Holding

An arbitrator exceeds his jurisdiction when he decides claims expressly excluded from the arbitration clause, and such awards must be set aside.

Summary

The Food Corporation of India (FCI) entered into a contract with Sure... Transport Co. containing an arbitration clause (Clause XX) that referred all disputes to an arbitrator except matters whose decision was expressly provided for in the contract. Clause XII specifically excluded claims relating to transit loss, demurrage and wharfage charges, vesting authority to determine these matters in the Sr. Regional Manager. After a petition under Section 20 of the Arbitration Act, 1940, an arbitrator was appointed and subsequently awarded the transport company sums for transit loss and demurrage/wharfage, despite the contractual exclusion. FCI challenged the award, arguing the arbitrator exceeded his jurisdiction. The Supreme Court held that the arbitrator could not decide claims expressly excluded by the contract, and such awards are beyond his jurisdiction. Consequently, the appeal was partly allowed and the award on the excluded items was set aside, while the rest of the award stood.

Issues considered

Whether an arbitrator can adjudicate claims that are expressly excluded from the arbitration clause by the contract.
Whether an award made by an arbitrator on such excluded claims is ultra vires and liable to be set aside under the Arbitration Act, 1940.

Legislation cited

Arbitration Act, 1940s. 20

Subjects

arbitrationjurisdictionarbitration clauseexcluded disputesaward set asideArbitration Act 1940contract interpretationdemurragetransit loss

Judgment

FOOD CORPORATION OF INDIA A
v.
SURENDRA, DEVENDRA AND MAHENDRA TRANSPORT CO.

FEBRUARY 5, 2003

[M.B. SHAH, ASHOK BHAN AND ARUN KUMAR, JJ.) B
)>

Arbitration: Agreement-Arbitration clause-Clause excluding certain
disputes from purview ofarbitration clause-Appointment ofArbitrator-Claims
regarding excluded disputes before the arbitrator-Decision thereon-Propriety
of-Held, disputes excluded from reference to the arbitrator could not be
c
referred to or decided by the arbitrator-The award made by the arbitrator
in respect of excluded items would be in excess of his jurisdiction-Arbitration
Act, I 940-Section 20.

In agreement, entered into between the appellant and respondent,
D
the arbitration clause (Clause XX) provided for reference of all the
disputes to the arbitrator except any matter decision of which was
expressly provided for in the contract. Clause XII of the agreement
-+ excluded certain items from the purview of clause XX. On the application
of the respondent u/s 20 of Arbitration Act, appellant-Corporation, was
directed to appoint Arbitrator. After the appointment of the Arbitrator, E
respondent raised certain claims including the claims regarding transit
loss, demurrage and wharfage charges. Appellant-Corporation also raised
certain claims. Arbitrator rejected the claim of appellant-Corporation, and
allowed the claim of the respondent. Objections against the award of the

-
Arbitrator by the appellant-Corporation were rejected by High Court.
-+ F
In appeal to this Court, appellant contended that Arbitrator could
not make an award regarding transit loss, demurrage Pod wharfage, which
were specifically excluded from the purview of arbitration clause, and that
by doing so, Arbitrator had acted in excess of his jurisdiction.

Partly allowing the appeal, the Court
G

HELD: I. The claim made and given by the arbitrator regarding
"" transit loss, demurrage and wharfage charges could not be made as the
same had been specifically excluded under Clause XX read with Clause

839 H
840 SUPREME COURT REPORTS [2003) I S.C.R.

A XII of the agreement. The matters which were excluded from the reference
to the arbitrator therefore could not be -referred to or decided by the
arbitrator. Entrance of reference by the arbitrator on disputes which were
excluded from reference and the adjudication thereupon would amount
to exceeding in the exercise of jurisdiction. Since there was a specific bar
to ·the raising of a claim regarding~transit, demurrage and wharfage
B charges, the award made by the arbitrator in respect thereof would be in
excess of the jurisdiction. (844-E, F; 845-D-EJ ~
..
Rajasthan State Mines and Minerals ltd. v. Eastern Engineering
Enterprises and Anr., [1999) 9 SCC 283, relied on.
c CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1577 of
1994.

