2021 INSC 0843
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS.7379­7380 OF 2021
State of Haryana            ..Appellant (S)
VERSUS
M/s. Shiv Shankar Construction Co. & Anr.    ..Respondent (S)
J U D G M E N T 
M. R. Shah, J.
1. Feeling   aggrieved   and   dissatisfied   with   the   impugned
judgment   and   order   dated   03.11.2015   passed   by   the   High
Court   of   Punjab   and   Haryana   at   Chandigarh   in   FAO   No.
4482 of 2011 (O&M), by which the High Court has dismissed
the   appeal   preferred   by   the   appellant   herein   under   Section
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37 of the Arbitration and Conciliation Act, 1996, the State of
Haryana has preferred the present appeals. 
2. At   the   outset   it   is   required   to   be   noted   that   while   issuing
notice   in   the   present   appeals,   this   Court   has   stayed   the
award   exceeding   Rs.1,03,50,263/­   insofar   as   claim   Nos.1
and 8 are concerned.  
3. The facts leading to the present appeals in a nutshell are as
under:­
3.1 That the appellant herein awarded the contract to respondent
No.1 herein – contractor for strengthening, up­gradation and
maintenance of road from Palwal to Hasanpur, Haryana for a
length of 31.17 kilometres on certain terms and conditions as
per   the   contract   entered   into   between   the   parties.   The
contract   was   for   Rs.5,26,59,688/­.   That   as   per   the   design
calculation   data,   the   specifications   as   prepared   by   the
appellant   department   were   meant   for   3364   traffic   intensity
PCU   (Passenger   Car   Unit)/day.   The   contract   was   up   to
31.05.2010.   That   on   05.03.2005   due   to   the   closing   of   the
Palwal   Aligarh   Road   on   account   of   the   construction   of   the
railway   bridge,   the   entire   traffic   was   diverted   from   Palwal
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Aligarh  Road  to  the present  road. That  due to  this  diversion
of   traffic   from   Palwal   Aligarh   Road,   heavy   traffic   of   24418
PCUS per day was plying on the road as against the design of
3364 PCUS per day, which damaged the road. That according
to  the  contractor  –  respondent   No.1  herein,  he  was  required
to   do   heavy   repair   by   incurring   additional   expenditure.
Disputes arose between the parties. A legal notice was served
upon   the   appellant   making   the   claims.   Disputes   were   not
resolved and therefore respondent No.1 – contractor  invoked
the   arbitration   clause   as   per   clauses   24   &   25   and
approached  the   High   Court  for   appointment   of  an   arbitrator
in   exercise   of   power   conferred   under   Section   11   (6)   of   the
Arbitration and Conciliation Act, 1996. 
3.2 Vide order dated 23.04.2007, the High Court appointed Shri
R.S.   Jindal,   retired   Chief   Engineer,   Delhi   Development
Authority   as   the   sole   Arbitrator   to   adjudicate   upon   all   the
disputes  between  the  parties. That   the  contractor  submitted
various claims including claim Nos. 1 and 8. For the purpose
of   deciding   the   present   appeals,   claim   Nos.1   and   8   are
relevant.   The   sole   Arbitrator   awarded   a   total   sum   of
Rs.1,51,95,400/­ with respect to claim Nos.1 and 8.  
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4. Feeling aggrieved and dissatisfied with the award declared by
the learned Arbitrator, the appellant preferred an application
before   the   Court   under   Section   34   of   the   Arbitration   and
Conciliation   Act,   1996,   which   came   to   be   dismissed   against
which   the   appellant   –   State   preferred   an   appeal   under
Section   37   of   the   Arbitration   and   Conciliation   Act,   1996
before the High Court. By the impugned judgment and order
the   High   Court   has   dismissed   the   said   appeal.   Hence,   the
State of Haryana has preferred the present appeals.  
5. Shri Shyam Divan, learned Senior Advocate has appeared on
behalf   of   the   State   –   appellant   and   Shri   Ranjit   Kumar,
learned   Senior   Advocate   has   appeared   on   behalf   of   the
respondent No.1 – contractor. 
