Research Proposition : An arbitrator is a creature of the contract and cannot travel beyond the terms of contract.

Sr. Case Citation Paragraphs

No.
1 Indian Oil Corporation 2022
Ltd. vs Shree Ganesh (SC) 121
Petroleum Rajgurunagar
LiveLaw 44. An Arbitral Tribunal being a creature of contract, is bound to act in terms of the
contract under which it is constituted. An award can be said to be patently illegal
where the Arbitral Tribunal has failed to act in terms of the contract or has ignored
the specific terms of a contract.

45. However, a distinction has to be drawn between failure to act in terms of a

contract and an erroneous interpretation of the terms of a contract. An Arbitral
Tribunal is entitled to interpret the terms and conditions of a contract, while
adjudicating a dispute. An error in interpretation of a contract in a case where
there is valid and lawful submission of arbitral disputes to an Arbitral Tribunal is an
error within jurisdiction.

2 SAIL v. J.C. Budharaja, (1999) 8 SCC 122 32. The arbitrator derives the authority from the contract and if he acts in manifest
Govt. and Mining disregard of the contract, the award given by him would be an arbitrary one. The
Contractor, Arbitration Act does not give any power to the arbitrator to act arbitrarily or
capriciously. His existence depends upon the agreement and his function is to act
within the limits of the said agreement. To find out whether the arbitrator has
travelled beyond his jurisdiction and acted beyond the terms of the agreement
between the parties, the agreement is required to be looked into. It is true that
interpretation of a particular condition in the agreement would be within the
jurisdiction of the arbitrator. However, in cases where there is no question of
interpretation of any term of the contract, but of solely reading the same as it is
and still the arbitrator ignores it and awards the amount despite the prohibition in
the agreement, the award would be arbitrary, capricious and without jurisdiction.
Whether the arbitrator has acted beyond the terms of the contract or has travelled
beyond his jurisdiction would depend upon facts, which however would be
jurisdictional facts, and are required to be gone into by the court.
3 Ssangyong Engineering (2019) 15 SCC 131 76. However, when it comes to the public policy of India, argument based upon
Research Proposition : An arbitrator is a creature of the contract and cannot travel beyond the terms of contract.

and Construction “most basic notions of justice”, it is clear that this ground can be attracted only in
Company Limited v. very exceptional circumstances when the conscience of the Court is shocked by
National Highways infraction of fundamental notions or principles of justice. It can be seen that the
Authority of India (NHAI) formula that was applied by the agreement continued to be applied till February
2013 — in short, it is not correct to say that the formula under the agreement
could not be applied in view of the Ministry's change in the base indices from
1993-1994 to 2004-2005. Further, in order to apply a linking factor, a Circular,
unilaterally issued by one party, cannot possibly bind the other party to the
agreement without that other party's consent. Indeed, the Circular itself expressly
stipulates that it cannot apply unless the contractors furnish an
undertaking/affidavit that the price adjustment under the Circular is acceptable to
them. We have seen how the appellant gave such undertaking only conditionally
and without prejudice to its argument that the Circular does not and cannot apply.
This being the case, it is clear that the majority award has created a new contract
for the parties by applying the said unilateral Circular and by substituting a
workable formula under the agreement by another formula dehors the
agreement. This being the case, a fundamental principle of justice has been
breached, namely, that a unilateral addition or alteration of a contract can never
be foisted upon an unwilling party, nor can a party to the agreement be liable to
perform a bargain not entered into with the other party. Clearly, such a course of
conduct would be contrary to fundamental principles of justice as followed in this
country, and shocks the conscience of this Court. However, we repeat that this
ground is available only in very exceptional circumstances, such as the fact
situation in the present case. Under no circumstance can any court interfere with
an arbitral award on the ground that justice has not been done in the opinion of
the Court. That would be an entry into the merits of the dispute which, as we
have seen, is contrary to the ethos of Section 34 of the 1996 Act, as has been
noted earlier in this judgment.”

4 PSA SICAL Terminals Pvt. (2021) SCC Online SC 87. As such, as held by this Court in Ssangyong Engineering and Construction
Research Proposition : An arbitrator is a creature of the contract and cannot travel beyond the terms of contract.

