O.M.P./199/2009 of PRASAR BHARATI Vs B4U MULTI MEDIA INTERNATIONAL LIMITED

IN THE HIGH COURT OF DELHI AT NEW DELHI

O.M.P. No.199/2009

Reserved on: January 10, 2012Decision on: January 17, 2012

versus

B4U MULTIMEDIA INTERNATIONAL LTD...... RespondentThrough: Mr. Chetan Sharma, Senior Advocatewith Mr. Sudhanshu Chaudhary,Mr. Ashutosh Dubey andMr. Parag, Advocates.

CORAM: JUSTICE S. MURALIDHAR

JUDGMENT17.01.2012

1. Prasar Bharati (Broadcasting Corporation of India) challenges the Awarddated 17[th]December, 2008 passed by the Sole Arbitrator in the disputebetween it and THE Respondent, B4U Multimedia International Ltd., arisingout of an Agreement dated 15[th]November, 2000 between the parties.

Background facts

2. The Petitioner states that in the year 2000 negotiations took place betweenthe parties during which the Respondent offered to the Petitioner films inwhich it owned right for telecast on its Doordarshan Worldwide (‘DDWorldwide’) Channel. According to the Petitioner the Respondent stated thatsince it had rights in the films only for territories outside the Union of India,the Petitioner would have to encrypt the signals of DD Worldwide so that the

films were not available to viewers in India.

3. An agreement was entered into between the parties on 15[th]November, 2000under which the Respondent granted to the Petitioner “exclusive, and except ashereunder provided, irrevocable right to broadcast the Titles on DD WorldwideServices (DD Worldwide) Channel in all the territories except in Union ofIndia on terms and conditions contained herein, provided, however that, anydownlinking and broadcasting of the encrypted signal of the telecast by anyunauthorized persons/companies/entities shall not constitute breach of thisAgreement whatsoever by Prasar Bharati” . The ‘Titles’, i.e. the films offeredfor telecast, were listed in Schedule I and II to the Agreement. For the Titles inSchedule I, the Petitioner had to pay the Respondent lump sum considerationof Rs.3 lakhs per film whereas for the Titles in Schedule II it had to pay lumpsum amount of Rs.6 lakhs per film.

4. Clause 2 of the Agreement provided for sourcing and supply of Titles.Under Clause 2(b), the Respondent was required to have in its library “readilyavailable for supply to Prasar Bharati all the Titles listed in the Schedule heretoas periodically updated along with copyrights/broadcast rights thereof inrespect of territories, except in the Union of India”. Under Clause 2 (c), supplyof Titles under the Agreement was to be preceded by ‘sourcing orders’ issuedby the Petitioner on monthly/quarterly basis. The sourcing order was tomention the month to which it pertained and was to list the Titles proposed tobe telecast, three from Schedule I and one from Schedule II during that monthin the order of their tentative dates of telecast. This was to be issued at least 30days prior to the telecast of the first of the Titles listed in the sourcing order.In case the Respondent was unable to supply the sourced Titles, it wouldsupply alternate Titles acceptable to the Petitioner at least six weeks inadvance. Under Clause 2 (e) where the Petitioner on preview of the Titlessupplied found any of them unsuitable for telecast either due to content or

technical reasons, the Respondent was to replace them with Titles chosen bythe Petitioner. The Petitioner was to return to the Respondent the Beta cassettesof the Titles within ten days after the telecast dates for the Titles.

5. Clauses 3 and 4 of the said Agreement are significant for the dispute in thepresent petition and they read as follows:

“3.TELECAST

a.Prasar Bharati shall have the right but not the obligation to telecastthe Titles, which are sourced from B4U only on the DD WorldServices (DD Worldwide) channel. Prasar Bharati further agreesthat such telecast shall only be for the overseas satellite in anencrypted mode and that the titles shall be telecast in territoriesexcept the Union of India, only once with one natural repeatwithin seven day period thereafter provided however that, anydownlinking and broadcasting of the encrypted signal of thetelecast by any unauthorized person/companies/ entities in Indiashall not constitute breach of this Agreement whatsoever byPrasar Bharati.the Titles, which are sourced from B4U only on the DD WorldServices (DD Worldwide) channel. Prasar Bharati further agreesthat such telecast shall only be for the overseas satellite in anencrypted mode and that the titles shall be telecast in territoriesexcept the Union of India, only once with one natural repeatwithin seven day period thereafter provided however that, anydownlinking and broadcasting of the encrypted signal of thetelecast by any unauthorized person/companies/ entities in Indiashall not constitute breach of this Agreement whatsoever byPrasar Bharati.

