1999 (9) TMI 770 - SC - Indian Laws

Whether the award is bad as the learned sole Arbitrator failed to apply his mind to documents and decide the dispute on per unit basis? Whether the arbitrator has exceeded his jurisdiction? Did the Arbitrator fail correctly to consider clauses 17 and 18 of the Agreement and the Contract Labour (Abolition and Regulation) Act, 1970? Did the Arbitrator fail to apply his mind to consider pleadings, documents and evidence? Held that - Appeal allowed. The award passed by the arbitrator is against the stipulations and prohibitions contained in the contract between the parties. In the present case, there is no question of interpretation of clauses 17 18 as the language of the said clauses is absolutely clear and unambiguous. Even the contractor has admitted in his letter demanding such claims that the contract was signed with clear understanding that the rate under the contract was firm and final and no escalation in rates except in case of diesel would be granted. Hence, by ignoring the same the arbitrator has travelled beyond his jurisdiction. It amounts to deliberate departure from the contract. Further, the reference to the arbitrator is solely based upon the agreement between the parties and the arbitrator has stated so in his interim award that he was appointed to adjudicate the disputes between the parties arising out of the agreement. No specific issue was referred to the arbitrator which could confer jurisdiction on the arbitrator to go beyond the terms of the contract. Hence, the award passed by the arbitrator is, on the face of it, illegal and in excess of his jurisdiction which requires to be quashed and set aside.

Issues Involved:
1. Jurisdiction of the arbitrator.
2. Interpretation and application of contract clauses 17 and 18.
3. Validity of claims for escalation and additional costs.
4. Admissibility of claims under the arbitration agreement.
5. Conduct and decision-making process of the arbitrator.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Arbitrator:
The Supreme Court examined whether the arbitrator exceeded his jurisdiction by awarding claims that were explicitly barred by the contract. The court noted that the arbitrator's authority was derived from the agreement dated 14-05-1981, which clearly stipulated fixed rates and barred escalation claims. The arbitrator, by ignoring these stipulations, acted beyond his jurisdiction. The court emphasized that the arbitrator is bound by the terms of the contract and cannot award amounts prohibited by it.

2. Interpretation and Application of Contract Clauses 17 and 18:
Clauses 17 and 18 of the contract explicitly stated that the contractor would be paid a fixed rate of Rs. 35.80 per cubic meter and would not be entitled to any additional payments for escalation or increased costs. These clauses were clear and unambiguous, leaving no room for interpretation. The arbitrator's award, which granted additional payments for increased costs and escalation, was in direct violation of these clauses. The court held that the arbitrator's decision to ignore these clauses constituted a deliberate departure from the contract, amounting to a jurisdictional error.

3. Validity of Claims for Escalation and Additional Costs:
The contractor's claims for increased rates due to unforeseen conditions, use of high explosives, non-availability of explosives, and additional costs for mining and transportation were explicitly barred by the contract. The court noted that the contract was signed with the understanding that the rates were firm and final, with no provision for escalation except for diesel costs. The arbitrator's award granting these claims was therefore invalid and beyond the scope of his jurisdiction.

4. Admissibility of Claims Under the Arbitration Agreement:
The arbitration clause in the contract was broadly worded, covering all disputes arising out of or in any way touching or concerning the contract. However, the court clarified that this broad wording did not empower the arbitrator to ignore specific prohibitions in the contract. The arbitrator could not award claims that were explicitly barred by the contract, even if the arbitration clause was wide. The court held that the arbitrator's award was in excess of his jurisdiction because it disregarded the specific terms of the contract.

5. Conduct and Decision-Making Process of the Arbitrator:
The court found that the arbitrator had acted improperly by ignoring the clear and unambiguous terms of the contract. This constituted a manifest disregard of his authority and amounted to misconduct. The arbitrator's award was also criticized for being non-speaking, i.e., it did not provide reasons for granting the claims. The court reiterated that an arbitrator must operate within the limits set by the contract and cannot act arbitrarily or capriciously.

Conclusion:
The Supreme Court quashed and set aside the arbitrator's award, as well as the judgments of the High Court and the District Judge, Udaipur, which had upheld the award. The court emphasized that the arbitrator had exceeded his jurisdiction by ignoring the specific terms of the contract, which clearly barred the claims awarded. The appeal was allowed with costs, and the award was declared invalid.

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