Tamil Nadu
Electricity Board Vs. M/S. Bridge Tunnel Constructions & Ors [1997] INSC
178 (18 February 1997)
K.
RAMASWAMY, S. SHAGGIER HAMMED
ACT:
HEAD NOTE:
O R D
E R Leave granted. Substitution allowed.
These
appeals, by special leave, arise from the judgment of the Madras High Court,
dated December 20, 1990, made i n O.S.A. Nos. 109 and 110
of 1988.
q The
admitted facts are that the respondents had entered into an agreement with the
appellant to construct inter- connecting tunnels for Suruliyar Hydroelectric
Project as per specification No. 1138- Schedule-B to the agreement. The initial
value of the tender to be awarded was Rs. 47 lakhs and it was revised to Rs. 69
lakhs on January 16,
1975. In the course of
execution of the contract, a sum of Rs. 92 lakhs was paid to the respondent.
The contract was to be completed within a period of 24 months from the date of
taking over of the site, i.e., January 18, 1975;
thus, it was completed after the expiry of the term, on August 25, 1978. Resultantly, there had arisen a
dispute as to the entitlement to further amount towards the work done by the
respondent.
On a
notice issued by the respondent for appointment of an arbitrator in terms of
clause 50 of the contract (arbitrator clause), there was a delay on the part of
the appellant i n nomination of the arbitrator. When the respondent exercised
the power, after expiry of the time prescribed in the notice, appointing a sole
arbitrator, proceedings under Section 33 of the Arbitrator Act, 1940 were
initiated by the appellant. One of the objections raised by the appellant in
the proceedings under Section 33 was that under the terms of the contract the
claim sought to be put up in the notice given by the respondent was not arbitrable.
The question was gone into and the court recorded a finding as under:
"If
the petitioner had come forward to raise dispute and if it is outside the scope
of clause 50, the first respondent itself would come forward with such a
reservation. It is not as if all disputes would come within the cope of clause
50 and only those that would come within the ambit of clause 50 alone can be
decided by the Arbitrators when such is the clear position on this aspect;
enabling the petitioner Board to raise a objection regarding disputes which may
not come within the scope of clause 50 is not a concession, but a recognition
of a right, which is available not only to the petitioner Board but also the
first respondent in the event of the Board raising any dispute as against it.
Therefore, the first stipulation is dependent upon the Arbitrators deciding as
to whether particular dispute would come within the scope of Section 50 or not,
and only if they consider that it falls within the scope of Arbitration clause,
they would have the jurisdiction to decide the same. In the event of the
Arbitrators holding that any particular dispute is outside the Arbitration
clause, it is not as if the first respondent is deprived of remedies by
agitating the same in Course." It is also further held that :
"After
the award is made, as the petitioner Board has already reserved its right, it
would enable the Board to raise this point, in the event of any need arising
for setting aside the award in Court." Pursuant thereto, condoning the
delay liberty was given to the appellant to nominate an Arbitrator on its
behalf which accordingly was done and dispute was referred to arbitration. Arbitrability
of some of the claims was disputed as part of no liability. Since the two
Arbitrators differed, an umpire was selected by the Arbitrators and he had gone
into the question. At this stage, it is relevant to mention that some of the
claims made by the respondents relate to excavation of hard rock in the tunnel
and the rate of claims.
The
relevant clauses of the Contract postulate thus :
"22.
Material to be excavated :
The
character of the material through which the tunnel is to be excavated is
indicated i n the report of the Geologist of the Geological Survey of India,
attached of this specification as an appendix. The probable nature of materials
to be excavated is given in the above report. It is expressly to be under
stood, however, that the purchaser does not guarantee the accuracy of the
information and should the conditions be found to differ from those indicated,
the contractor shall have no claim against the purchaser on the grounds of
misrepresentation. Moreover, the price to be given in the schedule of prices
for excavation work is to be inclusive and to be held to cover excavation in
the actual materials encountered.
23.
Tunnel Excavation:
a) The
tunnel is to be excavated to such dimensions as to give the minimum thickness
of concrete lining specified and to suit the shape and size of cross section of
the tunnel shown on drawing.
b)
Excavation is to be carried out as far as feasible, simultaneously on all fages.
It is expected, that more of the ground alone the tunnel will be hard rock
requiring the supports. Except where the materials penetrated is hard rock and
will safely stand by itself, the tunnel is to be lined temporarily with timber
supports and shoring. The timbering is to be kept as alose to the face of the
heading as possible. Any shoring of protective arrangements considered
inadequate by the Engineer is to be strengthened immediately.
g) The
type of tunnel section to be constructed shall be as directed or approved by
the Engineer.
