Holding

The award was not in excess of jurisdiction; errors in contract interpretation do not constitute jurisdictional errors, so the award stands.

Summary

The Supreme Court considered an arbitration award arising from a construction contract for the Giri Hydel project, where the contractor claimed price revision after the total work exceeded a 20% deviation limit. The arbitrators were tasked with interpreting the contract clauses on rate revision and awarded increased rates and interest. The appellant contended that the arbitrators exceeded their jurisdiction because the contract permitted revision only for individual items exceeding the limit, not for the overall contract value, and that interest could not be awarded without a claim. The Court held that interpreting contract terms is within the arbitrators’ jurisdiction and that an error of interpretation does not amount to a jurisdictional error; the award of interest was not maintainable but did not affect the substantive award. Accordingly, the appeal was dismissed and the award (except for dispute 7) was upheld.

Issues considered

Whether the arbitrators exceeded their jurisdiction by interpreting the contract for price revision
Whether an award can be set aside for an error of law made within the arbitrator's jurisdiction
Whether the award of interest without a specific claim is permissible
Whether the award is incomplete, suffers legal misconduct, or is otherwise invalid

Legislation cited

Arbitration Act, 1940s. 30

Subjects

ArbitrationJurisdictionAward set asideContract interpretationPrice revisionInterest awardArbitration Act 1940Non-speaking award

Judgment

•
HIMACHAL PRADESH STATE ELECTRICITY BOARD A
·.. v.
R.J. SHAH AND COMPANY

APRIL 15, 1999

[B.N. KIRPAL AND D.P. MOHAPATRA, JJ.] B

Arbitration Act, 1940

Award challenged-Allegation that arbitrator had exceeded his
jurisdiction-Dispute related to construction of contract-Arbitrator called C
upon to construe or interpret the terms of the contract-Held, award liable
to be set aside if there is error ofjurisdiction but not if the error is committed
in exercise of jurisdiction-Merely because another view was possible it
cannot be said that the arbitrator had exceeded the jurisdiction in making
the award
D
Jurisdiction of Arbitrator-Construction of-Arbitration clause or a
specific term in the contract or law not permitting or giving the arbitrator
the power to decide or adjudicate on a dispute or there is a specific bar to
the raising of the particular dispute or claim-Held, any decision given by
the arbitrator in respect thereof would be in excess of jurisdiction. E
A contract was entered between the parties regarding construction of
Giri, Hydel Electric Project in the State of Himachal Pradesh and the terms
and conditions, which were binding on the parties, were incorporated in the
contract. The contract was awarded to the respondent for a sum of Rs. 504
lacs. The contract provided for price revision when work was done in excess F
of the deviation limit of 20 percent. The respondent claimed revision of rates
when. work in excess of the contract value by about. Rs. 36 lacs had been
unde_r~aken by it. The claim of the respondent was refuted by the appellant
on its interpretation of price revision provided in the contract. Dispute arose
between the parties regarding construction/interpretation of price revision G
provided in the contract and the matter was referred to arbitration. Seven
items of dispute were considered by the Arbitrators.

The contention of the respondent before the Arbitrators was that revised
rates based on market rates would be payable to the respondent when the
total value of the work exceeded the deviation limit of20 percent of the total H
643
644 SUPREME COURT REPORTS (1999] 2 S.C.R.
..........
A value by placing reliance on clause 3.2(e) (ii) of the contract. The appellant's
contention before the Arbitrators was that the contract was an item rate
contract and the deviation limit of20 percent was applicable.to individual
items only and not to the total value of the contract ; and that the rate of work
in excess of deviation limit was required to be determined only in accordance
with the provisions contained in Clause 12A of the contract. The Arbitrators
B made a non-speaking award. Award regarding disputes 1, 2 and 4 which is
.....:..

the subject matter of the present appeal was given by the Arbitrators in
favour of the respondents. The appellants filed their objections to the award
in the High Court inter alia on the ground that the award was in excess of
jurisdiction and that the Arbitrators committed legal misconduct in making
c the award. Single Judge.held that except award pertaining to Dispute No. 7
the rest of the award did not suffer from any error apparent on the record.
Against the decision of the Single Judge, appellant filed appeal before the
Division Bench which upheld the Judgment of the Sin_gle Judge. Hence, this
appeal

D The appellant contended that on the correct interpretation of the
contract and of Clause 12 A in particular the Arbitrators had no jurisdiction
to revise the rates of any item merely because the overall value of the
contract executed had been exceeded by 20 percent as the contract permitted
increase only if there was deviation in individual items. by more than 20
percent and increase was not permitted if there was an overall increase of
E 20 percent without there being increase in individual items i.e., the award
was in excess of the authority given to the Arbitrators by the express
provisions of the contract and was therefore, without jurisdiction ; and that
award of interest could not have been passed by the Arbitrators as claim had
not been made by the respondents before the Arbitrators for award of interest
F
The contention of the respondent was that its claim for revised rates
was based on the interpretation of the contract and this point was specifically
::
referred to the Arbitrators and therefore, the award of the Arbitrators was
final and binding and could not be set aside.

