Holding

The arbitral award granting extra cartage was set aside because it ignored clause 3.16 of the contract and amounted to an error apparent on the face, violating Section 34(2) of the Arbitration and Conciliation Act, 1996.

Summary

The Delhi Development Authority (DOA) entered into a development contract with M/s R.S. Sharma & Co., which later disputed extra cartage charges for stone brought from Nooh, Haryana. The arbitrator awarded the contractor extra rates of Rs.30 per cubic metre, ignoring clause 3.16 of the contract that prohibited such extra charges. The Delhi High Court’s single judge set aside the award on this ground, but the Division Bench reversed that decision and upheld the award. On appeal, the Supreme Court examined whether the award could be set aside under Section 34(2) of the Arbitration and Conciliation Act, 1996 for being contrary to a specific contractual term and constituting an error apparent on the face. The Court held that the award ignored clause 3.16, was patently illegal, and therefore liable to be set aside. Consequently, the Supreme Court restored the single judge’s order and allowed the appeal.

Issues considered

Whether an arbitral award can be set aside under Section 34(2) of the Arbitration and Conciliation Act, 1996 for being contrary to a specific term of the contract (clause 3.16) that prohibits extra cartage.
Whether the award is patently illegal or against public policy because the arbitrator failed to consider the contractual clause and gave no reasons for the extra charge.
Whether the award constitutes an error apparent on the face of the award warranting interference.

Legislation cited

Arbitration and Conciliation Act, 1996s. 34(2)

Subjects

ArbitrationSection 34Arbitral awardError apparent on the faceContract clauseExtra cartagePublic policySetting aside award

Judgment

[2008] 12 S.C.R. 785

"'1 DELHI DEVELOPMENT AUTHORITY A
V.
MIS R.S. SHARMA & CO., NEW DELHI
(Civil Appeal No. 2424 of 2002)
AUGUST 26, 2008
B
[P. SATHASIVAM AND AFTAB ALAM, JJ.]
~

--+
Arbitration and Conciliation Act, 1996 - s. 34(2) -Setting
aside of arbitration award - Principles therein - Discussed -
On facts, work for development of land between DOA and c
contractor- Disput~ with regard to extra cartage, stone brought
from Nooh quarries in Haryana to Delhi - Claim of extra rate
@ Rs.301- per cubic mtr - Award in favour of contractor -
However, Single Judge of High Court set aside the award in
respect of claims for extra cartage but Division Bench upheld
D
the same - Held: Not justified - Extra cartage was awarded
7 without adverting to clause 3. 16 of agreement, which prohibits
~ extra cartage over and above the rate of payment specified in
the Agreement - Contractor is wholly responsible for all extra
"
leads - Arbitrator gave no reasons for accepting the claim,
thus there is error apparent on face of award- There is nothing E
on record to show that Department insisted upon bringing
stone aggregate only from Nooh - Hence, contractor not
entitled to increased rates for extra lead- Judgment of Division
,1"'-.
Bench of High Court set aside and that of Single Judge restored. l.
F
... The appellant-Delhi Development Authority and the
respondent-Company entered into work agreement for
development ·Of the land according to the terms and
conditions of the contract. During execution of the work,
dispute arose between the parties, with regard to extra
G
cartage-stone brought from Nooh, Ha.ryana. The dispute
:__y~ ,, was referred to the Sole Arbitrator for adjudication. The
claimant raised claim Nqs. 1-3 and additional claim Nos.
1-3 claiming extra rate ·of Rs.30/- per cubic meter over and
785 ·H
786 SUPREME COURT REPORTS [2008] 12 S.C.R.

A above th.e rate agreed to in the Agreement for extra cartage
involved in bringing the stone aggregate from Nooh
'quarries to Delhi. It was claimant's case that it was required
to use Delhi. quartz stone conforming to C..PWD
specifications; that since DDA had failed to indicaJe the
B approved quarry at Delhi for obtaining supplies of Delhi
quartz stone, it had obtained blue quartz stone from Nooh
quarries in Haryana, thus, the .claimant was entitled to
extra rates at the rate of Rs.. 30/- per cubic meter for
procurement of stone aggregate from the quarries at Nooh
c in Haryana. The Arbitrator made the Award in favour of
respondent. The respondent filed suit for making the
Award a rule of the Court. The Single Judge of the High
Court set aside the Award with respect to Claim Nos. 1 to
. 3 as well as Additional Claim Nos. 1 to 3 and made the
· remaining part of the Award c:{rule of the Court. It awarded
0
interest @ 12% p.a. from the date of the decree till the
. date of payment by DDA. However, the Division Bench bf
the High Court set aside the order passed by the Single
Judge and directed that the Award passed by the Arbitrator
b~ made a Rule of the Court along with interest @ 12%
E p.a. from the date of the decree till the date of payment on
the entire amount as awarded. by the Arbitrator. Hence
the present appeal.
· - Allowing the appeal, the Court
F HELD: 1. An Award, which is contrary to substantive
. provisions- of law ; or the provisions of the Arbitration
and Conciliation Act, 1996 ; or against the terms of the
respective contract ; or patently illegal, cfrf)'rejudicial to
the rights of the parties, is open to interference by the
G 1 Court under section 34(2) of the Arbitration and
Conciliation-Act, 1996. An award could be set aside if it is
contrary to fundamental policy of Indian Law; or the
interest of India; or justice or morality. The Award could
also be set aside if it is so unfair and unreasonable that
H it shocks the conscience of the Court. It is open to the
DELHI DEVELOPMENT AUTH. v. MIS R.S. 787
SHARM/'. &. ~O., NEW DELHI

