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Jugalkishore Asati Vs. State of Madhya Pradesh - Court Judgment

LegalCrystal Citation
SubjectArbitration;Commercial
CourtMadhya Pradesh High Court
Decided On
Case NumberFirst Appeal No. 47 of 1973
Judge
Reported inAIR1979MP89; 1979MPLJ161
ActsArbitration Act, 1940 - Sections 8, 8(1), 37 and 37(5); Limitation Act, 1963 - Sections 14; Forest Act, 1927 - Sections 83; Madhya Pradesh Forest Contract Rules - Rule 8
AppellantJugalkishore Asati
RespondentState of Madhya Pradesh
Appellant AdvocateK.P. Munshi, Adv.
Respondent AdvocateK.K. Adhikari, Govt. Adv.
DispositionAppeal dismissed
Cases ReferredState v. Boota Singh
Excerpt:
.....but under section 37(5), arbitration act, and in order to exclude time taken up in arbitration proceedings the tests laid down by the legislature in section 37(5) must be applied and satisfied. wasudeo shrawan, air 1948 nag 334, were decisions prior to the enactment of arbitration act of 1940 and are no longer good law as there is specific provision made under section 37 of the arbitration act. the failure to pay an instalment is an important breach of the conditions of a forest contract. 9. even assuming that the stoppage of the work was wrongful, still the plaintiff has failed to prove that he has suffered any damages. the plaintiff has not produced his account books which would have been the best evidence to show as to what was the amount spent in collecting harra. p-9 dated 27-2-52,..........is restrained from recovering the amount so paid from the plaintiff.2. the plaintiff is a forest contractor. in a public auction held on 3-8-1949 the plaintiff acquired right to extract, collect and remove all the harra grown in government forest of lamta, baihar and shupkhar ranges, apart of balaghat range, raiyatwari, minhai forest and unoccupied lands lying within the boundaries of the said forest ranges and areas under the management of irrigation and veterinary departments within the said forest ranges. the indenture was signed by the forest secretary of the forest department of the defendant on 14-1-1950. the period of lease was from 30-1-1949 to 30-6-1952 as per ex. b.-1. the consideration of rs. 1,66,500/- was payable in six instalments each instalment being of rs......
Judgment:

C.P. Sen, J.

1. This is plaintiff's appeal against the dismissal of the suit with costs for damages and interest by the District Judge, Balaghat. The only relief granted is that the plaintiff is entitled to adjustment of an amount of Rs. 2391.20p. towards the last defaulted instalment and the defendant is restrained from recovering the amount so paid from the plaintiff.

2. The plaintiff is a forest contractor. In a public auction held on 3-8-1949 the plaintiff acquired right to extract, collect and remove all the Harra grown in Government forest of Lamta, Baihar and Shupkhar ranges, apart of Balaghat range, Raiyatwari, Minhai forest and unoccupied lands lying within the boundaries of the said forest ranges and areas under the management of Irrigation and Veterinary Departments within the said forest ranges. The indenture was signed by the Forest Secretary of the Forest Department of the defendant on 14-1-1950. The period of lease was from 30-1-1949 to 30-6-1952 as per Ex. B.-1. The consideration of Rs. 1,66,500/- was payable in six instalments each instalment being of Rs. 27,750/-. The last instalment fell due on 1-1-1952 and the plaintiff defaulted in paying this instalment. The D.F.O. by his letter Ex. D. 5 dated 20-2-1952 issued a revenue recovery certificate to the Tahsildar for recovery of the last instalment from the plaintiff. Copies of this letter were endorsed to the Range Officers with direction that they should stop working of the forest contract by the plaintiff till the production of a challan showing payment of the last instalment. The plaintiff moved the D.F.O. for extension of time to pay the last instalment and for stay of further proceedings against him. The D.F.O. by his letter dated 4-3-1952 stayed recovery proceedings before Tahsildar till 20-3-1952. The plaintiff's application was forwarded to the Conservator of Forest who returned the same as being unstamped. In the meanwhile, the plaintiff moved several applications for postponement of recovery proceedings and offered to pledge stock of about 1 lac maunds of Harra as security towards payment of the last instalment. Vide Ex. P. 14 dated 16-4-1952 the plaintiff applied to the Secretary of the Forest Department for extension of time to pay the last instalment and also for extension of the contract period. The secretary by his memo Ex-P. 21 dated 19-6-1952 rejected the plaintiff's prayer for extension of the contract period but granted him time till 30-6-1952 to pay the last instalment. This letter was communicated to the plaintiff by D. F. O. by his memo Ex. P. 22 dated 27-6-1952. Thereafter, as per Clause No. 9 of the indenture the plaintiff referred the dispute to the sole arbitration of the Board of Revenue vide Ex. P. 2 dated 14-8-1952, The defendant made appearance before the Board and contested the claim and insisted on enforcement of the arbitration clause. However, on 7-4-1961 the Boardof Revenue declined to arbitrate in the matter expressing its inability because of the load of regular work in the Board. The plaintiff then served a notice Ex. P. 26 dated 20-6-1961 asking the defendant to concur in the appointment of another arbitrator. Since no reply was received, the plaintiff applied under Section 8 of the Arbitration Act, 1940, on 3-8-1961 for substitution of another arbitrator. The application was contested by the defendant. Finally the application was rejected by the Additional District Judge, Balaghat, on 24-8-1962 vide Ex. D. 3. The plaintiff then sent a notice under Section 80 C. P. C. on 20-11-1962 vide Ex P. 27 claiming Rs. 75,928.33p. as damages along with interest for the wrongful act of the defendant and its servants and then filed the present suit on 23-9-1963.

