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2000 DIGILAW 21 (CAL)

WEST BENGAL STATE ELECTRICITY BOARD v. BENGAL TRADERS

2000-01-10

MALAY KUMAR BASU, VINOD KUMAR GUPTA

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V. K. GUPTA, J. ( 1 ) A very short question is involved for determination in this appeal against the judgment of a learned single Judge of this Court passed on 1st April, 1993 in Award Case No. 471 of 1999 whereby he refused to set aside the award and dismissed the application of the appellant for this purpose. ( 2 ) THE Arbitrator had awarded a sum of Rs. 3,50,000/- in favour of the respondent No. 1 and against the appellant. After incorporating certain recitals in the opening parts of the Award the Arbitrator finally held thus :"i, am the Umpire having carefully examined the documents, exhibits and annexures etc. as also the depositions of the Claimant and the respondent and having heard the submissions and arguments of both sides, both in respect of fact and law I do hereby make my award as below. (1) The West Bengal State Electricity Board, the respondent shall pay a sum of Rs. 3,50,000/- (Rupees three lacs fifty thousand only) to the Claimant within 3 (three) months from the date in full and final settlement of the Claims. In default of making payment within the said time the respondent shall pay and bear interest on the said amount of Rs. 3,50,000/- at the rate of 12% per annum after the expiry of three months hereof or till the date of decree on award is passed, whichever is earlier. " ( 3 ) THE sole ground taken by the appellant before the learned single Judge in assailing the award and in praying for its being set aside was based on clause 49 of the agreement between the parties which reads as under :"40. Explanation : the unit rates quoted shall be firm and shall remain applicable during the entire period of execution of work upto the completion and no escalation in rates will be permitted due to increase in prices of materials, rise in labour wages, railway freight or due to any other reasons. " ( 4 ) THE appellant's contention before the learned single Judge was that clause 49 (supra) prohibited payment of any compensation or damages to the contractor on account of any escalation for any reason whatsoever. " ( 4 ) THE appellant's contention before the learned single Judge was that clause 49 (supra) prohibited payment of any compensation or damages to the contractor on account of any escalation for any reason whatsoever. The appellant's case was that the entire claim of the respondent being based on such compensation on account of such escalation was untenable because of the aforesaid prohibition specifically contained in clause 49 (supra ). The learned single Judge however, did not agree with the aforesaid contention of the appellant and refused to set aside the award primarily and mainly on the ground that the award was a totally non-speaking one and since the arbitrator had not given any reasons in support of his aforesaid finding in favour of the respondent, the Court was not entitled to look into clause 40 and to find out and decide as to whether there was any prohibition in awarding the aforesaid claim in favour of the respondent or not. ( 5 ) DURING the course of hearing before the learned single Judge the appellant referred to and relied upon a judgment of the Supreme Court in the case of Association Engineering Co. Ltd. v. Government of Andhra Pradesh and Anr. reported in AIR 1992 SC 232 . The learned single Judge, however, did not appear to persuade himself to follow the ratio laid down in the aforesaid judgment. He perhaps was of the view that the law laid down in this judgment was not binding on him because of an earlier judgment wherein it was provided and held that in respect of a non-speaking award, the Court cannot travel beyond the award and cannot thus look into the terms and conditions of the contract. ( 6 ) WE find ourselves in total disagreement with the approach adopted by the learned single Judge and the views expressed by him. We give our reasons as under. ( 7 ) IN Associated Engineering Co. Ltd. v. Government of Andhra Pradesh and Anr. ( 6 ) WE find ourselves in total disagreement with the approach adopted by the learned single Judge and the views expressed by him. We give our reasons as under. ( 7 ) IN Associated Engineering Co. Ltd. v. Government of Andhra Pradesh and Anr. (supra) the Supreme Court was dealing with a case relating to the setting aside of a non-speaking award on the ground that certain claims awarded by the arbitrator were de hors and/or contrary to the terms and conditions of the contract, and because of this reason it was open to the Court to look into such terms and conditions with a view to find out whether the arbitrator had misconducted himself or not. The Court was thus highlighting the elementary