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CASE NO.:

Appeal (civil) 5647-48 of 1997

PETITIONER:

Bharat Coking Coal Ltd.

RESPONDENT:

Vs.

M/s Annapurna Construction

DATE OF JUDGMENT: 29/08/2003

BENCH:

CJI. & S.B. Sinha.

JUDGMENT:

J U D G M E N T

S.B. SINHA, J :

These appeals are directed against the judgment and order dated

29.4.1997 passed by the High Court of Patna, Ranchi Bench, Ranchi in

Appeal from Original Order No.169 of 1995 (R) whereby and whereunder

the appeal preferred by the appellant herein from a judgment and order

dated 3.6.1995 passed by the Subordinate Judge, 4th Court, Dhanbad in

Title (Arbitration) Suit No.109 of 1994 was dismissed.

FACTS:

The basic fact of the matter is not in dispute. The parties

hereto entered into a contract for construction of 140 numbers of

temporary hutments, the estimated cost of which was Rs.49,45,447.81.

A formal work order was issued to the respondent herein. Entire work

in terms of the agreement was to be completed within a period of four

months.

A formal contract was entered into for the aforementioned work by

and between the parties. The said contract contained an arbitration

agreement. The said contractual job was not allegedly completed by the

respondent within the stipulated period wherefor a request was made for

extension of time till 31.12.1986 to complete the work. Further

extensions of time were sought for and granted from time to time.

Disputes and differences having arisen between the parties, the

arbitration agreement was invoked. The Chief Engineer of the

appellant-Company was appointed as the sole arbitrator. He was to give

a reasoned award. Before the arbitrator the respondent raised a claim

of Rs.55,01,640.66. The appellant herein also raised a counter claim

for a sum of Rs.28,47,860.57. By reason of an award dated 13.7.1994,

the sole arbitrator awarded a sum of Rs.18,97,729.37 with interest @

18% per annum in favour of the respondent. The counter claim of the

appellant, however, was rejected.

The said award was filed before the learned Subordinate Judge,

Dhanbad for being made a rule of court in terms of Section 14 of the

Arbitration Act, 1940 (for short 'the Act'). The appellant herein in

the said proceedings filed an objection under Sections 15, 16, 30 and

33 of the Act. The learned trial Judge by reason of a judgment dated

3.6.1995 rejected the said objection of the appellant and made the

award as rule of court, where-against an appeal was preferred which by

reason of the impugned judgment was dismissed.

However, it may be noticed at this stage that the learned

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Subordinate Judge did not grant any interest from the date of decree in

favour of the respondent wherefor an application purported to be under

Section 152 of the Code of Civil Procedure was filed. The said

application was rejected on 12.12.1995 where-against the respondent

preferred a civil revision application before the High Court. Both the

appeal being M.A. No.169 of 1995 (R) filed by the appellant herein and

Civil Revision being C.R. No.12 of 1996 (R) filed by the respondent

herein were heard together. While disposing the appeal, the revison

petition was allowed by the High Court by reason of the impugned

judgment.

SUBMISSIONS:

Mr. Ajit Kumar Sinha, learned counsel appearing on behalf of the

appellant, inter alia, submitted that the respondent having accepted

the final bill, a further claim by it was inadmissible. The learned

counsel pointed out that as a special case the appellant granted 95%

advance wherefor no interest was to be charged. The said advance was

to be adjusted from the running bills. In that view of the matter, the

learned counsel would contend that the arbitrator committed an

illegality in entertaining Claim Item Nos. 3 and 7. The learned

counsel would urge that the respondent having been granted extension,

it was obligatory on the part of the learned arbitrator to consider as

to whether the respondent was entitled to any compensation for the

alleged loss occurred on the ground of delay in completion of work,

particularly when it was agreed that the extension of time was granted

subject to payment of penalty. The learned counsel would further

submit that in terms of the contract the appellant had been supplied

with all the essential raw materials, namely, cement, steel etc. which

would cover about 95% of the total cost to be incurred for the

construction of the hutments and in that view of the matter the

respondent could not be held to be entitled to any amount by way of

escalation in the price.

