M/S. Rashtriya
Chemicals & Ferts. Ltd. Vs. M/S. Chowgule Brothers & Ors. [2010] INSC
462 (7 July 2010)
Judgment
IN THE
SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICITION CIVIL APPEAL NO.5286 OF
2006 M/s. Rashtriya Chemicals & Fertilizers Ltd. ...Appellant Versus M/s
Chowgule Brothers & Ors. ...Respondents
T.S.
THAKUR J.
1.
This appeal by special leave is directed against an order dated
5th April 2006 passed by the High Court of Bombay whereby Appeal No.884 of 1997
has been allowed, the order passed by a learned Single Judge of that Court set
aside and the majority award passed by the arbitrators restored.
2.
The appellant, a Government of India undertaking invited tenders
for allotment of clearing, forwarding, 2 handling and stevedoring jobs at
Mormugao Port initially for a period of one year commencing from 15th January
1983 upto 14th January 1984 but extendable at the option of the appellant for a
further period of one year on the same terms and conditions except statutory increases
in the wages of Dock labourers referred to in Clause 2.03 of tender notice.
In
response, the respondent submitted a tender which was accepted culminating in
the issue of a work order dated 10th January 1983 in its favour. It is common
ground that the appellant by its communication dated 13th October 1983
exercised the option available to it in terms of Clause 2.03 of the NIT and
extended the contract for a further period of one year ending 14th January
1985.
3.
The extension aforementioned was accepted by the respondent in
terms of its communication dated 7th December 1983 in which it was inter-alia
pointed out that statutory revisions in the wages of Mormugao Dock Labour Board
(for short M.D.L.B.) that had come about during the period of one year need be
considered while extending the 3 contractual period. In response, the company
by its letter dated 27th January 1984 pointed out that Clause 2.03 of Schedule
II of N.I.T. provided for increases on account of statutory revisions made upto
15th January 1984 alone to be considered for purposes of granting rate
escalation.
Increases
in wages that may have been under negotiations or those granted on a later date
with retrospective effect could not consequently be considered, said the
appellant.
The respondent-Company
was on that basis called upon to furnish documentary evidence regarding
increase if any in wages allowed by the M.D.L.B. upto 15th January 1984 without
waiting for issuance of any fresh circulars.
4.
It is not the case of the respondents that any revision in wages
effective as on 15th January, 1984 was demonstrated before the appellant at any
time before the commencement of the extended contractual period. What was
alleged by the respondent was that pursuant to a settlement between the M.D.L.B.
and the Dock workers the respondent had incurred an additional amount of
Rs.24.74 4 lakhs towards the increase in the wages payable to such workers. A
claim for reimbursement of the said amount was accordingly made by the
respondent-company in terms of a legal notice served upon the appellant on its
behalf, which claim was refuted by the appellant on the strength of Clause 2.03
of Schedule II to the notice inviting tenders forming part of the contract
between the parties. The appellant asserted that the rates at which the
contract was initially awarded had to remain firm throughout the period of one
year from the date of award and were not subject to any escalation whatsoever.
Rates for the extended period were also similarly to remain firm throughout the
extended period subject to any statutory revision upto 15th January, 1984 being
taken into consideration. Any subsequent increase in the wages payable to the
Dock labourers granted retrospectively by the M.D.L.B. was according to the
appellant wholly inconsequential.
5.
Denial of the claim made by the respondent thus gave rise to a
dispute which was in terms of the contract referred 5 to a panel of three
Arbitrators for adjudication. Before the Arbitrators, the appellant disputed
the claim on merits as also on the ground that the same was barred by
limitation.
The
Arbitrators examined rival contentions urged before them but failed to arrive
at a unanimous decision on the true and correct interpretation of Clause 2.03.
Two awards, therefore, came to be made, one by Shri R.P. Bhatt who dismissed
the claim and the other by M/s R.C. Cooper and N.A. Modi who held the
respondents entitled to recover from the appellant a lump sum amount of
Rs.61,73,067.90. It is noteworthy that while the award made by Shri R.P. Bhatt
was a reasoned Award that made by the other two Arbitrators was not.
6.
Aggrieved by the majority Award, the appellant filed Arbitration
Petition No. 19 of 1993 before the High Court of Bombay for setting aside the
same. A Single Judge of the High Court of Bombay (S.N. Variava, J. as His
Lordship then was) allowed that prayer and set aside the award holding that the
same was contrary to clause 2.03 of the NIT 6 forming part of the contract
executed between the parties.