concept of jurisdictional error in such an award. The issue actually was with regard to the jurisdiction of the arbitrator. The Court held that the dispute as to the jurisdiction is not a dispute within the award but one which may have to be decided outside the award. An umpire or arbitrator cannot widen his jurisdiction by deciding a question not referred to him by the parties or by deciding a question otherwise than in accordance with the contract. Evidence of matters not appearing on the face of the award would be admissible to decide whether the arbitrator travelled outside the jurisdiction, meaning thereby outside the bounds of the contract and thus exceeded his jurisdiction and in order to see as to what was the jurisdiction of the arbitrator, it is always open to the Court to see what dispute was referred to the arbitrator. In such an eventuality it is open to the Court to travel and traverse beyond and outside the award and to take the help of outside material, and one of such helps may be to have a look at the terms and conditions of the contract. These are the board propositions of law laid down in Associated Engineering by the Apex Court. ( 8 ) FURTHER defining the difference between "acting within the jurisdiction" "but acting wrongly" and "acting outside the jurisdiction", the Court held that if the arbitrator commits an error in the construction of a term of a contract, that might be an error within his jurisdiction but if he wanders outside the contract and deals with the matters not alloted to him, he commits a jurisdictional error. The following observations are apposite to the aforesaid principle of law, which we quote from the aforesaid judgment of the Apex Court :"29. If the arbitrator commits an error in the construction of the contract, that is an error within his jurisdiction. But if he wanders outside the contract and deals with matters not allotted to him, he commits a jurisdictional error. Such error going to his jurisdiction can be established by looking into material outside the award. Extrinsic evidence is admissible in such cases because the dispute is not something which arises under or in relation to the contract or dependent on the construction of the contract or to be determined within the award. The dispute as to jurisdiction is a matter which is outside the award or outside whatever may be said about it in the award. The ambiguity of the award can, in such cases, be resolved by admitting extrinsic evidence. The rationate of this rule is that the nature of the dispute is something which has to be determined outside and independent of what appears in the award. Such jurisdictional error needs to be proved by evidence extrinsic to the award. " ( 9 ) THE observations contained in para 30 of the same judgment are also relevant for our purpose because these observations goes to indicate as to how the Court disapproved of the Umpire deciding matters strikingly outside his jurisdiction and over-stepping the confines of the contract. The observations read thus :"in the instant case, the umpire decided matters strikingly outside his jurisdiction. He outstepped the confines of the contract. He wandered far outside the designated area. He digressed far away from the allotted task. His error arose not by misreading or misconstruing or misunderstanding the contract, but by acting in excess of what was agreed. It was an error going to the root of his jurisdiction because he asked himself the wrong question, disregarded the contract and awarded in excess of his authority. In many respects, the award flew, in the face of provisions of the contract to the contrary. " ( 10 ) IN Hindustan Construction Co. It was an error going to the root of his jurisdiction because he asked himself the wrong question, disregarded the contract and awarded in excess of his authority. In many respects, the award flew, in the face of provisions of the contract to the contrary. " ( 10 ) IN Hindustan Construction Co. Ltd. v State of Jammu and Kashmir reported in AIR 1992 SC 2192 , Their Lordships once again dealing with a non-speaking award had clearly considered the question of a jurisdictional error, as distinct from an error apparent on the face of the award and held that a non-speaking award can be impeached and interfered with if the arbitrator had exceeded his jurisdiction and that evidence of matters not appearing on the face of the award would be admissible in such a case in order to find whether the jurisdiction had been exceeded or not, because the nature of the dispute is something which has to be determined outside the award, whatever might be said in the award or by the arbitrator. Relying upon Halsbury's Laws of England, it was further held by Their Lordships in Hindusthan Construction Ltd. that one of the acts of misconduct enumerated and attributable to an arbitrator