Holding

The non‑speaking award is not set aside as there is no error apparent on the face of the record and no excess of jurisdiction by the arbitrator.

Summary

The State of Andhra Pradesh entered into a contract with contractor R.V. Rayanim for constructing an earth dam. A dispute led to arbitration, where the arbitrator issued a non‑speaking award of Rs.19.39 lakhs in favour of the contractor, mentioning consideration of escalation damages but not quantifying any amount for them. The State sought to set aside the award, arguing that the arbitrator exceeded his jurisdiction and that the award was bad because it was non‑speaking. The High Court dismissed the petition, and the Supreme Court examined whether a non‑speaking award can be challenged on grounds of error apparent on the face of the record or excess jurisdiction. The Court held that only a speaking award permits the court to scrutinise the arbitrator’s reasoning, and that no error apparent on the face of the record or jurisdictional excess was evident. Consequently, the special leave petition was dismissed and the award stood.

Issues considered

Whether a non‑speaking arbitral award can be set aside on the ground of error apparent on the face of the record.
Whether the arbitrator exceeded his jurisdiction by considering escalation damages not within the contractual scope.
Whether the court may examine the reasoning of a non‑speaking award.

Legislation cited

Arbitration Act, 1940s. 14, s. 17, s. 30, s. 33

Subjects

arbitrationnon‑speaking awarderror apparent on facejurisdictionescalation damagessetting aside awardSupreme Court

Judgment

STATE OF ANDHRA PRADESH & ANR. ETC.
A
v.
R.V. RAYANIM ETC. ETC.

JANUARY 15, 1990.

B [SABYASACHI MUKHARJI, CJ., M.M. PUNCHHI AND
K. JAYACHANDRA REDDY, JJ.]

Arbitration Act, 1940: Sections 14, 17, 30 and 33-Award-
Challenge of-Error apparent on face of record-Arbitrator exceeded
jurisdiction-Only in speaking award Court can look into reasons.
c The respondent-contractor had entered into an agreement with ..,.__
the petitioner for formation of an earth dam. Disputes and difference
arose between the parties. A reforence was made to the arbitrator
wherein the respondent made elev1m claims out of which one claim was
later withdrawn. The arbitrator gave a non-speaking award in favour A. '
D of the respondent amounting to a consolidated sum of Rs.19 .39 lakhs.
r
The respondent filed a prom!ding before the Court to make the L
award rule of the Court. The petitioner preferred an application for
setting aside the award which was dismissed. The High Court dismissed
the appeal and the revision of the petitioner. -{
E
Before this Court it was contended inter alia that the award
purported to grant damages on the basis of escalation of cost and prices,
and such escalation was not a metier within the domain of the bargain .
•
between the parties. It was also· contended that the fact that the
arbitrator had taken into considerE1tlon the question of escalation would
F make the award bad because it was not discernible whether he had
·~
awarded any amount on account of excalation.
I
Dismissing the special leave petition, this Court,
HELD: (1) In matters of ch:allenglng an award, there are often
two distinct and different grounds. One Is an error apparent on the face
G of the record and the other is that the arbitrator has exceeded his
jurisdiction. In the latter case the Court can look into the arbitration
agreement but under the former It caunot, unless the agreement was
Incorporated or recited in the award. [SBA-Bl -I
M/s Sudarshan Trading Co. v. Government of Kera/a & Anr.,
H [1989] 2 sec 38, referred to.
54
STATE OF A.P. v. R.V. RAYANIM [MUKHARJI, CJ.[ 55

(2) Only in a speaking awar.d the court can look into the reason-
ing of the award. It is not open to the court to probe the mental process A
of the arbitrator and speculate, where no reasons are given by the
arbitrator, as to what impelled the arbitrator to arrive at his con-
clusion. [SSD I

(3) It is not discernible on the face of the record that the B
arbitrator has exceeded his jurisdiction in awarding damages on
account of escalation. All that the award states is that he has considered
the claim on the basis of escalation. Such a consideration does not make
the award, on the {ace of it, bad on the ground of error apparent on the
face of the record. [SSG-H; 59A-B]

(4) The Arbitrator does not state that he has awarded any amount c
on that account. There is neither any error apparent on the face of the
record, nor any material to satis!Y that the arbitrator has exceeded his
jurisdiction in awarding the amount as he did. [59B-C]

CIVIL APPELLATE JURISDICTION: Special Leave Petition D
(Civil) No. 8094 of 1988.

