, a detailed investigation into the various aspects of the case based on the evidence and facts cannot be avoided. This Court's jurisdiction does not extend for such investigation in arbitration cases however much the court may desire a probe in such cases. In Alwaye Municipality v. K. A. Kochunny and Company (1982 KLT 669) one of us had occasion to consider the various authorities touching on the point. Strong reliance was placed by the respondent's counsel on this decision. There, referring to the various decisions on the point it was observed that the court bad no jurisdiction to investigate into the merits of the case and to examine the documentary and oral evidence on record for the purpose of finding out whether there is an error apparent on the face of the record. We read Para.12 of the judgment: "The jurisdiction of the court in interfering with non-speaking awards is very narrow. Then parties agree and entrust the disputes arising between them to arbitration they are deemed to have taken a decision to have implicit faith in the decision of the arbitrator, be he a layman or a man well-versed in law. To a large extent, the jurisdiction of the ordinary courts, from interfering with the conclusions arrived at by the arbitrator both on questions of fact and on questions of law, is ousted by the agreement. It is in exceptional circumstances when the court finds, prim facie, errors apparent on the face of the award, or where the arbitrator has exceeded bis jurisdiction that the court would step in either to set aside the award or remit it or direct reconsideration. It is in exceptional circumstances when the court finds, prim facie, errors apparent on the face of the award, or where the arbitrator has exceeded bis jurisdiction that the court would step in either to set aside the award or remit it or direct reconsideration. It is settled law that the court will be extremely slow in either finding fault with a non-speaking award much lets interfering with it or attempting to substitute its views, for it is recognised in this country, that awards need not be speaking orders; Whether arbitrators should give reasons or parties should be given a right to insist upon arbitrators to give reasons in support of their decisions, are matters to be regulated by statutory provisions and not by judicial pronouncements." 8. We are not impressed with the appellants' submission that the arbitrator has committed legal misconduct. A consideration of this case also involves an investigation into the facts and evidence. We may usefully extract the following observations also from Para.20 of the above decision. "The settled position in arbitration law is that it is not misconduct on the part of the arbitrator to commit an error either of law or of fact. Misconstruction, of a particular clause by an arbitrator will not invite the court's jurisdiction to interfere with the award made by him. It is only in very rare cases where manifest error it seen in the award or a glaring violation of the terms of the contract is apparent that the courts will attempt at consideration of the challenge of the award on the ground of legal misconduct on merits. An arbitrator agreed by the parties occupies a special position in view of the trust reposed in him by the disputants. It is for this reason that the courts have evolved the limits of their jurisdiction in interfering with the awards. Law expects arbitrators to act fairly. Arbitration proceedings have the advantage of settling disputes more expeditiously than disputes that reach court. Tested against this principle, the appellant's case has to fail." 9. We do not find any reason to depart from the beaten track. To attempt at an investigation into the disputes involved on facts and evidence would be going against the settled law. We therefore bold that the request made by the appellants in this case cannot be granted. The appeal has therefore to fail and is dismissed. We do not find any reason to depart from the beaten track. To attempt at an investigation into the disputes involved on facts and evidence would be going against the settled law. We therefore bold that the request made by the appellants in this case cannot be granted. The appeal has therefore to fail and is dismissed. In the circumstances, we direct the parties to bear their costs. Sivaraman Nair, J. I am tempted to add a few words of my own because of the abuse of the reluctance of Courts to interfere in awards of Arbitrators and my conviction that refusal to state reasons for a decision, be it by an Administrator, an Arbitrator or a judge shall not be a passport to its validity. Absence of reasons in an executive determination has been held to be anti-thesis of fair procedure and a violation of the principles of natural justice. Absence of reasons in a judicial or quasi-judicial determination has been held to be fatal to its validity. Why then should an unreasoned and non-speaking award of an arbitrator pass muster, even if, it could have been held to be invalid if reasons were stated? In almost all cases, an arbitration is a substitute for a legal proceeding. It is resorted to by consensus to avoid the time consuming process of the law and the Courts, and in an anxiety to get the dispute determined, by an expert in the subject rather than by a judge, who, at best, may be a 'jack of all trades, but master of none'. The arbitrator may, on the other hand, be an expert in the particular matter in relation to which the disputes are submitted for his determination, but not a person trained in processual or substantive law and therefore not capable of making an order which satisfies the requirements of a determination in the judicial sense. All these peculiarities of the arbitral