The appeal was filed in Supreme Court of India by Special Leave Petition against the judgement of the High Court of Bombay at Goa.
No Acts & Articles mentioned in this case
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CASE NO.:
Appeal (civil) 4040-4041 of 2002
PETITIONER:
SHYAMA CHARAN AGARWALA & SONS
RESPONDENT:
UNION OF INDIA
DATE OF JUDGMENT: 15/07/2002
BENCH:
D.P. MOHAPATRA & P. VENKATARAMA REDDI
JUDGMENT:
JUDGMENT
2002(1) Suppl.SCR 148 = 2002(6)SCC 201
With
Appeal (civil) 4043-4044 of 2002
D.P.MOHAPATRA,J.
Leave is granted in all the SLPs.
These appeals are directed against the
judgment of the High Court of Bombay at Goa, dated 29th
February, 2000. Indeed both the parties to the dispute
have filed appeals assailing the judgment of the High
Court.
M/s.Shyama Charana Agarwala & Sons
(hereinafter referred to as 'the Contractor') were entrusted
with the work of construction of married accommodation
for 80MCPOs/CPOs/80Pos and 16 sailors at Goa Naval
Area, Varunapuri, Mangor Hill, Vasco-da-Gama, by the
Union of India (for short 'the UOI') through the Chief
Engineer (Navy), Cochin Naval Base under the agreement
No.CECZ/GOA-12 of 1990-91. The work order was placed
vide letter no.8319/43/E-8, dated 20-7-1990 for
Rs.2,62,44,057-94. The date of commencement of the
work was 16-8-1990 and the work was to be completed by
15-11-1991.
The same contractor by another agreement
no.CECZ/GOA/40 of 1991-92 was entrusted with the work
of construction of married accommodation for MCOs/CPOs
and JCOs at Goa. The work order was placed vide letter
no.8305/88/E-8, dated 5-2-1992. The date of
commencement of the work was 24-2-1992 and the work
was to be completed by 23-2-1994.
Before the work could be completed certain
differences/disputes arose between the parties. Under
Clause 70 of the General Conditions of the Contract all
disputes [(other than those for which the decision of the
CWE (Commander Works Engineer) or any other person is
by the contract expressed to be final and binding)] shall,
after written notice by either party to the contract to the
other of them, be referred to sole arbitration of an Engineer
Officer to be appointed by the Authority mentioned in the
tender document. In the said clause it was further
provided that unless both the parties agree in writing,
such reference shall not take place until and unless after
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completion or alleged completion of the work or
termination or determination of the contract under
Conditions 5, 56 and 57 thereof. The contractor gave
notice for appointment of arbitrator specifying the items of
dispute for adjudication. The UOI agreed for appointment
of arbitrator. Accordingly Shri M.V.S.Rao, Chief Engineer
(Air Force), Bangalore was appointed as the Sole Arbitrator
vide the Engineer-in-Chief's letter dated 30th December,
1993. The nature of disputes raised in both the cases are
similar though the amounts claimed against them differ.
The disputes referred for arbitration were enumerated at
Appendix 'A' to the said letter. In the contract agreement
No.CECZ/GOA-12/1990-91 the items of claim were as
follows :
Sr.No.
Brief desc-ription of Claims/Items
Amount in
Rupees
(Approx.
1
Reimbursement of additional costs in
the procurement of stone aggregate
from crushers of Belgaum, Hubli, etc.
in lieu of local sources of Goa
8,00,000-00
2
Reimbursement of additional costs in
excavation encountering rock other
than soft/disintegrated rock/laterite
rock
14,00,000-00
3
Reimbursement of additional costs
due to working in restricted area in
lieu of unrestricted area
25,00,000-00
4
Interest on Serial Nos.1,2,3 above
Not indicated
5
Costs of reference
50,000-00
In respect of the contract agreement
No.CECZ/GOA/40/1991-92 the following claims were
made by the contractor :
Sr.No.
Brief desc-ription of Claims/Items
Amount in
Rupees
(Approx.
1
Reimbursement of additional costs in
the procurement of stone aggregate
from crushers of Belgaum, Hubli, etc.
in lieu of local sources of Goa
36,00,000-00
2
Reimbursement of additional costs in
excavation encountering rock other
than soft/disintegrated rock/laterite
rock
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12,00,000-00
3
Reimbursement of additional costs
due to working in restricted area in
lieu of unrestricted area
30,00,000-00
4
Interest on Serial Nos.1,2,3 above
Not indicated
5
Costs of reference
50,000-00
The arbitrator by his Award dated 28th
February, 1994 accepted the claims raised by the
contractor. In respect of CECZ/GOA-12/1990-91 the
award reads as follows:
Reference made to the
Arbitrator
Award given by the
Arbitrator
CLAIM NO.1
Reimbursement of
additional cost in
procurement of stone
aggregate from
crushers of Belgaum,
Hubli etc. in Lieu of
Local sources of Goa.
Rs.8,00,000/-.
13.10 Union of India shall
reimburse for the increase in rates
to the contractor M/s.Shyama
Charan Agarwala & Sons as
under:-
(i) For the quantity of stone
aggregate already brought after
Aug.92 and upto 24-01-94.
