13 February, 2020
The main issue in the case revolves around the requirement of reasoned and clear arbitral award rather than awards which are muddled in form and implied in their content. While further, interpreting Section 34 of the Arbitration Act, SC says that The Hon’ble Supreme Court contemplates the requirement of a reasoned award or order in three characteristics as, proper, intelligible and adequate. Ordinarily unintelligible awards are to be set aside and courts needs to be careful while considering awards with inadequacy of reasons and unintelligible awards as this may lead to wastage of time and resources of the parties to get clarity which would eventually destroy the purpose of arbitration itself.
The Hon’ble Supreme Court additionally noted that Section 34 clause 4 of the Arbitration and Conciliation Act, 1996, is to respect the finality of arbitral award and is an alternative way to adjudicate disputes between parties as provided by law and that Court should not interfere with the arbitral award and should defer the award given by arbitral tribunal even if the reasoning is implied.
Hon’ble Supreme Court allowed the appeal of Central Organization for Railway Electrification by setting aside the impugned Order of Hon’ble High Court of Judicature at Allahabad. Appellant and Respondent Company executed a work contract of Rs. 165,67,98,570/- by signing an agreement dated 20/09/2010 which contained an arbitration clause; the Government of India made a modification to clause 64 of the General Conditions of Contract thereafter. In the meantime, the Arbitration and Conciliation (Amendment) Act, 2015 came into effect. The modified clause 64(3)(a)(ii) provided that in cases where the total value of all claims exceeds Rs. 1 crore, the panel of arbitral tribunal should consist of three gazetted railway officers not below Junior Administrative (JA) Grade or two Railway Gazetted Officers not below JA Grade and a retired Railway Officer, retired not below the rank of Senior Administrative (SA) Grade Officer as arbitrators. Here the applicability of section 12(5) of Arbitration and Conciliation Act, 1996, has been waived off. Clause 64(3)(b) provides the appointment of arbitrator where 12(5) is not waived off.
The main issue before the Hon’ble Supreme Court concerned the validity of the decision of the Hon’ble High Court of Judicature at Allahabad to appoint an independent arbitrator as against the aforementioned clauses 64(3)(a)(ii) and 64(3)(b). The Hon’ble Supreme Court referred to various judgements to hold as below:
- “44. To conclude, in our considered view, the High Court was not justified in appointing an independent arbitrator without resorting to the procedure for appointment of an arbitrator which has been prescribed under clause 64(3) of the contract under the inbuilt mechanism as agreed by the parties.”
The Hon’ble Supreme Court held that the High Court is not justified in appointing independent arbitrator against the modified clauses.
The Rajasthan Electricity Regulatory Commission passed two orders dated 22/05/2006 and 23/06/2006, thereby deciding that it will on its own decide the dispute between the above -mentioned parties and by order dated 12/02/2007, the Commission appointed an arbitrator under section 86(1)(f) of the Electricity Act, 2003.
The Hon’ble Supreme Court determined the scope of arbitration proceedings under section 86(1)(f) of the Electricity Act, 2003 and referred to Gujarat Urja Vikas Nigam Ltd. v. Essar Power Ltd. (2008)4SCC755 which had observed that:
- “In our opinion the word ‘and’ in Section 86(1)(f) between the words ’generating companies’ and ‘to refer any dispute for arbitration’ means ‘or’. It is well settled that sometimes ‘and’ can mean ‘or’ and sometimes ‘or’ can mean ‘and’.” “Section 86(1)(f) of the Electricity Act, 2003 the word ‘and’ between the words ‘generating companies’ and the words ‘refer any dispute’ means ‘or’, otherwise it will lead to an anomalous situation because obviously the State Commission cannot both decide a dispute itself and also refer it to some Arbitrator. Hence the word ‘and’ in Section 86(1)(f) means ‘or’.”
The Hon’ble Court agreed with the above reasoning and held that the State Commission cannot both decide the case itself or appoint an arbitrator. The reference for arbitration can only be between licensees and generating companies and not in any other way. The High Court’s statement is correct in saying that the arbitrator could not, in law, have been appointed by the State Commission under section 86 of the Electricity Act, 2003.
For further information, please contact:
Manoj Kumar, Partner, Hammurabi & Solomon
Manoj.kumar@hammurabisolomon.com