Mr. S.B. Upadhyay, learned counsel appearing on behalf of the

respondent, per contra would submit that the objections filed by the

appellant herein have been thoroughly considered by the learned

Subordinate Judge and the High Court and as such it is not a fit case

wherein this Court should interfere. The learned counsel would urge

that it is not the case of the appellant that the learned sole

arbitrator did not pass a reasoned award and, thus, this court in

exercise of its jurisdiction under Section 30 of the Act would not

interfere when two views are possible. The learned counsel would submit

that while exercising its jurisdiction under Section 30 of the Act, the

court does not reappraise evidences brought on record. Strong

reliance, in this connection, has been placed on Ispat Engineering &

Foundry Works, B.S. City, Bokaro vs. Steel Authority of India Ltd.,

B.S. City, Bokaro [(2001) 6 SCC 347].

FINDINGS:

Only because the respondent has accepted the final bill, the same

would not mean that it was not entitled to raise any claim. It is not

the case of the appellant that while accepting the final bill, the

respondent had unequivocally stated that he would not raise any further

claim. In absence of such a declaration, the respondent cannot be held

to be estopped or precluded from raising any claim. We, therefore, do

not find any merit in the said submission of Mr. Sinha.

The submission of Mr. Sinha to the effect that the High Court

committed an error in granting interest from the date of the decree

purported to be in terms of Section 29 of the Arbitration Act appears

to be correct. The learned Subordinate Judge did not grant any

interest in terms of Section 29 of the Act. The same was not by way of

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a clerical or arithmetical mistake which could be corrected by the

court in exercise of its power under Section 152 of the Code of Civil

Procedure. The remedy of the respondent, therefore, was either to

prefer an appeal thereagaint or file a review petition. As the court

could not have exercised its jurisdiction under Section 152 of the Code

of Civil Procedure, the High Court in exercise of its revisional

jurisdiction could not have interfered therewith.

So far as the question of late payment of the bills is concerned,

the arbitrator has arrived at a finding of fact that there had been an

inordinate delay in respect of 10th R/A bill for Rs.4,85,403.31 which

was paid after a lapse of one year from the date of completion of work

on 15.1.1988 and a sum of Rs.54,737.53 was awarded as damages @ 12% on

the said amount for the period of 343 days to the appellant.

So far as Claim Item No.3 is concerned, the question which arose

for consideration before the arbitrator was as to whether any extra

work had been done or not. The case of the appellant was that the

respondent had not done any extra work. The arbitrator had considered

the materials on record for the purpose of arriving at a finding of

fact that certain extra work had been done by the respondent wherefor

only a sum of Rs.84,942.02 was awarded in place and instead of

Rs.1,58,862.26.

However, Mr. Sinha is correct in his submission that the learned

arbitrator has not taken into consideration the effect and purport of

the following clause in the contract:

"Provided always that :

(a) Contractor/Contractors shall not be entitled to

any payment for any additional work done unless

he/they have received an order in writing from

the Superintending Engineer/Sr. Executive

Engineer/Executive Engineer for such additional

work;

(b) The contractor/contractors shall be bound to

submit his/their claim for any such additional

work done during any month on or before the 15th

day of the following month accompanied by the

additional work; and

(c) The contractor/contractors shall not be

entitled to any payment in respect of such

additional work if he/they fail to submit

his/their claim within the aforesaid period."

The question is as to whether the claim of the contractor is de

hors the rules or not was a matter which fell for consideration before

the arbitrator. He was bound to consider the same. The jurisdiction

of the arbitrator in such a matter must be held to be confined to the

four-corners of the contract. He could not have ignored an important

clause in the agreement; although it may be open to the arbitrator to

arrive at a finding on the materials on records that the claimant's

claim for additional work was otherwise justified.

Claim Item No.4 was rejected.

The award in respect of Claim Item No.5 is not in question.

Claim Item No.6 was in relation to penalty amount of Rs.10,000/- which

was deducted by way of penalty and was not found to be justifiable, and

as such the appellant was directed to refund the said amount.

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We are furthermore concerned with Claim Item Nos.7 and 11 which

are under the headings of 'Losses due to prolongation of work' and

'Material Escalation'. It is not in dispute that a secured advance of

95% of the cost of materials was given in terms of the contract which

is to the following effect :

"Secured Advance will be paid @ 95% of the cost

of materials as a special case to get the work

completed within 4(four) months as per latest

price list of BCCL (copy enclosed), subject to

submissions of Indemnity Bond on non-Judicial

stamp paper of required value in the approved

proforma of BCCL and also Insurance against

fire, theft and damages etc. The secured

advance will be paid only on the items on which

it was payable in BCCL. The secured advance

thus paid, will be recovered in five equal

instalments from the subsequent running account

bills or on the consumption of materials

whichever is earlier."

