REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2500 OF 2001   

State of Rajasthan           …. Appellant

Versus

M/s. Nav Bharat Construction Company                   ….    Respondent

WITH

   CIVIL APPEAL NO.2501 OF 2001

J U D G M E N T

TARUN CHATTERJEE,J.

1. The  appellant,  State  of  Rajasthan,  invited  tenders  for  

construction of Bhimsagar Dam in which one of the tenderer was the  

respondent. The tender of the respondent was accepted. Accordingly,  

a contract was awarded to the respondent and under the contract the  

work was to be started on 16th of November, 1978 and the date of  

completion was fixed on 15th of May, 1981. One of the terms of the  

contract  was  that  if  any  difference  or  dispute  arises  between the  

parties,  such  dispute  or  difference  shall  be  referred  to  arbitration.  

However, the work was not completed within the time allotted and  

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time was thereafter extended. Inspite of extension of time, the work  

was  not  completed.  For  that  reason,  the  State  of  Rajasthan  

terminated the contract and got the remaining work done from some  

other contractor.

2. The respondent raised various claims which were rejected by  

the  State  of  Rajasthan.  The  respondent,  therefore,  moved  an  

application under Section 20 of the Arbitration Act, 1940 (in short the  

‘Act’)  for  referring the  claims mentioned therein  to  arbitration.  The  

District Judge, Jhalawar by an order dated 11th of November, 1982  

held that only one claim was referable to arbitration and refused to  

refer  the other three claims to arbitration.  The respondent  filed an  

appeal  before the High Court  of Rajasthan at Jaipur and the High  

Court  by its  order dated 7th of  June,  1984 held that  it  was for  the  

Arbitrator to decide whether the claims were to be awarded or not  

and  accordingly  directed  that  all  the  four  claims  be  referred  to  

arbitration.  The  disputes  were  referred  to  two  Arbitrators.  The  

respondent, however, filed 39 claims amounting to Rs.42,59,155.56  

before  the  Arbitrators.  The  parties  led  oral  and  documentary  

evidence.  There  was  a  difference  of  opinion  between  the  two  

Arbitrators.  Therefore,  the  Arbitrators  referred  the  dispute  to  an  

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Umpire. The State of Rajasthan, the appellant herein, thereafter filed  

an application under Section 11 of the Act for removal of the Umpire  

on  the  ground  of  bias.  This  application  was  dismissed  on  16th of  

November,  1993.  The  appellants  filed  a  revision  case  which  also  

came  to  be  dismissed  by  the  High  Court  in  January,  1995.  The  

Umpire entered into the reference and passed an award on 29th of  

May, 1995.  

3. The State of Rajasthan, the appellant  herein,  filed objections  

under Sections 30 and 33 of the Act which were dismissed by the trial  

court  and  in  appeal  the  respondent  filed  a  cross  appeal  claiming  

compound interest. The High Court by a judgment dismissed both the  

appeals. Feeling aggrieved, both the parties approached this Court  

and two Civil Appeals were registered. C.A.No.2500 of 2001 was by  

the State of Rajasthan which was aggrieved by the dismissal of their  

objection filed under Sections 30 and 33 of the Act and C.A.No.2501  

of 2001 was by the respondent against the dismissal of their claim for  

compound interest.  By a judgment and order dated 4th of October,  

2005 passed in the aforesaid two appeals, this Court had set aside  

the award of the Umpire and the judgment of the High Court by the  

following directions:

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“Under the circumstances and for reasons set out  hereinabove, we set aside the award and appoint Justice  N.Santosh Hegde,  a retired Judge of  this  Court  as the  Umpire. The Umpire, Mr.V.K.Gupta shall forthwith forward  all papers and documents to Justice N.Santosh Hegde at  his residence i.e. 9, Krishna Menon Marg, New Delhi. The  parties shall appear before Justice N.Santosh Hegde on  6.10.2005  at  5.p.m.  at  9,  Krishna  Menon  Marg,  New  Delhi.  Justice N.Santosh Hegde shall  fix his fees which  shall  be  borne  by  both  the  parties  equally.  Justice  N.Santosh Hegde is  requested to  fix  the schedule  and  give his award with a period of 4 months from the date of  receipt of all the papers and documents from the outgoing  Umpire Mr.V.K.Gupta. The award to be filed in this Court.  We leave  the  question  of  grant  of  interest  open  to  be  decided by the Umpire in accordance with law.