3. The plaintiff's case is that there was sudden and unforeseen depression in the Harra market at the end of 1951 on account of closure of Suez Canal and stoppage of shipment. At about the same time, proprietary rights were abolished under the M. P. Abolition of Proprietary Rights Act, 1950, and created complications for the plaintiff. This led to shortage of funds in the hands of the plaintiff and so he was not able to make the payment of the last instalment which was due on 1-1-1952. Despite valid grounds for nonpayment of the last instalment, the defendant refused to extend time for payment of the last instalment nor they extended the contract period which was to expire on 30-6-1952. In fact, the amount was well secured and the plaintiff had furnished his personal security. In pursuance of the D. F. O's order dated 21-2-1952 the Forest Officers stopped working of the contract by the plaintiff. In consequence of the order of D.F.O., 12,641.20 maunds of collected Harra and 68,400 maunds of uncollected Harra remained in the con-tract area and could not be removed. The entire quantity was damaged and spoiled in the rains. Despite the plaintiff's repeated request, he was neither allowed to collect and remove this Harra from the contract area nor the defendant and its servants took any step to store Harra to save it from being spoiled in the rains. The D.F.O. and the Forest Officers had no right under the contract or the Forest Actor Rules to put such an embargo on the plaintiff's right of collection, extraction and removal of Harra from the contract, area. In the alternative, even if the default in payment of the last instalment amounted to breach of any condition of the contract, still the defendant was bound under Section 73 of the Indian Contract Act to mitigate the damages by collecting and selling the said stock of Harra or by reauctioning Harra lying in the contract area. The plaintiff claimed Rs. 28048.21p. towards price of collected Harra and Rs. 47,880/- towards price of uncollected Harra lying within the contract area. i. e. total Rupees 75,928.21p, From this amount Rs. 24.858.81p. was payable by the plaintiff to the defendant towards the last instalment as having already paid Rs. 2891.20p. as per order of the Board of Revenue towards the last instalment. Therefore, the plaintiff claimed Rs. 51.069.69p. to-wards the damages. He also claimed Rs. 68,815.64p. as interest on the damages at the rate of 1 per cent per annum from 1-7-1952 till the date of the suit together with Rs. 200/- as notice charges. Thus, in all the plaintiff claimed Rs. 1,20,000/-. According to the plaintiff, the time spent during the arbitration proceeding before the Board from 14-8-1952 to 7-4-1961 and from 20-6-1961 to 28-8-1962 in the proceeding under Section 8 of the Arbitration Act before the Additional District Judge are liable to be excluded in computing the limitation for the suit under Section 37 of the Arbitration Act read with Section 14 of the Limitation Act, 1963, the defendant having participated and insisted on the arbitration clause before the Board, it is estopped from raising any objection now.

