# MIS. MSK PROJECTS (I) (JV) LTD ~ v. STATE OF RAJASTHAN & ANR

- **Citation:** [2011] 9 S.C.R. 402
- **Court:** Supreme Court of India
- **Decided:** 2011-07-21
- **Case number:** Civil Appeal No. 5416 of 2011
- **Bench:** P. Sathasivam, Dr. B.S. Chauhan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/mis-msk-projects-i-jv-ltd-v-state-of-rajasthan-anr-27726
- **Pages:** 33

## Headnote

Contract:
c
Construction of a bypass road - Concession agreement
authorising contractor to collect toll fee - Dispute between
parties as to delay in issuance of notification by State
Government barring the use of old route as also entitlement
of contactor to collect toll fee from vehicles using a specific
D patch of the road - Arbitral tribunal holding that there had
..
been delay on the part of the State in issuing the notification
and the State failed to implement the same and the contractor
was entitled to collect fee even from vehicles using the
specific patch of the road - District Judge and High Court
E holding that there was no clause in the agreement to issue
notification barring the old route - However, the High Court
held that the contractor could collect toll fee from the specific
patch of the road - HELD: The State Government had not
taken the defence that it was not agreed between the parties
F
to issue the notification barring the traffic through the old route
- The only issue remained as to whether there was delay in
issuance of notification and implementation thereof - In such
a fact-situation, the District Judge as well as the High Court
fell in error in considering the issue which was not taken by
G
the State before the arbitral tribunal during the arbitration
proceedings and holding that there was no agreement for
issuance of notification by State barring the old route - The
issue as to whether the specific patch of the road was an
integral or composite part of the project and the contractor
could collect the toll fee on that part also stands concluded
H
402
MSK PROJECTS (I) (JV) LTD v. STATE OF
403
RAJASTHAN & ANR.
~·
by the High Court and stands settled in favour of the contractor A
- Rajasthan Motor Vehicles Taxation (Amendment) Act,
1994 - Tolls Act, 1851.
Tolls Act, 1851:
'; •
8
Toll fee - Nature of - Construction of a bypass road -
Concession agreement authorising the contractor to collect
toll fee - Dispute between parties - Arbitration - HELD: Toll
fee is compensatory in nature wherein the Government can
reimburse itself the amount which it had spent on construction
of road/bridge etc. - State is competent to levy/collect the toll c
fee only for the period stipulated under the Statute or till the
actual cost of the project with interest etc. is recovered - It
cannot be a source of revenue for the State - A person is
...
debarred by law and statutory inhibition, as contained in
Clause IV(a) of the notification, from collection of toll beyond D
the recovery of cost of construction - In the instant case, the
work was to be executed in two phases - The first phase was
completed and the amount spent by contractor on the said
work was recovered with certain profit - The work of second
phase was never executed - Therefore, contractor cannot be E
permitted to claim damages/compensation on this count -
The arbitrator cannot proceed beyond the terms of reference
and, therefore, the question of considering the non-execution
of the work of second phase was neither permissible nor
possible as it had arisen subsequent to the date of aw_ard. in
F
the arbitration proceedings - In order to do complete Justice
between the parties and protect the public exchequer, matter
remitted to arbitral tribunal to work out the entitlement of the
contractor - Arbitration and Conciliation Act, 1996 - Code of
, !.,
Civil Procedure, 1908 - 0.8, r.5.
G
Arbitration:
Jurisdiction of arbitratorlarbitral tribunal - HELD: Special
tribunals like arbitral tribunals and Labour Courts get
jurisdiction to proceed with the case only from the reference H
404
SUPREME COURT REPORTS
[2011] 9 S.C.R.
A
made to them - Thus, an arbitrator cannot be allowed to
~
B
assume jurisdiction over a question which has not been
referred to him. Similarly, he cannot widen his jurisdiction by
holding contrary to the fact that the matter which he wants to
decide is within the submission of the parties in the case.
Interest - HELD: While award of interest for the per

## Text

_Characters 0–39,939 of 60,256. This is a partial read: ask again with offset=39939 for what follows._

[2011] 9 S.C.R. 402
A
MIS. MSK PROJECTS (I) (JV) LTD
~
v.
STATE OF RAJASTHAN & ANR.
(Civil Appeal No. 5416 of 2011)
B
JULY 21, 2011
I
'
[P. SATHASIVAM AND DR. B.S. CHAUHAN, JJ.]
Contract:
c
Construction of a bypass road - Concession agreement
authorising contractor to collect toll fee - Dispute between
parties as to delay in issuance of notification by State
Government barring the use of old route as also entitlement
of contactor to collect toll fee from vehicles using a specific
D patch of the road - Arbitral tribunal holding that there had
..
been delay on the part of the State in issuing the notification
and the State failed to implement the same and the contractor
was entitled to collect fee even from vehicles using the
specific patch of the road - District Judge and High Court
E holding that there was no clause in the agreement to issue
notification barring the old route - However, the High Court
held that the contractor could collect toll fee from the specific
patch of the road - HELD: The State Government had not
taken the defence that it was not agreed between the parties
F
to issue the notification barring the traffic through the old route
- The only issue remained as to whether there was delay in
issuance of notification and implementation thereof - In such
a fact-situation, the District Judge as well as the High Court
fell in error in considering the issue which was not taken by
G
the State before the arbitral tribunal during the arbitration
proceedings and holding that there was no agreement for
issuance of notification by State barring the old route - The
issue as to whether the specific patch of the road was an
integral or composite part of the project and the contractor
could collect the toll fee on that part also stands concluded
H
402
MSK PROJECTS (I) (JV) LTD v. STATE OF
403
RAJASTHAN & ANR.
