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PETITIONER: TAMILNADU ELECTRICITY BOARD

       Vs.

RESPONDENT: M/S. BRIDGE TUNNEL CONSTRUCTIONS & ORS.

DATE OF JUDGMENT:       18/02/1997

BENCH: K. RAMASWAMY, S. SHAGGIER HAMMED

ACT:

HEADNOTE:

JUDGMENT:                          O R D E R Leave granted. Substitution allowed.      These  appeals,   by  special  leave,  arise  from  the judgment of  the Madras High Court, dated December 20, 1990, made i n O.S.A. Nos. 109 and 110 of 1988. q    The admitted facts are that the respondents had entered into an  agreement with  the appellant  to construct  inter- connecting tunnels  for Suruliyar  Hydroelectric Project  as per specification No. 1138- Schedule-B to the agreement. The initial value  of the  tender to be awarded was Rs. 47 lakhs and it  was revised  to Rs. 69 lakhs on January 16, 1975. In the course  of execution  of the  contract, a  sum of Rs. 92 lakhs was  paid to  the respondent.  The contract  was to be completed within  a period  of 24  months from  the date  of taking over  of the  site, i.e.,  January 18, 1975; thus, it was completed  after the  expiry of  the term, on August 25, 1978. Resultantly,  there had  arisen a  dispute as  to  the entitlement to  further amount  towards the work done by the respondent.      On a notice issued by the respondent for appointment of an  arbitrator  in  terms  of  clause  50  of  the  contract (arbitrator clause),  there was  a delay  on the part of the appellant  i  n  nomination  of  the  arbitrator.  When  the respondent exercised  the power,  after expiry  of the  time prescribed in  the notice,  appointing  a  sole  arbitrator, proceedings under  Section 33  of the  Arbitrator Act,  1940 were initiated  by the  appellant.  One  of  the  objections raised by  the appellant in the proceedings under Section 33 was that under the terms of the contract the claim sought to be put  up in  the notice  given by  the respondent  was not arbitrable. The  question was  gone    into  and  the  court recorded a finding as under:      "If the petitioner had come forward      to  raise  dispute  and  if  it  is      outside the scope of clause 50, the      first respondent  itself would come      forward with such a reservation. It      is not  as if  all  disputes  would      come within  the cope  of clause 50      and  only  those  that  would  come

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    within the ambit of clause 50 alone      can be  decided by  the Arbitrators      when such  is the clear position on      this    aspect;     enabling    the      petitioner   Board   to   raise   a      objection regarding  disputes which      may not  come within  the scope  of      clause 50  is not a concession, but      a recognition  of a right, which is      available   not    only   to    the      petitioner Board but also the first      respondent  in  the  event  of  the      Board  raising   any   dispute   as      against it.  Therefore,  the  first      stipulation is  dependent upon  the      Arbitrators deciding  as to whether      particular   dispute   would   come      within the  scope of  Section 50 or      not, and only if they consider that      it  falls   within  the   scope  of      Arbitration clause, they would have      the  jurisdiction   to  decide  the      same.   In   the   event   of   the      Arbitrators   holding    that   any      particular dispute  is outside  the      Arbitration clause, it is not as if      the first respondent is deprived of      remedies by  agitating the  same in      Course."      It is also further held that :      "After the  award is  made, as  the      petitioner   Board    has   already      reserved its right, it would enable      the Board  to raise  this point, in      the event  of any  need arising for      setting aside the award in Court."      Pursuant thereto, condoning the delay liberty was given to the  appellant to  nominate an  Arbitrator on  its behalf which accordingly  was done  and  dispute  was  referred  to arbitration.  Arbitrability   of  some  of  the  claims  was disputed as  part of no liability. Since the two Arbitrators differed, an  umpire was  selected by the Arbitrators and he had gone into the question. At this stage, it is relevant to mention that  some of  the claims  made by  the  respondents relate to  excavation of   hard  rock in  the tunnel and the rate of claims.      The relevant clauses of the Contract postulate thus :      "22. Material to be excavated :      The  character   of  the   material      through which  the tunnel  is to be      excavated  is  indicated  i  n  the      report  of  the  Geologist  of  the      Geological   Survey    of    India,      attached of  this specification  as      an appendix. The probable nature of      materials to  be excavated is given      in  the   above   report.   It   is      expressly  to   be   under   stood,      however, that  the  purchaser  does      not guarantee  the accuracy  of the      information    and    should    the      conditions be  found to differ from      those  indicated,   the  contractor      shall have  no  claim  against  the      purchaser   on   the   grounds   of