b.Prasar Bharati shall have the right in respect of all the Titlessourced from B4U to repeat the telecast once within the seven-dayperiod immediately following the original telecast without anyobligation to pay additional Consideration for such repeat telecast.sourced from B4U to repeat the telecast once within the seven-dayperiod immediately following the original telecast without anyobligation to pay additional Consideration for such repeat telecast.

c.Prasar Bharati shall have the right at all times before the proposedtelecast date for any Title supplied by B4U to reject and refuse totelecast Title at its sole discretion and ask for replacement ofsuch title.telecast date for any Title supplied by B4U to reject and refuse totelecast Title at its sole discretion and ask for replacement ofsuch title.

d.It is understood by the Parties that Prasar Bharati shall telecast theTitles by uplinking the signal in an encrypted mode from Indiawhich signal shall be downlinked and decrypted in the variouscountries and territories covered by this Agreement by suchperson/entities/companies directly authorized by Prasar Bharati. Alist of such authorized persons/entities/ companies will beprovided by Prasar Bharati to B4U from time to time. The signalsodonwlinkedanddecryptedbythedulyauthorizedperson/entity/companyshallbebroadcastbyeachsuchperson/entity/company for viewing in the respective countryand/or territory at times suitable for such broadcast in therespective country and/or territory at times suitable for suchTitles by uplinking the signal in an encrypted mode from Indiawhich signal shall be downlinked and decrypted in the variouscountries and territories covered by this Agreement by suchperson/entities/companies directly authorized by Prasar Bharati. Alist of such authorized persons/entities/ companies will beprovided by Prasar Bharati to B4U from time to time. The signalsodonwlinkedanddecryptedbythedulyauthorizedperson/entity/companyshallbebroadcastbyeachsuchperson/entity/company for viewing in the respective countryand/or territory at times suitable for such broadcast in therespective country and/or territory at times suitable for such

broadcast in the respective country and/or territory within 24hours period of its telecast on DD World.

e.It is further understood and agreed to by the Parties that thetelecast period under Clause 3.b shall begin to run in respect ofeach country and/or territory covered by this Agreement from thedate Title was fist broadcast for viewing in that particularcountry and/or territory.telecast period under Clause 3.b shall begin to run in respect ofeach country and/or territory covered by this Agreement from thedate Title was fist broadcast for viewing in that particularcountry and/or territory.

4.CONSIDERATION

a.Prasar Bharati shall have an obligation to pay to B4U lump sumConsideration or Rs.3.0 Lakhs (Rupees Three Lakhs) per Titlethat Prasar Bharati telecast under this Agreement, from theSchedule I list and lump sum of Rs.6.0 Lakhs (Rupees SixLakhs) per title from the Schedule II list provided however that,Prasar Bharati shall not be under any obligation to pay theConsideration hereunder in respect of any Title which may havebeen supplied by B4U but not telecast by Prasar Bharati for anyreason whatsoever.Consideration or Rs.3.0 Lakhs (Rupees Three Lakhs) per Titlethat Prasar Bharati telecast under this Agreement, from theSchedule I list and lump sum of Rs.6.0 Lakhs (Rupees SixLakhs) per title from the Schedule II list provided however that,Prasar Bharati shall not be under any obligation to pay theConsideration hereunder in respect of any Title which may havebeen supplied by B4U but not telecast by Prasar Bharati for anyreason whatsoever.

