10 June 2024


High Court of Madhya Pradesh

M.P. Road Development Corporation Ltd. Vs. M.S.P. Infrastructure Ltd.




Arbitral Tribunal is under a statutory duty to state reasons for its conclusion

In facts of present case, a tender was issued by Appellant for the work of detailed Design, Engineering, Financing, Procurement, Construction, Operation and Maintenance of Raisen-Rahatgarh road of about 100 kms. A Letter of Acceptance (LOA) was issued. After submission of performance bank guarantee, consortium agreement was entered into between the parties. The stipulated completion period of work was 18 months as per the Concessionaire Agreement. The extended date of completion on failure of achieving milestone and showing progress of work was 3rd February, 2004. The agreement was terminated on alleged violation of terms of contract and on the allegation of snail progress by the contractor.

Indisputably, a civil suit was filed by the Respondents at Kolkata in which, the parties decided to refer the dispute to arbitration in view of Arbitration Act. In turn, a Three Member Arbitral Tribunal (Tribunal) was constituted. The Respondent/contractor filed statement of claim for Rs. 89,67,00,000. After completion of pleadings and filing of documents, etc., the Arbitrator passed the award and awarded total amount with interest i.e. Rs. 6,90,34,743.

The Appellant feeling aggrieved with above award, assailed it before the Court below by filing an application under Section 34 of the Arbitration and Conciliation Act, 1996. The Court below after hearing the parties, passed the impugned order and dismissed the application.

Section 34 of the Arbitration Act makes it obligatory on the part of the Court to interfere with the arbitral award, if it is in conflict with the public policy of India. Audi alteram partem or principles of natural justice makes it obligatory for the courts to assign adequate reasons. The reasons are held to be heartbeats of conclusion. Recording of reasons also operates a valid restraint on any possible arbitrary exercise of judicial/quasi-judicial or even administrative power. The reasons re-assure that, discretion has been exercised by the decision maker on relevant grounds and by disregarding the extraneous and irrelevant consideration.

In the application filed under Section 34 of the Arbitration Act, the Appellant has categorically pleaded that the contract was terminated by following the 'due process'. The amount awarded by the Tribunal does not have any basis. The Appellant averred before the Court below that there is no formula or basis on the strength of which the Tribunal has reached to a magic figure and appellant was directed to pay the same.

Arbitral Tribunal is under a statutory duty to state the reasons upon which its conclusion is drawn or in other words, award is passed. The only exception is when it is agreed between the parties that assigning of reason is unnecessary. It is nobody's case that in the instant matter, parties have reached to any understanding that reasons are not required to be assigned.

In the impugned order, the court below opined that interference can be made if order is passed malafidely or is against the public policy. The expression 'public policy of India' was given very wide interpretation and it makes it obligatory for the courts to adopt judicial approach, assign adequate reasons in support of decision. It needs to follow the principles of 'audi alteram partem. In absence of assigning reasons, impugned order of court below has become vulnerable.

In the instant case, the decision making process which has a direct nexus with the principles of natural justice was called in question by the Appellant. If decision making process is vitiated, it cannot be said that audi alteram partem principle is satisfied. In absence of assigning reasons, impugned order cannot be countenanced.

Court below has not considered various points raised by the Appellant in his application filed under Section 34 of the Arbitration Act. The decision making process adopted by the court below cannot sustain judicial scrutiny. In the result, impugned order is set aside. The matter is remitted back before the Commercial Court, with the direction to re-hear the parties and pass a fresh order in accordance with law. Appeal is allowed.

Tags : Award Payment Direction Legality

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