20 mm/12.5mm 2268 cm @
Rs.250/-per cm Rs.5,67,000/-
40 mm-100 cm @
Rs.230/- per cm Rs. 23,000/-
-----------------
Rs.5,90,000/-
============
(ii) For the quantities of stone
aggregate brought after 24-01-94,
reimbursement for increase in
rates shall be made at the rate of
Rs.250/- per cm for 20mm/
12.5 mm,
Rs.230/- per cm for 40 mm, and
Rs.225/- per cm for 63-40 mm.
This reimbursement shall be made
in each RAR for the actual quantity
brought at site.
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(iii) Reimbursement/refund on
variation in prices of material/fuel
and labour wages, as per
conditions 18 and 19 of special
condition on pages 111 to 116 of
the contract shall also be paid in
RARs for the stone aggregates stone
metal stone chipping brought after
24-01-94 as per the said
conditions, excepting that the value
of WO as in condition 18(a) for
stone aggregate stone metal/stone
chipping shall be taken as on 24-
01-94 or any date immediately after
24-01-94 as published by the
Economic Adviser, Govt. of India.
CLAIM NO.2
Reimbursement of
additional costs in
excavation
encountering rock
other than
soft/disintegrated
rock/laterite rock,
Rs.14,00,000/-
14.7 Union of India shall
pay to the contractor
M/s.Shyama Charan
Agarwala & Sons as per
details given below :-
(i) Additional payment .
For works already
executed using chisels.
(a)Excavation (Schedule A Partl)
3930 cm @Rs.118.70 per cm
Rs.3,83,594.80
(b) Surface excavation (as in item I
Schedule A Part V)
50 SM @ 12.41 per SM
Rs. 620.50
-------------------
Total Rs.3,84,215.30
=============
(ii) For excavation works yet to
be executed using Chisels :
(a) Additional payment for
Schedule A Part I for excavation
@Rs.118.76 per cm.
(b) Net payment for item 1
Schedule A Part V @ Rs.18.33 per
SM.
(c) Net payment for item 2
Schedule A Part VI @Rs.165.69
per cm.
(d) Net payment for item 1
Schedule A Part VII@ Rs.18.33
per SM.
(e) Net payment for item 2
Schedule A Part VII@ Rs.120.12
per cm.
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(f) Net payment for item 3
Schedule A Part VII @Rs.129.15
per cm.
(g) Net payment for item 6
Schedule A Part VII @Rs.165.69
per cm.
(h) Net payment for item 2(a)
Schedule A Part VIII @Rs.189.36
per cm.
(i) Net payment for item 2(b)
Schedule A Part VI @Rs.199.68
per cm.
(j) Extra over rate for item 26
Schedule A Part IX @Rs.294.03
each.
(k) Extra over rate for item 27
Schedule A Part IX @ Rs.441.05
each.
(iii) Reimbursement on variation
of prices as per conditions 18 and
19 of special condition of CA shall
be paid as under :-
(a) Rs.38,635/- shall be paid on
Rs.3,84,215.30 as in (i) above for
works already executed.
(b) Further, reimbursement/
refund for works done in future as
in (ii) above shall be worked out
as per conditions 18 and 19 of
special condition of CA and shall
be paid in the RARs as per CA.
CLAIM NO.3
Reimbursement of
additional costs due
to working in
restricted area in
lieu of unrestricted
area Rs.25,00,000/-
15.5 AWARD
(i) It has been brought out that
the amount of work done
including material collected upto
24-01-94 is Rs.2,03,00,000/-.
Considering 9% on
Rs.2,03,00,000/- a sum of
Rs.18,27,000/- is allowed on this
account, which should be paid to
the contractor by the Union of
India.
(ii) The Respondent, Union of
India shall also pay 9% extra on
this account for the works carried
out including material collected
beyond Rs.2,03,00,000/- to the
contractor in each RAR, till such
time the work is completed.
(iii) As regards contractor claim
of reimbursement/refund on
variation of prices, as per
conditions 18 and 19 of special
condition of CA, this should also
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be paid, as the value of work
done is increased on account of
this factor, I award as under :-
(a) A sum of Rs.1,83,718/-
towards reimbursement on
variation of prices as per
conditions 18 and 19 of special
condition of CA for the works
done upto 24-01-94 which is
Rs.2,03,00,000/- as above
should be paid to the contractor
by the Union of India.
(b) Reimbursement/refund on
variation of prices for works done
beyond 24-01-94 shall also be
made on the principle that the
value of work done including
material collected, as assessed in
the normal manner, shall be
increased by 9% to cater for the
restriction and reimbursement/
refund shall be worked out on
this increased value of work done
including material collected as
per conditions 18 and 19 of the
special condition of CA and paid
to the contractor by the Union of
India in RAR as per condition 18
and 19 ibid.
CLAIM NO.4
Interest in SL 1 to 3
above.
Amount not
indicated
Interest on claim no.1 to 3 (Past,
Pendente lite and future)
(i) Past interest I allow a sum
of Rs.7,75,920/- for past interest
on claim No.1(i), 2(i) and 3(i).
(ii) Pendente lite interest
There is no delay. I have been
appointed Arbitrator on 30-12-93
and had entered upon the
reference on 21-01-94 and the
award has also been finalized.
