O.M.P. (COMM) 8/2024 Page 1 of 39

$~

* IN THE HIGH COURT OF DELHI AT NEW DELHI

Reserved on: 16

th

February, 2026

Pronounced on: 10

th

April, 2026

+ O.M.P. (COMM) 8/2024

PANCHANAN INTERNATIONAL PRIVATE

LIMITED .....Petitioner

Through: Mr. Manish K. Jha, Sr. Adv. with Mr.

Rajat Joneja and Mr. Himanshu

Mishra, Advs.

M: 7766912655

Email:

advhimanshuoffice@gmail.com

versus

THE ORIENTAL INSURANCE COMPANY

LIMITED .....Respondent

Through: Mr. Abhishek Gola, Adv.

M: 9958789900

CORAM:

HON'BLE MS. JUSTICE MINI PUSHKARNA

JUDGMENT

MINI PUSHKARNA, J.

1. The present petition has been filed under Section 34 of the Arbitration

and Conciliation Act, 1996 (“Arbitration Act”), being aggrieved by the

Arbitral Award dated 28

th

August, 2023, passed by the learned Sole

Arbitrator in arbitration proceedings titled as, “Panchanan International

Private Limited Versus The Oriental Insurance Company Limited”.

2. By way of the impugned Arbitral Award, the learned Arbitrator has

partly allowed the claim of petitioner and directed the respondent to pay Rs.

O.M.P. (COMM) 8/2024 Page 2 of 39

20,65,27,032/- along with interest @10% per annum from the date of filing

the statement of claim before the Arbitrator, and costs.

3. In the present proceedings before this Court, the petitioner-claimant

has challenged the impugned Arbitral Award on the following four findings

of the Arbitrator:

(a) Pre-reference Interest: The Arbitrator has not provided the interest on

the awarded amount for the pre-reference period, i.e., the period

before filing of the claims/statement of claim before the Arbitrator.

(b) Double Deduction: The Arbitrator has approved carrying out

deductions twice under the Insurance Policy, first, in the form of

„excess‟, and second, under „error/ omission/ dead stock, etc.‟,

whereby, petitioner‟s claim has been reduced by Rs. 1,37,71,763/-.

(c) Undervaluation of Stock: Stock of the petitioner has been erroneously

undervalued by the Arbitrator by computing the same at 9% of its

Maximum Retail Price (“MRP”), thus, undervaluing certain old stock

worth Rs. 1,76,92,348/-.

(d) Taxation Component: The Arbitrator has failed to adjudicate on the

petitioner‟s Claim No. 5 for taxes and duties payable on the awarded

amount.

4. Relevant Facts in Brief:

4.1 The petitioner company was incorporated in the year 1998 and is

engaged in the business of wholesale trade and distribution of

readymade garments and undergarments in Delhi and Uttar Pradesh.

The respondent – The Oriental Insurance Company Limited (“OICL”)

– is an insurance company providing various types of general

insurance covers.

O.M.P. (COMM) 8/2024 Page 3 of 39

4.2 Petitioner purchased a Standard Fire and Special Perils Floater

Insurance Policy (“Insurance Policy”) from the respondent on 10

th

May, 2016 for a sum insured of Rs. 30 Crores, upon payment of Rs.

2,50,326/- as premium. The Insurance Policy was valid for a period of

one year, till 09

th

May, 2017.

4.3 On 25

th

April, 2017, due to some electrical issue, a fire broke out at

petitioner‟s godown, at premises bearing No. 53/73, Nangli Poona,

opposite DIRD College, GT Kamal Road, Delhi-110036, which was

covered under the Insurance Policy. The said fire was brought under

control on the morning of 26

th

April, 2017, whereafter, the petitioner

sent an intimation to the respondent, as per the terms of the Insurance

Policy.

4.4 The respondent appointed one M/s Aditi Insurance Surveyor and Loss

Assessors Pvt. Ltd. (“Surveyor”) for carrying out the survey to

ascertain the nature of fire and quantum of damage/loss. The

petitioner submitted its claim of Rs. 37,27,22,010/-, along with

documentary evidence, with the respondent and Surveyor on 10

th

July,

2017.

4.5 After months of back and forth, involving exchange of information,

documents and various meetings, the Surveyor assessed the loss at Rs.

20,65,27,032/-, vide its Report dated 09

th

July, 2018.

4.6 Thereafter, post repetitive reminders and requests, on 12

th

March,

2020, almost 20 months after assessment of the Surveyor, an email

was received from the respondent, unilaterally reducing and

approving a sum of Rs. 65,86,125/- towards full and final settlement

of petitioner‟s claim under the Insurance Policy.

O.M.P. (COMM) 8/2024 Page 4 of 39

4.7 Petitioner protested against the computation done by OICL and

requested it to provide reasoning for undervaluing the claim. Despite

multiple reminders, the respondent maintained its stance on the

settlement amount. Aggrieved by the computation and lack of

reasoning provided by the respondent, the petitioner invoked

arbitration under Clause 13 of the Insurance Policy by way of a notice

dated 30

th

December, 2020.

4.8 The respondent did not reply to the aforesaid arbitration invocation

notice. Petitioner approached this Court under Section 11(6) of the

Arbitration Act for appointment of an Arbitrator, wherein, vide order

dated 28

th

July, 2021 in ARB.P. 248/2021, a Sole Arbitrator was

appointed.

4.9 Before the learned Sole Arbitrator, the petitioner filed a claim of Rs.

23,09,16,188/- on 16

th

October, 2021, and raised the following six

(06) Claims:

“Claim (1) Claim for an amount of INR 23,09,16,188/ - (Indian Rupees

Twenty Three Crores Nine Lacs Sixteen Thousand One Hundred and

Eighty Eight Only) towards full and final settlement of the Claimants

Insurance Claim for loss of Stock due to Fire.

Claim (2) Interest at the rate of 18% per annum from the date April 25,

2017 to October 15, 2021 which amounts to INR 18,60,74,148/- (Indian

Rupees Eighteen Crores Sixty Lacs Seventy Four Thousand One Hundred

and Forty Eight Only).

Claim (3) Pendente lite and future interest at the rate of 18% per annum.

Claim (4) Claim for Costs of Arbitration; &

Claim (5) Claim for taxes on the awarded amounts.

Claim (6) Claim for grant of such other and further relief, orders,

awards, and directions as the Hon‟ble Arbitral Tribunal considers

appropriate.”

4.10 Thereafter, post filing of statement of defence by the respondent, the

O.M.P. (COMM) 8/2024 Page 5 of 39

learned Arbitrator framed the following six (06) issues:

“Issue No. 1

Whether the damaged goods were Held-in-Trust by the claimant? If so,

whether the respondent was justified in repudiating the claim in view of

General Exception Clause No. 5 of Standard Fire and Special Perils

Policy as notified by Tariff Advisory Committee in the year 2003 vide

circular no. FT/02/2003 dated 17,03.2003?

Issue No. 2

Whether stocks of footwear and other accessories worth INR

8,49,11,753/- were covered under the term 'stocks of garments' as

mentioned in the cover note of the policy issued to the claimants?

