1999 (9) TMI 815 - SC - Companies Law

Whether the arbitrator has acted beyond the terms of the contract or has travelled beyond his jurisdiction? Held that - Appeal allowed. From the facts of present case it is apparent that claim before the arbitrator in November-December 1985 was apparently barred by period of limitation. Letter dated 3-9-1983 written by the appellant repudiating the respondent s claim on account of damages or losses sustained by him would not give fresh cause of action. On that date cause of action for recovering the said amount was barred by the period of three years prescribed under article 137. Under section 3 it was the duty of the arbitrator to reject the claim as it was on the face of it barred by the period of limitation.

Issues Involved:
1. Jurisdiction of the arbitrator.
2. Limitation period for the claim.
3. Award of interest.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Arbitrator:
The appellant contended that the arbitrator acted beyond his jurisdiction by awarding damages for delays in obtaining permissions from the forest department, which were prohibited by the contract. The relevant contract clauses (Clause 25, 32, 39, and 5(iv)) explicitly prohibited claims for damages due to delays or omissions caused by statutory regulations or other reasons beyond control. The arbitrator's award of Rs. 11,26,296 for such delays was thus in manifest disregard of the contract, rendering the award arbitrary and without jurisdiction. The court emphasized that an arbitrator must operate within the terms of the agreement and cannot award amounts prohibited by the contract. This principle was supported by precedents, including *Continental Construction Co. Ltd. v. State of Madhya Pradesh* and *New India Civil Erectors (P.) Ltd. v. Oil & Natural Gas Corpn.*, which held that an arbitrator's deliberate departure from the contract terms amounts to misconduct and renders the award invalid.

2. Limitation Period for the Claim:
The appellant argued that the claim was barred by the period of limitation. The arbitration clause required disputes to be referred to arbitration within three years from the date the cause of action arose. The contractor's claim for damages arose in 1979, but the arbitration was sought only in 1985, well beyond the three-year limitation period prescribed under Article 137 of the Limitation Act, 1963. The court referred to the decision in *State of Orissa v. Damodar Das*, which held that the period of limitation for arbitration runs from the date the cause of action accrues. The supplementary agreement in 1980 did not save the contractor's right to claim damages, as it did not mention preserving the right to recover such damages. The contractor's failure to seek arbitration within the limitation period rendered the claim time-barred.

3. Award of Interest:
The appellant contended that the award of interest by the arbitrator was unjustified and illegal. The arbitrator awarded Rs. 12,06,000 as interest on the principal amount from 29-8-1979 till the date of reference (15-12-1985) and future interest at 17% from the date of the award to the date of payment. The court did not delve deeply into this issue due to the findings on jurisdiction and limitation, but it noted that awarding interest on unliquidated damages was contentious.

Conclusion:
The Supreme Court allowed the appeal, quashing the orders of the Patna High Court and the Subordinate Judge. The arbitrator's award was found to be beyond jurisdiction and time-barred, rendering it invalid. The court emphasized the necessity for arbitrators to adhere strictly to the terms of the contract and the limitation periods prescribed by law.

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