Lastly, it is clarified that this is not a new reference  but a continuation of the earlier proceeding and thus the  Arbitration Act, 1940 shall continue to apply.“

4. Accordingly, in compliance with the judgment of this Court as  

aforesaid, Mr.Justice N.Santosh Hegde, (as His Lordship then was),  

entered into reference and passed his award on 9th of  September,  

2006. Now the State of Rajasthan has filed an application for making  

the award a rule of the Court and at the same time the respondent  

filed  an  objection  under  Sections  30  and  33  of  the  Act.  An  

Interlocutory Application was also filed by the respondent challenging  

the jurisdiction of this Court to make the award absolute and also to  

consider the objections raised by the respondent against the award  

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passed by the Umpire in pursuance of  the order passed on 4th of  

October,  2005.  According  to  the  respondent,  who  appeared  in  

person, the application and objections filed by the parties must be  

sent back to the court of competent jurisdiction for deciding the same  

in accordance with law, because after the judgment was passed and  

the earlier award was set aside by the impugned judgment, this Court  

had become functus officio to entertain such applications. Therefore,  

before we go into the question regarding the objections raised by the  

respondent under Sections 30 and 33 of the Act and the application  

for making the award a rule of the Court, we must first deal with the  

Interlocutory application, that is to say, whether this Court still retains  

the jurisdiction to entertain the award passed by the Umpire or  to  

consider the objections to the same or the matter should go back to  

the court of competent jurisdiction for considering the said application  

and objections in accordance with law. According to Mr. Mool Chand  

Luhadia, appearing in person, this Court is ceased to have jurisdiction  

after the appeal was disposed of and a new Umpire was appointed  

who passed an award on 9th of September, 2006. In support of this  

contention that this Court cannot have the jurisdiction to entertain the  

application filed by the appellant to make the award a rule of the court  

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and also the objection filed under Sections 30 and 33 of the Act, he  

had  relied  on  certain  decisions  of  this  Court  out  of  which  strong  

reliance was placed on the decision in Garwal Mandal Vikas Nigam  

Ltd. vs. Krishna Travel Agency [2008 (6) SCC 741] and also the  

decision in  Bharat Coking Coal Ltd. vs Annapurna Construction  

[2008 (6) SCC 732]. This submission of Mr.Luhadia, who appeared in  

person was contested by Mr.Pallav Shishodia, learned senior counsel  

appearing  on  behalf  of  the  State  of  Rajasthan.  According  to  

Mr.Shishodia, in view of the decision of a three-Judge Bench of this  

Court in  Mcdermott International Inc. vs. Burn Standard Co. Ltd  

and  Others [2005  (10)  SCC 353],  this  question  is  no  longer  res  

integra.  In  our  view,  the  submission  of  Mr.Shishodia  must  be  

accepted. From the judgment of this Court dated 4th of October, 2005,  

it  has been made clear  by this  Court  in  the operative  part  of  the  

same, as noted herein earlier, that the award that would be passed  

by the Umpire must be filed in this Court and secondly it was clarified  

in the judgment itself that this was not a case of a new reference but  

a  continuation  of  the  earlier  proceeding  and  thus  the  Act  shall  

continue to apply. In Mcdermott International Inc. (supra), a three-

Judge Bench decision of this Court clearly observed that since the  

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Arbitrator was directed to file his award in this Court, the objections  

as well as the entertainability of the application of the appellant for  

making the award a rule of the Court must be filed in this Court alone  

and,  therefore,  this  Court  has  the  jurisdiction  to  entertain  the  

application  of  the  appellant  and  also  the  objections  filed  by  the  

respondent.  In view of  the discussions made herein  above and in  

view  of  the  three-Judge  Bench  decision  of  this  Court,  namely,  

Mcdermott International (supra), it would not be necessary for us to  

deal with the other two decisions as referred to herein earlier. That  

apart, in the judgment dated 4th of October, 2005, it has been made  

clear that the award was to be filed in this Court and that this was not  

to  be  taken  as  a  new reference  but  a  continuation  of  the  earlier  

proceeding, thus the Act shall  continue to apply.   Accordingly, the  

question regarding entertainability of the aforesaid two applications  

namely, the application for making the award a rule of the court and  

the objections under Sections 30 and 33 of the Act filed in this Court  

could not arise at all.