Even the
plea of limitation succeeded before the learned Single Judge who held that the
claim made by the respondents was barred by time. Undeterred the respondents
assailed the said order before a Division Bench of the High Court in Appeal
No.884 of 1997 which allowed the appeal, set aside the order passed by the
Single Judge and restored the majority Award made by the two Arbitrators. The
High Court took the view that the interpretation placed upon Clause 2.03 of the
contract between the parties by the majority of the arbitrators was a logical
interpretation which could provide a sound basis for the Award made by them.
7.
Appearing for the appellant, Shri Shyam Divan did not pursue the
challenge to the validity of the Award on the ground that the claim made by the
respondent was barred by limitation. The solitary point that was urged by the
learned counsel was that the High Court had committed an error while
interpreting Clause 2.03 of the contract. Mr. Divan contended that a plain
reading of Clause 2.03 made it amply clear that the rates stipulated under the
contract were to remain firm for the first year notwithstanding any revision in
the wages payable to the dock workers of M.D.L.B. For the second year also the
rates were to remain firm, subject only to the condition that statutory
revisions, if any, of the wages would be taken into consideration. What was
according to Mr. Divan evident from a plain reading of Clause 2.03 was that
only such statutory revisions as were ordered upto the date of commencement of
the contractual period were relevant for the purpose of such consideration.
Any
revision made subsequent to the commencement of the contractual period even if
retrospective in its application would have had no relevance for the extended
period.
Inasmuch
as the Division Bench had taken a contrary view and set aside the order of the
learned Single Judge, it had not only committed a mistake that was evident but
also ignored the principles governing the construction of documents.
8.
Appearing for the respondents Mr. Ganesh, learned senior counsel
on the other hand contended that the power of this Court to interfere in an
Arbitral Award under Sections 30 and 33 of the Arbitration Act, 1940 was very limited. He contended that just because an
interpretation different from the one given by the Arbitrators in support of
their award was equally plausible did not make out a case for interference by
the Court. Arbitrators being Judges chosen by the parties the view expressed by
them would bind the parties no matter the same is found to be erroneous and no
matter an alternative view was equally or even more plausible. He urged that
Clause 2.03 of NIT was rightly interpreted by the Division Bench of the High
Court which did not call for any interference by this Court.
9.
The validity of the award made by the Arbitrators rests entirely
upon a true and correct reading of Clause 2.03 of the Contract. That clause is
in the following words:
"2.03:
It is hereby agreed that if the Company gives one month's notice to extend 9
the contract for a further period of one year from the expiry or the period
mentioned in Clause 2.01, the contractor shall be bound to continue to do the
work and render services on the same terms and conditions, as contained herein,
during such extended period, except for the statutory increase in the wages of
Dock Labour allowed by the Mormugao Dock Labour Board, for which documentary
evidence shall have to be furnished by the contractor......
...................................................................................
Note: The
rates indicated against first and 2nd year above have been taken from MDLE'S
Circulars from time to time. But the rates at which the contact is initially
awarded shall remain firm throughout the period of one year from he date of
award and shall not be subject to any escalation whatsoever.
Similarly,
the rates allowed for the extended period of one year, if any, after
considering the statutory increase, if any, in the wages of Dock Labour will
also remain firm throughout the extended period of one year and shall not be
subject to any escalation whatsoever, irrespective of any subsequent increase
in the wages of Dock Labour allowed retrospectively by the Mormugao Dock Labour
Board."
10.
A careful reading of the above especially the Note appended to
Clause 2.03 (supra) leaves no manner of doubt 10 that the rate at which the
contract was initially awarded was to remain firm throughout the period of one
year from the date of the award of the contract. What is significant is that
for the first year the said rate was unalterable regardless of any escalation,
revision or other statutory increases made during that period. Shri Ganesh,
learned counsel for the respondents also fairly conceded that insofar as the
first year of the contract was concerned the rates were not subject to any
revision and were to remain firm. If that be so, the question is how far is
that principle altered by the later half of the Note which deals with the rates
applicable during the extended period of the contract. There are three
different aspects which stand out from a reading of that part of the Note to
Clause 2.03. Firstly, the second part of the Note dealing with the rates
applicable to the extended period starts with the word `Similarly'. By using
that expression the Note draws an analogy between the firmness of the rates
applicable during the first year and those applicable for the extended period
of second year. The sentiment underlying 11 the Note is that the parties intend
to keep the applicable rates firm not only for the first year but also for the
second year.
