Holding

The arbitrator acted beyond his jurisdiction by granting relief prohibited by the contract’s fixed‑price clauses, and the award must be set aside.

Summary

Rajasthan State Mines and Minerals Ltd. entered into a turnkey contract with Eastern Engineering Enterprises that contained clauses fixing the rate of payment and expressly prohibiting any extra claims. The contractor later claimed escalation and other additional payments, which the arbitrator allowed in a non‑speaking award. The appellant argued that the arbitrator had exceeded his jurisdiction by ignoring the fixed‑rate clauses, while the respondent contended that the wide arbitration clause gave the arbitrator authority to decide all disputes. The Supreme Court held that an arbitrator is a creature of the contract and must act within its limits; awarding amounts barred by clauses 17 and 18 was a jurisdictional error. Consequently, the award was quashed and the appeal was allowed.

Issues considered

The arbitrator exceeded his jurisdiction by awarding claims contrary to the fixed‑rate provisions of the contract.
Whether the broadly worded arbitration clause conferred jurisdiction to entertain claims for escalation and compensation.
Whether a non‑speaking award can be set aside on the ground of jurisdictional excess.
Whether the court may examine the arbitrator's reasoning or mental process in a non‑speaking award.
The effect of the appellant’s failure to raise a jurisdictional objection before the arbitrator on the court’s power to intervene.

Legislation cited

Arbitration Act, 1940s. 30, s. 33

Subjects

ArbitrationJurisdiction of arbitratorNon‑speaking awardFixed‑price contractExcess jurisdictionArbitration Act 1940Contract interpretationAward set aside

Judgment

A RAJASTHAN STATE MINES AND MINERALS LTD.
v.
EASTERN ENGINEERING ENTERPRISES AND ANR.

SEPTEMBER 20, 1999

B [D.P. WADHWA AND M.B. SHAH, JJ.]

Arbitration Act, 1940: Ss. 30 and 33.

Jurisdiction of Arbitrator-Determination of-Works contract-
C Agreement clauses stipulating fzxed payment-Claim for additional payments
and compensation-Dispute-Arbitration-Arbitrator appointed solely on
the basis of agreement between the parties-Arbitrator allowing the claim
in a non-speaking award-Validity of-Held, arbitrator has travelled beyond
his jurisdiction by passing an award against the stipulations and prohibitions
D contained in the contract-Arbitrator cannot act arbitrarily, irrationally,
capriciously or independently of the contract-Deliberate departure or
conscious disregard of the contract tantamount to malafide action-Award
quashed and set aside.

Arbitration~Non-speaking order-Inte1ference by courts-Scope and
E extent of-Held, courts cannot speculate or probe the mental process by
which arbitrator has reached his conclusion. Award can be set aside if
arbitrator acts beyond his jurisdiction.

Arbitration-Award-lnte1ference by courts-Arbitrator committing
mere error of fact or la~Held, courts cannot interfere.
F
Arbitration-Award-Arbitrator exc;eding his jurisdiction-
Determination of-Held, in order to find out whether arbitrator exceeded his
jurisdiction, refere_nce to terms of award necessary..
.. __
Appellant-company entered into an agreement with respondent No. 1
G contractor on turn-key basis for carrying out certain work. The agreement
clauses 17 and 18, clearly and unambiguously stipulated that the contractor
shall be paid fixed rates and shall not be entitled to claim any extra payment
or Increase in cost. However, respondent No. 1 contractor claimed additional ,
payments and compensation on account of escalation of cost of work, which
was refuted by the appellant. Thus, a dispute arose between the parties which
H 710
RAJASTHAN STATE MINES AND MINERALS LTD. v. EASTERN ENG. ENTERPRISES 711
was referred to the arbitrator for adjudication. The arbitrator by a non- A
speaking award allowed the claims of the contractor along with interest.
Appellant unsuccessfully challenged the said award before the trial court
and High Court Hence the present appeal.

On behalf of the appellant it was contended that the claims made by
respondent No.I were not entertainable in view of clauses 17 and 18 of the B
agreement and therefore the arbitrator travelled beyond his jurisdiction in
awarding the compensation for the said claims.

On behalf of respondent No. 1 contractor it was submitted that
arbitration clause was of widest amplitude and it provides that "all disputes C
and differences arising out of or in any way touching or concerning the
contract whatsoever shall be referred to the sole arbitration". Hence the
award passed by the arbitrator cannot be held to be without jurisdiction or
it cannot be held that arbitrator has travelled beyond jurisdiction; award was
a non-speaking one and therefore, also .the Court cannot go behind the said

- award for finding out the mental process of the arbitrator for awarding the D
said sum; jurisdictional question was not raised properly before the arbitrator
or before the District Court and the appellant allowed the arbitrator to
proceed with the proceeding without raising its objection of jurisdiction or
competence.

Allowing the appeal, the Court. E
HELD: 1.1. Arbitrator has travelled beyond his jurisdiction by passing
an award against the stipulations and prohibitions contained in the contract
between the parties. Hence the award passed by the arbitrator is quashed and
set aside. (740-G; 741-A]
F
1.2. Arbitrator is a creature of the contract between the parties and
hence if he ignores the specific terms of the contract, it would amount to
jurisdictional error. In the instant case, the appointment of arbitrator was
solely on the basis of the agreement entered into between the parties. It was
nowhere indicated that the arbitrator was empowered to adjudicate any other G
claims beyond the agreement between the parties. Even the arbitrator in his
interim award has specifically stated that he was appointed to adjudicate the
disputes between the parties arising out of the agreement. The award made
by the arbitrator disregarding the terms of the reference or the arbitration
agreement or the terms of the contract would be a jurisdictional error which
requires ultimately to be decided by the Court He cannot"award an amount H
712 SUPREME COURT REPORTS (1999] SUPP. 2 S.C.R.

A which is ruled out or prohibited by the terms of the agreement. In view of
the specific bar stipulated by the parties in the agreement, that claim could
not be.raised. Even ifit is raised and referred to arbitration because of wider
arbitration clause such claim amount cannot be awarded as agreement is
binding between the parties and the arbitrator has to adjudicate as per the
agreement. [728-B-C; 739-F-G]
B
Continental Construction Co. Ltd v. State of MP., [1988) 3 SCR 103;
Tarapore & Co. v. State of MP., (1994) 3 SCC 521; T.N Electricity Board
v. Bridge Tunnel Constructions and Ors., (1997) 4 SCC 121; New India Civil
Erectors (P) Ltd v. Oil & Natural Gas Corpn., [1997] 11 SCC 75; H.P. State
C Electricity Board v. R.J. Shah & Co., [1999) 4 SCC 214 and Mis. Alopi
Parshad v. Union of India, [1960) 2 SCR 703, relied on.

1.3. In the instant case, there is no question of interpretation of
clauses 17 and 18 as the said clauses are so clear and unambiguous that
they do not require any interpretation. It provides both, in positive and
D negative terms that contractor shall be paid fixed rates and that he would not
be entitled to extra payment or further payment for any ground whatsoever
except as mentioned therein. The rates agreed were firm, fixed and binding
irrespective of any fall or rise in the cost of the work covered by the contract
-
or for any other reason or any ground whatsoever. It is specifically agreed
E that the contractor wilt not be entitled or justified in raising any claim or
dispute because of increase in cost of expenses on any ground whatsoever.
By ignoring the-Said terms, the arbitrator awarded compensation to respondent
No.I and thus travelled beyond his jurisdiction as his existence depends upon
the agreement and his function is to act within the limits of the said agreement.
This deliberate departure from the contract amounts not only to manifest
F disregard of the authority or misconduct on his part but it may tantamount
to malajide action. (727-F-G-H; 728-A]

2. It is true that in the instant case arbitration clause 74 is very widely
worded, therefore, the dispute was required to be referred to the arbitrator.
G Hence, the award passed by the arbitrator cannot be said to be without
jurisdiction, but at the same time, it is apparent that he has exceeded bis
jurisdiction by ignoring the specific stipulations in the agreement which
prohibit entertaining of the claims made by the contractor. In order to
determine whether arbitrator has acted in excess of his jurisdiction what has
to be seen is whether the claimant could raise a particular claim before the
H arbitrator. If there is a specific term in the contract or the law which does
RAJASTHAN STATE MINES AND MINERALS LTD_'" EASTERN ENG_ ENTERPRISES 713

not permit or give the arbitrator the power to decide the dispute raised by A
the claimant or there is a specific bar in the contract to the raising of the
particular claim then the award passed by the arbitrator in respect thereof
would be in excess of jurisdiction. Thus, in order to find out whether the
arbitrator has travelled beyond his jurisdiction, it would be necessary to
consider the agreement between the parties containing arbitration clause. _B
Arbitrator acting beyond his jurisdiction is a different ground from the
error apparent on the face of the award.