The appellant does not dispute the same. It is also not in

dispute that the appellant has not charged any interest in respect of

the said advance. It is further not in dispute that cement @ Rs.51/-

per bag, mild steel rounds @ Rs.5460/- per metric tonne and tor steel @

Rs.5810/-per metric tonne were supplied by the appellant. However, the

claim relating to material escalation was confined to six articles

which were allegedly not supplied by the appellant, namely, bricks, AC

sheets, angles, doors, frames and shutters etc.

So far as these items are concerned, in our opinion, the learned

sole arbitrator should have taken into consideration the relevant

provisions contained in the agreement as also the correspondences

passed between the parties. The question as to whether the work could

not be completed within the period of four months or the extension was

sought for on one condition or the other was justifiable or not, which

are relevant facts which were required to be taken into consideration

by the arbitrator.

It is now well settled that the Arbitrator cannot act

arbitrarily, irrationally, capriciously or independent of the contract.

In Associated Engineering vs. Govt. of A.P. [(1991) 4 SCC 93],

this Court clearly held that the arbitrators cannot travel beyond the

parameters of the contract. In M/s. Sudarsan Trading Co. v. The Govt.

of Kerala [(1989) 2 SCC 38], this Court has observed that an award may

be remitted or set aside on the ground that the arbitrator in making it

had exceeded his jurisdiction and evidence of matters not appearing on

the face of it, will be admitted in order to establish whether the

jurisdiction had been exceeded or not, because the nature of the

dispute is something which has been determined outside the award,

whatever might be said about it in the award by the Arbitrator. This

Court further observed that an arbitrator acting beyond his

jurisdiction is a different ground from the error apparent on the face

of the award.

There lies a clear distinction between an error within the

jurisdiction and error in excess of jurisdiction. Thus, the role of the

arbitrator is to arbitrate within the terms of the contract. He has no

power apart from what the parties have given him under the contract. If

he has travelled beyond the contract, he would be acting without

jurisdiction, whereas if he has remained inside the parameter of the

contract, his award cannot be questioned on the ground that it contains

an error apparent on the face of the records.

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In paragraph 577 of Halsbury's laws of England 4th Edition Vol 2,

the law has been stated in the following terms:

"As an arbitrator (and subsequently any umpire)

obtains his jurisdiction solely from the

agreement for his appointment it is never open

to him to reject any part of that agreement, or

to disregard any limitations placed on his

authority, as, for example, a limitation on his

right to appoint an umpire. Nor can he confer

jurisdiction upon himself by deciding in his

own favour some preliminary point upon which

his jurisdiction depends. Nevertheless he is

entitled to consider the question whether or

not he has jurisdiction to act in order to

satisfy himself that it is worth while to

proceed, and an award which expressly or

impliedly refers to such a finding is not

thereby invalidated."

In 'Commercial Arbitration' by Mustill and Boyd at page 598 it is

stated :

"in the first place, it could be argued that an

arbitrator who is appointed in respect of a

dispute arising under a contract expressly or

impliedly governed by English law is authorised

by the parties to pronounce upon the issues in

accordance with that law, and in no other way.

Any decision which proceeds, on a different

basis lies outside the scope of the

arbitrator's mandate to bind the parties. The

award is accordingly void for want of

jurisdiction, since the arbitrator has done

something which the parties never authorised

him to do. Secondly, it would be possible to

draw support from a line of authority

culminating in three important decisions during

the past decade which approach the question

whether a tribunal can effectively decide

contrary to law by using the word 'jursdiction'

in the first of the three senses indicated

above. Whilst a reconciliation of this decision

is a matter for a treatise on administrative

law, there is no doubt that in relation to

certain kinds of tribunal the law has

recognised a distinction between errors of law

which go to jurisdiction and those which do

not, and that there is a difference between

tribunal which has arrived at a decision by

asking itself the wrong question, and one which

has correctly identified the question, but has

supplied the wrong answer in terms of law.

