The Supreme Court lays down characteristics of ‘reasoned award’ and Court’s obligation to remand in case of non-reasoned award

Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd., 2019 SCC Online SC 1656 (Decided on 18 December 2019)

Relevant Facts:

The disputes arose under the contract between Crompton Greaves Limited (“CGL”) and Dyna Technologies Pvt. Ltd (“Dyna”) when CGL terminated the contract. Dyna claimed compensation for such premature termination of the contract. The disputes were referred to arbitration by a three members tribunal. Claim 2, i.e. compensation for the losses suffered due to unproductivity of the men and machineries is relevant in this case. The said claim was awarded on 30 April 1998 by the Tribunal for a tune of Rs. 27,78,125/- with interest in favour of Dyna.

Aggrieved by the award passed by the Tribunal, CGL challenged u/s. 34 of the Arbitration and Conciliation Act, 1996 (“Act”) before the Madras High Court. The High Court upheld the decision of the Tribunal and held the award passed by the arbitrator is not illegal or invalid and hence cannot be set aside. CGL further appealed before the Division Bench under Section 37 of the Act which concluded that the award does not contain sufficient reason. Therefore, Section 37 Court partly allowed the appeal and set aside the award of the Tribunal relating to claim 2. It also observed that invoking Section 34(4) for calling upon the Tribunal to give reasons, was not necessary as the compensation could not have been claimed as work order debars claim 2. This decision in Section 37 Appeal was challenged before the Supreme Court.


Whether the High Court could have decided the claim on merits when the ground of challenge the award is lack of reasoning under Section 31(3)?


□ What is a ‘reasoned award’?

The primary contention of Dyna was that the award was perverse for want of reasons which is a necessity under Section 31. From this perspective, the Court examined the provision of the Act.

With the enactment of Section 31(3) in the 1996 Act, it is necessary that the award contains reasons unless parties otherwise agree. This is in line with UNCITRAL Model Law. The said provision mandates that the award should have reasoning which is intelligible and adequate which can be implied by the Court from reading of the award and documents, if the need be.

The Court laid down three characteristics of a reasoned award: Proper, Intelligible and Adequate, with following explanation:

The Court observed that if the reasoning is improper then it reveals flaw in the decision making. If the challenge is on the basis of impropriety or perversity in the reasoning, it can be challenged under Section 34. If the ground of challenge is intelligible award, the same is equivalent to providing no reasons at all. Adequacy of the reasons, the court has to adjudicate the validity of the award based on degree of particularity of reasoning required having regard to the nature of issue. Such particularity will vary depending on the complexity of issue.

□ What role Section 34(4) plays if Court finds the award to be ‘unreasoned’?

In absence of reasoning, the mechanism is Section 34(4) to cure the defect. The provision can be utilised where: (i) award does not provide any reasoning; or (ii) award has some gap in reasoning; or, otherwise (iii) the gap can be cured so as to avoid a challenge based on curable defects.

□ How the High Court went wrong?

The legislative intent of Section 34(4) was to make award enforceable after giving an opportunity to the Tribunal to undo the curable defects. This provision could not have been brushed aside by the High Court in this case which proceeded to decide the issue on merit. When the High Court concluded that there was no reasoned award, then the award ceased to exist and the Court was functus officio under Section 34 to hear a challenge and to come to a conclusion on merits that contract debars the claim. High Court ought to have remanded under Section 34(4).

□ A logical conclusion by the Supreme Court: justice and equity

The Court examined the award and observed that it cannot sustain the award as being reasoned. The award is intelligible and cannot be sustained. However, since the litigation protracted for over 25 years, the Court directed CGL to pay Rs. 30 lacs to Dyna in full and final settlement against claim 2 for providing quietus to the litigation.

Comments: This is a significant judgement as the criteria of ‘reasons’ in an arbitral award had not been laid down so far. The decision attributes guiding factors to decide a challenge of award under Section 34, which has no reasons or impropriety or perversity in the reasoning. Simultaneously, the judgement is important because the application of Section 34(4) to remand by the Court in case of non-reasoned award has been clearly propounded with adequate observation.