1999 Supreme(SC) 1079

1999(8) Supreme 295
Supreme Court of India
(From Rajasthan High Court)
D.P. Wadhwa & M.B. Shah, JJ.
Rajasthan State Mines & Minerals Ltd. -Appellant
versus
Eastern Engineering Enterprises & Anr. -Respondents
Civil Appeal No. 1202 of 1992
Decided on 20-9-1999
Counsel for the Parties :
For the Appellant : Dr. A.M. Singhvi, Sr. Advocate, P.K. Ganguli and Pankaj Kr. Singh, Advocates.
For the Respondents : B. Sen, Sr. Advocate, Ashok Desai, A. Mishra, A.P. Dhamija, Pradeep Aggarwal, L.P. Singh, Sushil Kr. Jain, Advo­cates.

Important point
The award made by the Arbitrator disregarding the terms of the reference or the arbitration agreement or the terms of the contract would be a jurisdictional error which requires ultimately to be decided by the Court. He cannot award an amount which is ruled out or prohib­ited by the terms of the agreement. Because of specific bar stipulat­ed by the parties in the agreement, that claim could not be raised. Even if it is raised and referred to arbitration because of wider arbitration clause such claim amount cannot be awarded as agreement is binding between the parties and the arbitrator has to adjudicate as per the agreement.

Headnote:(i) Arbitration Act, 1940-Sec­tions 30 and 33-Award-Setting aside of-Ground that arbitrator passed award in excess of his jurisdiction and thus legally misconducted himself-Turn-key mining contract-Rate of payment fixed-Clauses 17 and 18 of agreement stipulated that contractor would not be entitled to any escalation in cost -Contractor raising dispute claiming additional payment/compensa­tion on account of escalation of cost of work-Dispute referred to arbitrator to decide all claims arising out of contract-Arbitrator while noting that in terms of contract rate was fixed, however passed award in favour of contractor - Unsustainable - Arbitrator ignored basic and fundamental terms of agreement between parties and thus exceeded his jurisdiction -There was no question of interpretation of Clauses 17 and 18 of agreement since these clauses are so clear and unambiguous-Plea of contractor that award being non speaking award Court could not go behind award not tenable-Award can be set aside if arbitrator acted beyond his jurisdiction-Award, on face of it, illegal and in excess of jurisdiction-Award quashed and set aside.

       Held : Despite the admission by the contractor, that the contractor shall not be entitled to any escalation in rates, it is apparent that arbitrator has ignored the aforesaid stipulations in the contract. In the award, the arbitrator has specifically mentioned that he has given due weightage to all the documents placed before him and has also considered the admissibility of each claim. However, while passing the award basic and fundamental terms of the agreement between the parties are ignored. By doing so, it is apparent that he has exceeded his jurisdiction. (Para 17)

       Further, in the present case, there is no question of interpreta­tion of clauses 17 and 18 as the said clauses are so clear and unambigu­ous that they do not require any interpretation. It is both, in posi­tive and negative terms by providing that contractor shall be paid rates as fixed and that he shall not be entitled to extra payment or further payment for any ground whatsoever except as mentioned therein. The rates agreed were firm, fixed and binding irrespective of any fall or rise in the cost of the work covered by the contract or for any other reason or any ground whatsoever. It is specifically agreed that contractor will not be entitled or justified in raising any claim or dispute because of increase in cost of expenses on any ground whatso­ever. By ignoring the said terms, arbitrator has travelled beyond his jurisdiction as his existence depends upon the agreement and his function is to act within the limits of the said agreement. This deliberate departure from the contract amounts not only to manifests disregard of the autho­rity or misconduct on his part it may tantamount to mala fide action. (Para 18)

       It is settled law that the arbitrator is the creature of the contract between the parties and hence if he ignores the specific terms of the contract, it would be a question of jurisdictional error which could be corrected by the Court and for that limited purpose agreement is required to be considered. For deciding whether the arbitrator has exceeded his jurisdiction reference to the terms of the contract is a must. It is true that arbitration clause 74 is very widely worded, therefore, the dispute was required to be referred to the arbitrator. Hence, the award passed by the arbitrator cannot be said to be without jurisdiction but, at the same time, it is apparent that he has exceeded his jurisdiction by ignoring the specific stipu­lations in the agreement which prohibit entertaining of the claims made by the contractor. In the letter dated 5th February, 1985 appointing the sole arbitrator, it has been specifically mentioned that agreement dated 14th May, 1981 was executed by and between the parties and that contractor has raised the claims as mentioned in the letter dated 7th September, 1983 which was denied by the company and at the request of the contractor, sole arbitrator was appointed to adjudicate the claims made by the contractor vide his letter dated 7th September, 1983. This reference to the arbitrator also clearly pro­vides that reference was with regard to the dispute arising between the parties on the basis of the agreement dated 14th May, 1981. It nowhere indicates that the arbitrator was empowered to adjudicate any other claims beyond the agreement between the parties. No such issue was referred for adjudication. Even the arbitrator in his interim award has specifically stated that he was appointed to adjudicate the disputes between the parties arising out of the agreement dated 14th May, 1981. (Para 19)

