http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 5  

PETITIONER: STATE OF ANDHRA PRADESH & ANR. ETC.

       Vs.

RESPONDENT: R.V. RAYANIM ETC. ETC.

DATE OF JUDGMENT15/01/1990

BENCH: MUKHARJI, SABYASACHI (CJ) BENCH: MUKHARJI, SABYASACHI (CJ) PUNCHHI, M.M. REDDY, K. JAYACHANDRA (J)

CITATION:  1990 AIR  626            1990 SCR  (1)  54  1990 SCC  (1) 433        JT 1990 (1)    57  1990 SCALE  (1)47  CITATOR INFO :  R          1992 SC 232  (30)

ACT:     Arbitration   Act,  1940:  Sections  14,  17,   30   and 33--Award-Challenge   of--Error   apparent   on   face    of record--Arbitrator  exceeded jurisdiction--Only in  speaking award Court can look into reasons.

HEADNOTE:     The respondent-contractor had entered into an  agreement with the petitioner for formation of an earth dam.  Disputes and  difference arose between the parties. A  reference  was made  to the arbitrator wherein the respondent  made  eleven claims  out  of  which one claim was  later  withdrawn.  The arbitrator  gave a non-speaking award in favour of  the  re- spondent amounting to a consolidated sum of Rs.19.39 lakhs.     The  respondent flied a proceeding before the  Court  to make  the award rule of the Court. The petitioner  preferred an  application for setting aside the award which  was  dis- missed. The High Court dismissed the appeal and the revision of the petitioner.     Before  this Court it was contended inter alia that  the award purported to grant damages on the basis of  escalation of  cost  and prices, and such escalation was not  a  matter within the domain of the bargain between the parties. It was also  contended that the fact that the arbitrator had  taken into consideration the question of escalation would make the award  bad  because it was not discernible  whether  he  had awarded any amount on account of excalation. Dismissing the special leave petition, this Court,     HELD: (1) In matters of challenging an award, there  are often  two distinct and different grounds. One is  an  error apparent on the face of the record and the other is that the arbitrator has exceeded his jurisdiction. In the latter case the Court can look into the arbitration agreement but  under the former It cannot, unless the agreement was  incorporated or recited In the award. [58A-B]     M/s  Sudarshan  Trading Co. v. Government  of  Kerala  & Anr., [1989] 2 SCC 38, referred to. 11

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 5  

55     (2) Only in a speaking award the court can look into the reasoning of the award. It is not open to the court to probe the mental process of the arbitrator and speculate, where no reasons are given by the arbitrator, as to what impelled the arbitrator to arrive at his conclusion. [58D]     (3) It is not discernible on the face of the record that the  arbitrator  has exceeded his jurisdiction  in  awarding damages on account of escalation. All that the award  states is that he has considered the claim on the basis of  escala- tion.  Such a consideration does not make the award, on  the race of it, bad on the ground of error apparent on the  face of the record.’ [58G-H; 59A-B]     (4)  The Arbitrator does not state that he  has  awarded any  amount  on  that account. There is  neither  any  error apparent  on  the face of the record, nor  any  material  to satisfy that the arbitrator has exceeded his jurisdiction in awarding the amount as he did. [59B-C]

