Case Note & Summary
Background: The dispute arose out of a construction contract between the Tamil Nadu Electricity Board and a contractor for inter-connecting tunnels for Suruliyar Hydroelectric Project. The initial tender value was Rs.47 lakhs, revised to Rs.69 lakhs on January 16, 1975. The site was taken over on January 18, 1975, with a 24-month completion period, but work was completed on August 25, 1978, after expiry. Over Rs.92 lakhs was paid to the contractor. A dispute arose regarding further amounts claimed by the contractor. Facts: The contractor issued notice for appointment of an arbitrator under clause 50; the Board delayed nomination, so the contractor appointed a sole arbitrator. The Board then initiated proceedings under Section 33 of the Arbitration Act, 1940, objecting that some claims were not arbitrable. The court recorded that arbitrability was to be decided by the arbitrator, and the Board had reserved its right to challenge the award later. The Board was allowed to nominate an arbitrator; the two arbitrators differed and an umpire was selected. The umpire, without giving reasons, awarded Rs.70,83,793 against a claim of about Rs.2.10 crores and directed release of earnest money deposit and bank guarantees. The Board applied to set aside the award; the contractor applied to make it rule of court. The civil court dismissed the Board's petition and made the award rule of court, and the Madras High Court Division Bench confirmed. Legal Issues: The core question was whether the umpire was required to give a reasoned decision on the non-arbitrability of some claims, and whether a non-speaking award could be set aside for failing to decide arbitrability. Another issue was whether the court could look into the contract to find that the umpire awarded amounts beyond contracted rates. Arguments: The Board, through Additional Solicitor General, argued that arbitrability is a jurisdictional issue and the umpire could not clothe himself with power by a consolidated non-speaking award without deciding the arbitrability of claims. The contractor argued that the award was non-speaking; absent specific reference requiring reasons, the umpire was not obliged to give a speaking order. The contractor contended that the consolidated sum showed consideration of all claims and that the contract was not part of the record, so the court could not examine it, relying on Tarapore & Co. v. Cochin Shipyard Ltd. and State of A.P. v. R.V. Rayanim. Court's Analysis: The Supreme Court examined the earlier Section 33 order that left arbitrability to the arbitrator and reserved the Board's right to challenge. It referred to Tarapore and Co. regarding specific reference of questions of law. It reasoned that in absence of a specific reference or agreement requiring reasons, a non-speaking award cannot be set aside on the ground of absence of reasons. The court observed that a consolidated award implies consideration of all claims, including arbitrability. It also noted that where the award does not incorporate the contract, the court cannot look into the contract to detect an error apparent on the face of the record. Decision: The Supreme Court dismissed the appeals and upheld the arbitral award.
Headnote
A) Arbitration Law - Non-Speaking Award and Reasons - Arbitrator not obliged to give reasons on arbitrability - Arbitration Act, 1940, Section 33 - In a construction contract dispute, the umpire made a non-speaking award of Rs.70,83,793 against a claim of Rs.2.10 crores. The appellant contended the award was illegal because the umpire failed to give findings on arbitrability. The court reasoned that in the absence of a specific reference or agreement requiring a speaking award, a non-speaking award cannot be set aside for absence of reasons; the consolidated award implies that all claims were considered arbitrable. Held that a non-speaking award is not vitiated by omission to give reasons on jurisdictional issues. B) Arbitration Law - Arbitrability and Jurisdiction - Scope of Arbitration Clause - Arbitration Act, 1940, Section 33 - The earlier Section 33 proceedings had left arbitrability to be decided by the arbitrator, with liberty to the Board to challenge the award later. The court analyzed whether the arbitrator was obliged to decide non-arbitrability by a reasoned order. Held that if no specific question was referred for reasoned decision, the arbitrator's incidental determination of arbitrability could not be attacked merely for lack of reasons. C) Contract Law - Construction Contract - Extra Claims and Rates - Clauses 22 and 23 of Contract Specification No.1138 - The claims included higher rates for hard rock excavation and work after contract expiry. The court noted that the contract terms provided that no additional allowance above unit price would be made on account of material encountered. However, because the award did not incorporate the contract, the court could not look into the contract to find an error apparent on the face of the award. Held that the award was not liable to be set aside on that ground. D) Arbitration Law - Setting Aside Award - Error Apparent on Face of Record - Arbitration Act, 1940 - The court considered the principle from Tarapore and Co. and State of A.P. regarding when a question of law is specifically referred. It distinguished cases where the contract is not part of the record. Held that where the arbitral award is non-speaking and does not refer to the agreement, the court cannot examine the contract to determine excess claims.
Issue of Consideration
Whether the umpire was required to give a decision supported by reasons on the non-arbitrability of some of the items in terms of the contract; whether a non-speaking award can be set aside for failure to decide arbitrability of claims; whether the court can look into the contract to find an error apparent on the face of the award
Final Decision
The Supreme Court dismissed the appeals and upheld the arbitral award.
Law Points
- Non-speaking arbitral award
- arbitrator not required to give reasons on arbitrability
- consolidated award implies consideration of all claims
- court cannot examine contract not incorporated in award
- Section 33 Arbitration Act 1940
- arbitrability is jurisdictional issue
- no error apparent on face of record
