Holding

The arbitrator's failure to decide the arbitrability of the claims and to provide reasons in a non‑speaking award amounts to a jurisdictional error, rendering the award void.

Summary

The Tamil Nadu Electricity Board (TN EB) contracted Bridge Tunnel Constructions to build inter‑connecting tunnels for the Suruliyar Hydroelectric Project. After the contract was completed late, a dispute arose over additional payments. The respondent invoked the arbitration clause (clause 50) and appointed a sole arbitrator; the appellant delayed nominating its own arbitrator, leading to proceedings under Section 33 of the Arbitration Act, 1940. The arbitrator (umpire) issued a non‑speaking award of Rs 70.83 lakhs without expressly deciding the arbitrability of the various claims, many of which the appellant alleged were non‑arbitrable. The appellant challenged the award, arguing that the arbitrator erred jurisdictionally by not addressing arbitrability and by not providing reasons as required under Section 31(3) of the Arbitration and Conciliation Act, 1996. The Supreme Court held that when the arbitrator is specifically tasked with deciding arbitrability, he must do so and give reasons; a non‑speaking award that omits this is a jurisdictional error. Consequently, the award was set aside. The appeals were allowed, the award was vacated, costs were borne by each party, and the security deposit was ordered to be returned to the respondent.

Issues considered

The arbitrator was required to decide the arbitrability of the claims and to give reasons in a non‑speaking award.
Whether a non‑speaking award that fails to address arbitrability constitutes a jurisdictional error.
Whether the award can be set aside or must be remitted for reconsideration.

Legislation cited

Arbitration Act, 1940s. 33
Arbitration and Conciliation Act, 1996s. 30, s. 31(3)

Subjects

ArbitrationArbitrabilityNon‑speaking awardJurisdictional errorSection 33Section 31(3)Award set asideConstruction contract

Judgment

T

A TAMIL NADU ELECTRICITY BOARD
v.
MIS. BRIDGE TUNNEL CONSTRUCTIONS AND ORS.

FEBRUARY 18, 1997

B [K. RAMASWAMY ANDS. SAGHIR AHMAD, JJ.)

Arbitratio11 Act, 1940/A1bitratio11 a11d Co11ciliatio11 Act, 1996.

S. 33/s. 31(3)-Arbitrability of claims-Arbitrator asked by this Court
C to decide arbitrability of claims-171e Umpire without goi11g i11to the details,
awarded a co11solidated amount by a 11011- speaki11g award--Held, the Ar-
bitrator, having bee11 i11vested with the jurisdictio11 to decide the arbitrability
of certain claims, has committed error of jurisdiction i11 not considering the
arbitrability of the claims and passed a 11on-speaki11g ordel"-lt cannot be
ascertained as to what extent he has awarded the claims withi11 the co11tract
D ·or the claims outside the contract-!11 the circumstances the award cannot be
accepted-A11 illegal award cwmot be upheld to be valid or withi11 jurisdic-
tio'n-The award of the Arbitrator is set aside.

Raipur Development Authority v. Chokhamal Contractors, (1989) 2
E sec 121, held inapplicable.
Tarapore and Co v. Cochin Shipyard Ltd. Cochi11, [1984) 2 SCC 680;
Managing Director, J & K Handicraft v. Good Luck Carpets, (1990) 4 SCC
740; U.P. Rajkiya Ninna11 Nigam Ltd. v. llldure Pvt. Ltd., (1996) 2 SCC 667;
U11ion of India v. G.S. Atwal & Co. (Asa11sole), [1996) 3 SCC 568; Champsey
F Bhara & Co. v. Jivraj Ba/loo Spin11i11g & Weavi11g Co. Ltd., LR (1922) 50 IA
324 =AIR (1923) PC 66; Hi11dusta11 Co11structio11 Co. Ltd. v. State of J & K,
(1992) 4 SCC 217; M/s. Sudarsan Trading Co. v. State of Kera/a, [1989) 2
SCC 38; Gujarat Water Supply and Sewerage Board v. Unique Erectors,
[1989] 1 SCC 532 and State of A.P. & Ors. v. R. V. Rayanim & Ors., (1990)
G 1 sec 433, referred to.
State of A.P.V.R.V. Rayanim, (1990] 1 SCC 433, cited.

"Russel 011 Arbitration" (Ni11etee11th Edition) by Antho11y Walton, page
99 and "Law of Arbitration" by R.S. Bachawat (2nd (1987) Edition) referred
,H to.
132
TAMIL NADU ELECTRICITY BD. v. BRIDGE TUNNEL CONSNS. 133

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1766-67 A
of 1997.

From the Judgment and order dated 20.12.90 of the Madras High
Court in 0.S.A. Nos. 109-110of1988.

V.R. Reddy, Additioqal Solicitor General, N.C. Ramesh, V. B

- Ramasubramaniam and V. Krishnamurthy for the Appellant.

P.S. Poti, Ms. Malini Poduval for the Respondents.

The following Order of the Court was delivered :
c
Leave granted. Substitution allowed.