JUDGMENT:     CIVIL  APPELLATE  JURISDICTION: Special  Leave  Petition (Civil) No. 8094 of 1988.     From the Judgment and Order dated 16.3.88 of the  Andhra Pradesh High Court in (A.A.O.) No. 1152/86 & C.R.P. No. 2728 of 1986. C. Sitaramiah and G. Prabhakar for the Petitioners.     R.F.  Nariman,  K. Prabhakar and R.N. Kishwani  for  the Respondent. The Judgment of the Court was delivered by     SABYASACHI  MUKHARJI,  CJ. The  respondent  R.V. Rayanim was,  at  all material times, a Class I contractor  who  had entered  into  an agreement with the  Government  of  Andhra Pradesh  for  formation of earth dam in gorge  portion  from chainage  3360 to 3380-M of Raiwada Reservoir  Project  near Devarapalli village, Chodavaram Taluk, Distt. Visakhapatnam, Andhra  Pradesh. Disputes and differences arose between  the parties  in respect of the aforesaid agreement. A  reference was  made to the arbitrator as per the arbitrator clause  in the  agreement  between  the parties.  The  respondent  made eleven claims claiming various amounts, particulars  whereof have been set out by the arbitrator as follows. 56      "I.Payment for forming cross     (Rs. in lakhs) 15.89        bund and refund of the         (subsequently reduced        amount recovered.              to Rs.14.89 lakhs)      II.Refund of Seigniorage         2.071 (withdrawn)        Charges      III.Escalation and damages       14.00      IV.Extra load for sand           1.075 (subsequently                                       reduced to Rs.0.575                                       lakhs).      V.Payment for excavation         1.030        under water for probing        diaphram wall      VI. Compensation for loss        1.500        suffered due to partial        prevention by the        department.        VII. Compensation for loss     2.015        suffered due to non-payment        for the work done.        VIII.Refund of excess hire     0.730        charges recovered.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 5  

      IX. Overheads                  0,960        X.  Costs                      O. 100 XI.  (a)  Interest on II and VIII at 24% from  the  date  of recovery.       (b)  On  Rs.8.30 lakhs at 24% p.a.  from  30.11.81  to 12.5. 3982.   (c) Interest at 24% on the award amount except II and VIII from the date of petition."     The  arbitrator  gave a non-speaking  award  dated  27th July,  1985  in  favour  of  the  respondent,  amounting  to Rs.19.39 lakhs, wherein he stated as follows: "Claim  II has been withdrawn by the petitioner  himself  on the ground it was subsequently refunded by the  respondents. On  the  balance  claims (I and III to X)  according  to  my assessment, I award a consolidated amount of Rs.19.39  lakhs to the extent of the claims judged admissible. The  respond- ents shall pay Rs.Nineteen lakhs and thirty nine thousand to the petitioner." It  is,  therefore, apparent the claim No. II  as  mentioned above, 57 had  been  withdrawn. On the balance claims I  and  III  the arbitrator  had  awarded a consolidated amount  of  Rs.19.39 lakhs  ’to the extent of the claims judged admissible’.  The respondent  filed a proceeding before the Court to make  the award rule of the Court. The petitioner preferred an  appli- cation  for  setting aside the award. By a  common  judgment dated  21st April, 1985, the Second Additional  Judge,  City Civil Court, Hyderabad, dismissed the petition of the  peti- tioner for setting aside the award and allowed the  judgment in  terms of the award. The petitioner preferred  an  appeal and a civil review petition before the High Court of Hydera- bad. By a judgment dated 16th March, 1988 the division bench of  the High Court dismissed the appeal and the revision  of the  petitioner. It held that the non-speaking award of  the arbitrator was not liable to be set aside by the Court.     The petitioner has preferred this special leave petition challenging  the said decision of the High Court.  The  main contention  which  was sought to be urged on this  case  was that  the  award was a nonspeaking award and, as  such,  was bad.  On  this ground, on or about 9th December,  1988  this Court directed that the matter should be taken up along with civil  appeal  No. 5645 and 5645A of 1986 pending  before  a larger bench. At that time, the question was pending consid- eration by the Constitution Bench of this Court. This  Court further  directed  on  9th December, 1988  that  the  entire amount of award, if not deposited in the trial court, should be deposited in the trial court within two months from  that date, and upon the deposit being made the respondent will be at liberty to withdraw 50% of the amount which has not  been withdrawn on furnishing security to the satisfaction of  the trial  court. It was further recorded that 50%  had  already been withdrawn.     As mentioned hereinbefore, the main contention sought to be urged was that the award being a non-speaking award,  was bad in law. In view of the decision of this Court in  Raipur Development  Authority  etc. v.  M/s  Chokhamal  Contractors etc.,  Jmt.  Today 2 SC 285, this contention  is  no  longer sustainable.  It was then contended that the award has  pur- ported  to grant damages on the basis of escalation of  cost and prices; and such escalation was not a matter within  the doman  of the bargain between the parties and  having  taken that  factor into consideration the award was bad.  We  have set out the relevant portion of the award. From reading  the award,  as set out hereinbefore, it is clear that the  arbi-

