Full Judgment Text
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PETITIONER:
SETH THAWARDAS PHERUMAL
Vs.
RESPONDENT:
THE UNION OF INDIA(and connected appeal)
DATE OF JUDGMENT:
24/03/1955
BENCH:
ACT:
Arbitration Act, 1940, (Act X of 1940), s. 16(1)(c)-
Arbitration -Award-Legality thereof-When can be challenged-
Arbitrator Condition precedent for his jurisdiction-Award-
When final-Both parties specifically referring a question of
law for the decision of arbitrator-Cases where question of
law specifically referred and cases where decision
incidentally material (however necessary) in order to decide
the question actually referred-Distinction between-Wrong
construction of contract-Error of law-Interest awarded-
Contract not providing for it-Requirements of Interest Act,
1839 (Act XXXII of 1839) not fulfilled-Specific type of loss
actually contemplated by the parties-Express stipulation
that no damage will be payable Parties bound down to the
agreement-Agreement on which suit based not found in the
written contract but implied under s. 9 of the Indian
Contract Act, 1872-Matter not covered by the arbitration
clause Error of law apparent on the face of the award,
HEADNOTE:
The appellant, a contractor, entered into a contract with
the Dominion of India for the supply of bricks. A clause in
the contract required all disputes arising out of or
relating to the contract to be refered to arbitration.
Disputes arose and the matter was duly referred. The
arbitrator gave an award in the contractor’s favour. The
Union Government, which by then had displaced the Dominion
of India, contested the award on a number of grounds.
Held:(1) that it is not enough for the contract to provide
for arbitration; more is necessary. An arbitrator only gets
jurisdiction when either, both the parties specifically
agree to refer specified matters or, failing that, the court
compels them to do so under the arbitration clause if the
dispute is covered by it;
(2) the legality of an award cannot be challenged on facts,
but it can be challenged on questions of law provided the
illegality is apparent on the face of the award: s. 16(1)(c)
of the Arbitration Act;
(3) the only exception is when both parties specifically
refer a question of law for the decision of the arbitrator.
In that event they are bound by his decision on that
particular question as well as by his decision on the facts.
But a distinction must be drawn between cases in which a
question of law is specifically referred and those in which
a decision is incidentally material (however necessary) in
order to decide the question actually referred. The law
about this is the same in India as in England. 1923 A.C. 395
and 1933 A.C. 592, followed. 54 C.W.N. 74 at 79, 50 I.A. 324
at 330
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331, 54 I.A. 427 at 430, 29 I.A. 51 at 60, 1942 A.C. 356 at
368 referred to and 1950 S.C.R. 792 at 798, explained;
Quaere:-Whether the courts will interfere when a question of
law is specifically referred if the arbitrator acts
illegally in deciding it, such as deciding on inadmissible
evidence or on principles of construction which the law does
not countenance. 1923 A.C. 395 at 409, referred to;
(4) a wrong construction of the contract is an error of law
and can be challenged provided the error appears on the face
of the award;
(5) so is the awarding of interest when the contract does
not provide for interest and the requirements of the
Interest Act are not fulfilled:65 I.A. 66, referred to.
Quaere: whether the Interest Act applies to arbitrations;
(6) when a specific type of loss is directly contemplated
by the parties to a contract and they expressly stipulate
that no damages will be payable in respect of it they must
be bound down to their agreement and any claim for damages
in respect of such loss must be dismissed;
(7) when the agreement on which the suit is based is not to
be found in a contract which has been reduced to writing but
has to be implied under s. 9 of the Contract Act then the
matter is not covered by an arbitration clause of the kind
referred to above because the dispute in such a case arises
out of and relates to the implied agreement and not to the
written contract: 1942 A.C. 356 at 371, referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 260 of 1953
and connected appeal (C.A. No. 12 of 1954).
Appeals from the Judgment and Decree dated the 11th day of
May 1951 of the High Court of Judicature at Patna in
Miscellaneous Appeal No. 253 of 1950 and in appeal from
Original Order No. 252 of 1950 arising out of the order
dated the 11th day of May 1951 of the Court of Subordinate
Judge, Dhanbad in Suit No. 34 of 1949 and in Title Suit No.
