STEEL AUTHORITY OF INDIA LTD. v. J.C. BUDHARAJA

The arbitrator awarded damages for losses incurred by the respondent "for the reasons" of delay in handing over the work site to the respondent under the first agreement. The award was made rule of the Court and the H appeal filed against it was dismissed by the High Court. Hence this appeal. STEEL AUTHORITY OF INDIA LTD. v. J.C. BUDHARAJA. GOVT. AND MINING CONTRACTOR 157 On behalf of the appellant it was contended that the award passed by A ..,. the arbitrator was without jurisdiction and that the claim made by the respondent was barred by the period of limitation. On behalf of the respondent it was contended that the award was non speaking and, therefore, the courts below rightly refused to interfere with ~ B Allowing the appeal, the Court HELD: 1.1. It is settled law that arbitrator derives his authority from the contract and if he acts in manifest disregard of the contract, the award given by him would be an arbitrary one. Further, the Arbitration Act, 1940 C does not give any pol, Ver to the arbitrator to act arbitrarily or capriciously. His existence depends upon the agreement and his function is to act within the limits of the said agreement. [165-G-H; 166-B-C]

1.2. To find out whether the arbitrator has travelled beyond his jurisdiction and acted beyond the terms of the agreement between the parties, D the agreement is required to be looked into. It is true that interpretations of a particular condition in the agreement would be within the jurisdiction of the arbitrator. However, in cases where there is no question of interpretation of any term of the contract, but of solely reading the same as it is and still the arbitrator ignores it and awards the amount despite the prohibition in E the agreement, the award would be arbitrary, capricious and without jurisdiction. Whether the arbitrator has acted beyond the terms of the contract or has travelled beyond his jurisdiction would depend upon facts, which however would be jurisdictional facts, and are required to be gone into by the court. Arbitrator may have jurisdiction to entertain the claim and yet he may not have jurisdiction to pass award for particular items in view of F the prohibition contained in the contract and, in such cases, it would be a jurisdictional error. For this limited purpose reference to the terms of the contract is a must. [166-F-H; 167-A) Continental Construction Co. Ltd. v. State of MP., [1988) 3 SCC 82; New Indi~ Civil Erectors (P) Ltd. v. Oil and Natural Gas. Corporation, G (1997) 11 SCC 75; H.P. State Electricity Board v. R.J. Shah and Company, [1994) 4 SCC 214 and Associated Engineering Co. v. Government of A.P., [1991) 4 sec 93, relied on.

1.3. In the instant case, the award passed by the arbitrator is against the conditions agreed by the contacting parties and is in conscious disregard H 158 SUPREME COURT REPORTS (1999] SUPP. 2 S.C.R. A of stipulations of the contract from which the arbitrator derives his authority. His appointment as a sole arbitrator itself was a conditional one. Despite this he has ignored the stipulations and conditions between the parties. Hence, the said award is, on the face of it, illegal. [168-G-H; 169-A-B)

#2. Right to refer the dispute to the arbitrator arose in 1979 when the B contractor gave a notice demanding t~e amount and there was no response from the appellant and the amount was not paid. The cause of action for recovery of the said amount arose from the date of the notice. The contractor cannot wait indefinitely and is required to take action within the period of limitation. Hence, the cl.aim before the arbitrator in December 1985 was C barred by the period of limitation. Letter written in 1983 by the appellant repudiating the respondent's claim on account of damages or losses sustained by him would not give a fresh cause of action. On that date cause of action for recovering the said amount was barred by the period of three years prescribed under Article 137 of the Limitation Act, 1963. Under Section 3 of the Limitation Act, it was the duty of the arbitrator to reject the claim as D it was, on the face of it, barred by the period of limitation. (171-G-H; 173-C-D]