IMPORTANT POINTS
Erroneous application of law and improper and incorrect findings of fact demonstrable on the face of the record constitute legal misconduct rendering the award as invalid.
Interference with arbitral award is permissible only when award is perverse or based on a wrong proposition of law or there is error apparent on the fact of record.
Damages for illegal termination cannot be conditions of contract.

Headnote:(a) Arbitration Act, 1940 – Section 30 – Interpretation of contract is within the realm of the Arbitrator – Court would not reappreciate the evidence – Award containing reasons may not be interfered – Interference permissible only when award is perverse or based on a wrong proposition of law or there is error apparent on the fact of record. (Para 17, 18)
       (2003) 7 SCC 396; (2003) 8 SCC 593; (1998) 9 SCC 410; (1999) 4 SCC 214; (1999) 9 SCC 283; (2003) 4 SCC 80; (2002) 6 SCC 201; (1989) 2 SCC 38 – Relied upon
       ( b) Words and phrases – ‘Error apparent on the face of an award’ and ‘legal misconduct’ – Erroneous application of law and improper and incorrect findings of fact demonstrable on the face of the record – Constitute legal misconduct rendering the award as invalid – An error of law or fact committed by an arbitrator by itself does not constitute misconduct – Arbitrator acting without jurisdiction and putting an interpretation contrary to law – No prohibition for courts to set things right – Arbitration Act, 1940 – Section 30. (Para 18, 20)
       (1994) 6 SCC 485; (1989) 2 SCC 347; JT 2007 (11) SC 73 – Relied upon
       (c) Interpretation of contract – Contract having ambiguous terms and conditions – Required construction – Appellant’s letter dated 9/17.07.1988 – Not clear whether the appellant had asked for increase of 2.5% over the base value or deduction of 2.5% therefrom – Arbitrator had to construe the same. (Para 21)
       (d) Arbitration Act, 1940 – Section 30 – Arbitrator taking all relevant documents into consideration – Holding that Appellant’s letter dated 9/17.07.1988 quoting price +2.25% formed part of the contract – Appellant held entitled to the same – Appellant’s second claim of labour escalation @ 40% – Covering letter of tender bid held by Arbitrator to be part of tender bid – Labour escalation mentioned in the letter @40% – Must be held to substitute the rate of 21% in the tender bid – Appellants amended offer vide letter dated 19.7.1988 not rejected by respondents – Open to construction by Arbitrator – Award sustained. (Para 22, 23, 24, 25, 26)
       (e) Arbitration Act, 1940 – Section 30 – Termination of contract – Damages therefor – Arbitrator holding termination illegal and allowing damages – Respondent opposing on ground on no reference in general conditions of contract – Damages for illegal termination cannot be conditions of contract – Secondly, respondent not raising the point before High Court – Thirdly respondent filed SLP after delay of 144 days without sufficient explanation – Contention rejected. (Para 30)
       Facts of the case:
       For the work of construction of "Married accommodation for MCPOs/CPOs/POs and Junior Sailors at Naval Air Station, Arakkonam" by the Union of India, an advertisement was issued; pursuant whereto appellant submitted its tender on or about 9/17.7.1988.
       Whereas the main letter dated 11.8.1988 was signed by one L.D. Sharma, Brig. Chief Engineer as accepting officer for and on behalf of the President of India, the appendix was signed by some other person for `Accepting Officer. The representative of the appellant also signed the said letter.
       The said contract, however was terminated on or about 10.7.1991.
       Disputes and differences having arisen between the parties, the arbitration agreement which formed part of the general condition of the contract as also special condition of contract was resorted to. Respondent No.2 was appointed as the Arbitrator. Appellant made 8 claims.
       The Arbitrator made and published an award on 17.9.1996. While claims Nos.1 and 5 were allowed in part, claims No.2 and 4 were allowed in toto. Claim No.3 was allowed for the amount to which the appellant itself had restricted its claim to.
       Counter claim of the first respondent was rejected.
       First respondent filed an application under Section 30 of the Arbitration Act, 1940.
       A Single Judge of the High Court rejected the said objection. The counter claim was also dismissed.
       First respondent preferred an intra court appeal thereagainst. The Division Bench of the High Court allowed the said appeal in part.
       Finding of the Court:
       There is no infirmity in the Arbitral award.
       Result:
       Appeal filed by appellant allowed.
       Appeal filed by Union of India dismissed.

