Holding

Interpretation of a contract is within the arbitrator’s jurisdiction and a court may set aside an award only on a ground of error apparent on the face of the award or a perverse award, not merely because it disagrees with the arbitrator’s view.

Summary

The appellant submitted a tender for a construction contract, claiming a 2.25% uplift on rates and a 40% labour component, which the respondent contested, leading to arbitration. The arbitrator held that the appellant’s covering letter formed part of the contract, upheld the 2.25% uplift, substituted the contractually stipulated 21% labour escalation with 40%, and awarded damages for illegal termination. Both parties appealed, arguing over the arbitrator’s jurisdiction to interpret the contract and whether the award contained errors apparent on its face. The Supreme Court reiterated that interpretation of a contract lies within the arbitrator’s domain and that courts may interfere only if the award is perverse or based on a wrong legal proposition. Applying this principle, the Court sustained the arbitrator’s award on all three claims and dismissed the Union of India’s appeal while allowing the appellant’s appeal.

Issues considered

The scope of judicial interference with an arbitral award, particularly where the award involves interpretation of contract terms
Whether the arbitrator erred in taking the appellant’s covering letter as part of the contract
Whether the award contains an error apparent on the face of the award or a perverse finding

Legislation cited

Arbitration Act, 1940s. 30
Indian Contract Act, 1872s. 7(2)

Subjects

ArbitrationArbitral awardCourt interferenceContract interpretationError apparent on the facePerverse awardLabour componentHigh rise buildingIllegal terminationDamages

Judgment

[2009] 7 S.C.R. 917

G. RAMACHANDRA REDDY & CO. A
,. v.
UNION OF INDIA & ANR.
Civil Appeal No. 2479 of 2009
APRIL 15, 2009
8
[S.B. SINHA AND CYRIAC JOSEPH, JJ.]
Arbitration -Award of arbitrator- Interference by court-
Scope - Held: The Court while dealing with an award would
not re-appreciate the evidence - Interpretation of a contract
may fall within the realm of the Arbitrator - Award containing c
reasons also may not be interfered with unless they are found
to be perverse or based on a wrong proposition of law - If two
views are possible, -Court should refrain itself from interfering.
An advertisement was issued for the work of
D
construction. Appellant submitted its tender on 9/
17.7.1988. In its forwarding letter, appellant stated thatthe
total labour component involved in the work was 40% of
the scope of the contract. A post script was added thereto
stating that Item 1 of the schedule quoted percentage to
be read out over (+ 2.25% ) and the total value to be E
considered accordingly.
1 Respondent by letter dated 19.7.1988, stated that the
tender should be considered with the reduction of
....
minimum 2.25% over quoted percentage for schedule 'A' F
Part I. Dispute arose between the parties and arbitration
clause was invoked. Before the Arbitrator, appellant put
forth claims regarding additional payment of 2.25% over
the quoted rates; dispute regarding percentage of labour
component in the work with reference to the escalation G
in labour rates and for consequential in labour rates and
.... ~- for consequential payments to the plaintiff; dispute
regarding escalation with reference to the extra payment
of labour involved in construction of high rise building;
917 H
918 SUPREME COURT REPORTS [2009] 7 S.C.R.

A dispute regarding legality of the termination of the
plaintiff's contract and for consequential damages.
Arbitrator allowed some of the claim while rejecting
others. Counter claim of the first respondent was rejected.
B First respondent filed an application under s.30 of
Arbitration Act, 1940. Single Judge of High Court held that
award did not warrant interference. The Division Bench
of the High Court allowed the appeal in part in respect of
three items of claim. Both the parties filed appeals.
c Dismissing the appeal of the Respondent Union of
India and allowing the appeal of appellants, the Court
HELD: 1.1. Interpretation of a contract may fall within
the realm of the Arbitrator. The Court while dealing with
an award would not re-appreciate the evidence. An award
- D containing reasons also may not be interfered with unless
they are found to be perverse or based on a wrong
proposition of law. If two views are possible, the Court
should refrain itself from interfering. [Para 18) [931-D-E]
E State of UP v. Allied Constructions (2003) 7 SCC 396;
Pure Helium India (P) Ltd. v. Oil & Natural Gas Commission
(2003) 8 SCC 593; K.R. Raveendranathan v. State of Kera/a
(1998) 9 sec 41 o; H.P Seb v. R.J. Shah & co. (1999) 4 sec r
214; Rajasthan State Mines & Minerals Ltd. v. Eastern Engg.
F Enterprises (1999) 9 SCC 283; Food Corporation of India v.
Surendra, Devendra & Mahendra Transport Co. (2003) 4 SCC
80; Shyama Charan Agarwala & Sons v. Union of India (2002)
6 sec 201 - relied on.
1.2. Jurisdiction of the Court to interfere with an award
G made by an Arbitrator is limited. One of the grounds
therefor is the error apparent on the face of the award.
[Para 19) [933-A-B]
State of Rajasthan v. Pure Construction Co. Ltd. & Ors.
H (1994) 6 SCC 485; Trustees of the Port of Madras v.
-
G. RAMACHANDRA REDDY & CO. V. 919
UNION OF INDIA & ANR.