From the Judgment and Order dated 14. 12. 1993 of the High Court of
Calcutta in Appeal No. 482/91.

D Y. Prabhakara Rao and K. Subba Rao for the Appellants.

C.S. Vadiyanathan and P.N. Chatterjee, K.V. Vishwanathan and Rathin
Das, for the Respondent.
.....
The Judgment of the Court was delivered by
E
BHAN, J. Food Corporation of India (for short "the Corporation") has
filed this appeal against the Division Bench judgment and order of the High
Court of Calcutta whereby and where under the High Court has upheld the
award made by the arbitrator appointed under the directions of the Court.

F
Facts:

Respondent was appointed as a handling and transport contractor on
~
..
14th June, 1979. On 4th January, 1980 respondent addressed a letter to the
Managing Director of the Corporation requesting him to refer the disputes
which had arisen between the parties for arbitration. Since no arbitrator was
G
appointed to resolve the dispute, he filed an application under Section 20 of
the Arbitration Act, 1940 (for short "the Act") in the High Court on the _.,.
original side, with a prayer to issue a direction to the Managing Director of
the Corporation to appoint an arbitrator in terms of the arbitration Clause XX
of the agreement entered between the parties. Court by its Order dated I 6th
H June, 1988 issued a direction to the Managing Director of the Corporation to
F.C.I. ,. SURENDRA. DEVENDRA AND MAHENDRA TRANSPORT CO. [BHAN,J.] 841

appoint an arbitrator in terms of Clause XX of the agreement within six A
Y.'eeks fro1n the date of conununication of the order. The direction \Vas given
in the following terms:

"Coun Order in terms of prayer (a) of the petition. The Managing
Director, Food Corporation of India is directed to appoint an arbitrator
in terms of Clause 20 of the agreement within six weeks from the B
date of communication of the order. All disputes in the petition
panicularly the disputes mentioned in para 24 thereof be referred to
the Arbitrator to the appointed by the Managing Director.

Let it appear marked to be mentioned 8 weeks hence.

All panies including Managing Director, Food Corporation of
c
India and the proposed Arbitrator to act on a signed copy of the
minutes of the Oeder on the usual undenaking."

The relevant ponion of the Clause XX is as under:

"All disputes and difference arising out of or in any \Vay touching or
D
concerning this agreement whatsoever (except as to any matter the
decision of which is expressly provided for in the contract) shall be
referred to the sole arbitration of any person appointed by the
Managing Director of the Food Corporation of India. It will be no
objection to any such appointment that the person appointed is or was E
an employee of the Corporation that he had to deal with the matters
to which the contract related and that in the course of his duties as
such employee of the Corporation he had expressed views on all or
any of the matter in dispute or difference. The award of such arbitrator
shall be final and binding on the parties to this contract. It is a term F
of this contract that in event of such arbitrator to whom the matter is
originally referred being transferred on vacating his office or dying
or being unable to act for any reason. Managing Director of the Food
Corporation of India at the time of such transfer, vacation of office,
death or inability to act shall appoint another person to act as arbitrator.
' Such person shall be entitled to proceed with the reference from the G
stage at which it was left by his predecessor. It is also a term of this
contract that no person other than a person appointed as aforesaid
should act as arbitrator and if for any reason that is not possible the
matter is not to be referred to arbitration at all."

· Under this clause all disputes and differences arising out of or in any way H
842 SUPREME COURT REPORTS [2003) I S.C.R.