processes are assumed as justification for requiring that the award of the Arbitrator need not stand up to the standards of a judicial determination. All these reasons apply with equal, if not greater, force to administrative or executive determinations as well, the watch-word of which also is expediency and which are expected to be rendered by men with no training in processual or substantive law. All these reasons apply with equal, if not greater, force to administrative or executive determinations as well, the watch-word of which also is expediency and which are expected to be rendered by men with no training in processual or substantive law. If in the case of such determinations, reasons for the conclusions are obligatory for, their validity, I cannot understand why in the case of arbitrators, an entirely different approach should be justified. The arbitrators have the merit of knowing at least the subject of the dispute which they are arbitrating upon, even though they may not be trained lawmen. But the persons who are entrusted with the duty of making executive, administrative determinations have neither the specialised knowledge of the subject of dispute nor any knowledge of the law. The only discernible difference seems to be that in the process of arbitration, the parties chose a person agreeable to them, in whose capacity and integrity, the parties have full trust, and whose determination, the disputants agree to abide by. Does this make all the difference? The decided cases seem to say yes, and I am bound to bow down, but I nave still my reservations about accepting these precedents as finally decisive of the invincibility of arbitral determination, even when an unscrupulous arbitrator chooses to take shelter under cover of these decisions and refuses to speak in support of the decision which he makes. Suppose in a case where the work is tendered under specific condition that power supply lines would be provided at the cost of the department up to the exit phase of a tunnel, but power supply should be arranged by the contractor with the Electricity Board and the contractor demanded and was awarded a substantial sum of money as damages for non-supply of power or delay in supply or supply of low voltage power only, would the award be inviolable only because the Arbitrator has chosen not to mention any reasons for his award and it is not possible to prove misconduct of the Arbitrator? Suppose, again, that at a time when almost 90 per cent of the work was over, an arbitration reference was invited by the contractor only in respect of some of the items of work, whereas be could have raised disputes regarding all the substantial items, and he was awarded all that he asked for; and finding the arbitral responses favourable, be sought a subsequent reference in respect of the same contract raising disputes, not in relation to the 10 per cent of the work which remained unfinished at the time of the first reference, but in relation to the entire work, and the Arbitrator obligingly awarded substantial amounts without even adverting to the specific objection of the Department that the second reference was bad on the principles of res judicata, should that award pass muster only because the arbitrator has chosen to be mute? It is of course true, that the Court shall be slow to interfere with awards of arbitrators. It has been held that it. shall be far more so if the award is a non-speaking one. In the decision referred to by Khalid J., speaking for the Bench (ILR. 1983(l) Kerala 657), my learned brother had reiterated this principle on a consideration of decisions of the Privy Council, the Supreme Court and the House of Lords. But his Lordship had taken care to observe: "To a large extent, the jurisdiction of the ordinary Courts from interfering with the conclusions arrived at by the Arbitrator both on questions of fact and on questions of law, is ousted by the Agreement. It is in exceptional circumstances when the Court finds, prima facie, errors apparent on the face of the award, or where the Arbitrator has exceeded bis jurisdiction that the Court would step in either to set aside the Award or remit it or direct re-consideration. It is in exceptional circumstances when the Court finds, prima facie, errors apparent on the face of the award, or where the Arbitrator has exceeded bis jurisdiction that the Court would step in either to set aside the Award or remit it or direct re-consideration. It is settled law that the Court will be extremely slow in either finding fault with a non-speaking award much less interfering with it or attempting to substitute its views, for it is recognised in this country, that award need not be speaking orders." The Division Bench in that decision refused to consider the plea of legal misconduct, developed at the last stage of the arguments, for the reason that, "the learned counsel for the appellant fairly conceded that this was a virgin field and that he could not come to any authority direct or indirect to be pressed into service in support of his case " If in either case it was manifest that the arbitrator bad exceeded bis jurisdiction, or that a specific plea of legal misconduct had been taken before the Courts below, or that ground was manifest in the face of the award itself, it appears to be the view of the Division Bench that the Courts are entitled to interfere. Even though this Court bad held in the decision reported in C. W. Engineers v. Eapen Varghese.1977 KLT.1019 that? "It is not misconduct on the part of an Arbitrator to come to as erroneous decision, whether his error is one of fact or law, and whether or not his findings of fact are supported by evidence". The Supreme Court, in an earlier decision, reported in E. P. Poulose