' Engineering Constructions CorporationLtd. (1995) 5 SCC 531;
Food Corporation of India v. Joginderpal Mohinderpal & Anr
A

(1989) 2 SCC 34 7; Numaligarh Refinery Ltd. v. Daelim
Industrial Company Ltd. JT 2007 (11) SC 73 - relied on.
2. A contract would warrant construction, if the terms
thereof are vague and ambiguous. The letter exhibiting B
the offer of the appellant refers to four different documents
including the letter dated 9117.07.1988. Whether in the said
letter, the appellant had asked for increase of 2.5% over
the base value or deducted 2.5% therefrom is a matter of
construction. The Arbitrator took the ultimate contract into c
consideration. He did take the same into consideration.
He, however, was of the opinion that the four letters which
were said to be the sole repository of the contract formed
part thereof. He, thus, took into consideration the relevant
documents for arriving at a finding as to whether they
D
formed part of the contract. Offer of the appellant was
accepted. [Paras 22, 23] [935-E-H; 936-A]
3.1. The first claim was in relation to disputes
regarding additional payment of 2.25% over the quoted
rates under item 1 of Schedule A with an overall effect of E
4.5% over what had been paid to the plaintiff. The arbitrator
came to the conclusipn that the letter dated 9/17.7.1988
(Ex.C.2) does not make out whether the contractor
intended to quote the price with +2.25% and therefore, he
held that a concluded contract has taken place after taking
F
into consideration the sign (+) mentioned in the above
letter. The contract would therefore still be enforced even
if it is assumed that there was a mistake on the part of the
respondent. The High Court held that it was apparent on
the face of record that the contractor intended only to
reduce 2.25%, which was seen from Ex.C.5, which was G
J. ..J
final and concluded, claim no 1 fails for that reason. But
as the Arbitrator held that the letter of the contractor dated
9/17.7.1988 formed part of the contract, the claim cannot
fail and therefore the award of the Arbitrator, in respect of
claim No 1 must be sustained. [Para 24] [936-A-D] H
920 SUPREME COURT REPORTS (2009] 7 S.C.R.

A 3.2. In relation to Claim No.2, the respondent relied
on the fact that the claimant received payment only at the
rate of 21% towards labour escalation in the several
.R.A.Rs and therefore, it has to be presumed that the
claimant is entitled to only 21 %. The Arbitrator opined that
B the receipt of money at 21% cannot absolve the claimant
from claiming at 40% as per the contract, particularly,
when it is clearly mentioned in Ex C.2 (R1) that 40% would
be the labour component which forms part of the contract,
Ex C.5. Keeping the same principle as applied in relation
c to Claim No.1, the Arbitrator held that as the covering letter
(Ex.C.2) is part of the tender bid, and since the tender bid
has been accepted without any modification, the Figure
of 21% has to be substituted by 40%. Therefore, in respect
of claim No.2, award of the Arbitrator is sustained. The
matter might have been different had the respondents in
0
categorical terms rejected the offer made by the appellant
as amended by its letter dated 19.7.1988. It did not do it.
Thus, the contract remained open for construction. [Paras
25, 26] [936-E-H; 937-A-B]
E 3.3. So far as Claim No.3 is concerned, the claim
towards higher minimum wages paid to the workmen is
not in dispute. A high rise building cannot be divided into
two parts. What would constitute a high rise building was
defined. A portion of the building cannot be high rise and
F a portion would fall within the purview of the said
definition. The Arbitrator rightly opined that the same
workers may have to work for constructions of the entire
building as it would be impossible for any contractor to
employ any workmen to work exclusively for the high rise
G buiiding. Furthermore, the same workmen may have to
work in different parts of the same building at different
times. It would lead to an absurd situation if the workmen
at one point of time are not paid the 20% of the excess
-·
amount and then paid the same and yet again denied the
H same benefit. Interpretation of the High Court, therefore,
G. RAMACHANDRA REDDY & CO. V. 921
UNION OF !NOIA & ANR.
' that high rise building mean portion of the building, A
keeping in view the beneficent nature of the provisions,
cannot be accepted. [Para 29] [937-D-G]
3.4. The question as to whether damages were payable
for illegal termination of contract cannot be a subject matter
of contract. The Arbitrator categorically held that not only B
the termination of contract was illegal, the same was mala
fide. In any event, there is a delay of 411 days in filing the
,. SLP of the respondent, for which no sufficient explanation
has been given. [Paras 30, 31] [938-A-C]
c
Case Law Reference
(2003) 1 sec 396 relied on Para 18
(2003) 8 sec 593 relied on Para 18
(1998) 9 sec 410 relied on Para 18 D
(1999) 4 sec 214 relied on Para 18
(1999) 9 sec 283 relied on Para 18
(2003) 4 sec 80 . relied on Para 18
E
c2002) s sec 201 relied on Para 18
(1989) 2 sec 38 relied on Para 18
I ~ (1994) s sec 485 relied on Para 19
(1995) 5 sec 531 relied on Para 19 F