Tarapore Co. v. Cochin Shipyard Ltd. and Anr., 11984) 2 SCC 680;
Managing Director J&K Handicrafts, Jammu v. Good Luck Carpets, (1990)
4 SCC 740; P. V Subba Naidu & Ors. v. Govt. of A.P. & Ors., [1998) 9 SCC C
407 and Ch. Ramalinga Reddy v. Superintending Engineer, (1994) 5 Scale
67, distinguished.

3. It is not open to the Court to speculate, where no reasons are given
by the arbitrator, as to what impelled arbitrator to arrive at this conclusion.
It is not open to the Court to admit or probe the mental process by which D
the arbitrator has reached his conclusion where it is not disclosed by the
terms of the award. In a case of non-speaking award, the jurisdiction of
Court is limited. The award can be set aside if the arbitrator acts beyond his
jurisdiction. If the arbitrator has committed a mere error of fact or law in
reaching his conclusion on the disputed question submitted for his
E
adjudication then the Court cannot interfere. [738-F-G; 739-BJ

Jivarajbhai Ujamshi Sheth & Ors. v. Chintamanrao Balaji & Ors.,
(1964] 5 SCR 481; Chempsey Bhara & Co. v. Jivraj Ba/loo Spinning and
Weaving Co. Ltd., LR 50 IA 324 and Mis. Sudarshan Trading Co. v. Govt.
of Kera/a & Anr., (1989) 2 SCC 38, relied on. F
Hindustan Construction Co. Ltd v. State of Jammu & Kashmir, (1992)
4 sec 217, distinguished.

4. If no specific question of law is referred, the decision of the arbitrator
on that question is not final, however much it may be within his jurisdiction G
and indeed essential for him to decide the question incidentally. In a case
where specific question of law touching upon the jurisdiction of the arbitrator
was referred for the decision of the arbitrator by the parties, then the finding
,.- - of the arbitrator on the said question between the parties may be binding.
[738-H; 739-A] H
..; '
714 SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.

A 5. The arbitrator is not a conciliator and cannot ignore the law or
misapply it in order to do what he thinks just and reasonable; the arbitrator '"'
is a tribunal selected by the parties to decide the disputes according to law.
1740-D-El

Continental Construction Co. ltd. v. State of M.P., 1198813SCR103,
B relied on.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1202of1992.

From the Judgment and Order dated 17 .12.91 of the Rajasthan High
Court in C.M. No. 254of1991.
c
Dr. A.M. Singhvi, P.K. Ganguli and Pankaj Kr. Singh for the Appellant.

B. Sen, Ashok H. Desai, A. Mishra, A.P. Dhomija, Pradeep Aggarwal,
L.P. Singh and Sushil Kr. Jain for the Respondents.

D The Judgment of the Court was delivered by

SHAH, J. By the impugned Judgment and Order dated 17 December,
1991, the High Court of Judicature ofRajasthan at Jodhpur, dismissed the S.B.
Civil Miscellaneous Appeal No. 254 of 199 I filed by the appellant and confirmed
E the Judgment and Order dated 1 August, 1989 passed by the District Judge, -
Udaipur in Petition under Sections 30 and 33 of the Arbitration Act, 1940_ The
District Judge had passed the decree in terms of the award.

The brief facts of the case are that on 14th May, 1981, appellant and
respondent no_ l entered into an agreement on a tum-key basis for excavation,
F removal, transportation including loading and unloading, disposal dumping
dozing, levelling etc_ of over burden at the specified dump yards including
final dressing of the mine benches, faces, sides etc, and incidental mining of
rock phosphate ore encountered during the excavation of over-burden and its
transportation to ore-stacks etc_ from the footwall, western portion and eastern
portions of 'D' Block of the Jhamarkotra mines including drilling, blasting,
G loading,· transportation, unloading etc_ with the leads and lifts involved in
connection therewith, more particularly described 'in the said contract for the
period of three years and three months, that is, from 13.3,81to12.6_84 for the

H
quantity of 21.15 lacs cubic meter subject to plus minus l 0% at the fixed rate
of Rs. 35.80 (Rupees Thirty Five and eighty paise) all inclusive per cubic meter
in respect of over burden and/or ore actually excavated mined, removed etc.·
----

~ ,- .. "
RAJASTHAN STATE MINES AND MINERALS LTD. v. EASTERN ENG. ENTERPRISES [SHAH, J.J 715

-
Respondent No. I vide its letter dated 7th September, 1983, raised A
. certain disputes and claimed reimbursement and/or additional payments and/
or compensation on account of escalation of cost of work and breach of
contract by the Appellant. The Appellant vide its letter dated I Ith September,
1984 refuted the claims of Respondent No. I by stating that in no case the
rates over and above Rs. 35.80 per cubic meter could be given. On 10th B
November, 1984, respondent No. 1 invoking the arbitration clause, requested
the Managing Director of Appellant to appoint a sole arbitrator to adjudicate
the claims made by the Contractor. Thereafter, on 5th February, 1985, Shri C.S.
Jha, Chairman-cum-Managing. Director, Bihar State Mineral Development
Corporation Ltd. was appointed as a sole arbitrator "to decide all claims raised
by the contractor, Mis. Eastern Engineering Enterprises vide its letter dated C
7th September, 1983."

On 20th September, 1985, the sole arbitrator made an interim award in
respect of three claims, namely, claim nos. 2, 3 and 5 and awarded Rs. 65 lacs
to the claimants. Paragraph 1 of the said award mentions that Mr. C.S. Jha was D
appointed as the sole arbitrator "to decide the disputes between the parties
arising out of the agreement dated 14th May, 1981." It also recites that by the
consent of the parties, arguments were heard claim-wise and out of 7 claims
submitted by the claimants, hearing in respect of claim no. 2, 3 and 5 was
completed. It is also stated that when final award would be made in respect
of the entire proceedings, interim award would be integrated into and form E
part of the final award. The Appellant challenged the interim award on 15th
January, 1986 in the Court of District Judge, Udaipur.

Thereafter, on 18th February, 1986 the sole arbitrator made final award.
It, inter-alia, provides that after considering the long drawn arguments and
examination of documentary evidence and having made detailed examination F
of the calculations "/have given due thought and.weightage to all that was
placed/argued before me, as regards admissibility as well as quantum of
each claim by going through details of work done under e~ch item of claim
as filed before me. Thereafter, he awarded Rs. 1.07 crore for the claims made
by the respondent no. 1. The said amount included the amount awarded G
against the claims 2, 3 and 5 for which he had passed interim award. He further
awarded interest@ 12.5 % p.a. on the sum awarded from 5th February, 1985
till the date of payment or decree whichever is earlier.

That final award was also challenged before the District Judge. The
Court framed as many as 12 issues out of which issues (5) to (8) are as under: H
716 SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.

A 5. Did the Arbitrator fail correctly to consider Clauses 17 and 18
of the Agreement and the Contract labour (Abolition and
Regulation) Act, 1970?
6. Did the Arbitrator fail to apply his mind to consider pleadings,
documents and evidence?
B 7. Whether the award is bad as the learned sole Arbitrator failed
to apply his mind to documents and decide the dispute on per
unit basis?
8. ·Is the award perverse? Has it been improperly procured and is
it otherwise invalid as mentioned in the Objection Petition?
c
Thereafter, the District Judge, rejected the contentions raised by the
appellant and declared the award as the rule of Court and passed the decree.
That was challenged by filing the appeal before the High Court.