G Dismissing the appeal, the Court
"':'
HELD : 1. An award is liable to be set aside if there is error of
jurisdiction ·but not if the error is committed in exercise of jurisdiction. By
purporting to construe the contract the court could not take upon itself the
burden of saying that the award was contrary to the contract and as such the
H Arbitrators had acted beyond their jurisdiction. It is clear that when the
H.P. STATE ELECTRICITY BOARD v. R.J. SHAH AND COMPANY 645
arbitrator is required to construe a contract then merely because another A
view may be possible the court would not be justified in construing the
contract in.a different manner and then to set aside the award by observing
that the arbitrator has exceeded the jurisdiction in making the award.
[652-C; 653-F; 656-A-B)

Jivaraj bhai Ujamshi Sheth and Ors. v. Chintamanrao Balaji and Ors., B
[1964] 5 SCR 480; Mis Kapoor Nilokheri Coop. Dairy Farm Society Ltd.
v. Union of India and Ors., [1973] 1 SCC 708; Hindustan Contruction Co.
Ltd. v. State of Jammu and Kashmir, [1992) 4 SCC 217 and K.R.
Raveendranathan v. State of Kera/a, [1998] 9 SCC 410, relied on

Tarapore and Company v. Cochin Shipyard Ltd; Cochin and Anr., C
(1984) 2 SCC 680; U.P. Hotels and Ors. v. U.P. State Electricity Board,

- [1989] 1 SCC 359; P. V. Subba Naidu and Ors. v. Government ofA.P. & Ors.,
[1998] 9 SCC 407; Sudersan Trading Company v. Government of Kera/a,
[1989] 2 SCC 38 and KR. Raveendranathan v. State of Kera/a & Anr.,
[1996] 10 sec 35, referred to.
D
New India Civil Erectors (P) Ltd. v. Oil Natural Gas Corpor(jtion,
(1997] 11 sec 775, distinguished.
Commercial Arbitration by Mustill and Boyd Second Edition, page
554, referred to.
E
2. In order to determine whether the arbitrator has acted in excess of
jurisdiction what has to be seen is whether the claimant could raise a
particular dispute or claim before an arbitrator. If the answer is in the
affirmative then it is clear that the arbitrator would have the jurisdiction to
deal with such a claim. On the other hand if the arbitration clause or a
specific term in the contract or the law. does not permit or give the arbitrator F
the power to decide or to adjudicate on a dispute raised by the claimant or
there is a specific bar to the raising of a particular dispute or claim then
any decision given by the arbitrator in respect thereof would clearly be in
excess of jurisdiction. In order to find whether the arbitrator has acted in
excess of jurisdiction the Court may have to look into some documents G
including the contract as well as the reference of the dispute made to the
Arbitrators, limited for the purpose of seeing whether the arbitrator has the
jurisdiction to decide the claim made in the arbitration proceedings.
[656-B-D]

3. It is not possible to say that the arbitrator travelled outside the H
646 SUPREME COURT REPORTS (1999) 2 S.C.R.

A bounds of the contract. Correspondence exchanged between the parties prior
to the making of the reference shows that the Arbitrators were called upon ·
to construe the contract in order to determine whether the contractor was
entitled to claim revision of rates and if so what should be the revised r&tes.
The dispute before the Arbitrators, therefore, clearly related to the
B interpretation of the terms of the contract. The contract was being read by
the parties differently. The construction placed on the contract by the
contractor cannot be said to be an implausible one. The decision thereon,
even if it be erroneous, cannot be said to be without jurisdiction or in excess
of jurisdiction. Their jurisdiction clearly was to construe the terms of the
contract and their decision thereon is final and binding on the parties.
C [657-C-E)

4. It cannot be said that respondent could not be awarded interest by
the Arbitrators as no claim had been made by them before the Arbitrators
for award of interest. (658-D)

D Secretary, Irrigation Department, Government of Orissa and Ors. v.
G.C. Roy, (1992] 1 SCC SOS and State of Orissa v. B.N. Agarwa/la, (1997)
2 sec 469, relied on.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 712 of 1986.