(1989) 2 sec 347 relied on Para 20
JT 2007 (11) SC 73 relied on Para 21
CIVILAPPELLATE JURISDICTION: Civil Appeal No. 2479 G
of 2009
~ ..
/
~

From the Judgment and Order dated 04.10.2004 of the
High Court of Judicature at Madras in O.S.A. No. 172 of 2000
WITH H
922 SUPREME COURT REPORTS [2009) 7 S.C.R

A Civil Appeal No. 2536 of 2009
Gurukrishna Kumar, R. Murari, S.R. Setia, B.B. Singh,
Mukesh Verma , Anil Katiyar, B.K. Prasad, for the Appearing :
Parties(s).

B The Judgment of the Court was delivered by

S.B. SINHA, J.
· 1. Leave granted.

2. Jurisdiction of a court to interfere with an arbitral award
C involving interpretation of a contract is involved in these appeals
which arise out of a judgment and order dated 4.10.2004 passed
by a Division Bench of the High Court of judicature at Madras
allowing an appeal from a judgment and order dated 14.1.2000
passed by a learned Single of the said court making the award
D made by Respondent No.2 herein a rule of Court.
3. For the work of construction of "Married accommodation
for MCPOs/CPOs/POs and Junior Sailors at Naval Air Station,
Arakkonam" by the Union of India, an advertisement was issued;
pursuant whereto appellant submitted its tender on or about 9/
E 17. 7.1988 marked as Exhibit C-2. In its forwarding letter, it was
stated:
"We have kept ready all the men and material for early
commencement of the work. The technical personnel
F engaged by the firm have the vast experience in the
execution of major building projects. The total labour
component involved in this work is forty per cent of the
scope of the contract. We can deploy the huge skilled and
unskilled labour force already on our rolls for all the works
along with the machinery for successful completion of the
G
work positively as per targeted time schedules of the
Department. The latest ITCC and partnership deed are ...
enclosed as required."
A post script added thereto reads as under :
H
G. RAMACHANOR/'I REDDY & CO. V. 923
UNION OF !NOIA & ANR. [S.B. SINHA, J.)

., "When our tender opened and Rates Read out, Please A
Read out over (+) 2.25% under item 1 of the schedule
quoted percentage and total value considered
accordingly."
4. Respondent, by a letter dated 19.7 .1988 (marked as
Exhibit C-3) replied thereto, stating : B
"On scrutiny of your forwarding letter the following
comments are made :-
(a) The Labour component in the work is 20 as included
under Special Condition No.17 on Serial Page 94 of C
the tender and not 40 as referred to by you.
(b) In case of acceptance of your tender mobilization
advance of Rs.35.00 lakhs will be paid against BGBs
as per conditions of the tender.
D
(c) It is seen that the way the revision has been made in
the quoted percentage for Schedule 'A' Part I does
not go well with the status of your firm. However, your
tender is being considered with the reduction of
minimum 2.25% over quoted percentage for E
Schedule 'A' Part I as also read out at the time of
opening of tenders wherein your representative was
also present."
Yet again on 5.8.1988, appellant in reply thereto, inter alia,
stated: F
"1. We hereby clarify that our rates are worked out and
quoted taking total labour component involved in the scope
of work as 40%. As such the department may please
evaluate our tenders on the same basis and consider G
accordingly.
xxx xxx xxx
After ascertaining this just before dropping the tender in
the tender box, our Managing Partner had to include an H
924 SUPREME COURT REPORTS [2009) 7 S.C.R.