A concerning the agreement whatsoever were to be referred to the sole arbitration
of a person appointed by the Managing Director except as to any mailer the
decisiun of which was expressly provided for in the cu111rac1. Clause XII
enumerates the items excluded from the purview of clause XX. Relevant sub-
clauses (a), (d) and (e) of Clause XII are as under:

B "(a) The contractors shall be liable for all costs, damages, demurrages,
wharfage charges and expenses suffered to incurced by the Corporation -...(
due to the contractors' negligence and unworkman like performance t-
of any service under this contract or breach of any terms thereof or
their failure to carry out work with a view to avoid incurrence of
demurrage etc. and for all damages or losses occasioned to the
c Corporation or in particular to any property or plant belonging to the
Corporation due to any act whe!her negligent or otherwise of the
contractors themselves or their employees. The decision of the Sr.
Regional Manager regarding such failure of the contractors and their
"'
liability of the losses etc. suffered by Corporation shall be final and
D binding on the contractors.

(d) The contractors shall be responsible for the safety of the goods
from the time they are loaded on their trucks from Rly. Station/
sidings, Depots/Godowns or at other destinations. They shall provide " -+
tarpaulin on the decks of the trucks so as to avoid loss of grain etc.
E through the holes/crevices in the decks of the trucks. They shall deliver
at the destination the number of bags and the weight of food grains
etc. received by them and loaded on their trucks and shall be liable
to make good the value of any loss, shortage or damage in transit.
The Regional Manager will be the sole Judge for determining after
taking into consideration all the relevant circumstances, the quantum
F and value of loss and also as regards the liability of the contractors
).
~

for such loss and the amount to be recovered from them. The decision
of the Regional manager in this regard shall be final and binding on
the contractors.

(e) In case of loss, shortage, damage, pilferage, mis-appropriation I
G (including missing of lorry loaded with consignments) to foodgrains/
sugar/fertilisers and gunnies during transit, the Regional Manager
shall have the right, without prejudice to other rights and remedies
...,.
under this contract, to impose upon and recover from the contractors
an amount not exceeding ,three times (3 times) the issue rates of the
H foodgrains/sugar/fertilisers applicable at the time of occurrence of
~.Cl."· SURENllRA, DEVENDRA AND MAHENllRA TRANSPORT CO. [BHAN, J.) 843

such pilferage/mis-appropriation and one time (I time) value of the A
gunnies. The decision of the Regional Manager in this regard shall be
final and binding on the contractors. "

Respondent raised ce11ain claims on the basis of which the following
issues were framed. Corporation also claimed a sum of Rs. 5,62,522.70 p. on
account of payment made towards demurrage and wharfage charges. Based B
on the claim of the contending panies the arbitrator framed the following
~ issues:

I. Is the claim of the claimant barred by limitation?

2. Is the claimant entitled to a sum of Rs. 6,71,903. 59 paise towards C
handling and transpon bills or to any pan thereof?

3. ls the claimant entitled to get refund of Rs. 67, 149.65 paise
deducted for transit loss?
4. ls the claimant entitled to refund of Rs. 89,743.34 paise deduced
for other purposes? D
5. ls the claimant entitled to refund of Rs. 1,68,500 deducted on
account of demurrage and wharfage charges?

. ... 6. ls he claimant entitled to Rs. 1,92,873.10 paise towards price of
wheat and rice delivered in excess to the respondent?
E
7. Is the claimant entitled to R<. 3,21,8701· for running of trucks
empty from Howrah siding to Howrah I and Howrah II for empty
tare?
8. ls the FCl entitled to Rs. 5,61,522.70 paise on account of payment
made towards demurrage and wharfage charges? F
9. Is the claimant entitled to interest @ 18% per annum from the
respective due dates of the bills till payment on the awarded
sums?

Claim made by the Corporation for the sum of Rs. 5,62,522.70 p. was
'\
rejected. The sole arbitrator by a speaking and detailed order gave the award G
in the following terms:

"HELD that the claimant is entitled to a sum of Rs. 4,87,318.54 paise
(Four lakhs fifty seven thousand and three hundred eighteen rupees
and paise fifty four) only from the respondent on account of handling H
844 SUPREME COURT REPORTS (2003) I S.C.R.

