BHARAT COKING COAL LTD.versusM/S. ANNAPURNA CONSTRUCTIONS

A                       BHARAT COKING COAL LTD.
                                           V.

                    MIS. ANNAPURNA CONSTRUCTIONS

                                AUGUST 29, 2003
                                                                                    -
B                   [V.N. KHARE, CJ. AND S.B. SINHA, J.)

         Arbitration Act, 1940; Ss. 14, 15, 16, 29 and 30:

         Contract of construction-Arbitration clause-Disputes-Arbitrator
C   made award with interest thereon infavour of contractor-Court while
    making award a rule did not grant interest-Appeal of the company and
    application for interest ofthe contractor dismissed by the trial Court-Appeal
    dismissed but application for interest allowed by the High Court-Held:
    Since interest was not allowed by the trial Court in terms of provision of
D   law, High Court could not grant the same in exercise ofits revisional power.

         Jurisdiction of the Arbitrator:

         Jurisdiction-Extent of-Held: Confines to the terms ofthe contract-
    Since the Arbitratorfailed to take into consideration relevant material while
E   making the award, his order would amount to misdirection in law-Hence,
    disputes on certain issues referred to a retired Judge of the High Court for
    making award afresh-Civil Procedure Code, 1908-Section 152.

          'An error within the jurisdiction' and 'an error in excess of
    jurisdiction '-Distinction between-Discussed.
F
        Appellant Company and the respondent-Contractor entered into
  a contract for construction of hutments. The contract contained an
  arbitration clause. Since the work was not completed in time and
  disputes arose between the parties, the arbitration clause of the
G contract was invoked. The Arbitrator made an award in favour of the
  Contractor, awarding certain sum with interest thereon. The
  subordinate judge Court made award Rule of the Court but did not
  allow interest. Appeal against the award and petition as well as review
  petition for grant of interest were dismissed by the trial Court. High
H Court, however, allowed the revision petition and granted interest but
                                           122
--        BHARAT COKING COAL LTD. v. ANNAPURNA CONSTRUCTIONS               123

     dismissed the appeal of the company. Hence the present appeal.               A
            It was contended for the appellant that since the respondent had
     accepted the final bill, he could not file further claim; that the running
     bills were required to be adjusted out of the advance granted to
     respondent; that the respondent could not claim against escalation in        B
     the price of the material; and that the arbitrator committed illegality
     in entertaining certain claims ignoring the terms of the contract/
     relevant material.

          On behalf of the respondent, it was submitted that since the
     appellant did not challenge the legality of the award, Supreme Court         C
     could not interfere in exercise of its jurisdiction under Section 30 of
     the Act.

          Partly allowing the appeals, the Court

            HELD: 1.1. Only because the respondent has accepted the final         D
     bill, the same would not mean that it was not entitled to raise any claim.
     In absence of a declaration that the respondent would not raise any
     further claim, he cannot be held to be estopped or precluded from
     raising any claim. The Court did not grant any interest in terms of
     Section 29 of the Act. The same was not by way of a clerical or              E
     arithmetical mistakP. which could be corrected by the Court in exercise
     of its power under Section 152 of the Code of Civil Procedure. Under
     the circumstances, the respondent was either to prefer an appeal
     thereagainst or file a review petition. As the Court could not have
     exercised its jurisdiction under Section 152 of the Code of Civil            F
     Procedure, the High Court in exercise of its revisional jurisdiction
     could not have interfered therewith. [127-H, 128-B-C]

          1.2. The jurisdiction of the arbitrator must be held to be confined
     to the four-corners of the contract. He could not have ignored an            G
     important clause in the agreement. [129-C-D)

          1.3. In the instant case, the amount which was deducted by way
     of penalty and found not justifiable, be refunded. While considering
     the claim relating to material escalation, the arbitrator should have
     taken into consideration the relevant provisions as well as relevant         H
    124                  SUPREME COURT REPORTS (2003] SUPP. 3 S.C.R.
                                                                                   .
A facts contained in the agreement and also the correspondence made
    between the parties. It is well settled that the arbitrator cannot act
    arbitrarily, irrationally, capriciously or independent of the contract.
                                                         (129-E, 130-D-EI

          Associated Engineering v. Govt. of A.P., [19911 4 SCC 93 and
B Mis. Sudarsan Trading Co. v. The Govt. ofKera/a, [198912 SCC 38, relied
    on.

