Vinco Printers And Co v. Cochin Shipyard Ltd — 1992 DIGILAW 367 (KER)

JUDGMENT T.L. Viswanatha Iyer, J. 1. The respondent, namely the Cochin Shipyard Ltd., entered into a contract with the appellant on May 11, 1987 for painting, in the year 1987-88. Clause.23 of the General Conditions of the Contract provided that all disputes and differences arising between the parties cut of, or in relation to, the contract shall be referred to arbitration of an arbitrator to be appointed by the Chairman and Managing Director of the respondent. The respondent recovered an amount of Rs, 46,551-41 from the appellant on account of damages caused to their staging materials. On the appellant disputing the liability, the Chairman and Managing Director of the respondent appointed one Dr. C. P. Kuriakose as arbitrator under Clause.23 aforesaid to decide whether the recovery of Rs. 46,551-41 was sustainable in law. We shall extract the letter of reference Ext. C1 in entirety. No: OF/PTG/18/88. 30-12-1988. "DR.C. P. KURIAKOSE, 48/324, ALUMCHODU, COCHIN 682 024. Dear Sir, Sub: RATE CONTRACT FOR PAINTING 1987 - 1988 - PURSUANT TO WORK ORDER NO.C/SUB/ W - 5600/TK/86 DATED 11-05-87. We had awarded work under the above work order to M/s. Vinco Painters and Company, Aarogya Bhavan, Vaikom Road, Tripunithura. Disputes and differences arose between parties and under the terms of the Agreement, they are to be resolved through Arbitration Under Clause.23 of the General Conditions of Contract, following the procedure stipulated you are selected and appointed as the Sole Arbitrator to decide the following disputes:- "Whether the recovery of Rs. 46,551. 41 on account of damages to staging materials made by Cochin Shipyard Limited from M/s. Vinco Painters is sustainable under law?" We request you to enter on the reference, issue notices to both parties and proceed with Arbitration as required of you under the Indian Arbitration Act and the Rules thereunder and conditions of contract binding the parties. Thanking you, Yours faithfully, For COCHIN SHIPYARD LIMITED, Sd/- CHAIRMAN & MANAGING DIRECTOR. c. c. to : M/s. Vinco Painters & Co., Aarogya Bhavan, Vaikom Road, Tripunithura, Pin 682 301." 2. The appellant had some claim against the respondent under two other heads. Though the actual reference Ext. C1 related only to the legality or otherwise of the recovery of Rs. 46,561-41, the appellant contended before the arbitrator that the other points of difference between the parties should also be gone into by him. The appellant had some claim against the respondent under two other heads. Though the actual reference Ext. C1 related only to the legality or otherwise of the recovery of Rs. 46,561-41, the appellant contended before the arbitrator that the other points of difference between the parties should also be gone into by him. The respondent objected to the consideration of these claims on the ground that they were not the subject of reference to the arbitrator and he had therefore no jurisdiction to deal with them. The arbitrator heard the arguments of both sides on the preliminary Issue of jurisdiction but did not pass any order. On the other hand, he proceeded to pass an award on December 27, 1989 in which, apart from dealing with the dispute actually referred, he made award of certain amounts in favour of the appellant under two heads of claim set up by them. The award was filed in the Sub Court, Ernakulam under S.14 of the Arbitration Act, 1940 and the appellant filed O. P. No. 16 of 1990 to pass a decree in terms of the award, while the respondent filed O. P. No. 34 of 1990 to set aside the award on the ground of the Arbitrator's misconduct, under S.30 and 33 of the Act. The lower court held that the award, in so far as it related to disputes other than the claim for damages for the staging materials, was beyond the jurisdiction of the Arbitrator, and set it aside in so far as it related to them. A decree was passed only for the amount awarded in respect of the staging materials. The original petitions were disposed of accordingly. The appellant has filed these two appeals challenging the common order of the Sub Court. 3. The lower court held that the only point referred to the Arbitrator related to the recovery of Rs. 46,551.41 from the appellant for the damages caused to the staging materials of the respondent. Therefore, consideration of other disputes or differences between the parties was outside the scope of the reference and beyond the jurisdiction of the Arbitrator. Therefore, the award was void in law to that extent 4. 