~·
by the High Court and stands settled in favour of the contractor A
- Rajasthan Motor Vehicles Taxation (Amendment) Act,
1994 - Tolls Act, 1851.
Tolls Act, 1851:
'; •
8
Toll fee - Nature of - Construction of a bypass road -
Concession agreement authorising the contractor to collect
toll fee - Dispute between parties - Arbitration - HELD: Toll
fee is compensatory in nature wherein the Government can
reimburse itself the amount which it had spent on construction
of road/bridge etc. - State is competent to levy/collect the toll c
fee only for the period stipulated under the Statute or till the
actual cost of the project with interest etc. is recovered - It
cannot be a source of revenue for the State - A person is
...
debarred by law and statutory inhibition, as contained in
Clause IV(a) of the notification, from collection of toll beyond D
the recovery of cost of construction - In the instant case, the
work was to be executed in two phases - The first phase was
completed and the amount spent by contractor on the said
work was recovered with certain profit - The work of second
phase was never executed - Therefore, contractor cannot be E
permitted to claim damages/compensation on this count -
The arbitrator cannot proceed beyond the terms of reference
and, therefore, the question of considering the non-execution
of the work of second phase was neither permissible nor
possible as it had arisen subsequent to the date of aw_ard. in
F
the arbitration proceedings - In order to do complete Justice
between the parties and protect the public exchequer, matter
remitted to arbitral tribunal to work out the entitlement of the
contractor - Arbitration and Conciliation Act, 1996 - Code of
, !.,
Civil Procedure, 1908 - 0.8, r.5.
G
Arbitration:
Jurisdiction of arbitratorlarbitral tribunal - HELD: Special
tribunals like arbitral tribunals and Labour Courts get
jurisdiction to proceed with the case only from the reference H
404
SUPREME COURT REPORTS
[2011] 9 S.C.R.
A
made to them - Thus, an arbitrator cannot be allowed to
~
B
assume jurisdiction over a question which has not been
referred to him. Similarly, he cannot widen his jurisdiction by
holding contrary to the fact that the matter which he wants to
decide is within the submission of the parties in the case.
Interest - HELD: While award of interest for the period
prior to an arbitrator entering upon the reference is a matter
of substantive law, the grant of interest for the post-award
period is a matter of procedure - Therefore, the arbitrator is
competent to award interest for the period commencing with
C the date of award to the date of decree or date of realisation,
whichever is earlier -
So far as the rate of interest is
concerned, s. 3 of Interest Act empowers the court to award
interest at the rate prevailing in the banking transactions -
Thus, impliedly, the court has a power to vary the rate of
D interest agreed by the parties - In the instant case, the High
Court rightly held that the District Judge was justified in
reducing the rate of interest to 10% from 18% as had been
awarded by the arbitral tribunal - Interest Act, 1978 - s. 3 -
Arbitration and Conciliation Act, 1976.
E
Words and Phrases:
Expressions, 'compensation', 'reimbursement' -
Connotation of.
F
The Public Works Department of the State of
Rajasthan accepted the tender of the appellantcontractor to construct Bharatpur by-pass road for
Rs.1,325 lacs. The total extent of the road was 10.85 km
out of which 9.6 kms was new construction and 1.25 kms.
G was improvement of existing portion of the BharatpurDeeg road. A concession agreement dated 19.8.1998 was
also entered into between the parties authorising the
contractor to collect the toll fee for a period of 111 months
till 6.4.2008. The agreement contained an arbitration
H clause. According to the contractor, it completed the
..
' .
MSK PROJECTS (I) (JV) LTD v. STATE OF
405
RAJASTHAN & ANR.
~
work on 10.4.2000. It started collection of toll fee w.e.f. A
28.4.2000. The State issued the Notification preventing
the entry of commercial vehicles into Bharatpur city w.e.f.
1.10.2000. The contractor invoked the arbitration clause
raising the dispute with respect to: (a) delay in issuance
\i
of the Notification and (b) collection of toll from vehicles B
I
using Bharatpur-Deeg patch of the road. The arbitral
tribunal, inter alia, held that there had been delay on the
part of the State in issuing the Notification and the State
failed to implement the same and the contractor was
entitled to collect toll fee even from the vehicles using c
Bharatpur-Deeg part of the road. The State Government
was directed to pay a sum of Rs.990.52 lacs to the
contractor as loss due upto 31.12.2003 with 18% interest
from 31.12.2003 onwards. The State filed objections u/s
)
34 of the 1996 Act. The District Judge set aside the D
·. arbitral award on the grounds that there was no clause
in the agreement to issue notification barring the entry of
vehicles in the city of Bharatpur; that the arbitral tribunal
erred in taking 1997 survey as basis for calculating the
loss suffered by the contractor; and that the contractor E
was only entitled to extension of concession period. The
rate of interest was reduced from 18% to 10%. On appeal
by the contractor, the High Court held that BharatpurDeeg section was part of the project and the contractor
could collect the toll fee from the users of this part of the
F
road also; that there was no agreement for issuance of
Notification by the State barring the use of old route and
directing the vehicles to use the new route alone;
therefore, the question of grant of compensation on that
account for the traffic loss could not arise; and that the
•
District Judge was justified in reducing the rate of interest G
"'·
from 18% to 10%. Aggrieved, both the contractor as also
the State Government filed the appeals.