          1.4. There lies a clear distinction between an error within the
    jurisdiction and error in excess of jurisdiction. The role of the arbitrator
C   is to arbitrate within the terms of the contract. He has no power apart
    from what the parties have given to him under the contract. If he has
    travelled beyond the contract, he would be acting without jurisdiction,
    however, if he has remained inside the parameter of the contract, his
    award cannot be questioned on the ground that it contains an error
    apparent on the face of the record. (130-H, 131-A-BI
D
         Halsbury's Laws of England 4th Edition, Vol. 2 and 'Commercial
    Arbitration' by Mustill and Boyd, Page 598, referred to.

         1.5. The arbitrator while passing the award in relation to some
    items failed and/or neglected to take into consideration the relevant
E   clauses of the contract, nor did he take into consideration the relevant
    materials for the purpose of arriving at a correct fact. Such an order
    would amount to misdirection in law. [138-D-EI

         Alopi Parshad & Sons Ltd. v. Union of India, (19601 2 SCR 793;
F   Naihati Jute Mills Ltd. v. Khyaliram Jagannath, (196811SCR821; State
    of Orissa v. Dandasi Sahu, [1988) 4 SCC 12; K.P. Pou/ose v. State of
    Kera/a [19751 2 SCC 236; KV George v. The Secretary to Government,
    Water and Power Deptt., Trivendrum, (1989) 4 SCC 595; Satish Kumar
    v. Surinder Kumar, AIR (1970) SC 833; Union ofIndia v. Jain Associates
    & Anr., (1994) 4 SCC 665; Sikkim Subba Associates v. State of Sikkim,
G   [2001) s sec 629; Maharashtra State Electricity Board v. Sterilite
    Industries (India) & Anr., (2001) 8 SCC 482; W.B. State Warehousing
    Corporation & Anr. v. Sushi! Kumar Kayan & Ors., [2002) S SCC 579;
    Bharat Coking Coal Ltd v. LK Ahuja & Co., (2001) 4 SCC 86 and !spat
    Engineering & Foundry Works, B.S. City, Bokaro v. Steel Authority of
H   India Ltd., B.S. City, Bokaro, (2001) 6 sec 347, distinguished.
     BHARAT COKING COAL LTD. v. ANNAPURNA CONSTRUCTIONS             125

     Heyman v. Darwin, (1942) I All ER 327, referred to.                   A
     2. Having regard to the fact that the matter relates to pure
interpretation of the document which gives rise to question of law and
instead and in place of remitting the matter to the named arbitrator,
the disputes in relation to claim of item Nos. 3, 7 and 11 are referred    B
to Mr. Justice D.N. Prasad, a retired Judge of the Jharkhand High
Court on such terms and conditions as may be mutually agreed upon
by the parties. (138-F-G)

     CIVIL APPELLATE ruRISDICTION : Civil Appeal Nos. 5647-48
of 1997.                                                                   C
     From the Judgment and Order dated 29.4.97 of the Patna High
Court in Appeal from Original Order No. 169/95 (R) and C.R. No. 12 of
1996 (R).
                                                                           D
     Ajit Kumar Sinha for the Appellant.

     S.B. Upadhyay for the Respondent.

     The Judgment of the Court was delivered by
                                                                           E
     S.B. SINHA, J : These appeals are directed against the judgment and
order dated 29.4.1997 passed by the High Court of Patna, Ranchi Bench,
Ranchi in Appea'. from Original Order No.169of1995 (R) whereby and
whereunder the appeal preferred by the appellant herein from a judgment
and order dated 3.6.1995 passed by the Subordinate Judge, 4th Court,       p
Dhanbad in Title (Arbitration) Suit No.109 of 1994 was dismissed.

FACTS:

     The basic fact of the matter is not in dispute. The parties hereto
entered into a contract for construction of 140 numbers of temporary       G
hutments, the estimated cost of which was Rs. 49,45,447.81. A fonnal
work order was issued to the respondent herein. Entire work in tenns of
the agreement was to be completed within a period of four months.

     A fonnal contract was entered into for the aforementioned work by     H
    126                  SUPREME COURT REPORTS (2003] SUPP. 3 S.C.R.
                                                                                 ...
A and between the parties. The said contract contained an arbitration
    agreement. The said contractual job was not allegedly completed by the
    respondent within the stipulated period wherefor a request was made for
    extension of time till 31.12.1986 to complete the work. Further extensions
    of time were sought for and granted from time to time.