Issue No. 3

Whether the respondent was correct in deducting 5% of the claimant's

claim on account of dead products / error?

Issue No. 4

Whether the respondent was correct in valuating certain old stocks of the

claimant at only 9% of the MRP?

Issue No. 5

Whether the claim of the claimant is justified, if so, to what extent?

Issue No.6

Whether the claimant is entitled to interest if so since when and at what

rate?

Relief?”

4.11 By way of the impugned Arbitral Award, the Arbitrator decided Issue

No. 1 in favour of the petitioner and awarded a sum of Rs.

20,65,27,032/- along with 10% interest per annum from filing of the

statement of claim before the Arbitrator.

4.12 By way of the present petition, the petitioner has partly challenged the

Arbitral Award by impugning the finding of the Arbitrator in respect

of Issue Nos. 3 and 4. Further, the petitioner has also partly challenged

the findings of the Arbitrator qua Issues Nos. 5 and 6.

5. The following rival submissions have been made before this Court in

favour of and against setting aside of the impugned Arbitral Award:

O.M.P. (COMM) 8/2024 Page 6 of 39

6. Grounds of challenge/objection by Petitioner:

a. Pre-reference Interest

6.1 The Insurance Regulatory and Development Authority of India

(Protection of Policyholders‟ Interests) Regulations, 2017 (“IRDAI

Regulations”) are binding upon all insurers and insureds, and thus,

the respondent-OICL was bound under Regulation 15(8) to settle the

claim within 30 days from the receipt of the Final Survey Report, i.e.,

by 09

th

August, 2018 in the instant case. However, the respondent, for

the first time in March, 2020, offered a paltry sum of Rs. 65 Lacs, and

thereafter, delayed in providing adequate reasoning for its unilateral

deduction and deviation from the Surveyor‟s Report. Subsequently,

the respondent had also failed to respond to petitioner‟s notice

invoking arbitration, which led to further delay on part of the

respondent.

6.2 In the claims submitted to the Arbitrator, the petitioner had

specifically sought the interest for three periods – pre-reference,

pendente lite and post award. Though the Arbitrator acknowledged the

delay by respondent in settling the claim, it awarded the interest only

from 16

th

October, 2021, i.e., after filing of the statement of claim.

6.3 Furthermore, the Arbitrator has failed to afford any reason whatsoever

for denying said specifically claimed pre-reference interest. The same

is violative of Section 31(3) of the Arbitration Act, which provides for

a ground for challenge under Section 34 of the Arbitration Act in the

absence of reasoning in the Award.

b. Double Deduction

6.4 The respondent as well as the Surveyor had carried out deductions

O.M.P. (COMM) 8/2024 Page 7 of 39

under two headers, i.e., (i) Rs. 1,08,68,865/- under the 5% deduction

as per Excess Clause under the Insurance Policy, and (ii) Rs.

1,37,71,763/- for an additional 5% towards „error / omission / dead

stock, etc.‟, which was outside the Insurance Policy. The said double

deduction, though specifically challenged before the Arbitrator, has

been upheld in the impugned Arbitral Award.

6.5 The petitioner did not lay any challenge to the deduction of 5% under

the Excess Clause. The petitioner had challenged the deduction of

additional 5% before the learned Arbitrator on the ground that there

was no clause in the Insurance Policy permitting deduction for errors

and omissions/dead stock/stock differences/non-moving stock, and

thus, the second deduction was extra-contractual. However, the

Arbitrator failed to adjudicate upon the challenge to the 5% deduction

towards „error / omission / dead stock, etc.‟, as raised by the

petitioner.

c. Undervaluation of Stock

6.6 The Arbitrator has upheld the challenged finding of the Surveyor

reducing the stock value by 91% without any documentary evidence,

bulk sale invoices, market data or proof of actual sales at such

discount, particularly, when the goods had been purchased at

substantially higher prices and were part of the running inventory.

6.7 Surveyor‟s narration in the Report qua the discounted sales of certain

goods at 56% or 70% has no nexus with the specific stock destroyed

in the fire which was valued by the Surveyor after discount of 91%.

Such narration is speculative and substitutes assumption of proof.

Furthermore, the Surveyor could not have physically verified the

O.M.P. (COMM) 8/2024 Page 8 of 39

stock, as incorrectly claimed by the respondent, as all the stock had

been destroyed in the fire and there was nothing available for physical

inspection.

6.8 The stock of the petitioner was audited on 31

st

March, 2017 as per

AS-2 (Accounting Standard for Inventories), which valued the stock

at cost or Net Realizable Value (“NRV”), whichever was lower. The

incident of fire at the petitioner‟s premises occurred only 25 days

later, i.e., on 25

th

April, 2018. Therefore, a 91% crash in valuation

without any evidence is impermissible.

6.9 The said Audit Report had been specifically pleaded in the statement

of claim by the petitioner, which was neither denied by the respondent

in its statement of defence, nor did the respondent cross-examine

petitioner‟s witness, who proved this aspect.

6.10 The AS-2 valuation is a statutorily compliant mode of valuation and

Arbitrator‟s failure to consider the same strikes at the very heart of the

finding under the impugned Arbitral Award. Thus, the Arbitrator

disregarded „vital evidence‟, such as audited stock registers, AS-2

valuation and purchase invoices, on record while rendering its finding,

which is violative of the mandate of Section 34 of the Arbitration Act

as it constitutes patent illegality and is perverse.

d. Taxation Component

6.11 The petitioner had claimed statutory taxes and duties payable on the

awarded amount under Claim No. 5. However, despite petitioner‟s

specific claim and Arbitrator noting the same in his Award, the

Arbitrator has failed to deal with or decide the same. Issue No. 5

framed by the Arbitrator squarely encompassed the tax and duty

O.M.P. (COMM) 8/2024 Page 9 of 39

claim. The claim was thus, pleaded, noticed and covered by the issues

framed.

7. Submissions of the Respondent:

a. Pre-reference Interest

7.1 Discretion has been exercised by the Arbitrator under Section 31(7) of

the Arbitration Act for non-grant of interest for the period before

filing of statement of claim and the same has been duly recorded in

the Award. Such exercise of power by the Arbitrator cannot be

questioned or reopened in proceedings under Section 34 of the

Arbitration Act, as there is no mandatory provision to provide interest

under the Arbitration Act.

7.2 The 10% interest that has been granted by the Arbitrator has been

considered in accordance with Regulation 15 of the IRDAI

Regulations. Furthermore, though the Regulation 15(1) provides for

30 days for settlement of claim, special circumstances are also

envisaged under the Regulations, specifically Regulation 15(5)(ii),

wherein, if claims involve complex issues, the Surveyor would seek

extension from the insurer for submission of the report.

7.3 In the present case, the Arbitrator had duly considered the

correspondence filed on record by the petitioner. The said

correspondence shows several anomalies and non-compliances on part

of the petitioner.