Measurement
for payment of tunnel excavation, will be limited to the special sectional
dimensions and will be made along the established centre line of the tunnel and
payment therefore will be made at the unit bid in the schedule for excavation
of all classes of tunnel. No additional allowance above the unit price bid in
the schedule for excavation of all eclasses of tunnel will be made on account
of the class, nature or condition of any of the material encountered." The
rates were mentioned in the Schedule and the respondent had set up the claims
raised at rates higher than the contracted rates and twice the rate for the
work done after the expiry of the contract period.
Against
the claims, objections were raised by the appellant. They have disputed the
claim set up by the respondents and requested the Arbitrators to decide on the arbitrability
of the items mentioned in the claims of the respondents. The umpire, without
going into the details, in a non-speaking award as against the claim of Rs. 2 crores
10 lakhs, has awarded a consolidated sum of Rs. 70.83 lakhs as under :
"I
hereby award and direct as follows:
(1)
The Respondent shall pay the claimant a sum of Rupees Seventy Lakhs eighty
three thousand seven hundred and ninety three only (Rs.
70,83,793/-)
and release the earnest money deposit and Bank Guarantees furnished by the
claimant in lieu of Security Deposit, in full settlement of all claims and
counter-claims." Calling the award in question, an application to set it
aside has been filed. The respondent filed an application to make the award the
rule of the court. The civil Court dismissed the petition of the appellant and
made the award the rule of the court. On appeal, the Division Bench of the High
Court has confirmed the same. Thus these appeals, by special leave.
Shri
V.R. Reddy, the learned Additional Solicitor General, contends that the award
is illegal on account of omission on the part of the Umpire to give the
findings and reasons in support thereof of the arbitrability of the claims. He
contends that arbitrability of claim is a jurisdictional issue. The arbitrator
cannot clothe himself with the power, in a non-speaking award to award a
consolidated sum, without deciding the arbitrability of the claims set up by
the respondents including those which are not part of the contract.
Shri Poti,
learned senior counsel for the respondents has contended that the award being a
non-speaking one in the absence of specific reference directing the Arbitrators
to decide the arbitrability of some of the items in the claims set up by the
respondent, Umpire was not called upon or obliged to decide the dispute by a
speaking order on arbitrability. He reached the conclusion whether or not the
dispute or the claim is arbitrable and obviously he was of the opinion that all
the claims are arbitrable and he is empowered to decide it either rightly or
wrongly. He may be wrong in not expressly giving his decision on arbitrability
of some of the claims. However, his decision is within his jurisdiction. He is
not required to give any reasons in the award for reaching that decision. When
the arbitrator had given a consolidated sum towards all the claims, it would
mean that he had considered the arbitrability of some of the claims in terms of
the contract and that, therefore, he has not committed any error in reaching
that conclusion which is apparent on the face of the record. In the absence of
any specific reference for deciding that dispute, even if incidentally he
reaches that decision, he gets the jurisdiction and power to decide the
question, he gets the otherwise also, the award cannot be assailed o n the
ground that he reached a wrong decision without any reasons in support thereof.
In that event, it must be deemed that he had considered the non-arbitrability
of the items in a non- speaking ward given by him. He also further contends
that i n the absence of any agreement between the parties that the arbitrator
would give reasons in support of his decision on the arbitrability of the dispute,
he is not called upon to decide the dispute by a speaking award. What is
required, therefore, is to be considered is whether the arbitrator reached the
decision as to the entitlement to for a specified sum or disentitlement
thereof, in his award. Once he specifies the amount to which the respondent is
entitled, it must be deemed that he had taken into consideration the arbitrability
of all the claims including the claim relating to non- arbitrability of some of
the items and had given the award. Thereby, consolidated sum in the award is
not subject to attack that the award made by the Arbitrator is vitiated by any
error of jurisdiction or error of law apparent on the face of the record. Shri Poti
further contends that the contract of arbitration is not part of the record and
the umpire had not referred to the agreement as part of the award and that,
therefore, it is not open to the court to look into the contract to find out
whether the contractor claimed at the rates higher than what were contracted
and the umpire has omitted to consider the non- arbitrability of the claims in
respect of some of the items. In support thereof, the places strong reliance on
the decision of this Court in Tarapore and Co. v. Cochin Shipyard Ltd., Cochin
[(1984) 2 SCC 680], in particular, paragraphs 10, 12,33 thereof, and State of
A.P. v. R.V. Rayanim [(1990) 1 SCC 433 at 435, para 5].