B         Disputes and differences having arisen between the parties, the
    arbitration agreement was invoked. The Chief Engineer of the appellant-
    Company was appointed as the sole arbitrator. He was to give a reasoned
    award. Before the arbitrator the respondent raised a claim of
    Rs. 55,01,640.66. The appellant herein also raised a counter claim for a
C   sum of Rs. 28,47,860.57. By reason of an award dated 13.7.1994, the sole
    arbitrator awarded a sum of Rs. 18,97,729.37 with interest @ 18% per
    annum in favour of the respondent. The counter claim of the appellant,
    however, was rejected.

          The said award was filed before the learned Subordinate Judge,
D Dhanbad for being made a rule of court in terms of Section 14 of the
    Arbitration Act, 1940 (for short 'the Act'). The appellant herein in the
    said proceedings filed an objection under Sections 15, 16, 30 and 33 of
    the Act. The learned trial Judge by reason of a judgment dated 3.6.1995
    rejected the said objection of the appellant and made the award as rule of
E   court, where-against an appeal was preferred which by reason of the
    impugned judgment was dismissed.

         However, it may be noticed at this stage that the learned Subordinate
    Judge did not grant any interest from the date of decree in favour of the
    respondent wherefor an application purported to be under Section 152 of
F   the Code of Civil Procedure was filed. The said application was rejected
    on 12.12.1995 where-against the respondent preferred a civil revision
    application before the High Court. Both the appeal being M.A. No.169
    of 1995 (R) filed by the appellant herein and Civil Revision being C.R.
    No. 12 of 1996 (R) filed by the respondent herein were heard together.
G   While disposing the appeal, the revison petition was allowed by the High
    Court by reason of the impugned judgment.

    SUBMISSIONS:

         Mr. Ajit Kumar Sinha, learned counsel appearing on behalf of the
H   appellant, inter alia, submitted that the respondent having accepted the
           BHARAT COKING COAL LTD. v. ANNAPURNA CONSTRUCTIONS [SINHA, J.]     J27

     final bill, a further claim by it was inadmissible. The learned counsel         A
     pointed out that as a special case the appellant granted 95% advance
     wherefor no interest was to be charged. The said advance was to be
     adjusted from the running bills. In that view of the matter, the learned
     counsel would contend that the arbitrator committed an illegality in
     entertaining Claim Item Nos. 3 and 7. The learned counsel would urge            B
     that the respondent having been granted extension, it was obligatory on the
     part of the learned arbitrator to consider as to whether the respondent was
     entitled to any compensation for the alleged loss occurred on the ground
     of delay in completion of work, particularly when it was agreed that the
-~
     extension of time was granted subject to payment of penalty. The learned
     counsel would further submit that in terms of the contract the appellant had    C
     been supplied with all the essential raw materials, namely, cement, steel
     etc. which would cover about 95% of the total cost to be incurred for the
     construction of the hutments and in that view of the matter the respondent
     could not be held to be entitled to any amount by way of escalation in the
     price.                                                                          D
           Mr. S.B. Upadhyay, learned counsel appearing on behalf of the
     respondent, per contra would submit that the objections filed by the
     appellant herein have been thoroughly considered by the learned Subordinate
     Judge and the High Court and as such it is not a fit case wherein this Court    E
     should interfere. The learned counsel would urge that it is not the case
     of the appellant that the learned sole arbitrator did not pass a reasoned
     award and, thus, this court in exercise of its jurisdiction under Section 30
     of the Act would not interfere when two views are possible. The learned
     counsel would submit that while exercising its jurisdiction under Section
     30 of the Act, the court does not reappraise evidences brought on record.       F
     Strong reliance, in this connection, has been placed on /spat Engineering
     & Foundry Works, B.S. City, Bokaro v. Steel Authority of India Ltd, B.S.
     City, Bokaro, [2001] 6 SCC 347.

     FINDINGS:
                                                                                     G
          Only because the respondent has accepted the final bill, the same
     would not mean that it was not entitled to raise any claim. It is not the
     case of the appellant that while accepting the final bill, the respondent had
     unequivocally stated that he would not raise anv further claim. In absence
     of such a declaration, the respondent cannot be held to be estopped or          H
    128                   SUPREME COURT REPORTS [2003] SUPP. 3 S.C.R.