27 of 1949 respectively.
Mahabir Prasad, Advocate-General for the State of Bihar (S.
P. Varma and M. Sinha, with him), for the appellant (In
Civil Appeal No. 260 of 1953).
Mahabir Prasad, Advocate- General for the State of Bihar (M.
M. Sinha for R. C. Prasad, with him), for the appellant (In
Civil Appeal No. 12 of 1954).
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C. K. Daphtary, Solicitor-General for India (Porus A. Mehta
and P. G. Gokhale, with him), for the respondent (In both
the Appeals).
1955. March 24. The Judgment of the Court was delivered by
BOSE J.-This appeal and Civil Appeal No. 12 of 1954, which
will also be governed by this judgment, raise the same
points though there are some differences in the facts. We
will deal with Civil Appeal No. 260 of 1953 first.
The suit there related to an arbitration matter. The
appellant before us, whom it will be convenient to call the
contractor, entered into a contract with the Dominion of
India through an Additional Chief Engineer of the C.P.W.D.
on 1-11-1945 for the supply of bricks to the C.P.W.D., a
department of the Dominion Government. Disputes arose about
a number of matters. Clause 14 of the agreement provided
that all disputes arising out of or relating to the contract
should be referred to the Superintending Engineer of the
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Circle for the time being. Accordingly, there was a
reference on 21-1-1949 and an award followed on 8-5-1949.
It was filed in the Court of the Subordinate Judge, Dhanbad,
and the contractor prayed that it be accepted and that a
decree be passed in terms of it. The Dominion of India
filed objections under section 30 of the Arbitration Act,
1940 and prayed that the award be set aside and
alternatively that it be modified or corrected. The
contractor’s application was registered as a suit under
section 20(2) of the Act and a decree was passed in terms of
the award on 18-3-1950.
By that time the Constitution had come into force and the
Union of India replaced the Dominion of India as a
defendant. The Union of India filed an appeal to the High
Court. The appeal was allowed in part. The contractor
thereupon appealed to this Court.
The dispute that was referred to the arbitrator consisted of
17 heads of claim but only three of them are contested here,
namely items 5, 8 and 17.
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In the 5th head of claim the contractor claimed Rs. 75,900
as the price of 88 lacs of katcha bricks that were destroyed
by rain. These bricks were not the subject-matter of the
contract but the contractor put his claim in this way.
The contract was for the supply of 2-1/2 crores of pucca
bricks which bad to be delivered according to the following
schedule-
30 lacs by 25-1-46
50 lacs by 25-2-46
55 lacs by 25-3-46
55 lacs by 25-4-46
60 lacs by 25-5-46.
Delivery was to be at the kiln site. In order to keep to
this schedule the contractor bad to think ahead and work to
a particular time table. First, he had to prepare katcha or
unbaked bricks and place them in his kilns for baking.
While this lot was baking be had to prepare and stock
another lot of katcha bricks ready to take the place of the
baked bricks as soon as they were removed. It was the duty
of the C.P.W.D. to remove these bricks as soon as they were
ready for delivery,that is to say, as soon as they were
fully baked. At a certain stage of the contract the
C.P.W.D. failed to remove the baked bricks which were ready
for delivery and removal. This caused a jam in the kilns
and prevented the contractor from placing a fresh stock of
unburnt bricks in the kilns, and in the meanwhile his stock
pile of katcha bricks ready for baking kept on mounting up.
Had everything been done to time the 2-1/2 crores of bricks
would have been delivered before the rains set in. But
owing to the default of the C.P.W.D. in not removing the
burnt bricks which were ready for removal, delay occurred in
the time table and the rains set in with the result that88
lacs of katcha bricks were destroyed by the rains. As this
loss was occasioned by the default of the C.P.W.D. the
contractor claimed that be should be paid their price.