Judgment :-

S.B. Sinha, J.

1. Leave granted.

2. Jurisdiction of a court to interfere with an arbitral award involving interpretation of a contract is involved in these appeals which arise out of a judgment and order dated 4.10.2004 passed by a Division Bench of the High Court of judicature at Madras allowing an appeal from a judgment and order dated 14.1.2000 passed by a learned Single of the said court making the award made by Respondent No.2 herein a rule of Court.

3. For the work of construction of "Married accommodation for MCPOs/CPOs/POs and Junior Sailors at Naval Air Station, Arakkonam" by the Union of India, an advertisement was issued; pursuant whereto appellant submitted its tender on or about 9/17.7.1988 marked as Exhibit C-2. In its forwarding letter, it was stated :

"We have kept ready all the men and material for early commencement of the work. The technical personnel engaged by the firm have the vast experience in the execution of major building projects. The total labour component involved in this work is forty per cent of the scope of the contract. We can deploy the huge skilled and unskilled labour force already on our rolls for all the works along with the machinery for successful completion of the work positively as per targeted time schedules of the Department. The latest ITCC and partnership deed are enclosed as required."

A post script added thereto reads as under : "When our tender opened and Rates Read out, Please Read out over (+) 2.25% under item 1 of the schedule quoted percentage and total value considered accordingly."

4. Respondent, by a letter dated 19.7.1988 (marked as Exhibit C-3) replied thereto, stating :

"On scrutiny of your forwarding letter the following comments are made :-

(a) The Labour component in the work is 20 as included under Special Condition No.17 on Serial Page 94 of the tender and not 40 as referred to by you.

(b) In case of acceptance of your tender mobilization advance of Rs.35.00 lakhs will be paid against BGBs as per conditions of the tender.

(c) It is seen that the way the revision has been made in the quoted percentage for Schedule `A Part I does not go well with the status of your firm. However, your tender is being considered with the reduction of minimum 2.25% over quoted percentage for Schedule `A Part I as also read out at the time of opening of tenders wherein your representative was also present."

Yet again on 5.8.1988, appellant in reply thereto, inter alia, stated :

"1. We hereby clarify that our rates are worked out and quoted taking total labour component involved in the scope of work as 40%. As such the department may please evaluate our tenders on the same basis and consider accordingly.

XXX XXX XXX

After ascertaining this just before dropping the tender in the tender box, our Managing Partner had to include an extra at 2.25% towards Turnover Sales Tax liability and the vertical line in the sign (+) has been hurriedly put as shown here once again (+).

Thus, our quoted rates for item 1 of the schedule is 18.5% i.e. 16.25% quoted by us in the schedule and plus 2.25% quotd in the covering letter along with our tender against item 1 of the schedule. We regret for the misunderstanding led in this regard."

Offer of the appellant was accepted by the respondents in terms of its letter dated 11.8.1988, the relevant portion whereof reads as under :

"Reference your letter No.Nil dated 9/17.7.1988 forwarding the tender for the above mentioned work.

2. On behalf of the President of India, I hereby accept your tender for the work mentioned above for the Lump Sum of Rs.7,54,03,216.00 (Rupees Seven Crores Fifty four lakhs three thousand two hundred and sixteen only).

3. This contract is allotted the number "CA No.CEMZ/ARK/4 of 1988-89" which will be quoted by you in all future correspondence in connection with this contract.

4. The tender enquiry, your tender, the letter referred to above and this letter shall be the sole repository of the contract."

With the said letter, t

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2009 Supreme(SC) 697

Cases Referred (12)