A extra at 2.25% towards Turnover Sales Tax liability and
the vertical line in the sign (+) has been hurriedly put as

B
shown here once again (+).
Thus, our quoted rates for item 1 of the schedule is 18.5%
i.e. 16.25% quoted by us in the schedule and plus 2.25%
-
quotd in the covering letter along with our tender against
item 1 of the schedule. We regret for the misunderstanding
led in this regard."
Offer of the appellant was accepted by the respondents in
c terms of its letter dated 11.8.1988, the relevant portion whereof
reads as under :
"Reference your letter No.Nil dated 9/17.7.1988 forwarding
the tender for the above mentioned work.
2. On behalf of the President of India, I hereby accept
D
your tender for the work mentioned above for the Lump
Sum of Rs.7,54,03,216.00 (Rupees Seven Crores Fifty
four lakhs three thousand two hundred and sixteen only).
3. This contract is allotted the number "CA No.CEMZ/
E ARK/4of1988-89" which will be quoted by you in all future
correspondence in connection with this contract.
4. The tender enquiry, your tender, the letter referred to
above and this letter shall be the sole repository of the
contract."
F
With the said letter, the details of amended Lump-sum was
appended which reads as under :
"DETAILES OF AMENDED LUMP SUM

G i) Lump sum amount originally Rs. 7,67,22,728.00
quoted
ii) Deducted for reduction of (-) Rs. 13,91,512.00 ,_ ...
2.25% offered on Schedule '/:>.:
Part I vide your letter No. NIL
H dated 9/17 July, 88 while
G. RAMACHANDRA REDDY & CO. V. 925
UNION OF INDIA & ANR. [S.B. SINHA, J.)

forwarding the tender (i.e. A
2.25% on Rs.6,18,45,000/-)
Note : Consequent on SI (ii)
above the Representing
percentage on Schedule 'A'
Part I stands amended to "+ 14%" B

Amended Lump Sum Rs. 7,54,03,216.00
(Rupees Seven crores fifty four lakhs three thousand two
hundred and sixteen only)"
c
6. Indisputably, whereas the main letter dated 11.8.1988
was signed by one L.D. Sharma, Brig. Chief Engineer as
accepting officer for and on behalf of the President of India, the
appendix was signed by some other person for 'Accepting
Officer'. Indisputably, the representative of the appellant also D
signed the said letter.
The said contract, however was terminated on or about
10.7.1991
7. Disputes and differences having arisen between the
parties, the arbitration agreement which formed part of the E
general condition of the contract as also special condition of
contract was resorted to. Respondent No.2 was appointed as
the Arbitrator.
Before the learned Arbitrator, appellant put forth eight F
claims, being :
"(a) Dispute regarding additional payment of 2.25% over
the quoted rates under item 1 of Schedule A with an
overall effect of 4.5% over what has been paid to the
plaintiff. G
(b) Dispute regarding percentage of labour component
in the work with reference to the escalation in labour
rates and for consequential in labour rates and for
consequential payments to the plaintiff.
H
926 SUPREME COURT REPORTS [2009] 7 S.C.R.

A (c) Dispute regarding escalation with reference to the
extra payment of labour involved in construction of
high rise building.
(d) Dispute regarding legality of the termination of the
plaintiff's contract and for consequential damages.
B
(e) Dispute regarding release of the plaintiff's plant and
equipment, together with damages for the use of the
equipment by the defendant and in default payment
of the market value of the plant and equipment as on
the date of termination, together with the damages
c as aforesaid.
(f) Dispute regarding balance payment for the work
done and material supplied by the plaintiff.
(g) Interest at 24% p.a. on all amounts due to plaintiff
D and awarded by the arbitrator from the date when
the cause of action for the claim arose, till the date
of payment to the plaintiff."
8. Respondent repudiated the said claims of the appellant.
Respondent No.2 made and published an award on 17.9.1996.
E While claims Nos.1 and 5 were allowed in part, claims No.2
and 4 were allowed in toto. Claim No.3 was allowed for the
amount to which the appellant itself had restricted its claim to.
Counter claim of the first respondent was rejected.

F 9. First respondent filed an application under Section 30
of the Arbitration Act, 1940 (hereinafter called and referred to
for the sake of brevity as 'the Act').
A learned Single Judge of the High Court rejected the said
objection, opining that the award did not warrant any interference.
G The learned Single Judge noticed that claim Nos. 5 and 6 had
not been disputed by the first respondent and counter claim No.4
was not pressed. It was, therefore, directed payment of a sum ' ..
of Rs.2, 78, 17 ,530.01 p. with further interest @ 6% per annum
from the date of decree till the date of realization. The counter
H claim was also dismissed.
G. RAMACHANDRA REDDY & CO. V. 927
UNION OF INDIA & ANR. [S.B. SINHA, J.]

