http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 6  

PETITIONER: UNION OF INDIA.

       Vs.

RESPONDENT: M/S. G.S. ATWAL & CO.(ASANSOLE)

DATE OF JUDGMENT:       22/02/1996

BENCH: RAMASWAMY, K. BENCH: RAMASWAMY, K. G.B. PATTANAIK (J)

CITATION:  1996 SCC  (3) 568        JT 1996 (2)   607  1996 SCALE  (2)447

ACT:

HEADNOTE:

JUDGMENT: J U D G M E N T K. RAMASWAMY. J.      This appeal  by special  leave arises from the judgment and order  dated February  12, 1992 of the Division Bench of the Calcutta  High Court  in F.M.A.T.  No. 1990 of 1991. The respondent had  entered into  an agreement  in  1968-69  for excavation of feeder canal from RD.68.00 to RD.97.00. During the course of the execution of the work certain disputes had arisen  between   the  respondent  and  the  appellant.  The disputes were  referred from  time to  time to  arbitration. This is  the 5th  arbitration  the  instalment.  Details  of previous four arbitrations are as under: S.   Name of the      Award       Interest        Amount No.  Arbitrator        Rs.           Rs.            Rs. ---  -----------  -----------   ------------   ------------- 1.   R.P. Ahuja    4,70.000.00     78,129.45     5,48,129.45 2.   O.P. Gupta    7,00,974.00      7,604.96     7,08,578.96 3.   T. Rajaram   23,78,100.00  23,34,501.00    47,12,601.60 4.   Brig.D.R.      Kathuria     78,90,570.00  38,40.653.88  1,17,31,223.00 ------------------------------------------------------------      The dispute  as regards  hire charges of equipment load by Farakka  Barage Project  was referred  to Goyal Committee for rationalization.  On submission  of its  report  and  in furtherance thereof the respondent by letter dated August 8, 1984 had claimed for reference to the arbitration thus:      "And whereas  M/s. Tarapore  &  Co.      having long  back been refunded the      excess   hire   charges   recovered      earlier,    but    having    became      refundable on  the  basis  of  said      Goyal Committee Report, in our case      the excess recovered amount and now      refunded to  us  despite  repeated,      written as  well as  oral  requests