The issues for consideration before the Court were:
(i) whether it was mandatory/necessary in view of the
H
406
SUPREME COURT REPORTS
[2011] 9 S.C.R.
A agreement/contract or on the basis of pre-bid
understanding that the State had to issue the notification
barring the vehicles through the markets of Bharatpur
city; (ii) whether the contractor had a right to collect the
toll fee on the patch between Bharatpur - Deeg; and (iii)
B whether the rate of interest could be reduced from 18%
to 10% by the courts below.
Disposing of the appeals, the Court
HELD: 1. The arbitral tribunal considered the relevant
C agreement provisions as well as the land lease deed, the
total package documents, the minutes of pre-bid
meetings and the deed authorising collection of toll fee
etc., and proceeded with the arbitration proceedings. The
State Government had not taken the defence that it was
D not agreed between the parties to issue the notification
barring the traffic through the markets of Bharatpur city.
The only issue remained as to whether there was delay
in issuance of notification and implementation thereof. In
such a fact-situation, the District Judge as well as the
E High Court fell in error in considering the issue which was
not taken by the State before the arbitral tribunal during
the arbitration proceedings; and holding that there was
no agreement for issuance of Notification by the State
barring the use of old route. [para 14, 2G] (422-D-F; 417F B-C]
I
2.1 The issue as to whether the Bharatpur-Deeg
patch was an integral or composite part of the project
and the contractor could collect the toll fee on that part
also stands concluded by the High Court after
G considering the entire evidence on record. It is evident
'
from the record as well as the judgments of the courts
below that the bid docliments contained the data
collected on the flow oi traffic on 14th and 15th April,
1994 to find out the viability and requirement of the
H establishment of Bharatput bye-pass and it included the
·I'
• '
MSK PROJECTS (I) (JV) LTD v. STATE OF
407
RAJASTHAN & ANR.
traffic flow on the Bharatpur-Deeg section also which
A
indicates that this particular patch had also been an
integral part of the project. Besides, in pre-bid conference,
it was clarified by the State authorities that the users of
Bharatpur-Deeg patch would be required to pay the toll
fee. [para20-22] [424-F-H; 425-A-B]
B
2.2 Further, clause 5 of the concession agreement
also provided that Government would levy and charge the
fee from all persons using the project facilities. The
project was not in parts rather it was a composite and
integrated project, which included the Bharatpur-Deeg
C
section also. Therefore, it was not permissible for the
State to take the plea that persons using such section of
the road were not liable to pay the toll fee. It has not been
denied that the said portion of road had been widened
and strengthened by the contractor. Thus, the issue D
raised by the State that Bharatpur-Deeg section of the
road was out of the project and the contractor was not
entitled to collect the toll fee on that part of the road,
stands settled in favour of the cotnractor. [para 23-24]
(425-B-F]
E
3.1 It is a settled legal proposition that the arbitrator
is competent to award interest for the period
commencing with the date of award to the date of decree
or date of realisation, whichever is earlier. This is also
quite logical for, while award of interest for the period
prior to an arbitrator entering upon the reference is a
matter of substantive law, the grant of interest for the
post-award period is a matter of procedure. [para 15]
[422-G-H]
Union of India v. Bungo Steel Furniture Pvt. Ltd., 1967
SCR 324 =AIR 1967 SC 1032; Executive Engineer,
Irrigation, Ga/imala & Ors. v. Abnaduta Jena, 1988 (1) SCR
F
G
253 = AIR 1988 SC 1520; Gujarat Water Supply & Sewerage
Board v. Unique Erectors (Gujarat) (P) Ltd. & Anr., 1989 (1)
H
408
SUPREME COURT REPORTS
[2011] 9 S.C.R.
A
SCR 318 =AIR 1989 SC 973; Secretary, Irrigation
Department, Govt. of Orissa & Ors. v. G. C. Roy, 1991 (3)
Suppl.
SCR 417 = AIR 1992 SC 732; Hindustan
Construction Co. Ltd. v. State of Jammu & Kashmir, 1992 (1)
Suppl. SCR 297 =AIR 1992 SC 2192; Executive Engineer,
B Dhenkanal Minor Irrigation Division, Orissa v. N. C. Budharaj
!
(Dead) by Lrs., 2001 (1) SCR 264 =AIR 2001 SC 626;
Bhagawati Oxygen Ltd. v. Hindustan Copper Ltd., 2005 (3 )
SCR 232 = AIR 2005 SC 2071; and Indian Hume Pipe Co.
Ltd. v. State of Rajasthan 2009 (15) SCR 254 = (2009) 10
c sec 187 - relied on
3.2 So far as the rate of interest is concerned, s. 3 of
the Interest Act 1978 empowers the court to award
interest at the rate prevailing in the banking transactions.
Thus, impliedly, the court has a power to vary the rate of
D interest agreed by the parties. In the instant case, the High
Court, while dealing with the rate of interest, has relied
upon the judgment of this Court in Krishna Bhagya Ja/a
Nigam Ltd. and, thus, there is no scope for this Court to
interfere with the rate of interest fixed by the courts below.