E From the Judgment and Order dated 4.3.85 of the Himachal Pradesh
High Court in F.A.O. No. 15of1979.

Maninder Singh for the Appellant.

Atul Y. Chitale, Ms. Suchitra, A. Chitale and Rishi Kesh for the
p Respondent.

G
The Judgment of the Court was delivered by

KIRPAL, J. Having failed before the High Court in getting the non-
speaking award of the arbitrators set aside the appellant has filed the present
appeal by special leave with the expectation that it will be successful in its
-
aforsesaid endeavour. ·
'
With regard to the construction of Giri Hydel Electirc Project, in the
State of Himachal Pradesh, item rate tenders were invited for certain wo~ks
connected with the said project. On 2nd December, 1967 respondent's tender
H was accepted and it was given an order to commence work.
H.P. STATE ELECTRICITYBOARDv. R.J. Sllr\H AND COMPANY, [KIRPAL, J.] 647
The formal contract between the parties for the execution of the sai!i . A
work was entered into on 2nd February, 1968. The said contract was awarded·
to the respondent for a sum of Rs.5,04, 15,107 and terms and conditions, which
were binding on the parties, were incorporated in the aforesaid contract. Even
though the work was stipulated to be completed within three years, i.e., by
16th December, 1970, the same was, however, completed on 26th February, B·
1978.

The claim of the respondent, which gave rise to the arbitration
proceedings with which we are concerned, was made in its letter dated 30th
April, 1974 when it informed the Superintending Engineer that work in excess
of Rs.540 lacs had been undertaken which was about Rs.36 lacs in excess of C
the contract value. According to the respondent as the total work as provided
in the contract had increased beyond the deviation limit of 20 per cent it was
entitled to revision of rates in respect of the works which it had carried out
beyond this deviation limit. According to the respondent the contract
envisaged rates for extra itmes as consisting of two categories; (a) item not D
included in the original tender; and (b) quantities in excess of the deviation
limit for items included in the tender. For these items the rates had to be fixed
by mutual agreement between the parties failing which they were to be fixed
by reference to arbitration. According to the claimant it was entitled to
revision of rates as the contract value had exceeded by 20 per cent and the
claim was based on its interpretation of Clause 3.2(e) of ~e contract. E

The aforesaid claim was refuted by the Superintending Engineer vide
his letter dated 6th June, 1974 wherein he informed the respondent that as per
Clause 12 of the contract the deviation limit of 20 per cent was applicable to
individual items only and not to the total value of the contract. The p
Superintending Engineer further informed the respondent that its claim was
untenable and that the rates based on Clause 12A were being paid for certain
items which had crossed the deviation limit.

The essence of the dispute which had thus arisen between the parties
was as to whether the revised rates based on market_ rates would be payable G
to the respondent when the total value of the work exceeded the deviation
limit,i.e., the total contract value plus 20 per cent, as was contended by the
repondent herein, or whether the revised rates/market rates would be payable
against each item as and when the work perfonned against any item exceeded
the deviation limit of 20 per cent, which is the case of the appellant herein. H
648 SUPREME COURT REPORTS [1999] 2 S.C.R.

A As agreement between the parties with regard to the aforesaid dispute could
not be arrived at reference was made to arbitration in June, l 97 5.

Vide its letter dated 24th April, 1975 the respondent had written to the
Chief Engineer of the,appellant submitting a list of disputes for arbitration.

B After the reference was made the respondent filed its claim before the
arbitrators and. wrote a letter dated 4th June, 1975 to them in which it was,
inter alia, ~tated that aforesaid letter of 24th April, l 97 5 contained the items
under disputes which were being referred to arbitration. Copy of the letter
dated 24th April, 1975 was annexed to the letter dated 4th June, 1975 addressed
C to the arbitrators.

After the arbitrators entered upon the referene they considered the
following items of dispute :

"Dispute No. I. Revision ofrates for the different items of works and
D the time from which they should be applicable.
Dispute No. 2. The qunatities payable at the deviated rates, where
quantities of individual items of work exceed the deviation limit.
Dispute No. 3. The items of work to be classified under foundation
items and the deviation limits in case of items grouped together with ·
E foundation items.
Dispute No. 4. The quantities to be considered for the purpose of
deviation limit where original item of work is executed along with allied
items of work for which rate is decided from tender schedules.