10. First respondent preferred an intra court appeal A
thereagainst in terms of clause 15 of the Letters Patent of the
High Court read with Section 39 of the Act. The Division Bench
/
of the High Court allowed the said appeal iri part in respect of
three items of claim. The objection in relation to fourth item was
also dismissed. B
~
11. Both parties are here before us aggrieved by and
• dissatisfied with the said judgment.
12. The three heads of claim which were allowed by the
respondent No.2 in favour of the appellant are as under : c
(i) Claim of 2.25% over and above the base price as
specified in Item No.1 of Schedule A;
~ ., (ii) claim of escalation towards labour component
whether 40% or 21 %; and
D
) (iii) claim towards higher minimum wages paid to the
j workmen in terms of a Government of India
notification dated 14.10.1986.
::)
The fourth claim which was allowed related to loss of profit
allegedly suffered by the petitioner for illegal termination of the
E
contract.
13. Mr. Gurukrishna Kumar, learned counsel appearing on
behalf of the appellant, would submit :
(1) That the Division Bench of the High Court committed F
a serious error in so far as it failed to take into
consideration the distinction between an excess of
. jurisdiction and an error apparent on the face of the
award and as the respondent's objection was not in
relation to the exercise of excess jurisdiction by the G
arbitrator, a strict scrutiny test should have been
applied.
(2) The Division Bench of the High Court committed a
serious error of law in so far as it failed to take into H
928 SUPREME COURT REPORTS [2009] 7 S. C.R.

A consideration that an error apparent on the face of
the award would not entitle it to enter into the merit
of the matter as the same is confined to the award
itself or any note appended thereto.
(3) Interpretation of an agreement admittedly being
B within the realm of the jurisdiction of the Arbitrator,
interference therewith is not permissible even if the
court takes a different view.
14. Mr. B.B. Singh, learned counsel appearing on behalf
c of the respondent, on the other hand, would urge:
1) As the jurisdiction of the Arbitrator emanates from
the contract, he must exercise the same within the
four corners thereof.
2) Interpretation of a contract although fell within the
D
jurisdiction of the Arbitrator but in construing the
same, he could not have ignored any material
document, namely, the final contract entered into by
and between the parties on 11.8.1988 and based
his interpretation only on the basis of letter of the
E contractor d;:3ted 9/17. 7.1988 and, thus, he must be
held to have misconducted himself and the
proceedings.
15. Before adverting to the rival contentions, as noticed
F hereinbefore, we may briefly notice the reasonings adopted by
respondent No.2 in making the award.
The learned Arbitrator proceeded on the basis that :
(1) The letter of the contractor dated 9/17. 7.1988 formed
G
part of the contract.
(2) The intent of the parties must be ascertained from
four documents which formed part of the contract
and not de hors the same.
."
(3) Appendix to the letter dated 11.8.1988 having been
H
G. RAMACHANDRA REDDY & CO. V. 929
UNION OF !NOIA & ANR. [S B. SINHA, J]

signed by a person other than the Accepting Officer A
who was authorized therefor, the same was not
binding on the appellant.
(4) Although the appellant had signed the work order,
the same by itself would not lead to the conclusion
that it was estopped and precluded from questioning 8
the quantum of amount mentioned in the said letter
dated 11.8.1988.
16. In respect of claim No.1, the learned Arbitrator held :
"On a consideration of the letters and the Exhibits C
mentioned above, we have to state that a concluded
contract has taken place taking into consideration the sign
(+) mentioned in the covering letter. Even assuming that
there was a mistake on the part of the respondent reading
the covering letter, the contract would remain unaffected. D
The contention of the respondent that when once the
claimant has accepted for the reduction, as is found in
Ex.R.7, which is the contractor's work order sheet, and
which is signed by the contractor on 14.9.1988., it has to
be concluded that there is an acceptance for the reduction. E

- This argument of the learned Counsel for the respondent
is not well founded. An acceptance of the contract will
have to be considered under the terms of Ex.C.5 dated
11.8.88. In the instance case it is common ground that
there is a concluded contract between the parties and F
what remains is the interpretation of the contract, Ex.C.5
it is not the case of the respondent that Ex. C .5 is a counter
offer which was accepted by the claimant. On the other
hand, it is agreed by the respondent that acceptance of
the contract is solely based on Ex.C.5. The documents G
filed before me in this case clearly establish the sigh (+)
> ...... which is more particularly referred to in Ex.C.5 as the sole
repository of the contract. (underlining is mine) In such a
case, it has to be ~oncluded that Ex.R.1 is the clear
acceptance of the contract. It has to be further noted chat H
930 SUPREME COURT REPORTS [2009] 7 S.C.R.

A as per the terms of Section 7(2) of the Contract Act, if the
proposer does not insist that his proposal should be
accepted in the prescribed manner, he in fact accept the
acceptance."
In respect of claim No.2, the relevant condition of contract,
B namely, clause (17) although specified that for the purpose of
escalation of the labour component, the value of contract should
be taken as 21 % but as the appellant claimed 40% in its offer,
the same would prevail over the contract, stating :