Therefore, claim of pendente lite
interest is rejected.
(iii) Future interest This is
allowed. The Union of India shall
pay interest @ 18% per annum if
the amount of award as in item (i)
of claim no.1, item (i) and (iii) (a)
of claim no.2 and item (i) and (iii)
(a) of claim no.3 is not paid
within 30 days from the date of
Award, till payment of the award
or decree from the Court,
whichever is earlier. If the award
is not paid within 30 days as
above, interest will be calculated
from the date of award to the
date of payment or decree from
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the Court whichever is earlier.
CLAIM NO.5
Cost of reference.
Rs.50,000/-.
This claim is rejected.
In respect of CECZ/GOA/40/1990-91 the
award reads as follows :
Reference made to the
Arbitrator
Award given by the
Arbitrator
CLAIM NO.1
Reimbursement of
additional cost in
procurement of stone
aggregate from
crushers of Belgaum,
Hubli etc. in Lieu of
Local sources of Goa.
Rs.36,00,000/-.
Union of India shall reimburse for
the increase in rates to the
contractor M/s.Shyama Charan
Agarwala & Sons as under:-
(i) For the quantity of stone
aggregate already brought after
Aug.92 and upto 24-01-94.
20 mm/3934 cm @ Rs.250/-
per cm Rs.9,83,500/-
40 mm-662cm @
Rs.230/- per cm Rs.1,52,260/-
-----------------
Rs.11,35,760/-
============
(ii)For the quantities of stone
aggregate brought after 24-01-94,
reimbursement for increase in
rates shall be made at the rate of
Rs.250/- per cm for 20mm/
Rs.230/- per cm for 40 mm.
This reimbursement shall be made
in each RAR for the actual quantity
brought at site.
(iii) Reimbursement/refund on
variation in prices of material/fuel
and labour wages, as per
conditions 18 and 19 of special
condition on pages 95A,96 to 99 of
the contract shall also be paid in
RARs for the stone aggregates stone
metal stone chipping brought after
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24-01-94 as per the said
conditions, excepting that the value
of WO as in condition 18(a) for
stone aggregate stone metal/stone
chipping shall be taken as on 24-
01-94 or any date immediately after
24-01-94 as published by the
Economic Adviser, Govt. of India.
CLAIM NO.2
Reimbursement of
additional costs in
excavation
encountering rock
other than
soft/disintegrated
rock/laterite rock,
Rs.12,00,000/-
14.7 Union of India shall
pay to the contractor
M/s.Shyama Charan
Agarwala & Sons as per
details given below :-
(i)Additional payment .
For works already
executed using chisels.
(a)Excavation (Schedule A Part l)
3870 cm @Rs.138.41 per cm
Rs.5,35,646.70
(b)Excavation in column pits
640 cm @ Rs.138.41 percm.
- Rs.88,582.40
(c)Excavation over areas
(Schedule A part V item I)
150 cm. @ Rs.260.14 per cm.
- Rs.39,021.00
-------------------
TOTAL Rs.6,63,250.10
==============
(ii)For excavation works yet to be
executed using Chisels :
(a)Additional payment for
Schedule A Part I for excavation
at applicable rates as in item (i)
above.
(b)Net payment (extra over) for
item 7 Schedule A Part III @
Rs.197.12 each earthing over and
above the rate given in item 7 of
Schedule A Part III.
(c) Net payment for item 1
Schedule A Part V@ Rs.260.14 per
cm.
Reimbursement on variation of
prices as per conditions 18 and
19 of special condition of CA shall
be paid as under :-
(d) Rs.41,367.51/- shall be paid
on Rs.6,63,250.10 as in (i) above
for works already executed.
(e) Further, reimbursement/
refund for works done in future as
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in (ii) above shall be worked out
as per conditions 18 and 19 of
special condition of CA and shall
be paid in the RARs as per CA.
CLAIM NO.3
Reimbursement of
additional costs due
to working in
restricted area in
lieu of unrestricted
area Rs.30,00,000/-
15.5 AWARD
(i)It has been brought out that
the amount of work done
including material collected upto
24-01-94 is Rs.1,25,00,000/-.
Considering 9% on
Rs.1,25,00,000/- a sum of
Rs.11,25,000/- is allowed on this
account, which should be paid to
the contractor by the Union of
India.
(ii)The Respondent, Union of
India shall also pay 9% extra on
this account for the works carried
out including material collected
beyond Rs.1,25,00,000/- to the
contractor in each RAR, till such
time the work is completed.
(iii)As regards contractor claim of
reimbursement/refund on
variation of prices, as per
conditions 18 and 19 of special
condition of CA, this should also
be paid, as the value of work
done is increased on account of
this factor, I award as under :-
(a)A sum of Rs.70,167/- towards
reimbursement on variation of
prices as per conditions 18 and
19 of special condition of CA for
the works done upto 24-01-94
which is Rs.1,25,00,000/- as
above should be paid to the
contractor by the Union of India.
(b)Reimbursement/refund on
variation of prices for works done
beyond 24-01-94 shall also be
made on the principle that the
value of work done including
material collected, as assessed in
the normal manner, shall be
increased by 9% to cater for the
restriction and reimbursement/
refund shall be worked out on
this increased value of work done
including material collected as
per conditions 18 and 19 of the
special condition of CA and paid
to the contractor by the Union of
India in RAR as per condition 18
and 19 ibid.
