Case Note & Summary
The State of Haryana appealed against a High Court order dismissing its challenge to an arbitral award in favor of M/s. Shiv Shankar Construction Co. The dispute arose from a road maintenance contract where the contractor claimed additional expenditure due to unexpected heavy traffic diversion. The arbitrator awarded Rs.1,51,95,400/- under claim Nos.1 and 8, exceeding the claimed amount of Rs.1,03,50,263/-, and awarded payment at Rs.45,000/- per km per month instead of the contractual rate of Rs.1,000/- per km per month, even for periods after the cause of action ceased. The Supreme Court held that the award was in excess of claim, beyond the scope of reference, and amounted to rewriting the contract. The Court set aside the award to the extent it exceeded the claimed amount, awarded for periods after the arbitrator entered reference, and for periods after the additional traffic ceased. The appeal was partly allowed, with the State directed to pay only the amount already paid (Rs.1,03,50,263/-) and interest as per the award on that amount.
Headnote
A) Arbitration Law - Excess of Claim - Arbitrator cannot award amount exceeding the claim made in statement of claim without modification - Held that award of Rs.1,51,95,400/- against claim of Rs.1,03,50,263/- under claim Nos.1 and 8 is in excess and liable to be set aside to that extent (Paras 10-12).
B) Arbitration Law - Scope of Reference - Arbitrator cannot award claims for period after entering upon reference - Held that award for period beyond 19.05.2007 is beyond scope of reference and invalid (Paras 13-15).
C) Arbitration Law - Rewriting Contract - Arbitrator cannot substitute contractual rate of Rs.1,000/- per km per month with Rs.45,000/- per km per month - Held that such rewriting of contract is beyond arbitrator's jurisdiction (Paras 16-18).
D) Arbitration Law - Award Beyond Cessation of Cause - Award for period after additional traffic ceased (January 2008) is impermissible - Held that payment at enhanced rate beyond January 2008 is unsustainable (Paras 19-20).
Issue of Consideration
Whether the arbitral award is liable to be set aside on grounds of being in excess of claim, exceeding scope of reference, and rewriting the contract terms.
Final Decision
Appeals partly allowed. Arbitral award set aside to the extent it exceeds the claimed amount of Rs.1,03,50,263/- under claim Nos.1 and 8, and to the extent it awards payment at Rs.45,000/- per km per month for period beyond 19.05.2007 and beyond January 2008. State directed to pay only the amount already paid (Rs.1,03,50,263/-) with interest as per award on that amount.
Law Points
- Arbitral award in excess of claim is beyond jurisdiction
- Arbitrator cannot rewrite contract terms
- Scope of reference limits arbitrator's authority
Case Details
2021 LawText (SC) (12) 64
Civil Appeal Nos. 7379-7380 of 2021
Shyam Divan (for appellant), Ranjit Kumar (for respondent)
M/s. Shiv Shankar Construction Co. & Anr.
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Nature of Litigation
Appeal against High Court order dismissing challenge to arbitral award under Section 37 of the Arbitration and Conciliation Act, 1996.
Remedy Sought
State of Haryana sought setting aside of arbitral award in excess of claim, beyond scope of reference, and rewriting contract terms.
Filing Reason
Arbitrator awarded Rs.1,51,95,400/- against claim of Rs.1,03,50,263/- under claim Nos.1 and 8, and awarded payment at Rs.45,000/- per km per month instead of contractual rate of Rs.1,000/- per km per month.
Previous Decisions
Arbitrator awarded Rs.1,51,95,400/- under claim Nos.1 and 8; Section 34 application dismissed; High Court dismissed appeal under Section 37.
Issues
Whether the arbitral award is in excess of the amount claimed?
Whether the arbitrator exceeded the scope of reference by awarding claims for period after entering upon reference?
Whether the arbitrator rewrote the contract by substituting the contractual rate?
Submissions/Arguments
Appellant: Award is in excess of claim of Rs.1,03,50,263/-; arbitrator exceeded scope by awarding for period after 19.05.2007; arbitrator rewrote contract by awarding Rs.45,000/- per km per month instead of Rs.1,000/-.
Respondent: Claim was not restricted to Rs.1,03,50,263/- as details beyond May 2007 were to be submitted; award within scope as cause continued; enhanced rate justified due to changed circumstances.
Ratio Decidendi
An arbitrator cannot award an amount exceeding the claim made in the statement of claim without modification; cannot award claims for period after entering upon reference; cannot rewrite the contract by substituting the agreed rate with a higher rate.
Judgment Excerpts
the Arbitrator has awarded a total sum of Rs.1,51,95,400/ with respect to claim Nos.1 and 8.
the contractor in its statement of claim had claimed an amount of Rs. 1,03,50,263/ only under the claim Nos.1 and 8.
the Arbitrator has rewritten the terms of the contract by directing the appellant to pay the compensation to respondent No.1 – contractor at the rate of Rs.45,000/ per km per month instead of mutually agreed contractual rate of Rs.1,000/ per km per month.
Procedural History
Contract awarded in 2005; disputes arose due to traffic diversion; contractor invoked arbitration in 2006; High Court appointed arbitrator on 23.04.2007; arbitrator entered reference on 19.05.2007; award declared; Section 34 application dismissed; High Court dismissed appeal under Section 37; State appealed to Supreme Court.
Acts & Sections
- Arbitration and Conciliation Act, 1996: Section 11(6), Section 34, Section 37