4. The defendant contested the suit and submitted that the plaintiff's claim is hopelessly barred by time. The arbitrator became functus officio after 4 months of entering into reference under Rule 3 of Schedule 1 of the Arbitration Act. Therefore, there was no question of exclusion of the period after expiry of 4 months taken before the Board of Revenue. Moreover, the arbitrator not being a Civil Court, time spent in the proceeding before the Board cannot be excluded under Section 14 of the Limitation Act. This apart, the plaintiff having defaulted in paying the last instalment, he committed breach of contract and he had no right to seek extension of time for payment of the instalment or extension of the contract period. Time of payment being essence of contract, the plaintiff lost all his right under the contract. The D.F.O., under the circumstances, was justified in issuing instructions to the Range Officers to check movement of Harra outside the contract area, the defendant having 'unpaid seller's lien' on the Harra. The season for collection of Harra starts from November and ends by February. The plaintiff had already collected all the Harra before the D. F.O. issued instructions to the Range Officers. Besides, the plaintiff was in financial stringency and he had himself suspended further collection and transportation of Harra. The defendant also disputed the quantity of collected and un-collected Harra lying within the contract area as claimed by the plaintiff. The defendant was entitled to claim interest at the rate of 6.25% per annum on the amount of the last instalment which fell due on 1-1-1952. The suit was, therefore, liable to be dismissed with costs.

5. The learned District Judge came to the conclusion that the defendant having participated in the arbitration proceeding before the Board of Revenue and having insisted on the enforcement of the arbitration clause, it is now estopped from raising the plea that the arbitrator became functus officio after 4 months of entering into reference under Rule 3 of Schedule 1 of the Arbitration Act. The defendant having raised no objection then, it would be taken that they had waived such objection, but the plaintiff is not entitled to exclusion of the period after expiry of 4 months after entering into reference by the Board since the plaintiff was grossly negligent in not seeking extension of time from Court. Section 14 of the Limitation Act has no application and the exclusion can be only under Section 37(5) of the Arbitration Act but since no award has been given nor the arbitration agreement has been superseded by Court, the period spent in the arbitration proceeding before the Board cannot be excluded. The plaintiff had no right to claim extension of time for payment of the last instalment and there was no provision in the con-tract nor in the rules for extending thetime of payment of the instalment. Under Rule 7 of the Forest Contract Rules (hereinafter referred to as the Rules) the period of contract can be extended at the sweet will and uncontrolled discretion of the State Government. The plaintiff having defaulted in payment of the last instalment, he himself committed breach of contract, and, therefore, he had no right to work the contract thereafter. The D.F.O. was within his right in stopping working of the contract and no breach has been committed by the defendant or its servants. The orders of the defendant and its officers being lawful, the plaintiff is not entitled to any damages. Besides, the plaintiff has failed to prove that he has sustained any damages as claimed by him. The plaintiff has also failed to prove that 12,641.20 maunds of collected Harra and 68,400 maunds of uncollected Harra remained in the contract area at the time of stoppage of working of contract by the D.F.O. In fact, the plaintiff himself was hard-pressed and he had stopped working of the contract much before the D.F.O. issued order stopping the work. The plaintiff is also not entitled to claim any interest as this would amount to awarding damages on damages. The plaintiff's suit accordingly must fail except to the extent of payment of Rupees 2891.20 p. as per order of Board of Revenue. Accordingly, the suit has been dismissed.

6. The first question to be considered is whether the plaintiff's suit is within time and the plaintiff is entitled to exclusion of the period spent in the arbitration proceedings before the Board of Revenue and also the period spent in the proceedings under Section 8 of the Arbitration Act before Addl. District Judge. It is not disputed that the present suit is governed by Article 115 of the Limitation Act, 19-63 and that the cause of action arose on 1-7-52. Under Section 46 of the Arbitration Act the provisions of the Act except Sections 6(1), 7, 12 and 37 shall apply to every arbitration under any other enactment for the time being in force. In the present case, admittedly, there is no statutory arbitration provided under the Indian Forest Act. A Full Bench of this Court in Rama Ratan Gupta v. State of M.P., AIR 1974 Madh Pra 101 has held that forest contracts are not statutory contracts. Therefore, the present case is governed by Section 37 of the Arbitration Act. Sub-sections (1) and (5) of Section 37 are as under:--

'37 (1). All the provisions of the Indian Limitation Act, 1908, shall apply to arbitrations as they apply to proceedings in Court.