E [para 16 and 19) [423-0, F-G; 424-E]
Krishna Bhagya Jala Nigam Ltd. v. G. Harischandra
Reddy & Anr., 2007 (1) SCR 698 = AIR 2007 SC 817;
H.U.D.A v. Raj Singh Rana, 2008 (10) SCR 1034 =AIR 2008
F SC 3035, Ghaziabad Development Authority v. Balbir Singh,
2004 (3) SCR 68 =AIR 2004 SC 2141; Bihar State Housing
Board v. Arun Dakshy, 2005 (2) Suppl. SCR 819 = (2005)
7 SCC 103; Haryana Urban Development Authority v. Manoj
Kumar & Anr., (2005) 9 SCC 541; H.U.D.A v. Prem Kumar
G Agarwal & Anr., 2008 (1) SCR 807 = JT 2008 (1) SC 590 -
relied on.
4. As regards the jurisdiction of the arbitral tribunal
to decide an issue not referred to, it is a settled legal
proposition that special tribunals like arbitral tribunals
H and Labour Courts get jurisdiction to proceed with the
•
;
;
MSK PROJECTS (I) (JV) LTD v. STATE OF
409
RAJASTHAN & ANR.
case only from the reference made to them. Thus, an
A
arbitrator cannot be allowed to assume jurisdiction over
a question which has not been referred to him and,
similarly, he cannot widen his jurisdiction by holding
contrary to the fact that the ,matter which he wants to
decide is within the submission of the parties. If the
B
dispute is within the scope of the arbitration clause, it is
no part of the province of the court to enter into the merits
of the dispute on the issue not referred to it. If the award
goes beyond the reference or there is an error apparent
on the face of the award, it would certainly be open to the c
court to interfere with such an award. If the arbitrator
commits an error in the construction of the contract, this
is an error within his jurisdiction. But if he wanders
outside the. contract and deals with matters not allotted
to him, be commits a jurisdictional error, which needs to
0
be proved by evidence extrinsic to the award. [para 6-8]
[419-B-H; 420-A-B]
Grid Corporation of Orissa Ltd. & Anr. v. Balasore
Technical School, AIR 1999 SC 2262; and Delhi
Development Authority v. R. S. Sharma and Company, New
E
Delhi, 2008 (12) SCR 785 =(2008) 13 SCC 80; Associated
Engg. Co. v. Govt. of Andhra Pradesh & Anr.,1991(2) SCR
924 =AIR 1992 SC 232; Gobardhan Das v. Lachhmi Ram &
Ors., AIR 1954 SC 689; Seth Thawardas Pherumal v. The
Union of India, 1955 SCR 48 =AIR 1955 SC 468; Union of F
India v. Kishorilal Gupta & Bros., 1960 SCR 493=AIR 1959
SC 1362; Alopi Parshad & Sons. Ltd. v. Union of India, 1960
SCR 793 =AIR 1960 SC 588; Jivarajbhai Ujamshi Sheth &
Ors . . Chintamanrao Balaji & Ors., 1964 SCR 480 =AIR 1965
SC 214; and Renusagar Power Co. Ltd. v. General Electric
G
Company & Anr., 1985 (1) SCR 432 =AIR 1985 SC 1156;
Kishore Kumar Khaitan & Anr. v. Praveen Kumar Singh,
(2006) 3 SCC 312, Williams v. Lourdusamy & Anr., 2008
(6) SCR 929 =(2008) 5 SCC 647; Cellular Operators
Association of India & Ors. v. Union of India & Ors., 2003 (3)
H
410
SUPREME COURT REPORTS
[2011] 9 S.C.R
A SCR 691 = (2003) 3 SCC 186; Oil & Natural Gas
Corporation Ltd. v. SAW Pipes Ltd. 2003 (3) SCR 691 =AIR
2003 SC 2629; and Hindustan Zinc Ltd. v. Friends Coal
Carbonisation (2006) 4 SCC 445 - referred to.
8
5.1 With regard to the entitlement of the contractor,
the State authorities cannot be permitted to use the
collection of toll fee as augmenting the State revenues.
In fact, the toll fee under the Tolls Act, 1851 is
compensatory in nature wherein the Government can
reimburse itself the amount which it had spent on
C construction of road/bridge etc. The State is competent
to levy/collect the toll fee only for the period stipulated
under the Statute or till the actual cost of the project with
interest etc. is recovered. However, it cannot be a source
of revenue for the State. It is evident that Clause IV(a) of
D the Notification dated 10.02.1997 envisages that toll can
only be collected as long as t0tal cost of construction
and maintenance including interest thereupon is
recovered. A person is debarred by law and statutory
inhibition, as contained in Clause IV(a) of the notification,
E from collection of toll beyond the recovery of cost of
construction. (para 25-27) [425-G-H; 426-D-E-H; 427-A-C)
5.2 In common parlance, "reimbursement" means
and implies restoration of an equivalent for something
F paid or expanded. Similarly, "Compensation" means
anything given to make the equivalent. [para 28) [427-D]
State of Gujarat v. Shanti/al Mangaldas & Ors., 1969 (3)
SCR 341=AIR1969 SC 634; Tata Iron & Steel Co. Ltd. v.
Union of India & Ors., 2000 (5) Suppl. SCR 228 =AIR 2000
G SC 3706; Dwaraka Das v. State of Madhya Pradesh & Anr.,
~
1999 (1) SCR 524 =AIR 1999 SC 1031; State of U.P. & Ors.
v. Devi Dayal Singh, 2000 (1) SCR 1205 =AIR 2000 SC 961
- relied on.
H
5.3 Claim of expected profits is legally admissible on
•
A .