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    misrepresentation.  Moreover,   the      price to  be given  in the schedule      of prices for excavation work is to      be inclusive  and  to  be  held  to      cover  excavation   in  the  actual      materials encountered.      23.  Tunnel Excavation:      a)   The tunnel  is to be excavated      to such  dimensions as  to give the      minimum   thickness   of   concrete      lining specified  and to  suit  the      shape and  size of cross section of      the tunnel shown on drawing.      b)   Excavation is  to  be  carried      out    as    far    as    feasible,      simultaneously on  all fages. It is      expected, that  more of  the ground      alone the  tunnel will be hard rock      requiring  the   supports.   Except      where the  materials penetrated  is      hard rock  and will safely stand by      itself, the  tunnel is  to be lined      temporarily  with  timber  supports      and shoring. The timbering is to be      kept as  alose to  the face  of the      heading as possible. Any shoring of      protective arrangements  considered      inadequate by the Engineer is to be      strengthened immediately.      g)   The type  of tunnel section to      be constructed shall be as directed      or  approved   by   the   Engineer.      Measurement for  payment of  tunnel      excavation, will  be limited to the      special  sectional  dimensions  and      will be  made along the established      centre  line   of  the  tunnel  and      payment therefore  will be  made at      the unit  bid in  the schedule  for      excavation  of   all   classes   of      tunnel.  No   additional  allowance      above the  unit price  bid  in  the      schedule  for   excavation  of  all      eclasses of  tunnel will be made on      account of  the  class,  nature  or      condition of  any of  the  material      encountered."      The rates  were  mentioned  in  the  Schedule  and  the respondent 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.      Against the  claims,  objections  were  raised  by  the appellant. They  have disputed  the  claim  set  up  by  the respondents and  requested the  Arbitrators to decide on the arbitrability of  the items  mentioned in  the claims of the respondents. The  umpire, without going into the details, in a non-speaking award as against the claim of Rs. 2 crores 10 lakhs, has  awarded a consolidated sum of Rs. 70.83 lakhs as under :      "I   hereby  award  and  direct  as      follows:      (1)  The Respondent  shall pay  the      claimant a  sum of  Rupees  Seventy      Lakhs eighty  three thousand  seven      hundred and  ninety three only (Rs.

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    70,83,793/-)   and    release   the      earnest  money   deposit  and  Bank      Guarantees   furnished    by    the      claimant  in   lieu   of   Security      Deposit, in  full settlement of all      claims and counter-claims."      Calling the award in question, an application to set it aside has been filed. The respondent filed an application to make the  award the  rule of  the  court.  The  civil  Court dismissed the  petition of  the appellant and made the award the rule  of the court. On appeal, the Division Bench of the High Court  has confirmed  the same.  Thus these appeals, by special leave.      Shri  V.R.  Reddy,  the  learned  Additional  Solicitor General, contends  that the  award is  illegal on account of omission on  the part of the Umpire to give the findings and reasons in  support thereof  of  the  arbitrability  of  the claims.  He  contends  that  arbitrability  of  claim  is  a jurisdictional issue.  The arbitrator  cannot clothe himself with  the   power,  in  a  non-speaking  award  to  award  a consolidated sum,  without deciding the arbitrability of the claims set  up by  the respondents including those which are not part of the contract.      Shri Poti,  learned senior  counsel for the respondents has contended that the award being a non-speaking one in the absence of  specific reference  directing the Arbitrators to decide the  arbitrability of some of the items in the claims set up  by the  respondent, Umpire  was not  called upon  or obliged to  decide  the  dispute  by  a  speaking  order  on arbitrability. He  reached the conclusion whether or not the dispute or  the claim  is arbitrable and obviously he was of the opinion  that all  the claims  are arbitrable  and he is empowered to  decide it either rightly or wrongly. He may be wrong in  not expressly giving his decision on arbitrability of some  of the  claims. However, his decision is within his jurisdiction. He  is not required to give any reasons in the award for  reaching that  decision. When  the arbitrator had given a  consolidated sum  towards all  the claims, it would mean that he had considered the arbitrability of some of the claims in  terms of the contract and that, therefore, he has not committed any error in reaching that conclusion which is apparent on  the face  of the  record. In the absence of any specific  reference  for  deciding  that  dispute,  even  if incidentally  he   reaches  that   decision,  he   gets  the jurisdiction and  power to  decide the question, he gets the otherwise also,  the award cannot be assailed o n the ground that he  reached a  wrong decision  without any  reasons  in support thereof.  In that  event, it  must be deemed that he had considered  the non-arbitrability of the items in a non- speaking ward  given by him. He also further contends that i n the  absence of any agreement between the parties that the arbitrator would  give reasons in support of his decision on the arbitrability  of the  dispute, he is not called upon to decide the  dispute by  a speaking  award. What is required, therefore, is  to be  considered is  whether the  arbitrator reached  the  decision  as  to  the  entitlement  to  for  a specified sum  or disentitlement thereof, in his award. Once he specifies the amount to which the respondent is entitled, it must  be deemed  that he had taken into consideration the arbitrability of all the claims including the claim relating to non- arbitrability of some of the items and had given the award. Thereby, consolidated sum in the award is not subject to attack  that the award made by the Arbitrator is vitiated by any error of jurisdiction or error of law apparent on the face of  the record.  Shri Poti  further contends  that  the