These appeals, by special leave, arise from the judgment of the
Madras High Court, dated December 20, 1990, made in O.S.A..No. 109
and 110 of 1988.
D
The admitted facts are that the respondents had entered into an
agreement with the appellant to construct inter-connecting tunnels for
Suruliyar Hydroelectric Project as per specification No 1138 - Schedule-B
to the agreement. The initial value of the tender to be awarded was Rs. 47
lakhs and it was revised to Rs. 69 lakhs on January 16, 1975. In the course E
of execution of the contract, a sum Rs. 92 lakhs was paid to the respondent.
The contract was to be completed within a period of 24 months from the
date of taking over of the site, i.e., January 18, 1975; thus, it was completed
after the expiry of the term, on August 25, 1978. Resultantly, there had
arisen a dispute as to the entitlement to further amount towards the work
done by the respondent. F
On a notice issued by respondent for appointment of an arbitrator
in terms of clause 50 of the contract (arbitration clause), there was a delay
on the part of the appellant in nomination of the arbitrator. When the
respondent exercised the power, after expiry of the prescribed in the
notice, appointing a sole arbitrator, proceedings under Section 33 of the G
Arbitration Act, 1940 were initiated by the appellant. One of the objections
raised by the appellant in the proceedings under Section 33 was that under
the terms of the conti:act the claim sought to be put up in the notice given
by the respondent was not arbitrable. The. question was gone into and the
court recorded a finding as under : H
134 SUPREME COURT REPORTS (1997] 2 S.C.R.

A "If the petitioner had come forward to raise dispute and if it is
outside the scope of clause 50, the first respondent itself would
come forward with such a reservation. It is not as if all disputes
would come within the scope of clause 50 and only those that would.
come within the ambit of clause 50 alone can be decided by the
Arbitrators when such is the clear position in this aspect; enabling
B
the petitioner Board to raise a objection regarding disputes which_
may not come within the scope of clause 50 is not a concession,
but a recognition of a right, which is available not only to the
petitioner Board but also the first respondent in the event of the
Board raising any dispute as against it. Therefore, the first stipula- .
c tion is dependent upon the Arbitrators deciding as no whether a
particular dispute would come with in the scope of Section 50 or
not, and only if they consider that it falls within the scope of '
Arbitration clause, they would have the jurisdiction to decide the
same. In the event of the Arbitrators holding that any particular
dispute is outside the Arbitration clause, it is not as if the first
D
respondent is deprived of remedies by agitating the same in
Courts."

It is also further Held that :

E "After the award is made, as the petitioner Board has already
reserved its right, it would enable the Board to raise this point, in
the event of any need arising for setting aside the award in Court."

Pursuant thereto, condoning the delay, liberty was given to the
appellant to nominate an Arbitrator on its behalf which accordingly was
F done and dispute was referred to arbitration. Arbitrability of some of the
claims was disputed as part of Ito liability. Since the two Arbitrators
differed, an umpire was selected by the Arbitrators and he had gone into
the q ucstion. At this stage, it is relevant to mention that some of the claim
made by the respondents relate to excavation of hard rock in the tunnel
G and the rate of claims.

The relevant clauses of the Contract postulate thus :

22. Matelial to be excavated :

H The character of the material through which the tunnel is to be
TAMIL NADU ELECTIUCITY BD. v. BRIDGE TUNNEL CONSNS. 135

excavated is indicated in the report of the Geologist of the Geologi- A
cal Survey of India, attached of this specification as an appendix.
The probable nature of materials to be excavated is given in the
above report. It is expressly to be understood, however, t.hat the
purchaser does not guarantee the accuracy of the information and
should the conditions be found to differ from those indicated, the B
contractor shall have no claim against the purchaser on the
grounds of misrepresentation. Moreover, the price to be given in
the schedule of prices for excavation work is to. be inclusive and
to be held to cover excavation in the actual materials e~countered.

23. Tunnel Excavation : c
(a) The tunnel is to be excavated to such dimensions as to give the
minimum thickness of concrete lining specified and to suit the
shape and size of cross section of the tunnel shown on drawing.

(b) Excavation is to be carried out as far as feasible, simultaneously D
on all fages. It is expected, that more of the ground along the tunnel
will be hard rock requiring no supports. Except where t~e
materials penetrated is hard rock and will safely stand by itself,
the tunnel is to be lined temporarily with timber supports and
shoring. The timbering is to be kept as close to the face of the E
· heading as possible. Any shoring or protective arrangements con-
sidered inadequate by the Engineer is to be strengthened imme-
diately.

(g) The type of tunnel section to be constructed shall be as directed
or approved by the Engineer. Measurement for payment of tunnel F
excavation, will be limited to the special sectional dimensions and
will be made along the established centre line of the tunnel and
payment therefore will be made at the unit bid in the schedule for
excavation of all classes of tunnel. No additional allowance above
the unit price bid in the schedule for excavation of all classes of G
tunnel will be made on account of. the class, nature or condition
of any of the material encountered."

The rates were mentioned in the Schedule and the respondent had
set up the claims raised at rates higher than the contracted rates and twice
the rate for the work done after the expiry of the contract period. H
T
136 SUPREME COURT REPORTS (1997) 2 S.C.R.

A Against the claims, objections were raised by the appellant. They
have disputed the claim set up by the respondents and requested the
Arbitrators to decide on the arbitrability of the items mentioned in the
claims of the respondents. The umpire, without going into the details, in a
non-speaking award as again~t the claim of Rs. 2 crores 10 lakhs, has
awarded a consolidated sum of Rs. 70.83 lakhs as under :
B
"I hereby award and direct as follows :

(1) The Respondent shall pay the claimant a sum of Rupees
Seventy Lakhs eighty three thousand seven hundred and ninety
c three only (Rs. 70,83, 793) and release the earnest money deposit
and Bank Guarantees furnished by the claimant in lieu of Security
Deposit, in full settlement of all claims and counter-claims."

