Seth Thawardas Pherumal Vs. The Union of
India  INSC 20 (24 March 1955)
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,
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
(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 49 331, 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
(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
(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.
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
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).
7 50 C. K. Daphtary, Solicitor-General for
India (Porus A. Mehta and P. G. Gokhale, with him), for the respondent (In both
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 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.
51 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 52 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 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
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
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? 53 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 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 54 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
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
(1)  A.C. 395.
(2)  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.
55 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 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.
56 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 57 monthly quota of bricks
The argument of the department that 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
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
" 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 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- "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)  A.C. 592, 616.
59 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 there under............
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 jurisdiction
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 pleadings 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
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 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
61 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. Before the agreement is signed, one
party wants to include a further condition in the contract. We will assume that
the 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 63 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 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 64 an error in
law to hold that any contractual obligation can be inferred or implied from
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
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)  A.C. 356 at 371.
65 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
(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 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 installment 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
However, that was a (1) 65 I.A. 66.
9 66 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.