b.B4U shall raise an invoice for the total Consideration payable byPrasar Bharati on account of the Total Telecast for each calendarmonth by 14[th]of the following month. Prasar Bharati shall pay onthe invoice raised by B4U within 45 days of receipt thereof byPrasar Bharati.Prasar Bharati on account of the Total Telecast for each calendarmonth by 14[th]of the following month. Prasar Bharati shall pay onthe invoice raised by B4U within 45 days of receipt thereof byPrasar Bharati.

c.All taxes/levies/charges/duties whatsoever relating to or rising outof the payment of Consideration under this Clause by PrasarBharati to B4U shall be totally on the account of and shall besolely borne by B4U, provided however that, Prasar Bharati shalldeduct from the Consideration paid any and all applicabletaxes/levies/ duties required to be so deducted under any law forthe time being in force.”of the payment of Consideration under this Clause by PrasarBharati to B4U shall be totally on the account of and shall besolely borne by B4U, provided however that, Prasar Bharati shalldeduct from the Consideration paid any and all applicabletaxes/levies/ duties required to be so deducted under any law forthe time being in force.”

6. Clause 6 (a) provided that the Agreement would be for period of threeyears subject to earlier termination by either of the parties.Clause 6 (b)provided as under:years subject to earlier termination by either of the parties.Clause 6 (b)provided as under:

“6. TERMS AND TERMIANTION.

(b) Parties’ right to terminate this Agreement shall be as follows:-

i)either Party shall have the right to terminate this Agreement if theother Party is in breach of any of the provisions herein and suchbreach remains uncured for more than 90 days after the receipt ofnotice of the breach by the party who is not in breach;other Party is in breach of any of the provisions herein and suchbreach remains uncured for more than 90 days after the receipt ofnotice of the breach by the party who is not in breach;

ii)either Party shall have the right to terminate this Agreementwithout assigning any cause whatsoever by giving notice inwriting of 60 days to B4U/Prasar Bharati.without assigning any cause whatsoever by giving notice inwriting of 60 days to B4U/Prasar Bharati.

iii)either Party shall have the right to terminate if the other Partybecomes insolvent, proceedings are instituted by or against it inbankruptcy, insolvency or dissolution, or it makes generalassignment for the benefit of its creditors.”becomes insolvent, proceedings are instituted by or against it inbankruptcy, insolvency or dissolution, or it makes generalassignment for the benefit of its creditors.”

7. Under Clause 5 (b) the Respondent warranted that for the period of onemonth during which the Petitioner was given exclusive broadcast rights overthe sourced films, the said rights would not be sold or licenced to any thirdparty except in the Union of India. Clause 8 stated that if the disputes wereunable to be resolved by mutual consultation, they would be referred to aSingle Arbitrator in accordance with law.

8.During the month of December 2000 meetings were held between theparties whereby it was agreed that the Respondent would send the Petitioner 30films from Schedules I and II for telecast on the DD Worldwide channel afterencryption of the signals. In January 2001 nine films were delivered by theRespondent to the Petitioner. They were however not telecast on account of theproblems concerning encryption. According to the Petitioner, although in termsof the contract it was to get the DD Worldwide channel encrypted by 30[th]November 2000, it was unable to do so due to technical reasons. It is statedthat the process of telecast of encrypted signals involved transmission ofsignals in coded/scrambled format to satellite, reception of the said signalsby the satellite and their downward transmission. For receiving the signals, adevice known as Integrated Receiver Decoder (‘IRD’) was needed to decodethe signals wherever received. Since the Agreement was for territories other

O.M.P. No.199/2009

than Union of India, IRDs were to be installed in 146 countries where signalswere to be received. It is stated that the procurement of decoders, theirdistribution and installation in 146 countries after obtaining permissions fordownlinking of signals obviously could not be completed in short time. In thecircumstances, encryption of the signals by 30[th]November 2000 was notconsidered feasible. In addition, it was realised that encryption could haveresulted in technical problem of the channel being blacked out in India. Inview of the above constraints, the Petitioner addressed letter dated 2[nd]January, 2001 to the Respondent seeking permission to telecast the films in anunencrypted format with the caption that the same was not meant for viewersin India. The Respondent in its reply dated 15[th]January, 2001 informed thePetitioner that it did not hold copyright in the films for telecast in India.Further, if there was any objection by the producers to the telecast with therider as proposed, the Petitioner would have to discontinue it.