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 6  

    and demands in this respect."                      [emphasis supplied]      In furtherance  thereof, by  proceedings dated November 18, 1984,  the  General  Manager,  Farakka  Barrage  Project appointed T.  Raja Ram  as the sole arbitrator to settle the disputes. After  entering into the reference on December 12, 1984, admittedly the respondent laid claim for the refund of hire charges  which was disputed by counter-statement by the appellant. Later the respondent laid further claims on March 6, 1985  for Rs.1,68,000/-  towards repairs  on departmental equipments; Rs.1,38,600/-  towards  refund  of  expenses  on security watch  and ward; Rs.28,12,085.33 towards final bill of the  firm; Rs. 95,60,653.10 towards part interest and the amount of  claim in  addition to  the refund of hire charges was Rs.32,45,538.27.  The appellant  in  its  statement  had objected to  unilateral enlargement  of the  reference.  The arbitrator awarded  by a non-speaking award dated August 18, 1987, a sum of Rs.35,72,550/- with interest at 15% per annum from July  1, 1976  or the  date of  the payment  of  decree whichever was earlier.      The appellant  fixed Misc.  Case No.95/87  on April  8, 1988 under  Section 30(c)  of the Arbitration Act, 1940 [for short, the  ’Act’], questioned the award contending that the claim was  barred by limitation; the arbitrator had no power to enlarge  the scope of the arbitration and he had no power to award  interest at  higher rate  without any claim before it. The  Assistant District  Judge, Murshidabad by his order dated January  19, 1991  set aside the award upholding these contentions. On appeal, in the inpugned order the High Court set aside  the order  of the  civil Court holding that there was no  error apparent  on the  face of the award warranting setting aside  of the  award. It directed the civil Court to take steps  for passing  a decree  in terms  of the award as expeditiously as  possible not  later than four months. Thus this appeal by special leave.      Since Shri  Goswamy, learned  senior counsel  appearing for the  appellant has not pressed the bar of limitation for our consideration,  it is unnecessary for us to go into that question. Only  two questions have been canvassed, viz., the power of the arbitrator to unilaterally enlarge the scope of the reference  and the  power to  award the amount in a non- speaking award  and  the  rate  of  interest.  The  question therefore, is:  whether the  arbitrator has jurisdiction and power to  unilaterally enlarge  the reference?  As extracted above, the  specific demand and acceptance by the Manager of Farakka Barage Project was to refer the dispute of refund of hire charges  pursuant to the report of the Goyal Committee. That was  acceded to  and reference  to T. Raja Ram was made for arbitration  on November  18, 1984  and  claim  in  that behalf was  duly made.  On March 6, 1985 claims were laid by the   respondent for  arbitration. They  were objected to by the respondent. The question emerges: whether the arbitrator has  power   to  unilaterally   enlarge  the  reference  and adjudicate the  claims? It  is seen that impugned award is a non-speaking award.  Shri Soli  J. Sorabjee,  learned senior counsel for  the respondent  contended  that  the  appellant having participated  before the  arbitrator and had an award unfavorable  to   them,  could   not   question   invalidity thereafter.  The   appellant   had   participated   in   the proceedings before  the arbitrator  with full  knowledge  of these facts.  The conduct  on  the  part  of  the  appellant amounts to acquiescence to the power and jurisdiction of the arbitrator to  make the  award. Thereby  the plea of lack of jurisdiction  cannot  be  permitted  to  be  raised  by  the unsuccessful party to the arbitration. In support thereof he

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 6  

placed strong  reliance in N.Chillappam v. Secretary, Kerala State Electricity  Board and  Anr.[(1975) 1  SCC 289];  M/S. Neelkanthan   Construction   v.   Superintending   Engineer, National Highways, Salem and Ors. [(1988) 4 SCC 462]; Russel on Arbitration, 17th Edition, page 215; 33, Chowdhri Murtaza Hossein v. Mussumat Bibi Bechunnisa [L.R. (IA) Vol.III 209]; Champsey Bhara  & Company  v.  Jivraj  Balloo  Spinning  and Weaving Company,  Ltd. [L.R.  (IA)Vol.I 324]; Champsey Bhara Company v.  The Jivraj  Ballo Spinning  and Weaving  Company Ltd. [AIR 1923 P.C. 66] and Firm Madanlal Roshan Lal Mahajan v. Hukumchand Mills Lrd., Indore [(1967) 1 SCR 105 ].      To constitute  an arbitration  agreement, there must be an 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. In U.P. Rajkiya Nirman Nigam  Ltd. v.  Indure Pvt.Ltd.  &  Ors.  decided  on February 9,  1996, a  three-Judge Bench  of this  Court  [to which one  of us,  K. Ramaswamy,  J., was  a member  was  to consider   the   question   whether   the   arbitrator   had jurisdiction  to  decide  the  arbitrability  of  the  claim itself. In  that context,  the question arose: whether there was  an   arbitration  agreement   for  reference   to   the arbitrator? It  was  held  that  the  arbitrability  of  the controversy of  the claim  being a jurisdictional issue, the arbitrator  cannot   cloth  himself   with  jurisdiction  to conclusively decide,  whether or  not he had power to decide his own jurisdiction. Relying upon the passage in "Russel on Arbitration" [19th  Edn.] at  page 99,  this Court  had held that 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 no power cide 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  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 or  dispute which  may arise  between the martis, 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.  It  was, therefore, held  that "arbitrators  cannot cloth  themselves with jurisdiction  to decide  conclusively the arbitrability of the  dispute." It si for the court under Section 33 or on appeal thereon  to decide  it finally". There is no estoppel to challenge  the action  and to  seek a  declaration  under Section 33.  It was  further held  that "mere  acceptance or acquiescence to  the  jurisdiction  of  the  arbitrator  for adjudication  of  the  dispute  as  to  the  extent  of  the arbitration agreement or arbitrabity of the dispute does not disentitle the appellant to have the remedy under Section 33 through the court." The remedy under Section 33 is "the only right royal way for deciding the controversy."      In Law  of Arbitration  by Justice Bachawat [2nd (1987)