is the decision by the arbitrator on a matter which is not included in the agreement or the reference and that one has to determine the distinction between an error within the jurisdiction and an error in excess of the jurisdiction. Hindusthan Construction Co. Ltd. and Associated Engineering Co. therefore, both dwell upon the same principle, one (former) citing the distinction between an error within the jurisdiction and an error in excess of the jurisdiction and the other (latter) an error in construction of the contract being an error within the confines of the jurisdiction but the arbitrator wondering outside the contract and dealing with matters not allotted to him, committing a jurisdictional error. Both the judgments lay down that in the latter case the Court is permitted to look into material outside the award and to admit extronsic evidence to find out and decide whether jurisdictional error has been committed by the arbitrator or not. The ambiguity of the award in such case can be resolved only by admitting extrensic evidence and to find out whether, in fact, the arbitrator has committed any jurisdictional error or not. ( 11 ) ASSOCIATED Engineering Co. The ambiguity of the award in such case can be resolved only by admitting extrensic evidence and to find out whether, in fact, the arbitrator has committed any jurisdictional error or not. ( 11 ) ASSOCIATED Engineering Co. Ltd. came to be noticed by the Supreme Court in the latest judgment in the case of V. G. George v. Indian Bare Earths Ltd. and Anr. reported in AIR 1999 SC 1409 . Their Lordships while referring to the Associated Engineering held as under :"in Associated Engineering Co. v. Govt. of Andhra Pradesh (1991) 4 SCC 93 : ( AIR 1992 SC 232 ) it was held that the arbitrator cannot act arbitrarily, irrationally, capriciously or independently of the contract and his sole function is to arbitrate in terms of contract as his authority is derived from the contract. It was also held that if he has remained inside the parameters of the contract and has construed the provisions of the contract, his award cannot be interfered with unless he has given reasons for the award disclosing an error apparent on the face of it. Thus, law is well settled that if the award is non-speaking, the Court can look into the question as to whether arbitrator has travelled beyond the scope of the contract as he derives his jurisdiction from the contract and if the arbitrator exceeds his jurisdiction the award can be set aside. An award can also be set aside in case of misconduct apparent on the face of the award. It can also be interfered with if the arbitrator has given reason for the award disclosing an error apparent on the face of it. " ( 12 ) A look at the facts narrated in Associated Engineering indicates that in the terms and conditions of the contract agreement between the parties in that case there was no provision for escalation relating to the items of claims in respect of labour, diesel, tyres and tubes and so on and so forth. The escalation clause was limited to only one item of claim. Despite the absence of any provision for escalation clause, Their Lordships went on to observe that it was prohibited under the contract and therefore, the arbitrator acted outside his jurisdiction and committed a jurisdictional error by awarding claims in respect of the escalation in favour of the claimant. The escalation clause was limited to only one item of claim. Despite the absence of any provision for escalation clause, Their Lordships went on to observe that it was prohibited under the contract and therefore, the arbitrator acted outside his jurisdiction and committed a jurisdictional error by awarding claims in respect of the escalation in favour of the claimant. ( 13 ) IN our case, however, a bare look at clause 49 (supra) indicates that there was specific and expressed prohibition in respect of the respondent claiming any escalation for any reason whatsoever. The prohibition in our case is stronger than in Associated Engineering because here it is specific and express. ( 14 ) WE are firmly of the view that the arbitrator had misconducted himself by awarding the aforesaid claim in favour of the respondent since such claim was not tenable in view of the express prohibition contained in Clause 49 (supra ). We, therefore, feel that the learned single Judge committed an error in refusing to set aside the award. For the aforesaid reasons, therefore, the appeal is allowed. The judgment of the learned single Judge is set aside. The award is also set aside. There will be no order as to costs. Let a Xerox copy of this judgment duly countersigned by the Assistant Registrar of this Court be given to the parties upon their undertaking to apply for and obtain certified copies of the same upon usual undertaking. M. K. Basu, J.-I agree. Appeal allowed.