(5) Where the Court orders that an award be set aside or orders after the commencement of an arbitration, that the arbitration agreement, shall cease to have effect with respect to the difference referred, the period between the commencement of the arbitration and the date of the order of the Court shall be excluded in computing the time prescribed by the Indian Limitation Act, 1908 (9 of 1908) for commencement of the proceeding (including arbitration) with respect to the difference referred.'

Chhagla C. J. (as he then was) in Purshottamdas v. Impex, AIR 1954 Bom 309, has held as under (at p. 311):--

'The expression 'a Court of first instance and a Court of appeal', makes it amply clear that what the Legislature had in mind were judicial Courts. Courts established by the law of the land, and not Courts in the wider sense of domestic forums or tribunals.

Undoubtedly, the time taken up in arbitration proceedings can be excluded, but that time can be excluded not under Section 14, Limitation Act but under Section 37(5), Arbitration Act, and in order to exclude time taken up in arbitration proceedings the tests laid down by the Legislature in Section 37(5) must be applied and satisfied.'

In that case it was explained that the decisions of the Privy Council in Ramdutt Ramkissen v. E.D. Sassoon & Co., AIR 1929 PC 103, Behari Lal Baij Nath Prasad Firm v. Punjab Sugar Mills Co. Ltd., AIR 1943 All 162 and Fatehchand v. Wasudeo Shrawan, AIR 1948 Nag 334, were decisions prior to the enactment of Arbitration Act of 1940 and are no longer good law as there is specific provision made under Section 37 of the Arbitration Act. This decision of Chhagla, C. J. has been quoted with approval by the Supreme Court in S.T. Commr., U.P. v. Parson Tools & Plants, Kanpur, AIR 1975 SC 1039. Therefore, the time spent in the arbitration proceeding can be excluded only under Section 37 and not under Section 14 of the Limitation Act as special provision has been made to this effect in the Arbitration Act itself.

7. The learned trial Judge has not given benefit of Section 37(5) to the plaintiff on the grounds (i) that he was grossly negligent in not seeking extension oftime under Section 28 of the Act after expiry of 4 months from the time the Board entered into reference and (ii) there was no order of Court superseding the arbitration agreement. We are unable to accept the reasonings of the trial Judge. Even after award was given, the plaintiff could have applied for extension of time as has been held in Hari Shanker Lal v. Shambhu Nath, AIR 1962 SC 78. So the plaintiff could not be said to be grossly negligent because he had not applied for extension of time. Under Section 37(5) the period spent in arbitration can be excluded (i) where the Court orders that the award be set aside or (ii) where after commencement of the arbitration, the Court orders that the arbitration agreement shall cease to have effect. In the present case, no award was given. So we have to see whether there is order of the Court that the agreement shall cease to have effect. It is not the requirement of this sub-section that there should be order of the Court superseding the arbitration agreement. After the Board of Revenue refused to arbitrate in the matter, the plaintiff sent a notice on the defendant to concur in the appointment of another arbitrator. Since no reply was received, the plaintiff filed an application under Section 8 of the Arbitration Act for substitution of another arbitrator. The Addl. District Judge by his order dated 26-8-62 held that since under the arbitration clause the Board of Revenue was alone to arbitrate in the matter and it having refused to arbitrate, the Court has no power to appoint another arbitrator. The effect of this order was that by implication the arbitration agreement ceased to have any effect after the order and the plaintiff's only remedy was then to file a civil suit, although the order of the Addl. District Judge seems to be erroneous and contrary to the decision of the Supreme Court in P. G. Agencies v. Union of India, AIR 1971 SC 2298 in which it has been held as under:--

'Where in an agreement the Judicial Commissioner of the State of Himachal Pradesh was appointed Arbitrator by his designation and not by his name:

Held that the fact itself did not afford any indication that the parties to the agreement intended not to supply the vacancy if the judicial Commissioner refused to act or was incapable of acting.'

whatever that be the order of the Addl.

