Municipal Corporation of Greater Bombay vs Thermal Engineering Corporation and others

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1996 Supreme(Bom) 408

IN THE HIGH COURT OF BOMBAY
Dr. B.P. Saraf M.S. Rane, JJ.
The Municipal Corporation of Greater Bombay.... Appellants.
Versus
Thermal Engineering Corporation and others.... Respondents.
Appeal No. 138 of 1995 in Arbitration Petition No. 127 of 1991 in Award No. 17 of 1995, decided on 25-7-1996.
Advocates appeared :
R.D. Dhanuka, with A.J. Bhor, for the appellants.
P.K. Samdani, with Ms. Kothari, for the respondents.

Headnote:Section 30-Arbitrator exceeding his jurisdiction. Law is well-settled that an arbitrator is not a conciliator and cannot ignore the law or mis-apply it in order to do what he think just and reasonable. He is a tribunal selected by the parties to decide their disputes according to law and he is bound to follow and apply the law, and if he does not, he can be set right by Courts provided his error appears on the face of the award. (t is equally well-settled that where it is apparent not by construction of the contract by merely looking at the contract that the arbitrator travelled outside the permissible territory and thus exceeded his jurisdiction in making the award, it is an error going to the root of his jurisdiction. The arbitrator cannot act arbitrarily, irrationally, capriciously or independently of the contract. His sole function is to arbitrate in terms of the contract. He has no power apart from what the parties have given him under this contract. If he has travelled outside the bounds of the contract, he has acted without jurisdiction. But if he has remained inside the parameters of the contract and has construed has provisions of the contract, his award cannot be interfered with unless he has given reasons for the award disclosing an error apparent on the face of it. A conscious disregard of the law or the provisions of the contract from which he has derived his authority vitiates the award.
The Court has carefully considered the award and the order of the learned single Judge. The Court has perused clause 75 of the contract which provides that the contractor shall be reimbursed the variation in the value of work carried out from time to time depending on whether the prices of materials and labour as a whole rise or fall, and the same shall be computed by adopting the method set out in the said clause. There is no dispute about the fact that it is specially stated in the said clause, to which the parties to the contract had agreed, that the contractor shall have no claim for being reimbursed on the ground that the price of a particular material or group of materials had risen beyond the limits of the presumptions made in the paragraphs (a) and (b) of the said clause dealing with the method of calculation. Obviously, the claim of 69% escalation over and above what is permissible under clause 75 of the agreement is contrary to the prohibition contained in clause 75 of the agreement. The question is whether on the face of such a prohibition, the arbitrator can award any claim in addition to what is permissible under the said clause. The law is well-settled that the arbitrator is duty-bound to arbitrate in the terms of the contract. He has to remain inside the parameters of the contract. It is equally well- settled that if the arbitrator adjudicates a claim with reference to the clauses of the agreement itself, the agreement gets engrafted into the award and it is open to the Court to examine those clauses of the agreement and find out the correctness of the conclusion of the arbitrator with reference to those clauses, In the instant case, clause 75 is quite clear and unambiguous and not open to diverse meanings. There is no scope of interpreting the same. In such a case, the question of construction of the same cannot arise. The only question that arises for consideration is whether on the face of prohibition contained in clause 75 of the agreement, the arbitrator can award any escalation over and above what is permissible under the said clause. The answer obviously has to be in the negative. The arbitrator in this case has ignored the prohibition contained in clause 75 of the contract and has widened his jurisdiction by deciding the claim of the contractor otherwise than in accordance with the said clause. He has exceeded his jurisdiction by doing so. He is bound to decide within parameters of the contract. He has committed a jurisdictional error in allowing the claim of respondent No.1 contractor over and above the claim permissible in clause 75 of the contract. He has over stepped the confines of the contract by disregarding the limits and provisions of clause 75 of the contract and misdirected and misconducted himself in allowing the claim for additional escalation which is opposed to the provisions of the contract. The Court was, therefore, of the clear opinion that the learned arbitrator exceeded his jurisdiction in-allowing the claim of the contractor for additional escalation over and above the escalation permissible under clause 75 of the agreement. The claim for escalation under clause 75 was for a sum of Rs. 4,95,550.00. The arbitrator has awarded a sum of Rs. 8,09,417/- which obviously includes additional escalation claimed by the contractor. No bifurcation has been given by the arbitrator of this amount under the two heads of claims, viz., (i) escalation under clause 75 and (ii) additional escalation over and above that. In normal circumstances, Court would have remitted the award to the arbitrator to bifurcate this figure and restrict his award to the extent of the claim allowable under clause 75 of the contract. However, as the dispute pertains to a contract carried out in the year 1981 and the award is dated 4th April, 1991 in Courts view, remitting the award back to the arbitrator at this juncture will frustrate the very object of the arbitration as a means of settlement of disputes. In Courts view, the appropriate course in such a situation is to modify the award in so far as it pertains to the allowance of a sum of Rs. 8,09,417/- on account of escalation of prices of materials and labour and reduce the same to Rs. 4,95,550/which is the amount claimed by the contractor under clause 75 of the agreement. Accordingly, Court intend to modify the award by reducing the claim awarded under item No.1 from Rs. 8,09,417/-to Rs. 4,95,550/-.