In
view of the respective contentions, the question that arises for consideration
is: whether the Umpire was required to give a decision supported by reasons on
the non- arbitrability of some of the items in terms of the contract.
It is
already seen that the Court prior to the proceedings under Section 33 had gone
into the question as to the right of the appellant to question the arbitrability
of some of the items and had expressly recorded, as seen hereinbefore, that if
any objection regarding the dispute is raised, either parties is at liberty to
raise the same and avail of decision by the arbitrator and the arbitrator is
required to decide the arbitrability of the claim and if he considers that it
falls within the scope of the arbitration clause/arbitrability, then he would
have the jurisdiction to decide the same. If the decision has been reached by
the arbitrator against the appellant, it would be open to the Board to raise
that point, in case any need arises for setting aside the said award in the
court. Thus, it could be seen that prior to the proceedings under Section 33,
the court had left open the umpire had to decide the dispute. In the event of
the decision going against the Board, the same is also entitled to question the
correctness of the award in a court of law. That order has become final.
In the
light of the above facts, the question arises;
whether
the arbitrator was not obliged to decide the non- arbitrability of some of the
items claimed by the respondents before/while giving a non-speaking award and
whether a deemed decision could be given credence. In Tarapore Co.'s case
relied on by Shri Poti, a Bench of two judges of this court had gone into the
question of jurisdiction of the arbitrator to decide the arbitrability of the
dispute. In para 10 thereof, it is stated thus :
"What
is the effect of referring the specific question of law to arbitration without
prejudice to one's right to contend to the contrary will be presently
examined." If this issue specifically raises a question as to jurisdiction
of the arbitrator to arbitrate upon the dispute set out in Point No.2, it
appears to have been specifically referred to the arbitrator for his decision.
Parties, therefore, agreed to submit the specific question even with regard to
the scope ambit width and the construction of the arbitration clause so as to
define its parameters and contours with a view to ascertaining whether the
claim advanced by the appellant and disputed by the respondent would be covered
by the arbitration clause.
Whether
upon its true construction the arbitration clause would include within its
compass the dispute thus raised between the parties was specifically put in
issue because parties were at variance about it." "The arbitrator was
thus required and called upon first to decide whether the dispute is arbitrable
as falling within the width and answer is in the affirmative, then alone the
second point need be examined. If the answer to the first point of reference is
in the negative in that if the arbitrator were of he opinion that the dispute
is not arbitrable as it would not fall within the scope, width an ambit of the
arbitration agreement, it would not be necessary for him to determine whether
the appellant was entitled to recover anything by way of compensation. This
aspect is being analysed in depth to point out that the parties specifically
referred the question of constriction of arbitration agreement, its width,
ambit and parameters vis-a-vis the dispute raised so as to decide whether the
dispute would fall within the purview of the arbitration agreement, in other
words the jurisdiction of the arbitrator." Thus, it could be seen that
therein that when the question is specifically referred to the arbitrator, the
arbitrator is required to decide the question referred to him and decide the
point on the question. Then only he gets the jurisdiction to go into the
merits. In para 12 of the judgment that point was elaborated holding that :
"The
first point extracted hereinbefore would clearly show that the specific
question about the jurisdiction of the arbitrator to arbitrate upon the dispute
set out in Point Nos. 2, 3 and 4 was specifically referred to the arbitrator.
On the
first point, the arbitrator had to decide whether the claims made by the
appellant and disputed by the respondent would be covered by clause 40, i.e.
the arbitration clause. In other words, the specific question referred to the
arbitrator was about his jurisdiction to arbitrate upon the disputes covered by
Points Nos. 2, 3 and 4, if and only if, upon a true construction of the
arbitration clause that is first paragraph of clause 40, would cover the
disputed claim for compensation he can enter into the merits of the dispute and
decide it." This ratio clearly establishes that the arbitrator gets
jurisdiction to decide the dispute on merits only when he is specifically
called upon to decide the dispute in terms of the contract.
In
Managing Director, J & K Handicraft v. Good Luck Carpets [(1990) 4 SCC
740], the question arose: whether the court could look into the arbitration
agreement, find out whether the arbitrator has jurisdiction to decide the
dispute though it was not formed part of the award? In para 5, this Court had
held that:
"...