MSK PROJECTS (I) (JV) LTD v. STATE OF
411
RAJASTHAN & ANR.
proof of the breach of contract by the erring party. What A
would be the measure of profit would depend upon facts
and circumstances of each case. But, that there shall be
a reasonable expectation of profit is implicit in a works
contract and its loss has to be compensated by way of
damages if the other party to the contract is guilty of breach
B
of contract cannot be gainsaid. [para 30] [428-A-C]
Mis. A. T. Brij Paul Singh & Ors. v. State of Gujarat, AIR
1984 SC 1703; B.S.N.L v. Reliance Communication Ltd.,
201 o (15) SCR 705 = (2011) 1 sec 394 - relied on
5.4 In the instant case, undoubtedly, the total c
construction was for Rs. 13.25 crores. It is evident from
the bid-documents filed by the contractor that the work
1
was to be executed in two phases. In the first phase, the
,
contractor spent about Rs.10.45 crores and recovered
D
the said amount with certain profit, by collection of toll
fee within the stipulated period. The documents reveal
that phase II work was of worth Rs.354.75 lacs, but,
admittedly, this part of the contract had never been
executed by the contractor and the said amount of
E
Rs.354.75 lacs had not been spent by it. This issue has
been agitated by the State before this Court in its counter
affidavit and the averments made therein have not been
denied by the contractor while submitting its rejoinder.
Thus, there is no specific denial of the allegations/
averments taken by the State as required by the principle
F
enshrined in 0 8, r. 5 of the Code of Civil Procedure, 1908.
The contractor cannot be permitted to claim damages/
compensation in respect of the amount of Rs.13.25
crores, as it did not spend the said amount stipulated in
~
the terms of agreement. The contractor cannot claim the
G
..
amount of Rs. 7 .13 crores for a period of three years for
a small patch of 1.25 kilometres out of the total length of
the road to the extent of 10.85 kilometres. [para 33-34 and
36] [429-A-B; 430-E-F; 431-C-E-H]
5.5 In fact, the tribunal has dealt with the issue in
H
'
412
SUPREME COURT REPORTS
(2011] 9 S.C.R.
A correct perspective only to the extent the period of delay
by which the notification barring the heavy vehicles
through market of Bharatpur had been issued. As the
notification had been issued, and it was not the
responsibility of the State to establish a police chowki
B etc. to implement the notification, there was no occasion
for the tribunal to proceed further. The arbitrator cannot
proceed beyond the terms of reference and, therefore,
the question of considering the non-execution of the
work of second phase was neither permissible nor
c possible as it had arisen subsequent to the date of award
in the arbitration proceedings. Therefore, any award in
favour of the contractor in that respect for non-issuance
of notification beyond the date of the notification cannot
be held to be justified and the same is set aside. (para 37D 38) [432-A-B-F; 433-D-E]
5.6 In order to do complete justice between the
parties and protect the public exchequer, the matter is
remitted to the arbitral tribunal for reconsideration and
adjudication as to: (i) what amount could have been
E recovered by the contractor for Bharatpur-Deeg part of
the road from the vehicles using the road; and (ii) what
could be the effect on the contract as a whole for nonexecuting the work of the second phase. The contractor
shall be entitled only to a sum of Rs.26.34 lacs awarded
F by the tribunal for delay in issuing the notification with
10% interest, if not paid already or it could be adjusted
in the final accounts bills. [para 38) [433-E-H; 434-A-B]
Case Law Reference:
G
AIR 1999 SC 2262
referred to
para 6
2008 (12) SCR 785
referred to
para 6
1991 (2) SCR 924
referred to
para 7
1955 SCR 48
referred to
para 8
H
1960 SCR 493
referred to
para 8
•
MSK PROJECTS (I) (JV) LTD v. STATE OF
413
RAJASTHAN & ANR.
1960 SCR 793
referred to
para 8
A
•
1964 SCR 480
referred to
para 8
1985 (1) SCR 432
referred to
para 8
!
(2006) 3 sec 312
referred to
para 9
B
2008 (6) SCR 929
referred to
para 9
2003 (3) SCR 691
referred to
para 10
2003 (3) SCR 691
referred to
para 11
c
2006 (4) sec 445
referred to
para 11
1967 SCR 324
relied on
para 15
•
1988 (1) SCR 253
relied on
para 15
~
1989 (1) SCR 318
relied on
para 15
D
1991 (3) Suppl. SCR 417 relied on
para 15
1992 (1) Suppl. SCR 297 relied on
para 15
2001 (1) SCR 264
relied on
para 15
E
2005 (3) SCR 232
relied on
para 15
2009 (15) SCR 254
relied on
para 15
,;
2007 (1) SCR 698
relied on
para 15
F
2008 (10) SCR 1034
relied on
para 15
2004 (3) SCR 68
relied on
para 15
2005 (2) Suppl. SCR 819 relied on
para 15
..
G
.;
2005 (9) sec 541
relied on
para 15
2008 (1) SCR 807
relied on
para 15
2000 (1) SCR 1205
relied on
para 25
1969 (3) SCR 341
relied on
para 28
H
414
SUPREME COURT REPORTS
[2011] 9 S.C.R.
A
2000 (5) Suppl. SCR 228 relied on
para 28
...
1999 (1) SCR 524
relied on
para 29
AIR 1984 SC 1703
relied on
para 30
B
2010 (15) SCR 705
relied on
para 31
'
CIVIL APPELLATE JURISDICTION: Civil Appeal No.
5416 of 2011.
From the Judgment & Order dated 24.04.2007 of the
c High Court of Judicature at Rajathan at Jaipur in Civil Misc.
Appeal No. 1581 of 2006.