5.1 Shri   Shyam   Divan,   learned   Senior   Advocate   appearing   on
behalf   of   the   appellant   submitted   that   the   appellant   has
already   paid   to   respondent   No.1   –   contractor   an   amount   of
Rs.1,03,50,263/­   pursuant   to   the   interim   order   dated
26.08.2016 passed by this Court.
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5.2 Shri   Shyam   Divan,   learned   Senior   Advocate   appearing   on
behalf of the appellant has submitted that the arbitral award
is liable to be set aside on the following grounds:­
(i) The award is in excess of claim;
(ii) The Arbitrator exceeded the scope of reference;
(iii) The Arbitrator has rewritten the contract with respect to
the amount payable which was specified in the contract.
5.3 Now,   so   far   as   ground   No.1   that   the   award   is   in   excess   of
claim,   it   is   vehemently   submitted   by   Shri   Shyam   Divan,
learned Senior Advocate appearing on behalf of the appellant
that the contractor  in its statement of claim  had claimed an
amount of Rs. 1,03,50,263/­ only under the claim Nos.1 and
8.   It   is   submitted   that   despite   the   above   the   Arbitrator   has
awarded   a   total   sum   of   Rs.1,51,95,400/­,   which   is   in   far
excess of amount claimed. It is submitted that the statement
of claim was never modified by the contractor and therefore,
the Arbitrator ought not to have awarded the sum/amount in
excess of the amount claimed.
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5.3.1 It   is   submitted   that   the   differential   amount   of
Rs.48,45,137/­ is in excess of claim and to that extent the
arbitral award is invalid and liable to be set aside. Reliance
is placed on the decision of this Court in the case of  ONGC
Ltd.   v.   Off­Shore   Enterprises   Inc. ,   (2011)   14   SCC   147
(para 16). 
5.3.2 It   is   submitted   that   as   held   by   this   Court   in   the   cases   of
Associate   Builders   v.   Delhi   Development   Authority ,
(2015)   3   SCC   49   (para   36)   and   J.C.   Budhraja   v.
Chairman,   Orissa   Mining   Corpn.   Ltd.   &   Anr. ,   (2008)   2
SCC 444 (para 31­32), making an award in excess of claim
is clear cut an act exceeding the jurisdiction and amounts
to a misconduct of the Arbitrator.
5.4 Now,   so   far   as   ground   No.2   namely,   that   the   Arbitrator
exceeded   the   scope   of   reference,   it   is   contended   that   the
Arbitrator cannot exceed the scope of reference.
5.4.1 It  is   submitted   that   the   contractor   invoked   the   arbitration
clause   on   06.03.2006.   The   High   Court   appointed   the   sole
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Arbitrator   on   23.04.2007   and   the   Arbitrator   entered   upon
reference   on   19.05.2007.   It   is   urged   that   by   allowing   the
claims   for   a   period   beyond   19.05.2007,   the   Arbitrator
exceeded the scope of reference. 
5.4.2 It is submitted  that  an amount of Rs.57,96,000/­ (approx.)
has been awarded for claims arising between 19.05.2007 to
31.07.2008 (calculated as amount for maintenance of road
@   Rs.   45,000/­   per   kilometre   (km)   per   month).   It   is
submitted  that  it was  not  permissible  for   the  Arbitrator   to
exceed   the   scope   of   the   reference   beyond   the   date   upon
entering reference and as a consequence the award is liable
to be set aside. 
5.4.3 Learned   senior   counsel   appearing   on   behalf   of   the
appellant has relied upon the decisions of this Court in the
cases of  Indian Aluminium Cables Ltd. v. Haryana State
Electricity Board,   1996 (5) SCALE 708 (para 2) and   MSK
Projects   India   (JV)   Ltd.   v.   State   of   Rajasthan   &   Anr.
(2011)   10   SCC   573   (para   15),   in   support   of   his   above
submissions   that   as   the   Arbitrator   exceeded   the   scope   of
reference and hence the award is liable to be set aside.