The reply of the Union Government was two-fold. First, it
contended that the katcha bricks formed no part of the
contract and even if it was at fault in not
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taking delivery of the burnt bricks in time all that it
could be held liable for would be for breach of that
contract; and said that the loss that was occasioned by the
damage caused to the katcha bricks which formed no part of
the contract was too remote. Secondly, that compensation
for this loss could not in any event be claimed because this
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kind of situation was envisaged by the parties when the
contract was made and they expressly stipulated that the
Dominion Government would not be responsible. The Union
Government relied on additional clause 6 of the agreement
which is in these terms:
"The department will not entertain any claim for idle labour
or for damage to unburnt bricks due to any cause
whatsoever".
The arbitrator held that this clause was not meant "to
absolve the department from carrying out their part of the
contract" and so he awarded the contractor Rs. 64,075 under
this head.
We are clear that the arbitrator went wrong in law.
Government departments have their difficulties no less than
contractors. There is trouble with labour, there is the
likelihood of machinery breaking down in out of the way
places and so forth; there was also the danger of thunder
storms and heavy showers of rain in the month of May: it
will be remembered that the last date of delivery was 25-5-
46. if, with that in view, Government expressly stipulated,
and the contractor expressly agreed, that Government was not
to be liable for any loss occasioned by a consequence as
remote as this, then that is an express term of the contract
and the contractor must be tied down to it. If he chose to
contract in absolute terms that was his affair. But having
contracted he cannot go back on his agreement simply because
it does not suit him to abide by it. This is not to say
that Government is absolved from all liability, but all it
can be held responsible for is for damages occasioned by the
breach of its contract to remove the pucca bricks which it
had undertaken to remove. But what would such a breach
entail?
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The contractor had a duty under section 73 of the Contract
Act to minimise the loss, accordingly he would have had the
right to remove the bricks himself and stack them elsewhere
and claim compensation for the loss so occasioned; and
indeed two of his heads of claim (not in dispute here)
relate to that. He has been awarded Rs. 11,744-11-0 under
claim No. 4 for the extra load in connection with the
stacking of I crore 7 lacs of bricks due to the accumulation
at the kiln site owing to the department’s failure to work
to its part of the time table, and in addition, he has been
given Rs. 15,500 under claim 13 for the cost of levelling
and dressing land to enable him to stack these extra bricks.
Alternatively, he could have sold the bricks in the market
and claimed the difference in price, but ordinarily he could
not have claimed compensation for damage done to the katcha
bricks unless he could have shown that that kind of damage,
ordinarily too remote, was expressly contemplated by the
parties when the contract was made: section 73 of the
Contract Act. Here it is clear that this was in their
express contemplation and they chose to provide against such
a contingency by making clause 6 an express clause in their
contract. There can therefore be no doubt that the
arbitrator was wrong in his law. His construction of the
terms of the contract was at fault. The question now arises
whether his decision on this point is final despite it being
wrong in law.
In India this question is governed by section 16(1) (c) of
the Arbitration Act of 1940 which empowers a Court to remit
an award for reconsideration
"where an objection to the legality of the award is apparent
upon the face of it".
This covers cases in which an error of law appears on the
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face of the award. But in determining what such an error
is, a distinction must be drawn between cases in which a
question of law is specifically referred and those in which
a decision on a question of law is incidentally material
(however necessary) in order to decide the question actually
referred. If a question of law is specifically referred and
it is evident that the
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parties desire to have a decision from the arbitrator about
that rather than one from the Courts, then the Courts will
not interfere, though even there, there is authority for the
view that the Courts will interfere if it is apparent that
the arbitrator has acted illegally in reaching his decision,
that is to say, if he has decided on inadmissible evidence
or on principles of construction that the law- does not
countenance or something of that nature. See the speech of
Viscount Cave in Kelantan Government v. Duff Development
Co.(1) at page 409. But that is not a matter which arises
in this case.
The law about this is, in our opinion, the same in England
as here and the principles that govern this class of case
have been reviewed at length and set out with clarity by the
House of Lords in F. B. Absalom Ltd. v. Great Western
(London) Garden Village Society(1) and in Kelantan
Government v. Duff Development Co.(1). In Durga Prasad v.
