Case: Continental Construction Co. Ltd Vs. State Of Madhya Pradesh

1973 SC 1338 : (1973) 1 SCC 708 ], it was held that where an arbitrator is called upon to decide the effect of the agreement, he has really to decide a question of law, i.e. of interpreting the agreement, and hence, his decision is not open to challenge. This was also a decision against a reasoned award but since the reference was to a specific question of law, the decision of the arbitrator, it was held was not open to challenge. The limits of the jurisdiction of the court to challenge the award are well settled. While considering objection under Section 30 of the Act, the court does not act as an appellate court, it can only interfere with the award if the arbitrator misconducts himself or the proceedings or if the award has been made after the issue of an order by the court superseding the arbitration or if the arbitration proceedings have become invalid under Section 35(c) of the Act or the award has been improperly procured or is otherwise invalid. The Judicial Committee in Champsey Bhara & Co. v. Jivraj Balloo Spinning & Weaving Co. Ltd. [AIR 1923 PC 66] has laid down the extent of the jurisdiction of the court to set aside an award on the ground of an error in making the award. It has been reiterated that the award of the arbitrator may be set aside on the ground of an error on the face thereof only when in the award or in any document incorporated with it as for instance, a note appended by the arbitrator, stating the reasons for his decision, there is found some legal proposition which is the basis of the award and which is erroneous. See also in this connection Re King & Duveen [(1913) 2 KB 32] and Government of Kelantan v. Duff Development Co. Ltd. [1923 AC 395 : (1923) 1 Ch 385] If however, a specific question is submitted to the arbitrator and he answers it, the fact that the answer involves an erroneous decision in point of law, does not make the award bad on its face so as to permit of it being set aside. See also the observations of this Court in Bungo Steel Furniture v. Union of India [(1967) 1 SCR 633 : AIR 1967 SC 378 ]. It is well settled that the contract remained part of the award. The Judicial Committee in Saleh Mohd. v. Nathoomal [(1926-27) 54 IA 427] considered an award in which the arbitrator recited a contract made between the parties and the dispute arising under it. It was contended that the contract was incorporated in the award by its reference and so the award disclosed an error of law in construing the terms of the contract. But that contention was negatived. It was held that the reference to the contract in the award was to earmark the disputes between the parties and was not incorporated into the award. In Absalom Ltd. v. Great Western (London) Garden Village Society [1933 AC 592], it was held that if an award referred top the terms of a clause in the contract, the clause though not set out in full must be taken to be incorporated in it. This Court has reiterated in Allen Berry & Co. v. Union of India [(1971) 1 SCC 295 : (1971) 3 SCR 282 : AIR 1971 SC 696 ] that mere reference to the contract in the award is not to be held as incorporating it. 8. In the aforesaid light, we are of the opinion, the High Court was right that the District Judge was entitled to examine the contract in order to find out the legality of the claim of the appellant regarding extra cost towards rise in prices of material and labour. As was pointed out by the learned District Judge Clauses 2.16 and 2.4 stipulated that the contractor had to complete the work in spite of rise in prices of materials and also rise in labour charges at the rates stipulated in the contract. There was a clear finding of the arbitrator that the contract was not rendered ineffective in terms of Section 56 of the Contract Act due to abnormal rise in prices of material and labour. This being so and the contractor having completed the work, it was not open to him to claim extra cost towards rise in prices of material and labour. The arbitrator misconducted himself in not deciding this specific objection raised by the State regarding the legality of extra claim of the appellant. 9. In that view of the matter, the award in our opinion, was properly set aside by the learned District Judge and the High Court was right in not interfering with it. 10. The question about specific reference on a question of law was examined by this Court recently in the case of Tarapore and Company v. Cochin Shipyard Ltd., Cochin [(1984) 2 SCC 680] . There it was observed that if the agreed fact situation, on the basis of which agreement was entered into, ceases to exist, the agreement to that extent would become otiose. If rate initially quoted by the contractor became irrelevant due to subsequent price escalation, it was held in that case that contractors claim for compensation for the excess expenditure incurred due to the price rise could not be turned down on ground of absence of price escalation clause in that regard in the contract. Agreement as a whole has to be read. Reliance was placed very heavily on this decision on behalf of the appellant before us. It has to be borne in mind that in the instant case there are specific clauses referred to hereinbefore which barred consideration of extra claims in the event or price escalation. That was not so in Tarapore and Company case [(1984) 2 SCC 680] . That made all the difference. The basis of bargain between the parties in both these two cases were entirely different.

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

Explanation:
0[ds]We are unable to agree. This being a general question, in our opinion, the District Judge rightly examined the question and found that the appellant was not entitled to claim for extra cost in view of the terms of the contract and the arbitrator misdirected himself by not considering this objection of the State before giving theIn the aforesaid light, we are of the opinion, the High Court was right that the District Judge was entitled to examine the contract in order to find out the legality of the claim of the appellant regarding extra cost towards rise in prices of material and labour. As was pointed out by the learned District Judge Clauses 2.16 and 2.4 stipulated that the contractor had to complete the work in spite of rise in prices of materials and also rise in labour charges at the rates stipulated in the contract. There was a clear finding of the arbitrator that the contract was not rendered ineffective in terms of Section 56 of the Contract Act due to abnormal rise in prices of material and labour. This being so and the contractor having completed the work, it was not open to him to claim extra cost towards rise in prices of material and labour. The arbitrator misconducted himself in not deciding this specific objection raised by the State regarding the legality of extra claim of the appellant