District Judge left no option to the plaintiff but to file a civil suit on the assumption that the agreement has ceased to have effect in view of the order since the sole arbitrator, the Board of Revenue, refused to arbitrate in the matter. Therefore, the plaintiff is entitled to exclusion of the time spent before the Board of Revenue in the arbitration proceeding between 14-8-52 to 7-4-61 and from 20-6-61 to 28-8-62 in the proceeding under Section 8 of the Arbitration Act. If these periods are excluded, then the plaintiff's suit is within limitation.

8. Now the most important question remains whether the plaintiff has any right to claim any damages. The suit was filed on the footing that the defendant and its officers committed breach of contract by stopping the working of the contract by the plaintiff after the plaintiff defaulted in payment of the last instalment on 1-1-52 but in the course of the argument it has been submitted here that the defendant and its servants are joint tort easers, they having illegally stopped the working of the contract without there being any power under the contract or under the provisions of Forest Act to stop the working of the contract. The defendant could have terminated the contract under Rule 29 but that was not done. Under Rule 8 the working could have been stopped if the goods already extracted exceeded the value of the instalments already paid but that is not the case here. There is no other provision for stoppage of the work. The contention is without any merit. The Supreme Court in State of M. P. v. Kaluram, AIR 1967 SC 1105, has held as under (at pp. 1107, 1108):--

'Besides the contractual right which is conferred upon the State by Rule 8 to stop removal of goods in value exceeding the amount already paid by the contractor, where the consideration is payable in instalments the statute has imposed a charge upon the goods sold, inter alia, for the price thereof, and has authorised the Forest Officer to take possession of the goods until such amount is paid. If the amount is not paid when due, the Forest Officer may sell the produce by public auction. The State Government has therefore under the terms of the contract and by virtue of the statute, even though the property in goods has passed to the contractor, the right to stop removal of the goods and take possession thereof till the amount due is paid and to sell the goods if the amountis not paid when due; the State has also the power to prohibit removal of the goods when the value of the forest produce removed by the contractor exceeds the amount of instalments already paid, to check and examine the goods, and to terminate the contract in case of default in payment of the amount due and to take possession of the goods either in the contract area or in the depots of the contractor.'

A Division Bench of this Court relying on the above decision has further held in State v. Boota Singh, AIR 1972 Madh Pra 116 as under (at pp. 119, 120):

'There is no warrant for the submission that de hors Rule 8, the Divisional Forest Officer had no power to order a stoppage of working. The Divisional Forest Officer's coercive powers are given in Section 83 of the Forest Act. This contemplates two stages (a) the seizure of the forest produce and (b) the sale thereof. When there is power of seizure to secure payment of a defaulted instalment, it logically follows that there is the power to order a stoppage of working. Under Clause 2 of the contract deed (Ex. D-3), the plaintiff's right to fell and remove the forest produce was subject to his observance of the terms and conditions. The failure to pay an instalment is an important breach of the conditions of a forest contract. While it is true that the power given in Rule 8 of the Forest Contract Rules to stop operations is exercisable if the rate of work exceeds substantially the rate of payment of instalments, but that does not mean that there is no power apart from it. Where there was a default in payment of the instalments, the Conservator of Forests was entitled to terminate the contract under Rule 29. Under Rule 29 (2), upon such termination, the plaintiff's right under the contract ceased, and all the forest produce remaining within the contract area became the absolute property of the Government.''

Since the payment of instalment was the essence of the contract and the plain- tiff defaulted m paying the last instalment, a breach was committed by the plaintiff arid the defendant and its servants were within their right to stop the working of the contract by the plaintiff. Their actions were lawful and the plaintiff is not entitled to claim any damages, he himself being the defaulter. Though the contract was not terminated, the defendant was not obliged to reauction Harra lying in the contract area as has been held by this Court in the above case.