A precluded from raising any claim. We, therefore, do not find any merit
    in the said submission of Mr. Sinha.

          The submission of Mr. Sinha to the effect that the High Court
    committed an error in granting interest from the date of the decree
B   purported to be in terms of Section 29 of the Arbitration Act appears to
    be correct. The learned Subordinate Judge did not grant any interest in
    terms of Section 29 of the Act. The same was not by way of a clerical
    or arithmetical mistake which could be corrected by the court in exercise
    ofits power under Section 152 of the Code of Civil Procedure. The remedy
    of the respondent, therefore, was either to prefer an appeal thereagainst or
C   file a review petition. As the court could not have exercised its jurisdiction
    under Section 152 of the Code of Civil Procedure, the High Court in
    exercise of its revisional jurisdiction could not have interfered therewith.

          So far as the question of late payment of the bills is concerned, the
D   arbitrator has arrived at a finding of fact that there had been an inordinate
    delay in respect of 10th RIA bill for Rs. 4,85,403.31 which was paid after
    a lapse of one year from the date of completion of work on 15. 1.1988 and
    a sum ofRs.54,737.53 was awarded as damages@ 12% on the said amount
    for the period of 343 days to the appellant.

E        So far as Claim Item No.3 is concerned, the question which arose for
                                                                                     )•
    consideration before the arbitrator was as to whether any extra work had
    been done or not. The case of the appellant was that the respondent had
    not done any extra work. The arbitrator had considered the materials on
    record for the purpose of arriving at a finding of fact that certain extra
F   work had been done by the respondent wherefor only a sum of
    Rs. 84,942.02 was awarded in place and instead of Rs. 1,58,862.26.

          However, Mr. Sinha is correct in his submission that the learned
    arbitrator has not taken into consideration the effect and purport of the
G   following clause in the contract:

             "Provided always that :

             (a)   Contractor/Contractors shall not be entitled to any payment
                   for any additional work done unless he/they have received
H                  an order in writing from the Superintending Engineer/Sr.
.•


           BHARAT COKING COAL LTD. v. ANNAPURNA CONSTRUCTIONS [SINHA, I.]    129

                    Executive Engineer/Executive Engineer for such additional       A
                    work;

              (b)   The contractor/contractors shall be bound to submit his/their
                    claim for any such additional work done during any month
                    on or before the 15th day of the following month accompanied    B
                    by the additional work; and

              (c)   The contractor/contractors shall not be entitled to any
                    payment in respect of such additional work if he/they fail to
                    submit his/their claim within the aforesaid period."

           The question is as to whether the claim of the contractor is de hors
                                                                                    c
     the rules or not was a matter which fell for consideration before the
     arbitrator. He was bound to consider the same. The jurisdiction of the
     arbitrator in such a matter must be held to be confined to the four-comers
     of the contract. He could not have ignored an important clause in the
     agreement; although it may be open to the arbitrator to arrive at a finding    D
     on the materials on records that the claimant's claim for additional work
     was otherwise justified.

          Claim Item No. 4 was rejected.

          The award in respect of Claim Item No. 5 is not in question. Claim        E
     Item No. 6 was in relation to penalty amount of Rs. 10,000 which was
     deducted by way of penalty and was not found to be justifiable, and as such
     the appellant was directed to refund the said amount.

           We are furthermore concerned with Claim Item Nos. 7 and 11 which         F
     are under the headings of 'Losses due to prolongation of work' and
     'Material Escalation'. It is not in dispute that a secured advance of 95%
     of the cost of materials was given in terms of the contract which is to the
     following effect :

              "Secured Advance will be paid @ 95% of the cost of materials          G
              as a special case to get the work completed within 4(four) months
              as per latest price list of BCCL (copy enclosed), subject to
              submissions of Indemnity Bond on non-Judicial stamp paper of
              required value in the approved proforma of BCCL and also
              Insurance against fire, theft and damages etc. The secured advance    H
    130                   SUPREME COURT REPORTS (2003] SUPP. 3 S.C.R.

A            will be paid only on the items on which it was payable in BCCL.
             The secured advance thus paid, will be recovered in five equal
             instalments from the subsequent running account bills or on the
             consumption of materials whichever is earlier."