D Before the High Court, it was contended that the District Judge erred
in accepting the interim as well as the final award and it was required to be
set aside as the arbitrator had ignored the fixed rate mentioned in clauses 17
& 18 of the agreement and thereby he has travelled beyond his jurisdiction.
It was also pointed out that by doing so the arbitrator has legally misconducted·
himself. It was also submitted that the arbitrator was influenced by Mr. K.
E Sehgal, hence, the award was required to be set aside. The High Court arrived
at the conclusion that the point of jurisdiction was not raised before the
arbitrator. Therefore, appellant cannot raise the same before the court. The
learned Judge held that the perusal of the letter dated 5th February, 1985 goes
to show that there was nothing by which the arbitrator was restricted with
F regard to rates, on the contrary, he was asked to decide all the claims raised
by the contractor without any clarification. The High Court further observed
that ''the appellant raised objection in view of clauses 17 and 18 of the
Contract in his reply to the claim petition but he has not raised this point
before the arbitrator and thus the arbitrator has not disclosed it". The learned
Judge further observed that the appellant never asked the arbitrator to decide
G his objection at initial stage or final stage and this conduct of the appellant
goes to show that he has waived the objection, otherwise he ought to have
asked the arbitrator to decide at proper stage. The Court held that even before
District Judge, the point of jurisdiction was never raised and the issues
framed were with regard to clauses 17 & 18 which were decided against the .- .
H appellant.
RAJASTHAN STATE MINES AND MINERALS LTD. v. EASTERN ENG. ENTERPRISES [SHAH, J.J 717

Dr. A.M. Singhvi, the learned senior Counsel appearing on behalf of the A
appellant contended that the judgment and order passed by the High Court
is, on the face of it, illegal because all throughout the appellant has contended
that claims made by respondent no. 1 were not entertainable in view of
clauses 17 and 18 of the agreement. He submitted that, on the face of it, claims
made by the respondent no. 1 were for prohibited or excepted items under B
clauses 17 and 18 of the agreement between the parties. Therefore, he submitted
that the ar-bitrator travelled beyond his jurisdiction in awarding the
compensation for the said claims. He referred to all claims and pointed out
that except the claim for release of additional security deposit of Rs. 5 lacs
furnished by way of bank guarantee, no claim could be entertained and
granted in view of stipulations in clauses 17 and 18 of the agreement and also C
because the contract is on a tum-key basis.
As against this, learned senior Counsel, Mr. Ashok H. Desai, appearing
, on behalf of the Respondent No. 1 strenuously submitted that, in the present
case, arbitration clause is of widest amplitude and it provides that "all disputes
and differences arising out of or in any way touching or concerning the D
contract whatsoever shall be referred to the sole arbitration". Hence, the
award passed by the arbitrator cannot be held to be without jurisdiction or
it cannot be held that arbitrator has travelled beyond his jurisdiction. He also
submitted that award is a non-speaking one and, therefore, also the Court
cannot go behind the said award for finding out the mental process of the
arbitrator for awarding the said sum. He submitted that the award only depends E
upon interpretation of the clauses of the agreement between the parties. It is
his further contention that, in any case, jurisdictional question was not raised
properly b~fore the arbitrator or before the District Court and the appellant
allowed the arbitrator to proceed with the proceedings without raising its
objection of jurisdiction or competence. By the reference letter dated 5th p
February, 1985, arbitrator was empowered "to decide all claims raised by the
contractor vide its letter dated 7th September, 1983". He also submitted that
even the committee appointed by the appellant-company to examine the
claims of the respondent, has recommended some payment to the contractor
by granting an escalation in contracted rate and to pay compensation towards
. loss suffered on account of non supply of explosives. Hence, the appellant G
should not be permitted to raise the contention of jurisdiction and the appeal
be dismissed.
For deciding the controversy, clauses 17 and 18 as well as clause 74
which provides for arbitration is required to be referred. Clauses 17 & 18 read
thw: H
718 SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.

A 17. Blasting Operation

It is express term of this contract that while carrying out the
excavation/Mining operations from the aforesaid areas, blasting
wherever required, shall be undertaken by the contractor at his cost.
The remuneration payable under this contract for the work aforesaid
B is inclusive of this element which includes cost of explosives, its
accessories transportation, salary and wages of its crew/blasters
etc., or otherwise. In view of aforesaid, the contractor shall obtain
necessary permission from the Director General of Mines Safety and/
or other competent authorities for undertaking the blasting operation
c independently at the aforesaid areas covered by this contract as also
obtain necessary licence for the explosive magazine etc. The contractor
shall do all that are required to be done to obtain the necessary
permission etc., from the· competent authorities immediately without
any further loss of time and shall make regular and continuous efforts
for the same if for the present such permission is not granted to him/
D her.

In the event of the contractor failing to obtain such permission
required from the competent authority for doing blasting operation in
the areas covered by this contract after all genuine and effective
efforts, the company may at the request of the contractor and subject
E to its convenience take up the blasting operation in the areas entrusted
to the contractor under this contract, at the cost and risk of the
contractor.· Provided, however that the contractor shall be bound to
observe all terms and conditions of blasting operation in the contract
and other operations involved therein shall be duly observed/
F undertaken by the contractor, as if the blasting is being done by them.
Drilling shall be done by the contractor at places and as per the
pattern approved in writing by the Engineer-in-charge. The Engineer-
in-charge, may require drilling of additional holes by the contractor
before blasting is taken up. The holes not drilled as per the approved
drilling pattern shall not be taken up for blasting. On receipt of written
G requisition from the contractor in the prescribed proforma duly signed
by the authorised representative of the contractor to the company not
less than 2 days prior to intended date of blasting, blasting will be
done by the Company as and when felt necessary and convenient by
the Engineer-in-charge. The company shall make available the blasting
H material, its transportation, biasting accessories and blasting crews
RAJASTHAN STATE MINES AND MINERALS LTD. v. EASTERN ENG. ENTERPRISES [SHAH, J.] 719
including blaster/s. In case the company is not in a position to A
arrange for the same, the contractor shall make his own arrangements
for the same without any liability and obligation on the company. The
company shall deduct the actual landed cost of all explosives ex-
Jhamarkotra as may be used in the course of blasting plus five per
cent value of the landed cost of explosives as blasting charges from
the contractor's running :Bill/s or any amount that may be found due B
and payable to the contractor or the security amount. It is agreed'and
understood by the contractor that in the event of company doing
blasting as aforesaid, for and on behalf of the contractor, the contractor
shall not be allowed and/or permitted to raise any dispute as to make,
type quantity of the explosives that will be used in blasting by the c
company, fragmentation of rock, toes at the mining face, landed cost
of explosive, time and fo~quency of blasting etc., and the contractor
shall be bound to make good the landed cost of explosives, cost of
blasting accessories etc., plus overheads @ 5% as may be certified
by the Engineer-in-charge~ from time to time. Provided also that the
contractor shall not be entitled and/or justified to raise aey claim D
or dispute on account of blasting or non blasting or idling of his
equipment or his labour or any rise in the landed cost of explosives
at any time or during the currency of this agreement or on any
ground or aey reason of any account, whatsoever.

At the time of blasting in the areas being worked by the Company E
or by the contractor if tht: company is required to carry out blasting
operation, the contractor shall be required to vacate the areas if the
areas fall within blasting zone, worked by him for which the contractor
shall not be entitled for_ any claim, additional payment whatsoever.

18. Contractor's remuneration for works under the Contract: F
In consideration of the pe1formance of the work, fulfillment of all the
obligations, terms and conditions of this agreement by the contractor
in execution of the work covered by this contract in and from the
aforesaid areas, the contractor shall be paid remuneration calculated
@ Rs. 35.80 (thirty five and eighty paise) all inclusive per cubic G
meter in respect of over burden a!J.d/or Ore actually excavated,
-;..
mined, removed, transported, disposed off, dumped, do~ed, levelled
and spreaded including drilling, blasting, mucking, loading, and
unloading, etc., with an leads and lifts involved in connection with the
transportation and dumping of over-burden to the dump yards or ~re H
720 SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.

A stacks, including all preparatory dressing, finishing and other
operational works etc., executed and approved by the Engineer- in-
charge. The rates aforesaid shall be composite and inclusive of all
services, activities and operations involved in the execution of the
work as per terms and conditions of this agreement which constitute
the whole and inclusive remuneration that is payable by the Company
B to the contractor under this contract. The contractor shall be only
entitled to the payment of composite rate as aforesaid and no other
or further payment of any kind or item, whatsoever, shall be due and
payable by the Company to the contractor under this agreement
except as aforesaid
c The rates aforesaid shall remain firm, fvced and binding during
the currency of this agreement till the issue of final certificate
irrespective of any fall or rise in the cost of Mining operations of the
work covered by this contract or for any other reason or any account
or any ground whatsoever.
D
Provided, however, that the company has agreed to freeze the
issue rate of Diesel as on 13 March, 1981, at the rate of Rs. 2. 78
(Rupees Two and seventy eight paise only) per litre and the company
shall issue the Diesel subject to availability and its convenience to the
contractor against the surrender of permit/s of the equipment by him
E at the frozen rate of Rs. 2. 78 per litre during the currency of this
contract even if there be any rise in the cost of diesel after execution
of this agreement subject to a ceiling of 1.3 litres (one point three litre)
for one cubic meter of rock (in situ) actually handled and work executed
by the contractor and approved by the Engineer-in-charge, as per
provisions of this agreement. No diesel at the frozen rate of Rs. 2. 78
F per litre shall be supplied and/or issued to the contractor after the
12th day of June, 1984, if the work is not finally completed by the
contractor as aforesaid. The company shall deduct the cost of diesel
@ Rs. 2.78 per litre actually issued to the contractor from the
contractor's running bills or any amount that may be due to him or
G the security amount. Save .and except as aforesaid the contractor
shall not be entitled to raise any claim and/or dispute on account
of any rise in the price of oil, lubricants, tyres, tubes, explosives,
spares etc. statutory or otherwise or increase in the wages or.Minimum
wages or on any other ground or reason or account, whatsoever."

