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TMI Blog1963 (4) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... ered at that rate amounted approximately to ₹ 39 lakhs. The Government of India accepted the tender. The acceptance letter (with which was enclosed Form F.D. (M)70 setting out the general conditions of contract) was signed by the Chief Director of Purchases. Condition No. 13 in Form F.D. (M) 70 contained an arbitration clause: "In the event of any question or dispute arising under these conditions or any special Conditions of Contract or in connection with this contract (except as to any matters the decision of which is specially provided for by these conditions) the same shall be referred to the award of an arbitrator to be 'nominated by the Chief Director and an arbitrator to be nominated by the Contractor or in the case of the said arbitrators not agreeing, then to the award of an Umpire to be appointed by the arbitrators in writing before proceeding on the reference and the decision of the arbitrators, or in the event of their not agreeing of the Umpire appointed by them shall be final and conclusive x x x x The respondent took delivery of 29,93,597 packets of cigarettes and paid ₹ 17,78,573/6/4 but on inspection he found that some cigarettes were mild ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 68,833/12/3 as interest. The umpire accordingly awarded against the Union of India ₹ 3,26,251/6/3 and future interest and costs of the arbitration. The respondent applied to the Subordinate Judge, Delhi for filing the award under s. 14 of the Arbitration Act, and the Union of India applied for an order setting aside the award. It was contended, by the Union of India that there was no legally binding contract between the Union and the respondent, for the acceptance note was not signed on behalf of the Governor-General of India, and the entire proceeding including the appointment of the arbitrators and the umpire was vitiated for want of compliance with s. 175 (3)of the Government of India Act, and that in any event the award contained errors of law apparent on its face. The Subordinate Judge, refused the motion for setting aside the award and ordered that a decree be issued in terms of the award. In appeal against the order refusing to set aside the award, the High Court of Punjab confirmed the order. Two questions arise for determination in this appeal :-- (1) Whether the award is liable to be set aside on the ground that there was in existence no valid arbitration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r-General, if it was made in exercise of the executive authority of the Dominion, and it had to be executed on behalf of the Governor-General, and by such persons and in such manner as he directed or authorised. This Court in Seth Bikhraj Jaipuria v. Union of India ([1962] 2 S.C. R. 880), held in dealing with the validity of contract which did not conform to the requirements of s. 175 (3) of the Government of India Act that the provisions of s. 175 (3) were mandatory and not directory and if the contract did not conform to the requirements prescribed by s. 175 (3), no obligation enforceable at law flowed therefrom. The authority of an arbitrator depends upon the authority conferred by the parties by agreement to refer their differences to arbitration. By s. 2 (a) of the Arbitration Act, 1940 "arbitration agreement" means "a written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not." A writing incorporating a valid agreement to submit differences to arbitration is therefore requisite:it is however not a condition of an effective arbitration agreement that it must be incorporated in a formal agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use, New Delhi." By el. 9 delivery was to be made, ex site the Government agreeing to afford assistance for movement to the extent feasible, and by cl. 11 import duty on the cigarettes was to be , paid by the Government. Clause 6 provided that the stock of cigarettes to be delivered will be surveyed by the Survey Board appointed by the Government of India and the decision of the Board shall be binding on the tenderer. In the letter dated August 21, 1946, submitting his tender the respondent stated that he, was Willing to offer a rate of Re.-/8/3 per packet only on the condition that the Government gave "a guarantee not to undersell the cigarettes at any stage.;' It appears that the respondent had a discussion with the Chief Director on September 3, 1946, and certain terms were agreed upon, which were robe incorporated in the acceptance letter. In his letter dated September 4, 1946, the respondent set out these terms. These terms clearly show that the Government undertook certain obligations, such as appointment of a Survey Board, if the goods were rejected on the ground that they were unfit for consumption, issue of separate delivery letters for each Depot to facilita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the Government of India did not contend before the arbitrator that there was in law no arbitration agreement on which the arbitrator was competent to act would not invest the arbitration agreement with any validity. It is from the terms of the arbitration agreement that the arbitrator derives his authority to arbitrate: if in law there is no valid arbitration agreement, the proceedings of the arbitrator could be unauthorised. Every contract to bind the Government must comply with the requirements of s. 175 (3) of the Government of India Act, 1935, and waiver will not preclude the Government from pleading absence of a contract in consonance with the law. An award being a decision of an arbitrator whether a lawyer or a layman chosen by the parties, and entrusted with power to decide a dispute submitted to him is ordinarily not liable to be challenged on the ground that it is erroneous. In order to make arbitration effective and the awards enforceable, machinery is devised for lending the assistance of the ordinary courts. The Court is also entrusted with power to modify or correct the award on the ground of imperfect form or clerical errors, or decision on questions not referred, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess it is satisfied that the arbitrator had proceeded illegally interfere with the decision. The argument advanced by the respondent that in the present case specific questions were referred to the umpire, and his decision on those questions must be regarded as binding and not liable to be re-opened, even assuming that there is some error on the face of the award, must therefore be examined. The arbitrators on July 16, 1948 called upon the parties to file their respective statements of claim and written statement. The respondent filed on August 16, 1948, an argumentative claim petition setting out in paragraph-22 the three heads under which he made a total claim of ₹ 5,95,518/13/-. To this claim, the Dominion of India filed a written statement denying the claims made by the respondent. A replication was filed by the respondent to the written statement. The arbitrators recorded that the parties had complied