Calling the award in question, an application to set it aside has been
filed. The respondent filed an application to make the award the rule of
D the Court. The Civil Court dismissed the petition of the appellant and
made the award the rule of the· court.. On appeal, the Division Bench of
the High Court has confirmed the same. Thus these appeals, by special
leave.

E Shri V.R. Reddy, the learned Additional Solicitor General, contends
that the award is illegal on account of omission on the part of the Umpire
to give the findings and reasons in support thereof of the arbitrability of
the claims. He contends that arbitrability of claim a jurisdictional issue.
The arbitrator cannot clothe himself with the power, in a non-speaking
award to award a consolidated sum, without deciding the ·arbitrability of
F the claims set up by the respondents including those which are not part of
the contract.

Shri Poti, learned senior counsel for the respondents has contended
that the award being a non-speaking one in the absence of specific refer-
ence directing the Arbitrators to decide the arbitrability of some of the
G items in the claims set up by the respondent, Umpire was not called upon
or obliged to decide the dispute by a speaking order on arbitrability. He
reached the conclusion whether or not the dispute or the claim is arbitrable
and obviously he was of the opinion that all the claims are arbitrable and
he is empowered to decide it either rightly or wrongly. He may be wrong
H in not expressly giving his decision on arbitrability of some of the claims.
TAMIL NADU ELECTRICITY BD. v. BRIDGE TUNNEL CONSNS. 137

However, his decision is within his jurisdiction. He is not required to give A
any reasons in the award for reaching that decision. When the arbitrator
had given a consolidated sum towards all the claims, it would mean that
he had considered the arbitrability of some of the claims in terms of the
contract and that, therefore, he has not committed any error in reaching
that conclusion which is apparent on the face of the record. In the absence B
of any specific reference for deciding that dispute, even if incidentally he
reaches that ,decision, he gets the jurisdiction and power to decide the
question. Even otherwise also, the award cannot be assailed on the ground
that he reached a wrong decision without any reasons in support thereof.
In that event, it must be deemed that he had considered the non-ar-
bitrability of the items in a non-speaking award given by him. He also C
further contends that in the absence of any agreement between the parties
that the arbitrator would give reasons in support of his decision on the
arbitrability of the dispute, he is not called upon to decide the dispute by
a speaking award. What is required, therefore, is to be considered is
whether the arbitrator reached the decision as to the entitlement to for a D
specified sum or disentitlement thereof, in his award. Once he specifies the
amount to which the respondent is entitled, it must be deemed that he had
taken into consideration the arbitrability of all the claims including the
claim relating to non-arbitrability of some of the items and had given the
award. Thereby, consolidated sum in the award is not subject to attack that
the award made by the Arbitrator is vitiated by any error of jurisdiction or E
error of law apparent on the face of the record. Shri Poti further contends
that the contract of arbitration is not part of the record and the umpire
had not referred to the agreement as part of the award and that, therefore,
it is not open to the court to look into the contract to find out whether the
contractor claimed at the rates higher than what were contracted and the
F
umpire has omitted to consider the non-arbitrability of the claim in respect
of some of the items. In support thereof, he places strong reliance• on the
decision of this Court in Tarapore and Co. v. Cochin Shipyard Ltd., Cochin,
[1984] 2 SCC 680, iµ particular, paragraphs 10, 12, 33 thereof, and State of
A.P. v. R.V. Rayanim, [1990] 1 SCC 433 at 435, para 5.
G
In view of the respective contentions, the question that arises for
consideration is : whether the Un!Pire was required to give a: decision
supported by reasons on the non-arbitrability of some of the items in terms
of the contract. It is already seen that the Court prior to the proceedings
under Section 33 had gone into the question as to the right of the appellant H
:

138 SUPREME COURT REPORTS [1997] 2 S.C.R.

A to question the arbitrability of some of the items and had expressly
recorded, as seen hereinbefore, that if any objection regarding the dispute
is raised, either parties is at liberty to raise the same and avail of decision
by the arbitrator and the arbitrator is required to decide the arbitrability
of the claim and if he considers that it falls within the scope of the
arbitration clause/arbitrability, then he would have the jurisdiction to
B
decide the same. If the decision has been. reached by the arbitrator against
the appellant, it would be open to the Board to raise that point, in case
any need arises for setting aside the said award in the court. Thus, it could
be seen that prior to the proceedings under Section 33, the_ court had left
open the point of the non-arbitrability of the dispute and the umpire had
C to decide the dispute. In the event of the decision going against the Board,
the same is also entitled to question the correctness of the award in a court
of law. That order has become final.

In the light of the above facts, the question arises : whether the
D arbitrator was not obliged to decide the non-arbitrability of some of the
items claimed by the respondents before/while giving a non-speaking award
and whether a deemed decision could be given credence. In Tarapore Co. 's
case relied on by Shri Poti, a Bench of two Judges of this Court had gone
into the question of jurisdiction of the arbitrator to decide the arbitrability
of the dispute. In para 10 thereof, it is stated thus :
E
"What is the effect of referring the specific question of law to
arbitration without prejudice to one's right to contend to the
contrary will be presently examined."

