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Food Corporation Of India v. Surendra, Devendra & Mahendra Transport Co. .
Factual and Procedural Background
The respondent was appointed as a handling and transport contractor for the Food Corporation of India (FCI) on 14 June 1979. Disputes arose, prompting the respondent on 4 January 1980 to request the Managing Director of FCI to refer the matter to arbitration under Clause XX of the contract. When no appointment was made, the respondent filed an application under Section 20 of the Arbitration Act, 1940 before the Calcutta High Court. By order dated 16 June 1988, the High Court directed the Managing Director to appoint an arbitrator and to refer “all disputes in the petition, particularly those in paragraph 24” to that arbitrator.
The arbitrator framed nine issues, including claims by the contractor for unpaid bills and refunds, and a counter-claim by FCI for demurrage and wharfage charges. By a speaking award, the arbitrator allowed several contractor claims and rejected FCI’s counter-claim. FCI’s objections were dismissed by a Single Judge and then by a Division Bench of the Calcutta High Court. FCI appealed to the Supreme Court of India.
Legal Issues Presented
- Whether, under Clause XX read with Clause XII of the agreement, disputes concerning transit loss and demurrage/wharfage charges were excluded from arbitration, thereby rendering the arbitrator’s award on Issues 3 and 5 beyond jurisdiction.
- Consequently, whether the High Court erred in upholding those portions of the award.
Arguments of the Parties
Appellant’s (FCI) Arguments
- Relying on Rajasthan State Mines & Minerals Ltd. v. Eastern Engineering Enterprises, (1999) 9 SCC 283, FCI contended that the arbitrator exceeded his jurisdiction by deciding Issues 3 and 5 because Clause XII expressly made the Senior Regional Manager the sole authority on transit loss and demurrage/wharfage matters, thereby excluding them from arbitration under Clause XX.
- Asserted that the High Court should have vacated the award to that extent.
Respondent’s Arguments
The opinion does not contain a detailed account of the respondent's legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Rajasthan State Mines & Minerals Ltd. v. Eastern Engineering Enterprises, (1999) 9 SCC 283 |
(f) To ascertain excess of jurisdiction, the court must examine the contract. (g) If the contract specifically bars arbitration over a claim, an award on that claim is in excess of jurisdiction. |
The Supreme Court applied these propositions to hold that the arbitrator lacked authority to decide claims on transit loss and demurrage/wharfage because those matters were expressly reserved to the Senior Regional Manager under Clause XII. |
Court's Reasoning and Analysis
The Supreme Court first examined Clause XX, which allows arbitration of all disputes “except as to any matter the decision of which is expressly provided for in the contract.” It then scrutinised Clause XII, sub-clauses (a), (d) and (e), which designate the Senior Regional Manager as the final authority on contractors’ liability for transit loss, damages, demurrage, and wharfage charges, and expressly make his decision “final and binding.”
By juxtaposing these clauses, the Court concluded that disputes over transit loss and demurrage/wharfage were contractually removed from the scope of arbitration. Invoking the principles from Rajasthan State Mines & Minerals Ltd., the Court held that an arbitrator who decides a claim contractually barred from arbitration acts in excess of jurisdiction. Consequently, the arbitrator’s award on Issues 3 (refund of Rs 67,149.65 for transit loss) and 5 (refund of Rs 1,68,500 for demurrage and wharfage) was ultra vires.
The Court found no infirmity in the arbitrator’s determinations on the remaining issues, as those matters fell within the permissible scope of arbitration.
Holding and Implications
PARTLY ALLOWED. The Supreme Court set aside the award—and the High Court’s confirmation—on Issues 3 and 5 relating to transit loss and demurrage/wharfage charges. FCI is not liable to pay those amounts. The rest of the award stands affirmed. No order as to costs.
Implications: The decision reinforces that contractual provisions can carve out specific disputes from arbitral jurisdiction. Arbitrators must heed such exclusions; otherwise, their awards are vulnerable to being struck down as jurisdictionally defective. The ruling does not create new precedent but applies established principles to the facts, impacting only the parties to this dispute.
Bhan, J.— Food Corporation of India (for short “the Corporation”) has filed this appeal against the Division Bench judgment and order of the High Court of Calcutta whereby and whereunder the High Court has upheld the award made by the arbitrator appointed under the directions of the Court.
