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1997(3) Supreme 365
SUPREME COURT OF INDIA
K. Ramaswamy & S. Saghir Ahmad, JJ.
Tamil Nadu Electricity Board -Appellant
versus
M/s. Bridge Tunnel Constructions & Ors. -Respondents
Civil Appeal Nos. 1766-67 of 1997
(Arising out of SLP (C) Nos. 1417-18 of 1991)
Decided on 18-2-1997
Counsel for the Parties :
For the Appellant : V.P. Reddy, Additional Solicitor General, N.C. Ramesh, V. Ramasubramaniam and V. Krishnamurthy, Advocates.
For the Respondents : P.S. Poti, Sr. Advocate, Ms. Malini Poduval, Advocate.
Held that the arbitrator cannot clothe himself conclusively with the jurisdiction to decide or omit to decide the arbitrability of a particular item or the claim made by the parties. When a specific reference has been made to the arbitrator and the parties raise the dispute of arbitrability, with the leave of the court/by a direction of the court in a proceedings under Section 33, he is to decide the arbitrability of the dispute and make a decision while giving reasons in support thereof. The decision of the arbitrator in granting a particular sum by a non-speaking award, therefore, hinges upon the arbitrability of a dispute arising under the contract or upon a particular item claimed thereunder. He is required to give the decision thereon. The question of decision by implication does not arise since his jurisdiction to decide the dispute on merits hinges upon his jurisdiction to decide the arbitrability of the dispute. In this case, in view of the finding recorded by the court, which has become final, as referred to earlier, the arbitrator/umpire was enjoined to decide the arbitrability of the claims set up by the respondent and disputed by the appellant. Admittedly, the award of the umpire does not contain any decision on arbitrability of the claims. (Para 14)
Thus considered, we hold that the arbitrator, having been invested with the jurisdiction to decide the arbitrability of certain claims, has committed error of jurisdiction in not considering the arbitrability of the claims and passed a non-speaking award, awarding a sum of Rs. 70.83 lakhs and odd. It is difficult to ascertain as to what extent he has awarded the claims within the contract or the claims outside the contract, of a total claim of Rs. 2.10 crores. Under those circumstances, we are constrained to hold that it is difficult to give acceptance to the award made by the umpire as upheld by the courts below. Equally, we find it difficult to accept the contention that out of a claim of Rs. 2.10 crores, only a sum of Rs. 70.83 and odd was awarded. So, it is not a fit case for interference on the basis of the mere fact that a lesser sum than was claimed has been awarded. An illegal award cannot be upheld to be valid or within jurisdiction. (Para 22)
Once a finding recorded that the umpire/arbitrator has committed error of jurisdiction, as stated earlier, two courses are open, viz., either to remit the award to the umpire for reconsideration or to set aside the award in toto. We think that the latter course would be appropriate in the facts and circumstances in this case. (Para 23)
ORDER
Leave granted. Substitution allowed.
2. These appeals, by special leave, arise from the judgment of the Madras High Court, dated December 20, 1990, made in O.S.A. Nos. 109 and 110 of 1988.
3. The admitted facts are that the respondents had entered into an agreement with the appellant to construct inter-connecting tunnels for Suruliyar Hydroelectric Project as per specification No. 1138 Schedule-B to the agreement. The initial value of the tender to be awarded was Rs. 47 lakhs and it was revised to Rs. 69 lakhs on January 16, 1975. In the course of execution of the contract, a sum of Rs. 92 lakhs was paid to the respondent. The contract was to be completed within a period of 24 months from the date of taking over of the site, i.e., January 18, 1975; thus, it was completed after the expiry of the term, on August 25, 1978. Resultantly, there had arisen a dispute as to the entitlement to further amount towards the work done by the respondent.
4. On a notice issued by the respondent for appointment of an arbitrator in terms of clause 50 of the contract (arbitration clause), there was a delay on the part of the appellant in nomination of the arbitrator. When the respondent exercised the power, after expiry of the time prescribed in the notice, appointing a sole arbitrator, proceedings under Section 33 of the Arbitration Act, 1940 were initiated by the appellant. One of the objections raised by the appellant in the proceedings under Section 33 was that under the terms of the contract the claim sought to be put up in the notice given by the respondent was not arbitrable. The question was gone into and the court recorded a finding as under :
"If the petitioner had come forward to raise dispute and if it is outside the scope of clause 50, the first respondent itself would come forward with such a reservation. It is not as if all disputes would come within the scope of clause 50 and only those that would come within the ambit of clause 50 alone can be decided by the Arbitrators when such is the clear position on this aspect; enabling the petitioner Board to raise a objection regarding disputes which may not come within the scope of clause 50 is not a concession, but a recognition of a right, which is available not only to the petitioner Board but also the first respondent in the event of the Board raising any dispute as against it. Therefore, the first stipulation is dependent upon the Arbitrators deciding as to whether a particular dispute would come within the scope of Section 50 or not, and only if they consider that it falls within the scope of Arbitration clause, they would have the jurisdiction to decide the same. In the event of the Arbitrators holding that any particular dispute is outside the Arbitration clause, it is not as if the first respondent is deprived of remedies by agitating the same in Courts."
It is also further held that :
"After the award is made, as the petitioner Board has already reserved its right, it would enable the Board to raise this point, in the event of any need arising for setting aside the award in Court."
Pursuant thereto, condoning the delay, liberty was given to the appellant to nominate an Arbitrator on its behalf which accordingly was done and dispute was referred to arbitration. Arbitrability of some of the claims was disputed as part of no liability. Since the two Arbitrators differed, an umpire was selected by the Arbitrators and he had gone into the question. At this stage, it is relevant to mention that some of the claims made by the respondents relate to excavation of hard rock in the tunnel and the rate of claims.
5. The relevant clauses of the Contract postulate thus :
"22. Material to the excavated :
The character of the material through which the tunnel is to be excavated is indicated in the report of the Geologist of the Geological Survey of India, attached of this specification as an appendix. The probable nature of materials to be excavated is given in the above report. It is expressly t
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