F "If this issue specifically raises a question as to jurisdiction of
the arbitrator to arbitrate upon the dispute set out in Point No. 2,
it appears to have been specifically referred to the arbitrator for
his decision. Parties, therefore, agreed to submit the specific ques-
tion even with regard to the scope, ambit width and the construc-
tion of the arbitration clause so as to define its parameters and
G contours with a view to ascertaining whether the claim advanced
by the appellant and disputed by the respondent would be covered
by the arbitration clause. Whether upon its true construction the
arbitration clause would include within its compass the dispute
thus raised between the parties was specifically put in issue because
H parties were at variance about it."
TAMIL NADU ELECTRICITY BD. v. BRIDGE TUNNEL CONSNS. 139

"The arbitrator was thus required and called upon first to A
decide whether the dispute is arbitrable as falling within the width

-- and answer is in the affirmative, then alone the second point need
be examined. If the answer to the first point of reference is in the
negative in that if the arbitrator were of the opinion that the
dispute is not arbitrable' as it would not fall within the scope, width B
and ambit of the arbitration a1:,1feement, it would not be necessary
for him to determine whether the appellant was entitled to recover
anything by way of compensation. This aspect is being analysed in
depth to point out that the parties spe"Cifically referred the question
of construction of arbitration agreement, its width, ambit and
parameters vis"a"vis the dispute raised so as to decide whether the C
dispute would fall within the purview of the arbitration agreement,
in other words the jurisdiction of the arbitrator."

Thus, it could be seen that therein that when the question is specifi"
cally referred to the arbitrator, the arbitrator is required to decide the
question referred to him and decide the point on the question. Then only D
he gets the jurisdiction to go into the merits. Iii para 12 of the judgment
that point was elaborated holding that :

"The first point extracted hercinbefore would clearly show that the
specific question about jurisdiction of the arbitrator to arbitrate E
upon the dispute set out in Points Nos. 2, 3 and 4 was specifically
referred to the arbitrator. On the first point, the arbitrator had to
decide whether the claim made by the appellant and disputed by
the respondent would be covered by clause 40, i.e. the arbitration
clause. In other words, the specific question referred to the ar"
hitrator was about his jurisdiction to arbitrate upon the disputes F
covered by Points Nos. 2, 3 and 4, if and only if, upon a true
construction of the arbitration clause that is first paragraph of
Clause 40, would cover the disputed claim for compensation he
can enter into the merits of the dispute and decide it."

This ratio clearly establishes that the arbitrator gets jurisdiction to
G
<leci<lt: the dispute on merits only when he is specifically called upon to
decide the dispute in terms of the contract.

In Managing Dir~ctor, J & K Handicraft v. Good Luck Carpets, [1990)
4 SCC 740, the questton arose·: whether the court could look into the H
y
I
140 SUPREME COURT REP-ORTS (1997] 2 S.C.R.

A arbitr;1tion agreement, find out whether the arbitrator has jurisdiction to
decide the dispute though it was not formed part of the award? In para 5,
this Court had held that :

"... Here we may point out that the learned counsel for the respon-
dent has urged that the agreement containing the arbitration clause
B cannot be looked into even to find out as to what was the nature
of the dispute. contemplated by it with regard to which a reference
to an arbitrator was contemplated, more so when the award was
a non-speaking one. We find it difficult to agree with this submis- .
sion for two reasons : Firstly, the award is not a totally non-speak-
c ing one inasmuch as it gives a resume of the incentive scheme and·
the agreement between the parties as also the items of .the claim
·I·
made by the respondent Of course, while fixing the amount found
payable by the appellant, no reasons are recorded. Secondly, if
there is any challenge to the award on the ground that the ar-·
. bitrator had not jurisdiction to make the award with regard to a
D · particular item inasmuch as it was beyond the scope of refererlce,
. the only way to test the correctness of such a challenge is to look
into the agreement itself. In our opinion, looking into the agree- '
ment for this limited purpose is neither tantamount to going into
the evidence produced by the parties nor into the reasons which
E weighed with the arbitrator in making the award."

In fact this Court had gone into merits while deciding the question
as to whether the arbitrator was justified in making the award in excess of
--
the jurisdiction with reference to the arbitration agreement and deciding
p the dispute on that basis.

In U.P. Rajkiya Ni1111a11 Nigam Ltd. v. Indure Pvt. Ltd., [1996) 2 SCC
667 a Bench of three Judges (to which both of us were members) had gone
into the question whether the arbitrator can go into the question whether
there emerged any concluded contract and whether he can get exclusive
G jurisdiction to decide that question by himself? In an application under
Section 33, the learned Single Judge of the High Court had held that the
<J.rbitrator had exclusive jurisdiction to decide that question. Reversing that
jhdgment this Court in para 13 had held that "the arbitrability of a claim
depends on the construction of the clause in the contract. The finding of
H the arbitrator/arbitrators on arbitrability of the claim is not conclusive as
TAMIL NADU ELECTRICITY BD. v. BRIDGE TUNNEL CONSNS. 141

under Section 33, ultimately it is the court that decides the controversy. It A
being a jurisdictional iswe, the arbitrator/arbitrators cannot clothe them-
selves with jurisdiction to conclusively decide the issued." In para 15 it is
held thus :