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 6  

Ed.] at  page 90  it is  stated  that  jurisdiction  of  the arbitrator is solely derived from the arbitration agreement. The arbitrator  has jurisdiction  to deal  only with matters which  on   a  fair   construction  of   the  terms  of  the contract,the parties  agreed to refer to him. Whether or not the arbitrator  acts within  the jurisdiction depends solely upon  the  clause  of  reference.  The  court  may  grant  a declaration that  the party  appointed by  the defendants as the arbitrator has no jurisdiction. The submission furnishes the source  and prescribes  the limit  of  the  arbitrator’s authority. The  arbitrator take  upon himself  an  authority which the  submission does not confer on him. The award must in substance  and form  conform to  the submission,  It must comply in  point of  form to the directions contained in the submission. If  the award determines any matter not referred to arbitration  and such  matter cannot be separated without affecting the  determination of  the matters  preferred, the award is  invalid. It  may be remitted to the arbitrator for reconsideration under  Section 16 and if the arbitrator acts in excess of authority, the award should be set aside.      In N. Chellappan v. Secretary, Kerala State Electricity Board and  Anr. [(1975)  1 SCC  289], the facts therein were that the  arbitrators nominated  an umpire.  The arbitrators did  not   make  the  award  within  the  time  limit  which ultimately expired.  Thereupon the appellant had invoked the jurisdiction of  the civil  Court to revoke the authority of the arbitrator  under Sections  5 and  11  of  the  Act.  An application was  made to  appoint  ’K’  to  enter  upon  the reference as  an umpire and to proceed with the arbitration. Another application  was made  to appoint  ’K’ as  the  sole arbitrator in  place of  two arbitrators.  The court revoked the authority  of the arbitrators and directed the umpire to enter upon  the dispute  in his  capacity as  an umpire  and allowed the  application of  the appellant to appoint ’K’ as the sole  arbitrator. The  umpire entered upon the reference in his  capacity as  an umpire.  The party  submitted to his jurisdiction, conducted  the proceedings  and when the award went against  the respondent-Board umpire’s jurisdiction was challenged. On those facts a three-Judge Bench of this Court had held  that when  the respondent  Board acquiesced to the jurisdiction of the umpire as the sole arbitrator, the Board was,  by   acquiescence,  precluded   from  challenging  the jurisdiction of  the umpire. When the party consented to the appointment and  took part  in  the  proceedings  with  full knowledge of  the relevant  fact of  appointment as the sole arbitrator it amounted to acquiescence. Same is the ratio in M/s. Neelankantan  & Bros.  Construction  v.  Superintending Engineer, National  Highway, Salem & Ors. [(1986) 4 SCC 462] wherein a  two-Judge Bench  of this  Court held  that if the parties to  the reference  either agree  beforehand  to  the method  of  appointment,  or  afterwards  acquiesce  in  the appointment  made,   with  full   knowledge   of   all   the circumstances, they will be precluded from objecting to such appointment   as    invalidating   subsequent   proceedings. Attending and  taking part  in  the  proceedings  with  full knowledge  of   the  relevant   fact  will  amount  to  such acquiescence. The  rest of the decisions are not directly on the point.  Therefore, it  is not  necessary to  burden  the judgment with reference to those cases.      It would thus be seen that appointment of an arbitrator is founded  upon the  agreement between the parties, Once on his appointment  either by  consensus or  by an order of the court, the  parties put forth their claim and participate in the proceedings, the parties acquiesce to the appointment of the arbitrator and the award made thereon binds the parties.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 6  