46,551.41 from the appellant for the damages caused to the staging materials of the respondent. Therefore, consideration of other disputes or differences between the parties was outside the scope of the reference and beyond the jurisdiction of the Arbitrator. Therefore, the award was void in law to that extent 4. Counsel for the appellant contended that the arbitration clause in the contract envisaged a determination of all disputes and differences between the parties by reference to arbitration of an arbitrator appointed by the Chairman and Managing Director of the respondent. The dispute between the parties was not confined to the recovery of the amount of damage to the staging materials; there were others as well. The power of the Chairman and Managing Director of the respondent was limited to that of appointing an arbitrator and he had no "prerogative" to refer only particular issues. He was bound to appoint an arbitrator to adjudicate on all the points of difference. He acted illegally in referring only one question and ignoring the rest. Since both parties had an equal right, once the arbitrator was appointed, he could go into all questions in dispute between them, which either party may require him to go into even if the other party objected to it. According to counsel, in the case of a private arbitration, the arbitrator, when once he is appointed, becomes vested with jurisdiction to decide all the disputes, which either party may raise before him, irrespective of fact that the actual reference was limited to one or more questions. In other words, the submission is that, an arbitrator in a private arbitration need only be appointed by the party authorised to do so, and then it is within his right to adjudicate on all the disputes and differences between the parties whether those disputes were submitted to him while making the appointment, or not Counsel submits that there is a distinction in this respect in the case of an arbitrator appointed by court, in which case, the arbitrator's jurisdiction is limited to consideration of the disputes referred to him, but this rule of limitation will not apply to a private arbitrator. All that is needed is an appointment as arbitrator, in which event he gets the jurisdiction to decide all the disputes between the patties, whether referred or not. 5. All that is needed is an appointment as arbitrator, in which event he gets the jurisdiction to decide all the disputes between the patties, whether referred or not. 5. We find ourselves unable to agree with these submissions of counsel for the appellant. Counsel did not place before us any authority for the proposition canvassed by him or for the distinction which he drew between a reference to arbitration through court, and a private arbitration. An arbitrator is the Judge chosen by the parties to adjudicate on a dispute that has arisen between them. He is not a Judge of the cause in his own right. He gets his jurisdiction to adjudicate on the dispute only by virtue of the reference, and not otherwise. He does not have any inherent jurisdiction to adjudicate on any dispute not referred to him, or to pass an award thereon. When his jurisdiction is referable to the reference or submission, necessarily it must be governed by the terms of the reference. He has to act within the parameters set forth by it either in relation to the scope of the reference, the dispute between the parties or otherwise. An important accepted rule in relation to arbitrations is that the arbitrator must decide neither more nor less than the disputes submitted to him -- otherwise the award is liable to be set aside (Russel on Arbitration, 20th edition page 218). In Firm of Mohamedali A. Narimji and Sons v. Charatsing Budsing, AIR 1925 Sind, 51 the Judicial Commissioner of Sind stated that an arbitrator is inflexibly limited to the decision of the particular matters submitted to him and his award must conform both in substance and form to the submission. He followed the decision of Sir Asutosh Mookerjee & Roe JJ in Juggobuadhu Saha v. Chand Mohan Saha (1915) XXII Calcutta Law Journal 237, where it was held:- "It is an elementary rule that the submission furnishes the source and prescribes the limits of the arbitrators authority, and the award, both in form and in substance, must conform to the submission. I Consequently as the arbitrators are inflexibly limited to a decision of the particular matters referred, if award extends to matters not within the scope of the submission, it is void as regards the portion in excess of the submission." In Dattaram v. Harjimal and Sons, AIR 1950 Sind 170, the court held: - "Now it is an indisputable proposition of law that an arbitrator derives his power from the reference which furnishes the source and prescribes the limits of his authority. He is bound to make an award inconformity with it, both in substance and in form''. (See also Narsing Naraian Singh v. Ajodhya Prasad Singh (1912) 13 Indian Cases 118 - Calcutta - Mookerjee and Candruff, JJ). The same view was taken by the Punjab High Court in Prince and Co. v. Governor General in Council AIR 1955 Punjab 240, where the question whether the rejection of certain goods supplied by the contractor was by an Inspector or not, had not at all been referred to the arbitrator for decision. In that context it was observed by Bishan Narain, J.: - "It is well established that an arbitrator or Umpire must not go beyond the submission and although there is a presumption in favour of the validity of the award and the onus of proving that the arbitrator has exceeded his jurisdiction rests on the person alleging it if an award extends to matters not within the scope of the submission, it must be held to be void to the extent that it is in excess of the submissions". In State v. Jolly 1992 (1) KLT 240 (FB), this court held that the arbitrator cannot determine matters not referred to him nor can he omit to decide questions falling within its scope as stated to him in S.16(1)(a). The decision in Union of India v. Salmeen Timber and Construction Co. AIR 1969 SC 458 relied on by counsel for the appellant does not deal with the question with which we are concerned, but with the general question as to what are arbitrable disputes. 