Sewkishendas (3) the Privy Council applied the law expounded
in Absalom’s case(2) to India: see also Champsey Bhara & Co.
v. Jivraj Balloo Spinning and Weaving Co.(4) and Saleh
Mahomed Umer Dossal v. Nathoomal kessamal (5). The wider
language used by Lord Macnaghten in Ghulam Jilani v.
Muhammad Hassan(1) bad reference to the revisional powers of
the High Court under the Civil Procedure Code and must be
confined to the facts of that case where the question of law
involved there, namely limitation, was specifically
referred. An arbitrator is not a conciliator and cannot
ignore the law or misapply it in order to do what he thinks
is just and reasonable. He is a tribunal selected by the
parties to decide their disputes according to law and so is
bound to follow and apply the law, and if he does not, he
can be set right by the Courts provided his error appears on
the face of the award The single exception to this is when
the parties choose specifically to refer a question of law
as a separate and distinct matter.
(1) [1923] A.C. 395.
(2) [1933] A.C. 592.
(3) 54 C.W.N. 74, 79.
(4) 50 I.A. 324, 330 & 331.
(5) 54 I.A. 427, 430.
(6) 29 I.A. 51, 60.
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Reference was made to a decision of this Court in A. M. Mair
& Co. v. Gordhandass Sagarmull(1) where Fazl Ali, J. quoted
a passage from Viscount Simon’s speech in Heyman v. Darwins
Ltd.") where the learned Lord Chancellor (Viscount Simon) in
turn, quoted from Lord Dunedin in another case. It was
argued on the basis of this that if you have to have
recourse to the contract to establish your case, then the
dispute must fall within the arbitration clause. That is
undeniable but it is not enough that the dispute should fall
within the clause. It is also necessary that the parties
should define what the dispute is and agree to refer the
dispute so set out and defined to arbitration, or, if they
do not, that the Court should compel them to do so: (see
Lord Macmillan in Heyman’s case(1) just cited at pages 369
and 370). If, therefore, no specific question of law is
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referred, either by agreement or by compulsion, the decision
of the arbitrator on that is not final however much it may
be within his jurisdiction, and indeed essential, for him to
decide the question incidentally. Lord Russell of Killowen
and Lord Wright were both in the earlier case, F. R. Absalom
Ltd. v. Great Western (London) Garden Village Society(1), as
well as in Heyman’s case(2) and they would have pointed to
any distinction had there been a likelihood of conflict; but
in fact there is none and we do not read Fazl Ali J.’s
judgment as a decision to the contrary.
We have next to see whether the arbitrator was specifically
asked to construe clause 6 of the contract or any part of
the contract, or whether any question of law was
specifically referred. We stress the word "specifically"
because parties who make a reference to arbitration have the
right to insist that the tribunal of their choice shall
decide their dispute according to law, so before the right
can be denied to them in any particular matter, the Court
must be very sure that both sides wanted the decision of the
arbitrator on a point of law rather than that of the Courts
and that they wanted his decision oil that point to be
final.
(1) 1950 S.C.R. 792 at 798. (2) 1942 A.C. 356 at 368. (3)
1933 A.C. 592.
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The clause in the contract that requires disputes about the
contract to be referred to arbitration is clause 14 and is
in the following terms:
"Except where otherwise provided in the contract all
questions and disputes relating to the meaning of the
specification and instructions here in before mentioned and
as to quality of materials or as to any other question,
claim, right, matter or thing whatsoever in any way arising
out of or relating to the contract, specification,
instructions, orders or these conditions, or otherwise
concerning the supplies whether arising during the progress
of delivery or after the completion of abandonment thereof
shall be referred to the arbitration of the Superintending
Engineer of the Circle for the time being in the manner
provided by law relating to arbitration for the time being
in force who after such investigation as he may think proper
shall deliver his award which shall be final, conclusive and
binding on all parties to the contract".