B          The appellant does not dispute the same. It is also not in dispute that
    the appellant has not charged any interest in respect of the said advance.
    It is further not in dispute that cement @ Rs. 51 per bag, mild steel rounds
    @ Rs. 5460 per metric tonne and tor steel @ Rs. 5810 per metric tonne
    were supplied by the appellant. However, the claim relating to material
    escalation was confined to six articles whicr were allegedly not supplied
C   by the appellant, namely, bricks, AC sheets, angles, doors, frames and
    shutters etc.

          So far as these items are concerned, in our opinion, the learned sole
    arbitrator should have taken into consideration the relevant provisions
D   contained in the agreement as also the correspondences passed between the
    parties. TI1e question as to whether the work could not be completed within
    the period of four months or the extension was sought for on one condition
    or the other was justifiable or not, which are relevant facts which were
    required to be taken into consideration by the arbitrator.

E          It is now well settled that the Arbitrator cannot act arbitrarily,
    irrationally, capriciously or independent of the contract.

          In Associated Engineering v. Govt. of A.P., (1991] 4 SCC 93, this
    Court clearly held that the arbitrators cannot travel beyond the parameters
F   of the contract. In Mis. Sudarsan Trading Co. v. The Govt. of Kera/a,
    [I 989] 2 SCC 18, this Court has observed that an award may be remitted
    or set aside on the ground that the arbitrator in making it had exceeded
    his jurisdiction and evidence of matters not appearing on the face of it, will
    be admitted in order to establish whether the jurisdiction had been
    exceeded ~r not, because the nature of the dispute is something which has
G   been determined outside the award, whatever might be said about it in the
    award by the Arbitrator. This Court further observed that an arbitrator
    acting beyond his jurisdiction is a different ground from the error apparent
    on the face of the award.

H         There lies a clear distinction between an error within the jurisdiction
      BHARAT COKING COAL LTD. r. ANNAPURNA CONSTRUCTIONS [SINHA, l.]      131

and error in excess of jurisdiction. Thus, the role of the arbitrator is to      A
arbitrate within the terms of the contract. He has no power apart from what
the parties have given him under the contract. If he has travelled beyond
the contract, he would be acting without jurisdiction, whereas if he has
remained inside the parameter of the contract, his award cannot be
questioned on the ground that it contains an error apparent on the face of       B
the records.

      In paragraph 577 of Halsbury's laws of England 4th Edition Vol 2,
the law has been stated in the following terms:

        "As an arbitrator (and subsequently any umpire) obtains his              C
        jurisdiction solely from the agreement for his appointment it is
        never open to him to reject any part of that agreement, or to
        disregard any limitations placed on his authority, as, for example,
        a limitation on his right to appoint an umpire. Nor can he confer
        jurisdiction upon himself by deciding in his own favour some             D
        preliminary point upon which his jurisdiction depends. Nevertheless
        he is entitled to consider the question whether or not he has
        jurisdiction to act in order to satisfy himself that it is worth while
        to proceed, and an award which expressly or impliedly refers to
        such a finding is not thereby invalidated."                              E
      In 'Commercial Arbitration' by Mustill and Boyd at page 598 it is
stated :

        "in the first place, it could be argued that an arbitrator who is
        appointed in respect of a dispute arising under a contract expressly     F
        or impliedly governed by English law is authorised by the parties
        to pronounce upon the issues in accordance with that law, and in
        no other way. Any decision which proceeds, on a different basis
        lies outside the scope of the arbitrator's mandate to bind the
        parties. The award is accordingly void for want of jurisdiction,         G
        since the arbitrator has done something which the parties never
        authorised him to do. Secondly, it would be possible to draw
        support from a line of authority culminating in three important
        decisions during the past decade which approach the question
        whether a tribunal can effec~ively decide contrary to law by using
        the word 'jurisdiction' in the first of the three senses indicated       H
                                                      .!
    132                  SUPREME COURT REPORTS [2003] SUPP. 3 S.C.R.

