TaxTMI 
TaxTMI 
1999 (9) TMI 815
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.... Megha Taburu Iron Ore Project. As per the terms of the contract, the work was to be completed within a period of two years. During this period, Public Sector Iron and Steel Companies (Re-structuring and Miscellaneous Provisions) Act, 1978 was passed and Steel Authority of India Ltd. became the employer in place of National Mineral Development Corpn. Further, the contractor, N.C. Budharaja also died and was succeeded by the present respondent. 3. After two years of contract period, on 29-8-1979, respondent raised the claim of about 18 lakhs as damages for delay in handing over work sites and allied reasons. On 20-12-1980, a supplementary agreement was executed between the appellant and the respondent for the same work at an increased rate. The relevant part of the said agreement is as under :- "The Supplementary agreement made this twentieth day of December, 1980 between Steel Authority of India Ltd. having its registered office at Hindustan Times House, 18/20, Kasturba Gandhi Marg, New Delhi - 110 001 and having one of fits units at Bokaro Steel Plant at Bokaro Steel City [hereinafter referred to as the (Employer) which expression shall include its successors and assigns] of....
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.... sustained by the contractor as claimed by him by his letter dated 29-8-1979. 4. Thereafter, dispute arose, in the year 1985 for the work with regard to second agreement dated 20-12-1980 and the matter was referred to arbitration. In that reference, respondent raised certain claims relating to the work done under the first agreement. On 2-12-1985, the appellant raised an objection that the claim could not be decided by the Arbitrators as the same was pertaining to previous agreement. Thereafter the respondent gave notice dated 2-12-1985 to the appellant to appoint sole arbitrator as provided for under the first agreement. On 10-12-1985, the appellant appointed sole arbitrator 'with reservation regarding the tenability, maintainability and validity of the reference as also on further grounds that the claim was barred by the period of limitation and that it pertained to excepted matters of general conditions of the contract.' 5. On 11-7-1986, the arbitrators gave an award pertaining to the dispute under the agreement dated 20-12-1980. Against the claim of item No. 1 of Rs. 17 lakhs and odd pertaining to first agreement, the arbitrators awarded 'Nil'; this award has been made ru....
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.... including interest up to the date of 'award' works out to Rs. 51,49,365.48 (Rupees fifty one lakhs forty nine thousand three hundred sixty five and paise forty eight only). On perusal of all documents filed by both parties and relied upon by the parties and keeping in view oral and written submissions and chain of arguments of both parties relating to factual and legal. I am convinced that the claimant sustained losses on account of the following reasons :- (a )The work site is located in the wild life sanctuary of Saranda Reserve forest. The project authorities issued work order without completing the departmental formalities in obtaining permission of the forest department for executing the work inside wild life sanctuary. (b)The project authorities could not obtain permission of forest department to take men and machinery to the work site as and when necessary for executing the work. (c )The project authorities could not obtain permission of forest department in time for making hutments at work site and could not hand over the site in time. (d)The project authority could not remove forest growths from the working area before issue or work order. (e )The projec....
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....rd of work and for giving the site gradually will be tenable. Clause 39 : (Force majeruo) :- No failure or omission to carry out the provisions of the contract shall give rise to any claim by the Corporation and the contractor, one against the order, if such failure omission arises from an act of God, which shall include natural calamities such as fire, flood, earthquake, hurricane or any postilence, or from civil strike, compliance with any statute or regulation of Government, lockouts and strikes, or from any political or other reasons beyond the control or either the Corporation or the Contractor, including war whether declared or not, Civil war or state of insurrection. Clause 5(iv): General Conditions of Contract (Time for completion of work covered by the contract :- Failure or delay by the Corporation to hand over to the contractor possession of the lands necessary for the execution of the work, or to give the necessary drawings, instructions or any other delay by the Corporation which due to any other cause whatsoever shall in no way affect or vitiate the contract or alter the character thereof or entitle the contractor to damage or compensation therefor provide....
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....ion of the work by such period as it may think necessary and proper. These conditions specifically prohibit granting claim for damages for the breaches mentioned therein. It was not open to the arbitrator to ignore the said conditions which are binding on the contracting parties. By ignoring the same, he has acted beyond the jurisdiction conferred upon him. It is settled law that arbitrator derives the authority from the contract and if he acts in manifest disregard of the contract, the award given by him would be arbitrary one. This deliberate departure from the contract amounts not only to manifest disregard of the authority or misconduct on his part, but it may tantamount to mala fide action. In the present case, it is apparent that awarding of damages of Rs. 11 lakhs and more for the alleged lapses or delay in handing over work site is, on the face of it, against the terms of the contract. 12. Further, the Arbitration Act does not give any power to the arbitrator to act arbitrarily or capriciously. His existence depends upon the agreement and his function is to act within the limits of the said agreement. 13. In Continental Construction Co. Ltd. v. State of Madhya Pradesh....
