2009 (9) TMI 720 - SC - Companies Law

Whether the Arbitrator had exceeded beyond the realm of arbitration clause or clauses of the contract? whether Section 74 applies to stipulations for forfeiture of amounts deposited or paid under the contract? Held that - Appeal dismissed. The courts below have concurrently held that the arbitrator has gone into the issues of facts thoroughly, applied his mind to the pleadings, evidence before him and the terms of the contract and then passed duly considered award and no ground for setting aside the award within the four corners of Section 30 has been made out. No justifiable reason to take a different view. As noticed above, only two grounds were urged before the High Court in assailing the award, one of which relating to time barred claim was ultimately notessed before us and the only argument survived for consideration before us related to clause 7.2 of the contract. In what already discussed that the view of the arbitrator in this regard is a possible view.

Issues Involved:
1. Jurisdictional error by the arbitrator.
2. Applicability and interpretation of Clause 7.2 of the contract.
3. Adherence to Section 74 of the Indian Contract Act.
4. Consideration of fresh claims made during arbitration.
5. Determination of damages outside the contract stipulations.

Issue-wise Detailed Analysis:

1. Jurisdictional Error by the Arbitrator:
The appellant (SAIL) contended that the arbitrator committed a jurisdictional error by adjudicating claims for the period from July to September 1988 when there was no pre-existing dispute. The arbitrator also entertained claims for future disputes not existing at the time of reference. The courts, however, found that the arbitrator acted within his jurisdiction. The Sub-Judge, District Judge, and High Court all concluded that the arbitrator had not exceeded his jurisdiction and had interpreted the contract reasonably.

2. Applicability and Interpretation of Clause 7.2 of the Contract:
Clause 7.2 was a central issue, stipulating that SAIL would supply materials within a specified period and, in case of delay, pay compensation up to a maximum of 3% of the value of the delayed supplies. The arbitrator, Sub-Judge, District Judge, and High Court all found that Clause 7.2 did not apply to the breaches alleged by the respondent, such as refusal to supply materials. The arbitrator concluded that Clause 7.2 was not intended to cover all types of breaches, including refusal to supply materials. This interpretation was upheld by the courts as a possible and reasonable view, not subject to interference.

3. Adherence to Section 74 of the Indian Contract Act:
SAIL argued that the arbitrator ignored Section 74 of the Contract Act, which limits compensation to the amount specified in the contract. The courts held that Section 74 was not applicable because Clause 7.2 did not cover the specific breaches in question. The arbitrator's view that Section 74 did not apply was found to be legally sound, as the contract did not determine damages for the breaches alleged by the respondent.

4. Consideration of Fresh Claims Made During Arbitration:
SAIL contended that the arbitrator had no jurisdiction to entertain fresh claims made on September 12, 1991. The courts found this argument unpersuasive, noting that the respondent had reserved the right to amend claims in the initial claim petition. The arbitrator's consideration of the claims as quantified in the application dated September 12, 1991, was within his jurisdiction.

5. Determination of Damages Outside the Contract Stipulations:
SAIL argued that the arbitrator determined damages de hors the contract stipulations. The courts found that the arbitrator's determination of damages was based on a reasonable interpretation of the contract and the evidence presented. The courts concluded that the arbitrator's award was not perverse or unreasonable and did not warrant interference.

Conclusion:
The Supreme Court upheld the decisions of the lower courts, finding no merit in SAIL's appeal. The arbitrator's award was based on a reasonable interpretation of the contract, and the courts found no grounds to set it aside. The appeal was dismissed with no order as to costs.

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