H Relevant part of arbitration clause 74 is as under:-
RAJASTHAN STATE MINES AND MINERALS LTD."· EASTERN ENG. ENTERPRISES [SHAH. J.) 721
All disputes and differences arising out of or in any way touching A
or concerning this contract whatsoever, except as to any matter, the
"decision of which is expressly vested in any authority in this
contract, shall be rieferred to the sole arbitration of the person appointed
by the Managing Director of Company who shall have status of a
Mines Manager having 1st Class Mines Manager's Certificate and
having experience not less than five years in open cast mining as B
Mines Manager."

At this stage, we would refer to the relevant portion of letter dated 7-
9-1983 written by the Contractor to the appellant as the dispute for the said
claims made in the Jetter is referred to for arbitration.
c
I. After stating the reasons in delay in starting the work, it 1s
mentioned:

"In view of above, we now request RSMML to consider our
case and condone the theoretical delay, which, in fact, was not
there and also give us necessary, relief as to consequential D
damages thereof. Hence, we request you to consider I st August,
1981 as the date of start of work and accordingly, extend the
validity of the contract."

2. The demand is "Release of additional security deposit of Rs. 5
Jakhs furnished by us in RSMML's favour by way of bank E
guarantee" for the reasons stated therein.

3. Request for 'Rescheduling of the existing excavation schedule'
for the reasons mentioned therein.

4. Claim for Escalation in the existing rate of excavation:
F
"We signed the contract with a clear understanding that the
rate under this contract is firm and final and we shall get no
escalation in our rates, except in case of diesel, which will be
supplied to us by the Company at a frozen rate. With the
passage of time our cost calculations went hayway for reasons G
which were beyond our control."

5. (i) From the beginning of the contract we had paid wages
equivalent to RSMML wages instead of Minimum wages. The
difference between the two on an average in the last 25 months
works out to Rs.75,000 per month, against an average production H
722 SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.

A of 40,000 cu.m. per month. Thus the additional cost works out
to Rs.1.80 per cu.m.
(ii) Unforeseen and difficult operating condition in the footwall and
its effect on the cost of operation:

"The work in footwall area of 'D' block is a major constituent
B of the contract both quality and quantity wise. While the contract
is termed as a 'Turnkey' contract, at least in the footwall the
work cannot, by any stretch of imagination, be considered as
'Turnkey', as the operation in that area is totally controlled by
the Principal employer.'
c In fact, it was beyond our imagination that our working in the
footwall will be so much restricted, resulting the cost of operation,
which is virtually very high than normal cost of operation. In view
of above, we feel that our request in this regard will be sympathetically
considered by the Management, who are also engaged in similar
D work. Thus, for such poor utilisation of the Shovel, the rate should
be 35.80
58.50 x 100 = 6 1.20.

Thus, an additional rate of Rs. 25.40 per cu.m. for the entire footwall operation
has to be provided for.
E (iii) Non-availability of explosive and use of costly explosive for
blasting :

Reimbursement of Rs.22.55 lakhs towards cash loss due to non- supply
of explosives in time plus Rs.1.82 per cu.m. of rock handled so far.
F 6. Claim for Transportation of ore :

After stating reasons in detail, it is claimed thus:

"Till 31st August, 1983 mined and transported 45,456 tonnes of ore
and mixed ore from Eastern Saddle and Footwall, the additional
G
expenses involved in this operation are:

(i) Care being taken during mining to avoid as much as possible
admixture of ore and overburden, and

(ii) Additional transportation involved for taking it to the crusher
H instead of the dumpyard. Towards this we have to make claim
RAJASTHAN STA TE MINES AND MINERALS LTD. v. EASTERN ENG. ENTERPRISES [SHAH, J.] 723
of Rs. 6 towards this mining cost per tonne and Rs. 4 towards A
transportation cost per tonne making the total to Rs. 4,05,660 for
40,566 tonnes of ore after allowing ~% of the total excavation
volume of footwall i.e. 3.36 lakhs cu/.m."

"To sum up, claims under various heads are as under:
B
(i) Not to levy any damages for not starting work in time and to
treat l st August, 1981 as the date of start of work and thereafter
calculate 3 years for completing this work under this contract;
•
(iI) To release performance bank guarantee of 5 lakhs furnished in
your favour by way of additional security deposit;
c
(iii) To re-schedule the excavation schedule keeping in view the
industrial climate at Jhamarkotra @ 40,000 cu.m. per month;
(iv) To allow us escalation ofRs.3.62 in our rates towards additional
cost that has been incurred by us with retrospective effect.
(v) To admit our claim of Rs. 22.55 lakhs towards loss suffered on D
account of non supply of explosives, Rs.4,05,660 towards
additional cost of mining and transportation of ore and
Rs.52,53,650 on account of loss suffered by us for unforeseen
and difficult operating condition at footwall or in other words
the present rate of Rs. 35.80 per cu.m. with retrospective effect." E
On the basis of the claims made in the letter dated 7th September, 1983,
respondent filed claim statement for 8 items which is tabulated by the High
Court in its judgment.

Claim Description of Relief claimed F
No. claim

1. Claim for increase in rate Claimed reimbursement @
for excavation work at Rs. 25.40 per cu.m. up to
the Footwall area demand Aug. 83 thereafter @ 63.56
for escalation in the pe~ cu.m. Over and above G
existing rates of excavation. the contract rate of Rs.35.80 .
Cu.m. In all claim under this item
quantified for Rs. 1,36,43,218.

2. Claim for increase in costs Claimed reimbursement @ Rs.
Of work due to use of high 1.80 per cu.m. for all H
724 SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.

A Explosives instead of use excavation done/to be done
Of ANFO mixture. under the contract using high /

Explosives instead of ANFO mixture.
3. Claim for reimbursement for Claim reimbursement of
Losses suffered due to non- Rs. 22.55 lacs by way of loss
B Availability of explosive. during the period February, 1963 to
May 1983.
4. Claim for reimbursement Claimed reimbursement of
of additional costs for mining additional costs at the rate of
and transport of ore. Rs. 6 per ton towards mining and
c Rs. 4 per ton towards additional
transportation to the crusher. Total
Rs.IO per ton for 47856 tonnes of
ore and mixed ore upto 31st
December, 1984 quantifying claim
of Rs. 4,31,890.
D
5. Claim for reimbursement Claim reimbursement @ Rs.
of additional expenditure 1.82 per cu.m. for excavation
incurred on account of done/to be done on account
Agreement with RPMS.- of respondent entering into
For wages to labourers. an agreement with RPMS Dated
E 26.5.81 Ex.C/I of the Arbitration
proceedings.
6. Claim for release of Claimed release of duly discharged
additional securities Bank guarantee of Rs. 5 lacks on
deposit. Account of Addi. Security deposit.
F 7. Claim for reimbursement Claim reimbursement ofRs.0.90
of additional expenses on per cu.m. of excavation done
account of revised wage since 1.4.83 or to be done
structure w.e.f.1.4.83. thereafter as per Ex.C/58 and C/68.

G
8. Interest Claimed interest on the amount of
Award@ Rs.18% per annum Or
·-
decree whichever is earlier.

As stated earlier by interim award, arbitrator has awarded Rs. 65 lakhs
for claims No. 2, 3 and 5. Thereafter, by final award, he has awarded total sum
H of Rs. '1.07 crores with 12.5% interest w.e.f. 5.2.85.
RAJASTHAN STATE MINES AND MINERALS LTD. v. EASTERN ENG. ENTERPRISES [SHAH, J.J 725

Before discussing further, what emerges from the facts stated above is: A
(1) in the award, no reasons are assigned for granting various
claims to that extent, it is non-speaking. For claim Nos. 2, 3 and
5, Rs. 65 lakhs were awarded by interim award dated 20th
September, 1985.
B
(2) In the interim award, the arbitrator has made it clear that he was
appointed as the sole arbitrator vide memo dated 5th February
1985 "to decide the dispute between the parties arising out of
the agreement dated 14 May, 1981 ". So, his authority or
jurisdiction to decide the claims raised by the contractor was on
the basis of the agreement between the parties. c
(3) In the final award also, iIJ the first paragraph itself, arbitrator has
stated that:

"The claimants have put in claims arising out of and in relation
to the work 'Excavation and removal of overburden at the D
Jhamarkotra mines of 'RSMML' executed under agreement
-· dated 14.5.1981, and have put in their claims under 7 heads
of claim and have further claimed interest, pendentelite and
future at 18% per annum .. " It further mentions that he has
given due weightage to all the documents placed and arguments
submitted before him "as regards admissibility as well as E
quantum of each claim by going through details of work done.
under each item of claims as filed before me."