From the Judgment and Order dated 16.3.88 of the Andltra
Pradesh High Court in (A.A.O.) No. 1152/86 & C.R.P. No. 2728 of
1986.
"• E
C. Sitaramiah and G. Prabhakar for the Petitioners.

R.F. Nariman, K: Prabhakar and R.N. Kishwani for the
Respondent.

The Judgment of the Court was delivered by .F

SABYAS~CHI MUKHARJI, CJ. The respondent R.V.
Rayanim was, at all material times, a Class I contractor who had
entered into an agreement with the Government of Andhra Pradesh
for formation of earth dam in gorge portion from chainage 3360 to
3380-M of Raiwada Reservoir Project near Devarapalli village, G
Chodavaram Taluk, Distt. Visakhapatnam, Andhra Pradesh. Disputes
and differences arose between the parties in respect of the aforesaid
agreement. A reference was made to the arbitrator as per the
arbitrator clause in the agreement between the parties. The respon-
dent made eleven claims claiming various amounts, particulars
whereof have been set out by the arbitrator as follows. H
56 SUPREME COURT REPORTS [1990] 1 S.C.R.

A "I. Payment for forming cross (Rs. in lakhs) 15.89
bund and refund of the (subsequently reduced
amount recovered. to Rs.14.89 lakhs)
IL Refund of Seigniorage 2.071 (withdrawn)
Charges
III. Escalation and damages 14.00
B IV. Extra load for sand 1.075 (subsequently
reduced to Rs.0.575
lakhs). -'(-
v. Payment for excavation 1.030
under water for probing
diaphram wall
VI. Compensation for loss 1.500
c suffered due to partial
.)oo

prevention by the /
department.
VII. Compensation for loss 2.015 A..
suffered due to non-payment
D for the work done.
V!II.Refund of excess hire 0.730
charges recovernd.
IX. Overheads 0.960
x. Costs 0.100 -{
E XI. (a) Interest on II and VIII at 24% from the date ofrecovery.
lb) On Rs.8.30 lakhs at 24% p.a. from 30.11.81 to 12.5. 1982.
(c) Interest at 24% on the award amount except II and VIII
from the date of petition." '
~-
F The arbitrator gave a non-speaking award dated 27th July, 1985
in favour of the respondent, amounting to Rs.19.39 lakhs, wherein he
/
stated as follows:

"Claim II has been withdrawn by the petitioner himself on
the ground it was subsequently refunded by the respon-
G dents. On the balance claims (I and III to X) according to
my assessment, I award a consolidated amount of Rs.19.39
lakhs to the extent of the claims judged admissible. The
respondents shall pay Rs.Ninteen lakhs and thirty nine
thousand to the petitioner."

. H It is, therefore, apparent the claim No. II as mentioned above,
STATE OF A.P. v. R.V. RAYANIM [MUKHARJI, CJ.I 57

had been withdrawn. On the balance claims I and III the arbitrator had
A
awarded a consolidated amount of Rs.19.39 lakhs 'to the extent of the
claims judged admissible'. The respondent filed a proceeding before
the Court to make the award rule of the Court. The petitioner prefer-
red an application for setting aside the award. By a common judgment
dated 21st April, 1985, the Second Additional Judge, City Civil Court,
Hyderabad, dismissed the petition of the petitioner for setting aside B
the award and allowed the judgment in terms of the award. The
petitioner preferred an appeal and a civil review petition before the
High Court of Hyderabad. By a judgment dated 16th March, 1988 the
division bench of the High Court dismissed the appeal and the revision
of the petitioner. It held that the non-speaking award ofthe arbitrator
was not liable to be set aside by the Court.
c
The petitioner has preferred this special leave petition challeng-
_) ing the said decision of the High Court. The main contention which
was sought to be urged on this case was that the award was a non-
speaking award and, as such, was bad. On this ground, on or about 9th
December, 1988 this Court directed that the matter should be taken up D
along with civil appeal No. 5645 and 5645A of 1986 pending before a
larger bench. At that time, the question was pending consideration by
the Constitution Bench of this Court. This Court further directed on
9th December, 1988 that the entire amount of award, if not deposited
in the trial court, should be deposited in the trial court within two
months from that date, and upon the deposit being made the respon- E
dent will be at liberty to withdraw 50% of the amount which has not
been withdrawn on furnishing security to the satisfaction of the trial
court. It was further recorded that 50% had already been withdrawn.
(
--/'c: As mentioned hereinbefore, the main contention sought to be
urged was that the award being a non-speaking award, was bad in law. F
\ In view of the decision of this Court inRaipur Development Authority
etc. v. Mis Chokhamal Contractors etc., Jmt. Today 2 SC 285, this
contention is no longer sustainable. It was then contended that the
award has purported to grant damages on the basis of escalation of cost
and prices; and such escalation was not a matter within the doman of
the bargain between the parties and having taken that factor into
• consideration the award was bad. We have set out the relevant portion
G