The dispute sprang out of a series of claims made in a
number of letters written by the contractor to the
Additional Chief Engineer, C.P.W.D. and culminated in a
petition, Ex. B(1), in which the contractor summarised his
claims. The document is not dated. On receipt of this,
someone on behalf of the C.P.W.D. invoked the jurisdiction
of the arbitrator. That letter has not been filed. The
arbitrator then wrote to the contractor and asked him to
submit a statement of claim. That letter has not been filed
either but reference is made to it in Ex. C(1), the
statement claim which the contractor filed in response to
that letter. As the material documents setting out the
terms of reference are not here, we were asked by both sides
to infer what the terms were from this statement of claim
and the recitals in the award. The learned counsel for the
contractor relied on the following:
In the statement of claim-
"Item 5.-Loss of katcha bricks............ Rs. 75,900.
The chief reason of the destruction of these bricks was the
failure of the department to lift the
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monthly quota of bricks The argument of the department that
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they are not liable to compensate us on this account because
of clause 6 of the agreement is not correct.
Clause 6 refers to only such cases over which the department
has no control. But if the department would have lifted the
bricks (this was entirely under their control) then no such
loss would have occurred. Also be it noted that clause 6
refers only to ’damage’ and not to ’destruction.........
Damage means only partial loss.............it cannot mean
total destruction.:
The award states-
"The statement of claims submitted by the contractor
contains seventeen items in respect of which the contractor
claimed a total payment of Rs. 4,76,138-12-0 plus interest
i.e., approximate total amount claimed: Rs. 5,03,803-12-0 as
detailed below".
Then follow the seventeen items of which item 5 is-
"Payment for katcha bricks destroyed by rain: Rs. 75,900".
The body of the award deals with this as follows:
" Claim No. 5.
Payment for 88. lacs of katcha bricks destroyed by rain.
The contractor argued etc
The Executive Engineer stated .........The C.P.W.D. moreover
were safeguarded by clause 6 of the contract............
The contractor maintained that clause 6 of the contract
could not be invoked when the department was at fault as in
this case. Clause 6 was meant to cover contingencies which
were not of the department’s own making.
I hold that the removal of the bricks in such a manner or to
prevent accumulation in excess of 60 lacs was an implied
contractual obligation on the part of the C.P.W.D........ I
further hold that the C.P.W.D. cannot take shelter behind
clause 6 of the contract. This clause is not, in my
opinion, meant
8
58
to absolve the department from carrying out their part of
the contract. It is impossible not to admit this without
offending the rudiments of common sense reasoning".
We are of opinion that this is not the kind of specific
reference on a point of law that the law of arbitration
requires. In the first place, what was shown to us is no
reference at all. It is only an incidental matter
introduced by the Dominion Government to repel the claim
made by the contractor in general terms under claim No. 5.
In the next place, this was the submission of the contractor
alone. A reference requires the assent of both sides. If
one side is not prepared to submit a given matter to
arbitration when there is an agreement between them that it
should be referred, then recourse must be had to the Court
under section 20 of the Act and the recalcitrant party can
then be compelled to submit the matter under sub-section
(4). In the absence of either, agreement by both sides
about the terms of reference, or an order of the Court under
section 20(4) compelling a reference, the arbitrator is not
vested with the necessary exclusive jurisdiction.
Therefore, when a question of law is the point at issue,
unless both sides specifically agree to refer it and agree
to be bound by the arbitrator’s decision, the jurisdiction
of the Courts to set an arbitration right when the error is
apparent on the face of the award is not ousted. The mere
fact that both parties submit incidental arguments about a
point of law in the course of the proceedings is not enough.
The language of Lord Wright in F. R. Absalom Ltd. v. Great
Western (London ) Garden Village Society(1), a case similar
to this so far as this point is concerned, is apposite here-
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"There is here no submission of any specific question of law
as such and as a specific question of law; no doubt
incidentally, and indeed necessarily, the arbitrator will
have to decide some questions on the construction of the
building contract, but. the two matters submitted are both
composite questions of law and fact; there is no express
submission of the
(1) [1933] A.C. 592, 616.
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true effect of the contract on the basis of undisputed
facts, as in the Kelantan case(1) or as a separate and
distinct matter on facts to be separately assumed or found,
as in In re King and Duveen(2)..........The arbitrator was
not being asked simply and specifically to decide, upon some
agreed or assumed basis of fact, the true interpretation of
either clause 26 or clause 30 of the conditions or of both
together; he was being required to make an award on the two
matters submitted on whatever questions of fact and law
might emerge".
