http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 9  

CASE NO.: Appeal (civil)  6678 of 1999

PETITIONER: D.D. Sharma

RESPONDENT: Union of India

DATE OF JUDGMENT: 27/04/2004

BENCH: CJI, S.B. Sinha & S.H. Kapadia.

JUDGMENT: J U D G M E N T

W I T H

CIVIL APPEAL NO.1984 OF 2000

S.B. SINHA, J :

       These appeals arise out of a common judgment and order  dated 15.09.1998 .passed by a Division Bench of the Gauhati  High Court in FA No. 8 of 1993 whereby and whereunder an  objection filed by the Union of India purported to be in  terms of  Section 30 of the Arbitration Act, 1940 was  allowed in part.

       The parties hereto admittedly entered into a contract  for construction of six permanent major bridges on Lekhabali  Basar-Along Road in State of Arunachal Pradesh wherefor a  notice inviting tender was issued by the Chief Engineer,  Project Vartak, Director General (Border Roads).  Shri D.D.  Sharma, appellant in Civil Appeal No. 6678 of 1999,  (hereinafter referred to as ’the contractor’) pursuant  thereto and in furtherance thereof made an offer.   Negotiations admittedly took place between the parties in  relation thereto.   

The notice inviting tender, inter alia, stipulated that  the entire work was to be completed within 36 months from  the date of  handing over the site which would be within one  month from the date of issue of acceptance letter.    It was  further stipulated that the notice of tender shall form part  of the contract.   

It appears that the Union of India proposed an  alternative design and in response thereto the contractor by  his letter dated 25.8.1983 made an offer on the terms and  conditions stipulated therein, clause 6 whereof reads as  under :

"All other terms and conditions will be  as per NIT except that the tender is  valid for all the 6 bridges and cannot be  divided.  To avail the coming working  season if the work is allotted within 60  days of opening of the tender, we are  ready to offer suitable rebate."

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 9  

The Union of India in response thereto showed its  inclination but requested the contractor to withdraw various  stipulations/conditions specified in his tender in terms of  a letter dated 30.09.1983 stating:

"You are requested to withdraw various  stipulations/conditions specified by you  in your tender as brought out above.  In  case you consider that the withdrawal of  the stipulation/conditions involve  financial effect you are requested to  indicate the same for each  withdrawal/modification of condition  separate itemwise."

       The contractor replied thereto stating  :

"We are pleased to withdraw all our  terms and conditions besides our  condition no.4 for design assumption and  the interim payment schedule as the same  has been prepared keeping conformity  with the estimate.  As such the same  will form a part of contract.  We are  also pleased to inform you that if the  work is allotted to us, we will offer a  rebate of Rs.90,000.00 only per bridge.   For withdrawal of the above stated  conditions and for offering rebate, the  Department will have to give us 10%  advance over our L.S. tendered amount  against H.G. Bond of Industrial  Cooperative Bank Ltd. Gauhati.  This 10%  advance will have to be adjusted  proportionately along  with the interim  payment and the B.G. Bond for the  adjusted amount will have to be released  from time to time."

                From a perusal of the said counter offer made by the  contractor  it will appear that one of the conditions laid  down therein was to the effect that all withdrawal of  conditions and rebate would be made subject to the  conditions stated therein.  It was, therefore, a conditional  offer.

By another letter dated 22.11.1983, the contractor  offered  further  rebate on 10% mobilization advance,  stating :

"In partial modification to our rebate  offered by us vide our letter under  reference at serial (2) we are pleased  to offer the following final rebate if  the department gives interest free 10%  over our L.S. tendered amount against  B.G. bond of Industrial Cooperative Bank  Ltd., Gauhati.  This 10% advance will  have to be adjusted proportionately  along with the interim payment and the  B.G. bond for the adjusted amount will  have to be released  from time to time.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 9  

The Rebates of the Bridges are as  follows :  These rebates are over and  above the rebates mentioned in our  letter at Serial (2) under reference.