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contract of  arbitration is  not part  of the record and the umpire had  not referred  to the  agreement as  part of  the award and  that, therefore,  it is  not open to the court to look into  the contract  to find  out whether the contractor claimed at  the rates  higher than  what were contracted and the umpire has omitted to consider the non- arbitrability of the claims  in respect  of some  of the  items.  In  support thereof, the  places strong reliance on the decision of this Court in  Tarapore and  Co. v.  Cochin Shipyard Ltd., Cochin [(1984) 2  SCC 680],  in particular,  paragraphs  10,  12,33 thereof, and State of A.P. v. R.V. Rayanim [(1990) 1 SCC 433 at 435, para 5].      In view  of the  respective contentions,  the  question that arises  for consideration  is: whether  the Umpire  was required to give a decision supported by reasons on the non- arbitrability of some of the items in terms of the contract. It is  already seen  that the Court prior to the proceedings under Section  33 had gone into the question as to the right of the  appellant to  question the  arbitrability of some of the items  and had expressly recorded, as seen hereinbefore, that if  any objection  regarding  the  dispute  is  raised, either parties  is at liberty to raise the same and avail of decision by the arbitrator and the arbitrator is required to decide the  arbitrability of  the claim  and if he considers that  it   falls  within   the  scope   of  the  arbitration clause/arbitrability, then he would have the jurisdiction to decide the  same. If  the decision  has been  reached by the arbitrator against  the appellant,  it would  be open to the Board to  raise that  point, in  case any  need  arises  for setting aside the said award in the court. Thus, it could be seen that  prior to  the proceedings  under Section  33, the court had left open the umpire had to decide the dispute. In the event  of the decision going against the Board, the same is also entitled to question the correctness of the award in a court of law. That order has become final.      In the  light of  the above facts, the question arises; whether the  arbitrator was  not obliged  to decide the non- arbitrability  of   some  of   the  items   claimed  by  the respondents before/while  giving a  non-speaking  award  and whether a  deemed  decision  could  be  given  credence.  In Tarapore Co.’s  case relied on by  Shri Poti, a Bench of two judges  of   this  court  had  gone  into  the  question  of jurisdiction of  the arbitrator  to decide the arbitrability of the dispute. In para 10 thereof, it is stated thus :      "What is  the effect  of  referring      the specific  question  of  law  to      arbitration  without  prejudice  to      one’s  right   to  contend  to  the      contrary    will    be    presently      examined."      If this issue specifically raises a      question as to jurisdiction  of the      arbitrator to  arbitrate  upon  the      dispute set  out in  Point No.2, it      appears to  have been  specifically      referred to  the arbitrator for his      decision.    Parties,    therefore,      agreed  to   submit  the   specific      question even  with regard  to  the      scope   ambit    width   and    the      construction  of   the  arbitration      clause  so   as   to   define   its      parameters and contours with a view      to ascertaining  whether the  claim      advanced  by   the  appellant   and

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    disputed by the respondent would be      covered by  the arbitration clause.      Whether upon  its true construction      the   arbitration    clause   would      include  within   its  compass  the      dispute  thus  raised  between  the      parties  was  specifically  put  in      issue  because   parties  were   at      variance about it."      "The arbitrator  was thus  required      and called  upon  first  to  decide      whether the  dispute is  arbitrable      as falling  within  the  width  and      answer is  in the affirmative, then      alone  the  second  point  need  be      examined.  If  the  answer  to  the      first point  of reference is in the      negative in  that if the arbitrator      were of he opinion that the dispute      is not  arbitrable as  it would not      fall within  the  scope,  width  an      ambit of the arbitration agreement,      it would  not be  necessary for him      to determine  whether the appellant      was entitled to recover anything by      way of compensation. This aspect is      being analysed  in depth  to  point      out that  the parties  specifically      referred    the     question     of      constriction     of     arbitration      agreement,  its  width,  ambit  and      parameters  vis-a-vis  the  dispute      raised so  as to decide whether the      dispute  would   fall  within   the      purview    of    the    arbitration      agreement,  in   other  words   the      jurisdiction of the arbitrator."      Thus, it  could be  seen that  therein  that  when  the question is  specifically referred  to the  arbitrator,  the arbitrator is  required to  decide the  question referred to him and  decide the point on the question. Then only he gets the jurisdiction  to go  into the  merits. In para 12 of the judgment that point was elaborated holding that :      "The    first    point    extracted      hereinbefore  would   clearly  show      that the  specific  question  about      the jurisdiction  of the arbitrator      to arbitrate  upon the  dispute set      out in  Point Nos.  2, 3  and 4 was      specifically   referred    to   the      arbitrator.      On the  first point, the arbitrator      had to  decide whether  the  claims      made by  the appellant and disputed      by the  respondent would be covered      by clause  40, i.e. the arbitration      clause.   In   other   words,   the      specific question  referred to  the      arbitrator    was     about     his      jurisdiction to  arbitrate upon the      disputes covered  by Points Nos. 2,      3 and  4, if  and only  if, upon  a      true    construction     of     the      arbitration clause  that  is  first      paragraph of clause 40, would cover

