Holding

The arbitrators had jurisdiction to award reimbursement for the increase in fair wages (as a necessary implication of the contract) but lacked jurisdiction to award reimbursement for the increase in minimum wages; the award is upheld only insofar as it relates to fair‑wage escalation.

Summary

Tarapore & Co. entered into a contract with the State of Madhya Pradesh for the construction of a masonry dam, which required the contractor to pay not less than "fair wages" and to observe labour laws without any claim against the Irrigation Department. After the State revised minimum wages, the contractor paid the higher rates and claimed reimbursement from the State. Arbitrators awarded Rs. 236 lakhs, but the State challenged the award, arguing that the arbitrators lacked jurisdiction to award reimbursement because the contract contained no escalation clause. The Supreme Court held that the arbitration clause covered disputes arising out of the contract, giving the arbitrators jurisdiction to entertain the claim for increased fair wages (a necessary implication of the contract) but not for the increase in minimum wages, which was not contemplated. Consequently, the part of the award relating to fair‑wage escalation was upheld, the part concerning minimum‑wage escalation was set aside, the interest rate was reduced to 9%, and the matter was remitted to the High Court for determination of the fair‑wage reimbursement within Rs.236 lakhs.

Issues considered

Whether the arbitrators had jurisdiction to entertain the contractor's claim for reimbursement of increased wages under the arbitration clause.
Whether an escalation clause is required in the contract for a claim based on increased fair wages or minimum wages.
Whether the increase in fair wages can be read as a necessary implication of the contract.
Whether the increase in minimum wages falls within the scope of the contract and can be claimed.
Whether the award should be set aside on the ground of jurisdictional error and the correct basis for quantum calculation.

Legislation cited

Arbitration Act, 1940s. 16(1)(b), s. 20(1), s. 30(a)
Minimum Wages Act, 1948

Subjects

ArbitrationJurisdictionEscalation clauseFair wagesMinimum wagesConstruction contractReimbursementAward set asideInterest rate

Judgment

~- I
'r

A TARAPORE AND CO.
v.
STATE OF MADHYA PRADESH

FEBRUARY 16, 1994
~I

B [B.P. JEEVAN REDDY AND B.L. HANSARIA, JJ.]

Arbitration Ac~ 1940: Sections 16(1)(b), 20(1) and 30(a).

Agreement-Arbitration clause-Provision requiring Contractor to pay
c not less than fair wages and to observe labour laws without having any claim
against state-Payment of increased amount of wages on account of rise in
minimum wages-Payment not pursuant to any term of contract but under
mandate of law-Payment offair wages by Contractor under terms of con- ,1
tract-Claim by Contractor-Award by arbitrator allowing Contractor's
claim-Award held valid qua increase in fair wages but held invalid qua rise
D in minimum wages--/n the assence of express provision for escalation Ar-
bitrator can award amount of escalation if the terms of agreement permit by
necessary implication. ,_
The appellant entered in to a contract with the respondent for
construction of a Masonry Dam which provided for settlement of dispute
E
arising out of contract by arbitrathm. Further, the conditions in the tender
notice provided: (i) the contractor should observe all Labour Laws without
having any claim on Irrigation Department and (ii) the contractor shall
pay not less than fair wage to labourers engaged by him on the work

F
whether for time or piece work notified at the time of inviting tenders for ._
the work. Subsequent to the entering of agreement, the State revised
minimum wages. Accordingly, the appellant paid the revised wages and
made claim on the said count but the claim was rejected by the respondent.

On a reference sought by the appellant under Section 20(1) of the
Arbitration Act, 1940 two arbitrators were appointed before whom the
G
appellant made bis claim on the aforesaid count. The State denied its
liability to reimburse stating that the contractor was not entitled to the
increased amount on account of revi~ion of wages. However, the arbitrator
awarded a sum of rupees 236 lakhs to the appellant. >
H The State challenged the validity of the award before the District
1012
TARAPORECO. v. STATEOFM.P. 1013

Judge on the ground that the arbitrators had not decided the question of A
the liability of the State to reimburse the claim due to escalation of wages
which was one of the matters referred to the arbitrators. Regarding the
quantum of award, it was contended that the arbitrator could not have
calculated the amount on the task-basis ·Of the sub-contractor and piece
workers. The District Judge took the view that the difference in wages was
required to be calculated on "actual basis" unless the parties agreed upon
B
some other formula for calculation. As the arbitrators had calculated the
amount taking the labour components as 35 per cent, the finding of the
arbitrator was held to be based on "wrong basis". Therefore, the District
r- Judge remitted the award under Section 16(1)(c) of the Act to the ar-
bitrators to find out the amount reimbursable on "actual basis" and not C
on "notional basis".

After the matter was taken up again by the arbitrators, the appellant
furnished details of wages, duly verified by the Labour Welfare Officer,
paid by it to the labourers directly and also details of payments made to
piece workers. The arbitrators awarded Rs.236 lakhs to the appellant. D
The State filed an application for setting aside the award on the
ground that the arbitrators erred in fixing the liability to reimburse the
escalate~ wages in the face of clear condition in the agreement of contract,
that the appellant was bound to comply with all labour laws an~ to make E
payments at the rates prescribed; there was no clause in the work contract
to allow claim towards escalated payments of wages. The District Judge
set aside the award on the ground that arbitrators did not at all consider
whether the State was liable to reimburse and that the quantification was
also defective.
F
The appellant filed appeal in the High Court which upheld the order
of District Judge setting aside the award holding that the arbitrators ought
to have given their finding in so far as primary question of liability was
concerned which, however, was not done. On the question of quantum also
the High Court found fault inasmuch as in the second award also the same G
basis had been adopted as had been done in the first award, which had
been regarded as wrong by the District Judge.