1.      Nallah at 15.5 m        Rs.9,18,000.00 2.      Laiko at 20.442 km      Rs.6,21,000.00 3.      Cane at 25.841 km       Rs.6,48,000.00 4.      Saiki at 63.88 km       Rs.9,18,000.00 5.      Kiddi at 96.542 km      Rs.9,18,000.00 6.      Sipu at 148.3 km        Rs.6,66,000.00                                         ---------------                                  Rs.46,89,000.00

Rupees forty six lakhs eighty nine  thousand only.,

This rebate has been offered subject to  our condition that the work is allotted  to us by 31st December 1983 and if the  work is allotted to us as a whole,  without breaking up the same partwise as  referred to in para 5 of your letter  no.27537/DGBRE/VTK/72/E8 dt. 30th Sep.  1983.

Hope this clarified all the points  raised by you."

       The said offer was, thus, again a conditional one.   

The Central Government by a letter dated 1.3.1984  addressed to the Director General Border Roads, conveyed the  sanction of the President to the variation from the standard   and  special  conditions of the contract, inter alia,  stating :

"Mobilisation Advance  

After acceptance of the tender and at  the time of placing the work order on  the contractor he shall be paid on  demand 10% interest free mobilization  advance of the contract value against  the bank guarantee bond from a Scheduled  Bank.

The loan advance shall be recovered  proportionately from his ’on account’  payment made to him under the contract  and in such a way that by the time 50%  of the work is completed the entire  advance would be recovered.  The first  installment commencing from the first on  account payment and Bank Guarantee Bond  will be released for the adjusted  amount.  If the advance thus made is  utilized by the firm for purpose other  than for which it was provided the  entire advance together with interest at  12% p.m would be recovered from the firm  in one installment."    

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 9  

       It is not in dispute that the Union of India could not  hand over the site to the contractor within the stipulated  period.  The period of contract, however, was extended from  time to time.   

Admittedly, the notice inviting tender contained an  arbitration agreement. Disputes and differences having  arisen between the parties, the matter was referred to the  arbitration of Brig. S.B. Joshi, Chief Engineer.   

Before the learned Arbitrator, inter alia, four claims  were raised by the contractor which are:

"Claim No. 1(a)  

Refund of payment of sum offered as  rebate on account of placing Work Order  for all the six bridges as a whole  Rs.5,40,000.00.   Claim No.1(b)                     Refund of rebate offered subject to the  condition that 10% interest free  mobilization advance is paid in one lump  sum and the work is allotted as a whole  Rs.46,89,000.00

Claim No.1 (c)

Escalation as per terms of contract on  claim 1(a) and (b) considering these as  part of quoted lump sum as calculation  Rs.60,591.00 & Rs.5,21,131.00

Claim No.2     Extra infructuous/Uncompleted expenses,  expenses and loss of profit due to  enlargement of period of performance  Rs.10,00,000.00

The learned  Arbitrator  rejected the claim of the  contractor in respect of Claim No. 1(c) but partially  allowed Claim Nos.1(a), 1(b) and 2 to the extent of  Rs.90,000/-, Rs.6,48,000/- and Rs.5,00,000/- respectively.

The contractor filed an application before the Court of  the Assistant District Judge, Tezpur which was marked as  Money Suit (Arbitration) Case No. 12 of 1990, purported to  be under Sections 14(2) and 17 of the Arbitration Act, 1940  praying therein for a direction upon the Arbitrator to file  a copy of the award and to make the same rule of the court.   

The Union of India filed an objection thereto purported  to be under Section 30 thereof.  By reason of  a judgment  and order dated 26.8.1992, the learned Assistant District  Judge at Tezpur : Sonitpur, rejected the application filed  by the Union of India for setting aside the award and made  the same rule of the Court.  

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 9  

Aggrieved by and dissatisfied therewith, an appeal was  filed by the Union of India before the Gauhati High Court  which was marked as F.A. No. 8 of 1993.   

The High Court allowed the appeal in part holding,  inter alia,, that having regard to the delay in handing over  the site for Cane Nallah Bridge, the award of Rs.5,00,000/-   for the damages caused  to the contractor although justified  but as the contractor made two offers of  rebate in terms of  its letters dated 25.8.1983 and 22.11.1983 which had not  been considered by the learned Arbitrator, the award in  respect thereof was not sustainable, and a part of the award  could be served, it set aside the award for a sum of  Rs.7,38,000/-.   

