Arbitrator didn't write issue-wise reasons. Court still upheld the award.

When the State Lost Its Case — and Won a Point on Perversity

Bijan Behari Chowdhury built for the West Bengal government. When the bills came due, the government didn't pay. The contractor invoked arbitration, won a substantial award — and then watched the State of West Bengal challenge that very award in the Calcutta High Court. The stakes were simple: unpaid work, security deposits, arbitration costs, plus compensation for business losses and delays. The contractor had won it all. The State wanted it erased.

Justice Sabyasachi Bhattacharyya, sitting singly on the Original Side of the Calcutta High Court, delivered a nuanced verdict on July 19, 2024. The award was partially set aside — but not for the reasons the State had hoped.

The Arbitration That Almost Worked

The dispute arose from a construction contract. Chowdhury completed the work. The government didn't pay the full amount, didn't refund the security deposit, and didn't compensate for delays or excess work. The contractor moved to arbitration before a Sole Arbitrator.

The Arbitrator awarded claims under multiple heads:

• Claim 1: Unpaid work
• Claim 2: Return of pay orders (security deposit)
• Claims 4-6: Compensation for prolongation, business loss, and excess work
• Claim 8: Arbitration costs

Claims 3 and 7 were rejected. The contractor got most of what he asked for.

The State of West Bengal then filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996, asking the High Court to set aside the entire award. The grounds: the award lacked reasoning, was based on no material, and was contrary to the fundamental policy of Indian law.

What the State Argued — and What It Didn't

The State's learned Counsel raised several objections. The award, they said, did not contain issue-wise reasoning. The Arbitrator had clubbed all issues together and dealt with them in a single narrative. That, argued the State, made the award unreasoned and liable to be set aside.

There was also a limitation objection — raised for the first time at the final hearing stage. The State wanted to argue that the claims were time-barred.

The contractor's Counsel countered: the Arbitrator had considered all evidence, both documentary and oral. The award was reasoned, even if not structured issue-by-issue. The limitation point was never taken before — it was a mixed question of fact and law, and could not be sprung at the final hearing.

The Witness Rule the Court Applied

Justice Bhattacharyya began with the scope of Section 34. The Court does not sit in appeal over an arbitral award. It cannot re-appreciate evidence. It can only interfere if the award is:

• Perverse — so unreasonable that no reasonable person could have reached it
• Contrary to the fundamental policy of Indian law
• In conflict with the most basic notions of justice

The Court applied Section 5 of the Arbitration Act — the principle of minimal judicial intervention. The learned Judge observed that the Arbitrator had taken up all issues together for brevity, but had touched upon each while deciding the claims. The mere failure to systematically attribute reasons under each issue did not vitiate the award.

THE TEST: An award is not unreasoned merely because the Arbitrator does not write a separate paragraph for each issue. If the reasoning can be discerned from the award as a whole, Section 34 does not permit interference.

The limitation objection was also rejected. The Court held that a mixed question of fact and law, never raised at any earlier stage, cannot be entertained for the first time at the final hearing of a Section 34 petition.

Why the Award Survived — Partially

Claims 1 and 2 were upheld. The Arbitrator had adverted to specific documentary and oral evidence. The Court found that the award was supported by material on record. Even if the Court might have appreciated the evidence differently, that was not a ground for interference under Section 34.

Claim 1 was upheld with 15% per annum interest. Claim 2 (return of pay orders) was upheld — but without interest. The Court reasoned that pay orders do not involve blocking of any amount of the claimant. There was no justification for granting interest on that claim.

Arbitration costs were also upheld.

Where the Arbitrator Went Wrong

Claims 4, 5, and 6 were a different story. The Arbitrator had awarded compensation for prolongation, business loss, and excess work — but without any cogent material to substantiate these claims.

The Court applied Section 73 of the Indian Contract Act, 1872. Compensation for breach of contract requires proof of actual loss. The claimant must show that the loss was a natural consequence of the breach, or that it was within the contemplation of the parties at the time of contracting.

The Arbitrator had not done this. There was no evidence of business loss. No proof of prolongation. No substantiation of excess work. The awards under these heads were based on no material — they were perverse.

THE TRICK: An arbitrator cannot award compensation under Section 73 of the Contract Act without evidence of actual loss. A claim for business loss or prolongation costs must be supported by cogent material — invoices, accounts, correspondence. Without it, the award is perverse and liable to be set aside under Section 34.

The Court set aside claims 4, 5, and 6 entirely. Interest on claim 2 was also set aside.

What This Means for Practitioners

This judgment is a masterclass in the limits of Section 34. It tells you three things:

First, an award is not unreasoned just because the Arbitrator doesn't write a separate paragraph for each issue. If the reasoning can be gathered from the award as a whole, the Court will not interfere.

Second, compensation claims under Section 73 of the Contract Act require evidence. An arbitrator cannot award business loss or prolongation costs on a hunch. The claimant must prove actual loss. If the award is based on no material, it is perverse and will be set aside.

Third, limitation objections must be raised at the earliest opportunity. A mixed question of fact and law cannot be sprung at the final hearing of a Section 34 petition.

The Bottom Line

The Calcutta High Court has sent a clear message: arbitrators have wide discretion, but they must base their awards on evidence. Compensation without substantiation is perverse. And the State, like any other litigant, must play by the rules — including raising limitation objections on time.

THE PLAY: If you are an arbitrator, ensure every claim for compensation under Section 73 of the Contract Act is supported by cogent material. If you are a party challenging an award, focus on perversity — not on the absence of issue-wise reasoning. And if you are a contractor, keep your invoices, accounts, and correspondence ready. The Court will not save you if your arbitrator awards compensation without proof.