JUDGMENT - Dr. B.P. SARAF, J. :---This appeal is directed against the Judgment and order dated 12th December, 1994 of the learned Single Judge dismissing the Arbitration Petition No. 127 of 1991 filed by the appellants.

2.The material facts of the case, briefly stated, are as follows: In the year 1978, tenders were invited by the appellants, Municipal Corporation of Greater Bombay ("Corporation"), for installing two crematorium furnaces in Bombay. In pursuance of the above tender invitation, tender was submitted by the respondent No. 1, Thermal Engineering Corporation, on 1st February, 1979. The Corporation accepted the said tender and issued the work order on 2nd November, 1979. As per the work order, respondent No. 1 was required to complete the construction of two crematorium furnaces within 11 months. The respondent No. 1, however, could not start the work because of the strike resorted to by the sand suppliers, which continued till October 1980. During this interregnum, the prices of the materials covered by the work order escalated. Under those circumstances, the respondent No. 1 wanted to terminate the above contract and accordingly, by its letter dated 13th October, 1981 requested the Corporation to terminate the same. In reply, on 7th April, 1982, the Corporation requested respondent No. 1 to set up only one furnace instead of two as contemplated by the original contract. The above offer of the Corporation was accepted by the respondent No. 1 on 16th October, 1982. The respondent No. 1 thereupon installed the furnace in terms of the modified contract. The Corporation also, on its part, made payments to the respondent No. 1 from time to time under the above contract. The respondent No. 1 however, made certain additional claims which were not acceptable to the appellant Corporation. One of the claims was a claim for an amount of Rs. 5,96,815.50 on account of 69% increase in the rates over and above the escalation permissible under the escalation clause contained in the contract. The appellant Corporation rejected the above claims of the respondent No. 1. Thereupon, the respondent No. 1 asked the Commissioner of the Corporation to refer the dispute regarding the amounts payable to the respondent No. 1 to arbitration under Clause 96 of the general conditions of the contract. The Corporation, accordingly, referred the dispute to arbitration on 31st October, 1988. The Award was made and published by the arbitrator on 4th April, 1991.

3.The Corporation challenged the Award by filing an arbitration petition under section 30 of the Arbitration Act, 1940 ("the Act") before the learned Single Judge of this Court and challenged the Award of 69% increase in the rates which amounted to Rs. 5,96,815.50, in addition to a sum of Rs. 4,95,550/- under Clause 75 of the general conditions of the contract which provided for escalation of the cost, on the ground that respondent No. 1 was entitled only to escalation under Clause 75 of the contract and no other amount on account of rise in the cost of material or labour etc. The case of the Corporation before the learned Single Judge was that the claim of 69% escalation in addition to escalation under Clause 75 of the general conditions of the contract was illegal inasmuch as Clause 75 specifically barred any such claim. The learned Single Judge held that, in the facts and circumstanes of the case, the respondent No. 1 was entitled to claim 69% escalation over and above the escalation permissible under Clause 75 of the general conditions of the contract as, in his opinion, Clause 75 did not operate as bar to such claim. The learned Single Judge also observed that the arbitrator having construed Clause 75 in that manner and that being one of the possible views, it was not open to him to go into the reasons given by the arbitrator.

4.We have carefully considered the Judgment of the learned Single Judge. The contention of the appellant Corporation is that Clause 75 of the general conditions of con

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