In appeal to this Court it was contended on behalf of the respondent
State that in view of the terms of the agreement the arbitrators had no
jurisdiction to award the amount claimed by the Contractor and by doing H.
1
t

1014 SUPREME COURT REPORTS [1994] 1 S.C.R.

A so the arbitrators assumed jurisdiction which they did not have and
thereby misconducted themselves.

On behalf of the appellant it was contended that (1) the instant was
not a case where the arbitrators lacked jurisdiction altogether. It was not
a case of patent lack of jurisdiction, if at all it was a case of latent lack of
B jurisdiction, in which case acquiescence would be material; in any event,
even if there was any error, it was an error within jurisdi~on and not
error of jurisdiction because of which the courts below had no jurisdiction
to set aside the award; (ii) escalation is a normal incident and a claim of
escalation cannot be rejected merely because of absence of such a provision
C in the agreement; and (iii) the terms of the agreement did require the
appellant to pay wages to the labourers as per the rates of minimum wages
fixed under the provision of the Minimum Wages Act, 1948, or as fixed by
the Wage Committee; and so, merely because of a provision that the
contractor will have no claim on the said count against the State, it cannot
be contended that the appellant would have no claim against State due to
D increase of aforesaid wages.
Allowing the appeal, this Court

HELD: 1. If an authority lacks jurisdiction in the sense that the
E subject matter is not amenable at all to its decision, i.e. the case be of
patent lack of jurisdiction, acquiescence of the parties would not be
material inasmuch as it is settled law that by agreement jurisdiction
cannot be conferre.d. The present is, however, not such a case inasmuch as
the arbitration clause would show that any dispute relating to or arising
out of or in any way connected with the contract has to be referred to
F arbitration. It was definitely a dispute arising out of or connected with ~e
contract. The subject matter of the dispute is thus squarely covered by the
arbitration clause and, therefore, it was not patent lack of jurisdiction on ·
the part of arbitrators in having gone into the question of reimbursement.
The best that could be said is that the terms of the agreement being what
G they are, the arbitrators had no jurisdiction to entertain the claim, and so,
the present was a case of latent lack of jurisdiction. In such a case
acquiescence of the parties may be relevant. (1025-A-F]

Santa Si/a Devi v. Dhirendra Nath, (1964] 3 S.C.R. 410; N. Chillapan
Secretary, Kera/a State Electricity Board, (1975] 1 S.C.C. 289; State ofAndhra
H Pradesh v. R. V. Rangaram, (1990] 1 S.C.R. 54; Hindu Builders v. Union of
TARAPORECO. v. STATEOFM.P. HHS

India, [1990] 2 S.C.R. 638; Hindustan Construction Co. v. State of A
J&K, [1992) 4 S.C.C. 217; Jagdish Chandra v. Lachhaman Das, [1993] 1
S.C.C. 548 and Sudershan Trading Co. v. Govt. of Kera/a, [1989] 1 S.C.R.
665, referred to.

2. The State did seem to take a stand at the relevant time that the
arbitrators had jurisdiction to entertain the claim because in the very first B
round of litigation before the District Judge the 'main contention'· ad-
vanced was relating to the calculation only. Thus if the State would have
bren of the view that the arbitrators had no jurisdiction to entertain the
claim, the question of jurisdiction would have been put at the forefront
and not the question of quantum. [1025-G-H-1026-A] c
3. It cannot be accepted that whatever is not excluded specifically by
the contract can be subject matter of claim by a contractor. Such a
proposition will mock at the 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 tliat D
too as a part of the contract between the parties. [1028-B]

P.M. Paul v. Union of India, [1989] 1S.C.R.15, distinguished.

Continental Construction Co. v. State of Madhya Pradesh, [1988] 3 E
S.C.C. 82; Tarapore dnd Company v. Cochin Shipyard Ltd., [1984] 2 S.C.C.
680 and Mis Associated Engineering Co. v. Govt. of Andhra Pradesh, J.T.
(1991) 3 S.C. 123, referred to.

4. If a challenge is made to the award on the ground that the
arbitrator has no jurisdiction, the only way to test the correctness is to F
look into the agreement itself because the jurisdiction of the arbitrator
flows from the reference and a reference can be only with regard to such
disputes which are contemplated by the agreement. [1027-H, 1028-A]

Managing Director, J&K Handicrafts, Jammu v. Good Luck Carpets, G
[1990] 4 S.C.C. 740, applied.

5. The present was not a case where on the basis of the terms of the
agreement entered between the partie.s it can be said that the arbitrator
had no jurisdiction to make the award because of there being no express
provision for it in the contract. [1027-G] H
1016 SUPREME COURT REPORTS [1994] 1 S.C.R.

A 6. Payment of wages as per the rates fixed under the Minimum Wages
Act being statutory obligation and the terms of the contract being silent
about payment of minimum wages, as the relevant term speaks of 'fair
wages', which concept is different from minimum wages, it is clear tha.t
insofar as increased payment on account of rise in the rates of minimum
wages is concerned, the parties were not in any sort of agreement - express
B or implied to reimburse the same. The appellant paid as per these rates, not
in pursuant to any term of the contract but because of the mandate of law.
Therefore, the error in this regard cannot be regarded as one within juris-
diction; the same is really an error of jurisdiction insofar as that part of
award. is concerned which is relatable to increase in minimum wages. Need-
C less to say that if an arbitrator acts beyond jurisdiction, the same would
amount to misconduct because of which the award would become amenable
of being set aside by a court. [1028-E-G, 1029-F-G]

Hindustan Times Ltd. v. Their Workmen, (1963) 1 L.LJ.108; Hindus-
tan Antibiotics Ltd. v. Their Workmen, (1967) 1 L.LJ. 114; Workmen of
D Gujarat Electricity Board v. Gujarat Electricity Board, (1962) 2 L.L.J. 791
and Hindustan Construction Co. Ltd. v. State of J&K, [1992] 4 S.C.C. 217,
referred to.