Court to consider whether the Award is against the . A
specific terms of contract and if so, interfere with it on the
ground that it is patently illegal and opposed to the public
policy of India. [Para 12] [801-A-F]
Grid Corporation of Orissa Ltd. & Anr. vs. 8alasore
Technical School (2000) 9 SCC 552; General Manager, B
,.!
Northern Railway & Anr. vs. Sarvesh Chopra (2002) 4 SCC
+ 45; State of Rajasthan vs. Nav Bharat Construction Co. (2006)
1sec 86; Hindustan Zinc Ltd. VS. Friends Coal Carbonisation
(2006) 4 sec 445 - relied on.
c
2.1 The perusal of the Award of the Arbitrator as well
as the judgment of the Division Bench of High Court
clearly shows that they did not advert to the clause 3.16
of the Agre~ment. The extra cartage was awarded by the
Arbitrator without adverting to clause 3.16 of the
0
Agreement, hence, the Single Judge of High Court was
l wholly justified in partially setting aside the Award in
respect of the claims with respect to the extra cartage.
The pleadings and evidence placed on record pertaining
to Claim Nos. 1-3 and additional Claim Nos. 1-3 have been
perused. The Single Judge of High Court rightly observed E
that there was no material on record to substantiate the
case of the claimant, viz., DOA had insisted upon the
claimant for using the stone aggregates brought from
Nooh in Haryana. In those circumstances and of the fact
that the terms and conditions of the Agreement are binding F
on both the parties, in the absence oJ specific clause with
regc;trd to payment of extra cartage and in view of clause
3.16, the respondent-claimant cannot claim extra cartage
@ Rs.30/- per cubic meter on the ground of extra lead
involved in bringing the stone aggregates from Nooh in G
Haryana. The Division Bench li~e the Arbitrator
proceeded on the sole basis that ODA had compelled the
claimant-Company from bringing the stone aggregates
from Nooh in Haryana and committed an error in affirming
the erroneous conclusion arrived at by the Arbitrator H
788 SUPREME COURT REPORTS [2008] 12 S.C.R.

A insofar as the additional claims are concerned. The
Division Bench proceeded on an erroneous premise that
the appellant-DOA nowhere stipulated where the stone
was to be brought from. It is true that ODA had given
certain specifications required to be conformed. Further,
B the cost of the work was irrespective of the source or
lead from where the stone was brought. The award is
completely silent on the relevant clause viz. clause 3.16
of the Agreement which makes it clear that the contractor
is wholly responsible for all the extra leads. In fact, the
c Arbitrator has given no reason whatsoever so far as the
rate claimed for the extra lead by the claimant and has
verbatim accepted the claim without giving any
justification for the same. This is an error apparent on the~
face of the record as well as contrary to the terms of the
Agreement. [Para 16] [802-F-H 803-A-F]
0
2.2 In terms of clause 3.16 of the Contract, it js the
responsibility of the Contractor to collect and stock the
material and the rates quoted by him including all leads
irrespective of the source from where the material was
E brought. However, if ODA had refused to accept the stone
aggregate brought to site by the contractor from a quarry
in Delhi and insisted upon bringing the material from Nooh
quarry, Haryana, the Contractor will be entitled to the extra
lead for bringing the said material from Nooh. In the instant
F case, there is nothing on record to show that the
Department had insisted upon bringing the stone
aggregate only from Nooh. Hence, the contractor will not
be entitled to the increased rates for extra lead. Without
a specific request or additional clause, the Arbitrator in
G respect of Clctim Nos.· 1-3 and additional Claim Nos. 1-3
. proceeded on the wrong assumption that the Department
had insisted upon the use of stone aggregate to be
brought from Nooh, hence, the Single· Judge of High
Court is perfectly right in holding that there is an ~rror
apparent on the face of the Award and the Award is liable
H
DELHI DEVELOPMENT AUTH. v. MIS R.S. 789
SHARMA & CO., NEW DELHI

to be set aside. The Arbitrator ignored clause 3.16 of the A
contract and made a departure from the contract while
granting relief in respect of Claim Nos. 1-3.and additional
Claim Nos. 1-3 and the same cannot be sustained; The
judgment and order of Division Bench of High Court is
set aside and the order of Single Judge of High Court is B
restored. [Para 17] [803-G-H 804-A-D]
Case Law Reference
(2000) s sec 552 Relied on Para 8
(2002) 4 sec 45 Relied on Para 9 c
(2006) 1 sec 86 Relied on Para 10
(2006) 4 sec 445 Relied on Para 11
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2424
of 2002 D

