FOOD CORPORATION OF INDIA versus M/S. A.M. AHMED & CO. AND ANR.

Citation: [2006] SUPP. 8 S.C.R. 148 · Decided: 31-10-2006 · Supreme Court of India · Bench: AR. LAKSHMANAN · Disposal: Case Partly allowed

Judgment (excerpt)

A 
FOOD CORPORATION OF INDIA 
v. 
M/S. A.M. AHMED & CO. AND ANR. 
OCTOBER 31, 2006 
B 
(DR. AR. LAKSHMANAN AND AL TAMAS KABIR, JJ.) 
Arbitration Act, 1940: Sections 30 and 33. 
Arbitration award-Challenge of-Legal misconduct of arbitrator-
C Absence of escalatfon clause in the contract-Effect of-Escalation due to 
revision of wages-Jurisdiction of arbitrator to go into escalation due to 
revision of wages-Corporation gave the contractor a contract relating to 
the woi·k of clearing, stevedoring, forwarding, exporting, handling, transport 
etc. and delive1y of food grains and other commodities for a period of two 
D years-During the currency of the contract the State Government increased 
'..;;.<-
' 
the statutory wages-However, the Corporation rejected the contractor's 
claim for review of its case for revision of rates due to revision of wages-
Arbitrator allowed the escalation in the claim of the contractor and awarded 
a certain sum with interest-Award made rule of the Court-Held: Escalation 
is normal and a routine incident arising out of gap of time in this inflationary: 
E age in pe1forming any contract of any type-The arbitrator has fozind that 
there was escalation by way of statutmy wage revision and, therefore, he 
came to the conclusion that it was reasonable to allow escalation under the 
claim-The award is, therefore, not vitiated by any error of fact or law on 
the face of the record and that the arbitrator has not committed any 
F misconduct. 
The appellant-Corporation gave the respondent-contractor a contract 
relating to the work of clearing, stevedoring, forwarding, exporting, handling, 
transport etc. and delivery of food grains and other commodities for a period 
of two years from 8.4.1981 to 7.4.1983. On 1.9.1981, the State Government 
G issued a notification in the Gazette notifying the settlement arrived at between 
the Port Users and Cargo Handling labour of the Port. The respondent-
contractor pointed out the revision of wages and asked the appellant to review 
its case for revision of rates. However, the claim for escalation made by the 
respondent was rejected by the appellant as there was no escalation clause in 
H 
148 
' 
FOOD CORPRN. OF INDIA t'. A.M. AHMED & CO. 
149 
the contract. 
A 
The respondent filed a petition for appointment of an arbitrator in the 
dispute regarding escalation. The High Court directed the Managing Director 
of the appellant-Corporation to appoint an arbitrator. The arbitrator passed 
an award for a certain sum with interest@ 9% p.a. from 8.8.1989 till date of 
the award and future interest@ 12% p.a. till date of decree or realization. B 
The High Court dismissed the objections filed by the appellant under 
Sections 30 and 33 of the Arbitration Act, 1940 and made the award rule of 
the court. Hence the appeal. 
Allowing the appeal in part, the Court 
h 
HELD: 1. The award is not vitiated by any error of fact or law on the 
c 
face of the record and that the arbitrator has not committed any misconduct 
within the meaning of the Arbitration Act, 1940. The High Court has correctly 
dismissed the objection raised by the appellant on the issue of absence of any D 
escalation clause in the contract. (159-B, Cl 
2.1. The Corporation had raised a specific question ·before the 
arbitrator that escalation in rates claimed by the contractor could not be 
granted for the simple reason that the agreement did not provide for any grant 
of the escalated rates during the tenure of contract and hence no enhanced E 
rates other than the rates agreed upon can be granted. The arbitrator 
specifically rejected the above contention on the basis of the subsequent 
acceptance of responsibility by the appellant. (162-B, CJ 
2.2. The arbitrator has not mis-conducted himself and that the award 
has been passed in consonance with the principles of natural justice. The High F 
Court has also upheld the award of the arbitrator rightly holding that there 
is no error apparent on the face of the record. [162-DI 
3. Escalation is normal and a routine incident arising out of gap of time 
in this inflationary age in performing any contract of any type. In this case, G 
the arbitrator has found that there was escalation by way of statutory wage 
revision and, therefore, he came to the conclusion that it was reasonable to 
allow escalation under the claim. Once it was found that the arbitrator had 
jurisdiction to find that there was delay in execution of the contract due to 
the conduct of the ap

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