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    the disputed claim for compensation      he can enter into the merits of the      dispute and decide it."      This ratio clearly establishes that the arbitrator gets jurisdiction to decide the dispute on merits only when he is specifically called  upon to  decide the dispute in terms of the contract.      In Managing  Director, J  & K  Handicraft v.  Good Luck Carpets [(1990)  4 SCC 740], the question arose: whether the court could  look into  the arbitration  agreement, find out whether  the  arbitrator  has  jurisdiction  to  decide  the dispute though  it was not formed part of the award? In para 5, this Court had held that:      "... Here we may point out that the      learned counsel  for the respondent      has  urged   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 was  contemplated,  more      so when the ward was a non-speaking      one. We  find it difficult to agree      with  this   submission   for   two      reasons: Firstly,  the award is not      a   totally   non-speaking      one      inasmuch as  it gives  as 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  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      into the agreement for this limited      purpose is  neither  tantamount  to      going into the evidence produced by      the parties  nor  into  the  reason      which weighted  with the arbitrator      in making the award."      In fact  this Court had gone into merits while deciding the question  as to  whether the arbitrator was justified in making  the   award  in  excess  of  the  jurisdiction  with reference to  the arbitration  agreement  and  deciding  the dispute on that basis.      In U.P.  Rajkiya Nirman  Nigam Ltd. v. Indure Pvt. Ltd. [(1996) 2 SCC 667] a Bench of three judges [to which both of us were  members] had  gone into  the question  whether  the arbitrator can  go into  the question  whether there emerged any concluded  contract and  whether he  can  get  exclusive jurisdiction to  decide that  question  by  himself?  In  an application under  Section 33,  the learned  Single Judge of the High  Court had  held that  the arbitrator has exclusive jurisdiction  to   decide  that   question.  Reversing  that judgment  this   Court  in   para  13  had  held  that  "the

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arbitrability of  a claim depends on the construction of the clause   in    the   contract.    The   finding    of    the arbitrator/arbitrators on  arbitrability of the claim is not conclusive as  under Section  33, ultimately it is the court that decides  the controversy.  It  being  a  jurisdictional issue, the  arbitrator/arbitrators cannot  clothe themselves with jurisdiction to conclusively decide the issue." In para 15 it is held thus:      "The clear settled law thus is that      the existence  or  validity  of  an      arbitration  agreement   shall   be      decided   by   the   court   alone,      Arbitrators,  therefore,   have  no      power of  jurisdiction to decide or      adjudicate     conclusively      by      themselves the question since it is      the very  foundation on  which  the      arbitrators proceed  to  adjudicate      the  disputes.   Therefore,  it  is      rightly pointed  out by Shri Adarsh      Kumar Goel, learned counsel for the      appellant that  they had by mistake      agreed  for   reference  and   that      arbitrators  cold  not  decide  the      existence   of    the   arbitration      agreement or  arbitrability of  the      disputes without prejudice to their      stand  that   no  valid   agreement      existed.  Shri   Nariman  contended      that having  agreed  to  refer  the      dispute,    the    appellant    had      acquiesced to  the jurisdiction  of      the  arbitrators   and,  therefore,      they  cannot   exercise  the  right      under Section  33 of  the  Act.  We      find no force in the contention. As      seen,  the  appellant  is  claiming      adjudication under Section 33 which      the court  alone  has  jurisdiction      and power  to  decide  whether  any      valid agreement is existing between      the  parties.  Mere  acceptance  or      acquiescing to  the jurisdiction of      the arbitrators for adjudication of      the disputes as to the existence of      the   arbitration    agreement   or      arbitrability of  the dispute  does      not  disentitle  the  appellant  to      have the  remedy under   Section 33      through   the    court.   In    our      considered view  the  remedy  under      Section 33  is the only right royal      way for deciding the controversy."      Accordingly,  it  was  held  that  the  controversy  of arbitrability requires to be decided by the court and not by the arbitrator himself.      In Union  of India  v.  G.S.  Atwal  &  Co.  (Asansole) [(1996) 3  SCC 568]  a Bench  of two Judges, to which one of us, K.  Ramaswamy, J.  was a  member, was  to  consider  the question whether  the arbitrator. when he enlarged his scope of award  in a  non-speaking award,  can conclusively decide the dispute and give an award in that behalf? It was held in paragraph 6 that :      "To   constitute   an   arbitration      agreement,   there   must   be   an

