Non-reportable IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.8817  OF 2010 (Arising out of SLP (C) No.12188/2009)

Oil & Natural Gas Corporation … Appellant

Vs.

M/s. Wig Brothers Builders & Engineers Pvt. Ltd. …. Respondent

J U D G M E N T

R.V.RAVEENDRAN,J.

Leave granted.

2. The appellant (also referred to as ‘ONGC’) entrusted a construction  

work to the respondent under a contract dated 11.10.1983. Clause 25 of the  

contract provided for settlement of disputes by arbitration. Certain disputes  

arose  between  the  parties  in  regard  to  the  said  contract  and  they  were  

referred to a sole arbitrator on 31.12.1986. The claimant made several claims  

aggregating to Rs.82,89,000/-. ONGC made counter claims aggregating to  

Rs.1,24,87,000/-. The arbitrator awarded Rs.9,50,000/- under the first claim,  

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Rs.7,80,132/- under the second claim, Rs.4,77,129/- under fifth claim and  

several  smaller  amounts  under  claims  3,  4,  6  to  13,  15,  and  17,  in  all  

aggregating to Rs.25,26,270/-. The arbitrator  also  awarded  12% pendente  

lite interest and 6% from the date of the award/decree. The counter claims  

were rejected.

3. The  ONGC  challenged  the  said  award  by  filing  a  petition  under  

sections 30 and 33 of the Arbitration Act, 1940 (‘Act’ for short). The civil  

court (Additional District Judge, Dehradun) dismissed the said petition filed  

by ONGC and made the award a rule of the court. ONGC filed an appeal  

before  the  Uttarakhand  High  Court.  By  impugned  judgment  dated  

14.6.2007, the High Court upheld the judgment of the civil court making the  

award the rule of the court, subject only to one change, by reducing the rate  

of pendente lite interest from 12% to 6% per annum. The said judgment is  

challenged by ONGC in this appeal by special leave.

4. It is now well settled that a court, while considering a challenge to an  

award under sections 30 and 33 of Arbitration Act, 1940, does not examine  

the  award,  as  an appellate  court.  It  will  not  reappreciate  the  material  on  

record. An award is not open to challenge on the ground that the arbitrator  

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had reached a wrong conclusion or had failed to appreciate some facts. But  

if there is an error apparent on the face of the award or if there is misconduct  

on  the  part  of  the  arbitrator  or  legal  misconduct  in  conducting  the  

proceedings or in making the award, the court will interfere with the award.  

Keeping the said principles in view, we will consider the challenge.  

5. The  award  has  been  made  with  reference  to  several  claims.  The  

appellant has not been able to make any valid ground to attack except with  

reference to claim No.(1). In fact, the learned counsel for appellant rightly  

concentrated upon the award on claim No.(1), which relates to the claim for  

compensation for loss on account of prolongation of the completion period  

on account of the ONGC’s failure to perform its contractual obligations. The  

arbitrator has held that the delay in completion was due to the fault of both  

the contractor and ONGC and that both are equally liable for the delay of 19  

months.  The arbitrator held that as both were equally liable, the contractor  

was entitled to compensation at the rate of  Rs.1 lakh for a period of 9 ½  

months (that is half of the period of delay of 19 months) in all Rs.950,000/-.  

The arbitrator  has observed that  there  is  no provision in  the  contract  by  

which the contractor can be estopped from raising a dispute in regard to the  

said claim. But clause 5A of the contract pertains to extension of time for  

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completion of work and specifically bars any claim for damages. The said  

clause is extracted below :

“In  the  event  of  delay  by the  Engineer-in-Charge  to  hand over  to  the  contractor  possession  of  land/lands  necessary  for  the  execution  of  the  work or to give the necessary notice to the contractor to commence work  or to provide the necessary drawing or instructions or to do any act or  thing which has the effect  of delaying  the execution of the work,  then  notwithstanding anything contained in the contract or alter the character  thereof or entitle the contractor to any damages or compensation thereof  but in all such cases the Engineer-in-Charge may grant such extension or  extensions of the completion date as may be deemed fair and reasonable  by the Engineer-in Charge and such decision shall be final and binding.”

6. In  view of  the  above,  in  the  event  of  the  work  being  delayed  for  

whatsoever reason, that is even delay which is attributable to ONGC, the  

contractor will only be entitled to extension of time for completion of work  

but  will  not  be  entitled  to  any compensation  or  damages.  The  arbitrator  

exceeded his jurisdiction in ignoring the said express bar contained in the  

contract and in awarding the compensation of Rs.9.5 lakhs. This aspect is  

covered by several decisions of this Court. We may refer to some of them.  

In  Associated Engineering Co. v. Government of A.P. - 1991 (4) SCC 93,  

this Court observed :

“24.  The  arbitrator  cannot  act  arbitrarily,  irrationally,  capriciously  or  independently of the contract. His sole function is to arbitrate in terms of  the contract. He has no power apart from what the parties have given him  under the contract. If he has travelled outside the bounds of the contract,  he has acted without jurisdiction. …”

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In  Rajasthan  State  Mines  &  Minerals  Ltd.  v.  Eastern  Engineering   

Enterprises - 1999 (9) SCC 283, this Court held :

“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 the 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 the  said  terms,  the  arbitrator  has  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 disregard of the authority or misconduct on  his part but it may be tantamount to mala fide action.

It is settled law that the arbitrator is the creature of the contract between  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.  ….

He cannot award an amount which is ruled out or prohibited by the terms  of the agreement.”

In Ramnath International Construction (P) Ltd. v. Union of India - 2007 (2)  

SCC 453, a similar issue was considered. This Court held that clause 11(C)  

of  the  General  Conditions  of  Contract  (similar  to  clause  5A  under  

consideration in this case) was a clear bar to any claim for compensation for  

delays, in respect of which extensions had been sought and obtained. This  

Court further held that such a clause amounts to a specific consent by the  

contractor  to  accept  extension of  time alone in  satisfaction of  claims for  

delay and not to claim any compensation; and that in view of such a bar  

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contained in the contract in regard to award of damages on account of delay,  

if an arbitrator awards compensation, he would be exceeding his jurisdiction.

7. In view of the above, the award of the arbitrator in violation of the bar  

contained  in  the  contract  has  to  be  held  as  one  beyond  his  jurisdiction  

requiring  interference.  Consequently,  this  appeal  is  allowed  in  part,  as  

follows :

(a) The judgment of the High Court and that of the civil court making the  

award the rule of the court is partly set aside in so far as it relates to the  

award  of  Rs.9.5  lakhs  under  claim No.(1)  and  the  award  of  interest  

thereon.

(b) The judgment of the civil court as affirmed by the High Court in regard  

to other items of the award is not disturbed.

…………………………J. (R V Raveendran)

New Delhi; ………………………..J. October 8, 2010. (H L Gokhale)                 

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