7.4 The Arbitrator has also not considered the petitioner‟s claim for

consideration of footwear, belts and sunglasses in the category of

„garments‟, which in turn, along with non-following of the Sale-

Purchase Agreements with Benetton India Private Limited, led to

O.M.P. (COMM) 8/2024 Page 10 of 39

delay in assessment. Therefore, the Arbitrator not only rejected the

petitioner‟s claim for inclusion of such accessories as garments, but

also considered these aspects, including, disagreement of petitioner

with the net adjusted loss of Rs. 65.86 Lacs assessed by OICL, as the

reasons for not granting interest for the pre-reference period.

7.5 Therefore, after due consideration of facts and documents on record,

the learned Arbitrator had found that the case for grant of pre-

reference interest could be made out, and thus, the petitioner cannot

contend that grant of pre-reference interest was not considered by the

learned Arbitrator.

b. Double Deduction & Undervaluation of Stock

7.6 While considering the Surveyor‟s Report and upholding the view

taken therein, the Arbitrator has not only considered the contention

towards ownership of stocks, but has also considered the Surveyor‟s

Report in its entirety and then awarded the amount as assessed by the

Surveyor. Therefore, it cannot be said that the reasoning given by the

Surveyor has not been considered by the Arbitrator while deciding the

issues pertaining to valuation of certain old stock @9% of the MRP

and deduction of amounts under the heads of dead stock, error and

omission.

7.7 In respect of Issue No. 3, learned Arbitrator had taken the Report of

the Surveyor into consideration, which was the only document filed

on record showing assessment of loss, in terms of Section 64UM of

the Insurance Act, 1938 (“Insurance Act”). The claim of the

petitioner has been allowed in accordance with the Surveyor‟s Report

and the basis of assessment has been duly considered, wherein, while

O.M.P. (COMM) 8/2024 Page 11 of 39

considering the valuation, the Surveyor had given the reasoning after

checking certain purchase bills and rates.

7.8 Only certain products were found to be old stock/non-saleable items,

and therefore, their value has been considered @9% of MRP only,

besides making a deduction of 5% for errors and omissions in quantity

and valuation, as the petitioner did not have any purchase orders or

invoices towards those particular products and had relied only upon

internal records.

7.9 The Surveyor had, in its Report, also discussed the nature of stocks

pertaining to the new season and old season merchandise and had

noted that the old stock was not sold with aggressive discount and that

major stock had been received in December, 2016 at discount of 56%.

Further, regarding old season merchandise, the petitioner was getting

a discount of 70%.

7.10 Even if the Auditor‟s Report had taken figures as per financial

statement or purchase register, it had not physically verified the same.

Whereas, on the other hand, the Surveyor had carried out physical

verification and then categorised certain stock as slow-moving, old

and non-saleable. This formed the basis of assessment of the relevant

slow-moving stock @9% of its MRP.

c. Taxation Component

7.11 The Arbitrator had framed the issues based upon the pleadings of the

parties. In the issues as framed, the petitioner has only challenged

Issue Nos. 3, 4 and 6 before this Court. Neither any issue pertaining to

adjudication on the tax and duties payable on awarded amount, was

framed during the course of arbitration proceedings, nor was any

O.M.P. (COMM) 8/2024 Page 12 of 39

objection raised by the petitioner for not framing such issue.

7.12 The issue as to failure of adjudication on the tax and statutory duties

payable on the awarded amount, being part of Claim No. 2/Issue No.

6, is being raised for the first time before this Court.

7.13 Even the Issue No. 6, i.e., whether the petitioner was entitled to

interest, cannot be said to include the present ground of challenge, i.e.,

failure to adjudicate the claim in respect of taxes and duties payable.

Findings and Analysis

8. I have heard learned counsels for the parties and perused the relevant

Arbitral Record. This Court proceeds to deal with the challenged issue-wise

findings in seriatim hereinafter.

a. Pre-reference Interest

9. The petitioner has raised challenge with regard to Claim No. 2/ Issue

No. 6 on the ground that the learned Arbitrator has not awarded interest for

the pre-reference period, i.e., the period before filing of the claims/statement

of claim before the learned Arbitrator.

10. In this regard, it is to be noted that in the Award, the learned

Arbitrator has noted the various claims raised by the petitioner, which

includes the claim of interest for the pre-reference period, i.e., Claim No. 2.

The finding of the learned Arbitrator with regard to the claim of interest, has

been given by way of Issue No. 6, in the following manner:

“xxx xxx xxx

O.M.P. (COMM) 8/2024 Page 13 of 39

xxx xxx xxx”

11. Perusal of the aforesaid finding of the learned Arbitrator manifests

that while the learned Arbitrator found the insurer liable for delay in

processing and settling the claim of the petitioner, the Arbitrator has denied

interest to the petitioner for the pre-reference period, without adverting to

any reason with regard thereto, or even discussing the said aspect.

O.M.P. (COMM) 8/2024 Page 14 of 39

12. In this regard, it is to be noted that the learned Sole Arbitrator

accepted that the insurer was bound under the IRDA Regulations,

particularly Regulation 15, to settle or reject the claim within thirty days

from receipt of the Survey Report. However, the respondent herein took an

inordinate delay of eighteen/twenty months before offering the sum of Rs.

65 Lacs towards full and final settlement of the claim.

13. The petitioner had specifically prayed for interest for all the three

periods, i.e., pre-reference, pendente lite and post-award. A specific issue,

i.e., Issue No. 6, was also framed by the learned Arbitrator for the rate and

period of grant of interest. Even more so, while deciding the said issue, the

learned Arbitrator found merit in the contention of the petitioner that there

was an inordinate delay on the part of the respondent in settlement of the

claim and that Regulation 15 of the IRDAI Regulations stipulates claim

settlement in thirty days from the date of receipt of the Survey Report. Yet,

having acknowledged the delay on the part of the respondent, the learned

Arbitrator failed to consider grant of interest for the pre-reference period and

awarded interest only from 16

th

October, 2021, i.e., from the date of filing of

statement of claim before the Arbitrator.

14. Once the learned Arbitrator found the respondent responsible for

prolonged and unjustified delay, denial of interest for pre-reference period

required cogent reasons, which are entirely absent in the impugned Arbitral

Award. In this regard, reference may be made to Sections 31(3) and 31(7) of

the Arbitration Act, which read as under:

“xxx xxx xxx

31. Form and contents of arbitral award ………..

xxx xxx xxx

(3) The arbitral award shall state the reasons upon which it is based,

O.M.P. (COMM) 8/2024 Page 15 of 39

unless— (a) the parties have agreed that no reasons are to be given, or (b)

the award is an arbitral award on agreed terms under section 30.

xxx xxx xxx

(7) (a) Unless otherwise agreed by the parties, where and in so far as an

arbitral award is for the payment of money, the arbitral tribunal may

include in the sum for which the award is made interest, at such rate as

it deems reasonable, on the whole or any part of the money, for the

whole or any part of the period between the date on which the cause of

action arose and the date on which the award is made

(b) A sum directed to be paid by an arbitral award shall, unless the award

otherwise directs, carry interest at the rate of two per cent higher than the

current rate of interest prevalent on the date of award, from the date of

award to the date of payment.

Explanation.—The expression “current rate of interest” shall have the

same meaning as assigned to it under clause (b) of section 2 of the Interest

Act, 1978 (14 of 1978).]

xxx xxx xxx”

(Emphasis Supplied)

15. Thus, it is clear that an arbitral award has to necessarily contain

reasons upon which it is based. Further, in the absence of any agreement to

the contrary, the arbitral tribunal has the discretion to award interest.