with the order, that issues had been proposed by counsel for the respondent, and that the parties were agreed that the dispute between them be tried on those issues. Then they set out ten substantive issues, and evidence was led before the arbitrators. The arbitrators recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... error on its face: "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 point of law in the course of the proceedings is not enough." The learned Judge also observed at p. 59 after referring to F.R. Absalom Ltd. v. Great Western (London) Garden Village Society : "Simply because the matter was referred to incidentally in the pleadings and agruments 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." In dealing with a similar question in M/s. Alopi Parshad & Sons Ltd. v. The Union of India ([1960] 2 S. C. R. 793), the Court observed: "Issues were undoubtedly raised by the arbitrators, but that was presumably to focus the attention of the parties on the points arising for adjudication. The Agents had made their claim before the arbitrators, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e latter case no such interference is possible upon the ground that it so appears that the decision upon the question of law is an erroneous one." Then after referring to the authorities it was observed at p. 610: " x x x The primary quarrel between the parties was whether, if the value of work executed and materials on site up to and including March 11, 1929, had been truly assessed, the net value available for certification on that date was in excess of(as the contractor alleged) or less than (as the employer contended) the amount which had actually been certified upto and including that date x x x x. Those were the disputes in regard to the issue of certificates and the validity of the notice' which were in general terms submitted to the arbitrator. 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 so as to include therein the excess net value which they had alleged and which the arbitrator has found (though for a reduced amount) to have existed. on Mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive only if there be an agreement express or implied that the arbitrator will decide the question specifically referred to him and that his decision will be binding upon the parties. In the absence of any such contract in the form prescribed, a plea of an agreement subsequent to the reference would be futile. We are therefore unable to agree with the High Court that specific questions of law were referred to the arbitrators, the decision whereof is binding upon the parties. The question then remaining to be decided is whether the award of the umpire was in law erroneous on the face of it. The umpire has awarded ₹ 1,32,417/10/-under the head loss suffered by the respondent in respect of the packets of cigarettes delivered to him. He has awarded ₹ 1,25,000/- in respect of the incidental expenses and ₹ 68,833/12/3 as interests. The Loss sufferred in respect of the packets of cigarettes is computed in this manner: the contract rate of cigarettes was Re.-/8/3 per packet, the respondent was able to sell the packets supplied to him at the rate of 'Re. -/4/9 per packet. That a part of the stock of cigarettes supplied to the respondent was mildewed and unfit for consum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed whatsoever after the delivery is made at the depot". When he took delivery of the goods, he became owner of the goods by the express intendment of the contract. The expenditure incurred for advertisement, publicity, storage, agency commission and other overhead expenses since the respondent took delivery was therefore in respect of his own goods and he cannot claim these expenses as part of compensation payable for breach of warrant in respect of goods retained by him. The respondent was undoubtedly entitled to the difference between the contract price and the market price of the goods which he retained, and that compensation has been awarded to him. Transport and storage charges after the Government agreed to take back the goods, properly attributable to the goods, may also be awarded to the respondent as expense incurred on behalf of the Government of India. But no such claim was made. For the goods returned the respondent could not maintain a claim for damages, because the contract was by mutual arrangement cancelled. For his claim for incidental expenses in respect of goods appropriated by him the respondent's claim could not be, apart from the damages, awarded. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the contract with the Government and he was entitled to recover from the Dominion of India interest paid by him to his bankers, for the period during which his moneys remained with the Dominion of India. Mr. Pathak for the respondent submits that the umpire was in this state of affairs competent to award interest on the amount which was detained by the Dominion by way of damages. But as held by the Judicial Committee in Bengal Nagpur Railway Company Ltd. v. Ruttanji Ramji ((1937) L.R. 65 I.A. 66.), in the absence of any usage or contract, express or implied, or of any provision of law to justify the award of interest, interest cannot be allowed by way of damages caused to the respondents for wrongful detention of their money. In that case in an action against the Railway Company for remuneration for work done by the contractor not covered by the contract ₹ 67,000/- were found due by the Railway Company to the contractor on the basis of fair and reasonable rates. The contractor claimed interest on that amount for the period prior to the date of the suit. The Judicial Committee held that interest on the amount awarded as compensation could not be awarded by way of damages, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tence of a state of circumstances which attracts the equitable jurisdiction, as, for example, the non-performance of a contract which equity can give specific performance. The present case does not, however, attract the equitable jurisdiction of the court and cannot come within the purview of the proviso. The judgment of Their Lordships of the Privy Council in Bengal Nagpur Railway Company's case was relied upon in Seth Thawerdas Pherumal's case ([1955] 2 S.C.R. 48 ) in negativing a claim for interest. In that case a contractor had entered into a contract with the Dominion of India for supply of bricks. Under a clause which required that all disputes between the parties to the contract should be referred to arbitration, dispute having arisen, the matter was referred to arbitration and the arbitrator gave award in the contractor's favour. The Union of India which had succeeded to the rights and obligations of the Dominion contested the award on numerous grounds one of which was the liability to pay interest on the amount awarded. Bose, J, in delivering judgment of the Court observed that the interest awarded to the contractor could not in law be awarded. He pointed out t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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