The parties are in appeals before us against the said  judgment.

Mr. K.K. Rohtagi, learned counsel appearing on behalf  of the appellant, would, inter alia, submit that the award  being a non-speaking one and having regard to the fact that   the learned Arbitrator in his award categorically stated  that he had taken into consideration all the documents, the  High Court must be held to have committed a manifest error  in interfering therewith.  The learned counsel would contend  that the two offers of rebate referred to by the High Court  in the impugned judgment being conditional ones and the  conditions precedent therefor having not been fulfilled, the  contractor was entitled to make his claim on rebate.   According to the learned counsel, one of the rebates was  offered if the amount of 10% mobilization advance is given  at a time which admittedly was not done, as has been noticed  by the High Court itself in the impugned judgment.  It was  further contended that the second rebate was offered by the  contractor on the condition that the mobilization advance of  10% should be proportionately deducted from the bills for  the entire period of 36 months whereas the Union of India  directed recover of the said amount within a period of 18  months.  

Handing over of possession of site within the  stipulated period, Mr. Rohtagi would contend, had a direct  relationship with the requirement of deployment of heavy  machinery and staff and as a result of non-compliance of the  said condition of contract on the part of the Union of  India, the contractor had suffered a huge loss as it had to  keep machinery idle for a long time and bear other cost of  establishment unnecessarily.   

Mrs. Anil Katiyar, learned counsel appearing on behalf  of the respondent, on the other hand, would submit that as  the contractor had claimed a sum of more than Rs.6,00,000/-  as escalation cost and the same having been duly granted, no  further claim by the contractor was admissible.   

The jurisdiction of the court to set aside an  arbitration is well-settled.  The court, inter alia, can set  aside an award  if the arbitrator has misconducted himself  or the proceedings. The jurisdiction of the court in  interfering with a non-speaking award is very limited.  

It is also trite that correspondences exchanged by the  parties are required to be taken into consideration for the  purpose of construction of a contract.  Interpretation of a  contract is a matter for the Arbitrator to determine, even

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 9  

if it gives rise to determination of a question of law.  The Arbitrator in his award dated 5.10.1990  categorically stated that "he had examined and considered  the pleadings submitted by and on behalf of the parties and  documentary and oral evidences were produced before him by  the parties".          

It has not been disputed that the documents in question  referred to in para 17 of the judgment of the High Court  were filed before the learned Arbitrator.   

The arbitrator was, thus, required to consider as to  whether the contractor can substantiate his claim relying on  or on the basis of non-compliance of the conditions  precedent in relation to the offer of rebate made by it in  his letters dated 25.8.1983 and 22.11.1983. The said  contention evidently was, thus, a subject matter of  determination by the Arbitrator.   An Arbitrator being a  judge chosen by the parties, his decision would ordinarily  be final unless one or the other condition contained in  Section 30 of the Arbitration Act is satisfied for the  purpose of setting aside his award.  Once it is held that  the construction of an agreement fell for consideration of  the Arbitrator, the determination thereupon shall not  ordinarily be interfered with.  

The court’s jurisdiction in this behalf is merely to  see whether the Arbitrator has exceeded his jurisdiction or  not.  The High Court did not point out any material on the  basis whereof it could be said to have been established that  the two documents in question had not been considered by the  learned Arbitrator.  Such a conclusion could be arrived at  if the award was a speaking one.  The award being not a  speaking one, the averments made therein should be accepted  at their face value unless contrary is proved by the party  questioning the validity of the award.   

The learned counsel appearing on behalf of the Union of  India has failed to point out that any material was brought  on records on the basis whereof the findings of the High  Court could be justified.   

In Continental Construction Ltd. vs. State of U.P.  [(2003) 8 SCC 4], it was, inter alia, held :  

"16.The award is a non-speaking one.   It is trite that the court while  exercising its jurisdiction under  Section 30 of the Arbitration Act, 1940  can interfere with the award only in the  event the arbitrator has misconducted  himself or the proceeding or there  exists an error apparent on the face of  the award.