9. On 20[th]April 2001, the Respondent wrote to the Petitioner claimingpayment for the first lot of films delivered to the Petitioner. sum of Rs.54lakhs in respect of nine films was claimed. On 30[th]April 2001, the Petitionerwrote the following letter to the Respondent.

“Subject: Telecast of B4U films on DD-World.

Dear Sir,

This is with reference to the agreement signed on 15[th]November,2000 between M/s. B4U and Doordarshan regarding telecast ofHindi Feature Films on DD World.

In this connection we have to inform you that due to technicalreasons, the agreement cannot be implemented and hence mayplease be treated as terminated.Please advice your localrepresentative to collect back the tapes of some of the Hindi FeatureFilms from Mr. Isaac, Deputy Controller of Programme of DD-World.

Thanking you for your interest in our source.”

10. On 2[nd]May 2001, the Respondent wrote to the Petitioner lodging itsprotest. Thereafter, by letter dated 22[nd]June, 2001, the Respondent invokedthe arbitration clause. By letter dated 25[th]July, 2001 it requested the Petitionerto reconsider the termination of the contract. meeting was held on 26[th]Julybetween the representatives of the Petitioner and the Respondent. In the monthof September 2001, the Petitioner shifted its telecast of the DD InternationalChannel (i.e. DD World) to new satellite, PAS-10.

11. Before the learned Arbitrator, the Respondent filed statement of claim inwhich it sought specific performance of the Agreement dated 15[th]November,2000. It sought, in the alternative, damages in the sum of Rs.5.4 crores withinterest at the rate of 18% per annum from 12[th]May 2002 till the date ofpayment. The Petitioner, in its written statement, denied its liability to pay theRespondent any amount by way of damages or otherwise. It also denied thatthe Respondent could seek specific performance.

The impugned Award

12. The impugned Award dated 17[th]December, 2008 could be summarized asunder:

(1)On collective reading of Clauses 1(a), 2(b) and 5(b) of the Agreement,the position that emerged was that the Respondent had committed itselfto maintain its library of the Titles listed in Schedules I and II, makethem available at all times during the continuity of the Agreement, andnot to give the said Titles to any other party during the one month periodof sourcing and supply to the Respondent. This was in consideration ofthe Petitioner agreeing to take certain minimum number of titles fromthe Respondent for screening on the DD Worldwide channel.the position that emerged was that the Respondent had committed itselfto maintain its library of the Titles listed in Schedules I and II, makethem available at all times during the continuity of the Agreement, andnot to give the said Titles to any other party during the one month periodof sourcing and supply to the Respondent. This was in consideration ofthe Petitioner agreeing to take certain minimum number of titles fromthe Respondent for screening on the DD Worldwide channel.

(2)Clauses 2(c), 2(e) and 3(c) of the Agreement established “a contractualobligation” on the part of the Respondent to preserve all the titles in theobligation” on the part of the Respondent to preserve all the titles in the

Schedule for the Petitioner. There was no clause in the Agreement whichprovided that the Petitioner had right not to telecast the four Titles permonth. The Petitioner’s contractual obligation to telecast four Titles permonth was absolute. Even Clause 3(a) of the Contract did not absolvethe Petitioner of this contractual obligation. The obligation to have theDD Worldwide channel encrypted by 30[th]November 2000 andcommence telecast from 1[st]December 2000 was that of the Petitionerand no fault could be attributed to the Respondent.

(3)Although the Petitioner was not required to pay for all the Titles sourcedby it, it was not absolved of the obligation to telecast an aggregate offour Titles per month. There was no explanation in the letter dated 30[th]April 2001 for termination of the Agreement. There was nothing toestablish the alleged impossibility of encryption of the DD Worldwidechannel. Had there been any impossibility of encryption, the Petitionerwould not have shifted in September 2000 the telecast to new satellitePAS-10eliminatingthetechnicalproblemregardingencryption.Consequently, by not getting the DD Worldwide channel encrypted andby serving notice of termination, the Petitioner had committed breachof the contract resulting in non-screening of the films and consequentloss of revenue to the Respondent.by it, it was not absolved of the obligation to telecast an aggregate offour Titles per month. There was no explanation in the letter dated 30[th]April 2001 for termination of the Agreement. There was nothing toestablish the alleged impossibility of encryption of the DD Worldwidechannel. Had there been any impossibility of encryption, the Petitionerwould not have shifted in September 2000 the telecast to new satellitePAS-10eliminatingthetechnicalproblemregardingencryption.Consequently, by not getting the DD Worldwide channel encrypted andby serving notice of termination, the Petitioner had committed breachof the contract resulting in non-screening of the films and consequentloss of revenue to the Respondent.