Here we may point out that the learned counsel for the respondent has urged
that the agreement containing the arbitration clause cannot be looked into even
to find out as to what was the nature of the dispute contemplated by it with
regard to which a reference to an arbitrator was contemplated, more so when the
ward was a non-speaking one. We find it difficult to agree with this submission
for two reasons: Firstly, the award is not a totally non-speaking one inasmuch
as it gives as resume of the incentive scheme and the agreement between the
parties as also the items of the claim made by the respondent. Of course, while
fixing the amount found payable by the appellant, no reasons are recorded.
Secondly, if there is any challenge to the award on the ground that the
arbitrator had no jurisdiction to make the award with regard to a particular
item inasmuch as it was beyond the scope of reference, the only way to test the
correctness of such a challenge is to look into the agreement itself. In our
opinion, looking into the agreement for this limited purpose is neither
tantamount to going into the evidence produced by the parties nor into the
reason which weighted with the arbitrator in making the award." In fact
this Court had gone into merits while deciding the question as to whether the
arbitrator was justified in making the award in excess of the jurisdiction with
reference to the arbitration agreement and deciding the dispute on that basis.
In
U.P. Rajkiya Nirman Nigam Ltd. v. Indure Pvt. Ltd.
[(1996)
2 SCC 667] a Bench of three judges [to which both of us were members] had gone
into the question whether the arbitrator can go into the question whether there
emerged any concluded contract and whether he can get exclusive jurisdiction to
decide that question by himself? In an application under Section 33, the
learned Single Judge of the High Court had held that the arbitrator has
exclusive jurisdiction to decide that question. Reversing that judgment this
Court in para 13 had held that "the arbitrability of a claim depends on
the construction of the clause in the contract. The finding of the
arbitrator/arbitrators on arbitrability of the claim is not conclusive as under
Section 33, ultimately it is the court that decides the controversy. It being a
jurisdictional issue, the arbitrator/arbitrators cannot clothe themselves with
jurisdiction to conclusively decide the issue." In para 15 it is held
thus:
"The
clear settled law thus is that the existence or validity of an arbitration
agreement shall be decided by the court alone, Arbitrators, therefore, have no
power of jurisdiction to decide or adjudicate conclusively by themselves the
question since it is the very foundation on which the arbitrators proceed to
adjudicate the disputes. Therefore, it is rightly pointed out by Shri Adarsh
Kumar Goel, learned counsel for the appellant that they had by mistake agreed
for reference and that arbitrators cold not decide the existence of the
arbitration agreement or arbitrability of the disputes without prejudice to
their stand that no valid agreement existed. Shri Nariman contended that having
agreed to refer the dispute, the appellant had acquiesced to the jurisdiction
of the arbitrators and, therefore, they cannot exercise the right under Section
33 of the Act. We find no force in the contention. As seen, the appellant is
claiming adjudication under Section 33 which the court alone has jurisdiction
and power to decide whether any valid agreement is existing between the parties.
Mere acceptance or acquiescing to the jurisdiction of the arbitrators for
adjudication of the disputes as to the existence of the arbitration agreement
or arbitrability of the dispute does not disentitle the appellant to have the
remedy under Section 33 through the court. In our considered view the remedy
under Section 33 is the only right royal way for deciding the
controversy." Accordingly, it was held that the controversy of arbitrability
requires to be decided by the court and not by the arbitrator himself.
In
Union of India v. G.S. Atwal & Co. (Asansole) [(1996) 3 SCC 568] a Bench of
two Judges, to which one of us, K. Ramaswamy, J. was a member, was to consider
the question whether the arbitrator. when he enlarged his scope of award in a
non-speaking award, can conclusively decide the dispute and give an award in
that behalf? It was held in paragraph 6 that :
"To
constitute an arbitration agreement, there must be an agreement that is to say
the parties must be ad idem.
Arbitrability
of a claim depends upon the dispute between the parties and the reference to
the arbitrator. On appointment, he enters upon that dispute for adjudication.
The finding of the arbitrator on the arbitrability of the claim is not
conclusive, as under Section 33 ultimately it is the court that decides the
controversy. It can hardly be within the arbitrator's jurisdiction to decide
whether or not a condition precedent to his jurisdiction has been fulfilled.
The
arbitrator had has been fulfilled. The arbitrator had no power to decide his
own jurisdiction. The arbitrator is always entitled to inquire whether or not
he has jurisdiction to decide the dispute. He can refuse to deal with the
matter at all and leave the parties to go to the court if he comes to the
conclusion that he has no power to deal with the matter, or he can consider the
matter and if he forms the view that the contract upon which the claimant is
relying on and from which, if established, he alone has jurisdiction, he can
proceed to the decide the dispute accordingly.