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CLAIM NO.4
Interest in SL 1 to 3
above.
Amount not
indicated
Interest on claim no.1 to 3 (Past,
Pendente lite and future)
(ii) Past interest I allow a sum
of Rs.4,14,761/- for past interest
on claim No.1(i), 2(i) and 3(i) vide
pages 13, 19 & 21 respectively
herein before.
(iii) Pendente lite interest
There is no delay. I have been
appointed Arbitrator on 30-12-93
and had entered upon the
reference on 21-01-94 and the
award has also been finalized.
Therefore, claim of pendente lite
interest is rejected.
(iv) Future interest This is
allowed. The Union of India shall
pay interest @ 18% per annum if
the amount of award as in item (i)
of claim no.1, item (i) and (iii) (a)
of claim no.2 and item (i) and (iii)
(a) of claim no.3 is not paid
within 30 days from the date of
Award, till payment of the award
or decree from the Court,
whichever is earlier. If the award
is not paid within 30 days as
above, interest will be calculated
from the date of award to the
date of payment or decree from
the Court whichever is earlier.
The contractor filed a petition under Section 14
of the Arbitration Act, 1940 (for short 'the Act') seeking a
direction to the arbitrator to file the final Award dated 28th
February, 1994 with all records in the Court so that the
Award could be made Rule of the Court with interest @
24% p.a. from the date of decree till payment. Notice of the
said petition was given to the UOI who filed an application
under Sections 30 and 33 of the Act raising certain
objections against the Award. The objections filed by the
UOI were rejected by the Civil Judge, Senior Division,
Vasco-da-Gama vide judgment dated 8th April, 1996 and
the Award dated 28th February, 1994 of the Arbitrator was
made Rule of the Court with a further direction to the UOI
to pay the contractor simple interest @ 18% p.a. on the
principal amount adjudged in the Award from the date of
the decree till the date of actual payment. Against the said
order the UOI filed appeals before the High Court under
Section 39 of the Act. The High Court by the judgment
rendered on 29th February, 2000 allowed the appeals in
part. The operative portion of the judgment reads as
follows :
"For the aforesaid reasons, the appeals are
partly allowed. The claim for quantity of
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stone aggregate already brought after
August, 1992 upto 20-4-1994 in Arbitration
Appeal No.2 of 1996 and Arbitration Appeal
No.3 of 1996 to the tune of Rs.11,35,760/-
and Rs.5,90,000/-, respectively, is
sustained. The interest awarded on the said
claim by the Arbitrator is also sustained.
Except for this, the remaining claims granted
by the Arbitrator are set aside. In the facts
and circumstances, we shall leave the
parties to bear their costs."
The High Court declined to interfere with the Award of the
Arbitrator relating to claim Item No.1 upto 24.1.1994 when
the statement of claims was filed before him by the parties.
The High Court held that the Award in respect of claim no.1
beyond 24-1-94 did not form part of the terms of reference
and further that the future claim in respect of stone
aggregate would be subject to various factors including
market conditions and whether the shortage continued. The
High Court further held that under the circumstances, the
Arbitrator could not have granted relief relating to future
claim of the contractor with reference to stone aggregate.
The High Court recorded the following finding in this
regard:-
"Therefore, while sustaining claim no.1 in
both the appeals for the quantity of stone
aggregate already brought after August 1992
upto 24-1-1994, and Award of
Rs.11,35,760/- in Arbitration Appeal No.2 of
1996 and Rs.5,90,000/- in Arbitration
Appeal No.3 of 1996, the remaining part of
Order on claim no.1 is set aside." [See page
31 para 21 last portion]
On claim no.2 the High Court interpreted clauses 3.3.2,
3.3.3 and 3.3.4 of the contract and held that excavation in
any type of laterite rock, that is to say, soft or hard shall be
treated as excavation in soft/disintegrated rock. The High
Court further held that the Arbitrator had totally
overlooked Clause 3.3.4 while coming to the conclusion on
the basis of Clauses 3.3.2 and 3.3.3 alone. The High Court
was of the view that the Arbitrator had not only
misinterpreted the relevant clauses totally ignoring the
Clause 3.3.4, but had also taken 'undue' interest in the
matter in order to find out the classification of the strata
which in fact, in view of Clause 3.3.4 would not have much
relevance. The High Court held that the Arbitrator had
misconducted himself and therefore, the Award against
claim no.2 was totally unwarranted and invalid. According
to the High Court, the view taken by the Arbitrator could
not be said to be a possible view on the interpretation of
Clauses 3.3.2, 3.3.3 and 3.3.4 read together. The High
Court summed up its finding as follows :
"For the aforesaid reasons, we are of the
opinion that the Award under claim no.2 in
both the Appeals cannot be sustained and is
liable to be set aside." [see para 25 at page
36]
In respect of claim no.3, the High Court took note of
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Clauses 2, 3, 3.1, 3.2 and 3.3.3 of the Special Conditions
in which provisions were made for inspection of the site
prior to the filing of tender so that the tenderer was
familiar with the working conditions, accessibility to site of
works, etc. Regarding the security and passes to the
persons who were required to enter the area in connection
with the work in Special Condition 3.3 it was clearly stated
that nothing extra shall be admissible for any man hours
etc. lost on this account of the restrictions referred to
under Special Condition no.3. The High Court held that
the contractor had filed the tender knowing fully well the
relevant provisions of the Special Conditions in the
contract and as such he could not later on complain about
such restrictions leading to reduced output of labourers,
restricted working hours etc. The High Court opined that
the conclusions arrived at by the Arbitrator were contrary
to relevant Special Conditions which were part of the
contract and as such, the Award of the claim under the
said Award could not be sustained. Regarding claim no.4
which relates to interest, the High Court relying on the
decision of the Supreme Court in State of Orissa vs.