Clause 32 of the contract in the House of Lords case was the
equivalent of clause 14 in ours. It ran-
"Provided always that in case any dispute or difference
shall arise ............. as to the construction of the
contract or as to any matter or thing arising
thereunder............ such dispute shall be and is hereby
referred to the arbitration and final decision of etc."
The arbitrator relied on that to invest him with juris-
diction to determine,, as a matter of law, the construction
of clauses 26-30 of that contract. The House of Lords held
that in the absence of a specific reference about the
construction of the contract the jurisdiction of the Courts
was not taken away. Lord Russell of Killowen put it this
way at page 610-
"No specific question of construction or of law was
submitted. The parties had, however, been ordered to
deliver pleadings, and by their statement of claim the
contractor had claimed that the arbitrator should under his
powers revise the last certificate issued etc...... It is at
this point that the question of the construction of
condition 30 arose as a question of law, not specifically
submitted, but material in the decision of the matters which
bad been submitted. This question of law the arbitrator has
decided; but if upon the face of the award he has decided it
wrongly his decision is, in my opinion, open to review by
the Court".
That is exactly the position here. Simply because the
matter was referred to incidentally in the plead-
(1) [1923] A. C. 395. (2) [1913] 2 K.B. 32, 36.
60
ings and arguments in support of, or against, the general
issue about liability for damages, that is not enough to
clothe the arbitrator with exclusive jurisdiction on a point
of law.
The next question is whether the error is apparent on the
face of the award. That; in our opinion, is clear from the
passages we have quoted from the award.
We hold that clause 6 expressly relieves the Union
Government of all liability under this head of claim and
that the arbitrator was wrong in awarding any sum on that
account.
The next head in dispute is item No. 8 in the statement of
claim:
"Cost of additional wages paid to the coolies on account of
non-supply of ration and cloth-Rs. 51,495".
Here again no specific question of law was referred, so all
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we have to see is whether there is an error of law apparent
on the face of the award.
The contractor put his case as follows in the statement of
claim:
"At the time when this work was allotted to us there was
rationing system in the locality. As per conditions of
contract we were bound not to employ local labour and we had
to import coolies from far off places. We had in our employ
about 1800 coolies and it was an impossibility to arrange
their ration from open market. This difficulty was brought
to the notice of the authorities concerned, and they
promised us to supply ration. It was only after this
promise that we signed the agreement..... From a perusal of
these letters it is clear that the department promised us to
supply ration............... These circumstantial evidences
are sufficient enough to show that there was a mutual
understanding between the parties that ration will be
supplied. In the eyes of law even circumstantial evidence
is sufficient to prove that such a promise was made. Any
breach of that promise makes the department legally liable
to compensate for that loss.......... Apart from the legal
responsibility it was also a moral responsibility for the
department to supply ration".
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This claim, therefore, was not grounded on any clause of the
contract, nor was it said to be implied in the -contract.
What was relied on was a collateral promise evidenced, not
by the contract, but by two letters written by "the
department" and a promise by "the authorities concerned";
and later this promise is turned into a "mutual
understanding" and to a "moral responsibility" in addition
to a legal one.
The arbitrator dealt with this as follows. He began by
saying-
"The contractor stated that when he submitted his tender on
25-9-45 he did so in the bona fide belief that the
department would make the necessary arrangements, etc."
Then he sets out the following dates. On 1-11-45 the
contractor was told that his tender had been accepted. On
9-11-45 the contractor "warned" the Executive Engineer about
his "immediate requirements in respect of rations". The
contract was finally accepted and signed on 22-11-45.
Now it is admitted that the contract contains no clause
about rations and it is also evident that the question was
not raised when the tender was accepted on behalf of the
Dominion Government. The question was raised in a letter to
the Executive Engineer, and the contractor signed the
contract without waiting for a reply.