7.1 However, there was a meeting of mind of the parties insofar as
B the claim of escalated payment on account of increase of fair wages is
concerned. By asking the appellant to give tender by taking into account
the fair wages notified at the time of inviting tenders, the authorities did
..-
give an impression that fair wages to be paid would be the one then
notified. In such a situation, if rates of fair wages were raised afterwards,
the tendered sum cannot be taken to be agreed amount for completing the
F contract, in the face of the directions of the authorities requiring the
appellant to pay wages at rates higher than those prescribed or notified at
the time of inviting tenders. Therefore, the State had by necessary implica-
tion agreed to reimburse this increased payment • [1029-B-D]

G Sudershan Trading Co. v. Government of Kera/a, [1989) 1 S.C.R. 665,
cited.

7.2 The view taken by the Courts below that the award merited to be
set aside on tbe ground that the award was beyond the jurisdiction of
arbitrators was not the correct view to take insofar as the increased pay-
H ment on account or rise in the rates of fair wages are concerned. Therefore,
j
I

TARAPORECO. v. STATEOFM.P. [HANSARIA,J.) 1017

the finding qua the rise in the rates of fair wages is reversed while the same A
as regards rise in rates of minimum wages is sustained. [1031-D]

8. It is evident from record that the claimant furnished details of
payments made by it to the labourers directly and also details to payments
made to the piece workers. He even produced vouchers of payment made
to piece workers for verification. Therefore, all that was possible on his B
part to prove actual payment was done by him. A litigant cannot be asked
to do what is not possible on his part to do or get done. He cannot be made
to suffer for no fault on his ·part. [1030-G, 1031-C-EJ

9. The fault found by the High Court regarding the basis on which C
the second award was made was not the correct view to be taken. But as
the appellant is entitled to be reimbursed for the extra payment made only
on account of rise in the rates of fair wages and as the arbitrator had not
Qlculated the extra amount paid on this count separately, the case is
remitted back to the High Court to give its finding on this aspect
[1031-H, 1032-A] D
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1246 of
1992.

From the Judgment and Order dated 17.4.90 of the Madhya Pradesh
High Court in Misc. A. No.152 of 1988. E
F.S. Nariman, T. Raghavan, V.R. Rao, S.C. Sharma, A.R. Nambiar
and K. Radhakrishna Nambiar for the Appellants.

G.L. Sangbi, S.V. Deshpande and S.K. Agnihotri for the Respondent.

The Judgment of the Court was delivered by F

B.L. HANSARIA, J. 1. The appellant ipipugns the judgment of the
High Court of Madhya Pradesh by which it has upheld the order of the
District Judge, Jabalpur, setting aside the award of the arbitrators in
exercise of power conferred by Section 30(a) of the Arbitration Act, 1940, G
hereinafter the Act.

2. The award to be set aside was one which had come to be passed
following the order of the District Judge dated 6.5.87 in Civil Suit No.1-
N87 by which an earlier award had come to be remitted to the arbitrator
for reconsideration keeping in view the legal arguments advanced. The first H
1018 SUPREME COURT REPORTS (1994) 1 S.C.R.

A award owes it origin to the following question ·referred for determination
by the two arbitrators named in the order of the District judge passed on
12.4.85:-

"Whether the State is not liable to reimburse to the applicant
Rs.3,42,69,847.00 for the period 7.8.79 to 31.8.1984 on account of
B difference in wages. "

3. The reference was made on an applicant made by the appella!lt
under Section 20(1) of the Act. That application was based on the terms
of the agreement entere4 into by the appellant with the State of Madhya
C Pradesh relating to construction of Bargi Massonry Dam. One of the terms
of the agreement as incorporated in clause 4.3.29 (2) provided for settle-
ment of dispute arising out of contract by arbitration. The appellant's
averment was that after the contract was entered into, minimum wages
were raised by the State and the appellant was required to pay wages
D accordingly. The rates quoted by the appellant, however, related to wages
as were prevalent at the time when the tender was invited. The revision of
the wages upset all the calculations as extra amount had to be paid on this
count. The Superintending Engineer rejected the claim of reimbursement
on the ground of no escalation clause in the contract, whereupon the
appellant called upon the Superintending Engineer to appoint an arbitrawr
E on behalf of the State. This not having been done and the appellant having
appointed one Brigadier D.R. Kathuria as arbitrator, it approached the
Court to direct the State to file the arbitration agreement and to make an
order of reference. The non-applicant did not oppose; indeed it filed no
reply. Not only this, it even named one Shri V.M. Chitale as arbitrator while
F filing the arbitration agreement.

4. In these circumstances the aforesaid question was referred for
determination by the two named arbitrators. After the reference was
entered into by the arbitrators the appellant claimed a sum of Rs. 3, 42,
69, 847 on the aforesaid count. The State admitted that the contractor was
G liable to pay the increased wages under the Minimum Wages Act, but took
a stand in paragraph 12 of its counter that the claimant was not entitled
to the increased amount on account of revision of wages and denied its
liability to reimburse, The arbitrators, however, by order dated 20.11.86
awarded a sum of Rs. 236 lacs with simple interest @ 12 per cent to the
H claimant-appellant. It may be stated that by the time the award was passed
TARAPORECO. v. STATEOFM.P.[HANSARIA,J.J 1019