B.N.Agarwalla, (1997) 2 SCC 469, held that: "the Arbitrator
has jurisdiction to award pre-reference interest in cases
which arose after the Interest Act, 1978 and the power of
the arbitrator to award interest for the post-award period
also exists, besides power to grant pendente lite interest".
The High Court found that the interest awarded by the
arbitrator in relation to the claim for quantity of stone
aggregate already brought after August, 1992 to 20-4-1994
could not be interfered with and that the pre-reference
interest in respect of other items falls on account of
rejection of claim nos.2 and 3. On such findings the High
Court allowed the appeal in part and to the extent noted
earlier.
Shri V.A.Mohta, learned senior counsel
appearing for the contractor i.e. the appellants in Appeals
arising out of SLP (C) Nos.10526-527/2000 and
respondents in Appeals arising out of SLP (C) Nos.880-881
of 2001, strenuously contended that the High Court
exceeded the limits of the jurisdiction vested under Section
39 of the Act in deciding the appeals filed by the UOI, and
in setting aside the Award of the Arbitrator in respect of
claim nos.2 and 3. Shri Mohta further contended that
even assuming that the High Court found that the
arbitrator had mis-interpreted the relevant clauses of the
agreement, then it was not open to it to interfere with the
Award since there was no error of law apparent on the face
of the award and the matter relating to interpretation of
the conditions in the agreement was within the jurisdiction
of the arbitrator.
Shri Anoop G.Chaudhary, learned senior
counsel appearing for the UOI contended that the award of
the arbitrator so far as part of the claim no.1 and claim
nos.2 and 3 are concerned was contrary to the specific
conditions provided in the agreement, and therefore, was
patently erroneous and uncalled for. Shri Chaudhary
further contended that the arbitrator being a creature of
the agreement could not ignore the relevant stipulations in
the contract nor could he travel beyond the terms of the
contract. In the circumstances, Shri Chaudhary
submitted, the judgment of the High Court does not call for
interference by this Court in the appeal filed by the
contractor under Article 136 of the Constitution of India.
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The provision for appeals against the orders
passed under the Act is contained in Section 39 of the Act.
The said Section is quoted hereunder :
"Appealable orders.-(a)An appeal shall lie
from the following orders passed under this
Act (and from no others) to the Court
authorised by law to hear appeals from
original decrees of the Court passing the
order:
An order
(i) superseding an arbitration;
(ii) on an award stated in the form of a
special case;
(iii) modifying or correcting an award;
(iv) filing or refusing to file an arbitration
agreement;
(v) staying or refusing to stay legal
proceedings where there is an
arbitration agreement;
(vi) setting aside or refusing to set aside an
award;
Provided that the provisions of this section
shall not apply to any order passed by a
Small Cause Court.
(2) No second appeal shall lie from an order
passed in appeal under this section, but
nothing in this section shall affect or take
away any right to appeal to the Supreme
Court."
On a plain reading of the section it is manifest that the
section is restricted in its application. Only certain types
of orders are made appealable under the provision. Being
a special statute no appeal can be entertained except
under Section 39. The principles on which the Court can
interfere with an award or order passed under the Act are
fairly well settled. The question has engaged the attention
of this Court and different High Courts from time to time.
In the case of Coimbatore District Podu
Thozillar Samgam represented by its Secretary vs.
Balasubramania Foundry & Ors., (1987) 3 SCC 723, this
Court, construing Section 30 of the Act, observed :
"The law on this aspect is, however, settled.
In Union of India v. A.L.Rallia Ram, (1964) 3
SCR 164, this Court reiterated that in order
to make arbitration effective and the awards
enforceable, machinery was devised by the
Arbitration Act for lending the assistance of
the ordinary courts. The court was also
entrusted with the power to modify or
correct the award on the ground of imperfect
form or clerical errors, or decision on
questions not referred, which were severable
from those referred. The Court had also
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power to remit the award when it had left
some matters referred undetermined, or
when the award was indefinite, where the
objection to the legality of the award was
apparent on the face of the award. The court
might also set aside an award on the ground
of corruption or misconduct of the arbitrator,
or that a party had been guilty of fraudulent
concealment or willful deception. But the
court could not interfere with the award if
otherwise proper on the ground that the
decision appeared to it to be erroneous. The
award of the arbitrator was ordinarily final
and conclusive, unless a contrary intention
was disclosed by the agreement. The award
was the decision of a domestic tribunal
chosen by the parties, and the civil courts
which were entrusted with the power to
facilitate arbitration and to effectuate the
awards, could not exercise appellate powers
over the decision. Wrong or right the
decision was binding, if it be reached fairly
after giving adequate opportunity to the
parties to place their grievances in the
manner provided by the arbitration
agreement. This Court reiterated in the said
decision that it was now firmly established
that an award was bad on the ground of
error of law on the face of it, when in the
award itself or in a document actually
incorporated in it, there was found some
legal proposition which was the basis of the
award and which was erroneous."