(4)The Petitioner not having served upon the Respondent the requisiteadvance notice of 60 days for termination of the Agreement, thetermination became effective after the expiry of the 60 day period on30[th]June, 2001. Consequently, the Petitioner was bound to pay theRespondent for four films, three from Schedule I and one from ScheduleII per month from 1[st]December 2000 to 30[th]June, 2001. Since theagreed rate was Rs.3 lakh per film from Schedule I and Rs.6 lakh perfilm from Schedule II, the aggregate amount that the Respondent wouldadvance notice of 60 days for termination of the Agreement, thetermination became effective after the expiry of the 60 day period on30[th]June, 2001. Consequently, the Petitioner was bound to pay theRespondent for four films, three from Schedule I and one from ScheduleII per month from 1[st]December 2000 to 30[th]June, 2001. Since theagreed rate was Rs.3 lakh per film from Schedule I and Rs.6 lakh perfilm from Schedule II, the aggregate amount that the Respondent would

have earned was Rs.1.05 crores. This amount had to be paid to theRespondent together with interest at 12% per annum from 12[th]March,2002 till the date of payment.The Petitioner was asked to pay Rs.3lakhs to the Respondent for the costs of arbitration.

Submissions of counsel

13. Mr. Rajeev Sharma, learned counsel for the Petitioner, submitted that thelearned Arbitrator misinterpreted Clauses 3(a) and 4(a) of the Agreement andthereby rendered them redundant.He submitted that the Arbitrator erred inholding that there was an obligation on the Petitioner to telecast four Titles permonth and even pay for the films not telecast. This was contrary to the expressterms of the contract. In holding that the Petitioner did not have right not totelecast four films per month the learned Arbitrator read into the contract animplied term which did not exist. Reliance was placed on the decisions in SteelAuthority of India v. J.C. Budharaja (1999) 8 SCC 122, Food Corporation ofIndia v. Chandu Construction (2007) 4 SCC 697 and Oil and Natural GasCorporation Ltd. v. Schlumberger Asia Services Ltd., 2006 (3) ArbLR 610(Delhi). The Award was, therefore, contrary to the express provisions of thecontract and, therefore, contrary to the public policy of India.

14. In reply, Mr. Chetan Sharma, learned Senior Counsel for the Respondent,submitted that the clauses in the Agreement had to be interpreted in mannerthat made commercial sense. It is submitted that by failing to have the signalsencrypted by 30[th]November 2000 the Petitioner could not take advantage of itsown wrong which resulted in frustration of the contract. Reliance was placedon the decisions in Kusheshwar Prasad Singh v. State of Bihar (2007) 11 SC447 and Commissioner of Customs (Preventive) Mumbai v. M. Ambalal andCompany (2011) 2 SCC 74. According to Mr. Chetan Sharma, conjointreading of Clauses 2, 3 and 4 of the Agreement would show that there wasindeed binding obligation on the Petitioner to not only source three Titles

from Schedule I and one Title from Schedule II per month for telecast on DDWorldwide but also in fact telecast them. If this was not to be treated as abinding obligation, then the entire contract would be meaningless. Also sincefor one month the Petitioner had exclusive rights to the films sourced from theRespondent, the Respondent was deprived of the use of those films for thatperiod. Therefore, the Petitioner was bound to compensate the Respondent forthe loss on account of the failure of the Petitioner to telecast the films. It issubmitted that the view of the learned Arbitrator was plausible one and couldnot be held to be perverse. Lastly, it was submitted that if the latter portion ofClause 4(a) rendered it unworkable, it could be severed and the remainingportion given effect to. Reliance was placed on the decision in Shin SatellitePublic Co. Ltd. v. Jain Studios Ltd. (2006) 2 SCC 682.

