Case Note & Summary
The appeal arose from an order of a learned Single Judge of the Bombay High Court setting aside a majority arbitral award under Section 30 of the Arbitration Act, 1940. The underlying dispute concerned a contract for clearing, forwarding and handling bulk imported fertilisers at Mormugao Port awarded by the respondent to the appellant for a period from 15 January 1983 to 14 January 1984, with an option to extend for one further year. The contract was extended till 14 January 1985. Clause 2.03 provided for escalation of rates during the extended period in case of statutory increase in wages of dock labour allowed by the Mormugao Dock Labour Board, and contained an illustrative example. During the extended period, a wage settlement was reached on 6 June 1984, made effective retrospectively from 1 January 1984. The appellant claimed the resulting increase in wages and invoked arbitration. The majority award allowed the claim and awarded Rs. 61,73,067.90, while the minority award dismissed on limitation. The Single Judge set aside the award, holding it contrary to the contract and barred by limitation. The Division Bench, on appeal, considered the scope of intervention under Section 30, examining whether the arbitrators had travelled beyond the contract. The Court analysed clause 2.03 in detail, observing that the respondent's interpretation would render most of the clause meaningless and that the example given in the clause supported the appellant's construction. The Court held that the interpretation placed by the appellant was not only correct but also the only possible one; alternatively, even if another view were possible, the arbitrators' interpretation was plausible and did not exceed jurisdiction. Consequently, the award was not liable to be set aside. The challenge on limitation was also rejected. The appeal was allowed, the Single Judge’s order set aside, and the majority award restored.
Headnote
A) Arbitration - Setting aside award - Section 30, Arbitration Act, 1940 - Interpretation of contractual escalation clause - Where majority arbitrators allowed claim for statutory increase in wages during extended contract period based on interpretation of clause 2.03 of the contract, and such interpretation was found by the High Court to be plausible and not contrary to the contract, the award cannot be set aside on the ground of being contrary to the contract. The Court held that the arbitrator's interpretation being a possible one, even if not the one the Court might prefer, does not render the award beyond jurisdiction. (Paras 13-20)
Issue of Consideration
Whether the majority arbitral award was liable to be set aside under Section 30 of the Arbitration Act, 1940 on the grounds that it was contrary to the terms of the contract (clause 2.03) and that the claims were barred by limitation.
Final Decision
The Division Bench allowed the appeal, set aside the judgment of the Single Judge, and restored the majority award. It held that the interpretation of clause 2.03 by the majority arbitrators was plausible and not contrary to the contract, and that the claims were not barred by limitation.
Law Points
- Under Section 30 of the Arbitration Act
- 1940
- an arbitral award can be set aside only if the arbitrator has travelled beyond the contract
- where the interpretation of a contractual term by the arbitrator is a possible interpretation
- the court will not interfere even if it prefers another interpretation
- the court must examine the contract to determine if the award is within jurisdiction
- a claim for statutory wage increase during extended contract period is admissible if the contract clause
- read as a whole
- permits such escalation.
Case Details
2006 LawText (BOM) (04) 20
Appeal No. 884 of 1997 in Arbitration Petition No. 19 of 1993 in Award No. 127 of 1992
Dr. S. Radhakrishnan and S.J. Vazifdar, JJ.
Dr. V.V. Tulzapurkar, Senior Advocate with Ms. Alpana Ghone i/b M/s. Kanga & Co. for the Appellants; Mr. Nitin Thakkar, Senior Advocate with Mr. S. John i/b M/s. M.P. Savla & Co. for the Respondents
M/s. Chowgule Brothers & Ors.
M/s. Rashtriya Chemicals & Fertilizers Ltd. & Ors.
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Nature of Litigation
Appeal against order setting aside majority arbitral award under Section 30 of the Arbitration Act, 1940.
Remedy Sought
Appellant sought restoration of the majority arbitral award and dismissal of the respondent's petition for setting aside the award.
Filing Reason
The learned Single Judge set aside the majority award on the grounds that it was contrary to the contract (clause 2.03) and that the claims were barred by limitation.
Previous Decisions
Majority arbitrators (respondent Nos. 2 and 3) awarded Rs. 61,73,067.90 to the appellant and dismissed the counterclaim of respondent No.1; minority award (respondent No.4) dismissed the claim on limitation alone; learned Single Judge allowed the respondent's petition and set aside the majority award.
Issues
Whether the majority arbitral award was contrary to the terms of the contract, specifically clause 2.03, and thus liable to be set aside under Section 30 of the Arbitration Act, 1940.
Whether the claims of the appellant were barred by limitation.
Submissions/Arguments
Appellant argued that clause 2.03 permitted escalation for statutory increase in wages during the extended period, and the illustrative example in the clause supported this interpretation; the arbitrator's interpretation was plausible and within jurisdiction.
Respondent contended that clause 2.03 barred any claim for escalation based on wage revisions after the extension date, especially those having retrospective effect, and the award was contrary to the contract.
Ratio Decidendi
An arbitral award under the Arbitration Act, 1940 can be set aside only if the arbitrator has acted beyond the scope of the contract. If the interpretation of a contractual clause by the arbitrator is one of possible interpretations, the court will not interfere even if it prefers another interpretation. The court must examine the agreement to determine jurisdiction; however, it cannot substitute its own view on construction of contract if the arbitrator's view is plausible.
Judgment Excerpts
the interpretation placed on the clause by Mr.Tulzapurkar is not only correct but is the only possible one. In fact, we even prefer the alternative interpretation of the clause suggested by Mr.Tulzapurkar to the one suggested by Mr.Thakkar and accepted by the learned Judge.
to accept Mr.Thakkar’s interpretation would render most of clause 2.03 meaningless.
in that event, the Arbitrators’ interpretation being a possible one, the award would not be liable to be set aside though the Court may not consider it to be the correct one.
If clause 2.03 is capable only of the interpretation placed upon it by Mr.Thakkar and accepted by the learned Judge, the majority award would have to be set aside on the ground that the arbitrators would then have to be held to have travelled outside the boundaries of the contract and acted without jurisdiction in awarding the said claim.
Procedural History
Appellant submitted a tender and was issued a work order dated 10.1.1983 for clearing, forwarding and handling of fertilisers at Mormugao Port for the period 15.1.1983 to 14.1.1984. The contract was extended by respondent under clause 2.03 for a further year until 14.1.1985. Disputes arose over statutory wage increases during the extended period. Appellant invoked arbitration. The majority award dated not mentioned awarded Rs.61,73,067.90 to the appellant; the minority award dismissed on limitation. Respondent filed a petition under Section 30 of the Arbitration Act, 1940 to set aside the award. The learned Single Judge allowed the petition and set aside the award. Appellant filed the present appeal.
Acts & Sections
- Arbitration Act, 1940: Section 30
