Raipur Development Authority vs. Chokhamal Contractors, 1989 SCR (3) 144

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FACTS OF THE CASE

• The case of “Raipur Development Authority vs. Chokhamal Contractors” involved a dispute subject to arbitration under the provisions of the Arbitration Act, of 1940. 
• The petitioner was the Raipur Development Authority (RDA), while the respondent was Chokhamal Contractors. They entered into an arbitration agreement to resolve their dispute through arbitration. The parties agreed to settle their dispute through arbitration instead of the regular court system. The arbitration process began to settle the dispute. An arbitrator was appointed to hear the case and make a decision. 
• The arbitrator or umpire ultimately rendered an award, deciding the dispute. However, the award made by the arbitrator did not provide any reasons or explanations for the decision. It stated the decision but did not elaborate on the rationale behind it.
• The Raipur Development Authority (petitioner) was dissatisfied with the award and challenged it in court. They argued that the award should be set aside or remitted because it lacked reasons for the decision. 

ISSUE :

1. Under section 16(1)(c) of the Act, the legality of an award can be contested in court based on an evident error on the face of the award, so is it crucial to mandate arbitrators or umpires to give reasons to ensure awards comply with the law?
2. The central legal question was whether an arbitration award under the Arbitration Act, of 1940, could be invalidated or sent back.

ARGUMENTS ON The Petitioner’s Side

1. Evolution of Arbitration Law: The petitioner argues that there has been a significant qualitative change in the law of arbitration post-1976.
   University of New South Wales v. Max Cooper & Sons Pty Ltd. (35 Australian Law Reports p. 219): With this evolution, it has become imperative to demand arbitrators to provide detailed reasons for their awards, unless the parties explicitly agree otherwise. This is in line with modern legal practices and ensures transparency and accountability in the arbitration process. 
2. Section 16(1)(c) and Error of Law: Section 16(1)(c) of the Arbitration Act allows for a challenge in court if there is an “error apparent on the face of an award.”
   Case Law: Champsey Bhara & Company v. Jivraj Balloo Spinning and Weaving Company Ltd., A.I.R. 1923 Privy Council 66- This case underscores the importance of arbitrators not committing errors of law, which can be a valid ground for challenging an award. This implies that the court should have the means to assess the correctness of the award. Requiring reasons is essential for ensuring that the award aligns with legal standards. 
3. Judicial Function of Arbitrators: The petitioner contends that arbitrators and umpires function in a quasi-judicial capacity under the Act. As such, they are bound by the principles of natural justice, which include providing reasons for their decisions. This is crucial to maintain fairness and uphold the integrity of the arbitration process. 
4. Changing Notion of Natural Justice: The petitioner argues that the concept of natural justice has evolved. In contemporary legal understanding, the requirement of giving reasons for a decision is considered a fundamental aspect of fair adjudication. Therefore, expecting arbitrators to provide reasons should be viewed as a modern extension of the principles of natural justice.

ARGUMENTS ON The Respondent’s Side

1. Arbitrator’s Discretion: Statutory Framework: The Arbitration Act, of 1940, does not expressly mandate arbitrators to provide detailed reasons for their awards. This indicates that the legislature intended to grant arbitrators a degree of discretion in their decision-making process. Finality and
2. Efficiency of Arbitration: Preservation of Finality: Requiring arbitrators to provide detailed reasons may impede the efficiency and finality of arbitration proceedings. The parties opt for arbitration to benefit from a swift and conclusive resolution, which may be compromised if arbitrators are burdened with the additional task of providing comprehensive reasoning. 
3. Section 30(c) of the Act: Scope of Setting Aside Award Section 30(c) of the Arbitration Act, 1940, outlines the grounds on which an award can be set aside.
   Case Law: N. Chelapan v. Secretary, Kerala State Electricity Board & Anr., [1975] 2 S.C.R. 811 – This case reaffirms the limited grounds on which an award can be set aside under Section 30(c). The absence of reasons is not among the specified grounds, indicating that the legislature did not consider it a valid basis for challenging an award. 
4. Preservation of Arbitral Autonomy: Principle of Party Autonomy: Arbitration is founded on the principle of party autonomy, where parties have the freedom to determine the rules and procedures of the arbitration. If the parties did not explicitly require reasons in the arbitration agreement, imposing such a requirement retroactively would infringe upon this autonomy.
5. Historical Practice and Acceptance: Established Practice, for a significant period, arbitration awards have been accepted and enforced without requiring arbitrators to provide detailed reasons. Case Law: Payyavula Vengamma v. Payyavule Kasanna & Ors., [1953] S.C.R. 119 –
   This case demonstrates the long-standing acceptance of arbitration awards without a strict requirement for detailed reasons. This established practice indicates that parties historically valued the finality of the award over an exhaustive rationale.

JUDGEMENT

(1) The arbitrator or umpire is not responsible or obligatory to give reasons in support of the decision reached, unless under the arbitration agreement or in the deed of submission he is required to give such reasons, and if the arbitrator or umpire chooses to give reasons in support, then it is open for the Court to set aside the award if some error of law has been committed by the arbitrator or umpire on the face of it.  

(2) The arbitrator or umpire shall have to give reasons also where the court has directed in any order such as the one made under section 20 section 21 or section 34 of the Act that reasons should be given or where the statute which governs an arbitration requires him to do so.

The two well-recognised principles of natural justice are (i) that a Judge or an arbitrator who is entrusted with the duty to decide a dispute should be disinterested and unbiased (nemo judex in cause sua); and (ii)  that the parties to dispute should be given adequate notice and opportunity to be heard by the authority  (audi alteram partem).  Giving reasons in support of a decision was not considered to be a rule of natural justice either under the law of arbitration or under administrative law.

REFERENCES

https://indiankanoon.org

https://ww.scconline.com

https://www.legalauthority.in/

This Article is written by Riyansh Gupta of the University Institute of Legal Studies, an intern at Legal Vidhiya.

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