(4) In the letter dated 7th September, 1983, the Contractor himself
has clarified, admitted and stated thus:
F
"We signed the contract with a clear understanding that the
rate under this contract is firm and final and we shall get no
escalation in our rates, except in case of diesel, which will be
supplied to us by the company at a frozen rate. With the
• passage of time our cost calculations went hay way for reasons
G
which were beyond our control."

(5) The appellant in his detailed reply before the arbitrator to the
claims made by the contractor has pointed out and relied upon
clauses 17 and 18 for contending that contractor was not entitled
to any such claim under the contract. H
726 SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.

A (6) Before the District Judge also, the issues pertaining to clauses
17 and 18 as stated above were raised.

(7) Before the High Court also, it was contended that arbitrator
made award against the stipulations of the agreement between
the parties and thereby travelled beyond his jurisdiction.
B From the facts stated above, learned Counsel for the appellant has
rightly pointed out that Claim No. I for increase in rate of excavation work
at footwall area and claim no. 4 for reimbursement of additional costs for
mining and transport of ore is against the stipulation of clause 18 as narrated
above, which inter-alia, specifically provides as under:
c (a) "The contractor shall be paid remuneration calculated @Rs. 35.80
(Rupees Thirty Five and Eighty Paise only) all inclusive per
cubic meter in respect of over burden and/or Ore actually
excavated ..............transported........."
(b) "The contractor shall be only entitled to payment of composite -
D
rate as aforesaid and no other or further payment of any kind'
of item, whatsoever, shall be due and payable by the Company
to the contractor under this agreement except as aforesaid."

(c) "The rates shall remain in firm, fixed and binding irrespective of
E any fall or rise in the cost of Mining operations of the work
covered by the contract or for any other reason or any account
or any ground whatsoever."

Similarly, claim no. 2 for increase in costs of work due to use of high
explosives instead of use of ANFO mixture and claim no. 3 for reimbursement
F for losses suffered due to non-availability of explosive is also against Clause
17, which inter-a/ia, provides:

(a) "It is express term of this contract that while carrying out the
excavation/Mining operations from the aforesaid areas, blasting
wherever required, shall be undertaken by the contractor at his
.. _
G cost. TQe remuneration payable under this contract for the wprk
aforesaid is inclusive of this element which includes cost of
explosives, its· accessories transportation, salary and wages of
its crew/blasters etc., or otherwise."

(b) "Provided also that the contractor shall not he entitled and/or
H justified to raise any claim or dispute on account of blasting or
RAJASTHAN STATE MINES AND MINERALS LTD. v. EASTERN ENG. ENTERPRISES [SHAH, J.] 727
non blasting or idling of his equipment or his labour or any rise A
in the landed cost of explosives at any time or during the
currency of this agreement or on any ground or any reason of
any account, whatsoever."

Similarly, claim no. 5 for reimbursement of additional expenditure incurred
on account of RPMS and claim no. 7 for reimbursement of additional expenses B
on account of revised wage structure w.e.f. 1.4.83 also cannot be granted in
view of aforesaid stipulations and also part of Clause 18 which, inter-alia,
provides as under:

"Save and except as aforesaid the contractor shall not be entitled to
raise any claim and/or dispute on account of any rise in the price of C
oil, lubricants, tyres, tubes, explosives, spares, etc. statutory or
otherwise or increase in the wages or Minimum wages or on any
other ground or reason or account, whatsoever."

Apart from the aforesaid specific stipulations, even the contractor has
admitted in his letter dated 7th September, 1983 that the contract was signed D
with clear understanding that the rate under the contract was firm and final
and that no escalation in rates except in case of diesel would be granted.

Despite the admission by the contractor, it is apparent that arbitrator
has ignored the aforesaid stipulations in the contract. In the award, the E
arbitrator has specifically mentioned that he has given due weightage to all
the documents placed before him and has also considered the admissibility
of each claim. However, while passing the award basic and fundamental terms
of the agreement between the parties are ignored. By doing so, it is apparent
that he has exceeded his jurisdiction.
F
Further, in the present case, there is no question of interpretation of
clauses 17 and 18 as the said clauses are so clear and unambiguous that they
do not require any interpretation. It is both, in positive and negative terms
by providing that contractor shall be paid rates as fixed and that he shall not
-~ ' be entitled to extra payment or further payment for any ground whatsoever G
·except as mentioned therein. The rates agreed were ·firm, fixed and binding
irrespective of any fall or rise in the cost of the work covered by the contract
· or for any other reason or any ground whatsoever. It is specifically agreed
that contractor will not be entitled or justified in raising any claim or dispute
because of increase in cost of expenses on any ground whatsoever. By
ignoring th~ said terms, arbitrator has travelled beyond his jurisdiction as his
.~-
H
728 SUPREME COURT REPORTS [1999) SUPP. 2 S.C.R.

A existence depends upon the agreement and his function is to act withiri the
limits of the said agreement. This deliberate departure from the contract
amounts not only to manifest disregard of the authority or misconduct on his
'
part but it may tantamount to ma/a fide action. '
It is settled law that the arbitrator is the creature of the contract between
B the parties and hence if he ignores the specific terms of the contract, it would
be a question of jurisdictional error which could be corrected by the Court ·)
and for that limited purpose agreement is required to be considered. For
deciding whether the arbitrator has exceeded his jurisdiction reference to the
terms of the contract is a must. It is true that arbitration clause 74 is very
C widely worded, therefore, the dispute was required to be referred to the
arbitrator. Hence, the award passed by the arbitrator cannot be said to be
without jurisdiction but, at the same time, it is apparent that he has exceeded
his jurisdiction by ignoring the specific stipulations in the agreement which
prohibit entertaining of the claims made by the contractor. In the letter dated
5th February, 1985 appointing the sole arbitrator, it has been specifically
D mentioned that agreement dated 14th May, 1981 was executed by and between
the parties and that contractor has raised the claims is mentioned in the !etter
dated 7th September, 1983 which was denied by the company and ~t the
request of the contractor, sole arbitrator was appointed to adjudicate the
claims made by the contractor vide his Jetter dated 7th September, 1983. This
E reference to the arbitrator also clearly provides that reference was with regard
to the dispute arising between the parties on the basis of the agreement dated
14th May, 1981. It nowhere indicates that the arbitrator was empowered to
----
adjudicate any other claims beyond the agreement between the parties. No
such issue was referred for adjudication. Even the arbitrator in his interim
award has specifically stated that he was appointed to adjudicate the disputes
F between the parties arising out of the agreement dated 14th May, 1981.
However, learned senior Counsel, Mr. Ashok H. Desai, submitted that
award is a non-speaking one and the arbitration clause, in this case empowers
the arbitrator not only to decide all disputes arising out of the contract but
G .also to decide all disputes in any way touching the contract whatsoever,
· hence the arbitrator is not required to confine himse1f only to the terms of the
contract but can pass appropriate award so as to do justice between the
parties including awarding damages suffered by the contracting parties.
Therefore, award cannot be said to be without or beyond jurisdiction. He
further submitted that the award passed by the arbitrator is on the basis of
H the interpretation of clauses 17 and 18 and, therefore, the award would be

1-
j
RAJASTHAN STATE MINES AND MINERALS LTD. v. EASTERN ENG. ENTERPRISES [SHAH, J.J 729

within his jurisdiction. A
Learned counsel for both the parties submitted that law on this subject
is well settled. However, they referred to various decisions to buttress their
respective contentions. To do justice to their contentions, we would refer to
the various decisions of this Court relied upon by them. In Jivarajbhai B
"' · Ujamshi Sheth and Others v. Chintamanrao Balaji and Others, [1964] 5
S. C.R. 481, the dispute arose between the partners of a firm on retirement of
partners which was referred to the arbitrator. The arbitrator had passed non-
speaking award. While revoking the award, the High Court in concurrence
with the Court below upheld two objections:

(a) that the arbitrator exceeded his jurisdiction; and
c
(b) that he was guilty of misconduct in receiving some evidence
behind the back of one partner, Chintaman Rao.