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 5  

trator has considered the claim made on the basis of  ’esca- lation  and  damages’  but he has awarded  a  total  sum  of Rs.19.39 lakhs insofar as he finds admissible in respect  of the  claims which the arbitrator has adjudged. It speaks  no further. In such a situation it is 58 not  possible  to  contend that there was  any  exercise  of jurisdiction by the arbitrator beyond his competence. It  is well-settled that in matter of challenging the award,  there are  often  two distinct and different grounds.  One  is  an error  apparent on the face of the record and the  other  is that  the arbitrator has exceeded his jurisdiction.  In  the latter’s case the Court can look into the arbitration agree- ment  but under the former it cannot, unless  the  agreement was  incorporated or recited in the award. 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 establish whether the jurisdiction had been exceed- ed  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. See  the observations  of this Court in M/s Sudarshan Trading Co.  v. Government of Kerala & Anr., [1989] 2 SCC 38.     Only  in  a speaking award the court can look  into  the reasoning of the award. It is not open to the court to probe the mental process of the arbitrator and speculate, where no reasons are given by the arbitrator; as to what impelled the arbitrator to arrive at his conclusion.     In  the instant case the arbitrator has not awarded  any amount  on account of escalation of costs and  expenses.  At last the arbitrator has not expressly awarded any amount  on the ground of such escalation and if so, what amount, is not apparent on the face of the record. In these  circumstances, in  our opinion, on the basis of well-settled principles  of law  such  an  award, especially in view of  the  fact  that excluding  item  No. III the remaining items would  also  be well over Rs.19.33 lakhs, it is not discernible on the  face of the record that arbitrator has exceeded his  jurisdiction in awarding damages on account of escalation of charges  and expenses  which were beyond the arbitration ambit. The  fact that  the  arbitrator has considered the claim made  by  the respondent  on account of escalation, does not make  per  se the award to be bad.      Mr.  C. Sitaramiah, learned counsel appearing  for  the appellant  contended that the fact that the  arbitrator  has taken  into consideration the question of  escalation  would make the award bad because it is not discernible whether  he has  awarded any amount on account of escalation. We are  of the  opinion that this argument is not open. In case  of  an error  apparent  on  the face of the record, it  has  to  be established  that an item or an amount which the  arbitrator had no jurisdiction to 59 take  into consideration, has been awarded or granted.  That is  not apparent on the face of the award in this case.  All that the award states is that he has considered the claim on the basis of escalation. Such a consideration does not  make the  award  on the face of it, bad on the  ground  of  error apparent on the face of the record. Indeed, the  arbitrator, when  a claim is made, has to take that  into  consideration either  for acceptance or rejection of the claim  made.  The award states that he has taken the claim made, into  consid- eration.  The award does not state that he has  awarded  any amount on that account. There is neither any error  apparent

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

on the face of the record, nor any material to satisfy  that the arbitrator has exceeded his jurisdiction in awarding the amount as he did.     In  that view of the matter the special  leave  petition has no merit made must, therefore, fail, and is  accordingly dismissed.  The  petitioners were allowed  to  withdraw  the awarded sum on furnishing security but in view of the  deci- sion  now rendered, they will be entitled to take  back  the security. We order accordingly. The application is dismissed with aforesaid directions. R.S.S.                                              Petition dismissed. 60