"The clear settled law thus is that the existence or validity of an
arbitration agreement shall be decided by the court alone. Ar- B
bitrators,. therefore, have no power ·or jurisdiction to decide or
adjudicate conclusively by themselves the question since it is the
very foundation on which the arbitrators proceed to adjudicate the
disputes. Therefore, it is rightly pointed out by Shri Adarsh Kumar
Goe~ learned counsel for the appellant that they had by mistake C
agreed for reference and that arbitrators could not decide the
existence of the arbitration agreement or arbitrability of the dis-
putes without prejudice to their stand that no valid agreement .
existed. Shri Nariman contended that having agreed to refer the
dispute, the appellant had acquiesced to the jurisdiction of the
arbitrators and, therefore, they cannot exercise the right under D
Section 33 of the Act. We find no force in the contention. As seen,
the appellant is claiming adjudication under Section 33 which the
court alone has jurisdiction and power to decide whether any valid
agreement is existing between the parties. Mere acceptance or
acquiescing to the jurisdiction of the arbitrators for adjudication E
of the disputes as to the existence of the ar~itration agreement or
arbitrability of the dispute does not disentitlc the appellant to have
the remedy under Section 33 through the court. In our considered
.view the remedy under Section 33 is the only right royal way for
deciding the controversy."
F
Accordingly, it was held that the controversy of arbitrability requires
to be decided by the court and not by the arbitrator himself.

In Union of India v. G.S. Atwal & Co. (Asa11sole), [1996] 3 SCC 568
a Bench o~o Judges, to which one of us, K. Ramaswamy, J. was a G
member, was to consider the question whether the arbitrator, when he
enlarged his scope of award in a non-speaking award, can conclusively
decide the dispute and give an award in that behalf? It was held in
paragraph 6 that:

"To constitute an arbitration agreement, there must be an agree- H
I
142 SUPREME COURT REPORTS (1997J 2 S.C.R.

A ment that is to say the parties must be ad idem. Arbitrability of a
claim depends upon the dispute between the parties and the
reference to the arbitrator. On appointment, he enters upon that
dispute for adjudication. The finding of the arbitrator on the
arbitrability of the claim is not conclusive, as under Section 33
ultimately it is the court that decides the controversy. It can hardly
B be within the arbitrator's jurisdiction to decide whether or not a
condition precedent to his jurisdiction has been fulfilled. The
arbitrator had no power to decide his own jurisdiction. The ar-
bitrator is always entitled to inquire whether or not he has juris-
diction to decide the dispute. He can refuse to deal with the matter
c at all and leave the parties to go to the court if he comes to the
conclusion that he has no power to deal with the matter, or he can
consider the matter and if he forms the view that the co~tract upon
which the claimant is relying on and from which, if established, he
alone has jurisdiction, he can proceed to decide the dispute ac-
cordingly. Whether or not the arbitrator has jurisdiction and
D
whether the matter is referred to or is within the ambit ;if clause
for reference of any difference or dispute which may arise between
the parties, it is for the court to decide it. The arbitrator by a
wrong decision cannot enlarge the scope of the submission. It. is
for the court to decide finally the arbitrability of the claim in
E dispute or any clause or a matter or a thing contained therein or
the construction thereof."

In Cllampsey Bhara & Co. v. Jivraj Ba/loo Spinning & Weaving Co.
Ltd., LR (1922) 50 IA 324 : AIR (1923) PC 66 Lord Dunedin had laid
down the dictum as to an error in law on the face of the award, which was
F
accepted and fallowed by this court in Hindustan ConstJUction Co. Ltd. v.
State of J & K, (1992) 4 SCC 217. Therein it was held that :

"An error in law on the face of the award means, in their
Loardships' view, that you can find in the award or a document
G actually incorporated thereto, as for instance a note appended by
the arbitrator stating the reasons for his judgment some legal
proposition which is the basis of the award and which you can then
say is erroneous. It docs not mean that if in a narrative a reference
is made to a contention of one party, that opens the door to seeing
H first what that contention is, and then goijig to the contract on
TAMIL NADU ELECTRICITY BD. v. BRIDGE TUNNEL CONSNS. 143

which the parties' right depend to see if that contention is sound. A
Here it is impossible to say, from what is shown on the face of the
award, what mistake the arbitrators made. The only way that the
learned judges have arrived at finding what the mistake was is by
saying : 'inasmuch as the arbitrators awarded so and so, and
inasmuch as the letter shows that the buyer rejected the cotton, B
the arbitrators ca.n only have arrived at that result by totally
misinterpreting Rule 52': But they were entitled to give their own
interpretation to Rule 52 or any other article, and the award will
stand unless, on the face of it, they have tied themselves down to
some special legal proposition which then, when examined, ap-
pears to be unsound." C

This decision has been followed by this Court in all subsequent
judgments and the precise scope of the law as to error apparent on the
face of the award has been crystalised. But there is a distinction between
an error apparent on the face of the award and jurisdictional error in D
passing the award. In that behalf, in Mis. Sudarsan Trading Co. v. State of
Kera/a, [1989) 2 SCC 38 Justice Sabyasachi Mukherji, as he then was, had
pointed out the distinction on the jurisdictional error and the error on the
face of the award. It was stated thus :