This Court in the case of Municipal Corporation
of Delhi vs. M/s.Jagan Nath Ashok Kumar & Anr., (1987) 4
SCC 497, considered the reasons given in a speaking
award and scope for the interference with such award.
This Court in that connection made the following
observations :
"In this case the reasons given by the
arbitrator are cogent and based on materials
on record. In Stroud's Judicial Dictionary,
Fourth Edition, page 2258 states that it
would be unreasonable to expect an exact
definition of the word "reasonable". Reason
varies in its conclusions according to the
idiosyncrasy of the individual, and the times
and circumstances in which he thinks. The
reasoning which built up the old scholastic
logic sounds now like the jingling of a child's
toy. But mankind must be satisfied with the
reasonableness within reach; and in cases
not covered by authority, the verdict of a jury
or the decision of a judge sitting as a jury
usually determines what is "reasonable" in
each particular case. The word "reasonable"
has in law the prima facie meaning of
reasonable in regard to those circumstances
of which the actor, called on to act
reasonably, knows or ought to know. See
the observations, in Re a Solicitor (1945) KB
368 at 371.
After all an arbitrator as a judge in the
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words of Benjamin N.Cardozo, has to
exercise a discretion informed by tradition,
methodized by analogy, disciplined by
system, and subordinated to "the primordial
necessity of order in the social life".
In the case of M/s.Sudarsan Trading Co. vs.
Government of Kerala & Anr., (1989) 2 SCC 38, construing
Section 30 of the Act, this Court observed that the award
can be set aside if the arbitrator had mis-conducted
himself or the proceedings and had proceeded beyond his
jurisdiction; that these are separate and distinct grounds
for challenging an award; that where there are errors
apparent on the face of the award it can only be set aside if
in the award there is any proposition of law which is
apparent on the face of the award, namely, in the award
itself or any document incorporated in the award.
Reference was made to the decision of the Judicial
Committee in Champsey Bhara & Co. v. Jivraj Balloo
Spinning & Weaving Co. Ltd., AIR 1923 PC 660.
Considering the point that only in a speaking award a
Court can look into the reasoning of the award, this Court
observed : "..It is not open to the court to probe the mental
process of the arbitrator and speculate, where no reasons
are given by the arbitrator, as to what impelled the
arbitrator to arrive at his conclusion". In this connection
reference was made to the observations in Hindustan Steel
Works Construction Ltd. vs. C.Rajasekhar Rao, (1987) 4
SCC 93. Drawing a distinction between the disputes as to
the jurisdiction of the arbitrator and the disputes as to in
what way that jurisdiction should be exercised, this Court
observed :
"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 to be determined
outside the award whatever might be said
about it in the award or by the arbitration.
See in this connection, the observations of
Russel on The Law of Arbitration, 20th edn.,
p.427. Also see the observations of
Christopher Brown Ltd. v. Genossenchaft
Oesterreichischer (1954) 1 QB 8, 10 and
Dalmia Dairy Industries Ltd. vs. National
Bank of Pakistan (178) 2 Lloyd's Rep.223. It
has to be reiterated that an arbitrator acting
beyond his jurisdiction is a different
ground from the error apparent on the face
of the award. In Halbury's Laws of England
II, 4th edn., Vol.2, para 622 one of the
misconducts enumerated, is the decision by
the arbitrator on a matter which is not
included in the agreement or reference.
But in such a case one has to determine the
distinction between an error within the
jurisdiction and an error in excess of the
jurisdiction. See the observations in
Anisminic Ltd. v. Foreign Compensation
Commission (1969) 2 AC 147, and Regina v.
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Noseda, Field, Knight & Fitzpatrick, (1958) 1
WLR 793. But, in the instant case the court
had examined the different claims not to find
out whether these claims were within the
disputes referable to the arbitrator, but to
find out whether in arriving at the decision,
the arbitrator had acted correctly or
incorrectly. This, in our opinion, the court
had no jurisdiction to do, namely,
substitution of its own evaluation of the
conclusion of law or fact to come to the
conclusion that the arbitrator had acted
contrary to the bargain between the parties.
Whether a particular amount was liable to
be paid or damages liable to be sustained,
was a decision within the competency of the
arbitrator in this case. By purporting to
construe the contract the court could not
take upon itself the burden of saying that
this was contrary to the contract and, as
such, beyond jurisdiction. It has to be
determined that there is a distinction
between disputes as to the jurisdiction of the
arbitrator and the disputes as to in what
way that power of the arbitrator to grant a
particular remedy.
Xxx xxx xxx
In the instant case, the High Court seems to
have fallen into an error of deciding the
question on interpretation of the contract. In
the aforesaid view of the matter, we are of
the opinion that the High Court was in error.
