Case: D.C.M. Ltd Vs. Municipal Corporation Of Delhi &amp; Anr

had deducted from the total units available for distribution, units which are lost in transit. This is not something which is irrelevant to the formula. It is an essential element which has to be taken into account in order to decide one basic item of the formula, namely, the units which were sold. The Arbitrator, therefore, was not right in distorting this formula by removing the factor of transmission and distribution losses from calculation of the units sold. The Arbitrators jurisdiction was confined to examining whether the calculations were in accordance with the formula. Therefore, in effect, the Arbitrator has acted beyond the scope of his reference in eliminating an important factor in calculation of the formula. This can also be looked upon as an error of law apparent on the face of the record. The figure of units sold cannot take into account units which were, in fact, not sold but were lost during transmission and distribution. By ignoring the manner in which this formula had been applied for more than 10 years uniformly in the case of all large industrial Corporations, the Arbitrator has committed an error of law apparent on the face of record. Because he has thereby distorted the formula and thus acted beyond the scope of his reference which was confined to examining a proper quantification of the increase in fuel adjustment charges in accordance with the formula. 13. The appellants have urged before us that the views of the Arbitrator are binding upon the parties; and if a question of law is referred to the Arbitrator his decision will be binding on the parties. They have relied upon the well-known decision in the case of Tarapore and Company v. Cochin Shipyard Ltd., Cochin and Anr.,(1984) 2 SCC 680 , and a series of other cases in support of the submission that if a question of law is specifically referred by the parties to the Arbitrator for decision, the award of the Arbitrator would be binding on the parties and the Court will have no jurisdiction to interfere with the award even on the ground of error of law apparent on the record. We are not citing these decisions because in the present case, as was rightly held by learned Single Judge of the High Court, there is no specific question of law which has been referred to arbitration. The limited reference to arbitration was whether the fuel adjustment charges were being demanded in accordance with the Tariff and the formula laid down, for the year iI1 question. 14. It was further submitted by the appellants that the Arbitrator was required to examine whether the fuel adjustment charges were in accordance with the formula laid down in the Tariff and, therefore, it was open to the Arbitrator to examine all the ingredients of this formula. If such an examination results in the Arbitrator eliminating some important ingredients of the formula and this results in a total distortion of the formula which is agreed to be applied by both the parties, the Arbitrator exceeds the scope of the reference when he does so. This is a jurisdictional error which can be examined by the Courts in deciding whether to uphold the award or not. 15. One of the decisions which was quoted by the appellants in this connection in support of their argument was in the case Hind Buildersv. Union of India,(1990) 3 SCC 338 , where, in the case of a non-speaking award, the Arbitrators without overlooking any term of the contract acted upon an interpretation of certain clauses in the contract on which two views were possible, this Court said that this was not a case of any error apparent on the face of the award. The facts of the present case are very different. In the first place, there is a speaking award. The Arbitrator was required to examine the application of the formula on which there was no dispute, to calculate the increase in fuel adjustment charges. In doing so, the Arbitrator examined the various ingredients which went to determine, (1) the cost of the units generated; (2) the cost of the units purchased from other power plants; and (3) the number of units sold. The formula in effect was very simple. The total cost of units available for being set in transmission for supply to the consumers was to be divided by the number of units sold. This would give the cost per unit of each unit sold. There was no dispute with this formula. What the Arbitrator in effect did was to say that the units sold are no different from the total number of units available to the second respondent for being put in transmission in order that they may be distributed to the consumers. He, therefore, held that the cost of all units which were made available for transmission and distribution should be determined by dividing the total cost by the number of units which were so made available. He in effect, replaced the third factor in the formula ?Units sold? by ?Units manufactured plus units bought from other power stations?. This has clearly changed the statutory formula. The Arbitrator was not authorised to examine the validity of the formula or to change it. He has, therefore, committed a jurisdictional error in so ?interpreting? the formula. This is a jurisdictional error which is also apparent on the face of the award.16. We need not examine the number of cases which were cited before us setting out the grounds on which an award can be set aside partly or wholly. It is well established that an Arbitrator cannot go beyond the scope of his reference. If he has exceeded his jurisdiction, the award to that extent can be set aside provided that the part of the award being quashed is severable from the rest. In the present case, therefore, the High Court was right in setting aside the award to the extent that it excluded transmission and distribution losses.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]This has clearly changed the statutory formula. The Arbitrator was not authorised to examine the validity of the formula or to change it. He has, therefore, committed a jurisdictional error in so ?interpreting? the formula. This is a jurisdictional error which is also apparent on the face of the award.16. We need not examine the number of cases which were cited before us setting out the grounds on which an award can be set aside partly or wholly. It is well established that an Arbitrator cannot go beyond the scope of his reference. If he has exceeded his jurisdiction, the award to that extent can be set aside provided that the part of the award being quashed is severable from the rest. In the present case, therefore, the High Court was right in setting aside the award to the extent that it excluded transmission and distribution losses.11. This is how the formula has been worked throughout. In fact the figure of basic average fuel and purchase cost of 15.25 paise per KWH mentioned in Clause 1(i) of theTariff was also arrived at in the same fashion. The further increases in fuel adjustment charges are also on the same basis. Learned Single Judge, therefore, rightly observed that the elements which went into the calculation to arrive at the figure of 15.25 paise would be quite relevant for arriving at the increase. These elements cannot be theof challenge before the Arbitrator. The Arbitrator has also erred in considering transmission and distribution losses as a separate item of charge under the adjustment formula. We agree with the reasoning and conclusion arrived at by the learned Single Judge in this regard which has been upheld by the Divisionfacts of the present case are very different. In the first place, there is a speaking award. The Arbitrator was required to examine the application of the formula on which there was no dispute, to calculate the increase in fuel adjustment charges. In doing so, the Arbitrator examined the various ingredients which went to determine, (1) the cost of the units generated; (2) the cost of the units purchased from other power plants; and (3) the number of units sold. The formula in effect was very simple. The total cost of units available for being set in transmission for supply to the consumers was to be divided by the number of units sold. This would give the cost per unit of each unit sold. There was no dispute with this formula. What the Arbitrator in effect did was to say that the units sold are no different from the total number of units available to the second respondent for being put in transmission in order that they may be distributed to the consumers. He, therefore, held that the cost of all units which were made available for transmission and distribution should be determined by dividing the total cost by the number of units which were so made available. He in effect, replaced the third factor in the formula ?Units sold? by ?Units manufactured plus units bought from other power stations?.This has clearly changed the statutory formula. The Arbitrator was not authorised to examine the validity of the formula or to change it. He has, therefore, committed a jurisdictional error in so ?interpreting? the formula. This is a jurisdictional error which is also apparent on the face of the award.16. We need not examine the number of cases which were cited before us setting out the grounds on which an award can be set aside partly or wholly. It is well established that an Arbitrator cannot go beyond the scope of his reference. If he has exceeded his jurisdiction, the award to that extent can be set aside provided that the part of the award being quashed is severable from the rest. In the present case, therefore, the High Court was right in setting aside the award to the extent that it excluded transmission and distribution losses.