2003 Supreme(SC) 993

2003(8) Supreme 520
Supreme Court of India
(From Calcutta High Court)
V.N. Khare, CJI., Brijesh Kumar and S.B. Sinha, JJ.
M.D., Army Welfare Housing Organisation —Appellant
versus
Sumangal Services Pvt. Ltd. —Respondent
Civil Appeal No. 1725 of 1997
Decided on 8-10-2003
Counsel for the Parties :
For the Appellant : Arvind Kumar Tewari, Advocate.
For the Respondent : K.N. Bhat, Sr. Advocate, P.R. Agarwal, Pramod Dayal, Piyush Sharma and R. Anand Padmanabhan, Advocates.

Important point
In absence of an agreement to the contrary, in terms of the provisions of Arbitration Act, 1940 an arbitrator can pass only an interim award or a final award and such awards are enforceable in law.

Headnote:(i) Arbitration Act, 1940—Sections 30 and 33, 41(b)—Arbitration and Conciliation Act, 1996—Section 17—Interim orders—Jurisdiction and powers of Arbitrator to pass—Agreement between Army Welfare Housing Organization and Sumangal for development of land and construction of a composite housing project—Cancellation of contract—Civil suit filed by Sumangal—Interim order passed whereby parties were directed to maintain status quo—Appointment of Arbitrator—Parties jointly requested Arbitrator to pass an interim award as regard ownership of lands—Whether Arbitrator had juris­diction to pass interim order under ­Arbitration Act, 1940 in absence of specific agreement in relation thereto—(No).

       Held : A bare perusal of the order of the learned Arbitrator dated 1st November, 1997 would clearly show that interim award was prayed for by the parties which would have granted substantial reliefs sought for by them in relation to the title in respect of 14.17 acres of land. It is admitted that the parties cooperated with each other in the matter of measurement of completed and incompleted works in terms of the Arbitrator’s order dated 12th May, 1997 passed in the arbitration proceedings, the compliance whereof was recorded in minute of order dated 19th August, 1997. The learned arbitrator admittedly was not inclined to pass an interim award on the requests of the parties. (Paras 34 and 35)

       It is, therefore, not correct to contend that the said order was passed on consent of the parties. For all intent and purport, Sumangal could not have consented to grant of such a prayer which would virtually put a final seal over the disputes. We have hereto- before quoted the purported order dated 1st September, 1997 which ex facie demonstrate that the arbitrator assumed jurisdiction to pass the said interim order at the behest of AWHO. Furthermore, as noticed hereinbefore, Sumangal filed a review application which was also dismissed in the manner noticed hereinbefore. The said interim order was, thus, not passed with consent of parties. If the learned arbitrator has no jurisdiction to pass an interim order, even by consent no such jurisdiction could be conferred. (Para 38)

       An arbitrator in a situation of this nature had no jurisdiction to pass the interim order under the Arbitration Act, 1940 in absence of any specific agreement in relation thereto. The learned arbitrator by an interim order could not have placed the parties to a situation which would travel beyond the subject of disputes and differences referred to the arbitration. As no claim and counter-claim had been filed before the arbitrator, the arbitrator was not even aware of the nature of claims of the parties. He neither found any prima facie case nor balance of convenience for passing the said interim order. Furthermore, an arbitrator is bound by the terms of reference. An arbitral tribunal is not a court of law. Its orders are not judicial orders. Its functions are not judicial functions. It cannot exercise its power ex debito justiae. The jurisdiction of the arbitrator being confined to the fourcorners of the agreement, he can only pass such an order which may be subject matter of reference. (Paras 40 and 41)

       In absence of an agreement to the contrary, in terms of the provisions of Arbitration Act, 1940 an arbitrator can pass only an interim award or a final award. Such awards are enforceable in law. The award of an arbitrator whether interim or final are capable of being made a rule of court, decree prepared and drawn up in terms thereof and put to execution. It is well-settled that for the purpose of obtaining an interim order a party to the arbitration proceeding during pendency of an arbitral proceeding can only approach a court of law in terms of Section 41(b) of the Arbitration Act, 1940 and not otherwise. (Paras 45 and 46)

       A bare perusal of the aforementioned provisions would clearly show that even under Section 17 of the 1996 Act the power of the arbitrator is a limited one. It cannot issue any direction which would go beyond the reference or the arbitration agreement. Furthermore, an award of the arbitrator under the 1996 Act is not required to be made a rule of court; the same is enforceable on its own force. Even under Section 17 of 1996 Act, an interim order must relate to the protection of subject matter of dispute and the ­order may be addressed only to a party to the arbitration. It cannot be addressed to other parties. Even under Section 17 of the 1996 Act, no power is conferred upon the Arbitral Tribunal to enforce its order nor does it provide for judicial enforcement thereof. The said interim order of the learned Arbitrator, therefore, being coram non judice was wholly without jurisdiction and, thus, a nullity. (Para 56)

       (ii) Arbitration Act, 1940—Sections 30 and 33—Arbitration Award—Misconduct—Arbitrators in law were bound to consider relevant provisions of the contract and in particular those which deal with rights and liabilities of parties—Duty of arbitrator to take into consideration relevant provisions contained in the agreement—Refusal on part of arbitrator to consider effect of clause 130 of arbitrator would amount to a legal misconduct.

       Held : Before the learned arbitrators a question was raised as regard applicability of Clauses 129(e) and 130 of the general conditions of contract. (Para 57)

       The learned arbitrators refused to enter into the questions as to whether the AWHO had made out a case for canceling the contract and invoking the risk and expense clause. (Para 58)

       An award made pursuant to an order which has been passed without jurisdiction necessarily must be held to be a nullity. Refusal on the part of the learned arbitrator to consider the effect of clause 130 of the agreement would amount to a legal misconduct. Having regard to the facts and circumstances of the case, as would be discussed in details hereinafter, it was incumbent on the part of the Arbitrators to apply “due diligence” clause contained in clause 129(e), more cautiously. They were further required to consider as to whether “due diligence” clause be applied where the alleged violation of contract was only in relation to a small part thereof. The learned arbitrators were, in law, bound to consider the relevant provisions of the contract and in particular those which deal with the rights and liabilities of the parties. This aspect of the matter has not been taken into consideration by the learned arbitrators while making the award. Thus, they failed to take into consideration a relevant fact. (Paras 60 and 61)

       Before the learned arbitrators a question arose as to whether certification of architect as regard estimated cost of completion was a condition precedent for determination of the quantum of damages. Construction of clauses 129 and 130 having regard to the fact situation obtaining herein was mandatorily required to be considered by the learned arbitrators. They could not have been simply ignored the same on the premise that an interim order has been passed by the arbitrator. An arbitrator cannot be equated with a court of law. Whereas court has an inherent power; an arbitrator does not have. It is a tribunal of limited jurisdiction. Its jurisdiction is circumscribed by the terms and reference. An arbitrator can act only within the fourcorners of the agreement and not beyond thereto. (Para 67)