JUDGMENT :

Dhananjaya Y. Chandrachud, J.

1. Leave granted.

2. The appeal arises from a judgment of a Single Judge of the High Court of Punjab and Haryana dated 18 May 2016 in FAO 2637 of 2013.

3. By an arbitral award dated 20 December 2005, the sole arbitrator rejected the claims of the first and second respondents¹[hereinafter referred to as the respondents], amounting to Rs 4,88,437 and upheld the action of the appellants of forfeiting the security deposit. The award of the arbitrator was challenged under Section 34 of the Arbitration and Conciliation Act 1996²[“1996 Act”] in Arbitration Case No 17 of 2006 before the District Judge at Chandigarh. By a judgment dated 9 November 2012, the District Judge, finding no substance in the petition under Section 34 of the 1996 Act, rejected it. The judgment of the District Judge was challenged before the High Court in FAO 2637 of 2013 under Section 37 of the 1996 Act. The High Court allowed the appeal, inter alia, on the ground that the award lacked reasons and the reasons which were assigned were arbitrary and erroneous. Having held that the award was liable to be set aside, the High Court decreed the claim of the respondents for the supply of 22,389 wooden batons, together with the security deposit of Rs 1,00,000 and awarded interest at the rate of 12% from the date from which the amount became due.

4. While issuing notice on 24 March 2017, this Court stayed the operation of the impugned judgment and order of the High Court.

5. The dispute between the parties arose from a contract which was entered into between the appellants and the respondents on 4 April 2002 for the supply of 24,900 batons. Of the contracted supply, 22,389 batons were accepted by the appellants while the rest were rejected. Pursuant to the contract, the respondents had deposited a sum of Rs 1,00,000 towards security. The dispute between the parties was referred to arbitration in terms of clause 17 of the agreement by an order of the Civil Judge (Junior Division), Faridkot on 28 June 2005. The respondents raised a claim in the amount of Rs 4,88,437 besides raising a grievance in regard to the forfeiture of the security deposit. In the written statement filed by the appellants, the defence was that the supply effected by the respondents was sub-standard and not in accordance with the specifications of the tender. After recording evidence, the sole arbitrator rejected the claim. After considering the evidence of the witness for the claimant and for the appellants, the sole arbitrator arrived at the conclusion that the material which had been supplied was defective and that the forfeiture of the security deposit was valid.

6. In appeal, the High Court has set aside the judgment of the District Judge on the basis of the following reasoning:

“I have heard the learned counsel for the parties and appraised the paper book and of the view that the findings arrived at by the Arbitrator for justifying the withholding of the payment for accepted wooden battons and security is highly erroneous and not in consonance with the provisions of the 1996 Act and thus, the Award suffers from the vice of the provisions of sub-section 3 of Section 28 of the 1996 Act. Reasoning assigned for withholding of the security is allegedly fortified as per the Clause 8 of the Agreement, whereas, Clause 8 says that only the charges of transportation to be borne by the appellant-contractor, but not with regard to withholding of the security. The Arbitrator did not examine the acceptance letter dated 04.04.2002 acknowledging the receipt of 22389 wooden battons which were confirming to the specification of the Contract. The claim was only with regard to the payment of the aforementioned battons and refund of the security. The award lacks reasons, much less, not in consonance with the provisions of the 1996 Act and the same is not sustainable. The. reasons assigned by the Arbitrator is not only fallacious and arbitrary, much less, erroneous. No reasons have be