of the award. From reading the award, as set out hereinbefore, it is
clear that the arbitrator has considered the claim made on the basis of
'escalation and damages' but he has awarded a total sum of Rs.19.39
lakhs insofar as he finds admissible in respect of the claims which the
arbitrator has adjudged. It speaks no further. In such a situation it is H
58 SUPREME COURT REPORTS [1990] 1 S.C.R.

A not possible to contend that there was any exercise of jurisdiction by
the arbitrator beyond his competence. It is well-settled that in matter
of challenging the award, there are often two distinct and different >-
grounds. One is an error apparent on the face of the record and the
other is that the arbitrator has exceeded his jurisdiction. In the latter's
case the Court can look into the arbitration agreement but under the
B former it cannot, unless the agreement was incorporated or recited in
the award. An award may be remitted or set aside on the ground that
the arbitrator, in making it, had exceeded his jurisdiction and evidence
of matters not appearing on the face of it; will be admitted in order to
establish whether the jurisdiction had been exceeded or not, because
-'11 '
the nature of the dispute is something which has to be determined
outside the award-whatever might be said about it in the award or by
c the arbitrator. See the observations of this Court in Mis Sudarshan
Trading Co. v. Government of Kera/a & Anr., [1989] 2 SCC 38.

Only in a speaking award the court can look into the reasoning of A.
the award. It is not open to the court to probe the mental process of
D the arbitrator and speculate, where no ·reasons are given by the
arbitrator; as to what impelled the arbitrator to arrive at his con-
clusion.

In the instant case the arbitrator has not awarded any amount on
account of escalation of costs and expenses. At last the arbitrator has
-{
E not expressly awarded any amount on the ground of such escalation
and if so, what amount, is not apparent on the face of the record. In
these circumstances, in our opinion, on the basis of well-settled princi-
pies of law such an award, especially in view of the fact that excluding ~

item No. III the remaining items would also be well over Rs.19.33
lakhs, it is not discernible on the face of the record that arbitrator has ~
F exceeded his jurisdiction in awarding damages on account of escala-
tion of charges and expenses which were beyond the arbitration ambit. /
The fact that the arbitrator has considered the claim made by the
respondent on account of escalation, does not make per se the award
to be bad.

G Mr. C. Sitaramiah, learned counsel appearing for the appellant
contended that the fact that the arbitrator has taken into consideration
the question of escalation would make the award bad because it is not
~i
discernible whether he has awarded any amount on account of escala-
tion. We are of the opinion that this argument is not open. In case of
an error apparent on the face of the record, it has to be established
H that an item or an amount which the arbitrator had no jurisdiction to
STATE OF A.P. v. R.V. RAYANIM [MUKHARJI, CJ.) 59

take into consideration, has been awarded or granted. That is not A
apparent on the face of the award in this case. All that the award states
is that he has considered the claim on the basis of escalation. Such a
consideration does not make the award on the face of it, bad on the
ground of error apparent on the face of the record. Indeed, the
arbitrator, when a claim is made, has to take that into consideration
either for acceptance o7"rejection of the claim made. The award states B
that he has taken the claim made, into consideration. The award does
not state that he has awarded any amount on that account. There is
neither any error apparent on the face of the record, nor any material
to satisfy that the arbitrator has exceeded his jurisdiction in awarding
the amount as he did.
c
In that view of the matter the special leave petition has no merit
made must, therefore, fail, and is accordingly dismissed. The peti-
tioners were allowed to withdraw the awarded sum on furnishing
security but in view of the decision now rendered, they will be entitled
to take back the security. We order accordingly. The application is
dismissed with aforesaid directions. D

R.S.S. Petition dismissed.