Case: M/S.Sharma &amp; Associates Contractors (P)Ltd Vs. Progressive Constructions Ltd

1967 SC 1032 : (1967) 1 SCR 324 ] to the effect that the court had no jurisdiction to investigate into the merits of the case or to examine the documentary and oral evidence in the record for the purposes of finding out whether or not the arbitrator has committed an error of law. The court as a matter of fact, cannot substitute its own evaluation and come to the conclusion that the arbitrator had acted contrary to the bargain between the parties." (iii) Indu Engineering & Textiles Ltd. v. Delhi Development Authority, 2001(3) R.C.R.(Civil) 770 : (2001) 5 SCC 691. "5. The scope for interference by the court with an award passed by the arbitrator is limited. Section 30 of the Arbitration Act, 1940 (for short "the Act") provides in somewhat mandatory terms that an award shall not be set aside except on one or more of the grounds enumerated in the provision... xxx xxx xxx 7. This Court, while dealing with the power of courts to interfere with an award passed by an arbitrator, had consistently laid stress on the position that an arbitrator is a Judge appointed by the parties and as such the award passed by him is not to be lightly interfered with... 8. As noted earlier, the Division Bench in appeal filed under Section 39 of the Act, reversed the order passed by the Single Judge and set aside the award holding that there was no material before the arbitrator for accepting the claim of the appellant. The Division Bench exceeded the limits of its jurisdiction in entering into the facts of the case and in interpreting the agreement between the parties and correspondence which was a part of the said agreement. What was the price of the commodity to be paid by the respondent to the appellant was essentially a question of fact. Even assuming that the arbitrator had committed an error in coming to the conclusion that the appellant was entitled to the claim of the escalated price of the commodity (hard coke) under the terms of the agreement and the Division Bench felt that the conclusion should have been otherwise, it was not open to it to interfere with the award on that score..." 10. There is no quarrel about the principle of law mentioned in the aforesaid judgments. However, when it is found that claim was entertained by the learned arbitrator on the basis of provisions in the contract entered into between HSCL and the respondent and said provisions were not made applicable in the contract which was entered into between the appellant and the respondent, the approach of the learned arbitrator is clearly perverse in justifying the claim on the basis of provisions which were not even applicable. Whether contract entered into between the HSCL and the respondent governed the relationship between the appellant and the respondent was a fundamental and jurisdictional issue and such an exercise is permissible by the Court while examining the validity of an award. Undertaking this exercise did not amount to appraising the evidence or dealing with the matter as an appellate court. On the contrary, the approach taken by the Division Bench of the High Court is on the principle that arbitrator is a creature of contract between the parties and if he ignores the specific term of the contract, it would be a question of jurisdictional error which can be corrected by the Court. A deliberate departure or conscious disregard of the contract not only manifests the disregard of his authority or misconduct on his part, but it may tantamount to legal malafide as well. It is further settled in law that arbitrator is not a conciliator and cannot ignore the law or misapply it in order to do what he thinks just and reasonable. This is so held in Food Corporation of India v. Chandu Construction & Anr., 2007(2) R.C.R.(Civil) 744 : (2007) 4 SCC 697 in the following manner: "19. ...Having accepted the terms of the agreement dated 19-9-1984, they were bound by its terms and so was the arbitrator. It is, thus, clear that the claim awarded by the arbitrator is contrary to the unambiguous terms of the contract. We are of the view that the arbitrator was not justified in ignoring the express terms of the contract merely on the ground that in another contract for a similar work, extra payment for material was provided for. It was not open to the arbitrator to travel beyond the terms of the contract even if he was convinced that the rate quoted by the claimants was low and another contractor, namely, M/s Gupta and Company had been separately paid for the material. The claimants claim had to be adjudicated by the specific terms of their agreement with FCI and no other." 11. To the same effect is the judgment in the case of Rajasthan State Mines and Minerals Ltd. v. Eastern Engineering Enterprises & Anr., (1999) 9 SCC 283. 12. We are conscious of the fact that though the respondent has been able to get the benefit of enhanced rate in respect of Item Nos.1 and 6 and is able to retain the same thereby depriving the appellant to get this benefit. However, in a matter of contract where the parties have to stick to govern by the provisions of the contract entered into between them, equity has no role to play. Insofar as contract between the appellant and respondent is concerned, appellant was satisfied with "escalation" clause. Respondent, while entering into contract with HSCL ensured that enhancement of rates by the principal employer i.e. NHPC in favour of HSCL will enure to the benefit of the respondent PCL as well. The appellant, however, could not successfully negotiate this aspect with the respondent in the absence of any such clause/arrangement in the contract entered into between the appellant and the respondent. As the contract between appellant and respondent deals only with escalation, appellant has to be satisfied with the same.