However, in the case at hand, when the learned Arbitrator has recorded clear

findings that there was prolonged and unjustified delay in processing the

claim of the petitioner and there was persistent refusal to settle the claim, the

learned Arbitrator was enjoined upon to give reasons for non-grant of

interest for the pre-reference period. Absence of reasons violates Section

31(3) of the Arbitration Act, and constitutes a recognized ground of patent

illegality under Section 34(2A) of the Arbitration Act.

16. Law in this respect has been settled long back by the Supreme Court

in the case of Associate Builders Versus Delhi Development Authority,

(2015) 3 SCC 49, wherein, it has been held that if an arbitrator gives no

reasons for a finding in an award, the same falls short of the requirement of

O.M.P. (COMM) 8/2024 Page 16 of 39

Section 31(3) of the Arbitration Act, and such an award is be liable to be set

aside under Section 34 of the said Act. The relevant extract of the aforesaid

judgment, is reproduced as under:

“xxx xxx xxx

42. In the 1996 Act, this principle is substituted by the “patent illegality”

principle which, in turn, contains three subheads:

42.1. (a) A contravention of the substantive law of India would result in

the death knell of an arbitral award. This must be understood in the sense

that such illegality must go to the root of the matter and cannot be of a

trivial nature. This again is really a contravention of Section 28(1)(a) of

the Act, which reads as under:

“28. Rules applicable to substance of dispute. — (1) Where the

place of arbitration is situated in India—

(a) in an arbitration other than an international commercial

arbitration, the Arbitral Tribunal shall decide the dispute

submitted to arbitration in accordance with the substantive law for

the time being in force in India;”

42.2. (b) A contravention of the Arbitration Act itself would be regarded

as a patent illegality — for example if an arbitrator gives no reasons for

an award in contravention of Section 31(3) of the Act, such award will

be liable to be set aside.

42.3. (c) Equally, the third subhead of patent illegality is really a

contravention of Section 28(3) of the Arbitration Act, which reads as

under:

“28. Rules applicable to substance of dispute.—(1)-(2)***

(3) In all cases, the Arbitral Tribunal shall decide in accordance

with the terms of the contract and shall take into account the

usages of the trade applicable to the transaction.”

This last contravention must be understood with a caveat. An Arbitral

Tribunal must decide in accordance with the terms of the contract, but if

an arbitrator construes a term of the contract in a reasonable manner, it

will not mean that the award can be set aside on this ground. Construction

of the terms of a contract is primarily for an arbitrator to decide unless

the arbitrator construes the contract in such a way that it could be said to

be something that no fair-minded or reasonable person could do.

xxx xxx xxx”

(Emphasis Supplied)

O.M.P. (COMM) 8/2024 Page 17 of 39

17. On the aspect of non-grant of pre-reference interest without affording

any reason for the same, this Court in O.M.P. (COMM.) 5/2017, titled as

“Prithvi Associates Versus South Delhi Municipal Corporation”, vide

order dated 09

th

January, 2017, has held as follows:

“xxx xxx xxx

3. The first ground urged is that although a specific claim was made by

the Petitioner for interest @ 24% pa on the claim amount “for the period

comprising of the pre-reference, pendente lite and post award period”,

the learned Arbitrator has granted interest @10% pa only for pendente

lite and post award period. It is pointed out that no reasons have been

given for rejecting the claim in respect of the pre-reference period.

4. Having heard learned counsel for the parties, the Court finds that

indeed under Issue No. 6 concerning relief, the learned Arbitrator

awards the interest @ 10% pa in the impugned Award under Claim Nos.

1 and 2 for pendente lite and post award period and makes no mention

of the claim of interest for the pre-reference period. Under Section 31(3)

of the Act, the learned Arbitrator is mandated to give reasons, unless

otherwise agreed to by the parties. In that view of the matter, the Court

holds that the Arbitrator ought to have given reasons if he was going to

decline the relief of interest for the pre-reference period. It will now be

open to the Petitioner to seek arbitration on this issue in accordance

with law.

xxx xxx xxx”

(Emphasis Supplied)

18. Likewise, in the case of Gorkha Security Services Versus Govt. of

NCT of Delhi, 2023 SCC OnLine Del 8104, this Court held that since the

arbitral tribunal failed to adjudicate the specifically pleaded claim for pre-

award interest and provided no reasons for such non-grant despite the

agreement being silent on interest, the award suffered from non-application

of mind and was liable to be set aside to that extent. Thus, it was held as

follows:

“xxx xxx xxx

9. The only short issue raised in the present petition is the non-grant of

pre-award interest by the AT.

O.M.P. (COMM) 8/2024 Page 18 of 39

xxx xxx xxx

12. There is no cavil with the settled position that as per the amended

A&C Act, judicial interference under Section 34 is extremely limited,

allowing it either to set aside the award or to remand back the matter

under the circumstances mentioned in Section 34 of the A&C Act.

13. The contractor in its SoC had prayed for the grant of pre-award

interest, which has not been granted by the AT. The contractor's

contention that this Court has ample power to grant pre-award interest

under Section 31 of A&C Act, is erroneous. The law in this regard, is

well settled. In Project Director, NHAI v. M. Hakeem, it was observed

that under section 34, the Court does not have the power to modify an

award.

14. A perusal of the underlying Agreement would show that the same

does not proscribe any party from claiming interest. In fact, the

Agreement is silent on the aspect of interest. The impugned award has

not specified as to why no pre-award interest was granted, even though

same had been specifically prayed for.

15. There lies a discretion with the Arbitrator to award interest which

must be exercised reasonably while taking into consideration factors like

“the loss of use” of the principal money; the types of sums which the

interest must apply; the time period over which interest should be

awarded; whether simple or compound rate of interest is to be applied;

whether the rate of interest awarded is commercially prudent from an

economic standpoint; the rates of inflation; proportionality of the count

awarded as interest to the principal sums awarded etc.

16. A plain reading of the impugned award reveals that no reason has

been penned as to the non-grant of pre-award interest. It's not the case

of the parties that they had consented that no reasons be given as per

sub-clause (a) of Section 31(3), A&C Act. The stating of reasons

indicates and shows application of mind to the attending facts and

circumstances by an arbitrator. An unreasoned award suffers from the

vice of patent illegality. Reference in this regard may also be made to the

decision of Supreme Court in Dyna Technologies Pvt. Ltd. v. Crompton

Greaves Ltd., and the relevant extract reads as under:—

“xxx

34. The mandate under Section 31(3) of the Arbitration Act is

to have reasoning which is intelligible and adequate and,

which can in appropriate cases be even implied by the courts

from a fair reading of the award and documents referred to

thereunder, if the need be. The aforesaid provision does not

O.M.P. (COMM) 8/2024 Page 19 of 39

require an elaborate judgment to be passed by the arbitrators

having regard to the speedy resolution of dispute.

35. When we consider the requirement of a reasoned order,

three characteristics of a reasoned order can be fathomed.