Impossibility of performance

15. The Agreement between the parties, whereby films to be provided by theRespondent were to be telecast on the DD Worldwide channel by thePetitioner, was premised on the Petitioner having to encrypt the signals. Thiswas because the Respondent held copyright in the films only for the territoriesoutside India.It was clear, therefore, that without such encryption thePetitioner would not be able to ensure that the signals were not received inIndia. Otherwise, there would be breach of the copyright. Therefore, the verybasis of the Agreement was the encryption of the signals.

16. The fact that the Petitioner was unable to proceed with the encryption wasknown to the Respondent. This was primarily on account of the fact that thePetitioner could not set up IRDs in as many as 146 countries within shortspan of time. It is obvious that the Petitioner could not have possibly met thedeadline of 30[th]November 2000 for encryption of signals. The learnedArbitrator concluded that the encryption was not an impossibility since thePetitioner was in September 2001 able to shift the telecast to new satellite,

PAS-10, thus eliminating the problem regarding encryption. The learnedArbitrator failed to appreciate that this happened ten months after 30[th]November 2000 which was the deadline that the Petitioner had set for itselfunder the Agreement. It is nobody’s case that as of that date encryption waspossible. If on account of the impossibility it faced in complying with the saidessential requirement of encryption, the Petitioner invoked the terminationclause in the Agreement, it cannot be held to have acted in deliberate breach ofthe contract. This was in fact the reason given by the Petitioner in the letterdated 30[th]April 2001 to the Respondent informing that the Agreement couldnot be implemented.

17. In Satyabrata Ghose v. Mugneeram Bangur & Co. AIR 1954 SC 44, theSupreme Court explained that “the performance of an act may not be literallyimpossible but it may be impracticable and useless from the point of view ofthe object and purpose which the parties had in view and if an untoward eventor change of circumstances totally upset the very foundation upon which theparties rested their bargain, it can very well be said that the promisor to do.”Referring to Section 56 of the Contract Act, the Supreme Court held that inthose circumstances it could well be said that the Agreement itself was voidand that the performance of the contract being rendered impossible, “theparties are absolved from further performance of it as they did not promise toperform an impossible act.” The conclusion of the learned Arbitrator in theimpugned Award that there was breach of the contract committed by thePetitioner by failing to have the signals encrypted by 30[th]November 2000cannot be sustained in law.

No binding obligation on the Petitioner to telecast four films per month

18. The conclusion of the learned Arbitrator that there was an absoluteobligation on the Petitioner to telecast four films sourced from the Respondent

per month and pay for them was based on an erroneous interpretation of therelevant clauses of the Agreement. Clause 3(a) of the Agreement, which hasbeen extracted hereinbefore, opens with the words: “Prasar Bharati shall havethe right but not the obligation to telecast the Titles which are sourced fromB4U only on the DD Worldwide Services (DD Worldwide) Channel…” Inview of the express wording of Clause 3(a), it is not possible to read into it anobligation, much less an absolute one, on the Petitioner to telecast every filmsourced by it from the Respondent. This position becomes clearer on readingof Clause 4(a) which sets out the terms of payment for the films sourced. Theproviso to Clause 4(a) makes it clear that the “Petitioner shall not be under anyobligation to pay the consideration in respect of any of the Titles which mayhave been supplied by B4U but not telecast by Prasar Bharati for any reasonwhatsoever.” Even the earlier portion of Clause 4(a) requires the Petitioneronly to pay “for the Title that Prasar Bharati telecasts under this Agreement”.In other words, the latter part of Clause 4(a) is not unworkable or severable assuggested by the learned Senior Counsel for the Respondent. Clause 4(a) hasto be read as whole. It is consistent with Clause 3(a) which makes it clearthat there is no obligation on the Petitioner to telecast any of the films sourcedby it from the Respondent. The obligation to make payment arose only when asourced film was telecast. This is evident form plain reading of the aboveclauses, whether collectively or separately. The wording of the clauses isunambiguous and no two interpretations are possible. In holding that there wasno clause in the Agreement that gave the Petitioner the ‘right not to telecast afilm’, the learned Arbitrator misdirected himself in posing the wrong question.The correct question to ask was whether there was positive obligation on thePetitioner to telecast four films every month and the answer to that was plainlyin the negative. The learned Arbitrator’s conclusion that there was an absoluteobligation on the Petitioner to telecast four films every month is contrary to theclauses of the Agreement.