"An award may be remitted or set aside on the ground that the E
arbitrator in making it, had exceeded his jurisdiction and evidence
of matters not appearing on the face of it, will be admitted in order
to establish whether the jurisdiction had been exceeded or not,
because the nature of the dispute is something which has to be
determined outside the award - whatever might be said about it in F
the award or by the arbitrator. It has to be reiterated that an
arbitrator acting beyond his jurisdiction - is a different ground
from the error apparent on the face of the award. In Hal5bury's
Laws of England II, 4th edn., Vol. 2 para 622 one of the miscon-
ducts enumerated, it the decision by the arbitrator on a matter
which is not included in the agreement or reference. But in such G
a case one has to determine the distinction between an error within
the jurisdiction and an error in excess of the jurisdiction. WhBther
a particular amount was liable to be paid of damages liable to be
sustained, was a decision within the competency. of the arbitrator
in this case. By purporting to construe the contract the court could H
y
J
144 SUPREME COURT REPORTS (1997] 2 S.C.R.

A not take upon itself the burden of saying that this was contrary to
the contract and, as such, beyond jurisdiction. It has to be deter-
mined that there is a distinction between disputes as to the juris-
diction of the arbitrator and the disputes as to in what way that
jurisdiction should be exercised. There may be a conflict as to the
power of the arbitrator to grant a particular remedy."
B
In "Russel on Arbitration" (Nineteenth EditiOn) by Anthony Walton,
page 99, it is stated as under :

"It can hardly be within the arbitrator's jurisdiction to decide
c whether or not a condition precedent to his jurisdiction has been
fulfilled. It has indeed several times been said bluntly that an
arbitrator has no power to decide his own jurisdiction and in one
case where rules of an institution prepared to conduct arbitrations
gave the arbitrator such power, the court will ignore this when
asked to enforce the award, and decide the question itseif. How-
D ever, an arbitrator is always entitled to inquire whether or not he
has jurisdiction. An umpire faced with a dispute whether or not
there was a contract from which alone his jurisdiction, if any, can
arise can 11¥tter at all and lease the parties to go to court, or he
can consider the matter and if he forms the view that the contract
upon which the claimant is relying and from which, if established,
E
alone his jurisdiction can arise is in truth the contract, he can
proceed accordingly."

In "Law of Arbitration" by R.S. Bachawat (2nd (1987) Edition) at
pages 154-55, it is stated thus :
F
"An arbitrator cannot by mistake assume jurisdiction over a matter
on which he has no jurisdiction. If it is shown by the terms of the
submission or by extrinsic evidence th~t the arbitrator has adjudi-
cated upon matters outside the scope of his authority the award
cannot stand, however well meaning and honest the mistake might
G have been. An arbitrator cannot give himself jurisdiction by a
wrong decision collateral to the merits as to facts on which the
limits of his jurisdiction depends. Where it was a condition prece-
dent to his jurisdiction that the dispute should have arisen during
a tenancy between the plaintiff and the defendant or in the event
H of a collusion if certain works had been completed, the arbitrator
TAMIL NADU ELECTRICITY BD. v. BRIDGE TUNNEL CONSNS. 145
"'

B

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"... Disputes about the existence or validity of the contract and C
as to the existence orJacts which render it illegal must be deter-
mined by the court and not by tpe arbitrator. The arbitrator cannot
by his own finding clothe himself with jurisdiction. Supposing he
finds that the arbitration agreement is valid such a finding cannot
bind the parties".
D
It would thus be seen that the arbitrator, while deciding the admitted
dispute, subject matter of adjudication, may decide the dispute in reference
to the agreement. That would be within his jurisdiction. In such jurisdic-
tional issue, even if an error is committed that may not be an error
apparent on the face of the recored because the arbitrator, the chosen E
forum, may commit an error in exercising his jurisdiction. However, if he,
by a speaking award, decides it on a wrong proposition of law, it will be
an error apparent on the face of record and liable to correction. If the
arbitrator decides a dispute which is beyond the scope of his reference or
beyond the subject matter of the reference or he makes the award dis-
regarding the terms of reference or the arbitration agreement or terms of F
the contract, it would jurisdictional error beyond the scope of reference,
he cannot clothe himself to decide conclusively that dispute as it is an error
of jurisdiction which requires to be ultimately decided by the court. This
Court has pointed out the distinction between latent and patent error of
jurisdiction in Tarapore Co. 's case thus :
G
"It has to be seen whether the term of the agreement permitted
entertainment of the claim by necessary implication. It may be
stated that we do not accept the broad contention of Shri Nariman
that whatever is not .excluded specifically by the contract can be
subject-matter of claim by a contractor. Such a proposition will H
146 SUPREME COURT REPORTS [1997) 2 S.C.R.
•
A mock at <he terms agreed upon. Parties cannot be allowed to
· depart from what they had agreed. Of course, if something flows
as a necessary concomitant to what was agreed upon, courts can
assume that too as a part of the contract between the parties."