Following up this line of authority, it could

be said that an arbitrator empowered to decide

the rights of the parties under a contract

governed by English law, who asks himself not

what England law has to say about those right,

but what the rights ought to be if assessed in

accordance with his own ideas of an extra-legal

concept of justice, is either asking himself

the wrong question, or not really asking a

question at all."

In Alopi Parshad & Sons Ltd. v. Union of India [(1960) 2 SCR

793], this Court clearly held that if damages are awarded ignoring the

expressed terms of the contract, the arbitrator would commit misconduct

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of the proceedings. Reference in this connection may also be made to

Naihati Jute Mills Ltd. Vs. Khyaliram Jagannath [(1968) 1 SCR 821].

In Heyman v. Darwin [1942 (1) All ER 327], it was held that

arbitrator as a rule cannot clothe himself with the jurisdiction when

it has none.

In paragraph 622 at pages 330-331 Halsbury's Laws of England (4th

Edn) Vol2 it has been stated but misconduct occurs, for example;

(1) If the arbitrator or umpire fails to decide

all the matters which were referred to him.

(2) If by his award the arbitrator or umpire

purports to decide matters which have not in

fact been included in the agreement of

reference, for example, where the arbitrator

construed the lease (wrongly), instead of

determining the rental and the value of

buildings to be maintained on the land; or

where the award contains unauthorised

directions to the parties, or where the

arbitrator, has power to direct what shall be

done but his directions affect the interest of

third persons; or where he decided to the

parties rights, not under the contract upon

which the arbitration had proceeded but under

another contract;

(3) If the award is inconsistent, or is

uncertain or ambiguous, or even if there is

some mistake of fact, although in that case the

mistake must be either admitted or at least

clear beyond any reasonable doubt;"

In Associated Engineering (supra), it has been held:

"If the arbitrator commits an error in the

construction of the contract, that is an error

within his jurisdiction. But if he wanders

outside the contract and deals with matters not

allotted to him, he commits a jurisdiction

error. Such error going to his jurisdiction can

be established by looking into material outside

the award. Extrinsic evidence is admissible in

such cases because the dispute is not something

which arises under or in relation to the

contract or dependent on the construction of

the contract or to be determined within the

award. The dispute as to jurisdiction is a

matter which is outside the award or outside

whatever may be said about it in the award. The

ambiguity of the award can, in such cases, be

resolved by admitting extrinsic evidence. The

rationale of this rule is that the nature of

the dispute is something which has to be

determined outside and independent of what

appears in the award. Such jurisdictional error

needs to be proved by evidence extrinsic to the

award.

In the instant case, the umpire decided matters

strikingly outside his jurisdiction. He

outstepped the confines of the contract. He

wandered far outside the designated area. He

digressed far away from the allotted task. His

error arose not by misreading or misconstruing

or misunderstanding the contract, but by acting

in excess of what was agreed. It was an error

going to the root of his jurisdiction because

he asked himself the wrong question,

disregarded the contract and awarded in excess

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of his authority. In many respects, the award

flew in the face of provisions of the contract

to the contrary.

The umpire, in our view, acted unreasonably,

irrationally and capriciously in ignoring the

limits and the clear provisions of the

contract. In awarding claims which are totally

opposed to the provisions of the contract to

which he made specific reference in allowing

them, he has misdirected and misconducted

himself by manifestly disregarding the limits

of his jurisdiction and the bounds of the

contract from which he derived his authority

thereby acting ultra fines compromissi."

In State of Orissa v. Dandasi Sahu [1988 (4) SCC 12], this Court

observed:

"In our opinion, the evidence of such state of

affairs should make this Court scrutinise the

award carefully in each particular case but

that does not make the court declare that all

high amounts of award would be bad per se."

In K.P. Poulose v. State of Kerala [(1975) 2 SCC 236], this

Court observed that the case of legal misconduct would be complete if

the arbitrator on the face of the award arrives at an inconsistent

conclusion even on his own finding or arrives at a decision by ignoring

the very material documents which throw abundant light on the

controversy to help a just and fair decision.

In K.V. George v. The Secretary to Government, Water and Power

Dept, Tri-vendrum [1989 (4) SCC 595], this Court held :-

"In the instant case, the contract was

terminated by the respondents on April 26,

1980, and as such all the issues arose out of

the termination of the contract and they could

have been raised in the first claim petition

filed before the Arbitrator by the Appellant.