Whether
or not the arbitrator has jurisdiction and whether the matter is referred to or
is within the ambit of clause for reference of any difference of dispute which
may arise between the parties, it is for the court to decide it. The arbitrator
by a wrong decision cannot enlarge the scope of the submission. It is for the
court to decide finally the arbitrability of the claim in dispute or any clause
or a matter or a thing contained therein or the construction thereof.:
In Champsey
Bhara & Co. v. Jivraj Balloo Spinning & Weaving Co. Ltd. (LR (1922) 50
IA 324 : AIR 1923 PC 66] Lord Dunedin had laid down the dictum as to an error
in law on the face of the award, which was accepted and followed by this court
in Hindustan Construction Co. Ltd. v. State of J & K. [(1992) 4 SCC 217].
Therein it was held that:
"An
error in law on the face of the award means, in their Lordships' view, that you
can find in the award or a document actually incorporated thereto, as for
instance a note appended by the arbitrator stating the reason for his judgment,
some legal proposition which is the basis of the award and which you can then
say is erroneous. It does not mean that if in a narrative a reference is made
to a contention of one party, that opens the door to seeing first what the
contention is, and then going to the contract on which the parties' right
depend to see if that contention is sound.
Here
it is impossible to say, from what is shown on the face of the award, what
mistake the arbitrators made. The only way that the learned judges have arrived
at finding what the mistake was is by saying:
'inasmuch
as the arbitrators awarded so and so, and inasmuch as the letter shows that the
buyer rejected the cotton, the arbitrators can only have arrived at arbitrators
can only have arrived at that result by totally misinterpreting Rule 52'. But
they were entitled to give their own interpretation to Rule 52 or any other
article, and the award will stand unless, on the face of it, they have tied
themselves down to some special legal proposition which then when examined,
appears to be unsound." The decision has been followed by this Court in
all subsequent judgments and the precise scope of the law as to error apparent
on the face of the award has been crystalised. But there is a distinction
between an error apparent on the face of the award and jurisdictional error in
passing the award. In that behalf, in M/s. Sudarsan Trading Co. v. State of Kerala
[(1989) 2 SCC 38] Justice Sabyasachi Mukharji, as he then was, had pointed out
the distinction on the jurisdictional error and the error on the face of the
award. It was stated thus:
"An
award may be remitted or set aside on the ground that the arbitrator in making
it, had exceeded this jurisdiction and evidence of matters not appearing on the
face of it, will be admitted in order to establish whether the jurisdiction had
been exceeded or not, because the nature of the dispute is something which has
to be determined outside the award- whatever might be said about it in the
award or by the arbitrator. It has to be reiterated that an arbitrator acting
beyond his jurisdiction- is a different ground from the error apparent on the
face of the award. In Halsbury's Laws of England II, 4th edn., Vol.2 para 622
one of the misconducts enumerated, is the decision by the arbitrator on a
matter which is not included in the agreement or reference. But in such a case
one has to determine the distinction between an error in excess of the
jurisdiction. Whether a particular amount was liable to be paid or damages
liable to be sustained, was a decision within the competency of the arbitrator
in this case. By purporting to construe the contract the court could not take
upon itself the burden of saying that this was contrary to the contract and, as
such, beyond jurisdiction.
It has
to be determined that there is a distinction between dispute as to the
jurisdiction of the arbitrator and the disputes as to in what way that
jurisdiction should be exercised. There may be a conflict as to the power of
the arbitrator to grant a particular remedy." In "Russel on
Arbitration" [Nineteenth Edition] by Anthony Walton, page 99, it is stated
as under:
"It
can, hardly be within the arbitrator's jurisdiction to decide whether or not a
precedent to his jurisdiction has been fulfilled. It has indeed several times
been said bluntly that an arbitrator has no power to decide his own
jurisdiction and in one case where rules of an institution the arbitrator such
power, the court will ignore this when asked to enforce the award, and decide the
question itself. However, an arbitrator is always entitled to inquire whether
or not he has jurisdiction.. An umpire faced with a dispute whether or not
there was a contract from which alone his jurisdiction, if any, can arise can
matter at all and lease the parties to go to Court, or he can consider the
matter and if he forms the view that the contract upon which the claimant is
relying and from which, if established, alone his jurisdiction can arise is in
truth the contract, he can proceed accordingly." In "Law of
Arbitration" by R.S. Bachawat [2nd (1987) Edition] at pages 154-55, it is
stated thus:
"An
arbitrator cannot by mistake assume jurisdiction over a matter on which he has
no jurisdiction. If it is shown by the terms of the submission or by the extrinsic
evidence that the arbitrator has adjudicated upon matters outside the scope of
his authority the award cannot stand, however well meaning and honest the
mistake might have been. An arbitrator cannot give himself jurisdiction by a
wrong decision collateral to the merits as to facts on which the limits of his
jurisdiction depends.