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    agreement  that   is  to   say  the      parties   must    be    ad    idem.      Arbitrability of  a  claim  depends      upon  the   dispute   between   the      parties and  the reference  to  the      arbitrator.  On   appointment,   he      enters  upon   that   dispute   for      adjudication. The  finding  of  the      arbitrator on  the arbitrability of      the claim  is  not  conclusive,  as      under Section  33 ultimately  it is      the   court    that   decides   the      controversy.  It   can  hardly   be      within       the       arbitrator’s      jurisdiction to  decide whether  or      not a  condition precedent  to  his      jurisdiction  has  been  fulfilled.      The   arbitrator   had   has   been      fulfilled. The  arbitrator  had  no      power    to    decide    his    own      jurisdiction.  The   arbitrator  is      always entitled  to inquire whether      or  not   he  has  jurisdiction  to      decide the  dispute. He  can refuse      to deal  with the matter at all and      leave the  parties  to  go  to  the      court if he comes to the conclusion      that he  has no  power to deal with      the matter,  or he can consider the      matter and  if he  forms  the  view      that the  contract upon  which  the      claimant is  relying  on  and  from      which, if established, he alone has      jurisdiction, he can proceed to the      decide  the   dispute  accordingly.      Whether or  not the  arbitrator has      jurisdiction and whether the matter      is referred  to or  is  within  the      ambit of  clause for  reference  of      any difference of dispute which may      arise between  the parties,  it  is      for the  court to  decide  it.  The      arbitrator  by   a  wrong  decision      cannot enlarge  the  scope  of  the      submission. It  is for the court to      decide finally the arbitrability of      the claim  in dispute or any clause      or a  matter or  a thing  contained      therein   or    the    construction      thereof.:      In Champsey  Bhara &  Co. v.  Jivraj Balloo  Spinning & Weaving Co. Ltd. (LR (1922) 50 IA 324 : AIR 1923 PC 66] Lord Dunedin had  laid down  the dictum  as to an error in law on the face  of the  award, which  was accepted and followed by this court  in Hindustan Construction Co. Ltd. v. State of J & K. [(1992) 4 SCC 217]. Therein it was held that:      "An error in law on the face of the      award means,  in  their  Lordships’      view, that  you  can  find  in  the      award  or   a   document   actually      incorporated   thereto,    as   for      instance a  note  appended  by  the      arbitrator stating  the reason  for      his    judgment,     some     legal      proposition which  is the  basis of

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    the award  and which  you can  then      say is  erroneous. It does not mean      that if  in a narrative a reference      is made  to  a  contention  of  one      party,  that   opens  the  door  to      seeing first  what  the  contention      is, and  then going to the contract      on which  the parties’ right depend      to see if that contention is sound.      Here it  is impossible to say, from      what is  shown on  the face  of the      award, what mistake the arbitrators      made. The only way that the learned      judges have arrived at finding what      the  mistake   was  is  by  saying:      ’inasmuch   as    the   arbitrators      awarded so  and so, and inasmuch as      the letter  shows  that  the  buyer      rejected    the     cotton,     the      arbitrators can  only have  arrived      at  arbitrators   can   only   have      arrived at  that result  by totally      misinterpreting Rule  52’. But they      were entitled  to  give  their  own      interpretation to  Rule 52  or  any      other article,  and the  award will      stand unless,  on   the face of it,      they have  tied themselves  down to      some  special   legal   proposition      which then  when examined,  appears      to be unsound."      The decision  has been  followed by  this Court  in all subsequent judgments  and the precise scope of the law as to error  apparent   on  the   face  of   the  award  has  been crystalised. But  there is  a distinction  between an  error apparent on  the face  of the award and jurisdictional error in passing  the award.  In that  behalf,  in  M/s.  Sudarsan Trading Co.  v. State  of Kerala  [(1989) 2  SCC 38] Justice Sabyasachi Mukharji,  as he  then was,  had pointed  out the distinction on the jurisdictional error and the error on the face of the award.  It was stated thus:      "An award  may be  remitted or  set      aside  on   the  ground   that  the      arbitrator  in   making   it,   had      exceeded  this   jurisdiction   and      evidence of  matters not  appearing      on the face of it, will be admitted      in order  to 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 on the face      of the award. In Halsbury’s Laws of      England II,  4th edn.,  Vol.2  para      622   one    of   the   misconducts      enumerated, is  the decision by the      arbitrator on a matter which is not      included  in   the   agreement   or      reference. But  in such  a case one