one Shri K.C. Goel had stepped into the shoes of Brigadier D.R. Kathuria. A
5. The State approached the District Judge to set aside the award,
inter alia, on the rround that the arbitrators had not decided the question
of the liability of the State to reimburse the claim due to escalatin:: of wages
which was one of the matters referred to the arbitrators. This is what
appears from the State's petition filed on 23.1.87 under Section 30 of the B
Act. When the matter came to be taken up by the District Judge the main
contention advanced was, however, relating to quantum of award, as it
would appear from paragraph 5 of the order of the District Judge passed
on 6.5.87. The attack on this score was on the ground that the arbitration
could not have calculated the amount on the task-basis of the sub-contrac- C
tor and piece workers. The District Judge took the view that the difference
in wages was required to be calculated on "actual basis" unless the parties
agreed upon some other formula for calculation. As the arbitrators had
calculated the amount taking the labour components as 35 percent, the
finding of the arbitrator was held to be based on "wrong basis" Something
was also said about interest. The District Judge took the view that the D
r whole award was not required to be set aside and remitted the same as
contemplated under Section 16(1)(c) of the Act.

6. After the matter was taken up again by the arbitrators, the State
brought to their notice that as per the aforesaid remand order they were E
required to decide the question whether the State was liable to pay
escalation amount in the light of the agreement. This is what finds place in
paragraph 3 of the submissions made before the arbitrators, a copy of
which is at page 226 of Volume II. In the remand proceedings the appellant
brought further materials on record and also exa;:nined some witnesses. By
a speaking order the arbitrators required the State to pay to the claimant F
a sum of Rs. 236 lacs with simple interest @12 per cent. Though the actual
wages paid by the appellant on account of the increased rates came to Rs.
245 lacs, but as the earlier award was for Rs.236 lacs this was the amount
which came to be awarded by the arbitrators.
G
7. The State again approached the District Judge to set aside the
award by its application dated 31.10.87/2.11.87. What is stated in paragraph
6 of this application is material which reads as below:

"The learned Arbitrators erred in fixing the liability to reimburse
the escalated wages in the face of clear condition in the agreement H
1020 SUPREME COURT REPORTS (1994) 1 S.C.R.

A of contract, that they are bound to comply with all labour laws and
that the increases in the wages, were made by the labour welfare
Department and as such it is the responsibility of the contractor
to pay at the rates prescribed. There is no clause in the work
contract to allow claim towards escalated payments of wages."

B 8. The District Judge by his order dated 21:7.88 set aside the award
being of the view that the arbitrator did not at all consider whether the
State was liable to reimburse. Some defect was also found on the question
of quantification. The appellant carried the matter in appeal to the Madhya
Pradesh High Court which held in the impugned Judgment that the ar-
C bitrators ought to have given their finding in so far as primary question of
liability was concerned which, however, was not done. On the question of
quantum also the High Court was not satisfied inasmuch as in the second
award also the same basis had been adopted as had been done in the first
award, which had been regarded as wrong by the District Court.

D 9. On the aforesaid facts, the main question which calls for our -,
determination is whether on the face of two awards and the cases put up
by the parties can it really be said that the arbitrators had acted beyond
juri~diction in awarding the sum in question and had thereby misconducted
themselves. Ai:tother question which we shall have to answer, if we hold
E that the. arbitrators had jurisdiction, relates to quantum.

10. Shri Sanghi appearing for the State has strenuously urged that
the arbitrators assumed jurisdiction which they did not have and thereby
misconducted themselves. We are reminded that if an adjudicating
authority has no jurisdiction it cannot assume it even if the same were to
F be acquiesced. According to Shri Nariman, however, present was not a case
where the arbitrator lacked jurisdiction altogether. The argument, there-
fore, seems to be that present was not a case of patent lack of jurisdiction;
if at all, it was a case of latent lack of jurisdiction, in which case acquies-
cence would be material.
G 11. Did the arbitrators have jurisdiction?
>
The question of jririsdiction is the real bone of contention between
the parties. Shri Sanghi has drawn our attention to the following conditions
in the tender notice~ (As per paragraph 2.13 of tender notice "all the
H condition of tender notice will be binding on the contraci:or andwill from
TARAPORECO. v. STATEOFM.P. [HANSARIA,J.) 1021

a part of the agreement to be executed by the contractor........ "). Let us A
therefore note the relevant conditions of tender notice. These are as
below:-

"(1) 2.2 The percentage of tender above or below schedule of rate,
item rate, lumpsum (as the case may be) should be expressed both
in words and figures and all over writing should be neatly scored B
out and rewritten and corrections should be duly attested prior to
the submission of the tender.

(2) 2.19 The contractor shall pay not less then fair wages to
labourers engaged by him on the work (Copy or rules enclosed C
vide Annexure-B)

(3) Para 10 of Annexure-A

The contractor shall observe all labour laws enacted by Govt.
of Madhya Pradesh or Govt. of India as amended from time to ·n
time, without having any claim on Irrigation Department.

(Emphasis supplied)

(4) Para 1 of Annexure-B

The contractor shall pay not less than FAIR WAGE to E
labourers engaged by him on the work.

Explanation:-

'Fair wage' means wage whether for time or piece work notified
F
at the time of inviting tenders for the work and where such wages
have not been so notified the wages prescribed by the P.W.D.
(Irrigation Department) for the division in which the work is done.

(Emphasis ours)
G
(5) 4.3.15. Time limit for unforeseen claims.

Under no circumstances whatever, shall the contractor be en-
titled to any compensation from Government on any account
unless the contractor shall have submitted claim in writing to the
Engineer-in-charge within one. month of the clause of such claim H
1022 SUPREME COURT REPORTS [1994] 1 S.C.R.