Ltd. v. Board of Trustees 508 Company Limited (supra), the fundamental principle of justice has been breached,
of V.O. Chidambranar Port namely, that a unilateral addition or alteration of a contract has been foisted upon
Trust Tuticorin and Others an unwilling party. This Court has further held that a party to the Agreement
cannot be made liable to perform something for which it has not entered into a
contract. In our view, re-writing a contract for the parties would be breach of
fundamental principles of justice entitling a Court to interfere since such case
would be one which shocks the conscience of the Court and as such, would fall in
the exceptional category.”

5 Satyanarayana (2011) 15 SCC 101 11. Thus, as per the contract, the contractor was to be paid for cutting the earth
Construction Company v. and sectioning to profile, etc. @ Rs 110 per cubic metre. There may be some merit
Union of India and Others in the contention of Mr Tandale that the contractor was required to spend huge
amount on the rock blasting work but, in our view, once the rate had been fixed in
the contract for a particular work, the contractor was not entitled to claim
additional amount merely because he had to spend more for
carrying out such work. The whole exercise undertaken by the arbitrator in
determining the rate for the work at Serial No. 3 of Schedule A was beyond his
competence and authority. It was not open to the arbitrator to rewrite the terms
of the contract and award the contractor a higher rate for the work for which rate
was already fixed in the contract. The arbitrator having exceeded his authority and
power, the High Court cannot be said to have committed any error in upsetting the
award passed by the arbitrator with regard to Claim 4.

6 Mohan Steels Ltd. v. Steel 2020 SCC OnLine Del 22. Moreover, what is significant is that these Master Circulars/Guidelines are
Authority of India(Sail) 2171 internal guidelines for the respondent and are only meant for internal circulation
as has been noted by the Arbitrator himself. The said Circulars were never a part
of the tender conditions or the Contract dated 05.02.2009. The petitioner has
taken a categorical stand in its pleadings before this Court that the Circulars
were never a part of the Contract. Once the circulars are beyond the terms of
the Contract and were not within the knowledge of the contracting parties, it is
Research Proposition : An arbitrator is a creature of the contract and cannot travel beyond the terms of contract.

not open for the respondent to rely upon them for interpreting the clauses of the
contract. It is pertinent to note that if the respondent had intended that the
Master Circulars or the guidelines were to form the basis of revision/fixation of
conversion charges then the same should have been mentioned in the Contract
or at least the tender documents and the bidder should have been put to notice
that the revision of conversion charges will be as given in the Master circulars.
In my opinion, it was not open for the Arbitrator or the respondent to even place
reliance on the Master Circulars. Thus, the Arbitrator has committed a patent
illegality by placing reliance on these Circulars to interpret Clause 8. Relevant
part of the Award is extracted as under for emphasis:

"...I am of the opinion that present contract is clearly non-ambiguous for this
clause based on perusal of the circulars placed on record..."

7 West Bengal State AIR 2002 SC 2185 11. We do not find any merit in this submission. Clauses (e), (f) and (g) of
Warehousing Corporation paragraph 44 have to be read together. What has been held by this Court is that
Vs. Sushil Kumar Kayan & the award made by an Arbitrator can be set aside if the Arbitrator acts beyond
Ors jurisdiction, and, to find out whether the Arbitrator has travelled beyond
jurisdiction, it would be necessary to consider the agreement between the parties
containing the arbitration clause and if the Arbitrator acts beyond the arbitration
clause then it would be deemed that he has acted beyond jurisdiction. In order to
determine whether the arbitrator has acted in excess of his jurisdiction what has
to be seen is whether claimant can raise a particular claim before the arbitrator.
If there is a specific term in the contract or the law which does not permit to the
parties to raise a point before the arbitrator and if there is a specific bar in the
contract to the raising of the point then the award passed by the arbitrator in
respect thereof would be in excess of his jurisdiction. Neither of the conditions
mentioned in Clauses (f) and (g) referred to above stand satisfied to hold that
the arbitrator had acted in excess of his jurisdiction. This Court on the
agreement arrived at between the parties referred three points by way of
disputes to be resolved between the parties and the arbitrator has limited his
Research Proposition : An arbitrator is a creature of the contract and cannot travel beyond the terms of contract.

adjudication on the points of reference made to him. Counsel for the appellant
could not point out as to in what way or manner the Arbitrator had acted in
excess of his jurisdiction on the matters referred to him. According to us the
Arbitrator has confined his award within the framework of the reference made
to him and did not exceed the jurisdiction conferred upon him.