F Dispute No. 5. The rates payable for the following items of work at
different periods of time during the execution of the works~
(i) Structural steel work.item No.6 of the schedule 5.2 of the contract.

(ii) Providing RCC 2500 p.s.i. in walls and cut offs-Item No.9 of
Schedule 5.1 of the contract.
G
(iii) Providing RCC 2500 p.s.i. in wall and cut-offs-Item No.9 of >
Schedule 5.1 of the contract.

Dispute No. 6. The rate for excavation of the Tunlog Access Tunnel
considering the revision of the rates for the excavation of the main
H tunnel.
H.P. STATE ELECTRICITY BOARD v. R.J. SHAH AND COMPANY, [KIRPAL, J .] 649

Dispute No. 7 . Reimbursement of extra electrical charges recovered by A
the Respondents due to change in rates for electricity supply."

It would be appropriate at his stage to set out the clauses of the
contract whiCh were relied upon by the parties before the arbitrators in
support of their rival contentions. As far as the respondent is concerned its
claim for escalation, when the total value of the work exceeded 20 per cent B
of the total value was based on Clause 3.2 (e)(ii) which reads as follows :

"Clause 3.2 (e)(ii) : Should this tender be accepted in whole or part,
I/we hereby agree to (i)... ... .. . (ii) to execute all works refered to
in the tender documents upon the terms and conditions contained or
referred to therein and to carry out such deviations as may be C
ordered upto a maximum of 20 per cent, at the rates to be determined
in accordacne with provisions contained in Clause l 2A of the tender
form.

'Works' has been defined under the Contract as "shall unless
something either in the subject or context repugnant to such D
construction be construed and taken to mean the works by or by
virtue of the contract contracted to be executed whether temporary
or prmanent and whether original, altered, substituted or additional. "

The contention of the appellant herein before the arbitrators was that the
contract was an item rate contract but it is only in respect of those items that E
revise market rates are to be paid which crossed the deviation limit. The rate
of work in excess of deviation limit, according to the appellant herein, was
required to be detennined only in accordance with the provisions contained
in Clause 12A which reads as follows :
Clause 12A : In the case of contract or substituted items which F
individually exceed the quantity stipulated in the contract by more
than the deviation limit, excpt the items relating to foundation work,
which the contractor is required to do under Clause 12 above, the
contractor shall, within 7 days from the receipt of order, claim
revision of the rates supported by proper analysis in respect of such G
items for quantities in execess of the deviation limit, notwithstanding
the fact that the rates for such items exist. In the tender for the main
work or can be derived in accordance with the provisions of sub-
clause (ii) of Clause 12, and the Engineer-in-Charge may revise
their rates, having regard to the prevailing .market rates and the
contractor shall be paid in accordance with the rates so f 1Xed. The H
650 SUPREME COURT REPORTS (1999) 2 S.C.R.

A Engineer-in-Charge shall, however, be at liberty to cancel his order
to carry out such increased quantitites or work by giving notice in
writting to the contractor and arrange to carry it out in such
manner as he may consider advisable. But, under no circumstances
the contractor shall suspend the work on the plea of non-settlement
of rates of items falling under this clause.
B
All the provisions of the preceding paragraph shall equally
apply to the decrease in the rates of items for qu~ntities in excess
of the deviation limit, notwithstanding the fact that the rates for such
items exist in the tender for the main work or can be derived in
accordance with the provisions of sub-clause (ii) of the preceding
c Clasue 12 and the Engineer-in-Charge may revise such rates having
regard to the prevailing market rates. "

On 20th November, 1976 the arbitrators gave their award. Disputes no.1,2 and
4 were dealt with together and the arbitrators, without assigning any reason,
directed the appellant board to pay to the respondent a sum ofRs.47 lacs from
D the date of the deviation upto to 30th June, 1975, in addition to the payment
already made. For the work done after 30th June, 1975, the appellant board
was required to pay to the respondent for the items at the rate stated in the
award. There were 22 items which wre listed for which the enhanced rate was
to be given, though the respondent had made a claim in respect of 108 items.
E In respect of dispute No.7 the appellant herein was held to be entitled to
recover only the variations in the electricity duty and not the variations in
the tariffs effected after 1.3.1974. It is not necessary to refer to the award with
regard to other items of dispute as the main challenge before us was with
regard to the arbitrators decision relating to disputes 1,2 and 4.