It may be stated that if on a view taken of a
contract, the decision of the arbitrator on
certain amounts awarded, is a possible view
though perhaps not the only correct view,
the award cannot be examined by the court
in the manner done by the High Court in the
instant case.
In light of the above, the High Court, in
our opinion, had no jurisdiction to examine
the different items awarded clause by clause
by the arbitrator and to hold that under the
contract these were not sustainable in the
facts found by the arbitrator."
In the case of Steel Authority of India Ltd. vs.
J.C.Budharaja, Government and Mining Contractor, (1999)
8 SCC 122, this Court considering the point on lack of
jurisdiction of the arbitrator held that when the conditions
in the agreement specifically prohibited granting claim or
damages for the breaches mentioned therein it was not
open to the arbitrator to ignore the said conditions which
were binding on the contracting parties; that by ignoring
the same he has acted beyond the jurisdiction upon him;
that it is settled law that the arbitrator derives authority
from the contract and if he acts in manifest disregard of
the contract, the award given by him would be an arbitrary
one; that this deliberate departure from the contract
amounts not only to manifest disregard of the authority or
misconduct on his part, but it may tantamount to mala
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fide action. This Court further observed that the
Arbitration Act does not give any power to the arbitrator to
act arbitrarily or capriciously; that his existence depends
upon the agreement and his function is to act within the
limits of the said agreement. In para 17 of the judgment
this Court made the following observations :
"It is to be reiterated that to find out whether
the arbitrator has traveled beyond his
jurisdiction and acted beyond the terms of
the agreement between the parties, the
agreement is required to be looked into. It is
true that interpretation of a particular
condition in the agreement would be within
the jurisdiction of the arbitrator. However,
in cases where there is no question of
interpretation of any term of the contract,
but of solely reading the same as it is and
still the arbitrator ignores it and awards the
amount despite the prohibition in the
agreement, the award would be arbitrary,
capricious and without jurisdiction.
Whether the arbitrator has acted beyond the
terms of the contract or has traveled beyond
his jurisdiction would depend upon facts,
which however would be jurisdictional facts,
and are required to be gone into by the
court. The arbitrator may have jurisdiction
to entertain claim and yet he may not have
jurisdiction to pass award for particular
items in view of the prohibition contained in
the contract and, in such cases, it would be
a jurisdictional error. For this limited
purpose reference to the terms of the
contract is a must. Dealing with a similar
question this Court in New India Civil
Erectors (P) Ltd. v. Oil and Natural Gas
Corpn., (1997) 11 SCC 75, held thus : (SCC
p.79 para 9)
"It is axiomatic that the arbitrator
being a creature of the agreement,
must operate within the four
corners of the agreement and
cannot travel beyond it. More
particularly, he cannot award any
amount which is ruled out or
prohibited by the terms of the
agreement. In this case, the
agreement between the parties
clearly says that in measuring the
built-up area, the balcony areas
should be excluded. The arbitrators
could not have acted contrary to the
said stipulation and awarded any
amount to the appellant on that
account."
In the case of Grid Corporation of Orissa Ltd. & Anr. vs.
Balasore Technical School, (2000) 9 SCC 552, this Court
considered the question of Courts interference in case of a
non-speaking award. This Court referred to the decision
in New India Civil Erectors (P) Ltd (supra) in which it was
held that the arbitrator being a creature of the contract
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must operate within the four corners of the contract
cannot travel beyond it and he cannot award any amount
which is ruled out or prohibited by the terms of the
agreement and the decision in Associated Engg. Co. v.
Govt. of A.P., (1991) 4 SCC 93, in which it was held that 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 matter not
allotted to him, he commits a jurisdictional error and an
umpire or arbitrator cannot widen his jurisdiction by
deciding a question not referred to him by the parties or by
deciding a question otherwise than in accordance with the
contract. This Court referring to N.Chellappan v. Secy.,
Kerala SEB, (1975) 1 SCC 289, held that the principle was
unexceptionable. Summing up its decision, this Court
observed :
"However, from a reading of the
decisions of this Court referred to
earlier it is clear that when an award is
made plainly contrary to the terms of
the contract not by misinterpretation
but which is plainly contrary to the
terms of the contract it would certainly
lead to an inference that there is an
error apparent on the face of the award
which results in jurisdictional error in
the award. In such a case the courts
can certainly interfere with the award
made by the arbitrator."
Considering the scope of Section 30 of the Act, this Court
in the case of Indu Engineering & Textiles Ltd. vs. Delhi
Development Authority, (2001) 5 SCC 691, enumerated
some of the well recognized grounds on which interference
in award is permissible, observed :
"Interpreting the statutory provision
courts have laid stress on the
limitations on exercise of jurisdiction
by the court for setting aside or
interfering with an award in umpteen
cases. Some of the well-recognised
grounds on which interference is
permissible are:
(1) violation of the principle of natural
justice in passing the award;
(2) error apparent on the face of the
award;
(3) the arbitrator has ignored or
deliberately violated a clause in the
agreement prohibiting dispute of the
nature entertained;
(4) the award on the fact of it is based
on a proposition of law which is
erroneous etc."