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5.5 In   so   far   as   the   ground   No.3   is   concerned   namely,   the
Arbitrator   has   rewritten   the   contract   with   respect   to   the
amount   payable   which   was   specified   in   the   contract,   it   is
submitted   that   the   Arbitrator   has  rewritten  the   terms  of   the
contract   by   directing   the   appellant   to   pay   the   compensation
to   respondent   No.1   –   contractor   at   the   rate   of   Rs.45,000/­
per   km   per   month   instead   of   mutually   agreed   contractual
rate of Rs.1,000/­ per km per month. It is contended that it
was   not   open   to   the   Arbitrator   to   rewrite   the   terms   of   the
contract and award the contractor a higher rate for the work
than   the   rate   which   was   already   fixed   in   the   contract.   It   is
submitted   that   such   an   exercise   is   beyond   the   competence
and   authority   of   the   Arbitrator.   Reliance   is   placed   on   the
decision   of   this   Court   in   the   case   of   Satyanarayana
Construction   Company   v.   Union   of   India   and   Others
(2011) 15 SCC 101 (para 11). 
5.6 It   is   further   contended   by   Shri   Divan,   learned   Senior
Advocate   appearing   on   behalf   of   the   appellant   that   even
otherwise,   the   amount   awarded   by   the   Arbitrator   at
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Rs.45,000/­   per   km   per   month   beyond   the   time   period   of
additional   traffic   i.e.   from   31.07.2008   to   31.05.2010   i.e.   till
the   end   of   contract   is   wholly   impermissible.   It   is   submitted
that   diversion  of  traffic on  9.2 km   stretch  of  the  road  which
gave rise to the cause of action ceased to exist w.e.f. January
2008.   It   is   submitted   that   however,   the   Arbitrator   has
directed the appellant to  make payment at Rs. 45,000/­ per
km   per   month   even   beyond   the   time   period   of   additional
traffic.   It   is   contended   that   the   aforesaid   is   wholly
impermissible. 
6. Making   the   above   submissions,   it   is   prayed   to   allow   the
present appeals. 
7. Shri   Ranjit   Kumar,   learned   Senior   Advocate   appearing   on
behalf   of   respondent   No.1   –   contractor,   has   vehemently
contended that the award passed by the Arbitrator cannot be
said   to   be   (i)   in   excess   of   claim;   (ii)   exceeding   the   scope   of
reference   and   (iii)   rewriting   the   contract   with   respect   to   the
amount   payable   which   was   specified   in   the   contract,   as
submitted  on  behalf  of  the appellant.  It is submitted that  in
the statement of claim the contractor  specifically stated that
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the   amount   has   been   worked   out   up   to   the   month   of   May,
2007 and the details of expenditure beyond May, 2007 will be
submitted   during   the   course   of   hearing.   It   is   therefore
submitted that it cannot be said that claim Nos.1 and 8 were
restricted   to   Rs.   1,03,50,263/­   only.   It   is   urged   that   on
appreciation   of   the   evidence   on   record   the   Arbitrator   has
awarded Rs. 1,51,95,400/­   for  claim  Nos.1 and 8, which in
any case cannot be said to be beyond the amount claimed in
the statement of claim. 
7.1 It   is   next   contended   that   it   also   cannot   be   said   that   the
award   passed   by   the   Arbitrator   was   beyond   the   scope   of
reference.   It   is   submitted   that   as   such   cause   of   action   to
claim   the   additional   amount   arose   due   to   over­expenditure
owing to maintenance of road due to diversion of traffic from
Palwal   Aligarh   Road   to   the   present   road   which   continued
even beyond 06.03.2006 and/or 23.04.2007 and 19.05.2007.
It   is   submitted   that   the   amount   awarded   by   the   Arbitrator
under claim Nos.1 and 8 cannot be said to be exceeding the
scope of reference.