F When the award was filed in the Himachal Pradesh High Court the
appellant herein filed its objections. After the pleadings were completed the
following issues were framed :

"I. Whether the award is incomplete/OP Objector.
G 2. Whether the award is in excess of the jurisdiction ? If so, what
·is its effect ? OP Objector.
3. Whether the award is otherwise also invalid and liable to be
set aside ? OP Objector.
4. Whether the award sufferes from legal misconduct on the part
H of the arbitration ? If so, what is its effect. OP Objector.
H.P. STATE ELECTRICITY BOARD v. R.J. SHAH AND COMPANY, [KIRPAL, J .] 651
The contractor thereafter filed an application (B.N.P.No.35 of A
1978) with a prayer that an additional issue be framed with
the result that the following issue was framed on 24.4.1978 :

Whether or not the objection petition of the respondent is
legally maintainable ? OP Parties"
B
The parties prodcued their evidence on the various issues and finally
the learned single judge (C.R. Thakur, J.) vide his judgment dated 5.4.1979
held that except of the award pertaining to dispute No. 7 the rest of the award
did not suffer from any error apparent on the record.

The appellant then filed an appeal before the Division Bench which by C
its judgment dated 4th March, 1985 upheld the decision of the single judge.
Hence this appeal.

On behalf of the appellant two main contentions had been urged by Sh.
Maninder Singh. He submitted that on the correct interpretation of the contract
D

-
and of Clause 12A in particular the arbitrators had no jurisdiction to revise
the rates of any item merely becuse the overall value of the contract which
was executed had been exceeded by 20 per cent. The submission was that the
contract permitted increase only if there was a deviation in individual items
by more than 20 per cent and no increase was permitted if there was an overall
increase of 20 per cent without there being increase in individual items. He E
contended that even in the case of a non-speaking award as the arbitrators
had exceeded their jurisdiction, the award was liable to be set aside. He further
submitted that no claim had been made before the arbitrators for the award
of interest and, therefore, award of interest by the arbitrators could also not
be sustained.
F
Sh. Atul Chitale, learned counsel for the respondent, however, submitted
that the claim of the respondent for revised rates was based on the interpretation
of the contract and this point was specifically referred to the arbitrators and,
therefore, the award of the arbitrators ·Nas final and binding and could not
be set aside. He further submitted that implied term of the reference was that · G
the arbitrators could award interest.

In support of his contention that the non-reasoned award was in excess
of the authority given to the arbitrators by the express provisions of the
contract and, therefore, the award was without jurisdiction and was liable to
be set aside, Sh. Maninder Singh, learned counsel for the appellants, placed H
652 SUPREME COURT REPORTS [1999] 2 S.C.R.

A strong reliance on the judgments of this Court, namely, Associated Engineering
Co. v. Government of Andhra Pradesh and Anr., [1991] 4 SCC 93 and New
India Civil Erectors (P) Ltd. v. Oil and Natural Gas Corporation, [1997] 11
SCC 775. As we shall presently see these decisions are clearly distinguishable
and do not help the appellant.

B Mustill and Boyd in their book 'Commercial Arbitration' Second Edition
at page 554 have stated that "it is not always easy to distinguish between
instances where there is a want of jurisdiction, and those where there is error
of law or fact." This Court has, over the years, had occasions to deal with
the cases of awards where there was want of jurisditction iri contra distinction
C to the cases where there was an error in exercise of jurisdiction. Series of
decisions by differnent Benches of this Court have held that the award is
liable to be set aside if there is error of jurisdiction but not if the error is
committed in exercise of jurisdiction. We shall first refer to some of the
decisions on this point given by different Division Benches consisting of two
Judges before referring to decisions of larger benches.
D
In Tarapore and Company v. Cochin Shipyard Ltd., Cochin and Anr.,
[1984] 2 sec 680 there is an elaborate discussion on the question as to when
an award can be set aside referring to all the decisions on the point till then
it was observed at page 718 that "the discussion leads to the inescapable
E conclusion that a specific question of law touching the jurisdiction of the
arbitrator was specifically referred to the arbitrator and therefore the arbitrator's
decision is binding on the parties and the award cannot be set aside on the
sole ground that there was an error of law apparent on the face of the award."
In U.P. Hotels and Ors. v. U.P. State Electricity Board, [1989] 1 SCC 359 it
was observed as follows :
F
"If a specific question of law is submitted to the arbitrator for his
decision and he decides it, the fact the the decision is erroneous does
not make the award bad on its face so as to permit it being set aside;
and where the question referred for arbitration is a question of
construction, which is, generally speaking, a question of law, the
G
arbitrator's decision cannot be set aside only because the court would
itself have come to a different conclusion; but if it appears on the fact
of the award that the arbitrator has proceeded illegally, as for instance,
by deciding on evidence which was not admissible, or on principles
of construction which the law does not countenance, there is error~in
H law which may be ground for setting aside the award."
H.P. STATE ELECTRICITY BOARD v. R.J. SHAH AND COMPANY, [KIRPAL, J.] 653

