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Judgment
K. Raviraja Pandian, J.—This appeal is filed against the order dated 26.9.2003 passed by the learned Single Judge in O.P. No. 188 of
2002 setting aside the award passed by the Arbitrator dated 21.9.2001 non-suiting the first respondent for the claim made before him in the
arbitration proceedings and granted a sum of Rs. 25,87,500/- in respect of the first contract and Rs. 27,46,990/- in respect of the second contract
without interest.
The learned Additional Advocate General appearing for the appellants contended that the learned Single Judge has miserably erred in granting
the relief as claimed by the first respondent while setting aside the award, which is beyond the scope of Section 34 of the Arbitration and
Conciliation Act, 1996. Section 34 empowers the Court only to set aside the award on the stated contingencies. It never granted any power to the
Court to pass an award treating the Court as an arbitrator.
However, Mr. Gandhi, learned Senior Counsel appearing for the first respondent submitted that the order of the learned single Judge is perfectly
correct and it is based on the interpretation of Clause 43 of the agreement entered into by the parties.
The material facts relevant for disposal of the appeal are as follows:
The first respondent was appointed as a transport contractor by the appellant and to that effect agreements were entered into between the
appellant and the first respondent on 17.7.1996 for the year 1996-97 and on 9.12.1997 for the year 1997-98. Clause 43 of the agreement
provided that the rate offered by the successful tenderer and approved by the Tamil Nadu Civil Supplies Corporation would be final and would be
in force till the contract period in question and it further provided that the rates approved by the Tamil Nadu Civil Supplies Corporation shall be
revised in the case of upward/downward revision of diesel price by Government during the currency of the period of the contract to the extent
necessary as might be approved by the Tamil Nadu Civil Supplies Corporation.
It is the further case of the appellants that the first respondent claimed hike in the agreed charge of transportation due to the increase in the diesel
price. Thus, a dispute arose and the same was referred to the arbitrator - the second respondent herein and taken up as Arbitration Case No. 4 of
2001.
The first respondent made a claim of Rs. 44,50,500/- for the year 1996-97 and Rs. 40,65,540/- for the year 1997-98 on the ground of
increase in the diesel price.
The arbitrator by his award dated 21.9.2001 disallowed the claim of the first respondent on the ground that the first respondent has not paid any
increased charges to the lorry owners whose lorries were operated by the first respondent for the purpose of the appellant Corporation and has
not passed on the burden of increase in the diesel prices to the vehicle owner but only paid the contracted price. As such in spite of the availability
of the provision for increase of rates due to the escalation of diesel prices, non-suited the first respondent for the claim.
Aggrieved by the said award, the first respondent filed O.P. No. 188 of 2002 u/s 34 of the Arbitration and Conciliation Act, 1996 to set aside
the award passed in Arbitration Case No. 4 of 2000 dated 21.9.2001.
The learned Single Judge upon hearing the parties has set aside the award passed by the arbitrator on the interpretation of Clause 43 of the
agreement to the effect that it is established that as diesel price has been increased during the relevant period, the first respondent is entitled to
escalation notwithstanding the fact that the escalated diesel cost has not been paid to the lorry owner, and passed an award in favour of the first
respondent as aforesaid. The correctness of the said order is canvassed before this Court.
We heard the argument of the learned Counsel on either side and perused the materials on record.
The relevant clauses of Section 34 of the Arbitration and Conciliation Act reads as follows:
Application for setting aside arbitral award: (1) Recourse to a Court against an arbitral award may be made only by an application for setting
aside such award in accordance with Sub-section (2) and Sub-section (3).
(2) An Arbitral award may be set aside by the Court only if-
(a) the party making the application furnishes proof that-
(i) a party was under some incapacity; or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the
time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise
unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains
decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be
separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be
set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement
was in conflict with a provision oft his Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part;
or
(b) the Court finds that-
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
Explanation: Without prejudice to the generality of Sub-clause (ii) of Clause (b), it is hereby declared, for the avoidance of any doubt, that an
award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of
Section 75 or Section 81.
(3) ...
(4) ...
Thus, it could be seen that an application u/s 34 of the Arbitration and Conciliation Act, 1996 can be filed only for setting aside the arbitral
award.
The Apex Court in the case of McDermott International Inc. Vs. Burn Standard Co. Ltd. and Others, has held thus:
In terms of the 1996 Act, a departure was made so far as the jurisdiction of the court to set aside an arbitral award is concerned vis-a-vis the
earlier Act. Whereas under Sections 30 and 33 of the 1940 Act, the power of the court was wide, Section 34 of the 1996 Act brings about
certain changes envisaged thereunder. Section 30 of the Arbitration Act, 1940 did not contain the expression ""error of law...."" The same was
added by judicial interpretation.... The 1996 Act makes provision for the supervisory role of courts, for the review of the arbitral award only to
ensure fairness. Intervention of the court is envisaged in few circumstances only, like, in case of fraud or bias by the arbitrators, violation of natural
justice, etc. The court cannot correct errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it
is desired. So, the scheme of the provision aims at keeping the supervisory role of the court at minimum level and this can be justified as the parties
to the agreement make a conscious decision to exclude the court''s jurisdiction by opting for arbitration as they prefer the expediency and finality
offered by it.... The arbitral award can be set aside if it is contrary to (a) fundamental policy of Indian law; (b) the interests of India; (c) justice or
morality; or (d) if it is patently illegal or arbitrary. Such patent illegality, however, must go to the root of the matter. The public policy violation,
indisputably, should be so unfair and unreasonable as to shock the conscience of the court. Lastly, where the arbitrator, however, has gone
contrary to or beyond the expressed law of the contract or granted relief in the matter not in dispute, would come within the purview of Section 34
of the Act.
It is also a well established legal principle that so long as the arbitrator has decided the matter in accordance with the terms of the contract and
has acted within his authority, and according to the principle of fair play, the award of the arbitrator is ordinarily final and conclusive and power of
the Court to set aside the award is restricted to the incenses set out u/s 34 of the Arbitration Act and the reappraisal of the evidence by the Court
is not permissible. Useful reference can be had to the judgments of the Supreme Court in M/s. Ispat Engineering and Foundry Works, B.S. City,
Bokaro Vs. M/s. steel Authority of India Ltd., B.S. City, Bokaro, and Oil and Natural Gas Corporation Ltd. Vs. SAW Pipes Ltd., .
Thus, under the provisions of the Act, if any one of the above contingencies is there in the award passed by the arbitrator, the Court exercising
the jurisdiction u/s 34 of the Act can set aside the award. It cannot take the role of the arbitrator and pass an award.
On behalf of the first respondent, the decision of the Supreme Court in the case of Rajasthan State Mines and Minerals Limited Vs. Eastern
Engineering Enterprises and Another, has been sought to be pressed into service. We have gone through the said judgment, which is no way
relevant to the facts of the present case.
In the facts of the present case, the learned single Judge has interpreted Clause 43 in favour of the first respondent and on that ground set aside
the arbitral award, which non-suited the the claim. To that extent, there may not appears to be any illegality or arbitrariness attributable to the order
of the learned single Judge. However, the subsequent aspect of the order of the learned single Judge granting the award in favour of the first
respondent is beyond the power and jurisdiction vested on the Court u/s 34.
In view of the reasoning stated above and in the light of the decisions of the Supreme Court to the effect that the Court cannot correct the error
of arbitrator and it could only quash the award leaving the parties free to begin the arbitration again, if it is so desired by them, the impugned order
of the learned single judge is set aside and the appeal is allowed. However, there is no order as to costs.