1999 Supreme(SC) 959

1999(8) Supreme 319
Supreme Court of India
(From Patna High Court)
D.P. Wadhwa & M.B. Shah, JJ.
Steel Authority of India Ltd. -Appellant
versus
J.C. Budharaja, Government and Mining Contractor -Respondent
Civil Appeal No. 507 of 1992
Decided on 1-9-1999
Counsel for the Parties :
For the Appellant : Dhruv Mehta, M.P. Vinod, Advocates.
For the Respondent : G.L. Sanghi, Sr. Advocate, Raj Kumar Mehta, Advocate.

Headnote:(i) Arbitration Act, 1940-Sec­tion 30-Setting aside of award -Ground that arbitrator exceeded his jurisdiction-Contract to construct tailing - cum - storage reservoir -Agree­ment stipulating that contractor would not be entitled to any claim whatsoever for not giving site in time-Claim for damages by contractor on account of delay in handing over work site-Reference of dispute to arbitrator-Appellant employ­er’s objection that claim not entertainable in view of stipulations in agreement-Arbitrator awarding unliquidated damages and interest thereon-Arbitrator could not have ignored conditions in agreement which were binding on parties-Arbitrator had acted beyond his juris­diction-Award set aside.

       Held : The Arbitration Act does not give any power to the arbi­trator to act arbitrarily or capriciously. His existence depends upon the agreement and his function is to act within the limits of the said agreement. To find out whether the arbitrator has travelled beyond his jurisdiction and acted beyond the terms of the agreement between the parties, 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 case 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 travelled beyond his jurisdiction would depend upon facts, which however would be jurisdictional facts, and are required to be gone into by the Court. 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. (Para 16)

       Clause 32 of the agreement specifically stipulates that no claim whatsoever for not giving the entire site on award of work and for giving the site gradually will be tenable and the contractor is re­quired to arrange his working programme accordingly. Clause 39 further stipulates that no failure or omission to carry out the provisions of the contract shall give rise to any claim by the Corporation and the contractor, one against the other, if such failure or omission arises from compliance with any statute or regulation of Government or other reasons beyond the control of either the Corporation or the Contrac­tor. Obtaining permission from Forest Department to carry out the work in wild life sanctuary depends on statutory regulations. Clause (vi) of General condition of the contract also provides that failure or delay by the Corporation to hand over to the Contractor possession of the lands necessary for the execution of the work or any other delay by the Corporation which due to any other cause whatsoever would not entitle the contractor to damage or compensation thereof; in such cases, the only duty of the Corporation was to extend the time for completion of the work by such period as it may think necessary and proper. These conditions specifically prohibit granting claim for damages for the breaches mentioned therein. It was not open to the arbi­trator to ignore the said conditions which are binding on the con­tracting parties. By ignoring the same, he has acted beyond the jurisdiction conferred upon him. It is settled law that arbitrator derives the authority from the contract and if he acts in manifest disregard of the contract, the award given by him would be arbitrary one. 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 fide action. In the present case, it is appar­ent that awarding of damages of Rs. 11 lakhs and more for the alleged lapses or delay in handing over work site is, on the face of it, against the terms of the contract. (Para 15)

       The award passed by the arbitrator is against the conditions agreed by the contracting parties and is in conscious disregard of stipulations of the contract from which the arbitrator derives his authority. His appointment as a sole arbitrator itself was conditional one and he was informed that the same was “with reservation regarding the tenability, maintainability and validity of the Reference as also on further grounds that the claim was barred by the period of limitation and that it pertained to excepted matters of general conditions of the contract”. Despite this he has ignored the stipulations and conditions between parties. Hence, the said award is, on the face of it, illegal. (Para 20)

       (ii) Arbitration Act, 1940-Sec­tions 30 and 37 r/w Sections 3 and 137 of Limitation Act, 1963- Set­ting aside of award-Ground that claim barred by limitation but arbitrator passed award-Contrac­tor claiming dam­ages in 1979 on account of delay in handing over of work site - Supplementary agreement executed in 1980 to complete work with enhancement in rate-Petition u/s 20 for arbitration on dispute as to claim of damage arising under first contract filed in 1985-Arbitrator appointed with specific reservation regarding tenabil­ity and validity of reference on ground of bar of limitation-Arbi­tra­tor holding claim not barred by limitation-Not sustainable-Dispu­t­ed claim not saved by supplementary agreement - Repudi­ation of claim by employer in 1985 did not give fresh cause of action-Arbitra­tion barred by limitation-Arbitra­tor bound to reject claim-Award set asid­e.

       Held : The dispute to the arbitrator arose in 1979 when Contractor gave a notice demanding the amount and there was no response from the appel­lant and the amount was not paid. The cause of action for recovery of the said amount arose from the date of the notice. Contractor cannot wait indefinitely and is required to take action within the period of limitation. In the present case, there was supplementary agreement between the parties. Supplementary agreement nowhere provides that so-called right of the contractor to recover damages was in any manner saved. On the contrary, it specifically mentions that contractor was yet to execute a considerable portion of the work more particularly described in the schedule to the agreement. And that the contractor has agreed to complete the said balance work on the terms and conditions enumerated in the agreement. Now, in this set of circumstances, con­tractor cannot wait and approach the authority or the Court for refer­ring the dispute to the arbitrator beyond the period of limitation. Section 37 of the Arbitration Act specifically provides that provi­sions of the Indian Limitation Act shall apply to the arbitrations as they apply to proceedings in the Court. (Para 25)

       As stated above, on 29th August, 1979, the contractor wrote letter making certain claims. Thereafter, the supple­mentary agreement was executed on 20th December, 1980. In that agree­ment it is nowhere stated that contractors alleged right of getting damages or losses suffered by him was kept alive. On the contrary, he has agreed to complete the work within the time stipulated in the second agreement by charging some higher rate. Contractor has not sought any reference within three years from the date when cause of action arose, i.e., from 29th August, 1979. Only in 1985 when dispute arose with regard to the second agreement, respondent gave notice on 2nd December, 1985 to appoint sole arbitrator. The sole arbitrator was appointed with a specific reservation regarding the tenability, main­tainability and validity of reference as also on the ground that claim was barred by the period of limitation and it pertained to excepted matters in terms of general conditions of the contract. From these facts, it is apparent that claim before the arbitrator in November - December 1985 was apparently barred by period of limitation. Letter dated 3rd September, 1983 written by the appellant repudiating the respondent’s claim on account of damages or losses sustained by him would not give fresh cause of action. On that date cause of action for recovering the said amount was barred by the period of three years prescribed under Article 137 of the Limitation Act, 1963. Under Section 3 of the Limitation Act, it was the duty of the arbitrator to reject the claim as it was on the face of it, barred by the period of limitation. (Para 27)