They are : proper, intelligible and adequate. If the reasonings

in the order are improper, they reveal a flaw in the decision-

making process. If the challenge to an award is based on

impropriety or perversity in the reasoning, then it can be

challenged strictly on the grounds provided under Section 34

of the Arbitration Act. If the challenge to an award is based on

the ground that the same is unintelligible, the same would be

equivalent of providing no reasons at all. Coming to the last

aspect concerning the challenge on adequacy of reasons, the

Court while exercising jurisdiction under Section 34 has to

adjudicate the validity of such an award based on the degree of

particularity of reasoning required having regard to the nature

of issues falling for consideration. The degree of particularity

cannot be stated in a precise manner as the same would

depend on the complexity of the issue… On the other hand,

ordinarily unintelligible awards are to be set aside, subject to

party autonomy to do away with the reasoned award.

Therefore, the courts are required to be careful while

distinguishing between inadequacy of reasons in an award and

unintelligible awards.

xxx”

17. As noted above, the impugned award, without any

discussion/reasoning, has awarded only post-award interest. The award

suffers from patent illegality and to this extent, is accordingly, set aside.

xxx xxx xxx”

(Emphasis Supplied)

19. Further, the Courts have time and again stressed that interest is not a

penalty or punishment. Rather, it is the normal accretion on capital. Delving

on the aspect of grant of interest as being compensatory, where a person is

deprived of the use of his money to which he is legitimately entitled,

Supreme Court in the case of Dr. Poornima Advani and Another Versus

Government of NCT and Another, (2025) 7 SCC 269, has held as follows:

“xxx xxx xxx

O.M.P. (COMM) 8/2024 Page 20 of 39

14. The concept of awarding interest on delayed payment has been

explained by this Court in Karnataka Bank v. RMS Granites (P)

Ltd. [Karnataka Bank v. RMS Granites (P) Ltd., 2024 SCC OnLine SC

4695], we quote the following observations: (SCC OnLine SC para 16)

“16. It may be mentioned that there is misconception about

interest. Interest is not a penalty or punishment at all, but it is the

normal accretion on capital. For example if A had to pay B a

certain amount, say ten years ago, but he offers that amount to

him today, then he has pocketed the interest on the principal

amount. Had A paid that amount to B ten years ago, B would

have invested that amount somewhere and earned interest

thereon, but instead of that A has kept that amount with himself

and earned interest on it for this period. Hence equity demands

that A should not only pay back the principal amount but also

the interest thereon to B. [See: Alok Shanker Pandey v. Union of

India [Alok Shanker Pandey v. Union of India, (2007) 3 SCC 545 :

(2007) 136 Comp Cas 258] .]”

15. Thus, when a person is deprived of the use of his money to which he

is legitimately entitled, he has a right to be compensated for the

deprivation which may be called interest or compensation. Interest is

paid for the deprivation of the use of money in general terms which has

returned or compensation for the use or retention by a person of a sum

of money belonging to other.

xxx xxx xxx

18. In Irrigation Deptt., State of Orissa v. G.C. Roy [Irrigation Deptt.,

State of Orissa v. G.C. Roy, (1992) 1 SCC 508], a Constitution Bench of

this Court opined that a person deprived of use of money to which he is

legitimately entitled has a right to be compensated for the deprivation,

call it by any name. It may be called interest, compensation or damages.

This is also the principle of Section 34 of the Civil Procedure Code.

19. The essence of interest as held by Lord Wright in Riches v.

Westminster Bank Ltd. [Riches v. Westminster Bank Ltd., 1947 AC 390

(HL)] , at AC p. 400, is that it is a payment, which becomes due because

the creditor has not had his money at the due date. It may be recorded

either as representing the profit he might have made if he had had the use

of the money, or, conversely, the loss he suffered because he had not that

use.

xxx xxx xxx

22. In Hello Minerals Water (P) Ltd. v. Union of India [Hello Minerals

Water (P) Ltd. v. Union of India, 2004 SCC OnLine All 2187:(2004) 174

ELT 422], ELT paras 15 & 16, a Division Bench of the Allahabad High

O.M.P. (COMM) 8/2024 Page 21 of 39

Court explained the concept of interest as under: (SCC OnLine All paras

31-33)

“31. We may mention that we are passing the direction for interest

since interest is the normal accretion on capital.

32. Often there is misconception about interest. Interest is not a

penalty or punishment at all. For instance, if A had to pay a

certain sum of money to B at a particular time, but he pays it after

a delay of several years, the result will be that the money remained

with A and he would have earned interest thereon by investing it

somewhere. Had he paid that amount at the time when it was

payable then B would have invested it somewhere, and earned

interest thereon. Hence, if a person has illegally retained some

amount of money then he should ordinarily be directed to pay not

only the principal amount but also the interest earned thereon.

33. Money doubles every six years (because of compound interest).

Rupees hundred in the year 1990 would become rupees two

hundred in the year 1996 and it will become Rs 400 in the year

2002. Hence, if A had to pay B a sum of Rs 100 in the year 1990

and he pays that amount only in the year 2002, the result will be

that A has pocketed Rs 300 with himself. This clearly cannot be

justified because had he paid that amount to B in the year 1990, B

would be having Rs 400 in the year 2002 instead of having only Rs

100. Hence, ordinarily interest should always be awarded

whenever any amount is detained or realised by someone,

otherwise the person receiving the amount after considerable

delay would be losing the entire interest thereon which will be

pocketed by the person who managed the delay, it is for this

reason that we have ordered for payment of interest along with

the amount realised as export pass fee.”

xxx xxx xxx”

(Emphasis Supplied)

20. Accordingly, it is held that the Arbitrator ought to have given reasons

for not granting the relief of interest for the pre-reference period, and the

Award suffers from patent illegality under Section 34(2A) of the Arbitration

Act to that extent. The petitioner is at liberty to seek fresh arbitration on this

issue, in accordance with law.

b. Double Deduction

21. The next ground raised by the petitioner is with regard to double

O.M.P. (COMM) 8/2024 Page 22 of 39

deductions by the Surveyor, and approval of the same by the Arbitrator. It is

the case of the petitioner that the Surveyor, vide the Survey Report dated

09

th

July, 2018, had already deducted a sum of Rs. 1,08,68,865/- from the

claim value in terms of the Excess Clause under the Insurance Policy.

Despite the same, the Surveyor made an additional deduction of Rs.

1,37,71,763/- towards „error / omission / dead stock, etc.‟

22. It is to be noted that the learned Arbitrator specifically framed an

issue, i.e., Issue No. 3, dealing with the correctness of deducting 5% of the

petitioner‟s claim on account of „error / omission / dead stock, etc.‟ The

finding by the learned Arbitrator on the said issue, in the impugned Award,

is as under:

“xxx xxx xxx

O.M.P. (COMM) 8/2024 Page 23 of 39

xxx xxx xxx”

23. Reading of the aforesaid finding by the learned Arbitrator on Issue

No. 3 demonstrates that said finding, on the face of it, is not in respect of the

5% deduction of Rs. 1,37,71,763/- towards „error / omission / dead stock,

etc.‟, which had been challenged by the petitioner. Rather, the learned

Arbitrator has noted the submission of the respondent that there is an

“excess/deductible clause” in the Insurance Policy and held that the 5%

deduction against the claim amount done by the Surveyor, has been done as

per the clear stipulation in the Insurance Policy.