A occurring

12. Relying on the aforesaid terms of agreement. Shri Sanghi con-
tends that the appellant having been made known beyond doubt that it has
to give tender as per item rate over lumpsum bearing in mind the fair wage
at the time of inviting the tender and para 10 of the Annexure-A having
B required the contractor to observe all labour laws amended from time to
time without "having any claim on Irrigation Department", if the appellant
had paid to the labourers any increased amount on account of rise of
minimum wages which it was required to do because of clause 2.19 of
tender notice, it must be deemed to have agreed that it would do so without
C having any claim on the Irrigation Department. In view of this, Shri Sanghi
urges that the arbitrators had no jurisdiction to fasten any liability on the
State on the aforesaid count, and by doing so they travelled outside the
contract. That in such a situation the award would be without jurisdiction
is contended on the basis of Associated Engineering Co. v. Government of
D Andhra Pradesh, [1991] 2 SCR 924 and Managing Director, J & K Hand-
icrafts; Jammu v. Good Luck Carpets, [1990] 4 SCC 740.

13. As Shri Nariman has not contested the legal proposition that an
arbitrator cannot travel beyond the contract, it is not necessary to labour
on this point. It would be enough if we take not of aforesaid two decisions,
E in first of which it was stated clearly that an arbitrator cannot go out of
contract and if he does so the award would be without jurisdiction. In that
case the award was so found because of which it was stated in paragraph
30 that the award flew in the face of the contract and so it was set aside.
In the second decision this Court stated if the question of jurisdiction of
F arbitrator is raised, the only way to rest the correctness is to look into the
agreement between the parties as reference can be one which is con-
templated by t.he agreement.

14. Shri Nariman's emphasis on this facet of case is that the question
G as referred to the arbitrators by the District Judge on 12.4.85, if interpreted
in the background in which it was made, would show t~at the State had
accepted its liability and the reference was really on the question of
)
quantification of the liability. This is sought to be brought home by drawing
our attention, inter alia, to the fact that the appellant had approached the
District Judge under Section 20 of the Act after the Superintending En-
H gineer had rejected the claim on account of increase of wages, by talcing a
-f

TARAPORE CO. v. STATEOFM.P. [HANSARIA,J.) 1023

stand that there was no escalation clause under the contract agreement, as A
would appear from the minutes of the meeting held on 7.4.84, a copy of
which is at page 125 of the additional documents filed on behalf of the
appellant to be referred as Volume II. Learned counsel then refers to the
statement of claim as made before the arbitrators in paragraph 16 of which
it had been stated that in case of Mis. SEW Construction Private Limited,
who too was given contract for construction of a part of the dam in
B
question, the Superintendent Engineer despite finding that the claim on
account of escalation of wages was justified had not paid the same,
whereupon a sole arbitrator was appointed and the arbitrator gave an
award on 12th July, 1984 directing reimbursement on account of rise in fair
wages and the award was honoured by the State and payment was made c
in accordance with the award. As to this averment, the only reply of the
State in its counter was that this was irrelevant as that agreement was
entirely different. Shri Nariman urges that this contention is incorrect
inasmuch as there was one tender notice pursuant to which contract was
given not only to the appellant but to three others including M/s SEW D
Construction Private Limited. The learned counsel also brings to our notice
a communication of Superintendent Engineer dated 7.8.84 to the Chief
Engineer of Bargi Dam wherein the claim of the appellant itself was
regarded as justifjed.

15. Our attention is then invited to the communications of the E
appellant to the Labour Welfare Officer/Executive Engineer, Bargi Dam,
as at pages 70, 82, 97 and 100 of Volume II by which the appellant used
to bring to the notice of the aforesaid officials stating that wages had been
paid as per the circular/communications referred therein dealing with
payment of wages, rates of which were being raised from time to time. In F
these communications, the appellant either used to state that relevant
Muster Rolls were available for scrutiny or enclose copies of the same. Shri
Nariman finally submits that the appellant having been asked to give tender
taking the fair wage "at the time of inviting tender" and having been further
asked not to pay less than "fair wage" and the appellant being informed
from time to time by the Government officials either about the rise in rates G
of minimum wages or the one decided by the Wage Committee of the
concerned Division of the Public Works Department, it is apparent that
the terms of the agreement did require the appellant to pay wages to the
labourers as per the rates of minimum wages fixed under the provisions of
the Minimum Wages Act, 1948, or as fixed by the Wage Committee; and H
1024 SUPREME COURT REPORTS (1994] 1 S.C.R.
\·
A so, merely because of what has been stated in paragraph 10 of Annexure-A,
it cannot be contended that the appellant would have no claim on the
Irrigation Department due to increase of aforesaid wages. According to
the learned counsel this paragraph in Annexure-A has to be confined to
the subject matter of that annexure which is 'Model rules relating to labour
water supply and sanitation of labour camps'. A perusal of that annexure.
B shows that it deals with matters like 'Sanitary facilities' 'Latrines', Drinking
water','Bathing facilities'. We have noted that it is really Annexure-B which
is relatable to fair wages.

16. Shri Nariman buttresses his submissions by contending that the
C aforesaid was the reading of the relevant clauses of agreement by the St.ate
itself as it would appear from the stand taken by its counsel before the
District Judge when he examined the matter in the first instance, as, the ·
"main contention" then advanced was on the subject of calculation of the
amount of reimbursement, as it would appear from paragraph 5 of the
D District Judge order dated 6.5.87. It is apparent that if jurisdiction of the
arbitrators would have been the main plank of State's case, that would have
been the main contention. It is because of this the matter was remitted to
the arbitrator under clause (c) of Section 16(1) of the Act and not under
clause (a); the latter of which comes into play when a point is left undeter-
mined. by an arbitrator. It is stated that ill the first award, as in the second,
E the arbitrators had not dealt specifically with the question of liability of the
State. Despite this the main contention on the first occasion was concerning
the calculation and not the liability.

