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The Importance of Reasoning in an Arbitral Award: In The Light Of BCCI V. Deccan Chronicle Holding Limited Case

Section 34 of the Arbitration and Conciliation Act, 1996, provides for setting aside the arbitral award by the court. Section 34 has been a long-disputed section of the Act and has undergone various judicial precedents to evolve as a comprehensive provision to provide relief from an unjust or illegal arbitral award, and at the same time, to limit the powers of judicial scrutiny.

The soul of the Arbitration Act lies in minimum interference of the court in an arbitral proceeding, therefore section 34 provides for certain specified grounds, only upon which, an arbitral award can be set aside. This case primarily strikes upon the interpretation and applicability of section 34 and its relationship with reason in an arbitral award. In the case of Board of Control for Cricket in India v. Deccan Chronicle Holding Limited (CARBPL-4466-2020), 2021 the Bombay High Court bench of Justice G S Patel sets aside the arbitral award of the sole arbitrator that directed the Board of Control for Cricket in India (BCCI) to pay over Rs 4800 crore to Deccan Chronicle Holding Ltd regarding a dispute for termination of the IPL team.

Brief Facts Of The Case
The claimant Deccan Chronicle Holdings Ltd (hereinafter referred to as DCHL�), operated a cricketing franchise, by name and style Deccan Chargers in the Indian Premier League (IPL). An agreement was signed between Deccan Chargers and the BCCI for a period of ten years. However, Board of Control for Cricket in India (hereinafter referred to as BCCI�) terminated the franchise in September 2012. The BCCI also alleged that the franchise had breached the BCCI code.

The Matter approached Bombay High Court, wherein the court appointed retired Supreme Court Justice C K Thakker as the sole Arbitrator to decide the matter. The sole arbitrator awarded Rs Rs 4814, 17, 00,000 along with an interest on this amount at 10% per annum from the date of the arbitration proceedings, to Deccan Chronicle Holding Ltd to be paid by the Board of Control for Cricket in India (BCCI). Aggrieved by the award BCCI filed a petition before Bombay High Court under section 34 of the Arbitration and Conciliation Act, 1996, for setting aside the awards.

Points Of Issue
Contentions Of BCCI
Learned counsel appearing on behalf of BCCI, argued that the award suffered from �perversity or �patent illegality. It was also argued that, the arbitral award lacks reason for arriving at the award or gives the award, which is a clear violation of principles of natural justice. The council for BCCI contended that the sole arbitrator attempted to rewrite the provision of the contract, as award travels beyond the contract, and thereby disrespecting the provisions of contract. The sole arbitrator has acted in contravention of the Arbitration Act.

To understand the arguments put forward by BCCI, it is important to define perversity or �patent illegality, as a ground to set aside arbitral award under section 34 of the Act. Patent illegality was first taken up, in case of Oil & Natural Gas Corporation Ltd v Saw Pipes Ltd (2003) 5 SCC 705), wherein the court expanded the scope of �Public Policy as was defined in Renusagar Power Co Ltd v General Electric Co (AIR 1994 SC 860) case, to include patent illegality along with the three grounds, �Fundamental Policy of Indian Law, Interest of India, Justice or Morality, under the preview of Section 34.

However, the Supreme Court also defined the ambit of an award to be challenged under patent illegality, as under:
  • If it contravenes the substantive provisions of law, the Arbitration and Conciliation Act or the terms of a contract; or
  • If a procedural failure exists that affects the parties' rights.
  • The illegality must go to the root of the matter and that if the illegality is of a trivial nature the award will not be in contravention of public policy.
  • Under section 34(2A) of the Arbitration and Conciliation Amendment Act, 2015 was included provision for Patent Illegality as a ground to challenge domestic awards.

Contentions Of DCHL
They argued that the BCCI has acted in a high-handed, capricious and arbitrary manner. The intentions of BCCI were always mala fide, intended to somehow or the other ousts DCHL's franchise. The learned Sole Arbitrator has permissibly exercised discretion where necessary.