It would thus be clear that the arbitrator cannot clothe himself
B conclusively with the jurisdiction to decide or omit to decide the ar-
bitrability of a particular item odhe claim made by the parties. When a
specific reference has been made to the arbitrator and the parties raise the
dispute of arbitrability, with the leave of the court/by a direction of the
court in a proceedings under Section 33, he is to decide the arbitrability of
C the dispute and make a decision while giving reasons in support thereof.
The decision of the arbitrator in granting a particular sum by a non-speak-
ing award, therefore, hinges upon the arbitrability of a dispute arising
under the contract or upon a particular item claimed thereunder. He is
required to give the decision thereon. The question of decision by implica-
tion does not arise since his jurisdiction to decide the dispute on merits
D hinges upon his jurisdiction to decide the arbitrability of the dispute. In
this case, in view of the finding recorded by the court, which has become
final, as referred to earlier, the arbitrator/umpire was enjoined to decide
the arbitrability of the claims set up by the respondent and disputed by the
appellant. Admittedly, the award of the umpire does not contain any
E decision on arbitrability of the claims.

In Gujarat Water Supply and Sewerage Board v. Unique Erectors,
[1989] 1 SCC 532 one of the questions referred was arbitrability of a
particular item. It was by the Court stated thus :

F "In the instant case, the arbitrator by virtue of the terms mentioned
in the order of this Cou;t had to decide which of the disputes were
arbitrable and which were not. It is true that the arbitrator hjis not
specifically stated in the award that he had to decide the question
of arbitrability. The arbitrator has rested by stating that he had
heard the parties on the point of arbitrability of the claim and the
G counter-claim. He has further stated that after 'considering all the
above aspects' and 'the question of arbitrability or non-
arbitrability' he had made the award on certain aspects."

It could be seen that if the arbitrator has indicated his mind in the
H award that he in fact adverted to the arbitrability or non-arbitrability of the
TAMILNADU ELECfRICJTY BD. v. BRIDGE TUNNEL CONSNS. 147

claim and then made the award, it would be indicative of the fact that he A
had, in fact, applied his mind, considered that question and reached the
decision in awarding certain amounts by a non-speaking award including
the claim in respect of which arbitrability was in issue.

In Raipur Developme11t Authority v. Chokhamal Contractors, (1989] 2
SCC 721, a Constitution Bench of this Court had gone into the question B
whether the arbitrator is required to give reasons in a non-speaking award.
The Constitution Bench h~d pointed out in para 35 thus :

"We do not appreciate the contention, urged on behalf of the
parties who contend that it should be made obligatory on the part C
of the arbitrator to give reasons for the award, that there is no
justification to leave the small area covered by the· law of arbitra-
tion out of the general rule that the decision of every judicial and
quasi-judicial body should be supported by reasons. But at the
same time it has to be borne in mind that what applies generally
to settlement of disputes by authorities governed by public law D
need not be extended to all cases arising under private law such
as those arising under the Jaw of arbitration which is intended for
settlement of private disputes."

ln para ·37 thereof, this Court emphasised the need to make a
speaking award and the terms in the contract should postulate such a need E
when the contract in entered into by State or its instrumentalities. It was
held thus :

"The trappings of a body which discharges judicial functions and
is required to act in accordance with law with their concomitant p
obligations for reasoned decisions, are not attracted to a private
adjudication of the nature of arbitration as the latter, as we have
noticed earlier, is not supposed to exert the State's sovereign
judicial power. But arbitral awards in disputes to which the State
and its instrumentalities are parties affect public interest and the
matter of the manner in which government and its instrumentalities G
allow their interest to be affected by such arbitral adjudications
involve larger questions of policy and public interest. Government
and its instrumentalities cannot simply allow large financial inter-
ests of the State to be prejudicially affected by non-reviewable -
except in the limited way allowed by the statute - non-speaki.ng H
148 SUPREME COURT REPORTS [1997] 2 S.C.R.

A arbitral awards. Indeed, this branch of the system of dispute
resolution has, of late, acquired a certain degree of notoriety by
the manner in which in many cases the financial interests of
government have come to suffer by awards which have raised
eyebrows by doubts as to their rectitude and propriety. It will not
be justifiable for governments or their instrumentalities to enter
B into arbitration agreements which do not expressly stipulate the
rendering of reasoned and speaking awards. Governments and
their instrumentalities should, as a matter of policy and public
interest - if not as a compulsion of law - ensure that wherever they
enter into agreements for resolution of disputes by resort to private
c arbitrations, the requirement of speaking awards is expressly stipu-
lated and ensured."

In State of A.P. & Ors. v. R. V. Raya11im & Ors., [1990] 1 SCC 433,
relied on by Shri Poti, the question arose whether the award of escalation
charges in a non-speaking award is vitiated by any error apparent on the
D face of the record? Therein the question -of jurisdictional issue had not
arisen. On the other hand, on merits, it was contended that there was an '
error in that behalf. In para 5 it was held that "it was then contended that
the award has purported to grant damages on the basis of escalation of
cost and p~ices and such escalation was not a matter within the domain of
E the bargain between the parties and having taken that factor into con-
sideration the award was bad. Therefore, the ratio there is an authority
II

supporting the contention on the need of an arbitrator to give a reasoned
decision on arbitrability of the contract or claim in dispute.
l
In this regard, Section 31(3) of the Arbitration and Conciliation Act,
F 1996, provides thus :

"(3) The arbitral ward shall state the reasons upon which it is based,
unless -

(a) the parties have agreed that no reasons are to be given, or
G
(b) the award is an arbitral award on agreed terms under
Section 30."

The Parliament has expressed the legislative judgment that the award
H shall state reasons upon which it is based unless parties have agreed
TAMIL NADU ELEcmICITY BD. v. BRIDGE TUNNEL CONSNS. 149

otherwise or the award is covered on agreed terms under Section 30 of the A
new Act.