A and transport bills, and refund of Rs. 67, 149.65 paise (Sixty seven
thousand one hundred forty nine rupees and paise sixty five) only
deducted by the respondent from the claimant's pending bills towards
transit loss and refund of Rs. L68.500/- (One lakh sixty eight thousand
five hundred rupees) only deducted by the respondent from the ·
claiman.t's pending bills on account of demurrage and wharfage
B charges. The claimant will be entitled to claim interest before the
Hon'ble Court on the sum awarded from the date of publication of
the award till such time as the Hon'ble Court will deem fit and
proper."

Corporation being aggrieved filed objections against the award before
c the High Court which were rejected. Contention of the Corporation that the
arbitrator could not make an award re~arding item which was specifically
excluded from the purview of arbitration Clause XX and that by doing so the .#:
arbitrator had acted in excess of his jurisdiction to that extent was rejected. ...
Qther contentions raised by the Corporation were also rejected.
D
Aggrieved against the order of the High Court the present appeal has
been filed. Counsel appearing for the Corporation relying upon the judgment
of this Court in Rajasthan State Mines & Minerals ltd. v. Eastern Engineering
Enterprises and Anr., [1999] 9 SCC 283, contended that the arbitrator acted ~ ,,
in excess of his jurisdiction in entering upon a dispute and making an award
E of a claim which was not permitted to be referred to the arbitrator under the
contract. According to him, the claim made and given by the arbitrator under
issue Nos. 3 and 5 regarding transit loss and demurrage and wharfage charges
could not be made as the same had been specifically excluded under Clause
XX read with Clause XII of the agreement. We find substance in this
submission. Arbitration Clause XX provided that all disputes and differe.nces
F arising out of or in any way touching or concerning the agreement whatsoever "' ...._
cou Id be referred to the sole arbitration of a person appointed by the Managing
Director except "as to any matter the decision of which is expressly provided
for in the contract". Clause XII of the agreement provided that the contractor
would be liable for all costs, damages, demurrages, wharfage charges and
t
G expenses etc. or transit loss suffered by the Corporation and the Sr. Regional
Manager shall be the sole authority to determine the said failures on the part
of the contractors or the loss caused thereby, thus excluding the reference to
the arbitrator for the decision of these disputes. This Court in Rajasthan State ii-
Mines & Minerals ltd. 'case (supra) has held:

H "(f) To find out whether the arbitrator has travelled beyond his
F.C I "SURENDRA. DEVENDRA AND MAHENDRA TRANSPORT CO [BHAN. J] 845

jurisdiction, it would be necessary to consider the agreement between A
the parties containing the arbitration clause. The arbitrator acting
beyond his jurisdiction is a different ground from the error apparent
on the face of the award.

(g) In order to determine whether the arbitrator has acted in excess
of his jurisdiction what has to be seen is whether the claimant could B
raise a particular claim before the arbitrator. If there is a specific terri1
in the contract or the law which does not permit or give the arbitrator
the power to decide the dispute raised by the claimant or there is a
specific bar in the contract to the raising of the pa11icular claim then
the award passed by the arbitrator in respect thereof would be in C
excess of jurisdiction.''

. High Court issued a direction by order dated 16th June, 1988 referring
the disputes for arbitration in terms of Clause XX. The maners which were
excluded from the reference to the arbitrator therefore could not be referred
to or decided by the arbitrator. Entrance of reference by the arbitrator on D
disputes which were excluded from reference and the adjudication thereupon
would a1nount to exceeding in the exercise of the jurisdiction as held by this
Court in Rajasthan State Mines & Minerals Ltd 'case (supra). Since there
was a specific bar to the raising of a claim regarding transit, demurrage and
wharfage charges, the award made by the arbitrator in respect thereof would
be in excess of the jurisdiction. E
Accordingly, the appeal is paitly allowed. Order of the High Court
confirming the award regarding the aforesaid two amounts as well, is set
aside. Award of the arbitrator on issues 3 and 5 relating to the refund of
Rs. 67,149.65 paise towards the transit loss and the refund of Rs. 1,68,500
towards de1nurrage and wharfage charges is set aside. Corporation would not F
be liable to pay these amounts. There is no infirmity in the award regarding
other claims made by the respondents. There shall be no order as to costs.

K.K.T. Appeal partly allowed.