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7.2 It   is   further   submitted   that   even   the   award   passed   by   the
Arbitrator   to   make   payment   at   Rs.45,000/­   per   km   per
month   cannot   be   said   to   be   rewriting   of   the   contract   with
respect   to   the   amount   payable   which   was   specified   in   the
contract.   It   is   urged  that  at   the   time   when   the   contract   was
written/entered into between the parties the contract rate of
Rs.1,000/­ per km per month was agreed against the design
of   3364   PCUS   per   day.   However,   after   the   contract   was
entered   into   and   the   contractor   acted   as   per   the   contract
there was diversion of traffic from Palwal Aligarh Road to the
present   road   and   the   heavy   traffic   of   24418   PCUS   per   day
was   plying   on   the   road   as   against   the   design   of   3364   PCUS
per   day   and   therefore   the   contractor   was   required   to   incur
additional   expenditure   at   Rs.45,000/­   per   km   per   month.   It
is   submitted   that   the   amount   awarded   by   the   Arbitrator   at
Rs.45,000/­ per km per month cannot be said to be rewriting
the   contract   with   respect   to   the   amount   payable   than   what
was   specified   in   the   contract   i.e.   Rs.1,000/­   per   km   per
month. 
7.3 However,   Shri   Ranjit   Kumar,   learned   Senior   Advocate
appearing   on   behalf   of   the   contractor   is   not   in   a   position   to
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justify   the   award   by   which   the   Arbitrator   has   awarded   the
payment at  Rs.45,000/­ per  km  per  month even  beyond  the
time   period   of  additional  traffic  i.e.  up  to   31.05.2010  i.e.   till
the end of the contract. 
8. We   have   heard   the   learned   senior   counsel   appearing   on
behalf   of   the   respective   parties   at   length   and   given   our
thoughtful consideration.
9. That   the   contractor   was   awarded   the   contract   for
maintenance,   etc.   The   contract   amount   was   for
Rs.5,26,59,688/­.   The   rate   of   maintenance   of   the   road   as
accepted  was   Rs.12,000/­   per  km   per   annum   or   Rs.1,000/­
per km per month. The maintenance contract was valid up to
31.07.2010.   When   the   contract   was   entered   into,   the
contract   was   meant   for   only   3364   PCUS   per   day.   However,
due   to   diversion   of   traffic   from   Palwal   Aligarh   Road   to   the
present road, the contractor was required to incur additional
expenditure on the maintenance due to increase in the traffic
and  plying  the  additional commercial  vehicles. Therefore  the
contractor   claimed   the   amount   towards   additional
expenditure   for   maintenance   which   was   due   to   increase   in
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the   traffic   and   plying   more   commercial   vehicles.   On
appreciation   of   evidence   the   Arbitrator   has   determined   the
loss at Rs.45,000/­ per km per month (claim Nos.1 and 8). 
9.1 The case on behalf of the appellant that as in the statement
of   claim,   the   claimant   claimed   an   amount   of
Rs.1,03,50,263/­   under   the   claim   Nos.   1   and   8   and   the
Arbitrator   has   awarded  Rs.1,51,95,400/­,  the   same   is  in   far
excess   of   amount   claimed   and   therefore   the   award   is   in
excess   of   amount   claimed   has   no   substance.   When   the
statement  of claim  submitted by  the contractor  is seen, it is
specifically   stated   by   the   claimant   that   the   amount   of
Rs.1,03,50,263/­ has been worked out up to May, 2007 and
the   details   of   expenditure   beyond   May,   2007   will   be
submitted   during   the   course   of   hearing.   It   is   specifically
stated that expenditure incurred up to May, 2007 works out
to   Rs.1,03,50,263/­.   Therefore,   the   amount   awarded   by   the
Arbitrator cannot be said to be in excess of the claim. 