Where
it was a condition precedent to his jurisdiction that the dispute should have
arisen during a tenancy between the plaintiff and the tenancy between the
plaintiff and the defendant or in the event of a collusion if certain works had
been completed, the arbitrator could not clothe himself with jurisdiction by a
wrong decision n the preliminary point. The question is not preliminary point.
The question is not concluded against any party by a finding of the arbitrator
that he has jurisdiction. It is for the court and not for the arbitrator to
decide finally whether or not the arbitrator has jurisdiction and that is the
law both in India and in England." "....The question whether the
matters referred were within the ambit of the clause for reference of "any
difference or dispute which may arise between the partners is for the court to
decide".
"....Dispute
about the existence or validity of the contract and as to the existence of
facts which render it illegal must be determined by the court and not by the
arbitrator. The arbitrator cannot by his own finding clothe himself with
jurisdiction. Supposing he finds that the jurisdiction agreement is valid such
a finding cannot bind the parties".
It
would thus be seen that the arbitrator, while deciding the admitted dispute,
subject matter of adjudication, may decide the dispute in reference to the
agreement. That would be within his jurisdiction. In such jurisdictional issue,
even if an error is committed that may not be an error apparent on the face of
the record because the arbitrator, the chosen forum, may commit an error in
exercising his jurisdiction. However, if he, by a speaking award, decides it on
a wrong proposition of law, it will be an error apparent on the face of record
and liable to correction. If the arbitrator decides a dispute which is beyond
the scope of his reference or beyond the subject matter of the reference or he
makes the award disregarding the terms of reference or the arbitration
agreement or terms of the contract, it would jurisdictional error beyond the
scope of reference, he cannot clothe himself to decide conclusively that
dispute as it is an error of jurisdiction which requires to be ultimately
decided by the court. This Court has pointed out the distinction between latent
and patent error of jurisdiction in Tarapore Co.'s case thus:
"It
has to be seen whether the terms of the agreement permitted entertainment of
the claim by necessary implication. It may be stated that we do not accept the
broad contention of Shri Nariman that whatever is not excluded specifically by
the contract can be subject-matter of claim by a contractor. Such a proposition
will mock at the terms agreed upon.
Parties
cannot be allowed to depart from what they had agreed. Of course, if something
flows as a necessary concomitant to what was agreed upon courts can assume that
too as a part of the contract between the parties." It would thus be clear
that the arbitrator cannot clothe himself conclusively with the jurisdiction to
decide or omit to decide the arbitrability of a particular item or the claim
made by the parties. When a specific reference has been made to the arbitrator
and the parties raise the dispute of arbitrability, with the leave of the
court/by a direction of the court in a proceedings under Section 33, he is to
decide the arbitrability of the dispute and make a decision of the arbitrability
f the dispute and make a decision while giving reasons in support thereof. The
decision of the arbitrator in granting a particular sum by a non-speaking
award, therefore, hinges upon the arbitrability of a dispute arising under the
contract or upon a particular item claimed thereunder. He is required to give
the decision thereon. The question of decision by implication does not arise
since his jurisdiction to decide to dispute on merits hinges upon his
jurisdiction to decide the arbitrability of the dispute. In this case, in view
of the finding recorded by the court, which has become final, as referred to
earlier, the arbitrator/umpire was enjoined to decide the arbitrabilty of the
claims set up by the respondent and disputed by the appellant. Admittedly, the
award of the umpire does not contain any decision on arbitrability of the claims.
