Plausible contract interpretation limits arbitral interference where compensation caps do not cover breaches outside the clause

An arbitral award was upheld because the arbitrator gave a plausible construction of Clause 7.2 and found it did not apply to outright refusal of supply in the first quarter or delayed supply in the second quarter. On that basis, the contractual compensation cap and Section 74 of the Contract Act did not limit the award for breaches falling outside the clause. The later quantified claim was also treated as permissible because the claimant had reserved the right to add or amend its statement of claim, and the objection had not been canvassed before the High Court. No ground for interference with the award was made out.

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Issues: (i) whether the arbitrator exceeded his jurisdiction by holding that Clause 7.2 of the contract did not cover refusal to supply materials for the first quarter and delayed supply for the second quarter, and by awarding compensation beyond the contractual cap; (ii) whether the quantified claim introduced during arbitration was beyond jurisdiction.

Issue (i): Whether the arbitrator exceeded his jurisdiction by holding that Clause 7.2 of the contract did not cover refusal to supply materials for the first quarter and delayed supply for the second quarter, and by awarding compensation beyond the contractual cap.

Analysis: Clause 7.2 provided compensation only for failure to deliver the indicated quantity after the grace period and for delay in supply. It did not govern a case where supply was refused altogether for reasons said to be beyond control. The arbitrator recorded reasons for holding that the clause was inapplicable to the first-quarter non-supply and that the dispute fell outside the agreed liquidated-damages framework. A construction of the contract that is plausible and within its language is an error, if any, within jurisdiction and is not open to correction merely because another interpretation is possible. In the absence of an applicable contractual stipulation fixing damages for the breaches in question, Section 74 of the Contract Act did not control the award.

Conclusion: The arbitrator did not exceed jurisdiction on this issue, and the challenge to the award on the basis of Clause 7.2 and Section 74 failed.

Issue (ii): Whether the quantified claim introduced during arbitration was beyond jurisdiction.

Analysis: The claim petition had reserved the right to add, amend or modify the statement of claims, and the later application merely quantified the claim. The challenge on this score had not been canvassed before the High Court, and the Court found no merit in the objection that the arbitrator had entertained a fresh claim beyond the reference.

Conclusion: The quantified claim was not held to be beyond jurisdiction.

Final Conclusion: The award was upheld, and no ground was made out for interference with the concurrent findings rejecting the objections to the award.

Ratio Decidendi: An arbitral award will not be interfered with when the arbitrator adopts a plausible construction of the contract within its terms; a contractual cap on compensation applies only to breaches actually covered by that clause, and not to breaches falling outside it.

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