The party  who has  suffered the  award  is  precluded  from questioning the  power and jurisdiction of the arbitrator to make the  award. The  reason being  that the parties have by contract consented  to the forum to adjudicate their dispute and to-give  a decision, by a non-speaking or speaking award in terms of the agreement. This principle is inapplicable to the   jurisdiction of the arbitrator to unilaterally enlarge his own  power to arbitrate any of the disputes. It is  seen that by express agreement between the parties, arbitrability of the  claim for refund of the hire charges was referred to arbitration and  T. Raja  Ram    came  to  be  appointed  as arbitrator and  entered upon  that reference. But when claim was made, he enlarged the dispute unilaterally without there being any  agreement by the appellant. In fact they objected to the  enlargement of  the Scope  of the arbitration. Since arbitrator went on adjudicating the disputes, they were left with no  option but to participate in the proceedings as the claims  were  pressed  for  and  parties  submitted  to  the jurisdiction of the arbitrator. Therefore, it did not amount to acquiescence.  The  jurisdiction  of  the  arbitrator  is founded upon  the agreement  between  the  parties.  To  the extent of  the agreement,  the  parties  are  bound  by  the decision  of  the  arbitrator.  But  the  arbitrator  cannot enlarge the  scope of  his arbitration  and make  in  a  non speaking award,  a lump  sum amount  of  all  claims,  after enlarging  his  jurisdiction  on  non-accepted  or  objected claims. In Champsey Bhara Company case [supra] Lord Dunedin, speaking for the Privy Council had held that "(t)he question of whether an arbitrator acts within his jurisdiction is, of course, for  the Court  to decide but whether the arbitrator acts within  his jurisdiction or not depends solely upon the clause of  the reference. It is, therefore, for the Court to decide... whether  the dispute which has arisen is a dispute covered by  Cl. 13  of the  Articles". In  Gobardhan Das  v. Lachmi Ram  and Ors. [AIR 1954 SC 689], this Court held that so long  as the  arbitrator acts  within the  scope  of  his authority there  is no  doubt  that  the  decision  must  be accepted as  valid and binding on the parties. In that case, the agreement  entered into  between  the  parties  read  as under:      "that the  arbitrators  should  sit      together, take  down the statements      of the  parties, hear  and consider      the arguments  brought  forward  by      the parties,  inspect the documents      of all  descriptions and take other      evidence and  evidence of witnesses      and whatever award they shall give,      is and  shall be, acceptable to the      parties  and   whatever  award  the      arbitrators may give unanimously or      by majority  of  votes    shall  be      treated as  true  and  correct  and      valid in  every court  and shall be      binding upon  all of  us executants      parties."      The arbitrators  went out  of their way to declare that whatever amount in addition to Rs.3,500/- was found due from respondent No.1  upon the  bahikhata  account  was  remitted having regard  to his  labour  and  poverty  and  the  whole unspecified amount  found due  against respondent  No.2  was remitted in  full in  view of his labour and poverty. It was contended that  the award  was decided outside the authority of the  arbitrators. It  was held  that the  arbitrators had clearty misdirected themselves and had exceeded the scope of

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

their authority and the award was, therefore set aside.      Thereby, the  arbitrator had  misdirected  himself  and committed legal misconduct in making the award vitiating the entire award  itself. It  is difficult  to decide as to what extent each  of the claims was accepted or rejected. In that view, it  is not necessary to go into the second question of the   power of  the arbitrator  to award  interest or excess rate of interest.      The  appeal  is  accordingly  allowed.  The  order  and judgment of  the High  Court is  set aside  and that  of the trial Court  is restored,  but in the circumstances, parties are directed to bear their own costs.