'Arbitrator Can Only Decide On Point Which Is Referred To Tribunal, Not Entire Dispute': Kerala High Court

Additionally, the court held that clause 25.2 provided in the agreement is void and cannot operate as a restraint for initiation of the dispute between the parties.

Brief Facts:

The appellant who is a contractor came out successful in competitive bidding for execution of the works in the Kerala State Transport Project with respect to road maintenance. Several disputes arose between the contractor and the State during the implementation of the contracts. The appellant referred the dispute to an adjudicator and the adjudicator gave his decision partially in favor of the appellant. None of the parties sought reference of the disputes to the arbitrator within the stipulated 28 days as provided under the contract.

However, the State, after a period of 28 days, sought reference of dispute No. (1) to the arbitrator, which was objected to by the appellant on the ground that beyond the period of 28 days the dispute cannot be referred to the arbitrator. However, the State decided to condone the period and persuaded the appellant to go for arbitration in respect of dispute No. (1).

Both parties selected their choice of arbitrators. Before the arbitrator, the appellant sought reference of all the disputes and certain disputes beyond the disputes which were referred to the adjudicator.

The State, on the other hand, raised objection to the above course suggested by the appellant. The arbitral tribunal went into the core of the disputes between the parties, answered all four disputes in favour of the appellant and overturned the decision of the adjudicator.

Aggrieved by the award, the State invoked the jurisdiction of the District Court under Section 34 of Arbitration and Reconciliation Act, 1996 and the District Judge by the order impugned set aside the award passed by the Arbitral Tribunal and restored the award of the adjudicator. Thus, the appellant filed an appeal challenging the order passed by the District Court.

Issues:

• Whether the restraint on the legal proceedings as stipulated by clause 25.2 of the contract is void in the light of Explanation-2 to Section 28(b) of the Contract Act, 1872,

• Once the parties decide to go for arbitration, whether it is possible for the arbitral tribunal to pronounce upon its decision on a point which has not been referred for adjudication before it.

Observations:

The court noted that clause (b) of Section 28 of the Indian Contract Act, 1872, reveals that any agreement which extinguishes a right of a party in respect of a contract on expiry of a specified period to restrict the other party from enforcing the right, is void to that extent. Therefore, ex-facie Clause 25.2 of the Contract offends the provisions of Section 28(b) of the Contract Act, 1872. Additionally, the court relied on the judgment in Grasim Industries Ltd. v. State of Kerala (2018) and held that clause 25.2 provided in the agreement is void and cannot operate as a restraint for the initiation of the dispute between the parties.

Moving further, the court held that if the parties choose to refer to a singular point for arbitration, then the arbitral tribunal cannot proceed to decide on all disputes. On the contrary, if the parties agree to arbitrate on the entire disputes, then the arbitral tribunal shall have jurisdiction to decide the entire dispute and not a specific dispute.

Then, the court observed that the assumption that where one-party files an application and gets an arbitrator appointed, the other party can raise all such disputes under the contract before the arbitrator is baseless, especially when the law governing the arbitration specifically provides that the arbitrator can decide only such disputes referred before him and not otherwise. To hold otherwise will certainly do violence to the statute. Hence, the court held that the arbitral tribunal had clearly exceeded its jurisdiction in deciding the entire dispute.

Finally, the court allowed the appeal and held that the tribunal exceeded its jurisdiction while rendering the award, the same becomes void and inexecutable. Therefore, the order of the District Judge was sustained on the remaining grounds.

Case Title: M/S.BHAGEERATHA ENGINEERING LTD. V. STATE OF KERALA

Case Number: ARB.A NO. 56 OF 2012

Citation: 2025 LiveLaw (Ker) 41

Counsel for the Appellant: ADV SRI.G.P.SHINOD SRI.MANU V. SRI.GEORGE THOMAS

Counsel for the Respondent: SRI.K.V.MANOJKUMAR, SR. GOVERNMENT PLEADER