6. It is evident from these decisions that an arbitrator is confined to the terms of the reference and any trespass beyond that will be without jurisdiction. 7. 6. It is evident from these decisions that an arbitrator is confined to the terms of the reference and any trespass beyond that will be without jurisdiction. 7. It cannot be disputed, having regard to the catena of decisions of this court culminating in State v. Jolly mentioned supra and the decisions of the Supreme Court, the latest of which is Associated Engineering Co. v. Government of Andhra Pradesh, 1991 (4) SCC 93 , that an arbitrator commits misconduct if by his award he acts in contravention of the clear, obvious or patent terms of the main contract: "He oversteps the confines of the contract. He wanders far outside the designated area. He digresses far away from the allotted task". states the Supreme Court. What is stated with regard to the arbitration clause must apply with equal force to the reference or submission when the arbitrator grabs jurisdiction on matters not referred to him and proceeds to pass an award thereon. It is also indisputable in fact counsel for the appellant concedes this point -- that in the case of a reference to arbitration through court, the arbitrator's authority has its source in the order of reference which defines the limits of his authority and jurisdiction. He cannot traverse beyond the reference, and if he does so, he acts without jurisdiction. (See Orissa Mining Corporation Ltd. v. Prannath Vishwanath Rawlley, AIR 1977 SC 2014 , among others). But counsel for the appellant maintains that this principle applies only to arbitrations through court and not private arbitrations without the intervention of court. We are unable to discern any such distinction in principle. We have already referred to numerous decisions on the point in Para.5 above (all of which pertains to arbitrations without the intervention of court), which have laid down that the arbitrator's jurisdiction is confined to the submission made to him. 8. The jurisdiction of the arbitrator should inter alia satisfy a two fold test, namely that it should be within the arbitration agreement and secondly it should also be within the scope of the reference made to him, even though the matters dealt with in the award may be within the scope of the arbitration clause. 8. The jurisdiction of the arbitrator should inter alia satisfy a two fold test, namely that it should be within the arbitration agreement and secondly it should also be within the scope of the reference made to him, even though the matters dealt with in the award may be within the scope of the arbitration clause. It may be that there are numerous disputes between the parties which are within the terms of the arbitration agreement and could be referred to arbitration, but the parties may, for their own reasons, refer only some disputes to a particular arbitrator. It could not, in such circumstances, be postulated that reference of one issue in dispute between the patties attracts with it the entirety of the gamut of disputes which have arisen between them, and the arbitrator appointed for one issue stands vested with jurisdiction to decide all the other issues between the parties. It may be that the party entitled to nominate the arbitrator is acting illegally in not appointing an arbitrator in relation to the other issues or disputes between the parties. But the remedy of the aggrieved party in such an event lies not before the arbitrator by raising points cot referred to him (in the face of the objections by the opposite party), but under the provisions of the Arbitration Act, by getting an arbitrator appointed by court to decide the other disputes. In the absence of any binding authority in support of the proposition propounded by the appellant, we are unable to accept his contentions or to uphold the award of the arbitrator on the disputes not referred to him. This Is what precisely the lower court has does by refusing to uphold the award on the points not referred, and confining the award to the point referred, namely withholding of the amount of the damage to the staging materials, the two parts of the award, being severable. 9. We dwelt at some length on this point, which appeared to us elementary, only because of the fervour and emotion with which the matter was argued before us, orally in the first instance but followed up with voluntary unsolicited written submissions. The appeals are without merit. They are both dismissed in limine.