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    has to  determine  the  distinction      between an  error in  excess of the      jurisdiction. Whether  a particular      amount was  liable to  be  paid  or      damages liable to be sustained, was      a decision within the competency of      the arbitrator  in  this  case.  By      purporting to construe the contract      the  court   could  not  take  upon      itself the  burden of  saying  that      this was  contrary to  the contract      and, as  such, beyond jurisdiction.      It has  to be determined that there      is a distinction between dispute as      to   the    jurisdiction   of   the      arbitrator and  the disputes  as to      in  what   way  that   jurisdiction      should be exercised. There may be a      conflict as  to the  power  of  the      arbitrator to  grant  a  particular      remedy."      In "Russel  on  Arbitration"  [Nineteenth  Edition]  by Anthony Walton, page 99, it is stated as under:      "It  can,   hardly  be  within  the      arbitrator’s jurisdiction to decide      whether or not a   precedent to his      jurisdiction has been fulfilled. It      has indeed  several times been said      bluntly that  an arbitrator  has no      power    to    decide    his    own      jurisdiction and  in one case where      rules   of   an   institution   the      arbitrator such  power,  the  court      will  ignore  this  when  asked  to      enforce the  award, and  decide the      question   itself.    However,   an      arbitrator is  always  entitled  to      inquire  whether   or  not  he  has      jurisdiction.. An umpire faced with      a dispute  whether or not there was      a contract  from  which  alone  his      jurisdiction, if any, can arise can      matter at all and lease the parties      to go  to Court, or he can consider      the matter and if he forms the view      that the  contract upon  which  the      claimant  is     relying  and  from      which, if  established,  alone  his      jurisdiction can  arise is in truth      the  contract,   he   can   proceed      accordingly."      In "Law  of Arbitration"  by R.S.  Bachawat [2nd (1987) Edition] at pages 154-55, it is stated thus:      "An arbitrator  cannot  by  mistake      assume jurisdiction  over a  matter      on which he has no jurisdiction. If      it is  shown by  the terms  of  the      submission  or   by  the  extrinsic      evidence that  the  arbitrator  has      adjudicated  upon  matters  outside      the  scope  of  his  authority  the      award cannot  stand,  however  well      meaning  and   honest  the  mistake      might  have   been.  An  arbitrator      cannot give himself jurisdiction by

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    a wrong  decision collateral to the      merits as  to facts  on  which  the      limits of his jurisdiction depends.      Where it  was a condition precedent      to  his   jurisdiction   that   the      dispute should have arisen during a      tenancy between  the plaintiff  and      the tenancy  between the  plaintiff      and the  defendant or  in the event      of a collusion if certain works had      been  completed,   the   arbitrator      could  not   clothe  himself   with      jurisdiction by  a wrong decision n      the preliminary point. The question      is  not   preliminary  point.   The      question is  not concluded  against      any  party  by  a  finding  of  the      arbitrator     that      he     has      jurisdiction. It  is for  the court      and  not   for  the  arbitrator  to      decide finally  whether or  not the      arbitrator  has   jurisdiction  and      that is  the law  both in India and      in England."      "....The   question   whether   the      matters referred  were  within  the      ambit of  the clause  for reference      of "any difference or dispute which      may arise  between the  partners is      for the court to decide".      "....Dispute about the existence or      validity of  the contract and as to      the existence of facts which render      it   illegal must  be determined by      the   court    and   not   by   the      arbitrator. The  arbitrator  cannot      by his  own finding  clothe himself      with  jurisdiction.   Supposing  he      finds   that    the    jurisdiction      agreement is  valid such  a finding      cannot bind the parties".      It would  thus  be  seen  that  the  arbitrator,  while deciding  the   admitted     dispute,  subject   matter   of adjudication, may  decide the  dispute in  reference to  the agreement. That  would be  within his  jurisdiction. In such jurisdictional issue,  even if   an  error is committed that may not  be an  error apparent  on the  face of  the  record because the  arbitrator, the  chosen forum,  may  commit  an error in  exercising his  jurisdiction. However, if he, by a speaking award, decides it on a wrong proposition of law, it will be  an error  apparent on the face of record and liable to correction.  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 jurisdictional  error beyond the scope of  reference, he  cannot  clothe  himself  to  decide conclusively that  dispute as it is an error of jurisdiction which requires  to be  ultimately decided by the court. This Court has  pointed out  the distinction  between latent  and patent error of jurisdiction in Tarapore Co.’s case thus:      "It has  to  be  seen  whether  the      terms of  the  agreement  permitted      entertainment  of   the  claim   by      necessary implication.  It may   be

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    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   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."      It would  thus be  clear  that  the  arbitrator  cannot clothe himself  conclusively with the jurisdiction to decide or omit  to decide the arbitrability of a particular item or the claim made by the parties. When a specific reference has been made  to the  arbitrator  and  the  parties  raise  the dispute of  arbitrability, with  the leave of the court/by a direction of the court in a proceedings under Section 33, he is to  decide the  arbitrability of  the dispute  and make a decision of  the arbitrability  f the  dispute  and  make  a decision  while  giving  reasons  in  support  thereof.  The decision of the arbitrator in granting a particular sum by a non-speaking award, therefore, hinges upon the arbitrability of a dispute arising under the contract or upon a particular item claimed thereunder. He is required to give the decision thereon. The  question of  decision by  implication does not arise since  his jurisdiction to decide to dispute on merits hinges upon  his jurisdiction to decide the arbitrability of the dispute.  In this  case, in view of the finding recorded by the  court,  which  has  become  final,  as  referred  to earlier, the  arbitrator/umpire was  enjoined to  decide the arbitrabilty of  the claims  set up  by the  respondent  and disputed by  the appellant.  Admittedly, the  award  of  the umpire does not contain any decision on arbitrability of the claims.      In Gujarat  Water Supply  and Sewerage  Board v. Unique Erectors [(1989)  1 SCC  532] one  of the questions referred was arbitrability  of a particular item. It was by the Court stated thus :      "In   the    instant   case,    the      arbitrator by  virtue of  the terms      mentioned  in  the  order  of  this      court had  to decide  which of  the      disputes were  arbitrable and which      were  not.  It  is  true  that  the      arbitrator  has   not  specifically      stated in  the award that he had to      decide     the      question     of      arbitrability. The  arbitrator  has      rested by stating that he had heard      the  parties   on  the   point   of      arbitrability of  the claim and the      counter-claim.   He   has   further      stated that  after ’considering all      the   above   aspects’   and   ’the      question of  arbitrability or  non-      arbitrability’  he   had  made  the      award on certain aspects."      It could  be seen  that if the arbitrator has indicated his mind  in the  award that  he in  fact  adverted  to  the arbitrability or  non-arbitrability of  the claim  and  then made the  award, it  would be indicative of the fact that he