l From the final Judgment and Order dated 10.08.2001 of
the High Court of Delhi at New Delhi in FAO (OS) No. 104 of
1996
Amarendra Sharan,ASG., V.B. Saharya, Viresh B. Saharya E
and Amit Anand Tiwari (for Mis. Saharya & Co.) for the Appellant.
U.A. Rana, Abhishek Rao and Tarun Verma (Mis. Gagrat
& Co.) for the Respondent.
The Judgment of the Court was delivered by F
i P. SATHASIVAM, J. 1. This appeal, by special leave, is
directed against the judgment and final order dated 10.8.2001
passed by the High Court of Delhi at New Delhi in FAO(OS)
No. 104 of 1996, whereby the Division Bench of the High Court
had set aside ~he order passed by .the learned single Judge in G
favour of the Delhi Development Authority.- the appellant herein
-/;.. and directed that the Award passed by th~ Arbitrator be made
a rule of tre Court.along with interest@ 12% p.a. from the date
of the decree till the date of payment on the entire amount as
awarded by the Arbitrator. H
790 SUPREME COURT REPORTS [2008] 12 S.C.R.

2. The facts, in a nutshell, are as under: -.r-
.,
A
On 18.4.1990, an Agreement was entered into between
the appellant-Delhi Development Authority {hereinafter referred
to as "ODA") and the respondent - M/s R.S. Sharma & Go.
(hereinafter referred to as "t~e Company") for carrying out the
8 work for development of the land at Pappankalan (Dwarka)
Project in South-West Delhi, Phase I according to the terms
and conditions mentioned in the contract. On disputes having
arisen during execution of the work, mainly with respect to the
extra cartage, the same were referred to the Sole Arbitrator,
C Shri A.P. Pa racer, Additional Director General (Retd.), C.P.W.D.,
for <;idjudiGation. During the pendency of the arbitration
proceedings, the work was still being executed by the Company.
13 Claims (including additional claims) for a sum of Rs. 55.19
lacs approximately were raised by the Company before the
D Arbitrator. Claim Nos. 1 to 3 were on account of extra lead
involved in procurement of stone aggregate specified in
agreement Item No.2 i.e., s.upplying and stacking of graded
stone aggregate of size range 90 mm to 40 mm at site. While
additional Claim Nos. 1 to 3 pertain to extra lead involved in
E bringing stone specified in agreement Item Nos. 3 & 4 i.e.,
supplying and stacking of stone screenings/chipping at site
12.5. mm 'nominal size. Under Claim. No.1, the respondent-
.

Company claimed an extra amount of Rs.30/- per cubic meter
over and above the rates mentioned in the Agreement Item
F No.2 on account of extra lead involved in the procurement of the
stone aggregates from t~e quarries at Nooh in Haryana instead
of quarries at Delhi. Under Claim No.3, the respondent-
Company sought declaratory Award to the effect that for all
quantities of aggregate to be brought from Nooh in future, they
G are entitled to additional lead @ Rs.30/- per cubic meter
excluding the quantity already claimed under Claim No.2.
Similarly, under Additional claim Nos. 1 to 3, the respondent-
Company claimed the rate of Rs.30 per cubic meter for extra
lead involved in bringing stone, specified in agreement item
Nos. 3 &4, from the quarries at Nooh (Haryana). On 29.7.1992,
H
DELHI DEVELOPMENT AUTH. v. MIS R.S. 791
SHARMA & CO., NEW DELHI [P. SATHASIVAM, J.]
-"(

the Arbitrator made the Award in favour of respondent-Company. A
Suit No.2981 of 1992 was filed by the respondent-Company
for making the Award a rule of the Court. Cross Objections
were filed by ODA. On 25.9.1995, the learned single Judge of
the Delhi High Court set aside the Award with respect to Claim
-i
Nos. 1 to 3 as well as Additional Claim Nos. 1 to 3 and made B
,,. .
~
the remaining part of the Award a rule of the Court and awarded
interest @ 12% p:a. from the date of the decree till the date of
payment by ODA. Aggrieved by the judgment of the learned
single Judge, the Company filed FAO (OS) No.104 of 1996
before the Division Bench for setting aside the order to the c
extent it deals with Claim Nos. 1-3 and for making the Award
dated 27.9.1992 a rule of the Court. The Division Bench of the
High Court of Delhi, vide order dated 10.8.2001, set aside the
order of the learned single Judge to the extent by which the
Award of the Arbitrator on Claim Nos. 1 to 3 and Additional
7 D
Cl~im Nos. 1 to 3 were set aside and the Award made by the
")t.- Arbifrator on aforesaid Claims were made a rule of the Court.
The "Respondent - Company was also awarded interest @
12% p.a. from the date of tlecree till the date of payment on the
entire amount as awarded by the Arbitrator. Aggrieved by the
said judgment, the present appeal is filed by DOA before this E
Court.
3. Heard Mr. Amarendra Sharan, learned Additional
Solicitor General, appearing forthe appellant and Mr. U.A. Rana,
learned counsel, appearing for the respondent. F
-.i.
4. Mr. Amarendra Sharan, learned Additional Solicitor
General, appearing for the appellant-Delhi Development
Authority, vehemently contended that the Division Bench of the
High Court was not justified in setting aside the order passed
,__. .A~
~
by the learned single Judge with respect to Cl.aim Nos. 1-3 and G
addit:onal claim Nos. 1-3 inasmuch as the Arbitrator had clearly·
failed to advert to clause 3.16 of the Agreement which does hot
provide for extra cartage. According to him, clause 3.16 of the
Agreement stipulates that the contrnctor is responsible for all
the extra leads over and above the rate of payment specified H
792 SUPREME COURT REPORTS [2008] 12 S.C.R.