It is well settled that governments can only be bound by
contracts that are entered into in a particular way and
which are signed by the proper authority. A reference to
the agreement, Ex. A(1), will show that it was accepted on
behalf of the Dominion Government by the Additional Chief
Engineer and not by an Executive Engineer. A letter written
to the Executive Engineer would therefore have no effect and
even if it be assumed that the letter was forwarded to the
Additional Chief Engineer for consideration, what does it
amount to? A tender embodying certain terms is submitted
and is accepted on 1-11-45. Both sides are agreed on all
matters contained in it and their conduct shows that both
sides indicated that the contract should be reduced to
writing. Be-
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fore the agreement is signed, one party wants to include a
further condition in the contract. We will assume that the
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request was made to the other contracting party. But
without waiting for the assent of the other side, both sides
accept and sign the contract as it existed before the fresh
suggestion was made. It is an error in law to deduce from
this that there was acceptance of the fresh proposal. On
the contrary, the legal conclusion is that the new
suggestion was dropped and that the contractor was content
to accept the contract as it was without’ this condition.
In any case, a person cannot be bound by a one-sided offer
which is never accepted, particularly when the parties
intend that the contract should be reduced to writing. That
is the whole point of insisting on a document. It excludes
speculation as to what was and what was not agreed to
however much the matter might have been raised by one of the
parties during the stage of negotiation.
The arbitrator continues that the contractor stated that-
"it was a well known and established fact that Sindri was a
rationed area; that the C.P.W.D. were giving rations at
controlled rates to their employees and contractors through
arrangements with the local Civil Supply Authorities; that
nobody working under the C.P.W.D. was allowed to make
independent arrangements or approach the Civil Supply
Authorities direct"
and the contractor contended that the very fact that he
tendered such low rates showed that he expected to supply
his labourers with rations at controlled rates. The
arbitrator then sets out some more of the contractor’s
contentions and from them concludes that
"there was an implied contractual obligation for the
C.P.W.D. to make available controlled rations to the
contractor and that this obligation was not fulfilled with
due diligence and care".
He accordingly awarded Rs. 40,000 as compensation
under this head.
The error is apparent. -Facts must be based either on
evidence or on admissions; they cannot be found to
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exist from a mere contention by one side especially when
they are expressly denied by the other. The inference from
the facts stated above is that the contractor entered into
the agreement with his eyes open and whatever his one-sided
hopes may have been he was content to enter into the
agreement as it stood without binding the other side to the
new conditions and without even waiting to ascertain the
reaction of the other side to his further proposals.
It has to be remembered that rationing was not a matter that
was under the direction and control of the Dominion
Government. It was a local matter handled by the then
Provincial authorities and under their direction and
contract. The C.P.W.D., as a department of the Dominion
Government, was not concerned with rationing except that its
employees had to submit to rationing like everybody else in
the Sindri area. This confusion between the Dominion
Government and the Provincial Government occurs in the
arbitrator’s opening sentence under this head where he sets
out the contractor’s contention that
"commodities such as rations and cloth which were absolutely
essential for the maintenance of his labourers and which
were under Government control". As the arbitrator bases
solely on the contractor’s contentions it is evident that he
failed to appreciate the fact that the Dominion Government
and the Provincial rationing authorities were separate
entities distinct from one another. The position
accordingly reduces itself to this: two persons, neither of
which is a part of the Provincial Government or has any
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control over rationing, chose to enter into an agreement for
work in a rationed area. They insisted that their contract
should be reduced to writing, and that indeed was essential,
this being a contract with the Dominion Government which was
incapable of contracting in any other way; they agreed upon
and concluded all their terms; then, at the last minute, one
side raised a point about rationing but without waiting for
a reply and without having the term entered in the contract,
he signed the contract as it stood before-the point was
raised even during the negotiation. It is
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an error in law to hold that any contractual obligation can
be inferred or implied from these circumstances.
Then there is still another error. If this implied
agreement about rations and cloth does not spring out of the
written contract but is to be inferred collaterally as a
distinct and subsidiary contract, and we gather that that is
the finding, especially as reference was made to section 9
of the Contract Act, then that is not a contract to which
the arbitration clause can apply. Wide though it is, clause
14 is confined to any matter relating to the written con-
tract and if ration and cloth are not covered by the written
contract, they are not matters that relate to it. If parties
choose to add a fresh contract in addition to or in
substitution for the old, then the arbitration clause cannot
cover the new contract. See Lord Macmillan in Heyman v.