17. The next leg of the argument of Shri Nariman is that mere
p absence of any clause in the agreement that the contractor could lay claim
on account of escalation of wages is not conclusive as escalation is a normal
incident and a claim of escalation cannot be rejected merely because of
absence of such a provision in the agreement. This proposition of law is
advanced by referring to P.M. Paul v. Union of india, (1989) l SCR 115
and Continental Construction Co. Ltd. v. State of Madhya Pradesh, [1988] 3
G sec 82.
18. Shri Nariman concludes by submitting that the present is not
even a case of apparent error of law which merited setting aside of award; )-
and in any event, even if there was any error, it was an error within
H jurisdiction and not error of jurisdiction because of which the courts below
I

J
tARAPORECO. v. STATEOFM.P. [HANSARIA,J.] 1025

had no jurisdiction to set aside the award. A
19. The aforesaid are the rival contentions relating to jurisdiction. Be
fore we express our views on this all important question, it deserves to be
stated that if an authority would lack jurisdiction in the sense that the
subject matter is not amenable at all to its decision, i.e., the case be of
patent lack of jurisdiction, acquiescence of the parties would not be B
material inasmuch as it is settled law that by agreement jurisdiction cannot
be conferred. The present is, however, not such a case inasmuch as the
arbitration clause,.4:3.29, reading as below:-

"any dispute as to the meaning or the specification, conditions etc. C
or as to the quality of materials, workmanship etc. or any other
or
matter, thing, dispute question whatsoever relating to or arising
out of or in any way connected with the contract whether arising
during the period of the contract or after the completion shall be
referred to the Arbitration of two persons, one each to be
nominated by either party to the dispute, the two Arbitrators so D
appointed selecting an Umpire."

20. If would show that any dispute relating to or arising out of or in
any way connected with the contract has to be referred to arbitration. The
present was definitely a dispute arising out of or connected with the
contract. The subject matter of the dispute is thus squarely covered· by the E
arbitration clause and therefore we do not read patent lack of jurisdiction
on the part of arbitrators in having gone into the question of reimburse-
ment. The best that could be said is that the terms of the agreement being
what they .are, the arbitrators had no jurisdiction to entertain the claim,
and so, the present was a case of latent lack of jurisdiction. In such a case F
acquiescence of the parties may be relevant.

21. We do not, however, propose to decide the question relating to
jurisdiction on the narrow or technical ground of acquiescence seized as
we are with an award which is in the neighbourhood of 2.5 crores; instead,
we would address whether the terms and conditions of the agreeement at G
hand did permit entertaining of the claiin of .the appellant on the score of
escalatfon of wage rates. Despite this approach to be adopted, it would be
appropri~te to say that the State did seem to take a stand at the relevant
time that the arbitrators had jurisdiction to entertain the claim. We have
said so because in the very first round of litigation before the District Judge H
1026 SUPREME COURT REPORTS [1994) 1 S.C.R.

A the "main contention" advanced was relating to the calculation of the
contract. It is apparent that if the State would have been of the view that
the arbitrators had no jurisdiction to entertain the claim, the question of
jurisdiction would have been put at the forefront and not the question of
quantum. It may be that this stance was taken by the State because of its
stand when a similar claim by SEW Construction Private Limited came to
B be made which was ultimately accepted. To us, it appears that it is because
of this that in the remand order the District Judge did not mention about
clause (a) of sub-section (1) of section 16 of the Act but referred to clause
(c) and the thrust of the remand order was, if the same is read in the light
of the legal arguments advanced which were required to be kept in view
c as stated in paragraph 9 of the remand order, to make fresh calculation of
the claim as the earlier calculation was found to be based on a wrong basis.

D
22. Let is now be seen as to whether the terms of the agreement, as
these were, did permit the arbitrators to entertain the claim at hand. Shri
Nariman, in support of this contention has strongly relied upon the decision
-.1'
..
in P.M. Paul v. Union of India, [1989] 1SCR15 and Continental Construc-
tion Co. v. State of Madhya Pradesh, (1988) 3 SCC 82. In Paul's case a claim
was made by the contractor to compensate for the extra amount he had to
spend due to escalation of prices caused due to the delayed completion of
the work. The delay had occurred because of some dispute in handing over
E of the site. The arbitrators allowed the claim which was upheld by this
Court. What is relevant for our purpose is that while doing so the Bench
observed at page 121 that escalation is a normal incidence arising out of
gap of time in this inflationary age. This observation was made while
meeting with contention advanced on behalf of the Union of India that in
F the absence of any escalation clause it was not permissible to the arbitrator
to grant any claim on the ground of escalation which contention was noted
at 120 C. But this was a case where the Government was at fault in failing
to hand over the as per the agreement.

73. In the case of Continental Construction Co., the award of the
G arbitration on the score of rise in prices of materials and labour charges
was held bad because the clauses in the contract had stipulated that the >
contractor would complete the work despite such increases. Shri Nariman,
however, brings to our notice what was observed in paragraph 10. There
•reference was made to Tarapore and Company's case, (1984] 2 SCC 6100
H where it was held that :
.f!

TARAPORECO. v. STATEOFM.P. [HANSARIA,J.] 1027

"if the agreed fact situation, on the basis of which the agreement A
was entered into, ceases to exist, the agreement to that extent will
be'come otiose. If rates initially quoted by the contractor become
irrelevant due to subsequent price escalation..... contractors' claim
for compensation for the excess expenditure incurred due to price
rise could not be turned down on ground of absence of price B
escalation clause in that regard in the contract. Agreement as a
whole has to be read."