In
Gujarat Water Supply and Sewerage Board v. Unique Erectors [(1989) 1 SCC 532]
one of the questions referred was arbitrability of a particular item. It was by
the Court stated thus :
"In
the instant case, the arbitrator by virtue of the terms mentioned in the order
of this court had to decide which of the disputes were arbitrable and which
were not. It is true that the arbitrator has not specifically stated in the
award that he had to decide the question of arbitrability. The arbitrator has
rested by stating that he had heard the parties on the point of arbitrability
of the claim and the counter-claim. He has further stated that after
'considering all the above aspects' and 'the question of arbitrability or non- arbitrability'
he had made the award on certain aspects." It could be seen that if the
arbitrator has indicated his mind in the award that he in fact adverted to the arbitrability
or non-arbitrability of the claim and then made the award, it would be
indicative of the fact that he had, in fact, applied his mind, considered that
question and reached the decision in awarding certain amounts by a non-speaking
award including the claim in respect of which arbitrability was in issue.
In Raipur
Development Authority v. Chokhamal Contractors [(1989) 2 SCC 721], a
Constitution Bench of this Court had gone into the question whether the
arbitrator is required to give reasons in a non-speaking award. The
Constitution Bench had pointed out in para 35 thus:
"We
do not appreciate the contention, urged on behalf of the parties who contend
that it should be made obligatory on the part of the arbitrator to give reason
for the award, that there is no justification to leave the small area covered
by the law of arbitration out of the general rule that the decision of every
judicial and quasi-judicial body should be supported by reasons. But at the
same time it has to be borne in mind that what applies generally to settlement
of disputes by authorities governed by public law need not be extended to all
cases arising under private law such as those arising under the law of
arbitration which is intended for settlement of private disputes." In para
37 thereof, this Court emphasised the need to make a speaking award and the
terms in the contract should postulate such a need when the contract is entered
into by the State or its instrumentalities. It was held thus:
"The
trappings of a body which discharges judicial functions and s required to act
in accordance with law with their concomitant obligations for reasoned
decisions, are not attracted to a private adjudication of the nature of
arbitration as the latter, as we have noticed earlier, is not supposed to exert
the State's sovereign judicial power. But arbitral awards in disputes to which
the State and its instrumentalities are parties affect public interest and the
matter of the manner in which government and its instrumentalities allow their
interest to be affected by such arbitral adjudications involve larger questions
of policy and public interest. Government and its instrumentalities cannot
simply allow large financial interests of the State to be prejudicially
affected by non-reviewable - except in the limited way allowed by the statute -
non-speaking arbitral awards. Indeed, this branch of the system of dispute
resolution has, of late, acquired a certain degree of notoriety by the manner
in which in many cases the financial interests of government have come to
suffer by awards which have raised eyebrows by doubts as to their rectitude and
property. It will not be justifiable for governments or their instrumentalities
to enter into arbitration agreements which do not expressly stipulate the
rendering of reasoned and speaking awards.
Government
and their, instrumentalities should, as a matter of policy and public interest-
if not as a compulsion of law ensure that wherever they enter into agreements
for resolution of disputes by resort to private arbitrations, the requirement
of speaking awards is expressly stipulated and ensured." In State of A.P.
& Ors. v. R.V. Rayanim & Ors. [(1990) 1 SCC 433], relied on by Shri Poti,
the question arose whether the award of escalation charges in a non-speaking
award is vitiated by any error apparent on the face of the record? Therein the
question of jurisdictional issue had not arisen. On the other hand, on merits,
it was contended that there was an error in that behalf. In para 5 it was held
that " it was then contended, that the award has purported to grant
damages on the basis of escalation of cost and prices and such escalation was
not a matter within the domain of the bargain between the parties and having
taken that factor into consideration the award was bad." Therefore, the
ratio there is an authority supporting the contention on the need of an
arbitrator to give a reasoned decision on arbitrability of the contract or
claim in dispute.
In
this regard, Section 31(3) of the Arbitration and Conciliation Act, 1996,
provides thus:
"(3)
The arbitral award shall state the reasons upon which it is based, unless- (a)
the parties have agreed that no reasons are to be given, or (b) the award is an
arbitral award on agreed terms under Section 30." The Parliament has
expressed the legislative judgement that the award shall state reasons upon
which it is based unless parties have agreed otherwise or the award is covered
on agreed terms under Section 30 of the new Act.
Thus,
the law on the award, as governed by the new Act, is other way about of the
pre-existing law; it mandates that the award should state the reasons upon
which it is based.
In
other words, unless (a) the parties have agreed that no reasons are to be given
or (b) the award is an arbitral award on agreed terms under Section 30 of the
new Act, the award should state the reasons in support of determination of the
liability/non-liability. Thereby, legislature has not accepted the ratio of the
Constitution Bench in the Chokhamal Contractor's case that the award, being in
the private law field, need not be a speaking award even where the award
relates to the contact of private parties or between person and the Government
or public sector undertakings. The principle is the same, namely the award is
governed by Section 31(3).