Before this Court, it was contended that the deed of partnership as well
as the order of reference left the arbitrator a free hand and even if the D
arbitrator wrongly interpreted the deed of partnership and had included the
depreciation and appreciation while valuing partnership property, no question
of jurisdiction could arise. The partnership deed referred to by the Court
provided that in ascertaining the valuation of the firm, the property was to
be valued at the book value of the firm and such stock and movables thus E
valued shall be given to-the remaining partners. After considering the decision
in Chempsey Bhara and Company v. Jivraj Ba/loo Spinning and Weaving
Company Ltd, LR 50 I.A. 324, Shah, J, observed that :

(a) It is not open to the Court to speculate, where no reasons are
given by the arbitrator, as to what impelled arbitrator to arrive F
at his conclusion
(b) It is not open to the Court to admit to probe the mental process
by which the arbitrator has reached his conclusion where it is
not disclosed by the terms of the award.
(c) The primary duty of the arbitrator under the deed of a reference G
in which was incorporated the partnership agreement, was to
value the net assets of the firm and to award to the retiring
partners a share therein. In making the "valuation of the firm",
his jurisdiction was restricted in a manner provided by paragraph
13 of the partnership agreement. As the arbitrator has expressly
stated in his award that in arriving at his valuation, he has H
730 SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.

A included the depreciation and appreciation of the property, the
arbitrator has travelled outside his jurisdiction and the award
was on that account liable to be set aside. This was not a case
in which the arbitrator has committed a mere error of fact or law
in reaching his conclusion on the disputed question submitted
for his adjudication. It is a case of assumption of jurisdiction not
B possessed by him, and that rende~s the award, to the extent to
which it is beyond the arbitrator's jurisdiction, invalid. The award
must fail in its entirety as it was not possible to severe from the
valuation made by the arbitrator, the value of the depreciation
and appreciation included. In a concurring judgment,
c Hidayatullah J, after considering the decision in Chempsey Bhara
and Company's case (supra) observed that "the first point is
therefore to decide what were the limits of the arbitrator's action
.as disclosed by the reference and the deed of partnership and
then to see what the arbitrator has actually done and not what
he may have stated loosely in his award. This is the only way
D in which the excess of jurisdiction can be found. If the
interpretation of the deed of partnership lies with the arbitrator,
then there is no question of sitting in appeal over his
interpretation, in view of the passage quoted above from
Champsey 's case but if the parties set limits to action by the
E arbitrator, then the arbitrator had to follow the limits set for
him, and the court can find that he has exceeded his jurisdiction
on~proof of such action".

The next decision on which reliance is placed is Continental
Construction Co. Ltd v. State of MP., [1988] 3 SCR 103. In the said case, it
F was contended by the contractor that contract could not be completed within
stipulated time because of alleged gross delay on the part of the State in
allotme~t of work and discharge of its obligation under the contract. He had,
therefore, incurred unforeseen expenditure and claimed damages to the tune
of Rs. 5,29,812. The matter was referred to the retired Engineer-in- Chief, PWD,
G Bhopal, who partly allowed the contractor's claim. The award was set aside
by the District Judge. Appeal was also dismissed by the High Court and in
appeal before this Court, it was contended that the contractor was not entitled
.to extra cost for material and labour in terms of the contract. This Court held
that arbitrator misconducted himself in allowing the claim without deciding
the objection of the State that in view of the specific clauses of the contract,
H the Contractor was not legally entitled to claim extra cost. The Court observed:
RAJASTHAN STATE MINES AND MINERALS LTD. v. EASTERN ENG. ENTERPRISES [SHAH, J.J731

"If no specific question of law is referred, the decision ofthe arbitrator A
on that question is not final however much it may be within his
jurisdiction and indeed essenti.:il for him to decide the question
incidentally. The arbitrator is not a conciliator and cannot ignore the
law or misapply it in order to do what he thinks is just and reasonable.
The arbitrator is a tribunal selected by the parties to decide their B
disputes according to law and so is bound to follow and apply the
law, and if he does not he can be set right by the Court provided his
error appears on the face of the award. In this case, the contractor
having contracted, he cannot go back to the agreement simply
because he does not suit him to abide by it. The decision of this
Court in Mis. Alopi Parshadv. Union ofIndia, (1960]2 SCR 793 may C
be examined. There it was observed that a contract is not frustrated
merely because the circumstances in which the contract was made,
altered The Contract Act does not enable a party to a contract to
ignore the express covenants thereof, and to claim payment of
consideration for performance of the contract at rates different from
the stipulated rates, on some vague plea of equity. The parties to an D
executory contract are often faced, in the course of carrying it out,
with a turn of event which they did not at all anticipate, a wholly
abnormal rise or fall in prices, a sudcfen depreciation of currency,
an unexpected obstacle to execution, or the like. There is no general
liberty reserved to the courts to absolve a party from liability to £
perform his part of the contract merely because on account of an
uncontemplated tum of events, the performance of the contract may
become onerous."

""' Thereafter, the Court distinguished the decision in Tarapore Company
v. Cochin Shipyard Ltd and another, [1984) 2 sec 680. In the said case, there F
were no specific clauses which barred consideration of extra claims in events
of price escalation. At this stage, we would mention that in Tarapore Company's
case, this Court after considering the various decisions has held that a
specific question as to whether the claim of compensation made by the
Contractor demurred and disputed by the respondent would be covered G
within die scope, ambit and width of the arbitration clause was specifically
referred by the parties for the decision of the Arbitrator. In such cases, the
- award cannot be set aside on the ground that there is an error of law on the
face of the award. Learned Sr. Counsel, Mr. Ashok H. Desai has heavily relied
upon this decision in support of his contention that in the present case also,
arbitration clause 74 is very widely worded. Dealing with arbitration clause, H
732 SUPREME COURT REPORTS (1999] SUPP. 2 S.C.R.

A Court observed "arbitration clause so widely worded, as disputes arising out·
of the contract or in relation to the contract or execution of the works, would -.
comprehend within its compass a claim for compensation related to estimates
and arising out of the contract. The test is whether it is necessary to have
recourse to the contract to settle the dispute that has arisen". Further, while
B interpreting such clause, the Court has held as under:

"We may now tum to some decisions to which our attention was
drawn. The first case we would like to refer to is A.M Mair & Co.
v. Gordhandass Sagarmull, [1950] SCR 792. The Court was concerned
with the arbitration clause drawn up as : "all matters, questions,
c disputes, differences and/or claims, arising out of and/or concerning,
and/or in connection and/or in consequence of, or relating to, the
contract etc." The question arose whether the due date under the
contract was extended within the time, earlier reserved. The arbitrator
held that the due date of the contract has been extended by a mutual
agreement and the respondents were held liable to pay a sum of Rs.
D 4116 together with interest at the rates specified in the award. It was
contended that the dispute is not covered by the arbitration clause.
This clause while holding that the dispute is covered by the arbitration
clause observed that looking to the rival contentions, such a dispute,
the determination of which turns on the true construction of the
E contract, would also seem to be a dispute under or arising out of or
concerning the contract. The test formulated was that if in settling a
dispute, a reference to the contract is necessary, such a dispute would
be covered by the arbitration clause."

It is true that arbitration clause in the present case, is also very widely
F worded and that all disputes in any way touching or concerning the contract
whatsoever are required to be referred to the arbitration. Therefore, reference
of the dispute to the arbitrator cannot be termed as without jurisdiction. Still
the question would be whether arbitrator will have authority or jurisdiction
to grant damages or compensation in teeth of stipulation providing that no
G escalation would be granted and that contractor would only be entitled to
payment of composite rate as mentioned and no other or further payment of
any kind or item whatsoever, shall be due and payable by the company to
the contractor; the rates wherever fixed are binding during the currency of the
agreement irrespective of any fall or rise in the cost of the work covered by
the contract or for any other reason or on any account or any other ground
H whatsoever. In the said case, there was no such specific agreement or
RAJASTHAN STATE MINES AND MINERALS LTD. v. EASTERN ENG. ENTERPRISES [SHAH, J.] 733

stipulation. Further, the Court has also given a finding that it was a case A
where a specific question of law touching upon the jurisdiction of the arbitrator
was referred for the decision of the arbitrator by the parties. Hence the Court
held that in such a situation, even if the view taken by the arbitrator may not
accord with the view of the Court, the award cannot be set aside on the
ground that there is an error of law apparent on the face of the record. Facts
and issues in the present case are quite different as stated above. B
In Mis. Sudarshan Trading Co. v. Government of Kera/a and Another,
[1989] 2 SCC 38, this Court posed the following questions for its decision:

"How should the Court examine an award to find out whether it..was
a speaking award or not; and if it be a non-speaking award, how and c
to what extent the Court could go to determine whether there was any
error apparent on the face of the award to be liable for the interference
by the Court. The other question that arises in this case is, to what
extent can the Court examine the contract in question though not
incorporated or referred to in the award." D
In that case also, the arbitrator has passed the non-speaking awards
but with regard to each and every claim it has separated and passed the order
either accepting or rejecting the claim or partly accepting the claim of the
contractor.
E
After referring to the various decisions including Jivarbhai Ujamshi
Sheth case, the Court oqserved as under:

"This was reiterated by Justice Hidayatullah that if the parties set
limits to action by the arbitrator, then the arbitrator had to follow the
limits set for him and the Court can find that he exceeded his jurisdiction F
on proof of such excess. In that case the arbitrator in working out net
profits for four years took into account depreciation of immovable
property. For this reason he must be held to have exceeded his
jurisdiction and it is not a question of his having merely interpreted
the partnership agreement for himself as to which the civil court could G
have had no say, unless there was an error of law on the face of the
award. Therefore, it appears to us that there are two different and
distinct grounds involved in many of the cases. One is the error
apparent on the face of the award, and the other is that the arbitrator
exceeded his jurisdiction. In the latter case, the courts can look into
the arbitration agreement but in the former, it cannot, unless the H
734 SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.