WITH
C.A. No. 5417 of 2011.
D
K.K. Venugopal, Shirish Patel, Karan Patel, Ankur Saigal,
Abhay Anand, Gaurav Singh, Bina Gupta for the Appellant.
Dr. Manish Singhvi, AAG, Vinay Verma, Milind Kumar for
the Respondents.
E
The Judgment of the Court was delivered by
DR. B.S. CHAUHAN, J. 1. Both these appeals have been
preferred by the rival parties against the judgment and order
dated 24.4.2007 passed by the High Court of Rajasthan (Jaipur
Bench) in Civil Misc. Appeal No.1581 of 2006 under Section
•
F
37(1 )(A) of the Arbitration and Conciliation Act, 1996
(hereinafter called "Act 1996") against the order dated
17.1.2006 passed by the District Judge, Jaipur City, Jaipur in
Arbitration Case No.89/2004 whereby the application filed by
G the State of Rajasthan under Section 34 of the Act 1996 for
'
setting aside the arbitral award dated 1.12.2003 had been
allowed.
2. Facts and circumstances giving rise to these appeals
are:
H
MSK PROJECTS (I) (JV) LTD v. STATE OF
415
RAJASTHAN & ANR. [DR. B.S. CHAUHAN, J.]
A. The Public Works Department of the State of Rajasthan
A
(hereinafter called "PWD") decided in September 1997 to
construct the Bharatpur bye-pass for the road from Bharatpur
to Mathura, which passed through a busy market of the city of
1
Bharatpur. For the aforesaid work, tenders were invited with a
stipulation that the work would be executed on the basis of Build
B
Operate and Transfer (BOT). The total extent of the road had
been 10.850 k.ms. out of which 9.6 k.ms. was new construction
and 1.25 k.ms. was improvement, i.e. widening and
strengthening of the existing portion of Bharatpur-Deeg Road.
B. After having pre-bid conference/meeting and c
completing the required formalities it was agreed between the
tenderers and PWD that compensation would be worked out
\
on the basis of investment made by the concerned
)
entrepreneur. The tender submitted by MSK-appellant for
Rs.1,325 lacs was accepted vide letter dated 5.2.1998 arid the
D
MSK-appellant was called upon to furnish security deposit
which was done on 25.7.1998. Concession agreement dated
19.8.1998 was entered into_between the parties authorising
collection of toll fee by MSK-appellant. According to this
E
agreement, period of concession had been 111 monlhs
including the period of construction. The said period would end
on 6.4.2008. It also contained the provisions for making
repayment/collection of toll fee and in case of any difference/
.- A
dispute to refer the matter to the Arbitrator .
F
C. MSK-appellant completed the Bharatpur bye-pass
Project on 10.4.2000 and also started collection of toll fee as
provided under the agreement with effect from 28.4.2000. There
had been some problem in collecting the toll fee because of
.<
agitation by local people. The State issued Notification dated
G
1.9.2000 under the provisions of the Indian Tolls Act, 1851 and
Rajasthan Motor Vehicles Taxation (Amendment) Act, 1994
(hereinafter called the 'Notification dated 1.9.2000') preventing
the entry of vehicles into Bharatpur city stipulating its operation
with effect from 1.10.2000. MSK-appellant invoked arbitration H
""
416
SUPREME COURT REPORTS
[2011] 9 S.C.R.
A clause raising the dispute with respect to:
B
(a)
Delay in issuance of Notification prohibiting entry
of commercial vehicles into Bharatpur town and
diverting traffic through the bye-pass; and
(b)
Collection of toll from vehicles using BharatpurDeeg patch of the road.
D. The State/PWD failed to make appointment of the
Arbitrator. MSK-appellant preferred SB Civil Arbitration
c Application No.31 of 2002 before the High Court and the High
Court vide order 12.4.2002 appointed the Arbitrator. The
Arbitrators so appointed in their meeting on 8.5.2002 appointed
the third Arbitrator. Claim Petition was filed before the Tribunal
by MSK-appellant on 23.9.2002. The State submitted its reply
0 to the claim petition on 7.12.2002.
E. The Arbitral Award was made in favour of MSKappellant on 1.12.2003 according to which there had been
delay on the part of the State of Raj~sthan in issuing the
Notification and the State failed to implement the same and the
E contractor was entitled to collect toll fee even from the vehicles
using Bharatpur-Deeg part of the road . The State of Rajasthan
was directed to pay a sum of Rs.990.52 lacs to MSK-appellant
as loss due upto 31.12.2003 with 18% interest from
31.12.2003 onwards. The Tribunal further gave various other
F directions to the State in this regard.
F. Being aggrieved, the State of Rajasthan filed objections
under Section 34 of the Act 1996 and while deciding the same,
the District Judge vide order dated 17.1.2006 set aside the
G Arbitral Award on the grounds that there was no clause in the
agreement to issue notification barring the entry of vehicles in
the city of Bharatpur; and the Tribunal erred in taking 1997
survey as basis for calculating the loss suffered by MSKappellant. It held that MSK-appellant was not entitled to any
H monetary compensation under clause 10 of the concession
I
MSK PROJECTS (I) (JV) LTD v. STATE OF
417
RAJASTHAN & ANR. [DR. B.S. CHAUHAN, J.]
.,.
agreement, but only entitled to extension of concession period,
A
and the rate of interest was reduced from 18% to 10%.