A in the Agreement. He further contended that since the Arbitrator
failed to take note of the. relevant condition, namely, clause
3.16, which prohibits extra cartage over and above the rate of
payment specified in the Agreement, there is a clear error
apparent on the face of the Award and liable to be set aside in
B terms of Section 34(2) of the Arbitration and Conciliation Act,
1996 (hereinafter referred to as "the Act"). On the other hand, ;.,_
Mr. U.A. Rana, learned counsel appearing on behalf of the
respondent, while supporting the order of the Division Bench
contended that in vi~w of the fact that stone was brought from
c Nooh in Haryana which was found to be more blue, better in
appearance and quality, the Arbitrator was fully justified in making
the Award in favour of the respondent herein on Claim Nos. 1-
3 and additional Claim Nos. 1-3. He also submitted that the
Arbitrator is the. sole Judge of the quality as well as quantity of
D evidence and the Courts cannot judge the evidence placed
before the Arbitrator..In the absence of plausible ground in terms ~
of Section 34(2) of the Act, the learned single Judge is not -'I.(
justified in setting aside the award of the Arbitrator. Thereby, he
prayed for dismissal of the appeal.
E 5. We have considered the rival contentions, perused the
relevant materials including the terms bf the Agreement, award
of the Arbitrator and the orders passed by the learned single
. Judge as well as by the Division Bench of the High Court.
. . 6. The work re.lating to development of land at Pappankalan
F · (Dwarka) Project in South West Delhi, Phase-I was awarded
under Agreement No. 6/EE/WD 10-A/90-91/DDA to Mis R.S.
Sharma & Co.- respondent herein. During the execution of the
said work, certain disputes arose between the parties and
ultimately they were referred to Mr. A.P. Paracer, Additional
G Director General (Retd.) C.P.W.D. for adjudication. After
adjudication, the Arbitrator, on 29.7.1992, made and published
his Award. The said Award was filed in Court and after issuance
of notice, DOA filed its objections. The main dispute relates to
Claim Nos. 1-3 and additional Claim Nos. 1-3 wherein the
H claimant had claimed extra rate of Rs.30/- per cubic meter over
DELHI DEVELOPMENT AUTH. v. MIS R.S. 793
SHARMA & CO., NEW DELHI [P. SATHASIVAM, J.]
-y
and above the rate agreed to in the Agreement under Item Nos. A
2, 3 and 4 for extra cartage involved in bringing the stone
aggregate from Noah quarries to Delhi. According to the
claimant, it was required to use Delhi quartz stone conforming
to CPWD specifications and as the claimant had obtained blue
quartz stone from Noah quarries in Haryana and since DOA 8
1.
r
,. had failed to indicate the approved quarry at Delhi for obtaining
' supplies of Delhi quartz stone, the claimant was entitled to extra
rates at the rate of Rs.30/-per cubic meter for procurement of
stone aggregate from the quarries at Noah in Haryana.
According to DOA, the Arbitrator has misconstrued and c
misunderstood the Agreement between the parties, particularly,
clause 3.16. Though the learned single Judge set aside the
Award in respect of claim Nos. 1-3 and additional Claim Nos.
1-3 on the ground that there were no material be'fore the
Arbitrator t6 accept those claims, the Division Bench, reversed
D
~ the same and confirmed the Award as granted by the Arbitrator.
'-;:, 7. In order to consider the rival contentions, it is useful to
refer the relevant provisions of the Act. Chapter VII of the Act
deals with 'Recourse against Arbitral Award'. Section 34
enumerates various grounds/circumstances on which the Award E
can be set aside by the Court which reads as under:

"34. Application for setting aside arbltral award. -
(1) Recourse to a Court against an arbitral award may be
made only by an application for setting aside such award in
F
accordance with sub-section (2) and subsection (3).
(2) An arbitral award may be set aside by the Court only if-
(a) The party making the application furnishes proof that-
(i) A party was under some incapacity, or G
"-/'·;, (ii) The arbitration agreement is not valid under the
law to which the parties have subjected it or, failing
any indication thereon, under the law for the, time
being in force; or
H
794 SUPREME COURT REPORTS· [2008] 12 S.C.R.

