2003 JTR(SC) 688
2003 10 AIC 148 ; 2004 AIR(SC) 586 ; 2003 AIR(SCW) 6075 ; 2003 AllLJ 3048 ; 2003 3 ArbLR 106 ; 2003 5 AWC 3457 ; 2003 3 BLJR 1819 ; 2004 2 CivLJ 461 ; 2003 4 CTC 173 ; 2003 3 DNJ 824 ; 2004 1 ICC 542 ; 2003 3 JLJR(SC) 196 ; 2003 7 JT 272 ; 2003 7 JT 273 ; 2003 4 PLJR(SC) 18 ; 2003 3 RAJ 106 ; 2003 3 RCR(Civ) 805 ; 2003 6 Scale 265 ; 2003 7 SCC 396 ; 2003 SCR 55 ; 2003 2 UJ 1454 ; 2003 2 WLC 568 ; 2003 KHC 1540 ; 2003 5 Supreme 418
2003(5) Supreme 418
SUPREME COURT OF INDIA
(From Allahabad High Court)
V.N. Khare, CJI., K.G. Balakrishnan & S.B. Sinha, JJ.
State of U.P. -Appellant
versus
Allied Constructions -Respondent
Civil Appeal No. 14152 of 1996
Decided on 31-7-2003
Counsel for the Parties :
For the Appellant : Ravi Prakash Mehrotra and Garvesh Kabra, Advocates.
For the Respondent : Uday Umesh Lalit, Advocate.
IMPORTANT POINT
It is within jurisdiction of Arbitrator to interpret a clause in the Agreement having regard to fact-situation obtaining therein.
Act Referred :ARBITRATION ACT : S.33, S.30
(A) Sections 30 and 33 of the Arbitration Act, 1940 govern the setting aside of an arbitral award, permitting intervention only on narrowly defined grounds such as misconduct, jurisdictional overreach, or violation of natural justice. In this matter, the impugned award arose from a dispute over flood-related losses under a construction contract, where Clause 47 allocated risk for acts of God, and the challenge was whether the arbitrator exceeded jurisdiction or committed misconduct in declining to apply that clause. The courts review under Sections 30 and 33 is limited to ensuring that the award does not suffer from specified defects, and does not permit re-appraisal of evidence or errors of law that remain within the scope of the arbitrators reasoning.
(B) An arbitral award is final and binding unless it falls within the statutory grounds for being set aside under Sections 30 or 33; the court will not interfere on questions of fact or errors of law that do not undermine the integrity of the process; the interpretation of a contract clause, including force majeure, lies within the arbitrators domain; and the court may modify the award only to the extent necessary to correct a clear discrepancy between the claim and the adjustment of interest.
Facts of the case:
Under a contract for construction of a bridge-cum-fall, the work area was flooded during the night of August 25 and 26, 1991, causing loss to the contractor. The respondent claimed compensation, and the matter was referred to arbitration. The arbitrator awarded payment with interest at 18 per cent from 1.11.1991 and 6 per cent thereafter. The appellant challenged the award on the ground that Clause 47, a force majeure clause covering unprecedented floods, barred the claim, but failed to prove that the rain was unprecedented. The High Court rejected the challenge, and the award was made rule of the court. This appeal followed.
Findings of Court:
The court found that the appellant did not establish that the flood resulted from an unprecedented act of God, and therefore Clause 47 was not attracted. The arbitrator correctly interpreted the clause in the factual context, and there was no misconduct or jurisdictional overreach justifying the setting aside of the award. The award was a speaking award with sufficient reasons, and the court would not reappraise the evidence or interfere on errors of law that did not render the award unsustainable.
Issues:
Whether the arbitrator erred in interpreting Clause 47 of the contract and in declining to apply the force majeure defence; whether the court has the jurisdiction to set aside the award under Sections 30 or 33 of the Arbitration Act, 1940; and whether the award can be modified on the ground of interest rate adjustment.