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....urisdictional error. For this limited purpose reference to the terms of the contract is a must. Dealing with similar question this Court in New India Civil Erectors (P.) Ltd. v. Oil & Natural Gas Corpn. [1997] 11 SCC 75 held thus : "It is axiomatic that the arbitrator being a creature of the agreement, must operate within the four corners of the agreement and cannot travel beyond it. More particularly, he cannot award any amount which is ruled out or prohibited by the terms of the agreement. In this case, the agreement between the parties clearly says that in measuring the built-up area, the balcony areas should be excluded. The arbitrators could not have acted contrary to the said stipulation and awardeed any amount to the appellant on that account." 15. However, the learned counsel for the Respondent submitted that the award being non-speaking one, the learned Sub-Judge and the High Court have rightly refused to go behind the award or interfere with. In our view, this submission is without any substance. It is apparent that the arbitrator has awarded Rs. 11,26,296 for the losses sustained for the reasons stated therein which we have incorporated in the previous paragraph. T....
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....payment and for this purpose. The Court held 'this conclusion is reached not by construction of the contract but by merely looking at the contract'. The Court further observed that the Arbitrator could not act arbitrarily, irrationally, capriciously or independently of the contract; his sole function is to arbitrate in terms of the contract. The Court further held thus : "An arbitrator who acts in manifest disregard of the contract acts without jurisdiction. His authority is derived from the contract and is governed by the Arbitration Act which embodies principles derived from a specialised branch of the law of agency (see Mustill and Boyd's Commercial Arbitration, 2nd edn., p. 641). He commits misconduct if by his award he decides matters excluded by the agreement (see Halsbury's Laws of England, Volume II, 4th edn., para 622). A deliberate departure from contract amounts to not only manifest disregard of his authority or a misconduct on his part, but it may tantamount to a mala fide action. A conscious disregard of the law or the provisions of the contract from which he has derived his authority vitiates the award." In view of the aforesaid settled law, the award passed by ....
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....s executed. The appointing authority shall on receipt of the names as aforesaid select any one of the persons named and appoint him as the sole arbitrator, if the appointing authority fails to select the person and appoint him as the sole arbitrator within 30 days of receipt of the penal and inform the contractor accordingly, the contractor shall be entitled to invoke the provisions of the Indian Arbitration Act, 1940 and any statutory modification thereof." In view of the aforesaid arbitration clause, even though the claim made by the contractor was time barred, the dispute was required to be referred to the arbitrator. However, the reference was subject to the contention that it was barred by the period of limitation. In that context, the learned counsel for the appellant submitted that it is settled law that application under section 20 or notice for appointment of arbitrator is to be filed within three years from the date when 'cause of action' arises as provided in article 137 of the Limitation Act, 1963. The application filed by the contractor in December 1985 was, on the face of it, time barred because the cause of action to recover the amount arose, according to the cont....
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....on accrued, so in the case of arbitrations, the claim is not to be put forward after the expiration of the specified number of years from the date when the claim accrued." Even if the arbitration clause contains a provision that no cause of action shall accrue in respect of any matter agreed to be referred to until an award is made, time still runs from the normal date when the cause of action would have accrued if there had been no arbitration clause." 20. The Court also referred to the earlier decision in Panchu Gopal Bose v. Board of Trustees for Port of Calcutta [1993(4) SSC 338], where the Court Observed as under: "The Period of limitation for commencing an arbitration runs from the date on which the cause of arbitration accrued, that is to say, from the date when the claimant first acquired either a right of action or a right to require that an arbitration takes place upon the dispute concerned. Therefore, the period of limitation for the commencement of an arbitration runs from the date on which, had there been no arbitration clause, the cause of action would have accrued. Just as in the case of actions the claim is not to be brought after the expiration of a spe....
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....prepared, the claim made by a claimant is the accrual of the cause of action. A dispute arises where there is a claim and a denial and repudiation of the claim. The existence of dispute is essential for appointment of an arbitrator under section 8 or a reference under section 20 of the Act. See law of Arbitration by R.S. Bachawat, first addition, page 354. There should be dispute and there can only be a dispute when a claim is asserted by one party and denied by the other on whatever grounds. Mere failure or inaction to pay does not lead to the inference of the existence of dispute. Dispute entails a positive element and assertion of denying, not merely inaction to accede to a claim or a request. Whether in a particular case a dispute has arisen or not has to be found out from the facts and circumstances of the case." 22. In the present case, as stated above, on 29-8-1979, the contractor wrote letter making certain claims. Thereafter, the supplementary agreement was executed on 20-12-1980. In that agreement it is nowhere stated that contractors alleged right of getting damages or losses suffered by him was kept alive. On the contrary, he has agreed to complete the work within th....