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Sunday, July 24, 2011

Arbitral Tribunal Cannot Travel Beyond Terms of Reference : Supreme Court Reiterates

Justice Dr. B.S. Chauhan
Supreme Court of India
The Supreme Court in M/s MSK Projects (I) (JV) Ltd. v. State of Rajasthan & Anr., has reiterated the principle that the arbitral tribunal cannot go beyond the terms of the reference and any attempt to do so would be void and without any jurisdiction. The relevant extracts from the judgment are reproduced hereinbelow;

6. The issue regarding the jurisdiction of the Arbitral Tribunal to decide an issue not referred to is no more res integra. It is a settled legal proposition that special Tribunals like Arbitral Tribunals and Labour Courts get jurisdiction to proceed with the case only from the reference made to them. Thus, it is not permissible for such Tribunals/authorities to travel beyond the terms of reference. Powers cannot be exercised by the Tribunal so as to enlarge materially the scope of reference itself.

If the dispute is within the scope of the arbitration clause, it is no part of the province of the court to enter into the merits of the dispute on the issue not referred to it. If the award goes beyond the reference or there is an error apparent on the face of the award it would certainly be open to the court to interfere with such an award. (Vide: Grid Corporation of Orissa Ltd. & Anr. v. Balasore Technical School, AIR 1999 SC 2262; and Delhi Development Authority v. R.S. Sharma and Company, New Delhi, (2008) 13 SCC 80).

7. In Associated Engg. Co. v. Govt. of Andhra Pradesh & Anr., AIR 1992 SC 232, this Court held that an umpire or arbitrator cannot widen his jurisdiction by deciding a question not referred to him by the parties. If he exceeded his jurisdiction by so doing, his award would be liable to be set aside. Thus, an arbitrator cannot be allowed to assume jurisdiction over a question which has not been re- ferred to him, and similarly, he cannot widen his jurisdiction by holding contrary to the fact that the matter which he wants to decide is within the submission of the parties.

8. If the arbitrator commits an error in the construction of the contract, that is an error within his jurisdiction. But if he wanders out - side the contract and deals with matters not allotted to him, he com- mits a jurisdictional error. Extrinsic evidence is admissible in such cases because the dispute is not something which arises under or in relation to the contract or dependent on the construction of the contract or to be determined within the award. The ambiguity of the award can, in such cases, be resolved by admitting extrinsic evidence. The ra- tionale of this rule is that the nature of the dispute is something which has to be determined outside and independent of what appears in the award. Such a jurisdictional error needs to be proved by evidence ex- trinsic to the award. (See: Gobardhan Das v. Lachhmi Ram & Ors., AIR 1954 SC 689; Seth Thawardas Pherumal v. The Union of India, AIR 1955 SC 468; Union of India v. Kishorilal Gupta & Bros., AIR 1959 SC 1362; Alopi Parshad & Sons. Ltd. v. Union of India, AIR 1960 SC 588; Jivarajbhai Ujamshi Sheth & Ors. v. Chintamanrao Balaji & Ors., AIR 1965 SC 214; and Renusagar Power Co. Ltd. v. General Electric Company & Anr., AIR 1985 SC 1156).

9. In Kishore Kumar Khaitan & Anr. v. Praveen Kumar Singh, (2006) 3 SCC 312, this Court held that when a court asks itself a wrong question or approaches the question in an improper manner, even if it comes to a finding of fact, the said finding of fact cannot be said to be one rendered with jurisdiction. The failure to render the necessary findings to support its order would also be a jurisdictional error liable to correction.

(See also: Williams v. Lourdusamy & Anr., (2008) 5 SCC 647)

10. In Cellular Operators Association of India & Ors. v. Union of India & Ors., (2003) 3 SCC 186, this Court held as under: 
As regards the issue of jurisdiction, it posed a wrong question and gave a wrong answer................The learned TDSAT, therefore, has posed absolutely a wrong question and thus its impugned decision suffers from a misdirection in law.
11. This Court, in Oil & Natural Gas Corporation Ltd. v. SAW Pipes Ltd., AIR 2003 SC 2629; and Hindustan Zinc Ltd. v. Friends Coal Carbonisation, (2006) 4 SCC 445), held that an arbitration award contrary to substantive provisions of law, or provisions of the Act, 1996 or against terms of the contract, or public policy, would be patently illegal, and if it affects the rights of the parties, it would be open for the court to interfere under Section 34(2) of the Act 1996.

12. Thus, in view of the above, the settled legal proposition emerges to the effect that the arbitral tribunal cannot travel beyond terms of reference; however, in exceptional circumstances where a party pleads that the demand of another party is beyond the terms of contract and statutory provisions, the tribunal may examine by he terms of contract as well as the statutory provisions. In the absence of proper pleadings and objections, such a course may not be permissible.



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