By TIOL News Service

NEW DELHI, SEPT 06, 2014: THE issues before the Apex Court are - Whether the term ‘findings' used in one of the arbitration clauses of the contract necessarily refers to ‘reasons' by the arbitrator for arriving at any conclusion; Whether the judicial climate in which arbitral awards are being made and viewed lends itself to an interpretation which makes it obligatory for the Arbitrator to record reasons in support of the findings recorded by him and Whether when any expression has not been defined either in the agreement executed between the parties or in any statute, it has to be given its ordinary literal meaning having regard to the context. And the verdict goes against the appellant.

Facts of the case

The appellant company had received a non-speaking arbitral award in its favour which was set aside by a Single Judge of the High Court of Delhi on the ground that the Arbitrator had not recorded his "findings" as required under Clause 70 of the General Conditions of Contract. The High Court held that the expression "finding" appearing in Clause 70 of the General Conditions of Contract implies something more than the mere recording of a conclusion by the Arbitrator. Inasmuch as the Arbitrator had failed to do so, the award rendered by him was unsustainable. The High Court accordingly set aside the award and remitted the matter back to the Arbitrator for a fresh determination of the disputes between the parties. An appeal was then preferred by the company before a Division Bench of the High Court who relying upon the decision of this Court in Gora Lal v. Union of India affirmed the view taken by the learned Single Judge. Dissatisfied, the appellant has approached this Court by special leave. The Division Bench of the Supreme Court took a different view from the Gora Lal's case and, therefore, the matter was referred to a larger Bench to resolve the conflict. The disputed Clause 70 of the General Conditions of Contract is as follows:

"…………The Arbitrator shall give his award within a period of six months from the date of his entering on his reference or within the extended time as the case may be on all matters referred to him and shall indicate his findings, along with sums awarded, separately on each individual item of dispute."

The counsel for the appellant company contended that the expression 'findings' should not imply the process of reasoning adopted by the Arbitrator for recording his conclusions. A finding howsoever cryptic would, according to the submission of the counsel for the appellant, satisfy the requirement of Clause 70 for otherwise the Clause would have been differently worded so as to make it mandatory for the Arbitrator to make what is called a speaking award giving reasons for the conclusions arrived at by him.

The counsel for the Union of India argued that the question was no longer res- integra having been addressed in Gora Lal's case where this Court held that the expression "finding on each individual item of dispute" clearly meant that reason in support of the findings must also be recorded by the Arbitrator. It was contended that a finding which is unsupported by any reason is no finding in the eye of law.

Having heard the parties, the Supreme Court held that,

++ a plain reading of the above would show that the Arbitrator was required to ( i ) give his award within the stipulated period as extended from time to time. (ii) the Award must be on "all matter referred to him" (iii) the Award must indicate the findings of the Arbitrator along with sums, if any, awarded (iv) the findings and award of sums if any must be separate on each item of dispute. There is no gainsaying that Clause 70 makes a clear distinction between findings on each individual item of dispute on the one hand and the sum, if any, awarded in regard to the same on the other. That the Arbitrator had made his award in regard to each item of dispute raised by the appellant before it, is evident from a reading of the award. The question is whether the Arbitrator had recorded his findings on each such items ;

++ we consider it appropriate to refer to the Constitution Bench decision of this Court in Raipur Development Authority v. M/s Chokhamal Contractors etc where this Court was examining whether an award without giving reasons can be remitted or set aside by the Court in the absence of any stipulation in the arbitral agreement obliging the arbitrator to record his reasons. Answering the question in the negative, this Court held that a non-speaking award cannot be set aside except in cases where the parties stipulate that the arbitrator shall furnish reasons for his award. Having said that, this Court declared that Government and their instrumentalities should - as a matter of policy and public interest - if not as a compulsion of law, ensure that whenever they enter into an agreement for resolution of disputes by way of private arbitrations, the requirement of speaking awards is expressly stipulated and ensured. Any laxity in that behalf might lend itself and perhaps justify the legitimate criticism that government failed to provide against possible prejudice to public interest;