A agreement was incorporated or recited in the award."

This Court further observed:

"An award may be remitted or set aside on the ground that the
arbitrator in making it, had exceeded his jurisdiction and evidence of
matters not appearing on the face of it, will be admitted in order to
B establish whether the jurisdiction had been exceeded or not, because
the nature of the dispute is something which has to be determined
outside the award - whatever might be said about it in the award or
by the arbitrator... It has to be reiterated that an arbitrator acting
beyond his jurisdiction - is a different ground from the error apparent
c on the face of the award."

Further, dealing with the non-speaking award and also for the claims on
the ground of escalation of price, due to various reasons including payment
of minimum rates of wages payable to various categories of workers, this
Court in Associated Engineering Co. v. Government of Andhra Pradesh and
D Another, [1991] 4 SCC 93 referred to the contract clauses and set aside the
award by holding:

"This conclusion is reached not by construction of the contract but
by merely looking at the contract. The umpire travelled totally outside
the permissible territory and thus exceeded his jurisdiction in making
E
the award under those claims. This is an error going to the root of his
jurisdiction: See Jivarajbhai Ujamshi Sheth v. Chintamanrao Balaji.
I

The Court further held as under:

F "An arbitrator who acts in manifest disregard of the contract acts
without jurisdiction. His authority is derived from the contract and is
governed by the Arbitration Act which embodies principles derived
from a specialised branch of the law of agency (see Mustill and
Boyd's Commercial Arbitration, 2nd edn., p;- 641). He commits
misconduct if by his award he decides matters excluded by the
G agreement (see Halsbury's Laws of England, Volume II, 4th edn., para
622). A deliberate departure from contract amounts to not only manifest
disregard of his authority or a misconduct on his part, but it may
tantamount to a ma/a fide action. A conscious disregard of the law
or the provisions of the contract from which he has derived his
H authority vitiates the award."
RAJASTHAN STATE ~llNES A'ID MINERALS LTD 1·. EASTERN ENG. ENTERPRISES [SHAH. J.J 735

Learned Counsel for the Respondent relied upon the case of Hindustan A
Construction Co. Ltd. v. State of Jammu & Kashmir, fl 992] 4 SCC 217. In the
said case, the Court has observed that award was a non-speaking one and
contained no reasoning which could be declared to be faulty; the scope of
the Court's jurisdiction in interfering with the non- speaking award is extremely
limited. While discussing the contention, the Court quoted the decision in the
case of Sudarshan Trading Co. case (which we have earlier referred) and B
thereafter held that High Court has not rested its decision on any question
of the arbitrator having exceeded his jurisdiction or travelled beyond the
•
contract; the Court has set aside the award on the ground of error apparent
on the face of it. The Court further held that clauses of the contract referred
to by the High Court are not so clear or unambiguous as to warrant an C
inference that the interpretation placed on them by the arbitrators is totally
unsustainable. In that view of the matter, the Court held that it was difficult
to say that the arbitrator's interpretation was erroneous on the face of it.
Hence, the aforesaid decision would have no bearing to the facts and the law
involved in this matter.
D
Similarly, in Managing Director, J &K Handicrafts, Jammu v. Good
luck Carpets, [ 1990] 4 SCC 740, dealing with the non-speaking award, the
Court negatived the contention that the agreement containing the arbitration
clause cannot be looked into even to find out as to what was the nature of
the dispute contemplated by it with regard to which a reference to an arbitrator E
was contemplated, nor so, when the award was non-speaking one, by observing
thus:

"Firstly, the award is not a totally non-speaking one inasmuch as it
gives a resume of the incentive scheme and the agreement between
the parties as also the items of the claim made by the respondent. Of
course while fixing the amount found payable by the appellant, no F
reasons are recorded. Secondly, if there is any challenge to the award
on the ground that the arbitrator had no jurisdiction to make the
award with regard to a particular item inasmuch as it was beyond the
scope of reference, the only way to test the correctness of such a
challenge is to look into the agreement itself. In our opinion, looking G
into the agreement for this limited purpose is neither tantamount to
going into the evidence produced by the parties nor into the reasons
which weighed with the arbitrator in making the award."

In Tarapore & Co. v. State of MP., [1994] 3 SCC 521, this Cou1t again
considered whether the arbitrator has exceeded his jurisdiction in awarding H
736 SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.

A extra payment to the contractor on account of payment of enhanced wages
to labour by the contractor pursuant to statutory revision of minimum wages
by Government or increase in rates of fair wages by wage committee binding
on the con.tractor under conditions of tender notice. In the said case, Court
considered the distinction between the latent and patent jurisdiction of the
arbitrator in deciding the disputes and after referring to the arbitration clause,
B observed:

"Any dispute relating to or arising out of or in any way connected
with the contract has to be referred to arbitration. It ·cannot be said
that there was patent lack of jurisdiction on the part of arbitrators in
having gone into the question of reimbursement; at the best it could
c be said that arbitrators had no jurisdiction to entertain the claim and
hence a case of latent lack of jurisdiction."

After considering the decisions in Continental Construction Co. (supra)
and Tarapore and Co. (supra), this Court held that as there was absence of
D escalation clause, it was not a case where on the basis of the terms of the
agreement entered between the parties, it can be held that arbitrator had no
jurisdiction to make the award. The Court observed that it cannot be held that
.... arbitrator has no jurisdiction to make the award because of lack of specific
provision permitting the claim at the hand. T?e Court further observed:-

E "It has to be seen whether the term of the agreement permitted
entertainment of the claim by necessary implication. It may be stated
that we do not accept the broad contention of Shri Nariman that
whatever is not excluded specifically by the contract can be subject-
matter of claim by a contractor. Such a proposition will mock at the
terms agreed upon. Parties cannot be allowed to depart from what
F they had agreed. Of course, if something flows as a necessary
concomitant to what was agreed upon, courts can assume that too as
a part of the contract between the parties."

After referring to the facts as found from the record, the Court held
G that the award cannot be said to be beyond the jurisdiction of the arbitrator
insofar as increased payment on account of rise in rates of fair wages was
concerned. In our view, the said finding is based on appreciation of evidence
on record and the terms of the contract. However, the Court made it clear that

H
part of the award which is relatable to increase in minimum wages cannot be
regarded as one within jurisdiction and observed "needless to say that if
arbitrator goes beyond jurisdiction, the same would amount to misconduct. "
-
RAJASTHAN STATE MINES AND MINERALS LTD. v. EASTERN ENG. ENTERPRISES [SHAH, J.) 737

In T.N Electricity Board v. Bridge Tunnel Constructions and Others, A
[ 1997] 4 SCC 121, the contractor had set up the claims raised at rates higher
than the contracted rates and twice the rate for the work done after the expiry
of the contract period. For those claims, dispute was raised and the matter
was referred to the arbitrator. The Civil Court made the award rule of the
Court. The High Court confirmed the same. In appeal, this Court set aside the
award and while discussing various contentions, observed as under: B
"If the arbitrator decides a dispute which is beyond the scope of his
reference or beyond the subject-matter of the reference or he makes
the award disregarding the terms of reference or the arbitration
agreement or terms of the contract, it would be a jurisdictional error C
beyond the scope of reference; he cannot clothe himself to decide
,
l
conclusively that dispute as it is an error of jurisdiction which requires
to be ultimately decided by the Court."