Ratio Decidendi:
The court will not set aside an arbitral award unless it falls within the strict parameters of Sections 30 or 33 of the Arbitration Act, 1940; the force majeure clause was not engaged as the appellant failed to prove the flood was unprecedented; the arbitrators interpretation of the contract was within his jurisdiction and not open to challenge; and the court may adjust interest to a mutually agreed rate where the parties are in consensus.
Result:
The appeal is dismissed, the award is upheld with modification of the interest rate from 18 per cent to 12 per cent from the date of the claim till the date of the award, and no order as to costs is made.
(A) Sections 30 and 33 of the Arbitration Act, 1940 govern the setting aside of an arbitral award, permitting intervention only on narrowly defined grounds such as misconduct, jurisdictional overreach, or violation of natural justice. In this matter, the impugned award arose from a dispute over flood-related losses under a construction contract, where Clause 47 allocated risk for acts of God, and the challenge was whether the arbitrator exceeded jurisdiction or committed misconduct in declining to apply that clause. The courts review under Sections 30 and 33 is limited to ensuring that the award does not suffer from specified defects, and does not permit re-appraisal of evidence or errors of law that remain within the scope of the arbitrators reasoning.
(B) An arbitral award is final and binding unless it falls within the statutory grounds for being set aside under Sections 30 or 33; the court will not interfere on questions of fact or errors of law that do not undermine the integrity of the process; the interpretation of a contract clause, including force majeure, lies within the arbitrators domain; and the court may modify the award only to the extent necessary to correct a clear discrepancy between the claim and the adjustment of interest.
Facts of the case:
Under a contract for construction of a bridge-cum-fall, the work area was flooded during the night of August 25 and 26, 1991, causing loss to the contractor. The respondent claimed compensation, and the matter was referred to arbitration. The arbitrator awarded payment with interest at 18 per cent from 1.11.1991 and 6 per cent thereafter. The appellant challenged the award on the ground that Clause 47, a force majeure clause covering unprecedented floods, barred the claim, but failed to prove that the rain was unprecedented. The High Court rejected the challenge, and the award was made rule of the court. This appeal followed.
Findings of Court:
The court found that the appellant did not establish that the flood resulted from an unprecedented act of God, and therefore Clause 47 was not attracted. The arbitrator correctly interpreted the clause in the factual context, and there was no misconduct or jurisdictional overreach justifying the setting aside of the award. The award was a speaking award with sufficient reasons, and the court would not reappraise the evidence or interfere on errors of law that did not render the award unsustainable.
Issues:
Whether the arbitrator erred in interpreting Clause 47 of the contract and in declining to apply the force majeure defence; whether the court has the jurisdiction to set aside the award under Sections 30 or 33 of the Arbitration Act, 1940; and whether the award can be modified on the ground of interest rate adjustment.
Ratio Decidendi:
The court will not set aside an arbitral award unless it falls within the strict parameters of Sections 30 or 33 of the Arbitration Act, 1940; the force majeure clause was not engaged as the appellant failed to prove the flood was unprecedented; the arbitrators interpretation of the contract was within his jurisdiction and not open to challenge; and the court may adjust interest to a mutually agreed rate where the parties are in consensus.
Result:
The appeal is dismissed, the award is upheld with modification of the interest rate from 18 per cent to 12 per cent from the date of the claim till the date of the award, and no order as to costs is made.
ORDER
Under a contract entered into by and between the appellant and the respondent, the respondent undertook construction of bridge-cum-fall at Munda Khera Scape at the estimated cost of Rs.37.2 lakhs. While the work was in progress, the work area was flooded in the night of August 25 and 26, 1991.