2. The respondent was appointed as a handling and transport contractor on 14-6-1979. On 4-1-1980 the respondent addressed a letter to the Managing Director of the Corporation requesting him to refer the disputes which had arisen between the parties for arbitration. Since no arbitrator was appointed to resolve the dispute, he filed an application under Section 20 of the Arbitration Act, 1940 (for short “the Act”) in the High Court on the original side, with a prayer to issue a direction to the Managing Director of the Corporation to appoint an arbitrator in terms of the arbitration clause (XX) of the agreement entered between the parties. The Court by its order dated 16-6-1988 issued a direction to the Managing Director of the Corporation to appoint an arbitrator in terms of clause (XX) of the agreement within six weeks from the date of communication of the order. The direction was given in the following terms:
“Court order in terms of prayer (a) of the petition. The Managing Director, Food Corporation of India is directed to appoint an arbitrator in terms of clause (XX) of the agreement within six weeks from the date of communication of the order. All disputes in the petition, particularly the disputes mentioned in para 24 thereof be referred to the arbitrator to be appointed by the Managing Director.
Let it appear marked to be mentioned 8 weeks hence.
All parties including the Managing Director, Food Corporation of India and the proposed arbitrator to act on a signed copy of the minutes of the order on the usual undertaking.”
The relevant portion of clause (XX) is as under:
“All disputes and differences arising out of or in any way touching or concerning this agreement whatsoever (except as to any matter the decision of which is expressly provided for in the contract) shall be referred to the sole arbitration of any person appointed by the Managing Director of Food Corporation of India. It will be no objection to any such appointment that the person appointed is or was an employee of the Corporation, that he had to deal with the matter to which the contract related and that in the course of his duties as such employee of the Corporation he had expressed views on all or any of the matters in dispute or difference. The award of such arbitrator shall be final and binding on the parties to this contract. It is a term of this contract that in the event of such arbitrator to whom the matter is originally referred being transferred or vacating his office or dying or being unable to act for any reason, Managing Director of Food Corporation of India at the time of such transfer, vacation of office, death or inability to act shall appoint another person to act as arbitrator. Such person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor. It is also a term of this contract that no person other than a person appointed as aforesaid should act as arbitrator and if for any reason that is not possible the matter is not to be referred to arbitration at all.”
Under this clause all disputes and differences arising out of or in any way concerning the agreement whatsoever were to be referred to the sole arbitration of a person appointed by the Managing Director except as to any matter the decision of which was expressly provided for in the contract. Clause (XII) enumerates the items excluded from the purview of clause (XX). Relevant sub-clauses (a), (d) and (e) of clause (XII) are as under:
“(a) The contractors shall be liable for all costs, damages, demurrage, wharfage charges and expenses suffered or incurred by the Corporation due to the contractors' negligence and unworkman-like performance of any service under this contract or breach of any terms thereof or their failure to carry out work with a view to avoid incurrence of demurrage etc. and for all damages or losses occasioned to the Corporation or in particular to any property or plant belonging to the Corporation due to any act whether negligent or otherwise of the contractors themselves or their employees. The decision of the Senior Regional Manager regarding such failure of the contractors and their liability of the losses etc. suffered by Corporation shall be final and binding on the contractors.
(d) The contractors shall be responsible for the safety of the goods from the time they are loaded on their trucks from railway station/sidings, depots/godowns or at other destinations. They shall provide tarpaulin on the decks of the trucks so as to avoid loss of grain etc. through the holes/crevices in the decks of the trucks. They shall deliver at the destination the number of bags and the weight of foodgrains etc. received by them and loaded on their trucks and shall be liable to make good the value of any loss, shortage or damage in transit. The Regional Manager will be the sole judge for determining after taking into consideration all the relevant circumstances, the quantum and value of loss and also as regards the liability of the contractors for such loss and the amount to be recovered from them. The decision of the Regional Manager in this regard shall be final and binding on the contractors.
(e) In case of loss, shortage, damage, pilferage, misappropriation (including missing of lorry loaded with consignments) of foodgrains/sugar/fertilisers and gunnies during transit, the Regional Manager shall have the right, without prejudice to other rights and remedies under this contract, to impose upon and recover from the contractors an amount not exceeding three times (3 times) the issue rates of the foodgrains/sugar/fertilisers applicable at the time of occurrence of such pilferage/misappropriation and one-time (1-time) value of the gunnies. The decision of the Regional Manager in this regard shall be final and binding on the contractors.”
3. The respondent raised certain claims on the basis of which the following issues were framed. The Corporation also claimed a sum of Rs 5,62,522.70p. on account of payment made towards demurrage and wharfage charges. Based on the claim of the contending parties the arbitrator framed the following issues:
1. Is the claim of the claimant barred by limitation?
2. Is the claimant entitled to a sum of Rs 6,71,903.59 paise towards handling and transport bills or to any part thereof?
3. Is the claimant entitled to get refund of Rs 67,149.65 paise deducted for transit loss?
4. Is the claimant entitled to refund of Rs 89,743.34 paise deducted for other purposes?
5. Is the claimant entitled to refund of Rs 1,68,500 deducted on account of demurrage and wharfage charges?
6. Is the claimant entitled to Rs 1,92,873.10 paise towards price of wheat and rice delivered in excess to the respondent?