A (iii) The party making the application was not given
proper notice oMhe appointment of an arbitrator or
of the arbitral proceedings or was otherwise uriable
to present his cc:tse; or ·-
(iv) The arbitral award deals with a dispute not
B contemplated by or not falling within the terms of
the submission to arbitration, or it, contains·
decisions· on matters beyond the scope of th~
· submission to arbitration:
Provided that, if the decisions on matters submitted to
c arbitration can be separated from those riot so submitted,
only that pa·rt of the arbitra1 award which contains
dedsioh·s on matters not submitted to arbitration may
be set aside; or ·
(v) The composition of the arbitral tribunal or the arbitral
D· procedure was not in accordance with the ~
agreement of the parties, unless such agreement.
was in conflict with a provision of this Part from ~
which the parties cannot derogate, or, failing such
agreement, was not in accordance with this Part;
E or
(b) The Court finds that-
(i) The subject-matter of the dispute is not capable of
settlement by arbitration under the law for the time
bei_ng in force, or .
F 1-
(ii) The arbitral award is in conflict with the public
policy of India.
Explanation. -Without prejudice to the generality of sub-
clause (ii), it is hereby declared, for the avoidance of any
G doubt, that an award is in conflict with the public policy of India
if the making of the award was induced or affected by fraud
or corruption or was in violation of section 75 or_ section 81.
(3) An application for setting aside may not be made after '
three months have elapsed from the date on which the party
H making that application had received the arbitral award or. if '
'·

DELHI DEVELOPMENT AUTH. v. M/S R.S. 795
SHARMA & CO., NEW DELHI [P. SATHASIVAM, J.]

a request had been made under section 33, from the date on A
which that request had been disposed of by the arbitral tribunal:
· Provided that ifthe Court is satisfied that the applicant was
' prevented by sufficient cause from making the application
within the said period of three months it may entertain the ,
application within a .further period of thirty days, but not B
fuereafte~ ·
(4) On receipt of an application under sub-section (1 }, the
Court may, where it is appropriate and it is so requested by
a party, adjourn the proceedings for a period of time determined
by it in order to give the arbitral tribunal an opportunity to C..
resume the arbitral proceedings or to take such other action
as in the opinion of arbitral tribunal will eliminate the grounds
for setting aside the arbitral award."
8. The grounds/ circumstances mentioned in sub-
section(2) of Section 34 have been considered by this Court in D
various decisions. In Grid Corporation of Orissa Ltd. & Anr. vs .
.Balasore Technical School, (2000) 9 SCC 552, this Court in
paragraph 3 held as under:
"3. In this case, the High Court is of the view that a civil court E
does not sit in apReal against the award and the power of the ·
court when an award is challenged is rather limited. The award
of the arbitrator is ordinarily final and conclusive as long as
the arbitrator has acted within his authority and according to
the principle of fair play. An arbitrator's adjudication is generally
considered binding between the parties for he is a tribunal F
selected by the parties and the power of the court to set aside
the award is restricted to cases set out in Section 30 of the
Arbitration Act. It is not open to the court to speculate where
no reasons are given by the arbitrator, as to what impelled
him to arrive at his conclusion. If the dispute is within the G
scope of the arbitration clause it is no part of the province of
the court to enter into the merits of the dispute. If the award
goes beyond the reference or there ~s an error apparent on
the face of the award it would certainly be open to the court
to interfere with such an award. In New India Civil Erectors
H
796 SUPREME COURT REPORTS [2008] 12 S.C.R.

A (P) Ltd. v. Oil & Natural Gas Corpn.(1997) 11 sec 75 this .r--
Court considered a case of a non-speaking award. In that
case the arbitrator had acted contrary to the specific stipulation/
condition contained in the agreement between the parties. It
was held that the arbitrator being a creature of the contract
must operate within the four corners of the contract and cannot
B
travel beyond it and he cannot award any amount which is
ruled out or prohibited by the terms of the agreement. In that
contract it was provided that for construction of a housing
unit, in measuring the built-up area, balcony areas should be
excluded. However, the arbitrator included the same which
c was·held to be withoutjutisdiction; In the same manner it was
also held that the price would be firm and not subject to any
escalation under whatsoever ground till the cotnpletibn of the
work and awarding any sum as a result of escalation was not
permissible. To the satne effect is the decision in Associated
D
EEngg. Co. v. Govt. ofA.P (1991) 4 SCC 93. It was stated that
if the arbitrator commits an error in the construction of the
contract, that is an error within his jurisdiction. But if he wander$
outside the contract and deals with matters· not allotted to
him; he commits a jurisdictional error and an umpire or
arbitrator cannot Widen his jurisdiction by deciding a question
E not referred to him by the parties or by deciding a question
otherwise than in accordance with the contract. A conscious
disregard of the law or the provisions of the contract from
which he has derived his authority vitiates the award. The
principle of law stated in N. Chel/appan case on which strong
reliance has been placed by the learned counsel for the
F
respondent would make it clear that except in Ci:ases of
jurisdictional errors it is not open to the court to interfere with
an award. That proposition is unexceptionable. However, from
a reading of the decisions of this Court referred to earlier it is
clear that when an award is made plainly contrary to the
G terms of the contract not by misinterpretation b'ut which is
plainly contrary to the terms of the.contract it would certainly
lead to an inference that there is an error apparent on the face
of the award which results in jurisdictional error iii the award.
In such a· case the courts can certainly interfere with the
award made by the arbitrator."
H
DELHI DEVELOPMENT AUTH. v. MIS R.S. 797
SHARMA & CO., NEW DELHI [P. SATHASIVAM, J.]