9.2 Now so far as the submission on behalf of the appellant that
the Arbitrator exceeded the scope of reference while awarding
an amount beyond 19.05.2007 – the date on which the High
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Court   appointed   the   sole   Arbitrator   is   concerned,   the   same
has   no   substance.   The   case   on   behalf   of   the   appellant   that
the Arbitrator ought to have restricted the claim either up to
06.03.2006   –   the   date   on   which   the   contractor   invoked   the
arbitration clause or 23.04.2007, the date on which the High
Court   appointed   the   sole   Arbitrator   or   at   least   up   to
19.05.2007   –   the   date   on   which   the   Arbitrator   entered   into
reference,   is   concerned,   it   is   required   to   be   noted   that   the
claim made by the Arbitrator was till the traffic was diverted
which   was   up   to   January,   2008.   Therefore,   the   Arbitrator
was   justified   in   awarding   the   amount   beyond   the   aforesaid
periods and till the additional traffic was diverted due to the
closure of Palwal Aligarh Road.
9.3 Now   the   submission   on   behalf   of   the   appellant   is   that   by
awarding   Rs.45,000/­   per   km   per   month   the   Arbitrator   has
rewritten   the   contract   with   respect   to   the   amount   payable
than   what   was   specified   in   the   contract.   It   is   urged   that
under   the   contract   mutually   agreed   contractual   rate   was
Rs.1,000/­   per   km   per   month   and   therefore   any   amount
higher   than   Rs.1,000/­   per   km   per   month   is   beyond   the
terms   and   conditions   of   the   contract,   is   also   without
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substance. It is noted that at the time when the contract was
entered   into   the   mutually   agreed,   the   rate   fixed   was
Rs.1,000/­   per   km   per   month   and   the   estimated   traffic   was
3364 PCUS per day. The cause of action arose subsequently
due   to   diversion   of   traffic   from   Palwal   Aligarh   Road   and
plying   of   more   heavy   vehicles   due   to   which   the   contractor
was required to incur additional expenditure for maintenance
of the road. Therefore, the contractor was entitled to the loss
on   account   of   the   additional   expenditure   incurred   for
maintenance   of   the   road   due   to   increase   in   the   traffic
because   of   the   closure   of   the   Palwal   Aligarh   Road   and
diversion   of   the   traffic   to   the   present   road.   Therefore,   by   no
stretch of imagination it can be said that there was rewriting
the   terms   of   the   contract   as   submitted   on   behalf   of   the
appellant. 
9.4 In   view   of   the   above   findings,   none   of   the   decisions   of   this
Court relied upon by the learned senior counsel appearing on
behalf of the appellant are applicable to the facts of the case
on   hand   as   the   same   are   not   of   any   assistance   to   the
appellant. 
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9.5 However,   at   the   same   time   Shri   Divan,   learned   Senior
Advocate, appearing on behalf of the appellant is justified in
submitting that the Arbitrator ought not to have awarded an
amount   of   Rs.45,000/­   per   km   per   month   beyond   the   time
period   of   additional   traffic.   The   Arbitrator   has   awarded   the
loss/amount   at   Rs.45,000/­   per   km   per   month   up   to
31.05.2010   i.e.   till   the   end   of   the   contract   which   is   wholly
impermissible   diversion   of   the   additional   traffic   ceased   to
exist   w.e.f.   January,   2008.   Therefore,   the   Arbitrator   ought
not   to   have   awarded   any   amount   beyond   the   above   time
period   beyond   January,   2008.   To   that   extent   the   award
passed   by   the   Arbitrator   can   be   said   to   be   perverse   and   to
that extent the present appeals are required to be allowed.
10. In   view   of   the   above   and   for   the   reasons   stated   above,   the
present appeals are allowed in part. The award passed by the
Arbitrator   awarding   the   amount/compensation   at
Rs.45,000/­   per   km   per   month   up   to   January,   2008   under
claim Nos.1 and 8 is hereby confirmed. The award passed by
the   Arbitrator   awarding   the   amount/compensation   at
Rs.45,000/­   per   km   per   month   from   February,   2008   to
31.05.2010 i.e. till the end of the contract is hereby quashed
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and set aside. The amount due and payable has to be worked
out accordingly. The present appeals are partly allowed to the
aforesaid   extent.   In   the   facts   and   circumstances   of   the   case
there shall be no order as to costs.        
…………………………………J.
  (M. R. SHAH)
…………………………………J.
 (B.V. NAGARATHNA)
New Delhi, 
December  14, 2021.
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