We
have set out the relevant portions of the award.
From a
reading thereof, it is clear that the arbitrator had considered the claims made
on the basis of escalation and damages, in a non-speaking award of the disputes
consisting of arbitrable and non-arbitrable claims. He awarded a lumpsum amount
of Rs. 70,83,793/-. It is difficult to discern as to what extent the umpire had
considered the admissible and inadmissible claims which he adjudged. In such a
situation, it is not possible to discern to what extent he had exercised his
jurisdiction vis-a-vis of the admissible claims and disallowed the non-arbitrable
claims.
So, it
is not clear whether he exercised his authority either beyond his jurisdiction
or in abdication thereof. In either case, it is an error of jurisdiction, the
very foundation for his decision.
It is
well settled that in the matter of challenge to the award there are two
distinct and different grounds, viz., that there is an error apparent on the
face of the record and that the arbitrator has exceeded his jurisdiction. In
the latter case, the court can look into the arbitration agreement but under
the former it cannot do so unless agreement but under the former it cannot do
so unless the agreement was incorporated or cited in the award or evidence was
made part of the agreement. In the case of jurisdictional error, there is no
embargo on the power of the court to admit the contract into evidence and to
consider whether or not the umpire had exceeded the jurisdiction because the
nature of the dispute is something which has to be determined, outside the
award, whatever might be said about it in the award or by the arbitrator. In
the case of non-speaking award, it is not open to the court to go into the
merits. Only in a speaking award the court can look into the reasoning in the
award and correct wrong proposition of law or error of law. It is not open to
the court to probe the mental process of the arbitrator and speculate, when no
reasons have been given by the arbitrator, as to what impelled the arbitrator
to arrive at his conclusion. But in the later case the court, with reference to
the terms of the contract/arbitrator/umpire has exceeded his jurisdiction in
awarding or refusing to award the sum of money awarded or omitted a
consolidated lumpsum.
In
fact, in G.S. Atwal & Co.'s case, having noticed that the arbitrator had
exceeded his jurisdiction to grant amount de hors the terms of the contract and
being a non- speaking award, the court was unable to speculate as to what
extent the award was within the terms of the contract or claims made and to
what extent the amount awarded was in respect of non-arbitrable dispute.
Accordingly, the order of the civil court was set aside reversing the judgment
of the Division Bench of the Calcutta High Court.
Thus
considered, we hold that the arbitrator, having been invested with the
jurisdiction to decide the arbitrability of certain claims, has committed error
of jurisdiction in not considering the arbitrability of the claims and passed a
non-speaking award, awarding a sum of Rs. 70.83 lakhs and odd. It is difficult
to ascertain as to what extent he has awarded the claims within the contract or
the claims outside the contract, of a total claim of Rs.
2.10 crores.
Under those circumstances, we are constrained to hold that it is difficult to
give acceptance to the award made by the umpire as upheld by the courts below.
Equally, we find it difficult to accept the contention that out of a claim of Rs.
2.10 crores, only a sum of Rs. 70.83 and odd was awarded. So, it is not a fit
case for interference on the basis of the mere fact that a lesser sum than was
claimed has been awarded. An illegal award cannot be upheld to be valid or
within jurisdiction.
The
question then is : what procedure should be adopted in this behalf? The
contention of Shri Poti is that it may be remitted to the umpire for fresh
consideration. On the other hand, the contention of Shri V.R. Reddy is that in
the event of the conclusion that the arbitrator has exceeded his jurisdiction,
the entire award would become invalid and it has to be set at naught. Having
given due consideration to the respective contentions, we find force in the
contention of Mr. V.R. Reddy. Mr. Poti has stated that though it is found that
the award is not valid in law, the party cannot be made to suffer on account of
the illegality committed by the umpire. We find no force in the contention.
Once a finding recorded that the umpire/arbitrator has committed error of
jurisdiction, as stated earlier, two course are open, viz., either to remit the
award to the umpire for reconsideration or to set aside the award in toto. We
think that the latter course would be appropriate in the facts and
circumstances in this case.
Accordingly,
we allow the appeals set aside the award of the arbitrator and leave the
parties to bear their own costs. If there are no outstanding dues recoverable
from the respondents, the security deposit and bank guarantee is required to be
refunded to the respondent.
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