11.
The second aspect which emerges from a plain reading of the Note
is that the rates for the second year had to be fixed by taking into
consideration the statutory increases, if any, in the wages payable to the Dock
labourers which rate once fixed was also to remain firm and impervious to any
escalation. The only difference between the first and the second year rates
thus is that the rates were firm even for the second year but the same had to
be fixed taking into consideration the statutory increases in the wages of the
dock labourers.
12.
The third aspect which in our opinion puts all doubts about the
true intention of the parties to rest is that any subsequent increase in the
wages of the dock labourers would not result in any escalation of the rates
even when such revision is allowed retrospectively by the M.D.L.B. What 12 the
Note in our opinion envisages is that on the completion of the first year and
at the beginning of the extended contract period, the rates applicable shall
have to be determined by reference to the revisions that have already come into
effect as on the date of the commencement of the extended period. It is
manifest from a reading of the Note that once an option is exercised the rate
applicable to the extended period shall stand revised taking into consideration
the revision of wages if any. Any such revision must of necessity be made as on
the date of the commencement of the extended period. Once that is done the said
rate would remain firm till the end of the second year. The contract does not,
in our opinion, envisage settlement or revision of the rate by reference to any
stage post commencement of the extended period. Even otherwise a contract for
the extended period could become effective only if rates applicable to that
period are settled or are capable of being ascertained. Rates actually
determined or determinable by reference to 15th January, 1984 the date when the
extended 13 period commenced, could include revision in wages made upto that
date. Any revision in the wages of the dock labourers which the M.D.L.B. may
have ordered subsequent to 15th January, 1984 would have no relevance even if
such revision was made retrospectively from the date of the commencement of the
extended period. The Note makes it abundantly clear that revision granted
retrospectively would be of no consequence whatsoever.
13.
There is another angle from which the matter can be viewed. As to
how the parties understood Clause 2.03 is also an important factor that needs
to be kept in mind.
While
accepting the extension of the contract, the respondent-contractor had simply
referred to the statutory revision in the wages by M.D.L.B. during the `last year'.
Since the
letter of acceptance is of 7th December, 1983 the statutory revision which the
contractor wanted to be taken into consideration were revisions before 1983 and
not those made at any time after the extended period of contract.
14 This
position is clear from the following lines appearing in the letter of
acceptance dated 7th December, 1983 :
"However,
we would like to inform you that there are lot of statutory revisions in the
wages of Mormugao Dock Labour Board during last 1 year which you will have to
consider while extending our contractual period. In this connection, the
undersigned will call on your office to discuss the same personally in near
future and we expect your cooperation in this regard."
14.
The appellant's letter dated 27th January, 1984 sent in reply to
the above made it clear to the respondent that Clause 2.03 of the NIT did not
envisage escalation on the basis of the revision subsequent to 15th January,
1984 even if such revisions were already being discussed or negotiated by the
Dock Workers with the M.D.L.B. The following passage from the said
communication makes the position abundantly clear:
"A
copy of clause 2.03 of Schedule II of N.I.T. is enclosed. From this, it will be
very clear that whatever increases that have been allowed by M.D.L.B. upto
15.1.84, can only be considered for the escalation purposes, 15 and not those
increases in wages which are under negotiations, for which M.D.L.B. circulars
will be issued subsequently after 15.1.84, with retrospective effect."
15.
The learned Single Judge of the High Court was, in the light of
the above, correct in holding that the award made by the Arbitrators to the
extent it directed payment of the additional amount was unsustainable. The
Division Bench, however, fell in error in taking a contrary view and holding
that the interpretation placed by the Arbitrators was a plausible
interpretation.
16.
That brings us to the question whether an Arbitrator can make an
award contrary to the terms of the contract executed between the parties. That
question is no longer res integra having been settled by a long line of
decisions of this Court. While it is true that the Courts show deference to the
findings of fact recorded by the Arbitrators and even opinions, if any,
expressed on questions of law referred to them for determination, yet it is
equally true that the Arbitrators have no jurisdiction to make an award against
16 the specific terms of the contract executed between the parties. Reference
may be made, in this regard, to the decision of this Court in Steel Authority
of India Ltd. v. J.C. Budharaja, Government and Mining Contractor, (1999) 8 SCC
122 where this Court observed :
"
........ that it is settled law that the arbitrator derives authority from the
contract and if he acts in manifest disregard of the contract, the award given
by him would be an arbitrary one; that 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......"