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

Explanation:
0[ds]7. It is not in dispute that insofar as contract between NHPC and HSCL is concerned, which is the main contract, it permits sub-contracting of the work by HSCL with the consent of NHPC. It is on that basis sub-contract was signed between HSCL and the respondent. This contract is back to back as Clauses 1.2 and 9 thereof clearly show that terms of main contract to the extent they were sensible stood explicitly incorporated in the contract that was entered into between HSCL and the respondent. However, we are not concerned with the dispute between HSCL and the respondent. As pointed out above, further sub-contract is signed between the respondent and the appellant.The High Court in the impugned judgment has answered the aforesaid question in the negative, and rightly so. As noted above, contract executed between HSCL and the respondent was proceeded by correspondent exchange between the said parties. There was a clear understanding between them that in case HSCL is able to get extra payment in respect of item Nos.1 and 2, HSCL had to pass on the said benefit to the respondent after retaining 5% of the enhanced amount so received. However, there was no such stipulation in the contract entered into between the appellant and thewe do not find it to be so. Since that was the basis on which the learned arbitrator awarded the claim, the High Court has rightly held that it is a fundamental error committed by the arbitrator. On the other hand, what emerges from the contract between the appellant and the respondent is that the appellant could claim revised rates based only on escalation as per the provisions of Clause 16. Under this head, appellant was entitled to a sum of Rs. 7,17,560/-.There is no quarrel about the principle of law mentioned in the aforesaid judgments. However, when it is found that claim was entertained by the learned arbitrator on the basis of provisions in the contract entered into between HSCL and the respondent and said provisions were not made applicable in the contract which was entered into between the appellant and the respondent, the approach of the learned arbitrator is clearly perverse in justifying the claim on the basis of provisions which were not even applicable. Whether contract entered into between the HSCL and the respondent governed the relationship between the appellant and the respondent was a fundamental and jurisdictional issue and such an exercise is permissible by the Court while examining the validity of an award. Undertaking this exercise did not amount to appraising the evidence or dealing with the matter as an appellate court. On the contrary, the approach taken by the Division Bench of the High Court is on the principle that arbitrator is a creature of contract between the parties and if he ignores the specific term of the contract, it would be a question of jurisdictional error which can be corrected by the Court. A deliberate departure or conscious disregard of the contract not only manifests the disregard of his authority or misconduct on his part, but it may tantamount to legal malafide as well. It is further settled in law that arbitrator is not a conciliator and cannot ignore the law or misapply it in order to do what he thinks just and reasonable.To the same effect is the judgment in the case of Rajasthan State Mines and Minerals Ltd. v. Eastern Engineering Enterprises & Anr., (1999) 9 SCC 283. We are conscious of the fact that though the respondent has been able to get the benefit of enhanced rate in respect of Item Nos.1 and 6 and is able to retain the same thereby depriving the appellant to get this benefit. However, in a matter of contract where the parties have to stick to govern by the provisions of the contract entered into between them, equity has no role to play. Insofar as contract between the appellant and respondent is concerned, appellant was satisfied with "escalation" clause. Respondent, while entering into contract with HSCL ensured that enhancement of rates by the principal employer i.e. NHPC in favour of HSCL will enure to the benefit of the respondent PCL as well. The appellant, however, could not successfully negotiate this aspect with the respondent in the absence of any such clause/arrangement in the contract entered into between the appellant and the respondent. As the contract between appellant and respondent deals only with escalation, appellant has to be satisfied with the same.