24. It is to be noted that the issue before the learned Arbitrator was not

regarding the deduction of 5% under the Excess Clause, wherein, a sum of

Rs. 1,08,68,865/- had been deducted. The petitioner had challenged the

deduction of the additional 5% by the Surveyor, i.e., Rs. 1,37,71,763/-, on

the ground that the same was extra-contractual, as there was no clause in the

Insurance Policy permitting deduction for errors and omissions/ dead stock/

stock differences/ non-moving stock. The case put forth by the petitioner in

the arbitral proceedings was that once the 5% excess of Rs. 1,08,68,865/-

had been deducted in terms of the Insurance Policy, the second deduction of

Rs. 1,37,71,763/- towards „error / omission / dead stock, etc.‟ could not have

O.M.P. (COMM) 8/2024 Page 24 of 39

been lawfully imposed.

25. However, the finding qua Issue No. 3 does not deal with the deduction

towards „error / omission / dead stock, etc.‟ at all. The learned Arbitrator has

wrongly construed the challenge to be regarding the deduction of

Rs.1,08,68,865/-, which was admittedly and undisputedly, as per the Excess

Clause of the Insurance Policy. Such a finding by the learned Arbitrator is

evidently perverse, as the dispute in question before the learned Arbitrator

was not towards the deduction under the Excess Clause, but to the deduction

towards „error / omission / dead stock, etc.‟

26. The learned Arbitral Tribunal has essentially failed and omitted to

adjudicate upon the specific issue that was framed by it. The learned

Arbitrator was required to examine the deduction towards „error / omission /

dead stock, etc.‟ However, the learned Arbitrator has failed to firstly,

correctly identify the challenged deduction, and secondly, to adjudicate and

afford any reasoning for the same.

27. It is settled law that it is for the Arbitrator to construct and interpret

the terms of a contract. However, in the present case, the learned Arbitrator

has evidently failed to do so. Accordingly, the Award with respect to Issue

No. 3 is set aside. It will be open to the petitioner to re-agitate the dispute

with regard thereto, afresh.

c. Undervaluation of Stock

28. The next objection raised by the petitioner is with regard to Issue No.

4, wherein, the petitioner has argued that the old stocks of the petitioner

have been erroneously undervalued by the Surveyor, and the findings of the

Surveyor reducing the stock value by 91% have been upheld by the learned

Arbitrator, without any evidence. It is the case of the petitioner that its old

O.M.P. (COMM) 8/2024 Page 25 of 39

stocks have been erroneously undervalued by computing the same at 9% of

MRP.

29. As per the petitioner, its stock was audited on 31

st

March, 2017, as per

AS-2 (Accounting Standard for Inventories), which valued the stock at cost

value or NRV, whichever was lower. The incident of fire at the petitioner‟s

premises occurred only twenty five days later, i.e., on 25

th

April, 2017.

Therefore, a 91% crash in valuation, without any evidence, was

impermissible. Thus, the petitioner‟s grievance against finding of Issue No.

4 is that the learned Arbitral Tribunal has disregarded vital evidence, such

as, audited stock registers, AS-2 valuation and purchase invoices on record,

while rendering the finding.

30. This Court notes the finding of the learned Arbitrator with respect to

Issue No. 4, which is as follows:

“xxx xxx xxx

O.M.P. (COMM) 8/2024 Page 26 of 39

xxx xxx xxx”

O.M.P. (COMM) 8/2024 Page 27 of 39

31. To understand the Surveyor‟s reasoning behind assessment of loss

and valuation of various categories of stock, reference may also be made

directly to the Report of the Surveyor dated 09

th

July, 2018, which forms

part of the Arbitral Record. The relevant portions of the Survey Report, are

extracted as below:

“xxx xxx xxx

O.M.P. (COMM) 8/2024 Page 28 of 39

xxx xxx xxx”

O.M.P. (COMM) 8/2024 Page 29 of 39

32. From a bare reading of the Surveyor‟s Report, it is apparent that the

Surveyor had inspected and physically verified the premises, as well as the

petitioner‟s internal records, including, stock registers, purchase tax

invoices, books, etc. Post such exercise, the Surveyor had divided and

segregated the stock on the basis of company, date of purchase and

manner/trend of sale. On the basis of such categorization, the Surveyor

found that there were stocks from the following three companies, which

were old, slow-moving and not saleable:

 “ABOUT U” and “AMERICAN SWAN” – Total claim with respect to

these was Rs. 1.61 Crores. Stock of these two companies was

purchased during the periods 2010-2014, 2015 and 2016.

 “UCB UNDERGARMENTS” – Total claim with respect to this

category of stock was to the tune of Rs. 15.67 Lacs, and this particular

stock was purchased from petitioner‟s sister concern, M/s Goel Retail

Products Pvt. Ltd., in the year 2015.

33. The Survey Report also records that during verifications, it was

noticed that certain non-moving stocks were sold in bulk discount @91% by

the petitioner. Thus, based on such assessment and finding, the value of

aforenoted categories of old stocks was considered @9% of their MRP by

the Surveyor, for calculation of loss.

34. Furthermore, the learned Arbitrator, while taking note of the aforesaid

reasoned calculation of the Surveyor, has recorded that the petitioner had

failed to produce any cogent evidence to counter the explanation of the

Surveyor. Whereas, the petitioner seeks to challenge the explanation of the

Surveyor and finding of the Arbitrator by relying upon the valuation of stock

in the Audit Report dated 31

st

March, 2017. Thus, a part of the grievance

O.M.P. (COMM) 8/2024 Page 30 of 39

raised by the petitioner before this Court against finding of Issue No. 4 is

that the Arbitrator had not considered the valuation of petitioner‟s stock as

per the Auditor‟s Report dated 31

st

March, 2017, placed on record by the

petitioner.

35. In this regard, this Court notes the following extract from the Survey

Report, which makes it evident that the Auditor‟s Report was duly

considered and noted by the Surveyor, before valuation of stock and

assessment of loss:

“xxx xxx xxx

xxx xxx xxx”

36. In a petition under Section 34 of the Arbitration Act, the petitioner

O.M.P. (COMM) 8/2024 Page 31 of 39

cannot seek to agitate a challenge to a reasoned calculation by the Surveyor,

which is based upon assessment of petitioner‟s internal documents, such as

sales and purchase bill, tax invoices, stock registers, etc., which has

subsequently been affirmed by the Arbitrator.

37. As far as the Audit Report is concerned, upon which the petitioner has

based its challenge to the finding of Issue No. 4, it is to be noted that the

purpose of said Report was not specific to or relevant for loss assessment in

case of insurance claims. The categorization of stock for the purpose of

valuation by the auditor was not as per the date of purchase of particular

garment/stock; rather, said categorization was based upon “stock at

commencement” and “stock at closing”. Hence, for assessing claim/loss

arising out of an insurance policy, the Auditor‟s Report cannot be

considered to be a cogent evidence vis-à-vis the Surveyor‟s Report.