A           above. Whilst a reconciliation of this decision is a matter for a
            treatise on administrative law, there is no doubt that in relation
            to certain kinds of tribunal the law has recognised a distinction
            between errors of law which go to jurisdiction and those which
            do not, and that there is a difference between tribunal which has
            arrived at a decision by asking itself the wrong question, and one
B           which has correctly identified the question, but has supplied the
            wrong answer in terms oflaw. Following up this line of authority,
            it could be said that an arbitrator empowered to decide the rights
            of the parties under a contract governed by English law, who asks
            himself not what England law has to say about those right, but
c           what the rights ought to be if assessed in accordance with his own
            ideas of an extra-legal concept of justice, is either asking himself
            the wrong question, or not really asking a question at all."

          In Alopi Parshad & Sons Ltd. v. Union of India [1960] 2 SCR 793,
    this Court clearly held that if damages are awarded ignoring the expressed
D   terms of the contract, the arbitrator would commit misconduct of the
    proceedings. Reference in this connection may also be made to Naihati Jute
    Mills Ltd. v. Khya/iram Jagannath, [1968] 1 SCR 821.

         In Heyman v. Darwin, (1942) I All ER 327, it was held that arbitrator
E   as a rule cannot clothe himself with the jurisdiction when it has none.

         In paragraph 622 at pages 330-331 Halsbury's Laws of England (4th
    Edn) Vol. 2 it has been stated but misconduct occurs, for example;

             {I) If the arbitrator or umpire fails to decide all the matters which
F            were referred to him.

             (2) If by his award the arbitrator or umpire purports to decide
             matters which have not in fact been included in the agreement
             of reference, for example, where the arbitrator construed the lease
             (wrongly), instead of determining the rental and the value of
G            buildings to be maintained on the land; or where the award
             contains unauthorised directions to the parties, or where the
             arbitrator, has power to direct what shall be done but his directions
             affect the interest of third persons; or where he decided to the
             parties rights, not under the contract upon which the arbitration
H            had proceeded but under another contract;
SHARAT COKING COAL LTD. v. ANNAPURNA CONSTRUCTIONS [SINHA, J.]      133

   (3) If the award is inconsistent, or is uncertain or ambiguous, or      A
   even if there is some mistake of fact, although in that case the
   mistake must be either admitted or at least clear beyond any
   reasonable doubt;"
                                f
In Associated Engineering (supra), it has been held:
                                                                           B
   "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 jurisdiction error. Such error going to his jurisdiction
   can be established by looking into material outside the award.          C
   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            D
   resolved by admitting extrinsic evidence. The rationale 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.                                                           E
   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 F
   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.                                          G
   The umpire, in our view, acted unreasonably, irrationally and
   capriciously in ignoring the limits and the clear provisions of the
   contract. In awarding claims which are totally opposed to the
   provisions of the contract to which he made specific reference in
   allowing them, he has misdirected and misconducted himself by           H
    134                   SUPREME COURT REPORTS [2003] SUPP. 3 S.C.R.

A           manifestly disregarding the limits of his jurisdiction and the
            bounds of the contract from which he derived his authority
            thereby acting ultra fines compromissi."

         In State of Orissa v. Dandasi Sahu, [1988] 4 SCC 12, this Court
    observed:
B
            "In our opinion, the evidence of such state of affairs should make
            this Court scrutinise the award carefully in each particular case
            but that does not make the court declare that all high amounts of
            award would be bad per se."
c         In K.P. Poulose v. State of Kera/a, [1975] 2 SCC 236, this Court
    observed that the case of legal misconduct would be complete if the
    arbitrator on the face of the award arrives at an inconsistent conclusion
    even on his own finding or arrives at a decision by ignoring the very
    material documents which throw abundant light on the controversy to help
D   a just and fair decision.

         In K. V. George v. The Secretary to Government, Water and Power
    Dept, Trivendrum, [1989] 4 SCC 595, this Court held :-

             "In the instant case, the contract was terminated by the respondents
E            on April 26, 1980, and as such all the issues arose out of the
             tem1ination of the contract and they could have been raised in the
             first claim petition filed before the Arbitrator by the Appellant.
             This having not been done the second claim petition before the
             Arbitrator raising the remaining disputes is clearly barred. With
F            regard to the submission as to the applicability of the principles
             of res judicata as provided in Section 11 of the Code of Civil
             Procedure to arbitration case, it is to be noted that Section 41 of
             the Arbitration Act provides that the provisions of the Code of
             Civil Procedure will apply to the Arbitration proceedings. The
             provisions of res judicata are based on the principles that there
G
             shall be no multiplicity of proceedings and there shall be finality
             of proceedings. This is applicable to the arbitration proceedings
             as well."