Both facts and lawfully supported the views he took. The counsel contended that in the case there is no applicability of section 34 and that the Court's remit is exceedingly narrow. Unless it is shown that there is a facial vulnerability, no court should interfere. Arbitral awards are not to be set aside lightly or for the asking. The council stated that the Award is fair, balanced and fully considers the rival submissions and all the material on record.

Judgment Of The Court
The court stated that, it is important to first define the ambit of section 34 and its applicability in the case at hand. Court cited the case of, Ssangyong Engineering & Construction Co Ltd v. National Highway Authority of India (2019)15 SCC 131) to understand the scope of section 34, wherein it was observed that:
It is not permissible to set aside an award merely because on the merits another view was possible, or even preferable; or, as we saw, a correctly invoked and stated law was erroneously applied. A reasonable and fair interpretation of the contract will invite no interference.

Court further referred to section 28(3) of the Act, with a reference to case of Associate Builders v Delhi Development Authority (2015) 3 SCC 49), which observed that a contravention of Section 28(3) constitutes a patent illegality. An arbitral tribunal must decide in accordance with the terms of the contract, taking into account trade usages applicable to the transaction. Court interpreted section 28(3) in light of Ssangyong Engineering case that contractual interpretation is primarily for an arbitrator to decide, unless the arbitrator construes the contract in a manner that no-fair minded or reasonable person would. Also, the in case of Ssangyong Engineering court went on, if the arbitrator wanders outside the contract and deals with matters not allotted to him, he commits a jurisdictional error. This falls within the new ground added under Section 34(2-A), i.e. patent illegality. Therefore court held that, the applicability of section 34 in present case, is not wrong as there is a patent illegality in the award given by sole arbitrator, because of lack of reason.

Court observed that, the sole arbitrator gave award without can reasoning. The method of valuation of award cannot be inferred from the prima facie award. The council representing DCHL submitted four approaches that could have been taken by the sole arbitrator in deciding the valuation of award.

Court held that, DCHL's arguments and submissions fall. As, there is an attempt to have the court gleans some reasons from the Award, which should not be the case; an Award should speak for itself. Court further stated that:
It is entirely impermissible is for a party to supply reasons that the award in question does not contain.�

Court while finally deciding the case held that, it is settled that a Section 34 court cannot and will not examine the reasonableness of reasons in the Award, but under section 34 courts can will and must examine whether reasons exist. The petition is finally disposed off by the court, by setting aside of the arbitral award.

In the evolving legal era, where justice is administered by not only court but also administrative authorities, quasi-judicial authorities, tribunals, arbitrators, etc, it has become at most important to establish a standard through which the reasonableness and fairness of the decision can be measured. This has led to the emergence of �reasoned decisions' or �speaking order' as one of the core principles of natural justice. The major objective behind this principle is, a party has a right to know not only the result of the proceedings but also the reason in support of the decision.

The Supreme Court in Kranti Associates Pvt. Ltd. and another v. Sh. Masood Ahmed Khan and others (2010) 9 SCC 496) observed that:

Reasons should not be a mere 'rubber stamp reasons' and they must disclose how the mind was applied to the subject-matter for a decision and a nexus between materials which are considered and the conclusions which are reached.�

Reason for any decision is also an intrinsic part of arbitration proceedings. The earlier Arbitration Act of 1940 did not contain any provision requiring the arbitral tribunal to give a reasoned award. Even the Supreme Court, before coming of the 1996 Act, has in number of decisions subscribed to the view that arbitrator is not bound to give reasons for his decision.

In N. Chellappan v. Secretary, Kerala State Electricity Board (AIR 1965 SC 230), Supreme Court observed that, a sole arbitrator was not bound to give reasoned award and it cannot be a ground for challenging the validity of the award. However, the Arbitration and Conciliation Act of 1996, exclusively provides for giving reasons to an award. Section 31 of the Arbitration and Conciliation Act, provides for the pre-requisites of an arbitral award, among which is also present mandate for provision reasons for the award.

Any award which is decided without reason can be set aside by the court on the premise of �patent illegality' as provided under section 34 of the Act.

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