Referrring to the aforesaid decision in Tarapore and Company's case itwas A
observed at page 371 in U.P. Hotels' case as follows :

"If a question of a law is specifically referred and it becomes evident
that the parties desired to have a decision on the specific question
from the arbitrator rather than one from the court, then the court will
not interfere with the award of the arbitrator on the gorund that there B
was an error of law apparent on the face of the award even if the view
of law taken by the the arbitrator did not accord with the view of the
court. A long line of decisions was relied upon by this Court for that
proposition."

On the facts of that case it was held that "a· question of law arose certainly C
during the course of the proceedings. Such a question has been decided by
the Umpire on a view which is a possible one to take. Even if there was no
specific reference of a question of law referred to the Umpire, there was a

- question of Jaw involved. Even on the -assumption that such a view is not
right, the award is not amenable to interference or correction by the courts D

- of law as there is no proposition of law which could be said to be the basis
of the award of the Umpire, and which is erroneous." In P. V. Subba Naidu
and Ors. v. Government ofA.P. Ors., [1998] 9 SCC 407, this Court was dealing
with a case where the High Court had set aside a non-speaking award after
construing the terms of the contract between the parties. While allowing the
appeal this Court held that the High Court was not right in examining and E
interpreting the contract to see whether the claim was sustainable under the
terms of the contract.

The reading of the decision cited above shows that the principle followed
was that by purporting to construe the contract the court could not take upon
itself the burden of saying that the award was contrary to the contract and F
a such the arbitrators had acted beyond their jurisdiction.

The distinction between an error within the jurisdiction of the arbitrators
and an error in excess of the jurisdiction of the arbitrator has been succinctly
brought out in the decision of this Court in Sudersan Trading Company v. G
Government of Kera/a, [1989] 2 SCC 38, where this Court held at page 56 as
follows:

"In Halsbury's Laws of England II. 4th Edn. Vol. 2 para 622 one of the
misconducts enumerated, is the decision by the arbitrator on a matter
which is not included in the agreement or reference. But in such a H
654 SUPREME COURT REPORTS [1999) 2 S.C.R.

A case one has to determine the distinction between an error within the
jurisdiction and an error in excess of the jurisdiction .............. Whether ·
a particular amount was liable to be paid or damages liable to be'
sustained, was a decision within the competency of the arbitrator in
this case. By purporting to construe the contract the court could not
take upon itself the burden of saying that this was contrary to the
B contract and, as such, beyond jurisdiction. It has to be determined
that there is a distinction btetween disputes as to the jurisdiction of
the arbitrator and the disputes as to in what way that jurisdiction
should be exercised ........... .

At page 57 in para 32 it is held :
c
" .................. Once there is no dispute as to the contract, what is the
interpretation of that contract, is a matter for the arbitrator and on
which court cannot substitute its own decision."

Decisions of larger Benches of this Court have also taken a similar view.
D In Jivarajbhai Ujamshi Sheth and Ors. v. Chintamanrao Balaji and Ors.,
[1964] 5 SCR 480 at page 494 it was held that "The Court in dealing with an
application to set aside an award has not to consider whether the view of the
arbitrator on the evidence is justified. The arbitrator's adjudication is generally
considered binding between the parties, for he is a tribunal selected by the
E parties and the power of the Court to set aside the award is restricted to cases
set out in S.30. It is not open to the Court to speculated, where no reasons
are given by the arbitrator, as to what impelled the arbitrator to arrive at his
conclusion. On the assumption that the arbitrator must h!IVe arrived at his
conclusion by a certian process of reasoning, the Court cannot proceed to
detennine whether the conclusion is right or wrong. It is not open the Court
F to attempt to probe the mental process by which the arbitrator has reached
his conclusion where it is not disclose by the terms of his award." In Mis
Kapoor Nilokht;ri Co-op. Dairy Farm Society Ltd. v. Union of India and
Ors., [1973] 1 SCC 708 at page 713 in paragraph 12 the Court held : "Mr.
Nariman, the Additional Solicitor General appearing on behalf of the
G respondents also contended that the appellants having specifically stated
that their claims are based on the agreement and on nothing else and all that
the Arbitrator had to decide was as to the effect of the agreement, the
Arbitrator had really to decide a question of law, i.e., of interpreting the
document, the agreement of May 6, 1953 and his decision is not open to
challenge. We agree with him : see the decisions in Durga Prasad v.
H Sewkishendas and Ghulam Filani v. Muhammad Hussain." In Hindustan
H.P STA TE ELECTRICITY BOARD v. R.J. SHAH AND COMPANY, [KI RP AL, J .] 655
Construction Co. Ltd. v. State ofJammu and Kashimr, [1992] 4 SCC 217 after A
referring to the Privy Council decision in the case of Champsey Bhara and
Co. v. Jivaraj Ba/loo Spinning and Weaving Co. Ltd., AIR (1923) PC 66, this
Court at page 222 in para 8 observed as follows :

