Delhi High Court Sets Aside Part Of Arbitral Award Over 'Cryptic Observations'

The Delhi High Court recently held that an arbitral tribunal cannot reject a claim through "cryptic" reasoning and that such an award is open to interference even within the limited scope of review under arbitration law.

The matter was decided by Justice Harish Vaidyanathan Shankar, who emphasised that giving reasons is a core requirement of arbitral decision-making.

“The insistence on reasons is not a mere empty formality,” the Court said, adding that reasons must show how the decision-maker moved from facts to conclusions.

The dispute traces back to a contract awarded in December 2010 to Gorkha Security Services for providing manpower and security staff at government dispensaries in Delhi.

The company said it carried out the work but was not fully paid. Several bills, it claimed, remained unpaid, and revised minimum wages notified by the government were not reimbursed for a long period.

According to the firm, it continued paying workers the higher wages from its own funds. In August 2017, an arbitral tribunal allowed the main claims and directed payment of over Rs 3.48 crore but declined to grant interest on the delayed payments or the costs of arbitration.

Gorkha Security approached the High Court challenging only this rejection of interest and costs. It argued that the arbitrator denied these claims without any clear explanation, despite the legal requirement that arbitral awards must state reasons.

The Directorate of Health Services opposed the challenge, saying courts should be slow to interfere with arbitral awards and that the contractor itself was at fault for not furnishing proper wage and statutory compliance records.

After examining the award, the High Court found that the rejection of interest and costs rested on a single statement that there was an “information gap on both sides”.

The court noted that the arbitrator did not analyze any contractual provision or explain how such a gap defeated the claim. “Such cryptic observations, unsupported by intelligible reasoning, render the finding on Claim No. 4 opaque and unintelligible,” the Court held.

It added that reasons must “illuminate the path taken by the decision-maker” and demonstrate that the outcome is the product of reasoned deliberation rather than arbitrary assertion.

Applying the doctrine of severability, the court set aside only the portion of the award denying interest and costs, left the Rs 3.48 crore award intact, and remanded the limited issue to the arbitral tribunal for fresh consideration.

For Petitioner: Advocate Tarkeshwar Nath (for Gorkha Security);

For Respondent: Advocate Dhruv Rohatgi (for Dte. GHS)