Testing the case on hand on the touchstone of well
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settled principles laid down by Courts, we are unable to
hold that the High Court exceeded its jurisdiction in
interfering with the award or failed to exercise the
jurisdiction vested in it to set aside the award. The
approach of the High Court cannot be said to be contrary
to the well settled principles governing the scope of
interference with an award of the Arbitrator under the old
Act. As regards the first item, the question was whether
the contract contemplates the use of stone aggregate and
stone metal from the local sources only, the source of
supply being silent in the relevant clause. The Arbitrator
was of the view that the unprecedented situation of the
contractor being put to the necessity of procuring the stone
material from far off places was not visualized and the
parties proceeded on the basis that such material was
available locally. He further noted that the sample kept in
the office of the concerned Engineer admittedly pertained
to the material procured from local sources. A letter
addressed by the Chief Engineer in support of contractor's
claim was also relied on in this context. Hence, in these
circumstances, the Arbitrator can be said to have taken a
reasonably possible view and therefore the High Court
rightly declined to set aside the award in so far as the
quantity of stone aggregate/stone metal brought to site up
to 24.1.1994 is concerned. The Arbitrator acted within the
confines of his jurisdiction in making the award on this
part of the claim.
As already noted, the award in so far as the future
period is concerned, i.e. subsequent to 24.1.1994 which is
the date of filing of claim statement, the High Court set
aside the award on two grounds : (i) Such a claim did not
form part of terms of reference, though the contractor had
filed claim in respect of stone aggregate to be brought in
future and (ii) the future claim in respect of stone
aggregate would be subject to various factors including
market conditions and whether the shortage continued.
In our view the view taken by the High Court cannot
be sustained. It is clear from the arbitration clause viz.
clause 70 that all disputes between the parties to the
contract (other than excepted matters) can be referred to
arbitration. The contractor did make a claim in respect of
future period also. The document appointing the
Arbitrator would show that the Arbitrator was required to
decide the disputes arising between the parties. It is not
possible to hold that the claim No.1 in so far as it relates to
future period during which the contract work continued is
beyond the scope of reference or outside the ambit of
arbitration clause. The aim of arbitration is to settle all the
disputes between the parties and to avoid further
litigation. There is no legal justification in restricting the
scope of arbitration in the manner in which the High Court
did. In the list of disputes which is annexed to the letter of
appointment of the Arbitrator, it is mentioned without any
qualification or restriction as follows :
"Reimbursement of additional cost in
procurement of stone aggregate from crusher of
Belgaum, Hubli, etc. in lieu of local sources of
Goa."
The claim amount is mentioned as 36 lakhs and 8
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lakhs. This figure is over and above the amount claimed
upto 24.1.1994 and is based on an estimate. It is also
relevant to mention that Union of India did not take the
stand before the Arbitrator that the claim in respect of
future was beyond the scope of reference. However, in
order to obviate any controversy, it is made clear that the
payment at the rates specified in the award should be
made only in respect of stone aggregate actually brought to
the site from Belgaum, Hubli and other distant places. It
is open to the Engineer concerned to be satisfied on this
aspect before satisfying the award. Obviously, if any part
of the stone aggregate was brought subsequent to
24.1.1994 from local sources the directions in the award
will be ineffective. The observations of the High Court that
conditions may not be the same for the future and
therefore the Arbitrator was incompetent to make an
award for the future period cannot be supported for the
simple reason that the extra rate will become applicable
only in respect of quantities brought from sources other
than local. It has never been the case of Union of India
either before the Arbitrator or the High Court or even this
Court that the situation had changed after 24.1.1994 and
that the stone aggregate could be secured at lesser rates
from local sources or otherwise. For all these reasons, we
are of the view that the High Court ought not to have
interfered with the award in so far as claim No.1 is
concerned in any respect. To this extent, the appeals filed
by the Contractor i.e. arising out of SLP Nos. 10526-
10527 of 2000 are partly allowed.
As regards the other two items viz. 2 and 3, on a
perusal of the judgment of the High Court and on
consideration of the relevant clauses, we are of the view
that the judgment does not suffer from any serious error in
the approach to the matter. In regard to item No.2, though
the High Court may not be justified in observing that the
Arbitrator took undue interest in trying to ascertain the
classification of strata, the High Court is well justified in
holding that the view taken by the Arbitrator is not at all a
reasonably possible view and in fact he ignored one of the
relevant clauses, namely, 3.3.4. The Arbitrator was carried
away by the fact that chiselling had to be done in view of
the hardness of rock. The Arbitrator at the same time did
not choose to give a finding that what was encountered by
the contractor was something other than laterite rock
which is mentioned in the Agreement. As regards the 3rd
item, the Arbitrator again ignored the relevant clauses in
the agreement and came to the perverse conclusion that
the site became restricted on account of certain security
measures enforced in the area. The award of sum vis--vis
this item is clearly outside the terms of contract. The High
Court, therefore, rightly set aside the award on this aspect.
On the discussions in the foregoing paragraphs the
appeals arising from S.L.P. Nos.10526-27 of 2000 filed by
the contractor are allowed in part to the extent noted
earlier and the appeals arising from S.L.P. Nos.880-881
of 2001 filed by Union of India & another are dismissed.
There will, however, be no order for costs.
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