Holding

An arbitrator under Section 7B must give reasons for his award; failure to do so renders the award set aside.

Summary

M.L. Jaggi challenged three telephone bills issued by Mahanagar Telephones Nigam Ltd. The dispute was referred to arbitration under Section 7B of the Indian Telegraph Act, 1985, which makes the arbitrator's award conclusive and not open to court challenge. The arbitrator awarded the bills with a rebate on one but gave no reasons for his decision. The appellant argued that the arbitrator was required to provide reasons, especially since the award could not be reviewed in court. The Supreme Court held that, given the finality of the award and the public interest involved, the arbitrator must record reasons; otherwise the award is vulnerable to being set aside. Consequently, the Court set aside the award and remitted the matter to the arbitrator to render a reasoned award, declaring the decision prospective and allowing the appeal.

Issues considered

Whether an arbitrator appointed under Section 7B of the Indian Telegraph Act, 1985 is obligated to give reasons for his award.

Legislation cited

Arbitration Act, 1940s. 20, s. 21, s. 34

Subjects

arbitrationIndian Telegraph ActSection 7Breasoned awardpublic interestjudicial reviewconclusive award

Judgment

... SHRI M.L. JAGGI A
v.
MAHANAGAR TELEPHONES NIGAM LTD. AND ORS.

JANUARY 2. 1996

[K. RAMASWAMY AND G.B. PATTANAIK, JJ.] B

Indian Telegraph Act. /9R5:

·'· S. 7B--Aivard oj'Arbitrator Conclusive between parties to the dispute-
Not to be questioned in uny court--Need}Or speaking onler~Arbitrator to
give reasons in support of his collc[usion--Hoivever any dec:ision of Arbitra-
c
tor prior to this Ruling not to be reopened--Ruling prnspective in its opera-
tion.

Raipur Development Authority & Ors. v. Mis. Choklwmal Contractors
& Ors., [1989] 2 SCC 721 and S.N. Mukherjee v. Union of India, [1990] SCR D
_. 44, relied on.

CIVIi., APPELLATE JURISDICTION : Civil Appeal No. 1540 of 1996.

From the Judgment and Order dated 13.3.91 of the Delhi High Court in
C.W.P. No. 800of1991. E
S.K. Mehta, Dhruv Mehta and Faizan Anam for the appellant.

V.R. Reddy, Additional Solicitor General, A.K. Sikri, and Ms. Madhu
Sikri for the Respondents.

The following Order of the Court was delivered : F

Leave granted.

The respondents had issued bills for Rs. 50.219 from 16.11.1982 to Janu-
ary 15, 1983; for Rs. 20873 for January 16, 1983 to March 15, 1983; and for
~
Rs. 9,084 for period from September 16, 1982 to November 15, 1982. When G
the appellant filed the suit, an objection was raised of the availability of the
remedy under Section 7B of the Indian Telegraph Act, 1985 (for short, "the
Act"). The civil Court referred the matter to the arbitrator. The arbitrator after
giving due consideration to the dispute made the award, Exh. P-3 dated De-
cember 19; 1989 giving some rebate on one bill only and confirmed t.he rest of · H
25
26 SUPREME COURT REPORTS [1996] l S.C.R.
A the demand. When the appellant filed the writ petition, the High Court of Delhi
in the impugned order affirmed the award of the arbitrator. Thus this appeal by
special leave against the order dated March 13, 1991 made in W.P. No. 800/91.

The only question raised in this appeal is whether the arbitrator is en-
joined to assign reasons in support of his award. Section 7B of the Act reads
B thus:

"7B. Arbitration·of disputes. (I) Except as otherwise expressly pro-
vided ·in this Act, if any dispute concerning any telegraph line, appli-
ance or apparatus arises between the telegraph authority and the per-
son for whose benefit the line, appliance or apparatus is, or has been,
c provided, the dispute shall be determined by arbitration and shall, for
the purpose of such determination, be referted to an arbitrator ap-
pointed by the Central Government either specially for the determi-
nation of that dispute or generally for the determination of disputes ·
under this Section.
D (2) The award of the arbitrator appointed under sub-section (I) shall
be conclusive between the parties to the dispute and shall not be ques-
tioned in any court".