G. Being aggrieved, MSK-appellant preferred an appeal
before the High Court wherein the High Court vide impugned
;
judgment and order dated 24.4.2007 held that Bharatpur-Deeg
B
section was part of the project and the contractor could collect
the toll fee from the users of this part of the road also. Clause
10 of the concession agreement was not attracted in the facts
of the case. There was no agreement for issuance of
Notification by the State barring the use of old route and c
directing the vehicles to use the new route alone. Therefore, the
question of grant of compensation on that account for the traffic
loss could not arise. The District Judge was justified in reducing
the rate of interest from 18% to 10% in view of the provisions
'
of Section 31 (7)(b) of the Act, 1996 and economic realities,
D
whereby the rate of interest had been reduced by the Banks in
India.
Hence, these two appeals.
3. Mr. K.K. Venugopal, learned senior counsel appearing
E
for the private appellant, has submitted that it was implied in
the agreement and there has been an understanding between
the parties that State Government would issue notification
barring the vehicles driven through the markets of Bharatpur
•A
City. This was not even an issue before the Tribunal and thus,
F
could not be agitated by the State at all. Thus, the courts below
erred in setting aside the award of arbitral tribunal to that extent,
and secondly, that the rate of interest as reduced from 18 per
cent to 10 per cent by the District Court as well as the High
Court is in contravention of the terms of contract between the
parties which fixed the rate of interest at 20 per cent. Further G
..,
"'"
opposing the appeal by the State of Rajasthan, Shri Venugopal
has submitted that Bharatpur-Deeg patch was an integral part
:>f the project as there was only one composite contract of the
entire bye-pass and, therefore, the private appellant was entitled
:o collect the toll fee from the users of that part of the road also.
H
418
SUPREME COURT REPORTS
[2011] 9 S.C.R.
A
4. Per contra, Dr. Manish Singhvi, learned Additional
Advocate General for the State of Rajasthan, has submitted that
arbitration proceedings could not be proceeded in contravention
to the terms of agreement and statutory provisions. There was
no obligation on the part of the State authorities to issue the
s notification restraining the entry of vehicles to the market side
of the city. The rate of interest has rightly been reduced
considering the prevailing rate of interest in banking
transactions during the relevant period of contract. In support
of the appeal of the State, it has been submitted that there was
c a clear understanding between the parties that the private
appellant shall not collect any toll fee on the Bharatpur-Deeg
patch and to that extent the Tribunal and the courts below
committed an error. It has further been submitted that the total
contract had been for a sum of Rs.13.25 crores including
0 interest. The project was to be executed in two phases. The
second phase for a sum of Rs.3.24 crores had never been
executed by the private appellant. The contractor could collect
the compensation only on the basis of investment made by it.
The concept of toll fee is of compen::.atory in nature wherein
E the State which has spent huge amount on construction of
roads/bridges etc. has a right to get the said amount
reimbursed, and therefore, in such a contract the concept of
profit which prevails in other forms of contract cannot be the
relevant component.
F
5. We have considered the rival submissions made on
behalf of the parties and perused the record.
In the appeal filed by the private contractor, MSK Projects,
two issues are involved; namely, whether it was mandatory/
G necessary in view of the agreement/contract or on the basis of
pre-bid understanding that the State had to issue the notification
barring the vehicles through the markets of Bharatpur city; and
secondly whether the rate of interest could be reduced from
18% to 10% by the courts below.
1-f
In the State appeal, the only issue required to be
• •
MSK PROJECTS (I) (JV) LTD v. STATE OF
419
RAJASTHAN & ANR. [DR. B.S. CHAUHAN, J.]
.,
considered is whether the private appellant had a right to collect
A
the toll fee on the patch between Bharatpur - Deeg.
6. The issue regarding the jurisdiction of the Arbitral
Tribunal to decide an issue not referred to is no more res
)
integra. It is a settled legal proposition that special Tribunals
8
like Arbitral Tribunals and Labour Courts get jurisdiction to
proceed with the case only from the reference made to them.
Thus, it is not permissible for such Tribunals/authorities to travel
beyond the terms of reference. Powers cannot be exercised
by the Tribunal so as to enlarge materially the scope of C
reference itself.
If the dispute is within the scope of the arbitration clause,
· it is no part of the province of the court to enter into the merits
• • of the dispute on the issue not referred to it. If the award goes
~
beyond the reference or there is an error apparent on the face
D
of the award it would certainly be open to the court to interfere
with such an award. (Vide: Grid Corporation of Orissa Ltd. &
Anr. v. Balasore Technical School, AIR 1999 SC 2262; and
Delhi Development Authority v. R. S. Sharma and Company,
New Delhi, (2008) 13 SCC 80).
E
7. In Associated Engg. Co. v. Govt. of Andhra Pradesh &
Anr., AIR 1992 SC 232, this Court held that an umpire or
arbitrator cannot widen his jurisdiction by deciding a question
, •
not referred to him by the parties. If he exceeded his jurisdiction
by so doing, his award would be liable to be set aside. Thus,
an arbitrator cannot be allowed to assume jurisdiction over a
question which has not been referred to him, and similarly, he
cannot widen his jurisdiction by holding contrary to the fact that
F
the matter which he wants to decide is within the submission
,., "' of the parties.
G
8. If the arbitrator commits an error in the construction of
the contract, that is an error within his jurisdiction. But if he
wanders outside the contract and deals with matters not allotted
to him, he commits a jurisdictional error. Extrinsic evidence is
H
420
SUPREME COURT REPORTS
(2011] 9 S.C.R.