5. Let  us  now  consider  the  objections  filed  by  the  respondent  

against the award passed by the Umpire under Sections 30 and 33 of  

the Act. Since we have already overruled the objections raised by the  

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respondent about the entertainability of the two applications by this  

Court,  we now deal  with  the objections filed by the respondent  in  

respect of the various claims made by them for passing an award in  

their favour.  According to Mr.Luhadia, since the first award of the  

Umpire  Mr.V.K.Gupta  was  set  aside,  and  a  new  Umpire  was  

appointed after setting aside the said award it would be evident from  

the  judgment  of  this  Court  that  the  intention  of  this  Court  was  to  

permit the respondent to raise all their objections to the claims put  

forward  by  it  including  the  claim No.2  and  26.  We are  unable  to  

accept this contention of Mr.Luhadia. So far as Claim No.2 and 26  

are concerned, on a perusal of the judgment of this court, it is difficult  

to  accept  the  argument  of  Mr.Luhadia  as  we  find  from  the  said  

judgment that the claim Nos. 2 and 26 were elaborately considered in  

the judgment and this Court  in the said judgment came to a clear  

finding with regard to Claim No.2 and 26 that the respondent would  

not be entitled to such claims. While rejecting Claim Nos. 2 and 26,  

this  Court  categorically  made the following observations which we  

reproduce herein below :

“As regards claim No. 2 Mr. Luhadia fairly admitted  that Clause 5.11(iii) of the Contract requires chiseling of  stones on all sides. He however submitted that the rates  given in Schedule G were only for chiseling of stones on  

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one side. He submitted that this was clear from Note 1  under  Schedule  G  which  stated  that  Schedule  G  was  based on B.S.R.  1975.  He submitted  that  B.S.R.  1975  showed that such rates were only for chiseling stones on  one side.  He submitted that  when the stone has to be  chiseled on all sides the rates given in B.S.R. 1975 were  to be applied. He submitted that claim No. 2 was based  on those rates. We are unable to accept this submission  of Mr. Luhadia. The Contract is very specific. The work  specified  in  the  Contract  has  to  be  done  at  the  rates  specified in Schedule `G`. Even though Schedule G may  be based on B.S.R. 1975 it is not exactly as B.S.R. 1975.  Where in respect of a work specified in the contract the  rate has been given in Schedule G that work could only  be done at that rate. Works specified in the Contract does  not become extra work. It is only in respect of extra work  that rates specified in B.S.R. 1975 can be applied. To us  it is clear that the claim No. 2 is contrary to the terms of  the Contract. It is barred by Clauses 57, 60 and 61 of the  Contract. As  regards  claim  No.  26,  Mr.  Luhadia  relied  upon the case of Tarapore & Co. v. State of M.P. [1994  [3] SCC 521]. In this case, the question was whether the  contractor  was entitled to claim extra amounts because  he had to pay increased wages to his workers. This Court  has held that the contractor would have tendered on the  basis  of  the then prevailing wages and as the contract  required the contractor to pay the minimum wages if the  minimum wages increased it was an implied term of the  contract  that  he  would  not  be  entitled  to  claim  the  additional amount. However, it must be noted that, in this  case, there was no term in the contract which prohibited  any extra claims being made because of the increase in  wages.  Clause  31  of  the  Special  Conditions  of  the  Contract,  which  has  been  reproduced  hereinabove,  specifically  bars  the  contractor  from  claiming  any  compensation  or  an  increase  in  rate  under  such  circumstances. Not only that but the Respondent had with  their initial tender put in a term which provided that if there  was  any  increase  in  the  minimum  wages  by  the  Government the rates quoted by him would be increased  

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by the same percentage. At the time of negotiation this  clause  was  dropped.  Thus,  the  Respondent  had  themselves  specifically  agreed  not  to  claim  any  compensation  or  increase  by  reason  of  increase  in  wages.  This  claim  could  therefore  not  have  been  granted.”

From a reading of  this paragraph 30 of  the judgment of  this  

Court,  it  is  clear  that  this  Court  in  the  judgment  has,  in  detail,  

considered Claim Nos.2 and 26 and on consideration of the materials  

on record and the terms of the contract between the parties rejected  

the aforesaid two claims. In this view of the matter, we must accept  

the finding of the Umpire that since these two claims were clearly and  

elaborately  considered and thereafter  rejected by this Court  in the  

said judgment, it was not open for him to reconsider the same while  

passing the award. In view of this conclusion arrived at by this Court  

in  the  aforesaid  judgment,  the  Umpire  was  fully  justified  in  not  

reconsidering the same while passing an award.  

