22 October 2018 Arbitration Law >> Business & Commercial Law  

A recent High Court decision has highlighted the importance of clear and reasoned arbitration awards. The case involved a loan dispute between a bank (appellant) and a borrower (respondent) in Jammu and Kashmir.

Background:

The borrower had defaulted on a loan from the bank. The dispute went to arbitration under the Cooperative Societies Act, 1989. The arbitrator ruled in favor of the bank, ordering the borrower to repay a significant sum with interest. The borrower challenged the award in court, arguing it was a "non-speaking award." This means the arbitrator's decision lacked any explanation for the outcome. The High Court agreed, finding the award to be completely devoid of reasoning regarding the claimed amount, interest rate, or justification for the hefty liability imposed on the borrower.

Appeal and Modifications:

The bank appealed this decision, arguing that since the borrower admitted to taking the loan, the remand was unnecessary. The Court, however, rejected this argument due to the non-speaking nature of the award.

The Court also agreed with the borrower that the original High Court order directing the arbitrator to follow the general Arbitration Act was incorrect. Arbitration proceedings under the Cooperative Societies Act have their own specific procedures.

The final judgment modified the original order. The Court allowed the arbitration to be conducted again, but under the proper framework of the Cooperative Societies Act and its rules. Additionally, while framing issues for the dispute is not mandatory, the arbitrator was given the discretion to do so if deemed necessary.

Key Takeaways:

This case emphasizes two important points:

• Clear Reasons in Arbitration Awards: Arbitration awards must provide clear reasoning for the decision. Without proper explanation, the award can be challenged and potentially overturned.
• Following the Right Procedures: Arbitration processes are often governed by specific rules and regulations set out in the relevant act (e.g., Cooperative Societies Act). It's crucial to follow the correct procedures to ensure a valid and enforceable award.