"The present case is precisely one of the same type as the one before
the Judicial Committee. The arbitrators have just awarded amounts to B
the contractor, against its claims, on Item Nos. 2 and 5. They make no
reference to the contract or any of its clauses. Yet the State contends
that since these are items covered by certain terms of the contract, the
Court should look at those terms and interpret them, if this done, it
is said, the State's interpretation is bound to be accepted and that C
apparently accepted by the arbitrators will be found to be wrong. It
is this contention that has been accepted. This cannot be done. Even
if, in fact, the arbitrators had interpreted the relevant clauses of the
contract in making their award on the impugned items and even if the
interpretation is erroneous, the Court cannot touch the award as it is
within the jurisdiciton of the arbitrators to interpet the contract. D
Whether the interpretation is right or wrong, the parties will be bound;
only if they set out their line of interpretation in the award and that
is found eroneous can the Court interfere." (emphasis added)

A Two Judge Bench of this Court in K.R. Raveendranathan v. State of
Kera/a and Anr., (1996] 10 sec 35 observed that on the question that whether E
the arbitrator had exceeded its jurisdiction, there appered to be a conflict
between the decision ofSudersan Trading Company's case (supra) Associated
Engineering Company's case (supra). By this order the case was referred to
a larger bench. On reference a Division Bench of Three Judges in K.R.
Raveendranathan's case, [1998] 9 SCC 410 held as follows :
F
"The learned counsel for the appellant points out that the question
. in issued in the present appeals is squa~ely covered by the decision
of this Court in Hindustan Construction Co. Ltd. v. State of J & K.
In particular, it drew our attention to para l 0 of the judgment and the
portion extracted from the decision in Sudarsan Trading Co. case G
wherein it was said that by purporting to construe the contract the
Court could not take upon itself the burden of saying that this was
contrary to the contract and, as such, beyond jurisdiciton. That is
exactly what the Court has done in the instant case. Therefore, the
issue stands covered by this decision and the learned counsel for the
respondents could not in the face of this decision argue otherwise." H
656 SUPREME COURT REPORTS [1999] 2 S.C.R.

A From the aforesaid decision of this Court, and the last one in particular,
it is clear that when the arbitrator is required to construe a contract then
merely because another view may be possible the court would not be jusitified
in construing the contract in a different manner and then to set aside the
award by observing that the arbitrator has exceeded the jurisdiction in making
the award.
B
In order to determine whether the arbitrator has acted in excess of
jurisdiction what has to be seen is whether the claimant could raise a particular
dispute or claim before an arbitrator. If the answer is in the afirmative then
it is clear that the arbitrator would have the jurisdiction to deal with such a
C claim. On the other hand is the arbitration clause or a specific term in the
contract or the law does not permit or give the arbitrator the power to decide
or to adjudicate on a dispute raised by the claimant or there is specific bar
to the raising of a particular dispute or claim then any decision given by the
arbitrator in respect thereof would clearly be in excess of jurisdiciton. In order
to fmd whether the arbitrator has acted in excess of jurisdiction the Court may
D have to look into some documents including the contract as wen as the
reference of the dispute made to the arbitrators limited for the pui;eose of
seeing whether the arbitrator has the jurisdiction to decide the claim rrtade in
the arbitration proceedings.

