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Jammu and Kashmir High Court Sets Aside the Arbitral Award Containing Decisions on Matters Not Falling Within the Terms of Submission To Arbitration

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The Petitioner, M/s K.B. Construction Company filed the present petition under Section 34 of the Jammu & Kashmir Arbitration and Conciliation Act, 1997, for setting aside the award passed by the arbitrator. The High Court set aside the said award by holding that the arbitral award containing decisions on matters not submitted to arbitration is liable to be set aside.


In this case, the Petitioner and the Respondents entered into an agreement, according to which the Respondents allotted the work of Special Repair to E/M Installations (Petitioner) at Rakh Muthi, Jourian, and Pallanwala. The Respondents terminated the contract due to certain disputes with the Petitioner during the execution of the contract. The disputes having arisen between the parties, the Chief Engineer, Udhampur Zone, vide his letter dated 23.06.2001 appointed K. Thiruvengadam ACE (Planning) CE, Udhampur Zone as sole Arbitrator to adjudicate upon the disputes pertaining to the contract and requested him to enter upon the reference and publish findings and award in respect of disputes listed in Appendix-A appended to the appointment letter mentioned above.

Following this, the learned Arbitrator entered upon the reference and made the impugned award on 18.09.2002, allowing claim No. 1 preferred by the Respondent and awarding a sum of Rs. 75,887.69 in favour of the respondents. Claim No. 2, about the cost of arbitration proceedings and other legal expenses amounting to Rs.20,000/- was also allowed along with interest @18% per annum post pendent lite and future. However, the claims lodged by the petitioners were rejected.   

The Petitioner was aggrieved and challenged the award by filing the present petition under Section 34 of the Jammu & Kashmir Arbitration and Conciliation Act, 1997, for setting aside the award as it was beyond the terms of submission to the arbitration. 

The respondents opposed the petition by filing objections and justifying the award passed, contending that although it is true that initially, they had raised a claim of Rs. 30,456.69 but both the parties to the disputes always have a right to amend, modify or delete their claim/claims, and it is in the exercise of this right, a modified claim was preferred before the Arbitrator. 

Arguments Before the Court 

Mr R.K.Gupta, the learned Senior Counsel, appeared for the Petitioner, and in reference to Section 34 of Jammu & Kashmir Arbitration and Conciliation Act, 1997, argued that the award by the Arbitrator of Rs. 75,887.69 on claim No. 1 was beyond the terms of submission to the arbitration. He submitted that claim No.1, which was referred to the Arbitrator, was regarding the compensation towards completion of balance work at risk and cost of the contractor, and the Respondent, i.e., Union of India, had quantified the said claim at Rs. 30,456.69 without reserving any option to vary or amend the claim. 

Mr Ranjit Singh Jamwal, appearing for the Union of India and others, argued that the right to modify, amend or even delete the claim(s) is always available to the parties, and the same can be exercised at any time during the course of arbitration proceedings before the arbitral tribunal.

Court’s Observations

The Court heard the learned Counsels for the parties and perused Section 34 of the Jammu & Kashmir Arbitration and Conciliation Act, 1997. It observed that Section 34(2)(iv) clearly provides that if an arbitral award deals with a dispute which is not contemplated by or does not fall within the terms of submission to arbitration or it contains decisions on matters beyond the scope of the submission to arbitration, the same is terrible in the eye of law and liable to be set aside under Section 34 of the Act of 1997. Following this, the Court held that the Arbitrator’s decision being beyond the terms of his reference was not sustainable in law and was liable to be set aside. Further, the Court observed that neither in the letter of appointment nor in the appendix, any option or liberty was given to the parties to amend, add or modify the claim(s). Therefore, it was agreed that the Arbitrator could not have awarded any sum beyond Rs. 30456.69. Reference was also made to a judgment of this Court rendered in AA No. 74/1997 titled Union of India v. Balwant Singh and Sons and another. 

Further, it was also observed that the learned counsel for the Petitioner could not show any material to demonstrate that the Arbitrator could not have even granted a sum of Rs. 30,456.69. The Court also observed that claim No. 2 was not explicitly challenged in the petition wherein the Arbitrator had awarded a sum of Rs. 20,000/- as cost of reference/arbitration. The Petitioner also raised no specific challenge to the award of interest. However, still, the Court took the initiative and examined the award of interest @ 18% per annum awarded by the Arbitrator but did not find it shockingly exorbitant or utterly irrational. However, after referring to Section 31(7)(a) and 31(7)(b) of the Act of 1997, it set aside the award of interest on the claim of cost for the pre-award period.

Court’s Decision

After going through the case, the Court was of the view that the Petitioner had not been able to make out a case for setting aside the award and modified the impugned award in the following manner: 

i) Claim No. 1 = Rs. 30,456.69. 

ii) Claim No. 3 = Interest @ 18% per annum on a sum of Rs .30,456.69 for the pre-award period and Interest @ 18% per annum on the sum directed to be paid under the award i.e., principal sum + pre award interest + cost. 

The Court held that it was impermissible for the Arbitrator to permit the Respondents to improve their claims.

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