Darwins Ltd.(1).
The last item in dispute in this appeal is claim No. 17
about interest. The statement of claims sets out
"Item 17-Interest on the amount of money involved in this
claim at the rate of Rs. 6 percent.Rs. 27,665.
This work was finished in May 1946 and it was proper for
the department to have decided all our claims at least by
31st December 1947........................ But this was not
done. Due to this a heavy amount remained blocked up and we
were compelled to take money from our bankers on interest.
We therefore pray for interest for 16 months from 1-1-48 to
31-4-49".
The arbitrator held--
"The contractor’s contention that his claims should have
been settled by January 1948 is, in my opinion, reasonable.
I therefore award interest at 6% for 16 months on the total
amount of the awards given i.e., Rs. 17,363".
Then the arbitrator sets out the amounts awarded under each
head of claim. A perusal of them shows that each bead
relates to a claim for an unliquidated sum. The Interest
Act, 1839 applies, as interest is
(1) [1942] A.C. 356 at 371.
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not otherwise payable by law in this kind of case (see
Bengal Nagpur Ry. Co. v. Ruttanji Ramji(1)), but even if it
be assumed that an arbitrator is a "court" within the
meaning of that Act, (a fact that by no means appears to be
the case), the following among other conditions must be
fulfilled before interest can be awarded under the Act:-
(1) there must be a debt or a sum certain;
(2) it must be payable at a certain time or other-
wise;
(3) these debts or sums must be payable by virtue of some
written contract at a certain time;
(4) There must have been a demand in writing stating that
interest will be demanded from the date of the demand.
Not one of these elements is present, so the arbitrator
erred in law in thinking that he had the power to allow
interest simply because he thought the demand was
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reasonable.
It was suggested that at least interest from the date of
"suit" could be awarded on the analogy of section 34 of the
Civil Procedure Code, 1908. But section 34 does not apply
because an arbitrator is not a "court" within the meaning of
the Code nor does the Code apply to arbitrators, and, but
for section 34, even a Court would not have the power to
give interest after the suit. This was, therefore, also
rightly struck out from the award.
We pause to note that there was only a delay of five days at
the outside in the over-all picture. The last date for
removal of the last instalment of bricks was 25-5-46 and the
contractor says under this head that the whole contract was
completed by the end of May, 1946. It is difficult-to see
how 88 lacs of bricks could have been damaged by rain in the
last five days of May, and if the damage occurred before it
would have occurred anyway, for on the contractor’s case he
had to have a large stack of unbaked bricks on hand ready to
enter the kilns in order to keep pace with his time table.
However, that was a
(1) 65 I.A. 66.
9
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matter within the jurisdiction of the arbitrator and is not
a matter in which the Courts can interfere.
That concludes Civil Appeal No. 260 of 1953 and we now turn
to the other appeal, Civil Appeal No. 12 of 1954. Only two
items are in dispute here. Heads 4 and 17 of the claim.
The over-all pattern of the claim is the same as in the
other case. There was a contractor and he entered into an
agreement containing the same terms and conditions, except
about the details of supply. It was signed on the same day
as the other and by the same authority on behalf of the
Dominion Government., and the matter went before the same
arbitrator and the award in this case was given on 1-5-1949,
one week before the other award. Here also, no specific
question of law was referred and we need not cover the same
ground. Our decision is the same here as there.
The fourth head of claim is about cloth and rations. The
claim here., and the Dominion Government’s reply, is the
same as in the other case, but the award in this case is not
based on an implied contractual obligation but on "a moral
and implied obligation". The error here is even greater
than before. The sum claimed was Rs. 51,495 and the amount
awarded was Rs. 30,000.
The seventeenth head of claim was about interest. The
contractor claimed Rs. 27,665 and the arbitrator awarded Rs.
9,954. There is the same error of law apparent on the face
of the award.
The High Court was right in dismissing the claims made under
the heads in dispute here. The two appeals fail and each is
dismissed with costs in this Court.
Appeals dismissed.
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