v. State of Kerala, 1975 KLT. 383, had ruled, that if the decision was come to ignoring important pieces of evidence, that itself will vitiate the award, and will justify that award being set aside. The Court observed: "Under S.30 (a) of the Arbitration Act an award can be set aside when an Arbitrator has misconducted himself or the proceedings. Misconduct under S.30 (a) has not a connotation of moral lapse. It comprises legal misconduct which is complete if the Arbitrator on the face of the award arrives at an inconsistent conclusion even on his own finding or arrives at a decision by ignoring very material documents which throw abundant light on the controversy to help a just and fair decision. It comprises legal misconduct which is complete if the Arbitrator on the face of the award arrives at an inconsistent conclusion even on his own finding or arrives at a decision by ignoring very material documents which throw abundant light on the controversy to help a just and fair decision. It is in this sense that the Arbitrator has misconducted the proceedings in this easel We have, therefore, no hesitation in setting aside such an award". It is true, that the award, which was considered by the Supreme Court in that decision, contained reasons for the conclusions. But, I do not think that it makes any difference in principle if the award can be interfered with for non-advertance to relevant materials, be it a speaking award, or a route one. In the present case, points of jurisdiction and resjudicata were expressly taken, and in such a case, it is doubtful whether the Arbitrator by remaining silent will oust the jurisdiction of Courts to consider, the validity of the award, if that award would have been liable to be interfered with, bad it contained the reasons for the conclusions. The principle, that arbitration awards need not contain detailed reasons, is not meant to promote arbitrariness in arbitral process; nor shall it be that arbitrators are excused from applying their minds to the contentions of either side by providing that they need not state detailed reasons for the conclusions. If reasons are stated, and such reasons, at least to a limited extent, are capable of scrutiny; and if the Arbitrator exceeds his jurisdiction, or omits to consider relevant material, the award can be interfered with. Should the calculated and unscrupulous refusal to state reasons justify non-interference by Courts with awards of Arbitrators, even in cases of manifest excess of jurisdiction or legal misconduct in the sense of refusal to consider relevant material like the terms of the agreement? If the answer can only and always be in the affirmative, it only adds to the chance of the arbitrator being led to exercise their power, in an unreasonable and arbitrary manner. Even though they are not obliged to state reasons they are expected to act fairly, advert to the contentions of either side, apply their minds to the materials and then come to conclusions on a comprehensive consideration of the whole matter. Even though they are not obliged to state reasons they are expected to act fairly, advert to the contentions of either side, apply their minds to the materials and then come to conclusions on a comprehensive consideration of the whole matter. If an arbitrator does not do that, and that is manifest the award itself, be it a speaking award, or a non-speaking one, the same principle shall apply. This, I feel, is necessary and obligatory to save arbitral process from unrestricted abuse, as is complained of in the present case. It is relevant in this context to note that the provisions of the Arbitration Act, 1889, or 1950, of the United Kingdom on which the decisions of the British Courts were rendered, and on which the Indian Arbitration Act was modelled has undergone significant changes. Sub-sections (5) and (6) of S.1 of the Arbitration Act, 1979 enable the High Court to order the Arbitrator or Umpire concerned to state reasons for bis award sufficient to enable the Court to consider any question of law arising out of the award. If the obligation to state reasons can be compelled through Courts, it is time that we reconsider our precedents to be in keeping with the fast changing realities of the present. I am certain that the reluctance of Courts to interfere with non-speaking awards is the cause for all the abuse of arbitral processes, and, I am more than certain that the casualty in more cases than not is the public exchequer. If the Government, which is one of the parties to the arbitral process quite often, insists in the clause providing for Arbitration itself that the award given by the Arbitrator shall contain reasons for the Award, there is greater scope for a review by Courts and an appellate reconsideration of the matter by higher forums. It is desirable that the State Government wakes up. at least now, after crores of rupees have gone down the drain, to the need and the desirability of incorporating a condition in all arbitral agreements to the effect that the arbitrator, whoever he be, shall be obliged to pass a considered award stating reasons. If such a condition is incorporated, there will be lesser inclination to pass obliging mute and silent awards, which may, each time, mean loss of considerable amount of money to the public exchequer. If such a condition is incorporated, there will be lesser inclination to pass obliging mute and silent awards, which may, each time, mean loss of considerable amount of money to the public exchequer. In the fervent hope that this be done by the State Government expeditiously so as to plug the holes through which the unscrupulous drain the public exchequer. I concur with my learned brother Khalid J., in dismissing the appeal.