7. Is the claimant entitled to Rs 3,21,870 for running of trucks empty from Howrah siding to Howrah I and Howrah II for empty tare?
8. Is FCI entitled to Rs 5,61,522.70 paise on account of payment made towards demurrage and wharfage charges?
9. Is the claimant entitled to interest @ 18% per annum from the respective due dates of the bills till payment on the awarded sums?
4. Claim made by the Corporation for the sum of Rs 5,62,522.70p. was rejected. The sole arbitrator by a speaking and detailed order gave the award in the following terms:
“Held that the claimant is entitled to a sum of Rs 4,57,318.54 paise (four lakhs fifty-seven thousand and three hundred eighteen rupees and paise fifty-four) only from the respondent on account of handling and transport bills, and refund of Rs 67,149.65 paise (sixty-seven thousand one hundred forty-nine rupees and paise sixty-five) only deducted by the respondent from the claimant's pending bills towards transit loss and refund of Rs 1,68,500 (one lakh sixty-eight thousand five hundred rupees) only deducted by the respondent from the claimant's pending bills on account of demurrage and wharfage charges. The claimant will be entitled to claim interest before the Hon'ble Court on the sum awarded from the date of publication of the award till such time as the Hon'ble Court will deem fit and proper.”
5. The Corporation being aggrieved filed objections against the award before the High Court which were rejected. Contention of the Corporation that the arbitrator could not make an award regarding an item which was specifically excluded from the purview of arbitration clause (XX) and that by doing so, the arbitrator had acted in excess of his jurisdiction to that extent was rejected. Other contentions raised by the Corporation were also rejected.
6. Aggrieved against the order of the High Court the present appeal has been filed. Counsel appearing for the Corporation relying upon the judgment of this Court in Rajasthan State Mines & Minerals Ltd. v. Eastern Engg. Enterprises (1999) 9 SCC 283 contended that the arbitrator acted in excess of his jurisdiction in entering upon a dispute and making an award of a claim which was not permitted to be referred to the arbitrator under the contract. According to him, the claim made and given by the arbitrator under Issues 3 and 5 regarding transit loss and demurrage and wharfage charges could not be made as the same had been specifically excluded under clause (XX) read with clause (XII) of the agreement. We find substance in this submission. Arbitration clause (XX) provided that all disputes and differences arising out of or in any way touching or concerning the agreement whatsoever could be referred to the sole arbitration of a person appointed by the Managing Director except “as to any matter the decision of which is expressly provided for in the contract”. Clause (XII) of the agreement provided that the contractor would be liable for all costs, damages, demurrage, wharfage charges and expenses etc. or transit loss suffered by the Corporation and the Senior Regional Manager shall be the sole authority to determine the said failures on the part of the contractors or the loss caused thereby, thus excluding the reference to the arbitrator for the decision of these disputes. This Court in Rajasthan State Mines & Minerals Ltd. case (1999) 9 SCC 283 has held:
“44. (f) To find out whether the arbitrator has travelled beyond his jurisdiction, it would be necessary to consider the agreement between the parties containing the arbitration clause. The arbitrator acting beyond his jurisdiction is a different ground from the error apparent on the face of the award.
(g) In order to determine whether the arbitrator has acted in excess of his jurisdiction what has to be seen is whether the claimant could raise a particular claim before the arbitrator. If there is a specific term in the contract or the law which does not permit or give the arbitrator the power to decide the dispute raised by the claimant or there is a specific bar in the contract to the raising of the particular claim then the award passed by the arbitrator in respect thereof would be in excess of jurisdiction.”
7. The High Court issued a direction by an order dated 16-6-1988 referring the disputes for arbitration in terms of clause (XX). The matters which were excluded from the reference to the arbitrator therefore could not be referred to or decided by the arbitrator. Entrance of reference by the arbitrator on disputes which were excluded from reference and the adjudication thereupon would amount to exceeding in the exercise of the jurisdiction as held by this Court in Rajasthan State Mines & Minerals Ltd. case (1999) 9 SCC 283. Since there was a specific bar to the raising of a claim regarding transit, demurrage and wharfage charges, the award made by the arbitrator in respect thereof would be in excess of the jurisdiction.
8. Accordingly, the appeal is partly allowed. Order of the High Court confirming the award regarding the aforesaid two amounts as well, is set aside. Award of the arbitrator on Issues 3 and 5 relating to the refund of Rs 67,149.65 paise towards the transit loss and the refund of Rs 1,68,500 towards demurrage and wharfage charges is set aside. The Corporation would not be liable to pay these amounts. There is no infirmity in the award regarding other claims made by the respondents. There shall be no order as to costs.
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