++ reference may also be made to The Arbitration and Conciliation Act, 1996 which has repealed the Arbitration Act of 1940 and which seeks to achieve the twin objectives of obliging the Arbitral Tribunal to give reasons for its arbitral award and reducing the supervisory role of Courts in arbitration proceedings. Section 31(3) of the said Act obliges the arbitral tribunal to state the reasons upon which it is based unless the parties have agreed that no reasons be given or the arbitral award is based on consent of the parties. There is, therefore, a paradigm shift in the legal position under the new Act which prescribes a uniform requirement for the arbitrators to give reasons except in the two situations mentioned above. The change in the legal approach towards arbitration as an Alternative Dispute Resolution Mechanism is perceptible both in regard to the requirement of giving reasons and the scope of interference by the Court with arbitral awards. While in regard to requirement of giving reasons the law has brought in dimensions not found under the old Act, the scope of interference appears to be shrinking in its amplitude, no matter judicial pronouncements at time appear to be heading towards a more expansive approach, that may appear to some to be opening up areas for judicial review on newer grounds falling under the caption "Public Policy" appearing in Section 34 of the Act;

++ in Jogendra Nath v. Commissioner of Income Tax, this Court held that subsequent legislation on the same subject may be looked into with a view to giving a proper exposition of a provision of the earlier Act. Borrowing the principle from the above pronouncements it is reasonable to hold that the obligation cast upon the arbitrator in terms of Clause 70 in the case at hand ought to be understood in the light of not only the exposition of law by this Court in Chokhamal's case but also in the light of the statutory prescription that now mandates recording of reasons by the Arbitrator. The judicial climate in which arbitral awards are being made and viewed also lends itself to an interpretation that would make it obligatory for the Arbitrator to record reasons in support of the findings recorded by him;

++ let us in the above backdrop examine the textual meaning and contextual significance of the expression 'finding' appearing in Clause 70. The expression has not been defined either in the agreement executed between the parties or in any statute for that matter. The expression shall, therefore, have to be given its ordinary literal meaning having regard to the context in which the same is used. A textual interpretation that matches the contextual is known to be the best. The principle is well settled but the decision of this Court in Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. And Ors.;

++ it is evident from the above that English language and law dictionaries and the Law Lexicons give a wide range of meaning to the expression 'finding'. The predominant use of the expression is in relation to determination by a Judge, Jury, Administrative Agency, Arbitrator or a Referee. The determination is described either as a finding, decision or conclusion; upon disputed facts. It is also described as a determination of a fact supported by evidence on the record. It is interchangeably used as a conclusion or decision a term used by the legal profession and by Courts. The term "conclusion" is in turn defined by Black's Law Dictionary as under:

"The final part of a speech or writing (such as jury argument or a pleading); a judgment arrived at by reasoning; an inferential statement; the closing, settling, or final arranging of a treaty, contract, deal, etc. ";

++ it is only when the conclusion is supported by reasons on which it is based that one can logically describe the process as tantamount to recording a finding. It is immaterial whether the reasons given in support of the conclusion are sound or erroneous. That is because a conclusion supported by reasons would constitute a "finding" no matter the conclusion or the reasons in support of the same may themselves be erroneous on facts or in law. It may then be an erroneous finding but it would nonetheless be a finding. What is important is that a finding presupposes application of mind. Application of mind is best demonstrated by disclosure of the mind; mind in turn is best disclosed by recording reasons. That is the soul of every adjudicatory process which affects the rights of the parties;

++ the above exposition matches even the contextual interpretation of Clause 70 which provides a mechanism for adjudication of disputes between the parties and not only requires the Arbitrator to indicate the amount he is awarding in regard to each item of claim but also the "findings on each one of such items". The underlying purpose of making such a provision in the arbitration clause governing the parties, obviously was to ensure that the Arbitrator while adjudicating upon the disputes as a Judge chosen by the parties gives reasons for the conclusions that he may arrive at. The expression 'finding' appearing in Clause 70, therefore, needs to be so construed as to promote that object and include within it not only the ultimate conclusion which the Arbitrator arrives at but also the process of reasoning by which he does so. Clause 70 could not, in our opinion, have meant to be only a wooden or lifeless formality of indicating whether the claim is accepted or rejected. Any such statement would have made no qualitative addition to the adjudication of the claim for the arbitrator would award a sum of money but withhold the reasons for the same. We are in respectful agreement with the view taken by this Court in Gora Lal's case. In the result this appeal fails and is hereby dismissed.

(See 2014-TIOL-73-SC-MISC)