       It is true that arbitration clause in the present case, is also very widely worded and that all disputes in any way touching or con­cerning the contract whatsoever are required to be referred to the arbitration. Therefore, reference of the dispute to the arbitrator cannot be termed as without jurisdiction. Still the question would be whether arbitrator will have authority or jurisdiction to grant damages or compensation in teeth of stipulation providing that no escalation would be granted and that contractor would only be entitled to payment of composite rate as mentioned and no other or further payment of any kind or item whatsoever, shall be due and payable by the company to the contractor; the rates wherever fixed are binding during the cur­rency of the agreement irrespective of any fall or rise in the cost of the work covered by the contract or for any other reason or on any account or any other ground whatsoever. In the present case, the rates were to remain firm, fixed and binding irrespective of fall or rise in cost of mining operation of the work covered by the contract or for any other reason. The contract was for composite rate and it stipulated that no other or further payment of any kind of item what­soever was payable by the company to the Contractor. It is apparent that the award passed by the arbitrator is against the stipu­lations and prohibitions contained in the contract between the par­ties. In the present case, there is no question of interpretation of clauses 17 & 18 as the language of the said clauses is absolutely clear and unambiguous. Even the contractor has admitted in his letter demanding such claims that the contract was signed with clear under­standing that the rate under the contract was firm and final and no escalation in rates except in case of diesel would be granted. Hence, by ignoring the same, the arbitrator has travelled beyond his juris­diction. It amounts to deliberate departure from the contract. Fur­ther, the reference to the arbitrator is solely based upon the agree­ment between the parties and the arbitrator has stated so in his interim award that he was appointed to adjudicate the disputes between the parties arising out of the agreement. No specific issue was re­ferred to the arbitrator which would confer jurisdiction on the arbi­trator to go beyond the terms of the contract. Hence, the award passed by the arbitrator is, on the face of it, illegal and in excess of his jurisdiction which requires to be quashed and set aside. (Paras 23, 31 & 33)

       (ii) Arbitration Act, 1940-Sec­tions 30 and 33-Court’s jurisdiction to go behind non-speaking award-Scope of.

       Held : From the resume of the aforesaid decisions, it can be stated that :

        (a) it is not open to the Court to speculate, where no reasons are given by the arbitrator, as to what impelled arbitrator to arrive at his conclusion.

        (b) It is not open to the Court to admit to probe the mental process by which the arbitrator has reached his conclusion where it is not disclosed by the terms of the award.

        (c) If the arbitrator has committed a mere error of fact or law in reaching his conclusion on the disputed question submitted for his adjudication then the Court cannot interfere.

        (d) If no specific question of law is referred, the decision of the Arbitrator on that question is not final, however much it may be within his jurisdiction and indeed essential for him to decide the question incidentally. In a case where specific question of law touch­ing upon the jurisdiction of the arbitrator was referred for the decision of the arbitrator by the parties, then the finding of the arbitrator on the said question between the parties may be binding.

        (e) In a case of non-speaking award, the jurisdiction of the Court is limited. The award can be set aside if the arbitrator acts beyond his jurisdiction.

        (f) To find out whether the arbitrator has travelled beyond his jurisdiction, it would be necessary to consider the agreement between the parties containing the arbitration clause. Arbitrator acting beyond his jurisdiction - is a different ground from the error apparent on the face of the award.

        (g) In order to determine whether arbitrator has acted in excess of his jurisdiction what has to be seen is whether the claimant could raise a particular claim before the arbitrator. If there is a specific term in the contract or the law which does not permit or give the arbitrator the power to decide the dispute raised by the claimant or there is a specific bar in the contract to the raising of the particu­lar claim then the award passed by the arbitrator in respect thereof would be in excess of jurisdiction.

        (h) The award made by the Arbitrator disregarding the terms of the reference or the arbitration agreement or the terms of the contract would be a jurisdictional error which requires ultimately to be decided by the Court. He cannot award an amount which is ruled out or prohib­ited by the terms of the agreement. Because of specific bar stipulat­ed by the parties in the agreement, that claim could not be raised. Even if it is raised and referred to arbitration because of wider arbitration clause such claim amount cannot be awarded as agreement is binding between the parties and the arbitrator has to adjudicate as per the agreement.

        (i) The arbitrator could not act arbi­trarily, irrationally, capri­ciously or independently of the contract. A deliberate departure or conscious disregard of the contract not only manifests the disregard of his authority or misconduct on his part but it may tantamount to mala fide action.

        (j) The arbitrator is not a conciliator and cannot ignore the law or misapply it in order to do what he thinks just and reasonable; the arbitrator is a tribunal selected by the parties to decide the dis­putes according to law.

        (Para 32)