Case: M/S.Rashtriya Chemicals &amp; Ferts. Ltd Vs. M/S.Chowgule Brothers

determination, yet it is equally true that the Arbitrators have no jurisdiction to make an award against 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 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 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 & 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 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.

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

Explanation:
1[ds]10. A careful reading of the above especially the Note appended to Clause 2.03 (supra) leaves no manner of doubt 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 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 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 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, thehad 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.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 whetheran Arbitrator can make an award contrary to the terms of the contract executed between theparties. 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 the specific terms of the contract executed between thethe Arbitrators thehad 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 ofcontract. 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 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 whetherthere is any lawful justification for disallowing the only other claim made by the respondents representing the balance amount due to the claimant towards its finalbill. 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 themade 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.