24. Shri Nariman urges, on the strength of the aforesaid two
decisions, that the absence of escalation clause in the present case not,
therefore, be conclusive to deny the relief to the appellant. As to the C
judgment of this Court in Mis Associated Engineering Co. v. Govt. of Andhra
Pradesh, J.T. (1991) 3 S.C. 123 wliich has been relied on by Shri Sanghi to
urge that in the absence of escalation clause award could not have been
made, Shri Nariman contends that in that case there was a specific terms
in the contract requiring the contractor to carry out " any other haul roads", D
despite which the arbitrator had awarded some amount for maintenance
of haul roads. That award was thus in the teeth of specific provision in the
contract to the contrary. So, counsel urges, that what was stated in As-
sociated Engineering case would not apply to the facts of the present case.

25. Shri Sanghi has strenuously urged that in the present case also E
there is an express exclusion inasmuch as para 10 of Annexure-A states
about laying no claim on the Department due to observance of amended
labour laws. But as already noted Annexure- A deals with different aspects
of labour laws, whereas Annexure-B is on the subject of fair wages, and so,
what has been stated in the former cannot be read a!\ excluding the claim F
at hand.

26. The aforesaid shows that the present was not a case where on
the basis of the terms of the agreement entered between the parties it can
be held that the arbitrator had no jurisdiction to make the award because
of there being no express provision for it in the contract. Therefore, on the G
basis of what has been stated in Good Luck Carpet (supra), according to
which if a challenge is made to the award on the ground that the arbitrator
has no jurisdiction, the only way to test the correctness is to look into the
agreement itself because the jurisdiction of the arbitrator flows. from the
reference and a reference can be only with regard to such disputes which H
~-
fl
;I
1028 SUPREME COURTREPORTS (1994] 1 S.C.R.

are contemplated by the agreement, it cannot be held that the arbitrators ).,.
A
had no jurisdiction to make the award because of lack of specific provision
permitting the claim at hand. This does not conclude the matter. 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
B by the contract can be subject matter of claim by a contractor. Such a
proposition will mock at the 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.
c
27. Let it now be seen whether the claim of the appellant because of
the escalation in the rates of aforesaid wages can be read as a necessary
concomitant to that which was agreed upon. As the increased payment
owes its origin either to increase in rates of wages pursuant to notifications
issued in exercise of power under clause (b) of sub-section l(i) of section
"'
D 5 of the Minimum Wages Act, 1948 (copies of some of which notifications "1''

are at pages 62-67 and 95-96 of Volume II)or to increase in rates of wages
by the Wage Committee of the concerned Division of the PWD (some of
which determinations are at pages 72-79 and 86-93) it has to be seen
whether there was an implied contract to reimburse the increased cost on
E account of rise of rates of wages on both the counts. Payment of wages as
per the rate fixed under the Minimum Wages Act being statutory obligation
~d the terms of the contract being silent about pa}'IT'ent of minimum
wages, as the relevant terms (Para 1 of Annexure-B) speaks of "fair wages",
which concept is different from minimum wages, as would appear from
what was stated by this Court in Hindustan Times Ltd. v. Their Workmen,
F
(1963) 1 L.L.J. 108 (112), which decision was cited with approval in
Hindustan Antibiotics Ltd. v. Their Workmen, (1967) 1 L.L.J. 114 (124) and
Workmen of Guj11rat Electricity Board v. Gujarat Electricity Board, (1962) 2
LU 791 (796), we hold that insofar as increased payment on account of
rise in the rates of minimum wages is concerned, the parties were not in
G any sort of agreement - express of implied to reimburse the same. The
appellant paid as per these rates not in pursuant to any term of the contract ....
but because of the mandate of law.

28. But then, the terms at hand did require the appellant (who is
H the contractor) not to pay less than fair wages as would appear frC'm what
TARAPORE CO. v. STATE OF M.P. [HANSARIA, J.] 1029

has been stated in para 2.10 and para 1 of Annexure-B. The Explanation A
to latter para states that where fair wages has not been notified these wages
would be the one "prescribed by the PWD (Irrigation Department) for the
division in which the work is done". Now these wages were being increased
from time to time as would appear from the decisions of the Wages
Committee referred above; and if the appellant was being required to pay B
wages as per these decisions, we do read a meeting o( mind insofar as the

- claim of escalated payment on account of increase of fair wages is con-
cerned. It has to be assumed that when the. appellant was required to pay
fair wages at increased r~tes, the authorities did visualise that the appellant
would not do so by cutting down its profi!. By asking the appellant to give
tender by taking into account the fair wages notified at the time of inviting C
tenders, the authorities did give an impression that fair wages to be paid
would be the one then notified/prescribed, a la the Explanation to Para 1.
In such a situation, if rates of fair wages were raised afterwards, the
tendered sum cannot be taken to be agreed amount for completing the
contract, in the face of the directions of the authorities requiring the D
appellant to pay ~ages at rates higher than those prescribed or notified at
the time. of inviting tenders. On this fact situation, we hold that the State
had by necessary implication agreed to reimburse this increased payment.

29. In the aforesaid view of the matter, the contention of Shri
Nariman that the error, if any committed by the arbitrators, was an error E
within their jurisdiction (the same being relatable to interpretation of the
contract) and such an error is nor amenable to correction by courts as held
in Sundarshan Trading Co. v. Government of Kera/a, (1989) 1 SCR 665, does
not really survive for consideration, as in the case where an arbitrator
travels beyond the contract, the award would be without. jurisdiction, F
because of what was held in Associated Engineering Co. and Goodluck
Carpets cases (supra). The error in the present case cannot be regarded as
one within jurisdiction; the same is really an error of jurisdiction insofar as
that para of award concerned which is relatable to increase in minimum
wages. Needless to say that if an arbitrator acts beyond jurisdiction, the
same would amount tb misconduct (see para 10 of Hindustan Consf1Uctions G
Co. Ltd. v. State of J & K, [1992) 4 SCC 217), because of which the award
would become amenable of being set aside by a court.