In this case the arbitration clause is widely worded. The dispute which
E was referred to the arbitrators, inter alia, related to the construction of the
contract. The contract did visualise the contractor raising a claim for revision
of rates. The dispute was as to when such a claim could be raised. According
to the appellant herein this being an item rate contract the revision of rates
could take place only in accordance with Clause 12A when there was a
deviation of more than 20 per cent with regard to individual items. On the
F other hand the terms of contract, according to the claimant, permitted a claim
being made of revision in rates if there was an increase of 20 per cent of the
total value of the contract. The dispute before the arbitrators, therefore,
clearly related to the interpretation of the terms of the contract. The said
contract was being read by the parties differenly. The arbitrators were,therefore,
G clearly called upon to construe or interpret the terms of the contract. The
decision thereon, even if it be erroneous, cannot be said to be without
jurisdiction. It cannot be said that the award showed that there was an error
of jurisdiction even though there may have been an error in the exercise of
jurisdiciton by the arbitrators.

H The decision in Associated Engineering Co. case relied upon by Sh.
H.P. STAT£ELECTRICITYBOARDv. R.J. SHAH AND COMPANY, [KIRPAL,J.] 657

Maninder Singh does not in any way persuade us to take a view different A
than the view arrived at by the High Court. At page 103 Thommen, J. speaking
for the Court observed as follows :

"The arbitrator cannot act arbitrarily, irrationally, capriciously or
independently of the contract. His sole function is to arbitrate in terms
of the contract. He has no power apart from what the parties have B
given him under the contract. If he has travelled outside the bounds
of the contract, he has acted without jurisdiction. But if he has
remained inside the parameters of the contract and has construed the
provisions of the contract, his award cannot be interefered with unless
he has given reasons for the award disclosing an error apparent on C
the face of it." ·

Applying the ratio to the present case it is not possible to say that the
arbitrator in the present case travelled outside the bounds of the contract.
Correspondence exchanged between the parties prior to the making of the
reference shows that the arbitrators were called upon to construe the contract D
in order to determine whether the contractor was entitle to claim revision of
rates and if so what should be the revised rates. The construction placed on
the contract by the contractor cannot be said to an implausible one. Even if
the arbitrators construed the terms of the contract incorrectly it cannot be
said that the award was in excess of their jurisdiction. Their jurisdiction clearly

- was to construe the terms of the contract and their decision thereon is final
and binding on the parties.

New India Civil Erectors (P) Ltd., (supra) was a case relating to
challenge to the non-speaking award. One of the disputes between the parties
E

was with respect to the mode/method of measuring the constructed area. The
term with regard to the mode of measurement clearly stated that the rate which F
was quoted excluded the balcony areas. It was not disputed that the plan of
flats attached to the tender notice provided for balcony to be constructed.
The claim of the appellant therein was that because balconies were in fact not
constructed but were included in the constructed area, therefore, they were
entitled to be paid in respect thereof. The high Court set aside the award of G
the arbitrators. While upholding the decision the Court observed that the
arbitrators had over-stepped their award by including the area of balcony in
the measurement of the built up area. The term of the contract clearly stipulated
that in the total builtup area of the floor the balconies are to be excluded and
not to be taken into account. The contractor, therefore, could not raise any
claim in respect of this area. The contract prohibited payment in respect of H
658 SUPREME COURT REPORTS [1999] 2 S.C.R.

A the balconies as shown in the sanctioned plan. Merely because the balconies
were enclosed did not pennit any payment being made in respect thereof. It
was in view of these facts that this Court held that the arbitrators-had acted
on the excess of their jurisdiction because the award was contrary to the tenn
relating to the mode of measurement and in the interpretation of which tenn
there was no dispute. In other words, construction. of the contract was not
B in issue in the arbitration proceedings in that case. The interpretation of the
tenn of contract did not arise in that case. The contract prohibited payment
in respect of balconies but the award of the arbitrator had awarded an amount
in respect thereof. Therefore, this was in excess of jurisdi~tion.

C In our op~nion the High Court was right in not setting aside the award
relating to the decision of the arbitrators in respect of dispute No. 1,2 and 4
in the present case.

It was then submitted by Sh. Maninder Singh that the arbitrators had
awarded a sum of Rs. 3,99,800 as interest with effect from 22nd December,
D 1976 till the date of payment as per the award. This interest, he submitted,
could not be awarded. In view of the decision of this Court in Secretary,
Irrigation Department, .Government ofOrissa and Ors. v. G.C. Roy, (1992] 1
SCC 508 and State ofOrissa and Ors. v. B.N. Agarwal/a, (1997] 2 SCC 469
we do not see any merit in this contention.

E For the aforesaid l'easons this appeal is dismissd. The parties shall,
however, bear their own costs. -
A.K.T. Appeal dismissed.