19. The other conclusion that the Petitioner was obliged to pay for four filmsevery month even if such films were not telecast is plainly contrary to andbased an erroneous interpretation of Clauses 3 (a) and 4 (a) of the Agreement.The obligation to pay arose only where film was in fact telecast and nototherwise. Consequently, the learned Arbitrator also erred in determining thecompensation payable by the Petitioner to the Respondent as Rs.1.05 croresbased on the consideration payable for the films in terms of Clause 4(a) of thecontract.

20. In Steel Authority of India v. J.C. Budharaja, the Supreme Court held asunder (SCC, pp.130-132):

“15…. It is settled law that arbitrator derives the authority fromthe contract and if he acts in manifest disregard of the contract,the award given by him would be arbitrary one. This deliberatedeparture from the contract amounts not only to manifestdisregard of the authority or misconduct on his part, but it maytantamount to mala fide action. In the present case, it is apparentthat awarding of damages of Rs. 11 lakhs and more for the allegedlapses or delay in handing over work site is, on the face of it,against the terms of the contract.

17.It is to be reiterated that to find out whether the arbitratorhas travelled beyond his jurisdiction and acted beyond the termsof the agreement between the parties, agreement is required to belooked into. It is true that interpretation of particular conditionin the agreement would be within the jurisdiction of the arbitrator.However, in cases where there is no question of interpretation ofany term of the contract, but of solely reading the same as it is andstill the arbitrator ignores it and awards the amount despite theprohibition in the agreement, the award would be arbitrary,capricious and without jurisdiction. Whether the arbitrator hasacted beyond the terms of the contract or has travelled beyond hisjurisdiction would depend upon facts, which however would bejurisdictional facts, and are required to be gone into by the court.Arbitrator may have jurisdiction to entertain claim and yet he maynot have jurisdiction to pass award for particular items in view ofthe prohibition contained in the contract and, in such cases, itwould be jurisdictional error. For this limited purpose referenceto the terms of the contract is must.”

21. Further in Food Corporation of India v. Chandu Construction, the Court

observed as under (SCC, pp.702):

“11. It is trite to say that the arbitrator being creature of theagreement between the parties, he has to operate within the fourcorners of the agreement and if he ignores the specific terms ofthe contract, it would be question of jurisdictional error on theface of the award, falling within the ambit of legal misconductwhich could be corrected by the Court. We may, however, hastento add that if the arbitrator commits an error in the constructionof contract, that is an error within his jurisdiction. But, if hewanders outside the contract and deals with matters not allottedto him, he commits jurisdictional error.”agreement between the parties, he has to operate within the fourcorners of the agreement and if he ignores the specific terms ofthe contract, it would be question of jurisdictional error on theface of the award, falling within the ambit of legal misconductwhich could be corrected by the Court. We may, however, hastento add that if the arbitrator commits an error in the constructionof contract, that is an error within his jurisdiction. But, if hewanders outside the contract and deals with matters not allottedto him, he commits jurisdictional error.”

22. Applying the law explained in the above decisions to the case on hand,there is no difficulty in concluding that the impugned Award is vitiated by apatent illegality as the learned Arbitrator “has acted beyond the terms of thecontract” and has committed jurisdictional error. The impugned Award iscontrary to the express provisions of the contract between the parties.

23. For the aforementioned reasons, the impugned Award dated 17[th]December, 2008 is set aside. The petition is allowed with costs of Rs.10,000/-which shall be paid by the Respondent to the Petitioner within four weeks.

January 17, 2012s.pal

S. MURALIDHAR, J.