c "I state that special condition to the contract that is clause
17 at Page 4 specifies that for the purpose of escalation
the labour component for the value of work will be taken
as 20% which was later changed as 21%. Similarly, fuel
component which was shown as 1.5% in the agreement
was changed as 2% and the material component which
D
was shown in the agreement on page 90 as 60% was
changed into 58%. In other words, the total component "
towards labour, material and fuel comes to 81%. The
claimant has not claimed anything in excess of 81%, for,
the escalation clause in the agreement provides, the
E ~
escalation for an amount not exceeding 81 % of the value
of the work done. All that he has claimed is, towards fuel
2%, towards material 39% and towards labour 40%. This
change in labour component at 40% is based on Ex.C.22
(R1) dated 9/17.07.88 which has become part of the tender
F bid: This part of the offer that is tender bid, has been
accepted by the respondent, that is to say, that this 21%
mentioned in the contract has been substituted as 40%.
The claimant has made this fact clear in all his subsequent
letters. In other words, the contention of the claimant is
G that the covering letter Ex.C.2 (R1) is part of the tender
bid, and since the tender bid has been accepted without
any modification, the figure 21% in the condition, has, ,. ...
therefore, to be substituted by 40%. It is on this basis the
claimant claims that the labour component should be paid
H at the rate of 40%, while material component would
G. RAMACHANDRA REDDY & CO. V. 931
UNION OF INDIA & ANR [S.B. SINHA, J.]

' consequently come at 39% and the fuel component will A
remain at 2%."
In respect of claim No.3, it was held that in view of the
notification issued by the Central Government dated
14.10.1980, the minimum wages payable to the workmen being
over and above 20% the general wages, the same would be B
payable to all the workmen and not those employed in high rise
·t portions of the building.
17. The Division Bench, however, set aside in part the
award in respect of the aforementioned claims stating as under : c
"However, we find some substance with regard to the
claim No.4, loss of profit, there was an admitted delay in
handling over the. site and supply of materials. We confirm
' both the award of the Arbitrator and the order of the learned
Single Judge with regard to Claim No.4, loss of profit." D
;
18. We may, at the outset, notic~ the legal principles
governing the dispute between the parties. Interpretation of a
contract may fall within the realm of the Arbitrator. The Court
while dealing with an award would not reappreciate the evidence.
An award containing reasons also may not be interfered with E
unless they are found to be perverse or based on a wrong
Proposition of law. If two views are possible, it is trite, the Court
will refrain itself from interfering. {See State of U.P v. Allied
Constructions [(2003) 7 SCC 396]}.
F
In Pure Helium India (P) Ltd. v. Oil & Natural Gas
Commission [(2003) 8 SCC 593], this court, upon referring to
the decisions in Allied Constructions (supra), K.R.
Raveendranathan v. State of Kera/a [(1998) 9 SCC 410], H.P
Seb v. R.J. Shah & Co. [(1999) 4 SCC 214], Rajasthan State
G
Mines & Minerals Ltd. v. Eastern Engg. Enterprises [(1999) 9
SCC 283], Food Corporation of India v. Surendra, Devendra
.
\ ~.

& Mahendra Transport Co. [(2003) 4 SCC 80] and Shyama
Charan Agarwala & Sons v. Union of India [(2002) 6 SCG 201 ],
opined as under :
H

.J
932 SUPREME COURT REPORTS [2009] 7 S.C.R

A '41. The principles of law laid down in the aforementionE~d
decisions leave no manner of doubt that the jurisdiction of
the court in interfering with a non-speaking award is limited.
42. The upshot of the above decisions is that if the claim
of the claimant is not arbitrable having regard to the bar/
B prohibition created under the contract, the court can set
aside the award but unless such a prohibition/bar is found
out, the court cannot exercise its jurisdiction under Section
30 of the Act. The High Court, therefore, misdirected itself
in law in posing a wrong question. It is true that where such
c prohibition exists, the court will not hesitate to set aside
the award."
In Sudarshan Trading Company v. Government of Kera/a
& Anr. [(1989) 2 SCC 38], the law was laid down in the following ,
terms:
D
"28. It was submitted before us that the High Court had '
exceeded its jurisdiction in acting in the manner it did on
these aforesaid aspects. The first question, therefore, that
arises for consideration in this case is, whether the award
E in question was a speaking award or not. In our opinion,
the award was not a speaking award. An award can also
be set aside if the arbitrator had misconducted himself or
the proceedings or had proceeded beyond his jurisdiction.
These are separate and distinct grounds for challenging
F an award. Where there are errors apparent on the face of
the award it can only be set aside if in the award there is
any proposition of law which is apparent on the face of the
award, namely, in the award itself or any document
incorporated in the award."
G It was furthermore observed :
"29. The next question on this aspect which requires . ~

consideration is that only in a speaking award the court
can look into the reasoning of the award. It is not open to
the court to probe the mental process of the arbitrator and
H
G. RAMACHANDRA REDDY & CO. V. 933
UNION OF INDIA & ANR [S.B .. SINHA, J]