In New India Civil Erectors (P) Ltd v. Oil & Natural Gas Corporation,
(1997] 11 SCC 75, this Court again considered the contention wherein the D
arbitrator has passed award contrary to the specific stipulation/condition
contained in the agreement between the parties. The Court observed thus:

"It is axiomatic that the arbitrator being a creature of the agreement,
must operate -within the four comers of the agreement and cannot
II
travel beyond it. More particularly, he cannot award any amount E
which is ruled out or prohibited by the terms of the agreement. In this
case, the agreement between the parties clearly says that in measuring
the built-up area, the balcony areas should be excluded. The arbitrators
could not have acted contrary to the said stipulation and awarded any
amount to the appellant on that account."
F
The aforesaid judgment was conli.dered in H.P. State Electricity Board
v. R.J. Shah and Company, (1999] 4 SCC 214 ancJ in paragraph 26, the Court
held as under:

"In order to determine whether the arbitrator has acted in excess of G
jurisdiction what has to be seen is whether the claimant could raise
a particular dispute or claim before the arbitrator. If the answer is in
affirmative, then it is clear that 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 the power to decide or to adjudicate on a dispute raised H
738 SUPREME COURT REPORTS (1999] SUPP. 2 S.C.R.

A 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."

Learned Sr. Counsel, Mr. Ashok H. Desai relied upon the case of P. V. '.
Subba Naidu and Others v. Government ofA.P. and others, [1998] 9 SCC 407.
B In that case, the non-speaking award was rendered by the arbitrator. The
Court held that the terms of the arbitration clause were very wide, therefore:
all the disputes which arise as a result of the contract would be covered by
the arbitration clause and that all claims were expressly referred to the arbitrator
and were raised before the arbitrator. In that set of circumstances, by purporting
C to construe the contract the Court could not take upon itself the burden of
saying that it was contrary to the contract and as such beyond jurisdiction.
Thereafter, the Court referred to the decision in Ch. Rama/inga Reddy v.
Superintending Engineer, (1994) 5 Scale 67 and observed that in that case
arbitrator was required to decide the claims referred to him having regard to
the contract. Hence, his jurisdiction was expressly limited to decide claims
D under the terms of the contract but in the case which was considered by the
Court, there was no clause in the contract which prevented the arbitrator from
examining the claims put up before the arbitrator. Considering the aforesaid
aspect, in our view, this judgment also would have no bearing in the present
case, as there are express prohibitions and stipulations in the contract for
E non-payment of extra amount on any ground whatsoever. In the present case,
the rates were to remain firm, fixed and binding irrespective of fall or rise in
cost of mining operation of the work covered by the contract or for any other
reason. The contract was for composite rate and it stipulated that no other
or further payment of any kind of item whatsoever was payable by the
--
company to the Contractor.
F
From the resume of the aforesaid decisions, it can be statc;:d that:

(a) it is not open to the Court to speculate, where rio reasons are
given by the arbitrator, as to what impelled arbitrator to arrive
at his conclusion .
.G
(b) It is not open to the Court to admit to probe the mental process
by which the arb,itrator has reached his conclusion where it is
not disclosed by the terms of the award.

(c) If the arbitrator has committed a mere error of fact or law in
H reaching his conclusion on the disputed question submitted for
RAJASTHAN STATE MINES AND MINERALS LTD. v. EASTERN ENG. ENTERPRISES [SHAH, J.J7}9

his adjudication then the Court cannot interfere. A
(d) If no specific question of law is referred, the decision of the
,
Arbitrator on that question is not final, however much it may be
within his jurisdiction and indeed essential for him to decide the
question incidentally. In a case where specific question of law
touching upon the jurisdiction of the arbitrator was referred for B
the decision of the arbitrator by the parties, then the finding of
the arbitrator on the said question between the parties may be
binding.

(e) In a case of non-speaking award, the jurisdiction of the Court
is limited. The award can be set aside if the arbitrator acts c
beyond his jurisdiction.

(f) To find out whether the arbitrator has travelled beyond his
jurisdiction, it would be necessary to consider the agreement
between the parties containing the arbitration clause. Arbitrator
acting beyond his jurisdiction - is a different ground from the D
error apparent on the face of the award.

(g) In order to determine whether arbitrator has acted in excess of
his jurisdiction what has to be seen is whether the claimant
could raise a particular claim before the arbitrator. If there is a E
specific term in the contract or the law which does not permit
or give the arbitrator the power to decide the dispute raised l,>y
the claimant or there is a specific bar in the contract to the
raising of the particular claim then the award passed by the
arbitrator in respect thereof would be in excess of jurisdiction.
F
(h) The award made by the Arbitrator disregarding the terms of the
reference or the arbitration agreement or the terms of the contract
would be a jurisdictional error which requires ultimately to be
decided by the Court. He cannot award an amount which is ruled
out or prohibited by the terms of the agreement. Because of
... specific bar stipulated by the parties in the agreement, that claim
G
could not be raised. Even if it is raised and referred to arbitration
because of wider arbitration clause such claim amount cannot be
awarded as agreement is binding between the parties and the
arbitrator has to adjudicate as per the agreement. This aspect is
absolutely made clear in Continental Construction Co. Ltd. H
740 SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.

A (supra) by relying upon the following passage from Mis. Alopi
Parshad v. Union of India, (1960] 2 SCR 703 which is to the
following effect:

"There it was observed that a contract is not frustrated merely
because the circumstances in which the contract was made,
B altered. The Contract Act does not enable a party to a contract
to ignore the express covenants thereof, and to claim payment
of consideration for performance of the contract at rates different
from the stipulated rates, on some vague plea of equity. The
parties to an executory contract are often faced, in the course
c of carrying it out, with a turn of event which they did not at all
anticipate, a wholly abnormal rise or fall in prices, a sudden
depreciation of currency, an unexpected obstacle to execution,
or the like. There is no general liberty reserved to the courts to
absolve a party from liability to perform his part of the contract
merely because on account of an uncontemplated tum of events,
D the performance of the contract may become onerous."
(i) The arbitrator could not act arbitrarily, irrationally, capriciously
or independently of the contract. A deliberate departure or
conscious disregard of the contract not only manifests the
disregard of his authority or misconduct on his part but it may
E tantamount to ma/a fide action.
G) The arbitrator is not a conciliator and cannot ignore the law or
misapply it in order to do what he thinks just and reasonable;
the arbitrator is a tribunal selected by the parties to decide the
disputes according to law.
F
In view of the aforesaid law and the facts stated above, it is apparent
that the award passed by the arbitrator is against the stipulations and
prohibitions contained in the contract between the parties. In the present
case, there is no question of interpretation of clauses 17 and 18 as the
G language of the said clauses is absolutely clear an,d unambiguous. Even the
contractor has admitted in.his letter demanding such claims that the contract
was signed with clear understanding that the rate under the contract was firm
and final and no escalation in rates except in case of diesel would be granted.
Hence, by ignoring the same, the arbitrator has travelled beyond his jurisdicti~n.
It amounts to deliberate departure from 'the contract. Further, the reference to
H the arbitrator is solely based upon the agreement between the parties and the
RAJASTHAN STATE MINES AND MINERALS LTD. v. EASTERN ENG. ENTERPRISES [SHAH, J.] 741

arbitrator has stated so in his interim award that he was appointed to adjudicate A
the disputes between the parties arising out of the agreement. No specific
issue was referred to the arbitrator which would confer jurisdiction on the
arbitrator to .go beyond the terms of the contract. Hence, the award passed
by the arbitrator is, on the face of it, illegal and in excess of his jurisdiction
which requires to be quashed and set aside.
B
Lastly, we would mention few other contentions raised by the learned
counsel for the respondent which are required to be stated for rejection. His
contention that arbitrator has acted beyond his jurisdiction was not raised
before the District Court as well as before the Arbitrator, is without any
substance. Surprisingly, to say the least, the High Court as well as the District C
Court observed that no specific contention with regard to the jurisdiction was
raised before the arbitrator. It appears that the High Court and the District
Court had not considered the written statement filed by the appellant before
the arbitrator. The District Court has also raised issue Nos. 5 to 8 quoted
above, which would cover the contention raised by the appellant. The issue
whether the award is perverse and that the arbitrator failed to apply his mind D
to pleadings, documents and evidence as well as the clauses 17 and 18 of the
agreement would cover the contention that the arbitrator acted beyond his
jurisdiction in ignoring stipulations of the contract. With regard to the
committee's report on which the learned Counsel for the respondent has relied
upon, it had been pointed out by the learned Counsel for the appellant that E
the said report was specifically rejected by the board of the appellant. Hence,
it would have no bearing on the award which was to be passed by the
Arbitrator.

In the result, the appeal is allowed with costs. The award passed by the
arbitrator is quashed and set aside. Consequently, the judgment and order p
dated 17th December, 199 l passed by the High Court in S.B. Civil Miscellaneous
Appeal No. 254 of 1991 confirming the judgment and order dated l st August,
1989 passed by the District Judge, Udaipur in Civil Miscellaneous Case No.
131 of 1985 and 45 of 1986 is also quashed and set aside .

S.VK . Appeal allowed.