          This Court referred to the decision in Satish Kumar v. Surinder
H Kumar, AIR (1970) SC 833 and held:
     BHARAT COKING COAL LTD.'" ANNAPURNA CONSTRUCTIONS [SINHA, J.]        135
        "The true legal position in regard to the effect of an award is not       A
        in dispute. It is well settled that as a general rule, all claims which
        are the subject-matter of a reference to arbitration merge in the
        award which is pronounced in the proceedings before the arbitrator
        and that after an award has been pronounced, the rights and
        liabilities of the parties in respect of the said claims can be           B
        determined only on the basis of the said award. After an award
        is pronounced, no action can be started on the original claim
        which had been the subject-matter of the reference ....... This
        conclusion, according to the learned Judge, is based upon the
        elementary principle that, as between the parties and their privies,
        an award is entitled to that respect which is due to judgment of          C
        a court of last resort. Therefore, if the award which has been
        pronounced-between the parties has in fact, or can in law, be
        deemed to have dealt with the present dispute, the second
        reference would be incompetent. This position also has not been
        and cannot be seriously disputed."                                        D
     In Union ofIndia v. Jain Associates and Anr. [ 1994] 4 SCC 665, this
Court upon following K.P. Poulose (supra) and Dandasi Sahu (supra)
held:

              "8. The question, therefore, is whether the umpire had              E
        committed misconduct in making the award. It is seen that claims
        11 and 12 for damages and loss of profit are founded on the breach
        of contract and Section 73 encompasses both the claims as
        damages. The umpire, it is held by the High Court, awarded
        mechanically, different amounts on each claim. He also totally
        failed to consider the counter-claim on the specious plea that it         F
        is belated counter-statement. These facts would show, not only the
        state of mind of the umpire but also non-application of the mind,
        as is demonstrable from the above facts. It would also show that
        he did not act in a judicious manner objectively and dispassionately
        which would go to the root of the competence of the arbitrator            G
        to decide the disputes."

    In Sikkim Subba Associates v. State ofSikkim, [2001] 5 SCC 629, this
Court held:

        "It would be difficult for the courts to either exhaustively define       H
    136                   SUPREME COURT REPORTS [2003] SUPP. 3 S.C.R.

A            the word "misconduct" or likewise enumerate the line of cases in
             which alone interference either could or could not be made.
             Courts of law have a duty and obligation in order to maintain
             purity of standards and preserve full faith and credit as well as
             to inspire confidence in alternate dispute redressal method of
             arbitration, when on the face of the award it is shown to be based
B
             upon a proposition of law which is unsound or findings recorded
             which are absurd or so unreasonable and irrational that no
             reasonable or right-thinking person or authority could have
             reasonably come to such a conclusion on the basis of the materials
             on record or the governing position of law to interfere."
c
         In Maharashtra State Electricity Board v. Sterilite Industries (India)
    and Anr., [2001] 8 SCC 482, it was observed:

             "In the light of this enunciation of law, we are of the view that
D            unless the error of law sought to be pointed out by the learned
             counsel for the petitioners in the instant case is patent on the face
             of the award, neither the High Court nor this Court can interfere
             with the award. The exercise to be done by examining clause
             14(ii) of the contract entered into between the parties, construing
             the same properly and thereafter applying the law to it to come
E
             to a conclusion one way or the other, is too involved a process
             and it cannot be stated that such an error is apparent or patent on
             the face of the award. Whether under the context of the terms and
             conditions of a contract, a stipulation in the form and nature of
             clause 14(ii) operates as a special provision to the exclusion of
F            Section 73 of the Indian Contract Act is a matter of appreciation
             of facts in a case, and when the decision thereon is not patently
             absurd or wholly unreasonable, there is no scope for interference
             by courts dealing with a challenge to the award."

G       In W.B. State Warehousing Corporation and Another v. Sushi/ Kumar
    Kayan and Others, [2002] 5 SCC 679, this Court opined:

             "In order to determine whether the arbitrator has acted in excess
             of his jurisdiction what has to be seen is whether the claimant can
H            raise a particular claim before the arbitrator. If there is a specific
      BHARAT COKING COAL fro. v. ANNAPURNA CONSTRUCTIONS [SINHA, J.]      13 7

         term in the contract or the law which does not permit the parties       A
         to raise a point before the arbitrator and if there is a specific bar
         in the contract to the raising of the point, then the award passed
         by the arbitrator in respect thereof would be in excess of his
         jurisdiction."