speculate, where no reasons are given by the arbitrator, A
as to what impelled the arbitrator to arrive at his
conclusion."
19. Jurisdiction of the Court to interfere with an award
made by an Arbitrator is limited. One of the grounds therefor is
the error apparent on the face of the award. We have noticed B
hereinbefore some precedents operating in the field.
What is an error apparent on the face of an award and
legal misconduct is stated in State of Rajasthan v. Pure
Construction Co. Ltd. & Ors. [(1994) 6 SCC 485], in the following c
terms:
"As reference to arbitration of disputes in commercial and
other transactions involving substantial amount has
increased in recent times, the courts were impelled to
have fresh look on the ambit of challenge to an award by D
, the arbitrator so that the award does not get undesirable
i immunity. In recent times, error in.law and fact in basing an
award has not been given the wide immunity as -enjoyed
earlier, by expanding the import and implication of "legal
misconduct" of an arbitrator so that award by the arbitrator E
does not perpetrate gross miscarriage of justice and the
same is not reduced to mockery of a fair decision of the
lis between the parties to arbitration: Precisely for the
aforesaid reasons, the erroneou$ application of law

- constituting the very basis of the award and improper and F
incorrect findings of fact, which without closer and intrinsic
scrutiny, are demonstrable on the face of the materials on
record, have been held, very rightly, as legal misconduct
rendering the award as invalid."
It was furthermore stated : G

/> .J
"Error apparent on the face of the record does not mean
that on closer scrutiny of the import of documents and
materials on record, the finding ·made by the arbitrator
may be held to be erroneous. Judicial decisions over the
H
934 SUPREME COURT REPORTS [2009] 7 S.C.R.

A decades have indicated that an error of law or fact
committed by an arbitrator by itself does not constitute
misconduct warranting interference with the award."

In Trustees of the Port of Madras v. Engineering
Constructions Corporation Ltd. [(1995) 5 SCC 531], This Court
B opined:

"14.... A note of clarification may be appended, viz., where
the parties choose to refer a question of law as a separate
and distinct matter, then the Court cannot interfere with the
c award even if the award lays down a wrong proposition of
law or decides the question of law referred to it in an
erroneous fashion. Otherwise, the well-settled position is
that an arbitrator "cannot ignore the law or misapply it in
order to do what he thinks is just and reasonable". [See
Thawardas Pherumal v. Union of India]
D
It was clarified :
20. The proposition that emerges from the above decisions
is this: in the case of a reasoned award, the court can
interfere if the award is based upon a proposition of law
E which ls unsound in law. The erroneous proposition of law
must be established to have vitiated the decision. The
error of law must appear from the award itself or from any
document or note incorporated in it or appended to it. It is
not permissible to travel beyond and consider material
F not incorporated in or appended to the award."
20. We may, however, notice that in Food Corporation of
India v. Joginderpal Mohinderpal & Anr. [(1989) 2 SCC 347],
referring to a large number of decisions, a Division Bench of
G this Court held :
" ... It has to be borne in mind, however, that wrong.
statement or conclusion of law, assuming even that it was
a wrong statement of law, was not wrong statement of the
proposition of law which was the basis for decision in this
H award. Error of law as such is not to be presumed; ifthere
G. RAMACHANDRA REDDY & CO. V. 935
UNION OF INDIA & ANR. [S.B. SINHA, J]

is legal proposition which is the basis of the award and A
which is erroneous as observed in Champsey Bhara &
Co., then only the award can be set aside."
21. Almost to the similar effect is the decision of another
Division Bench of this Court in Numaligarh Refinery Ltd. v.
Da§lim Industrial Company Ltd. [JT 2007 (11) SC 73], wherein B
it is stated :
"17. We have considered the rival submissions of the
. parties. So far as the legal proposition as enunciated by
this Court in various decisions mentioned above, it is c
correct that courts shall not ordinarily substitute their
interpretation for that of the arbitrator. It is also true that if
the parties with their eyes wide open have consented to
refer the matter to the arbitration, then normally the finding
of the arbitrator should be accepfed without demur. There
D
is no quarrel with this legal proposition. But in a case
where it is found that the arbitrator has acted without
jurisdiction and has put an interpretation on the clause of
the agreement which is wholly contrary to law then in that
case there is no prohibition for the courts to set things
right." E

22. A contract would warrant construction if the terms thereof
are vague and ambiguous. The letter exhibiting the offer of the
appellant refers to four different documents including the letter
dated 9/17.07.1988 which was marked as Exhibit C-2. Whether F
in the said letter, the appellant had asked for increase of 2.5%
over the base value or deducted 2.5% therefrom is a matter of
construction.
23. The learned Arbitrator, it is not correct to contend, has
not taken into consideration the ultimate contract. He did take G
the same into consideration. He, however, was of the opinion
, ~
that the aforementioned four letters which were said to be the
sole repository of the contract formed part thereof.
He, thus, took into consideration the relevant documents
H
936 SUPREME COURT REPORTS [2009] 7 S.C.R.