' ---J 9. In General Manager, Northern Railway & anr. vs. A
Sarvesh Chopra, (2fJ02) 4 SCC 45, it is worthwhile to refer the
following conclusio·n as observed in paragraph 10 as under:

"10. It was next submitted by the learned counsel for the
respondent that if this Court was not inclined to agree with the
submission of the learned counsel for the respondent and the 8
interpretation sought to be placed by him on the meaning of
--4-
"excepted matter" then whether or not the claim raised by the
contractor is an "excepted matter" should be left to be
determined by the arbitrator. It was submitted by him that
while dealing with a petition under Section 20 of the Arbitrationc
Act, 1940 the court should order the agreement to be filed and
make an order of reference to the arbitrator appointed by the
parties leaving it open for the arbitrator to adjudicate whether
a claim should be held to be not entertainable or awardable,
being an "excepted matter". With this submission too we find
it difficult to agree. While dealing with a petition under Section D
7 20, the court has to examine: (1) whether there is an arbitration
agreement between the parties, (i1) whether the difference
¥
which has arisen is one to which the arbitration agreement
applies, and (iii) whether there is a cause, shown to be
sufficient, to decline an order of reference to the arbitrator. E
The word "agr~ement" finding place in the expression "where
a differenc.e has arisen to which the agreement applies", in
.·
sub-section (1) of Section 20 means "arbitration agreement":
The reference to an arbitrator on a. petition filed under Section
20 is not a function to be discharged mechanically or
ministerially by the court; it is a consequence of judicial F
determination, the court having applied its mind to the
requirements of Section 20 and formed an opinion, that the
difference sought to be referred to arbitral adjudication is one
to which the arbitration agreement applies. In the case of
Food Corpn. of India relied on by the learned counsel for the G
respondent, it has been held as t_he consistent view of this
·--.. +-;,, Court that in the event of the claims arising within the ambit
of "excepted matters", the question of assumption of
jurisdiction by any arbitrator either with or without the
intervention of the court would not arise. In Union of India v.
H
798 SUPREME COURT REPORTS [2008] 12 S.C.R.

A Popular Builders (2000) 8 SCC 1 and Steel Authority of India r ~

Ltd. v, J.C. Budharaja, Govt. aod Mining Contractor ( 1999) 8
SCC 122, Ch. Ra_malinga Reddy v. Superintending Engineer
( 1999) 9 SCC 610 (para 18) and Alopi Pars had and Sons Ltd.
v. Union of India (1962) 2 SCR 793 at p. 804 this Court has
unequivocally expressed that an award by an arbitrator over
B a claim which was not arbitrable as per the terms of the
contract entered into betweer:) the parties wouJd be liable to ~~
be set aside. In Prabartak Commercial Corpn. Ltd. v. Chief
Administrator, Dandakaranya Project (1991) 1 SC9 498 a
claim covered by "excepted matter" was referred to_ the
c arbitrator in spite of such reference having been objected to
and the arbitrator gave an award.. This Court . held that the ~
j1
arbitrator had no jurisdiction in the matter and that the reference '
of the dispute to the arbitrator was invalid and the entire L
proceedings before the arbitrator including the awards made ,.
by him were null and void."
D
10. In State of Rajasthan vs. Nav Bharat Construction
Co., (2006) 1 SCC 86, this Court in paragraph 27 held as "-
::.,(
under:
"27. There can be no dispute to the well-established principle
E set out in these cases. However, these cases do not detract
from the law laid down in Bharat Coking Coal Ltd. case or
Continental Construction Co. Ltd. case. An arbitrator cannot
_,
go beyond the terms of the contract between the parties. In
the guise of doing justice he cannot award contrary to the
F terms of the contract. If he does so, he will have misconducted
himself. Of course if an interpretation of a term of the contract ~-
is involved then the interpretation of the arbitrator must be
accepted uriless it is one Which could not be reasonably
possible. However, where the term of the contract is clear
and unambiguous the arbitrator cannot ignore it.".
G
11. In Hindustan Zinc Ltd. vs. Friends Coal Carbonisation, ...),..
(2006) '4 sec 445, the following principles laid down in \.... V'

paragraphs 13 and 14 are relevant for the disposal of the present
case:
H
DELHI DEVELOPMENT AUTH. v. M/S RS. 799
SHARMf. & CO., NEW DELHI [P. SA~HASIVAM, J.]