       The High Court was, therefore, required to consider, the objections       B
filed by the Appellant herein from the aforementioned points of view.

     Bharat Coking Coal Ltd v. L.K. Ahuja & Co., (2001] 4 SCC 86,
whereupon Mr. Sinha has placed strong reliance cannot be held to be
applicable in this case as therein the court was concerned with hybrid           C
award. The court was not in a position to ascertain as to whether escalation
charges had been made against the materials supplied by the principal or
also other materials.

     It is no doubt true that the jurisdiction of this Court while considering
the validity of an award is limited as has been stated by this Court in /spat    D
Engineering & Foundry Works (supra):

         "4. Needless to record that there exists a long catena of cases
         through which the law seems to be rather well settled that the
         reappraisal of evidence by the court is not permissible. This Court E
         in one of its latest decisions Arosan Enterprises Ltd. v. Union of
         India, [1999] 9 SCC 449 upon consideration of decisions in
         Champsey Bhara & Co. v. Jivraj Ba/loo Spg. & Wvg. Co. Ltd.
         AIR(l923) PC 66: (1923)AC 480, Union ofIndia v. Bungo Steel
         Furniture (P) Ltd, AIR (1967) SC 1032 : (1967] I SCR 324,
         N. Chellappan v. Secy., Kera/a SEB, [1975] I SCC 289, Sudarsan F
         Trading Co. v. Govt. of Kera/a, [1989] 2 SCC 38, State of
         Rajasthanv. Puri Construction Co. Ltd., [1994] 6 SCC485 as also
         in Olympus Superstructures (P) Ltd v. Meena Vijay Khetan,
         (1999] 5 sec 651 has stated that reappraisal of .evidence by the
         court is not permissible and as a matter of fact, exercise of power G
         to reappraise the evidence is unknown to a proceeding under
         Section 30 of the Arbitration Act. This Court in Arosan Enterprises,
         (1999] 9 sec 449 categorically stated that in the event of there
         being no reason in the award, question of interference of the court
         would not arise at all. In the event, however, there are reasons, H
    138                   SUPREME COURT REPORTS [2003) SUPP. 3 S.C.R.

A            interference would still be not available unless of course, there
             exist a total perversity in the award or the judgment is based on
             a wrong proposition of law. This Court went on to record that in
             the event, however, two views are possible on a question of law,
             the court would not be justified in interfering with the award of
B            the arbitrator ifthe view taken recourse to is a possible view. The
             observations of Lord Dunedin in Champsey Bhara, AIR (1923)
             PC 66: (1923) AC 480 stand accepted and adopted by this Court
             in Bungo Steel Furniture AIR (1967) SC 1032 : [1967] I SCR
             324 to the effect that the court had no jurisdiction to investigate
             into the merits of the case or to examine the documentary and oral
c            evidence in the record for the purposes of finding out whether or
             not the arbitrator has committed an error of law. The court as a
             matter of fact, cannot substitute its own evaluation and come to
             the conclusion that the arbitrator had acted contrary to the bargain
             between the parties."
D
          However, as noticed hereinbefore, this case stands on a different
    footing, namely, that the arbitrator while passing the award in relation to
    some items failed and/or neglected to take into consideration the relevant
    clauses of the contract, nor did he take into consideration the relevant
E   materials for the purpose of arriving at a correct fact. Such an order would
    amount to misdirection in law.

          We are, therefore, of the opm10n that the matter requires
    reconsideration. Having regard to the facts and circumstances of this case
    and particularly keeping in view the fact that the matter relates to pure
F   interpretation of document which gives rise to question of law and instead
    and in place of remitting the matter to the named arbitrator, we would direct
    that the disputes in relation to Claim item Nos. 3, 7 and 11 be referred to
    Hon'ble Mr. Justice D.N. Prasad, a retired Judge of the Jharkhand High
    Court on such terms and conditions as may be mutually agreed upon by
G   the parties. The learned arbitrator is requested to consider the desirability
    of making his award as expeditiously as possible keeping in view the fact
    that the matter has been pending for a long time.

           These appeals are allowed to the aforementioned extent. No costs.

H S.K.S.                                               Appeals partly allowed.

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