This having not been done the second claim

petition before the Arbitrator raising the

remaining disputes is clearly barred. With

regard to the submission as to the

applicability of the principles of res judicata

as provided in Section 11 of the Code of Civil

Procedure to arbitration case, it is to be

noted that Section 41 of the Arbitration Act

provides that the provisions of the Code of

Civil Procedure will apply to the Arbitration

proceedings. The provisions of res judicata are

based on the principles that there shall be no

multiplicity of proceedings and there shall be

finality of proceedings. This is applicable to

the arbitration proceedings as well."

This Court referred to the decision in Satish Kumar v. Surinder

Kumar [AIR 1970 SC 833] and held:

"The true legal position in regard to the

effect of an award is not in dispute. It is

well settled that as a general rule, all claims

which are the subject-matter of a reference to

arbitration merge in the award which is

pronounced in the proceedings before the

arbitrator and that after an award has been

pronounced, the rights and liabilities of the

parties in respect of the said claims can be

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determined only on the basis of the said award.

After an award is pronounced, no action can be

started on the original claim which had been

the subject-matter of the reference....... This

conclusion, according to the learned Judge, is

based upon the elementary principle that, as

between the parties and their privies, an award

is entitled to that respect which is due to

judgment of a court of last resort. Therefore,

if the award which has been pronounced-between

the parties has in fact, or can in law, be

deemed to have dealt with the present dispute,

the second reference would be incompetent. This

position also has not been and cannot be

seriously disputed."

In Union of India vs. Jain Associates and Another [(1994) 4 SCC

665], this Court upon following K.P. Poulose (supra) and Dandasi Sahu

(supra) held :

"8. The question, therefore, is whether the

umpire had committed misconduct in making the award.

It is seen that claims 11 and 12 for damages and loss

of profit are founded on the breach of contract and

Section 73 encompasses both the claims as damages.

The umpire, it is held by the High Court, awarded

mechanically, different amounts on each claim. He

also totally failed to consider the counter-claim on

the specious plea that it is belated counter-

statement. These facts would show, not only the state

of mind of the umpire but also non-application of the

mind, as is demonstrable from the above facts. It

would also show that he did not act in a judicious

manner objectively and dispassionately which would go

to the root of the competence of the arbitrator to

decide the disputes."

In Sikkim Subba Associates Vs. State of Sikkim [(2001) 5 SCC

629], this Court held:

"It would be difficult for the courts to either

exhaustively define the word "misconduct" or

likewise enumerate the line of cases in which

alone interference either could or could not be

made. Courts of law have a duty and obligation

in order to maintain purity of standards and

preserve full faith and credit as well as to

inspire confidence in alternate dispute

redressal method of arbitration, when on the

face of the award it is shown to be based upon

a proposition of law which is unsound or

findings recorded which are absurd or so

unreasonable and irrational that no reasonable

or right-thinking person or authority could

have reasonably come to such a conclusion on

the basis of the materials on record or the

governing position of law to interfere."

In Maharashtra State Electricity Board Vs. Sterilite Industries

(India) and Another [(2001) 8 SCC 482], it was observed:

"In the light of this enunciation of law, we

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are of the view that unless the error of law

sought to be pointed out by the learned counsel

for the petitioners in the instant case is

patent on the face of the award, neither the

High Court nor this Court can interfere with

the award. The exercise to be done by examining

clause 14(ii) of the contract entered into

between the parties, construing the same

properly and thereafter applying the law to it

to come to a conclusion one way or the other,

is too involved a process and it cannot be

stated that such an error is apparent or patent

on the face of the award. Whether under the

context of the terms and conditions of a

contract, a stipulation in the form and nature

of clause 14(ii) operates as a special

provision to the exclusion of Section 73 of the

Indian Contract Act is a matter of appreciation

of facts in a case, and when the decision

thereon is not patently absurd or wholly

unreasonable, there is no scope for

interference by courts dealing with a challenge

to the award."

In W.B. State Warehousing Corporation and Another Vs. Sushil

Kumar Kayan and Others [(2002) 5 SCC 679], this Court opined:

"In order to determine whether the arbitrator

has acted in excess of his jurisdiction what

has to be seen is whether the claimant can

raise a particular claim before the arbitrator.