6.  The  jurisdiction  of  the  court  to  set  aside  an  award  under  

Section 30 of the Act has now been settled by catena of decisions of  

this Court  as well  as by the different  High Courts in India.  Taking  

those principles into consideration, it would thus be clear that under  

Section 30 of the Act it must be said that the court is not empowered  

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to  re-appreciate  the  evidence and examine the  correctness of  the  

conclusions arrived at by the Umpire in considering an application for  

setting aside the award. In this connection, we may refer to a decision  

of this Court in the case of  Bhagwati Oxygen Ltd. vs. Hindustan  

Cooper  Ltd.  [2005  (6)  SCC  462].  In  that  decision,  this  Court  

observed in paragraph 25 as follows :-

“This  Court  has  considered  the  provisions  of  Section 30 of the Act in several cases and has held that   the court  while exercising the power under Section 30,   cannot  re-appreciate  the  evidence  or  examine  correctness of the conclusions arrived at by the Arbitrator.   The jurisdiction is not appellate in nature and an award  passed  by  an  Arbitrator  cannot  be  set  aside  on  the  ground that it was erroneous. It is not open to the court to   interfere with the award merely because in the opinion of   the court, another view is equally possible. It is only when  the court is satisfied that the Arbitrator had mis-conducted  himself  or  the  proceedings  or  the  award  had  been  improperly procured or is “otherwise” invalid that the court   may set aside such award.”

7. Similarly  in  the  case  of  Food  Corporation  of  India  vs.   

Chandu Construction [2007  (4)  SCC  697]  in  which  one  of  us  

(Chatterjee,J.) was also a party, it was held that when the Arbitrator  

or the Umpire as the case may be, had ignored the specific terms or  

had acted beyond the four corners of the contract, it was open for the  

court in the exercise of its power under Section 30 of the Act to set  

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aside the award on the ground that the Arbitrator could not ignore the  

law or  misapply  the terms of  the  contract  in  order  to  do what  he  

thought was just and reasonable. That apart, the law is also settled  

as referred to herein earlier that the jurisdiction of the court  under  

Section 30 of the Act is not appellate in nature and the award passed  

by  the  Umpire  cannot  be  set  aside  on  the  ground  that  it  was  

erroneous. It is also not open to the court to interfere with the award  

merely because in the opinion of the court, another view is equally  

possible.  Keeping these principles as laid down by this Court in the  

aforesaid two decisions, let us now consider the award passed by the  

Umpire in respect of the claims of the respondent excluding Claim  

Nos. 2 and 26.

8. Since  Claim  Nos.4,  6,  9,  13,  23,  32,  33,  36  and  38  of  the  

respondent were accepted by the Umpire and the Award has been  

passed in respect of the said claims in favour of the respondent, it  

would not be necessary for us to deal with this part of the award any  

further.   So far as Claim Nos. 1, 3, 5, 7, 8, 10, 11, 12, 14-22, 24, 25,  

27, 28, 29,30, 31, 34, 35, 37 and 39 are concerned, we find that the  

Umpire after going through the objections of the respondent and after  

hearing the parties in respect of these claims rejected the same and  

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we do not find any reason to set aside the said award on the ground  

that the jurisdiction of the court is not appellate in nature nor such an  

award could be found to be erroneous. Accordingly, we do not find  

any reason to accept the objections of the respondent in this regard.  

The objections are overruled.

9. Before parting with this judgment, there is another aspect to be  

considered at this stage. As noted herein earlier, the respondent has  

claimed  compound  rate  of  interest  which  was  not  granted  by  the  

Umpire. The claimant had claimed compound interest with quarterly  

rest while the respondent had opposed the said rate of interest. While  

rejecting  the  said  claim  of  the  claimant,  the  Umpire  had  rightly  

observed that there was no necessity for him to fix any other rate of  

interest because on the basis of the award passed by the Umpire, the  

claimant  had to  return  the substantial  amount  received by him.  In  

view  of  that,  the  Umpire  in  his  award  directed  that  difference  of  

amount which has now become refundable by virtue of  the award  

would be returned back to the State of Rajasthan with interest from  

the date of recovery by the claimant and the same was allowed by  

the previous Umpire till the date of repayment/recovery.

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10. We  do  not  find  any  reason  to  differ  from  the  award  of  the  

Umpire on this score, because the Umpire has rightly considered the  

entire aspect of interest and passed an award which can never be  

said to be erroneously rejected by him.

11. For the reasons aforesaid, we allow the application for making  

the award a rule of the court  and reject the objections filed under  

Sections 30 and 33 of the Act by the respondent.  There will be no  

order as to costs.    

……………………….J. [Tarun Chatterjee]

New Delhi; ………………………J. January 08, 2010. [R.M.Lodha]

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