Thus, the law on the award, as governed by the new Act, is other way
about of the pre-existing law; it mandates that the award should state the
reasons upon which it is based. In other words, unless (a) the parties have

-
~ agreed that no reasons are to be given or (b) the award is an arbitral award
on agreed terms under Section 30 of the new Act, the award should state
the reasons in support of determination of the liability/non-liability. There-
by, legislature has not accepted the ratio of the Constitution Bench in the
B

Chokhamal Contractor's case that the award, being in the private law field,
need not be a speaking award even where the award relates to the contract C
of private parties or between person and the Government or public sector
undertakings. The principle is the same, namely the award is governed by
Section 31(3).

We have set out the relevant portions of the award. From a reading D
thereof, it is clear that the· arbitrator had considered the claims made on
the basis of escalation and damages, in a ·non-speaking award of the
disputes consisting of arbitrable and non-arbitrable claims. He awarded a
lumpsum amount of Rs. 70,83, 793. It is difficult to discern as to what extent
the umpire had considered the admissible and inadmissible claims which

- he adjudged. In such a situation, it is notpossible to discern to what extent
he had exercised his jurisdiction vis-a-vis of the admissible claims and
disallowed the non-arbitrable claims, So, it is not clear whether he exer-
cised his authority either beyond his jurisdiction or in abdication thereof.
In either case, it is an error of jurisdiction, the very four1dation for his
E

decision.
F
It is well settled that in the matter of challenge to the award there
are two distinct and different grounds, viz., that there is an error apparent .
on the face of the record and that the arbitrator has exceeded his jurisdic-
tion. In the latter case, the court can look into the arbitration agreement
but under the former it cannot do so unless the agreement was incor- G
porated or cited in the award or evidence was made part of the agreement.
In the case of jurisdictional error, there is no embargo on the power of the
court to admit the contract into evidence and to consider whether ot not
the umpire had exceeded the jurisdiction because the nature of the dispute
is something which has to be determined, outside the award, whatever H
150 SUPREME COURT REPORTS [1997] 2 $.C.R.

A might be said about it in the award or by the arbitrator. In the case of
non-speaking award, it is not open to the court to go into the merits. Only
in a speaking award the court can look into the reasoning in the award and
correct wrong proposition of law or error of law. It is not open to the court
to probe the mental process of the arbitrator and speculate, when no
reasons have been given by the arbitrator, as to what impelled the ar-
B bitrator to arrive at his conclusion. But in the later case the court, with
reference to the terms of the contract/arbitration agreement, would con-
sider whether or not the arbitrator/umpire has exceeded his jurisdiction in
-
awarding or refusing to award the sum of money awarded or omitted a
consolidated lumpsum.
c
In fact, in G.S. Atwal & Co. 's case, having noticed that the arbitrator
had exceeded his jurisdiction to grant amount de hors the terms of the
contract and being a non-speaking award, the C,0Urt was unable to specu-
late as to what extent the award was within the terms of the contract or
D claims made and to what extent the amount awarded was in respect of
non-arbitrable dispute. Accordingly, the order of the civil court was set
aside reversing the judgment of the Division Bench of the Calcutta High
Court.

Thus considered, .we hold that the arbitrator, having been invested
E

-
with the jurisdiction to decide the i.rbitrability of certain claims, has
committed error of jurisdiction in not considering the arbitrability of the
daims and passed a non-speaking award, awarding a sum of Rs. 70.83 lakhs
and odd. It is difficult to ascertain as to what extent he has awarded the
claim within the contract or the claims outside the contract, of a total claim
F of Rs. 2.10 crores. Under those circumstances, we are constrained tu hold
that it is difficult to give acceptance to the award made by the umpire as
upheld by the courts below. Equally, we find it difficult to accept the
contention that out of a claim of Rs. 2.10 crores, only a sum of Rs. 70.83
and odd was awarded. So, it is not a fit case for interference on the basis
of the mere fact that a lesser sum than was claimed has been awarded. An
G illegal award cannot be upheld to be valid or within jurisdiction. ..
The question then is : what procedure should be adopted in this
behalf? The contention of Shri Poti is that it may be remitted to the umpire
for fresh consideration. On the other hand, the contention of Shri V.R.
H Reddy is that in the event of the conclusion that the arbitrator has exceeded
TAMIL NADU ELECTRICITY BD. v. BRIDGE TUNNEL CONSNS. 151

-- his jurisdiction, the entire award would become invalid and it has to be set A
at naught. Having given due consideration to the respective contentions,
we find force in the contention of Mr. V.R. Reddy. Mr. Poti has stated that
though it is found that the award is not valid in law, the party cannot be
made to suffer on account of the illegality committed by the umpire. We
find no force in the contention. Once a finding recorded that the um-
pire/arbitrator has committed error of jurisdiction, as stated earlier, two B
- courses are open, viz., either to remit the award to the umpire for recon-
sideration or to set aside the award in toto. We think that the latter course
would be appropriate in the facts and circumstances in this case.

Accordingly, we allow the appeals set aside the award of the ar- C
bitrator anq leave the parties to bear their own costs. If there are no
outstanding dues recoverable from the respondents, the security deposit
and bank guarantee is required to be refunded to the respondent.

R.P. Appeals allowed.

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