"13. This Court in ONGC Ltd. vJ Saw Pipes Ltd. (2003) 5 SCC A
705 held that an award contrary to substantive provisions of
law or the provisions of the Arbitration and Conciliation Act,
1996 or against the terms of the contract, would be patently
illegal, and if it affects. the rights of the parties, open to
interference by the court under Section 34(2) of the Act. This
8
Court observed: (SCC pp. 718 & 727-28, paras 13 & 31)

"13. The question, therefore, which requires consideration
is-whether the award could be set aside, if the Arbitral Tribunal
has not followed the mandatory procedure prescribed under
Sections 24, 28 or 31 (3), which affects the rights of the parties. C
Under sub-section (1)(a) of Section 28 there is a mandate to
the Arbitral Tribunal to decide the dispute in accordance with
the substantive law for the time being in force in India.
Admittedly, substantive law would include the Indian Contract
Act, the Transfer of Property Act and other such laws in force.
Suppose, if the award is passed in violation of the provisions D
of the Transfer of Property Act or in violation of the Indian
Contract Act, the question would be-whether such award
could be set aside. Similarly, under sub-section (3), the Arbitral
Tribunal is.directed to decide the dispute in accordance with
the terms of the contract and also after taking into account E
the usage of the trade applicable to the transaction. If the
Arbitral Tribunal ignores the terms of the contract or usage of
the trade applicable to the transaction, whether the said award
could be interfered. Similarly, iMhe award is a non-speaking
one and is in violation of Section 31 (3), can such award be
set aside? In our view, reading Section 34 conjointly with F
other provisions of the Act, it appears that the legislative intent
could not be that if the award is in contravention of the
provisions of the Act, still however, it couldn't be set aside by
the court. If it is held that such award could not be interfered~
it would be contrary to the basic concept of justice. If the G
Arbitral Tribunal has not followed the mandatory procedure
prescribed under the Act, it would mean that it has acted·
beyond its jurisdiction and thereby the award would be patently
illegal which could be set aside under Section 34.

* * * H
800 SUPREME COUR.T REPORTS [2008] 12 S.C.R.

I
A 31 . ... in our view, the phrase 'public policy of India' used in
Section 34 in context is required to be given a wider meaning.
It can be stated that the concept of public policy connotes
some matter which concerns public good and the public
. interest. What is for public good or in public interest or what
B would be injurious or harmful to the public good or public
interest has varied from time to time. However, the award
which is, on the face of it, patently in violation of statutory
provisions cannot be said to be in public interest. Such award/
judgment/decision is likely to adversely affect the
administration of justice. Hence, in our view. in addition to .
c narrower meaning given to the term "public policy" in
Renusagar case, it is required to be held that the award could
be set aside if it is patently illegal. The result would be-
award could be set aside if it is contrary to:

D (a) fundamental policy of Indian law; or
(b) the interest of India; or .J ·

(c) justice or morality; or
(d) in addition, if it is patently illegal.

E Illegality must go to the root of the matter and if the illegality
is of trivial nature it canhot be held that award is against the
public policy. Award could also be set aside if it is so unfair
and unreasonable that it shocks the conscience of the court.
Such award is opposed to public policy and is required to be
·p a_djudged void."

14. The High Court did not have the benefit of the principles
laid down in Saw Pipes, and had proceeded on the assumption
that award cannot be interfered with even if it was contrary to
the terms of the contract. It went to the extent of holding that
G contract terms cannot even be looked into for examining the
correctness of the award. This Court in Saw Pipes has made
it clear that it is open to the court to -consider whether the
award is against the specific terms of contract and if so,
interfere with it on the ground that it is patently illegal and
H opposed to the public policy of India." ·
DELHI DEVELOPMENT AUTH. v. M/S R.S. 801
SHARMA & CO., NEW DELHI [P. SATHASIVAM, J.]

12. From the above decisions, the following principles A
emirrge:
(a) An Award, which is
(i) _contrary to substantive provisions of law ; or
(ii) the provisions of the Arbitration and Conciliation B
.I Act, 1996 ; or
(iii) against the terms of the respective contract ; or
(iv) patently illegal, or
/"_. c
(v) prejudicial to the rights of the parties,
is open to interference by the Court under Section
34(2) of the Act.
(b) Award could be set aside if it is contrary to : D
... .,
(a} fundamental policy of Indian Law; or
¥ (b) the interest of India; or
(c) justice or morality;
E
(c) The Award could also be set aside if it is so unfair
and unreasonable that it shocks the conscience of
the Court.
(d) It is open to the Court to consider whether the Award
is against the specific terms of contract and if so, F
interfere with it on the ground that it is patently illegal
and opposed to the public policy of India.
13. With these principles and statutory provisions,
particularly, Section 34(2) of the Act, let us consider whether the
._,l,
Arbitrator as well as the Division Bench 6fthe High Court were G
-..- ...;. justified in granting the Award in respect of Claim Nos. 1-3 and
additional Claim Nos. 1-3 of the claimant or the appellant-DOA
has made out a case for setting aside the Award in respect ··-...
of ~'

those claims with reference to the terms of the Agreement duly
executed by both parties. H
___._ -- /-' - - -·
..
..e::.

