FOOD CORPORATION OF INDIA versus M/S. CHANDU CONSTRUCTION AND ANR.

Citation: [2007] 4 S.C.R. 1160 · Decided: 10-04-2007 · Supreme Court of India · Bench: TARUN CHATTERJEE · Disposal: Appeal(s) allowed
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Judgment (excerpt)

A 
B 
FOOD CORPORATION OF INDIA 
v. 
MIS. CHANDU CONSTRUCTION AND ANR. 
APRIL IO, 2007 
[T ARUN CHA ITERJEE AND D.K. JAIN, JJ.] 
I 
Arbitration Act, 1940-s. 30-Power of Court to set aside award given 
by arbitrator-Held: Court can interfere with award when arbitrator 
C misconducted himself or the proceedings-On facts, arbitrator disregarded 
the agreement between the parties ignoring the clear stipulation in the 
contract-In the process, the arbitrator misdirected and misconducted 
himself-Thus, award on the face of it being beyond his jurisdiction is illegal, 
and is set aside. 
D 
s. 3()_ (a)-'Misconduct by arbitrator-Connotation of-Held: 
"Misconduct" also comprehends or includes actions by arbitrator which on 
the face of award are opposed to all rational or ~easonable principles 
resulting in excessive award or unjust result. 
Arbitration-Arbitrator-Jurisdiction of-Held: Arbitrator is to operate 
E within the terms of the contract-A deliberate departure from contract amounts 
to noLonly manifest disregard of his authority or a misconduct on his part, 
but it may tantamount to a mala fide action-If arbitrator commits e"or in 
the construction of contract, it Js an error within his jurisr}iction----Jf he 
wanders outside the contract and deals with matters not allotted to him, it 
F would be a jurisdictional error. 
Appellant-contractor invited tenders for a construction work. The tender 
of the respondents was accepted. Parties entered into a contract which 
stipulated that the work was to be executed in accordance with the C.P. W.D. 
specifications. It provided that the rate would include the cost of materials 
G and the labour. Dispute arose between the parties. Arbitration agreement was 
invoked. Before the Arbitrator, the respondents raised a claim of 
Rs. 8,23,101/- towards price of 5487.34 cubic meters of sand on the ground 
that the rate quoted by them for filling the plinth under the floors was only 
for the labour and did not cover providing or supplying sand for the said 
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FOOD CORPN. OF INDIA 1•. CHANDU CONSTRUCTION 
1161 
purpose and since they had supplied sand for such filling, they were entitled A 
for extra payment towards price of the sand. The Arbitrator passed an award 
in favour of the respondent-claimants. Both the Single Judge and the Division 
Bench of High Court upheld the award. Hence the present appeal. 
The appellant contended that the claim for supply of sand against Claim 
No. 9 was patently opposed to the terms of the contract between the parties; B 
that the relevant clause of the contract is clear, unambiguous and admits o( 
no such interpretation as has been given by the arbitrator, and that the . 
arbitrator has misconducted himself in awarding additional amount in favour 
of the claimants, which part of the award deserves to be set aside. 
Allowing the appeal, the Court 
HELD: 1.1. While considering objections under Section 30 of the 
Arbitration Act, 1940, the Court can interfere with the award when the 
arbitrator has 'misconducted' himself or the proceedings. The word' 
"misconduct" in Section 30 (a) of the Act does not necessarily comprehend 
c 
or include misconduct or fraudulent or improper conduct or moral lapse but, D 
does comprehend and include actions on the part of the arbitrator, which on 
the face of the award, are opposed to all rational and reasonable principles 
resulting in excessive award or unjust result. (Para 10) (1166-C, DJ 
Union of India v. Jain Associates and Anr., [1994) 4 SCC 665, relied 
on. 
E 
2.1. The arbitrator being a creature of the agreement between the . 
parties, he has to operate within the four corners of the agreement and if he 
ignores the specific terms of the contract, it would be a question of 
jurisdictiona~ error on the face of the award, falling within the ambit of legal ' 
misconduct which could be corrected by the Court. However, if the arbitrator F 
commits an error in the construction of contract, that is an error within his 
jurisdiction. But, if he wanders outside the contract and deals with matters 
not allotted to him, he commits a jurisdictional error. [Para 11 J (1166-E, F) 
2.2. An arbitrator derives his authority from the contract and if he acts 
in disregard of the contract, he acts without jurisdiction. A deliberate 
departure from contract amounts to not only manifest disregard of his · G 
authority or a misconduct on his part, but it may tantamount to a ma/a fide 
action. [Para 15) [1167-F, G) 
As
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