It is a statutory remedy provided under the Act and, therefore, in a dis-
E pute as regards the amount claimed in the demand raised, the only remedy
provided is by way of arbitration under Section 7B of the Act. By operation of
sub-section (2) thereof, the award of the arbitrator made under sub-section (I)
shall be conclusive between the parties to the dispute and shall not be ques-
tioned in any court. The statutory remedy under the arbitration Act, 1940,
thus, has been taken away.
F
The question, therefore, is : whether it is incumbent upon the arbitrator
to give reasons in support of the award. In Raipur Development Authority &
Ors. v. Mis. Chokhamal Contractors & Ors., [1989] 2 SCC 721, in paragraph
38 at page 753 this Court had held that "having given our careful and anxious
G consideration to the contentions urged by the parties, we feel that law should
be allowed to remain as it is until the competent legislature amends the law. In
the result, we hold that an award passed under the Arbitration Act is not liable
to be remitted or set aside merely on the ground that no reasons have been
given in its support except where the arbitration agreement or the deed of
submission or an order made by the court such as the one under Section 20 or
H Section 21 or Section 34 of the Act or the statute governing the arbitration
M.L lAGGI v. M.T.N.L
requires that the arbitrator or the umpire should give reasons for the award. .i:\
Tli~ award nc\!d not contain the reasons''. It is seen that the dcci~io11 in that
case is based on warJ of the.arbitrator "nder the Arbitration Act which itself :s
founded on an arbit·ation agreement. So this Cou1t had held that \Vhcn the
ag1ccn.c11t in non-statutory aw,ard bct\vccn the parties v.oluntarily entered into
did not contain a clause to n1ak.c a speaking J\Vard, the need to 1nakc an a\varJ
B
V...'ith reasons \Vas not neccs,ary. The lou1t explained the position in para 35 at
pages 7'> l-52 thus:

"But at the s~me time it has to be borne in mind that what applies
f.
generally to scttlc1ncnt of disputes by authorities g6vcrncd by public
law need noi be extended to all cases arising under private law such ("""
as those· arising under the law of arbitration which is intcn<lc<l for
'settlement of pri vatc disputes."

In fact the observations have been made by th;s C'ourt in regard to the
arbitration of Oisputes concerning the claitn against ~he Gov.::rnmcnt and !his
Cotirt has emphasised the need for recording rc;.1sons in the a'vards touching D
the public exchequer in para 37 at pages 752-53 as under:

"But arbitral awards in dispute to which the State and it~
instrumentalities arc parties affect public interest and the matter of
the n1anncr in v.,.·hich government and its instru1nentalitics allow their
interest to be affected by such arbitral adjudications involve larger E
questions of policy and public interest. Government and its
instru1nentalitics cannot simply allow large financial interests of the
·State to be prejudicially affected by non-review, non-speakint; arbitrni
awards. Indeed, this branch of the system of dispute resolution has. of
late, acquired a certain degree of notoriety by the manner in which in F
n1any cases the financial interests of government have come to suffer
by awards which have raised ey~brows by doubts a, to their rectitude
and propriety . It WiII not be justifiable for go•1crnn1cnts or their
instrun1cntalitics to enter into arbicration agreements which do not
expressly stipulate the rendering of reasoned and speaking awards.
Governments and their instru1nentalitics should, as a matter of policy
G
and public interest - if not as a con1pulsion of law - ensure that wher-
ever they enter into agrec1nents for resolution of disputes by resort to
private arbitrations, the re4uirc1ncnt of speaking awards is expressly
stipulated and ensured. It is for govc111mcnts and thei~ instrumentalities
'' to ensure in future this require1nent as a matter of poli1.:y i11 the larger H
28 SUPREME COURT REPORTS [ 1996] l S.C.R.
A public interest. Any lapse in that behalf might lend itself to and per-
haps justify, the legitimate criticism that government failed to pro-
vide against possible prejudice to public interest, in regard to the ar-
bitration of disputes concerning the claim against the Government
and this Court has emphasised the need for recording reason in the
award touching the public exchequer. In other words, when the pub-
B
lic law element is involved, in a public law remedy, public interest
demands that reasons should be given in the award."

It is well-settled that in pubic law remedy when the order visits with
civil consequences, natural justice requires recording the reasons as they are
C bridge cetween the order and its maker to indicate how his mind was applied
to the facts presented and the decision reached. Another Constitution Bench
of this Court in S.N. Mukherjee v. Union of India, (1990] Supp. 1 SCR 44
considered the entire controversy and held thus :

"This appeal, by special leave, is directed against the order dated Au-
D gust 12, 1981, passed by the High Court of Delhi dismissing the writ
petition filed by the appellant. In the writ petition the appellant had
challenged the validity of the finding and the sentence recorded by
the General Court Martial on November 29, 1978, the order dated
May 11, 1979, passed by the Chiefof Army Staff confirming t~efind
ings and the sentence recorded by the General Court Martial and the
E
order dated May 6, 1980, passed by the Central Government disfiliss-
ing the petition filed by the appellant under section 164(2) of the •
Army Act, 1950 (hereinafter referred to as "the Act').