2. The respondent-contractor herein filed a claim on account of loss sustained by him due to flooding of the work area. Ultimately, the matter was referred to an arbitrator. The arbitrator gave an award for payment of a sum of Rs.12,55,365/- together with interest at the rate of 18 per cent from 1.11.1991 till the date of the award and 6 per cent thereafter. The respondent filed the award for being made rule of the Courts. The appellant herein filed a petition, inter alia, on the ground that the arbitrator has misconducted the proceedings, inasmuch as the force majeure contained in Clause 47 disentitled the respondent from making any claim which was on account of unprecedented rain. The said objection was rejected and the award was made rule of the Court. The appellant thereafter filed a first appeal from order before the High Court and the same was dismissed. It is against the said judgment, the appellant is in appeal before us.
3. Learned counsel appearing for the appellant reiterated his argument raised before the High Court. In fact, his argument based on force majeure is that because of unprecedented rain the liability of loss cannot be thrust upon the appellant. We do not find any merit in this contention. Clause 47 of the Agreement runs as under:
"Neither party shall be liable to the other for any loss or damage occasioned by or arising out of act of God, such as unprecedented floods, volcanic eruption, earthquake or other convulsion of nature and other acts such as but not restricted to general strikes, invasion, the act of foreign countries; hostilities or warlike operations before or after declaration of war, rebellion, military or usurped power which prevent performance of the contract and which could not have been foreseen or avoided by a prudent person."
A perusal of Clause 47 reproduced above shows that it protected the State from liability and damage occasioned by unprecedented flood which could not have been foreseen or avoided as a prudent person. The appellant herein did not lead any evidence before the arbitrator that the rain as a result of which the loss was sustained by the respondent was unprecedented and in fact it was an act of God. In absence of such an evidence, the arbitrator as well as the High Court has recorded a finding of fact that the flood which has caused loss to the respondent was not due to the unprecedented rain and, therefore, Clause 47 of the Agreement was not attracted.
4. Any award made by an arbitrator can be set aside only if one or the other term specified in Sections 30 and 33 of the Arbitration Act, 1940 is attracted. It is not a case where it can be said that the arbitrator has misconducted the proceedings. It was within his jurisdiction to interpret Clause 47 of the Agreement having regard to the fact-situation obtaining therein. It is submitted that an award made by an arbitrator may be wrong either on law or on fact and error of law on the face of it could not nullify an award. The award is a speaking one. The arbitrator has assigned sufficient and cogent reasons in support thereof. Interpretation of a contract, it is trite, is a matter for arbitrator to determine (see M/s Sudarsan Trading Co. versus The Government of Kerala, AIR 1989 SC 890). Section 30 of the Arbitration Act, 1940 providing for setting aside an award is restrictive in its operation. Unless one or the other condition contained in Section 30 is satisfied, an award cannot be set aside. The arbitrator is a Judge chosen by the parties and his decision is final. The Court is precluded from reappraising the evidence. Even in a case where the award contains reasons, the interference therewith would still be not available within the jurisdiction of the Court unless, of course, the reasons are totally perverse or the judgment is based on a wrong proposition of law. An error apparent on the face of the records would not imply closer scrutiny of the merits of documents and materials on record. Once it is found that the view of the arbitrator is a plausible one, the Court will refrain itself from interfering [see U.P. State Electricity Board versus Searsole Chemicals Ltd. - 2001 (3) SCC 397 and ISPAT Engineering & Foundry Works, B.S. City, Bokaro versus Steel Authority of India Ltd., B.S. City, Bokaro - 2001 (6) SCC 347].
5. For that reason, we are of the view that the appeal has no merit and must fail. However, the parties are agreed that from the date of filing of the claim till the date of award the interest chargeable would be at the rate of 12 per cent in place of 18 per cent. For that reason, the award and judgment under challenge stand modified to that extent.
The appeal is disposed of in the aforesaid terms.
There shall be no order as to costs.
Appeal dismissed.
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Parallel Citations of other Journals :
State of U.P. v. Allied Constructions, 2003(5) Supreme 418 : 2003(7) JT 273 : 2003(3) CCC 158 : 2003(3) Arb. L.R. 106 : (2003) 7 SCC 396 : 2003(2) UJ (SC) 1454 : 2003(9) SBR 93.
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