38. The relevant portions of the Auditor‟s Report dealing with valuation

of stock, are reproduced as under:

“xxx xxx xxx

xxx xxx xxx

O.M.P. (COMM) 8/2024 Page 32 of 39

xxx xxx xxx”

39. Thus, the challenge by the petitioner to a reasoned calculation carried

out by an industry expert, i.e., the Surveyor, which is based upon the

petitioner‟s internal documents, and further, without bringing cogent

evidence on record that can counter the reasoned calculation, is erroneous.

40. In this regard, reference may be made to the judgment in the case of

National Insurance Company Limited Versus Hareshwar Enterprises

Private Limited and Others, (2021) 17 SCC 682, wherein, it was held as

follows:

“xxx xxx xxx

17. Having noted the said decisions, we are of the opinion that the same

cannot alter the position in the instant case. On the proposition of law that

the surveyor's report cannot be considered as a sacrosanct document and

that if there is any contrary evidence including investigation report,

opportunity should be available to produce it as rebuttal material, we

concur. However, the issue to be noted is as to whether the surveyor's

report in the instant case adverts to the consideration of stock position in

an appropriate manner and in that circumstance whether an

investigation report which is based on investigation that was started

belatedly should take the centre stage. The fact remains that the

surveyor's report is the basic document which has statutory recognition

and can be made the basis if it inspires the confidence of the

adjudicating forum and if such forum does not find the need to place

reliance on any other material, in the facts and circumstances arising in

the case. If in that light, the surveyor's report, on which reliance has been

placed by NCDRC is taken note of insofar as the assessment relating to

O.M.P. (COMM) 8/2024 Page 33 of 39

the loss due to destruction of stock, the consideration of the same has been

adverted to in clause 8.1.1 and the stock position as declared to the bank

has been referred to in clause 8.1.3. The learned counsel for the appellant

as also the learned counsel for the respondents have made detailed

reference and taken us through details contained in the report.

18. The consideration made by the surveyors to ascertain the correctness

of the details relating to the stock indicates that reference is made to the

value of the stock declared to the bank; value of the stock as per audited

manufacturing account and balance sheet for the year ended 31-3-1999;

the explanation offered for the purchase made during the months of

August 1999 to October 1999. In that regard, the surveyors have also

visited the source from which the LDPE was procured during September

1999 to 4-11-1999. It is on making such verification and inquiries, the

surveyors arrived at the conclusion as follows:

“8.1.8. Though the purchases and sales were found to be in order

as per records, we could not accept the total quantity of 73,585 kg

claimed by the insured. Opening stock considered for arriving at

this balance is higher as compared to quantity declared to bank.

For assessing the quantity we have taken stock quantity as on 30-

4-1999 as per bank declaration and then made addition/deduction

for purchase & sale quantity during the period 1-5-1999 to 6-11-

1999. Accordingly the quantity of stock as on date of loss worked

out as follows:

8.1.9. We have valued the stock as per the latest purchase rate viz.

at market value. The last purchases made by insured prior to loss

was on 4-11-1999. The rate including octroi is Rs 68.238 per

kilogram. The rate matches with the selling price fixed by IPCL.

Further the entire quantity was considered to be raw material

avoiding any addition of insured's own manufacturing cost.

8.1.10. Salvage : There was small quantity of remnants of the burnt

stock, in lump/melted form. Considering the limited quantity which

could be extracted and its scrap value we have deducted 1% as

salvage value.

8.1.11. The loss assessed for stock is as follows:

O.M.P. (COMM) 8/2024 Page 34 of 39

19. Thus, a perusal of the surveyor's report would indicate that the same

is not perfunctory but has referred to all aspects, discarded what was not

reliable and the assessment has been made thereafter. In that

background, as noted, the fire incident had occurred on 6-11-1999 and the

surveyors had visited the site on 9-11-1999 itself and the interim as also

the final report were submitted on 23-3-2000 and 13-3-2001 to the insurer

after due deliberations. The insurer did not take any steps immediately but

after much delay appointed the investigator on 22-6-2001 and had not

concluded the said process though Respondent 1 had made repeated

request. The insured had approached NCDRC and it is in the said

proceedings, for the first time the insurer seeks to rely on the

investigator's report. Therefore, in the facts and circumstances herein

the surveyor's report was submitted as the natural process, the

conclusion reached therein is more plausible and reliable rather than

the investigation report keeping in view the manner in which the insurer

had proceeded in the matter. Hence, the reliance placed on the

surveyor's report by NCDRC without giving credence to the

investigation report in the facts and circumstances of the instant case

cannot be faulted. In that view, the conclusion reached on this aspect

by NCDRC does not call for interference.

xxx xxx xxx”

(Emphasis Supplied)

41. Likewise, this Court also takes note of the judgment in the case of

Himanshu Trading Co. Versus New India Assurance Co. Ltd. and

Another, 2022 SCC OnLine NCDRC 88, wherein, it was held that report of

the surveyor has to be given due importance as surveyor is an expert in the

field, and that there should be sufficient ground to disagree with the same.

Thus, it was held as follows:

“xxx xxx xxx

8. I have considered the arguments of the counsel for the parties and

examined the record. It is mandatory for the Insurer to appoint a

surveyor for assessment of loss, exceeding Rs.25000/- under Section 68

UM of Insurance Act, 1938. Supreme Court in Sri Venkateswara

Syndicate v. Oriental Insurance Company Ltd., (2009) 8 SCC

507 and New India Assurance Company Ltd. v. Sri Buchiyyamma Rice

O.M.P. (COMM) 8/2024 Page 35 of 39

Mill (2020) 12 SCC 105, held that Section 68 UM of Insurance Act, 1938

does not impose any restriction for appointment of second surveyor. In Sri

Venkateswara Syndicate v. Oriental Insurance Company Ltd., (2009) 8

SCC 507 and Khatema Fibres Ltd. v. New India Insurance Company

Ltd., 2021 SCC OnLine SC 818 held that the report of surveyor has to be

given due importance. There should be sufficient ground to disagree

with the report of the surveyor. Once it is found that there was no

inadequacy in quality, nature and manner of performance of the duties

and responsibilities and once it is found that the report is not based on

adhocism or arbitrariness then the consumer forum will have no

jurisdiction to ignore it.

9. The surveyor is an expert and its report stands on the footing of expert

evidence and has to be corroborated from other evidence on record, in

order to examine bonafide/malafide of the Surveyor and correctness of the

report. In the present case, the Insurer appointed Kejriwal & Company,

Ghaziabad, on 03.10.2005, for preliminary survey and KAYPSENS,

Surveyor & Loss Assessor, Delhi, on 04.10.2005, for final survey and

assessment of the loss. As such, it cannot be said that there was

appointment of second surveyor. Job of preliminary surveyor was only to

ascertain the incident, on visual examination at the earliest. Preliminary

Survey Report cannot be taken to contradict the Final Report of the

surveyor.

xxx xxx xxx”

(Emphasis Supplied)

42. In view of the detailed discussion hereinabove, petitioner‟s challenge

to the finding on Issue No. 4 has to fail. Accordingly, this Court finds no

infirmity in the finding of the learned Arbitrator on Issue No. 4, which is

premised on the Surveyor‟s Report.

d. Taxation Component

43. The next objection raised by the petitioner is with regard to Claim No.

5. It is the case of the petitioner that the learned Arbitrator has failed to

adjudicate on the petitioner‟s Claim No. 5 for taxes and duties payable on

the awarded amount.