29A. We need not also enter into the controversy whether the
present was the case where the arbitrators rejected the plea of non-liability H·
1030 SUPREME COURT REPORTS [1994] 1 S.C.R.

A sub-silentio and for this reason the award cannot be regar.ded as incomplete
- the same having not been made "de praemissis", that is, concerning all the
matters referred to. (This inference may, however, be permissible here
because of what has been opined in Santa Sila Devi v. Dhirendra Nath,
[1964] 3 SCR 410 and N. Chillapan Secretary, Kera/a State Electricity Board,
[1975] 1 SCC 289). We would state the same as regards the argument of
B Shri Nariman that if the view taken by the arbitrators be also possible,
interference by the Court is not permissible, to sustain which submission
we are referred to State of Andhra Pradesh v. R. V. Rangaram, [1990] 1 SCR
54 (58); Hind Builders v. Union of India, [1990] 2 SCR 638 (649); Hindustan
Construction Co. v. State of J & K, [1992] 4 SCC 217 (Para 10) and Jagdish
c Chandra v. Lachhaman Das, [1993] 1 SCC 548 (557).

30. This being legal and factual position, we are of the opinion that
the view. taken by the Courts below that the award merited to be set aside
on the ground that the award was beyond the jurisdiction of arbitrators was
not the correct view to take insofar as the increased payment on account
D of rise in the rates of fair wages are concerned. We would, therefore,
reverse this finding qua the rise in the rates of fair wages, while sustaining
the same as regards rise in rates of minimum wages.

31. Quantum of reimbursement
E The two courts below have also found fault with the award because
of the basis adopted by the arbitrators in fixing the amount payable to the
appellant-the same being a sum of Rs.236 lacs. This has been so held _....
because the basis of making this computation was the same which had not
found favour with the District Judge when he had examined the soundness
F of the award in this first instance, because of which he had remitted the
award to the arbitrators to find out the amount reimbursable on "actual
basis and not on "notional basis".

32. After the matter was remitted to the arbitrators they had, how-
ever, received further documents of which reference has been made in the
G award itself. This apart, two piece workers were .also examined by the
appellant as LCWl and CW II of which mention has been made in para 3
of the second award. In para 2 it has been noted that the claimant furnished
details of wages paid by it to the labourers directly and also details of
payments made to piece workers. Our attention is also invited by Shri
H Nariman to what has been stated in paragraph 6 of the award relating to
TARAPORECO. v. STATEOFM.P. [HANSARIA,J.] 1031

filing of two documents during resumed hearing. Shri Nariman finally A
brings to our notice documents at pages 165 to 167 of the aforesaid volume
showing details of the payments made to piece workers for the period in
question. These were verified by the Labour Welfare Officer as it would
appear from page 168 which is a letter addressed by him to Superintending
Engineer, Bargi Dam, in which mention was made only about two dis- B
crepancies - these being: (1) wrong showing of a sum of Rs.1,67,521.23 as
payment made to piece workers in August 1979; and (2) inclusion of Rs.
16,222.30 as labour charges, whereas the same was incurred towards
transport charges. This shows thoroughness of verification. Not only this,
the appellant had even produced vouchers of payment made to piece
workers for verification as stated in the aforesaid communication of the C
Labour Welfare Officer. The minutes as recorded on 29.11.86 (a copy of
which is at pages 245-246 ) would bear this statement. The appellant had
also made known to the arbitrators the "percentage of increase" and
"amount of increase" of amount paid to labour through piece workers for
different period by filing a tabular statement, a copy of which is at page D
189 of Volume II

33. From the above, it would appear that all that was possible on
the part of the appellant to prove actual payment was done. It is a different
matter that because of lap:;e of time many of the piece workers were not
available and despite notices issued to them only four replied of whom two E
were examined, as noted in para 3 of the award. A litigant cannot be asked
to do what is not possible on his part to do of get done. He cannot be made
to suffer for no fault on his part.

34. Insofar as acceptance of 35% as labour component, which is the F
primary reason for finding of fault as to quantum, Shri Nariman brings to
our notice the statement made at the end of the para 6 of the award
according to which the respondents (meaning the State and its Officers)
had "tacitly accepted" by their own actions 35% as the labour component
in the type of work <.lone by the appellant. The award further states that
the documents place :i on record in this regard ''have not been denied by G
the Respondent during the arguments and have been taken on record."

35. Because of the above, we hold that the fault found by the High
Court regarding the basis on which the second award was made was not
the correct view to be taken. But, as we have held that the appellant is H
1032 SUPREME COURT REPORTS [1994) l S.C.R.

A entitled to be reimbursed for the extra payment made only on account of
rise in the rates of fair wages and as the arbitrators had not calculated the
extra amount paid on this count separately, we remit the case back to the
High Court to give its finding on this aspect, .for which purpose parties
would be allowed to place further material on record, if prayed for. We
make it clear that while calculating the amount as stated earlier, the High
B Court would take into account that part of enhanced rate of fair wage
which was, if at all, above the rate of minimum wages prevailing at the
relevant time. We have said so because conceptually fair wage is higher
than minimum wage and is required to be so. We also state that the total
sum to be determine.d by the High Court would not, in any case, exceed a
c sum of Rs. 236·lac, which is the amount awarded by the arbitrators on the
second occasion also.

36. We have another observation to make. The same relates to the
rate of interest. According to us, in the facts and circumstances and the
equities involved, the rate of interest on the sum which would be found due
D as aforesaid should be 9% instead of 12% as awarded. The interest would
be calculated from 14th day of September, 1987 what is the date of the
second award. It may be stated that the arbitrators have also made the
interest payable from the date of award.

37.. The appeal is allowed accordingly. No order as to costs.

T.N.A. Appeal allowed.