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had, in  fact,   applied his  mind, considered that question and reached  the decision  in awarding  certain amounts by a non-speaking award  including the  claim in respect of which arbitrability was in issue.      In   Raipur    Development   Authority   v.   Chokhamal Contractors [(1989) 2 SCC 721], a Constitution Bench of this Court had  gone into  the question whether the arbitrator is required to  give  reasons  in  a  non-speaking  award.  The Constitution Bench had pointed out in para 35 thus:      "We   do    not   appreciate    the      contention, urged  on behalf of the      parties who  contend that it should      be made  obligatory on  the part of      the arbitrator  to give  reason for      the  award,   that  there   is   no      justification to  leave  the  small      area  covered   by   the   law   of      arbitration out of the general rule      that the decision of every judicial      and quasi-judicial  body should  be      supported by  reasons. But  at  the      same time  it has  to be  borne  in      mind that what applies generally to      settlement    of     disputes    by      authorities governed  by public law      need not  be extended  to all cases      arising under  private law  such as      those  arising  under  the  law  of      arbitration which  is intended  for      settlement of private disputes."      In para  37 thereof,  this Court emphasised the need to make a  speaking award  and the terms in the contract should postulate such  a need  when the contract is entered into by the State or its instrumentalities. It was held thus:      "The  trappings  of  a  body  which      discharges judicial functions and s      required to  act in accordance with      law    with    their    concomitant      obligations for reasoned decisions,      are  not  attracted  to  a  private      adjudication  of   the  nature   of      arbitration as  the latter,  as  we      have  noticed   earlier,   is   not      supposed  to   exert  the   State’s      sovereign   judicial   power.   But      arbitral  awards   in  disputes  to      which    the    State    and    its      instrumentalities    are    parties      affect  public   interest  and  the      matter  of   the  manner  in  which      government         and          its      instrumentalities    allow    their      interest to  be  affected  by  such      arbitral   adjudications    involve      larger  questions   of  policy  and      public interest. Government and its      instrumentalities   cannot   simply      allow large  financial interests of      the  State   to  be   prejudicially      affected by non-reviewable - except      in the  limited way  allowed by the      statute  -   non-speaking  arbitral      awards. Indeed,  this branch of the      system of  dispute resolution  has,      of late,  acquired a certain degree

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    of notoriety by the manner in which      in   many   cases   the   financial      interests of  government have  come      to  suffer  by  awards  which  have      raised eyebrows  by  doubts  as  to      their rectitude  and  property.  It      will   not   be   justifiable   for      governments        or         their      instrumentalities  to   enter  into      arbitration agreements which do not      expressly stipulate  the  rendering      of reasoned  and  speaking  awards.      Government        and        their,      instrumentalities  should,   as   a      matter   of   policy   and   public      interest- if not as a compulsion of      law ensure that wherever they enter      into agreements  for resolution  of      disputes  by   resort  to   private      arbitrations,  the  requirement  of      speaking   awards    is   expressly      stipulated and ensured."      In State  of A.P. & Ors. v. R.V. Rayanim & Ors. [(1990) 1 SCC  433], relied  on by  Shri Poti,  the  question  arose whether the  award of  escalation charges  in a non-speaking award is  vitiated by  any error apparent on the face of the record? Therein the question of jurisdictional issue had not arisen. On  the other hand, on merits, it was contended that there was  an error  in that  behalf. In  para 5 it was held that "  it was  then contended, that the award has 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 and having taken that  factor   into  consideration   the  award   was  bad." Therefore, the  ratio there  is an  authority supporting the contention on  the need  of an arbitrator to give a reasoned decision on  arbitrability  of  the  contract  or  claim  in dispute.      In this  regard, Section  31(3) of the  Arbitration and Conciliation Act, 1996, provides thus:      "(3) The arbitral award shall state      the reasons upon which it is based,      unless-           (a)  the parties  have  agreed      that no reasons are to be given, or           (b)  the award  is an arbitral      award on agreed terms under Section      30."      The Parliament  has expressed the legislative judgement that the  award shall  state reasons  upon which it is based unless parties have agreed otherwise or the award is covered on agreed terms under Section 30 of the new Act.      Thus, the law on the award, as governed by the new Act, is other way about of the pre-existing law; it mandates that the award  should state  the reasons upon which it is based. In other  words, unless  (a) the parties have agreed that no reasons are  to be  given or  (b) the  award is  an arbitral award on  agreed terms  under Section 30 of the new Act, the award should  state the  reasons in support of determination of the liability/non-liability. Thereby, legislature has not accepted  the   ratio  of  the  Constitution  Bench  in  the Chokhamal Contractor’s  case that  the award,  being in  the private law  field, need  not be a speaking award even where the award  relates to  the contact  of  private  parties  or between  person   and  the   Government  or   public  sector