44. Though no specific issue has been framed by the learned Arbitrator on

this aspect, Issue No. 5 framed by the learned Arbitrator reads as follows:

O.M.P. (COMM) 8/2024 Page 36 of 39

“Whether the claim of the claimant is justified, if so, to what extent?”

45. Thus, the Claim No. 5 raised by the petitioner would necessarily have

been included in Issue No. 5 framed by the learned Arbitrator.

46. It is to be noted that the petitioner had claimed statutory taxes and

duties payable on the awarded amount under Claim No. 5. However, despite

petitioner‟s specific claim and the learned Arbitrator noting the same in the

impugned Arbitral Award, the learned Arbitrator has failed to deal with the

said issue or decide the same.

47. An arbitrator is required to consider each of the specific claims raised

by a claimant, and decide the same by assigning reasons on the findings with

respect to the specific claims. Failure of the learned Arbitrator in the present

case to decide the Claim No. 5 constitutes a valid ground for setting aside

the impugned Award. In this regard, reference may be made to the judgment

in the case of State of Uttar Pradesh and Others versus Combined

Chemicals Company Private Limited, (2011) 2 SCC 151, wherein, it has

been held as follows:

“xxx xxx xxx

31. In our view, the arbitrator was duty-bound to examine the tenability

of the claim made by the respondent under different heads and decide

the same by assigning some reasons, howsoever briefly. His failure to do

so constituted a valid ground for setting aside the award and the trial

court committed a serious error by making the award rule of the court.

Unfortunately, the High Court also overlooked this lacuna in the award

and approved the judgment of the trial court.

xxx xxx xxx”

(Emphasis Supplied)

48. Similarly, in the case of Som Datt Builders Limited Versus State of

Kerala, (2009) 10 SCC 259, the Supreme Court held that it was obligatory

for an arbitral tribunal to state reasons in support of its award. By legislative

O.M.P. (COMM) 8/2024 Page 37 of 39

mandate, it is now essential for the arbitral tribunal to give reasons in

support of the award. As already noted hereinabove, as per Section 31(3) of

the Arbitration Act, an arbitral award must contain reasons that reflect the

basis of the conclusions reached. Howsoever brief they may be, reasons

must be indicated in the award, as that would reflect the thought process

leading to a particular conclusion. Thus, it was held as follows:

“xxx xxx xxx

20. Section 31(3) mandates that the arbitral award shall state the

reasons upon which it is based, unless—(a) the parties have agreed that

no reasons are to be given, or (b) the award is an arbitral award under

Section 30. That the present case is not covered by clauses (a) and (b) is

not in dispute. In the circumstances, it was obligatory for the Arbitral

Tribunal to state reasons in support of its award in respect of Claims 1

and 4-B. By legislative mandate, it is now essential for the Arbitral

Tribunal to give reasons in support of the award. It is pertinent to notice

here that the 1996 Act is based on UNCITRAL Model Law which has a

provision of stating the reasons upon which the award is based.

21. In Union of India v. Mohan Lal Capoor [(1973) 2 SCC 836 : 1974

SCC (L&S) 5] this Court said: (SCC p. 854, para 28)

“28. … Reasons are the links between the materials on which

certain conclusions are based and the actual conclusions.”

22. In Woolcombers of India Ltd. v. Workers' Union [(1974) 3 SCC 318 :

1973 SCC (L&S) 551 : AIR 1973 SC 2758] this Court stated: (SCC pp.

320-21, para 5)

“5. … The giving of reasons in support of their conclusions by

judicial and quasi judicial authorities when exercising initial

jurisdiction is essential for various reasons. First, it is calculated

to prevent unconscious unfairness or arbitrariness in reaching

the conclusions. The very search for reasons will put the

authority on the alert and minimise the chances of unconscious

infiltration of personal bias or unfairness in the conclusion. The

authority will adduce reasons which will be regarded as fair and

legitimate by a reasonable man and will discard irrelevant or

extraneous considerations.”

23. In S.N. Mukherjee v. Union of India [(1990) 4 SCC 594 : 1990 SCC

(Cri) 669 : 1991 SCC (L&S) 242 : (1991) 16 ATC 445] the Constitution

Bench held that recording of reasons

O.M.P. (COMM) 8/2024 Page 38 of 39

“(i) guarantee consideration by the authority; (ii) introduce

clarity in the decisions; and (iii) minimise chances of

arbitrariness in decision-making.” (SCC p. 612, para 35)

24. Learned Senior Counsel for the contractor referred to a decision of the

Delhi High Court in Delhi Electric Supply Undertaking v. Victor Cable

Industries Ltd. [(2006) 1 Arb LR 297 (Del)] and submitted that where the

arbitrator has referred to facts of the case and has noticed some reasoning

which in view of the arbitrator was sufficient to arrive at a conclusion for

granting relief, award cannot be stated to be unreasoned. He also referred

to yet another decision of the Delhi High Court in Kumar Construction

Co. v. DDA [(1996) 64 DLT 553] wherein it has been observed that the

arbitrator is not expected to write an elaborate judgment and where the

arbitrator has noticed contentions of the counsel, it cannot be said that the

arbitrator failed in stating reasons for the award.

25. The requirement of reasons in support of the award under Section

31(3) is not an empty formality. It guarantees fair and legitimate

consideration of the controversy by the Arbitral Tribunal. It is true that

the Arbitral Tribunal is not expected to write a judgment like a court nor

is it expected to give elaborate and detailed reasons in support of its

finding(s) but mere noticing the submissions of the parties or reference

to documents is no substitute for reasons which the Arbitral Tribunal is

obliged to give. Howsoever brief these may be, reasons must be indicated

in the award as that would reflect the thought process leading to a

particular conclusion. To satisfy the requirement of Section 31(3), the

reasons must be stated by the Arbitral Tribunal upon which the award is

based; want of reasons would make such award legally flawed.

xxx xxx xxx”

(Emphasis Supplied)

49. Thus, it is apparent from the text of the Arbitral Award that the claim

of the petitioner in respect of the tax payable on the awarded amount has not

been discussed by the Arbitrator at all, which is violative of Section 31(3) of

the Arbitration Act, and consequently, patently illegal under Section 34(2A)

of the said Act. Though specifically claimed in Claim No. 5, and covered

under Issue No. 5 as framed by the learned Arbitrator, there is complete

silence and lack of adjudication on the issue of liability of the parties to pay

taxes and statutory dues in respect of the awarded amount.

O.M.P. (COMM) 8/2024 Page 39 of 39

50. The aforesaid being the case, it will be open to the petitioner to seek

arbitration on the present issue, in accordance with law.

Conclusion

51. The present petition is disposed of in the aforesaid terms.

MINI PUSHKARNA

(JUDGE)

APRIL 10, 2026/KR