...... It
is true that interpretation of a particular condition in the agreement would be
within the jurisdiction of the arbitrator.
However,
in cases 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.
The
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...."
17.
It was further observed:
".....Further,
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....."
18.
In W.B. State Warehousing Corporation & Anr. v. Sushil Kumar
Kayan & Ors. (2002) 5 SCC 679, again this Court observed:
".......
If there is a specific term in the contract or the law which does not permit
the parties to raise a point before the arbitrator and if there is a specific bar
in the contract to the raising of the point, then the award passed by the
arbitrator in respect thereof would be in excess of his jurisdiction...."
19.
In Bharat Coking Coal Ltd. v. Annapurna Construction (2003) 8 SCC
154, this Court reiterated the legal position in the following words:
"There
lies a clear distinction between an error within the jurisdiction and error in
excess of jurisdiction. Thus, the role of the arbitrator is to arbitrate within
the terms of the contract. He has no power apart from what the parties have
given him under the 18 contract. If he has travelled beyond the contract, he
would be acting without jurisdiction, whereas if he has remained inside the
parameters of the contract, his award cannot be questioned on the ground that it
contains an error apparent on the face of the record."
20.
In MD, Army Welfare Housing Organisation v. Sumangal Services (P)
Ltd. (2004) 9 SCC 619 also this Court took the similar view and observed:
"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 justitiae. The jurisdiction of the arbitrator being confined to the four
corners of the agreement, he can only pass such an order which may be the subject-
matter of reference.
21.
21 Reference may also be made to the decisions of this Court in
Associated Engineering Co. v. Government of Andhra Pradesh & Anr. (AIR 1992
SC 232), Jivarajbhai Ujamshi Sheth & Ors. v. Chintamanrao Balaji & Ors.
(AIR 1965 SC 214), State of Rajasthan v. Nav Bharat Construction Co. (AIR 2005
SC 4430), Food Corporation of India v. Surendra, Devendra & 19 Mahendra
Transport Co. (2003) 4 SCC 80, which sufficiently settle the law on the
subject.
22.
That leaves us with the question whether the valid part of the
award can be saved by severance from the invalid part. Before the Arbitrators
the respondent-Chairman had quantified the claim at Rs.27,91,984.29 on account
of escalation of the rates consequent upon statutory increases in the wages of
M.D.L.B. during the extended period of contract. A further sum of
Rs.9,88,713.20 on account of escalation in the wages of other categories of
workers such as Tally Clerks, Stichers, Foreman, Asst. Foremen, Supervisors
etc. was also made on the same basis. In addition, a claim for the recovery of
Rs.8,63,953/- towards the final payment due and payable to the claimant with
interest @ 18% p.a. on the same was also made.
23.
In the light of the discussions in the earlier part of this order
the entitlement of the respondent to claim any amount on account of escalation
consequent upon the increase in 20 the wages of M.D.L.B. workers is not
established. The first two claims mentioned above on account of escalation
could not, therefore, have been allowed by the Arbitrators nor could the
incidental claim for payment of interest on that claim be granted. The question
then is whether there is any lawful justification for disallowing the only
other claim made by the respondents representing the balance amount due to the
claimant towards its final bill. The only defence which the appellant had
offered to that claim was based on the law of limitation. That defence having
been withdrawn by Mr. Divan, we see no real justification for disallowing the
said claim especially when the counter-claim made by the appellant has been
rejected and the said rejection was not questioned before the High Court. In
fairness to Mr. Divan we must record that he did not seriously oppose the
severance of the award made by the Arbitrators so as to separate the
inadmissible part of the claim based on an interpretation of Clause 2.03 from
the admissible part.
24.
In the result we allow this appeal but only in part and to the
extent that the award made by the Arbitrators shall stand set aside except to
the extent of a sum of Rs.8,63,953/- which amount shall be payable to the
respondent-contractor with the interest @ 9% p.a. from 1st April, 1985 till the
date of actual payment thereof.
25.
The parties to bear their own costs throughout the proceedings.
.......................................J. (AFTAB ALAM)
.......................................J.
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