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undertakings. The principle is the same, namely the award is governed by Section 31(3).      We have  set out  the relevant  portions of  the award. From a  reading thereof, it is clear that the arbitrator had considered the  claims made  on the  basis of escalation and damages, in  a non-speaking award of the disputes consisting of  arbitrable  and  non-arbitrable  claims.  He  awarded  a lumpsum amount  of  Rs.  70,83,793/-.  It  is  difficult  to discern as  to what  extent the  umpire had  considered  the admissible and  inadmissible claims  which he  adjudged.  In such a  situation, it  is not  possible to  discern to  what extent he  had exercised  his jurisdiction  vis-a-vis of the admissible claims  and disallowed the non-arbitrable claims. So, it  is not  clear whether  he  exercised  his  authority either beyond  his jurisdiction or in abdication thereof. In either case,  it is  an  error  of  jurisdiction,  the  very foundation for his decision.      It is  well settled  that in the matter of challenge to the award  there are  two distinct  and  different  grounds, viz., that  there is  an error  apparent on  the face of the record  and   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 do so unless  agreement but  under the  former it  cannot do so unless the agreement was incorporated or cited in  the award or evidence  was made  part of the agreement. In the case of jurisdictional error,  there is  no embargo  on the power of the court  to  admit  the  contract  into  evidence  and  to consider  whether   or  not  the  umpire  had  exceeded  the jurisdiction 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. In the case  of non-speaking award, it is not open to the court to go  into the  merits. Only  in a speaking award the court can look  into the  reasoning in the award and correct wrong proposition of  law or  error of law. It is not open to  the court to  probe the  mental process  of the  arbitrator  and speculate,  when   no  reasons  have  been  given    by  the arbitrator, as  to what impelled the arbitrator to arrive at his conclusion.  But in  the  later  case  the  court,  with reference to the terms of the contract/arbitrator/umpire has exceeded his  jurisdiction in  awarding or refusing to award the sum of money awarded or omitted a consolidated lumpsum.      In fact,  in G.S.  Atwal &  Co.’s case,  having noticed that the  arbitrator had  exceeded his jurisdiction to grant amount de  hors the  terms of  the contract and being a non- speaking award, the court was unable to speculate as to what extent the  award was  within the  terms of  the contract or claims made  and to  what extent  the amount  awarded was in respect of non-arbitrable dispute. Accordingly, the order of the civil  court was set aside reversing the judgment of the Division Bench of the Calcutta High Court.      Thus considered,  we hold  that the  arbitrator, having been  invested   with  the   jurisdiction  to   decide   the arbitrability of  certain claims,  has  committed  error  of jurisdiction in  not considering  the arbitrability  of  the claims and  passed a  non-speaking award,  awarding a sum of Rs. 70.83  lakhs and odd. It is difficult to ascertain as to what extent he has awarded the claims within the contract or the claims  outside the  contract, of  a total  claim of Rs. 2.10 crores.  Under those  circumstances, we are constrained to hold that it is difficult to give acceptance to the award made by  the umpire  as upheld by the courts below. Equally, we find  it difficult to accept the contention that out of a claim of  Rs. 2.10  crores, only  a sum of Rs. 70.83 and odd

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was awarded.  So, it  is not  a fit case for interference on the basis  of the  mere fact  that a  lesser  sum  than  was claimed has  been awarded. An illegal award cannot be upheld to be valid or within jurisdiction.      The question then is : what procedure should be adopted in this  behalf? The  contention of Shri Poti is that it may be remitted  to the  umpire for  fresh consideration. On the other hand, the contention of Shri V.R. Reddy is that in the event of the conclusion that the arbitrator has exceeded his jurisdiction, the  entire award  would become invalid and it has to  be set  at naught. Having given due consideration to the respective  contentions, we find force in the contention of Mr.  V.R. Reddy.  Mr. Poti  has stated  that though it is found that  the award  is not valid in law, the party cannot be made  to suffer on account of the illegality committed by the umpire.  We find  no force  in the  contention.  Once  a finding recorded  that the  umpire/arbitrator has  committed error of  jurisdiction, as  stated earlier,  two course  are open, viz.,  either to  remit the  award to  the umpire  for reconsideration or  to set aside the award in toto. We think that the latter course would be appropriate in the facts and circumstances in this case.      Accordingly, we  allow the  appeals set aside the award of the  arbitrator and  leave the  parties to bear their own costs. If there are no outstanding dues recoverable from the respondents, the  security deposit  and  bank  guarantee  is required to be refunded to the respondent.