The appellant held a permanent commission, as an officer, in the
F regular army and was holding the substantive rank of Captain. He
was officiating as a Major. On December 27, 1974, the appellant took
over as the Officer Commanding of 38 Coy. ASC (Sup) Type 'A'
attached to the Military Hospital, Jhansi. In August 1975, the appel-
lant had gone to attend a training course and he returned in the first
week of November 1975. In his absence Captain G.C. Chhabra was
G the officer commanding the unit of the appellant. During this period
Captain Chhabra submitted a Contingent Bill dated September 25,
1975 for Rs. 16,280 for winter liveries of the depot civilian Chowkidars
and sweepers. The said Contingent Bill was returned by the Control-
lerof defence Accounts (CDA) Meerut with certain objections. There-
H upon the appellant submitted a fresh Contingent Bill dated December

I
M.L. JAGO! v. M.T.N.L. 29

~
25, 1975 for a sum of Rs. 7029 .57. In view of the difference in the A
amounts mentioned in the two Contingent Bills. the CDA reported
the matter to the headquarters for investigation and a Court of En-
quiry blamed the appellant for certain lapses.

TI1e said report of the Court of Enquiry was considered by the
General Officer Commanding, M.P., Bihar and Orissa Area, who, on B
Januaiy 7, 1977 recommended that 'severe displeasure' (to be re-
corded) of the General Officer Commanding-in-Chief of the Central
Command be awarded to the appellant. The General Officer Com-
manding-in-Chief, Central Command did not agree with the said opin-
ion and by order dated August 26, 1977, directed that disciplinary c
action taken against the appellant for the lapses.

In view of the aforesaid order passed by the General Officer Com-
manding-in-Chief, Central Command, a charge sheet dated July 20,
1978, containing three charges was served on the appellant and it was
directed that he be tried by General Court Martial. The first charge D
was in respect of the offence under section 52(f) of the Act, i.e. doing
a thing intent to defraud, the second charge was alternative to the first
charge and was in respect of offence under section 63 of the Act, i.e.
committing an act prejudicial to good order and military discipline
and the third charge was also in respect of offence under section 63 of
E
the Act".

It is, thus, settle law that reasons are required to be recorded when it
..., affects the public interest. It is seen that under Section 7B, the award is conclu-
sive when the citizen complains that he was not correctly put to bill of the calls
he had made and disputed the demand for payment. The statutory remedy F
opened to him is one provided under Section 7B of the Act. By necessary
implication, when the arbitrator decides the dispute under Section 7B, he is
enjoined to give reasons in support of his decision since it is final and cannot
be questioned in a court of law. The only obvious remedy available to the
aggrieved person against the award is judicial review under Article 226 of the
Constitution. If the reasons are not given, it would be difficult for the High
G
~

Court to adjudge as to under what circumstances the arbitrator came to his
conclusion that the amount demanded by the Department is correct or the
amount disputed by the citizen is unjustified. The reasons would indicate as to
how the mind of the arbitrator was applied to the dispute and how he arrived at
the decision. The High Court, though does not act in exercising judicial re- H
30 SUPREME COURT REPORTS [1996] I S.C.R.
A view as a court of appeal but within narrow limits of judicial review it would
consider the correctness and legality of the award. No doubt, as rightly pointed
out by Mr. V.R. Reddy, Additional Solicitor General that the questions arc
technical 1nattcrs. But nonetheless, the reasons in suppo11 of his conclusion
should be given. In thi~ case, arbitrator has not given reasons. The awaru of
the arbitrator is set aside and the rnattcr is remitted to d1c arbitrator to n1akc an
B award and give reasons in suppo1t thereof.

Since we have decided lhis question for the first titnc, it 1nust be treated
that any decision tnadc prior to this day by any arbitrator under Section 7B of
the Act is not liable to be reopc:ncd. ln other \vords, the order is prospective in
C its operation.

The appeal is accordingly allo\vcd but, in the circumstances, \Yith no
order as to costs.

G.N. Appeal allowed.