17.The learned Civil Judge and the High  Court have not found that the umpire  acted arbitrarily, irrationally,  capriciously or independent of the  contract.  No finding has been arrived  at that the umpire has made conscious  disregard of the contract which was  manifest on the fact of the award."

This Court in State of U.P. vs. Allied Constructions

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 9  

[(2003) 7 SCC 396], observed :

"...Interpretation of a contract, it is  trite, is a matter for arbitrator to  determine (see M/s Sudarsan Trading Co.  vs. The Government of Kerala, AIR 1989  SC 890).  Section 30 of the Arbitration  Act, 1940 providing for setting aside an  award is restrictive in its operation.   Unless one or the other condition  contained in Section 30 is satisfied, an  award cannot be set aside.  The  arbitrator is a Judge chosen by the  parties and his decision is final.  The  Court is precluded from reappraising the  evidence.  Even in a case where the  award contains reasons, the interference  therewith would still be not available  within the jurisdiction of the Court  unless, of course, the reasons are  totally perverse or the judgment is  based on a wrong proposition of law.  As  error apparent on the face of the  records would not imply closer scrutiny  of the merits of documents and materials  on record.  One it is found that the  view of the arbitrator is a plausible  one, the Court will refrain itself from  interfering..."                   

Yet again in H.P. State Electricity Board vs. R.J. Shah  and Company [(1999) 4 SCC 214], it was held :

"26. 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  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  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."

In Rajasthan State Mines & Minerals Ltd. vs. Eastern

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 9  

Engineering Enterprises and Another  [(1999) 9 SCC 283],  this Court, opined  : "44. (a) It is not open to the Court to  speculate, where on reasons are given by  the arbitrator, as to what impelled the  arbitrator to arrive 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) If the arbitrator has committed a  mere error of fact or law in reaching  his conclusion on the disputed question  submitted for his adjudication then the  Court cannot interfere.  (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 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 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 specific term in the  contract or the law which does not  permit or give the arbitrator the power  to decide the dispute raised by the  claimant or there is a specific bar in  the contract to the raising of the  particular claim then the award passed  by the arbitrator in respect thereof  would be in excess of jurisdiction."  

It has not been shown before us on behalf of the Union  of India that there exists any provision in the contract  which precluded the arbitrator from deciding the dispute or  there existed any specific bar in the contract precluding  the contractor to raise such a claim.  Once it is held that  the Arbitrator had the jurisdiction, no further question  shall be raised and the court will not exercise its  jurisdiction unless it is found that there exists any bar on  the face of the award. [See Pure Helium India (P) Ltd. vs.  Oil & Natural Gas Commission \026 (2003) 8 SCC 593].

While considering a speaking award this court has,  however, albeit in a different context in  Union of India v.  M/s Banwari Lal & Sons (P) Ltd.  [2004 (4) Scale 443]  noticed :

"17. It is now well settled that when a question  of law is referred to the arbitrator the award  cannot be set aside only if a different view is  possible.  However, it is also trite that if no  specific question of law is referred, the decision  of the Arbitrator on that question would not be

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 9  

final, however, much it may be within his  jurisdiction and indeed essential for him to  decide the question incidentally.  Only in a case  where specific question of law touching upon the  jurisdiction of the arbitrator was referred for  determining his jurisdiction by the parties, then  the finding of the arbitrator on the said question  between the parties may be binding.

18. It is also trite that where the award contains  reasons, the same may be interfered, inter alia,  when it is based on a wrong proposition of law.   However, when the view of the arbitrator is a  plausible one, the Court would not normally  interfere."

Furthermore, as we do not find that there existed any  material on records to show that the Arbitrator while making  an award ignored any material documents, the impugned  judgment cannot be sustained, which is set aside  accordingly.  

In the result Civil Appeal No.6678 of 1999 filed by the  contractor is, therefore, allowed and Civil Appeal No.1984  of 2000 filed by the Union of India is dismissed.  No costs.