2003 (10) TMI 384 - SC - Indian Laws

Whether jurisdiction of an arbitrator to interpret a contract can be subject-matter of an objection under section 30 of the Arbitration Act 1940? Held that - Appeal allowed. Judgment of the High Court is not sustainable. The Court having regard to the proposition of law that the jurisdiction of the arbitrator will be ousted only in the event that there exists a specific bar in the contract as regard raising of a particular claim must necessarily hold that the award was sustainable. As in the instant case there did not exist any such bar it is enforceable in law. Furthermore in the event the ratio of the decision of the High Court is accepted the same would amount to re-hearing of the entire arguments once over again by the Court as regard construction of a contract which is impermissible in law. The arbitrators were called upon to determine a legal issue which included interpretation of the contract. The arbitrators therefore cannot be said to have been travelled beyond jurisdiction to making the award.

Issues Involved:
1. Jurisdiction of the arbitrator to interpret the contract under section 30 of the Arbitration Act, 1940.
2. Entitlement of the appellant to compensation for exchange rate fluctuations.
3. Applicability of government notifications and circulars.
4. Legitimacy of the High Court's interference with the arbitrator's award.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Arbitrator to Interpret the Contract:
The primary issue was whether the arbitrator's jurisdiction to interpret the contract could be challenged under section 30 of the Arbitration Act, 1940. The Supreme Court emphasized that the arbitrator had the authority to interpret the contract, including the relevant clauses and the conduct of the parties. The court cited precedents stating that interpretation of a contract is a matter for the arbitrator to determine, and the court's interference is limited unless the arbitrator's decision is perverse or based on a wrong proposition of law.

2. Entitlement to Compensation for Exchange Rate Fluctuations:
The appellant claimed compensation for the difference in the price of the US dollar between the date of the contract and the date of supply. The arbitrators awarded the appellant Rs. 1,03,41,309 with interest, recognizing the claim for exchange rate fluctuations. The Supreme Court upheld this, noting that the appellant's bid included a foreign exchange component, and the claim did not amount to an escalation of the price. The court concluded that the appellant was entitled to the difference due to exchange rate fluctuations, which was permissible under the contract terms.

3. Applicability of Government Notifications and Circulars:
The appellant relied on a government notification dated 25-9-1989, which allowed Indian bidders to quote foreign exchange components in foreign currency for actual payment purposes. The Supreme Court recognized the validity of this notification and the subsequent circular issued by the respondent, which supported the appellant's claim. The court noted that the respondent's conduct in making similar payments to other suppliers indicated an acceptance of the policy outlined in the notification.

4. Legitimacy of High Court's Interference:
The High Court had set aside the arbitrator's award, framing two questions: whether the claim was barred under the contract and whether any clause allowed such a claim. The Supreme Court found these questions self-contradictory and held that the High Court misdirected itself in law. The court reiterated that the arbitrator's interpretation of the contract was within jurisdiction and that the High Court should not have re-evaluated the merits of the arbitrator's decision.

Conclusion:
The Supreme Court set aside the High Court's judgment, reinstating the arbitrator's award but modifying the interest rate from 18% to 6% per annum to ensure complete justice. The court emphasized that the arbitrator's jurisdiction to interpret the contract was valid and that the appellant was entitled to compensation for exchange rate fluctuations as per the contract terms and relevant government notifications.

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