A admissible in such cases because the dispute is not something
which arises under or .in relation to the contract or dependent
on the construction of the contract or to be determined within
the award. The ambiguity of the award can, in such cases, be
resolved by admitting extrinsic evidence. The rationale of this
B rule is that the nature of the dispute is something which has to
be determined outside and independent of what appears in the
award. Such a jurisdictional error needs to be proved by
evidence extrinsic to the award. (See: Gobardhan Das
v. Lachhmi Ram & Ors., AIR 1954 SC 689; Seth Thawardas
c Pherumal v. The Union of India, AIR 1955 SC 468; .Union of
India v. Kishorilal Gupta & Bros., AIR 1959 SC 1362; Alopi
Parshad & Sons. Ltd. v. Union of India, AIR 1960 SC 588;
Jivarajbhai Ujamshi Sheth & Ors. v. Chintamanrao Balaji &
Ors., AIR 1965 SC 214; and Renusagar Power Co. Ltd.
0 v. General Electric Company & Anr., AIR 1985 SC 1156).
9. In Kishore Kumar Khaitan & Anr. v. Praveen Kumar
Singh, (2006) 3 sec 312, this Court held that when a court
asks itself a wrong question or approaches the question in an
improper manner, even if it comes to a finding of fact, the said
E finding of fact cannot be said to be one rendered with
jurisdiction. The failure to render the necessary findings to
support its order would also be a jurisdictional error liable to
correction.
F
(See also: Williams v. Lourdusamy & Anr., (2008) 5 SCC
G
647)
10. In Cellular Operators Association of India & Ors. v.
Union of India & Ors., (2003) 3 SCC 186, this Court held as
under:
"As regards the issue of jurisdiction, it posed a wrong
question and gave a wrong answer ................ The
learned TDSAT, therefore, has posed absolutely a wrong
question and thus its impugned decision suffers from a
H
misdirection in law."
.
'
MSK PROJECTS (I) (JV) LTD v. STATE OF
421
RAJASTHAN & ANR. [DR. B.S. CHAUHAN, J.]
)I
11. This Court, in Oil & Natural Gas Corporation Ltd. v.
A
SAW Pipes Ltd., AIR 2003 SC 2629; and Hindustan Zinc Ltd.
v. Friends Coal Carbonisation, (2006) 4 SCC 445), held that
an arbitration award contrary to substantive provisions of law,
>·
or provisions of the Act, 1996 or against terms of the contract,
or public policy, would be patently illegal, and if it affects the
8
rights of the parties, it would be open for the court to interfere
under Section 34(2) of the Act 1996.
12. Thus, in view of the above, the settled legal proposition
emerges to the effect that the arbitral tribunal cannot travel c
beyond terms of reference; however, in exceptional
circumstances where a party pleads that the demand of another
party is beyond the terms of contract and statutory provisions,
the tribunal may examine by he terms of contract as well as the
..
~
statutory provisions. In the absence of proper pleadings and
objections, such a course may not be permissible.
D
13. Be that as it may, in the instant case, a reference to
the Tribunal had been made on the basis of statement of facts,
claims by the private appellant, defence taken by the
respondent-State and rejoinder by the claimant. After · E
1 completing the formalities of admission and denial by each party
in respect of each other's documents and submission of draft
proposed issues and respective oral evidence, the Tribunal on
,.. .
4.1.2003 framed the following issues:
1. Whether claimant as per agreement is entitled to
F
recover its amount of claim of Rs.453.69 lacs upto
31.12.2002 and onwards or not?
2. Whether there was delay on part of State in issuing
•
notification for restriction of traffic through the Bharatpur G
..
Town, which has effected the toll tax or not? If so, how much
delay and delay in full rate of safe implementation as on
date, or not? By virtue of it, is the claimant entitled to
recover its claim of Rs.292.17 lacs upto 31.12.2002 and
thereafter onward or not; or merely by extension of H
422
A
B
c
SUPREME COURT REPORTS
(2011] 9 S.C.R.
concession period as averred by respondent?
3. As a consequence of issue 1 &2, which party breached
the contract?
4. Whether the claimant is entitled to claim interest on its
any due claim amount as per decision of issue 1 & 2? If
so, from what date and at what rate of simple/compound
interest?
5. Whether claimant or respondent is entitled for cost of
arbitration incurred and claimed by, each party? If so, what
amount and to which party?
6. Any other if any demanded by any party during
proceedings.
D
14. The Tribunal considered the relevant agreement
provisions as well as land lease deed, total package
documents, minutes of pre-bid meetings and deed authorising
collection of toll fee etc., and proceeded with. the arbitration
proceedings. The State of Rajasthan had not taken the defence
E that it was not agreed between the parties to issue the
notification barring the traffic through the markets of Bharatpur
city. The only issue remained as to whether there was delay in
issuance of notification and implementation thereof. In such a
fact-situation and considering the settled legal propositions, we
F are of the view that the District Judge as well as the High Court
fell in error considering the issue which was not taken by the
State before the Tribunal during the arbitration proceedings.
15. Furthermore, it is a settled legal proposition that the
G arbitrator is competent to award interest for the period
commencing with the date of award to the date of decree or
date of realisation, whichever is earlier. This is also quite
logical for, while award of interest for the period prior to an
arbitrator entering upon the reference is a matter of substantive
law, the grant of interest for the post-award period is a matter
H of procedure.
. .
•
,\
MSK PROJECTS (I) (JV) LTD v. STATE OF
423
RAJASTHAN & ANR. [DR. B.S.