A for arriving at a finding as to whether they formed part of the
contract. Offer of the appellant was accepted.

24. The first claim was in relation to disputes regarding
additional payment of 2.25% over the quoted rates under item
1 of Schedule A with an overall effect of 4.5% over what had
8 been paid to the plaintiff. The arbitrator came to the conclusion
that the letter dated 9/17.7.1988 (Ex.C.2) does not make out
whether the contractor intended to quote the price with +2.25%
and therefore, he held that a concluded contract has taken place
after taking into consideration the sign (+) mentioned in the
C above letter. The contract will therefore still be enforced even if
it is assumed that there was a mistake on the part of the
respondent. The High Court held that it was apparent on the
face of record that the contractor intended only to reduce 2.25%,
which was seen from Ex.C.5, which was final and concluded,
D claim no 1 fails for that reason. But as the Arbitrator held that
the letter of the contractor dated 9/17. 7 .1988 formed part of the
contract, the claim cannot fail and therefore the award of the
Learned Arbitrator, in respect of claim No 1 must be sustained.
25. In relation to Claim No.2, the respondent relied on the
E fact that the claimant received payment only at the rate of 21 %
towards labour escalation in the several RA.Rs and therefore,
it has to be presumed that the claimant is entitled to only 21%.
The Arbitrator opined that the receipt of money at 21 % cannot
absolve the claimant from claiming at 40% as per the contract,
F particularly, when it is clearly mentioned in Ex C.2 (R1) that 40%
will be the labour component which forms part of the contract,
Ex C.5. The High Court held that as the Department themselves
gave 21 % to the contractor, and only 21 % of escalation, which
was in consonance with the special conditions, which was
G apparent on the face of the record, the second claim of
escalation of 40% was to be set aside. But, keeping the same
principle as applied in relation to Claim No.1, the Arbitrator held
that as the covering letter (Ex.C.2) is part of the tender bid, and
since the tender bid has been accepted without any modification,
H the Figure of 21 % has to be substituted by 40%. Therefore, in
.: G. RAMACHANDRA REDDY & CO V. 937
UNION OF !NOIA & ANR. [S.S. SINHA, J.]

respect of claim No.2, the impugned judgment of the High Court A
cannot be upheld and the award of the Arbitrator is sustained.
~. 26. The matter might have been different had the
;,, respondents in categorical terms rejected the offer made by
the appellant as amended by its letter dated 19.7.1988. It did
not do it. Thus, the contract remained open for construction. B

27. We have not been able to persuade ourselves to agree
with the reasonings of the Division Bench of the High Court.
s The award of the learned Arbitrator in respect of claim No.1,
therefore, must be sustained. c
28. Keeping in view the fact that the same principle would
apply in respect of claim No.2 also, the impugned judgment of
the High Court cannot be upheld.
29. So far as Claim No.3 is concerned, the claim towards
D
higher minimum wages paid to the workmen is not in dispute. A
high rise building is a high rise building, it cannot be divided
into two parts.
What would constitute a high rise building was defined. A
portion of the building cannot be high rise and a portion would E
) fall within the purview of the said definition. The learned Arbitrator,
in our opinion, had rightly opined that the same workers may
have to work for constructions of the entire building as it will be
impossible for any contractor to employ any workmen to work
exclusively for the high rise building. Furthermore, the same F
workmen may have to work in different parts of the same building
at different times. It would lead to an absurd situation if the
workmen at one point of time are not paid the 20% of the excess
amount and then paid the same and yet again denied the same
benefit. Interpretation of the High Court, therefore, that high rise
G
building mean portion of the building, in our opinion, keeping in
' ~ view the beneficent nature of the provisions, cannot be accepted.
30. The award of the Arbitrator in respect of claim No.4
has been accepted by t!1e Division Bench. Mr. B.B. Singh has
drawn our attention to clause 11 (c) of the general conditions of H
938 SUPREME COURT REPORTS [2009] 7 S.C.R.

A contract to contend that in terms thereof, no damages were
payable.
The question as to whether damages were payable for
illegal termination of contract cannot be a subject matter of
contract. The learned Arbitrator has categorically held that not
B only the termination of contract was illegal, the same was mala
fide. Furthermore, the contention raised before us by Mr. Singh
has not been raised before the High Court.

31. In any event, there is a delay of 411 days in filing the
c SLP of the respondent, for which no sufficient explanation has
been given.
32. For the reasons aforementioned, the appeal filed by
-
Union of India is dismissed and that of the appellant is allowed.
In the facts and circumstances of the case, however, there would
D be no order as to costs.

D.G. Appeals disposed of.

> '