If there is a specific term in the contract or

the law which does not permit the parties to

raise a point before the arbitrator and if

there is a specific bar in the contract to the

raising of the point, then the award passed by

the arbitrator in respect thereof would be in

excess of his jurisdiction."

The High Court was, therefore, required to consider, the

objections filed by the Appellant herein from the aforementioned points

of view.

Bharat Coking Coal Ltd. Vs. L.K. Ahuja & Co. [(2001) 4 SCC 86],

whereupon Mr. Sinha has placed strong reliance cannot be held to be

applicable in this case as therein the court was concerned with hybrid

award. The court was not in a position to ascertain as to whether

escalation charges had been made against the materials supplied by the

principal or also other materials.

It is no doubt true that the jurisdiction of this Court while

considering the validity of an award is limited as has been stated by

this Court in Ispat Engineering & Foundry Works (supra):

"4. Needless to record that there exists a long

catena of cases through which the law seems to

be rather well settled that the reappraisal of

evidence by the court is not permissible. This

Court in one of its latest decisions (Arosan

Enterprises Ltd. v. Union of India ((1999) 9

SCC 449)) upon consideration of decisions in

Champsey Bhara & Co. v. Jivraj Balloo Spg. &

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Wvg. Co. Ltd. (AIR 1923 PC 66 : 1923 AC 480),

Union of India v. Bungo Steel Furniture (P)

Ltd. (AIR 1967 SC 1032 : (1967) 1 SCR 324), N.

Chellappan v. Secy., Kerala SEB ((1975) 1 SCC

289), Sudarsan Trading Co. v. Govt. of Kerala

((1989) 2 SCC 38), State of Rajasthan v. Puri

Construction Co. Ltd. ((1994) 6 SCC 485) as

also in Olympus Superstructures (P) Ltd. v.

Meena Vijay Khetan ((1999) 5 SCC 651) has

stated that reappraisal of evidence by the

court is not permissible and as a matter of

fact, exercise of power to reappraise the

evidence is unknown to a proceeding under

Section 30 of the Arbitration Act. This Court

in Arosan Enterprises ((1999) 9 SCC 449)

categorically stated that in the event of there

being no reason in the award, question of

interference of the court would not arise at

all. In the event, however, there are reasons,

interference would still be not available

unless of course, there exist a total

perversity in the award or the judgment is

based on a wrong proposition of law. This Court

went on to record that in the event, however,

two views are possible on a question of law,

the court would not be justified in interfering

with the award of the arbitrator if the view

taken recourse to is a possible view. The

observations of Lord Dunedin in Champsey Bhara

(AIR 1923 PC 66 : 1923 AC 480) stand accepted

and adopted by this Court in Bungo Steel

Furniture (AIR 1967 SC 1032 : (1967) 1 SCR 324)

to the effect that the court had no

jurisdiction to investigate into the merits of

the case or to examine the documentary and oral

evidence in the record for the purposes of

finding out whether or not the arbitrator has

committed an error of law. The court as a

matter of fact, cannot substitute its own

evaluation and come to the conclusion that the

arbitrator had acted contrary to the bargain

between the parties."

However, as noticed hereinbefore, this case stands on a different

footing, namely, that the arbitrator while passing the award in

relation to some items failed and/or neglected to take into

consideration the relevant clauses of the contract, nor did he take

into consideration the relevant materials for the purpose of arriving

at a correct fact. Such an order would amount to misdirection in law.

We are, therefore, of the opinion that the matter requires

reconsideration. Having regard to the facts and circumstances of this

case and particularly keeping in view the fact that the matter relates

to pure interpretation of document which gives rise to question of law

and instead and in place of remitting the matter to the named

arbitrator, we would direct that the disputes in relation to Claim item

Nos.3, 7 and 11 be referred to Hon'ble Mr. Justice D.N. Prasad, a

retired Judge of the Jharkhand High Court on such terms and conditions

as may be mutually agreed upon by the parties. The learned arbitrator

is requested to consider the desirability of making his award as

expeditiously as possible keeping in view the fact that the matter has

been pending for a long time.

These appeals are allowed to the aforementioned extent. No

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costs.