Delve into the recent legal analysis by the court on the arbitrator’s jurisdiction and the interpretation of contract terms in a significant case. The court’s examination of whether the arbitrator exceeded the scope of reference and altered the contract terms provides valuable insights into the nuances of contract law and arbitration proceedings.
Facts
- The State of Haryana is aggrieved and dissatisfied with the judgment and order dated 03.11.2015 passed by the High Court of Punjab and Haryana in FAO No. 4482 of 2011.
- The High Court dismissed the appellant’s appeal under Section 37 of the Arbitration and Conciliation Act, 1996.
- The State of Haryana has filed the present appeals challenging the High Court’s decision.
- The Court has issued notice in the present appeals and stayed the award exceeding Rs.1,03,50,263.
- Heavy traffic of 24418 PCUS per day was plying on the road as against the design of 3364 PCUS per day, damaging the road.
- Contractor claimed additional expenditure for heavy repairs due to traffic diversion from Palwal Aligarh Road.
- Disputes between parties led to arbitration as per clauses 24 & 25.
- Appellant appealed under Section 37 of the Arbitration and Conciliation Act, 1996 after the award was declared by the Arbitrator.
- High Court appointed a sole Arbitrator to adjudicate on the disputes.
- The High Court dismissed the appellant’s appeal, leading to the State of Haryana filing the present appeals.
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Issue
- Appellant awarded contract to respondent No.1 for strengthening, up-gradation and maintenance of road from Palwal to Hasanpur, Haryana.
- The contract was for a length of 31.17 kilometers and valued at Rs. 5,26,59,688.
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Arguments
- The appellant’s counsel relies on previous court decisions to argue that the Arbitrator exceeded the scope of reference and rewrote the contract terms.
- The appellant contests the Arbitrator’s decision to award a higher rate than the agreed contractual rate, claiming the Arbitrator had no authority to alter the contract terms.
- The appellant further argues that the award amount of Rs.45,000/- per km per month, extending beyond the agreed time period, is impermissible.
- The appellant asserts that the total award amount is significantly higher than the initial claim made by the contractor, emphasizing that the Arbitrator exceeded their authority in awarding this amount.
- The contractor’s counsel argues against the appellant’s claims, stating that the award is not in excess, does not exceed the scope of reference, and does not rewrite the contract terms.
- The contractor mentions that the statement of claim only covered expenses up to May 2007, with details beyond that to be submitted during the hearing.
- The appellant had already paid a portion of the claimed amount based on an interim court order.
- The contractor had not modified the statement of claim, leading the Arbitrator to award an amount exceeding the claimed sum, which according to the appellant, was beyond the Arbitrator’s authority.
- The appellant stresses that the Arbitrator overstepped the scope of reference by allowing claims for a period beyond a certain date, resulting in an invalid arbitral award in the appellant’s view.
- The appellant argues that the amount awarded by the Arbitrator is not in excess of the amount claimed by the claimant.
- The appellant also contends that the payment of Rs.45,000/- per km per month awarded by the Arbitrator is justified due to the increased traffic on the road, which required additional expenditure.
- The appellant states that the contract originally specified a rate of Rs.1,000/- per km per month, but due to the diversion of heavy traffic, the contractor incurred additional costs at Rs.45,000/- per km per month.
- The appellant argues that the Arbitrator’s award of Rs.1,51,95,400/- for claim Nos.1 and 8 is within the scope of the contract and not beyond the amount claimed in the statement of claim.
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Analysis
- Making an award in excess of the claim is considered an act that exceeds the jurisdiction of the Arbitrator.
- Such an act amounts to misconduct on the part of the Arbitrator.
- The cases of Associate Builders v. Delhi Development Authority (2015) 3 SCC 49 (para 36) and J.C. Budhraja v. Chairman, Orissa Mining Corpn. Ltd. & Anr., (2008) 2 SCC 444 (para 31-32) support this principle.
- Appellant argues the Arbitrator should have restricted the claim up to specific dates, but the claim was valid until January 2008.
- Appellant’s claim that Arbitrator exceeded the scope by awarding an amount beyond a certain date is unfounded.
- The contractor had mentioned in the claim that further details of expenditure beyond a certain date would be submitted during the hearing.
- The Arbitrator’s award was deemed to be within the scope of reference as per the claimant’s statement.
- Arbitrator’s decision on the increased maintenance cost due to traffic diversion was justified based on evidence.
- The awarded amount by the Arbitrator was deemed to be in accordance with the original contract terms.
- Contractor’s invocation of the arbitration clause on a specific date was highlighted as a key argument.
- The Arbitrator should not have awarded an amount beyond the time period of additional traffic, specifically not beyond January 2008.
- The contractor was entitled to the loss on account of additional expenditure due to increased traffic from the closure of Palwal Aligarh Road.
- There was no rewriting of the contract terms on behalf of the appellant.
- The decisions of this Court relied upon by the appellant’s senior counsel are not applicable to the present case.
- The Arbitrator’s award can be considered perverse to the extent mentioned, warranting the appeals to be allowed.
Decision
- Appeals allowed in part
- Award for Rs.45,000/- per km per month from Feb 2008 to 31.05.2010 quashed
- Amount due to be recalculated
- Award for Rs.45,000/- per km per month up to Jan 2008 confirmed
- Arbitrator appointed on 23.04.2007 and entered reference on 19.05.2007
- No costs ordered
- Impermissible diversion of additional traffic post January 2008
Case Title: STATE OF HARYANA Vs. M/S. SHIV SHANKAR CONSTRUCTION CO. (2021 INSC 888)
Case Number: C.A. No.-007379-007380 / 2021