802 SUPREME COURT REPORTS [2008] 12 S.C.R.

-;
A 14. The main di.spute relates to extra cartage that is, stone
brought from Nooh, Haryana. It is the stand of the claimant that
apart from the Agreement dated .18.4.1990, both parties were \.

agreed to abide by the conditions mentioned in the letter dated
10.4.1990 of the claimant - 'M/s R.S. Sharma & Co. to the
s Chief Engineer (WZ), ODA, Vikas Minar"' New Delhi. In
paragraph 6 of the said letter, it was ··stated as under:
· "6. We will use Delhi Quart? stone as per CPWD specifications
and speCifications mentioned in the tender<aocuments. This
condition has been accepted .by the Department in the case '·
c .of 1st lowest tenderer for this work."
15. It is stated by the learned counsel appearing for the
claimant that since the ODA 'has nqt ·apprpved Delhi Quartz
stone which was not as per CPWD specifications and
specifications
1
mentioned in the tender document, stones were
D brought from Nooh, Haryana which satisfied those ..,.
·specifications. As' rightly pointed 'out by the learned ASG
appearing for ODA, there is no specific clause in the terms of
agreement for extra cart~ge for bringing stones from elsewhere.
In this regard, the appellant heavily relied on clause 3.16 of the
E Agreement which reads as under:.
"3.16- The-collection ·and stacking of material shall include all
leads. The rates quoted by the contractor shall hold good
irrespective of the sot,Jrce from which the.material are brought
so long as they conform to tl:)e specifications. The closure of
F particular quarry will not entitle the contracto[ to any revision
in the rates."
16. The perusal of the Award of the Arbitrator as well as
the judgment of the Division Bench clearly shows that they did
G not advert to the above clause 3.16. it is releva;nt to ppint out
that the extra cartage has beem ~warded by ttieArbitratotwithout
· adverting to clause 3.16 of the Agreement, hence, the~learned
' single Judge was wholly justified in partially setting aside .~he
Award in respect of the clai.ms with respect tp tpe extra ca.ftage.
H we· also perused the pleadings and evidence: piaced on record
DELHI DEVELOPMENT AUTH. v. M/S R.S. 803
SHARMA & CO., NEW DELHI [P. SATHASIVAM, J.]

pertaining to Claim Nos. 1-3 and additional Claim Nos. 1-3. As A
rightly observed by the learned single Judge, there was no
material on record to substantiate the case of the claimant, viz.,
DOA had 'insisted upon the claimant for using the stone
aggregates brought from Noah in Haryana. In those
circumstances and of the fact that the terms and conditions of B
the Agreement are binding on both the parties, in the absence
J
of specific clause with regard to payment of extra cartage and
in view of clause 3.16, the respondent-claimant cannot claim
extra cartage @ Rs.30/- per cubic meter on the ground of extra
lead involved in bringing the stone aggregates from Noah in c
(
Haryana. The Division Bench like the Arbitrator proceeded on
the sole basis that ODA had compelled the claimant-Company
from bringing t~e stone aggregates from Noah in Haryana and
committed an error in. affirming the erroneous conclusion arrived
at by the Arbitrator insofar as the additional claims are
.. D
< concerned. As rightly pointed out by the learned Additi0nal
Solicitor General, the Division Bench proceeded on an

" erroneous premise that the appellant-DOA has nowhere
stipulated where the stone was to be brought from. It is true that
· DOA had given certain specifications required to be conformed.
Further, the co~t of the work was irrespective of the source or E
lead from where the stone was brought. The award is completely
silent on the relevant clause viz. clause 3.16 of the Agreement
which makes it clear _that the contractor is wholly responsible
for all the extra leads. In fact, the Arbitrator has given no reason
whatsoe.ver so far as the rate claimed for the extra lead by the F
claimant and has verbatim accepted the claim without giving
any justification for the same. We are satisfied that this is an
error apparent on the face of the record as well as contrary to
the terms of the Agreement.
G
.....
......,,
-Ii-. 17. For the sake of brevity, we point out that in terms of
clause 3.16 of the Contract, it is the responsibility of the
Contractor to collect and stock the material and the rates quoted
,by him including all leads irrespective of the source from where
the material was brougbt: However, if DDA had refused to accept
H
804 SUPREME COURT REPORTS [2008] 12 S.C.R.

A the stone aggregate brought to site by the contractor from a 'r
quarry in Delhi and insisted upon bringing the material from
Nooh quarry, Haryana, the Contractor will be entitled to the
extra lead for bringing the said material from Nooh. As rightly
pointed out by learned counsel for the appellant, in the present
B case, there is nothing on record to show that the Department
had insisted upon bringing the stone aggregate only from Nooh.
Hence, the contractor will not be entitled to the increased rates """----
for extra lead. Without a specific request or additional clause,
the Arbitrator in respect of Claim Nos. 1-3 and additional Claim
c Nos. 1-3 proceeded on the wrong assumption that the
Department had insisted upon the use of stone aggregate to
be brought from Nooh, hence, the learned single Judge is
perfectly right in holding that there is an error apparent on the
face of the Award and the Award is liable to be set aside. As
stated earlier, the Arbitrator has ignored clause 3.16 of the
D
contract and made a departure from the contract while granting ...
relief in respect of Claim Nos. 1-3 and additional Claim Nos. 1- '""
3 and the same, in our view, cannot be sustained. -,_
18. Under these circumstances, we-allow the appeal of
E DOA and set aside the judgment and order dated 10.8.2001
passed by the Division Bench in FAQ (OS) No. 104 of 199F
and restore the order of the learned single Judge insofar as
Claim Nos. 1-3 and additional Claim Nos. 1-3 are concerrir .;.
There shall be no order as to costs.
F N.J. Appeal allowed.
-~