Inadequacy of reasons in Arbitral Awards and Unintelligible Awards
The nature of arbitral awards has been a major concern which lead to the pursuing of professionalisation of arbitration through the 2019 amendments to the Arbitration & Conciliation Act, 1996. The Supreme Court in Dyna Technologies v. Crompton Greaves has given the requisites for scrutinising awards that may have deficient reasoning and has also highlighted the difference between inadequacy of reasons in an award and unintelligible award under the Act. The judgement was delivered on 18th December 2019.
Before analysing the judgement given my the Supreme Court, it is important to discuss the facts of the case. Dyna Technologies (the appellant) and Crompton Greaves (the respondent) entered into an agreement in 1994 where Dyna Technologies agreed to set up an aquaculture unit. However, after the work order was issued and the work commenced, Crompton Greaves suddenly terminated the contract without prior notice. The appellant sought compensation for the sudden termination and the dispute was referred to arbitration. One of the claims made by the appellant was the unproductive use of machineries and it was on this ground that the tribunal granted compensation. However, it failed to mention any reasoning which lead to the said conclusion. The respondent thereafter approach a single judge of the Madras High Court to set aside the award, but to no avail. Subsequently, the matter was taken before a division bench, where the award was set aside for the lack of reasoning. The Court also pointed out that it was not necessary for the tribunal to resume the proceedings under Section 34(4) of the Act since the contract restricted the payment of compensation on account of premature termination of the contract.
The matter was then taken to the Supreme Court where it was argued by the appellants that the award was based on evidences such as the books of the appellants which showed the losses suffered by the appellant due the termination of the contract. It was also argued that it was beyond the Court’s jurisdiction to overturn the tribunal’s findings under Section 37. The respondents maintained their argument that the terms of the contract had been violated. The Supreme Court bench was headed by Justice NV Ramana and also comprised of Justice Mohan M. Shantanagoudar and Justice Ajay Rastogi. It was observed by Justice Ramana that unintelligible awards are to be set aside, however, the point of inadequacy of reasons has to be adjudicated on the specific reason that is required to be considered in the matter. The bench referred to Section 31(3) of the Act which made it mandatory for a reasoning to be intelligible and adequate and can be implied by the Courts, if necessary.
It was further observed that when the reasoning of an order is observed, three factors are taken into consideration and they are: proper, intelligible and adequate. The Court also stated that if an order is to be challenged on misconduct then it can only be done under Section 34 of the Arbitration Act. In the present case the tribunal merely relied on the respondent’s contentions and concluded accordingly. Thus, the award was set aside for the lack of reasons.Initially, the Supreme Court decisions on the point said the award must have reasoning that shows the mindset that lead to the decision. However, this case laid down the standard for the level of reasoning required from an award. This decision may be considered as a step for improving the quality of arbitral awards in India.