9. Even assuming that the stoppage of the work was wrongful, still the plaintiff has failed to prove that he has suffered any damages. The plaintiff has not proved that when the working of the contract was stopped on 21-2-52 as per order of the D.F.O., there were 12,641.20 maunds of collected Harra and 68,400 maunds of uncollected Harra in the contract area. The plaintiff has tried to prove this fact by examining several persons who claimed to be Gumashtas or commission agents of the plaintiff working in the contract area and collecting Harra on his behalf. Their bald statements and letters cannot be accepted. The plaintiff has not produced his account books which would have been the best evidence to show as to what was the amount spent in collecting Harra. It is clear from the admissions of the plaintiff that he had only collected 25,000 maunds of Harra in the first year of contract but the figures now given are highly exaggerated. The plaintiff used to make advances to his Gumashtas and commission agents for collection of Harra from villagers. The villagers used to pick up and collect Harra from the contract area and on receiving wages as fixed by Collector, Gumashtas and commission agents used to collect Harra from Harra pickers. Gokuldas (P.W. 46), elder brother of the plaintiff, who was working the forest on his behalf stated that he had maintained account of the advances made to his Gumashtas and commission agents for collection of Harra. No account book has been produced to show the amounts which were advanced from time to time. Besides the oral evidence, the plaintiff also tried to prove his letters by relying on the statements submitted by them to the Forest Officer under Exs. P-20, 30, 31 and 32. These documents were sought to have been prepared on the information collected from the plaintiff's Gumashtas and commission agents. Several letters of Gumashtas and commission agents were filed but most of them are said to be dead. These letters were not signed by the Gumashtas and commission agents in the regular course of business but on the asking of the plaintiff and that too after the dispute had already arisen. Therefore, no reliance can be placed on such letters and evidence. Some other Gumashtas andcommission agents who are alive were not examined. As per plaintiff's letterEx. P-36 and admission of Gokuldas (P.W. 46) he could collect only 25,000 maunds of Harra in 1949-50 and it has not been explained as to how there would be 3 fold increase in the year 1951-52. According to Prakash (D.W. 1), a Forest Ranger, the period of collection of Harra is from November to February. It is not disputed that Harra fruits are not picked up from trees but they are picked up from ground after they fell down from trees. Gokuldas has admitted that he had already purchased 23,000 maunds of Harra till the working of the contract was stopped in that year. According to the plaintiff, there was slump in the market from December 1951 and there was no purchaser for the stock of 1 1/2 lac of maunds of Harra already held by the plaintiff. According to Gokuldas (P.W. 46) during the period they were indebted to the extent of Rs. 60,000 and they had to mortgage their property but they were not getting any further loans. He admitted that cost of collection was Rs. 2.25 per maund while there was no buyer even at the rate of Rs. 1.50 per maund, which shows that the collection of Harra was no more profitable and the plaintiff had no funds and under the adverse market conditions the plaintiff could not have collected any more Harra as he had already a very large stock lying with him. The plaintiff in his letters Exs. P-9 dated 27-2-52, P-11 dated 18-3-52 and P-43 dated 19-3-52 has clearly mentioned that under the adverse market conditions collection of Harra has become unremunerative and he has stopped the same. Under the circumstances, it would not be unreasonable to hold that the plaintiff himself stopped collection of Harra due to unfavourable market conditions much before the stoppage of work by the forest authorities. The plaintiff has tried to show from Ex. P-57 which is said to be an agreement between the plaintiff and Bata Shoe Company dated 28-2-52 wherein Bata Shoe Co. agreed to purchase Harra from the plaintiff at the rate of Rs. 3/7/6 p. per maund. Firstly, this agreement has not been proved by examining someone from Bata Shoe Co. Secondly it is very unlikely that such a clumsy document would have been executed by Bata Shoe Co. on a revenue stamp. Thirdly when according to the plaintiff's own showing the market had fallen down and there was no buyereven at Rs. 1.50 per maund, it was unlikely that Bata Shoe. Co. agreed to purchase at such high rates. Gokuldas (P.W. 46) admitted that the plaintiff had received payments from Bata Shoe Co. in pursuance of this agreement but those payments have not been proved by producing the account books or the bank accounts of the plaintiff. The plaintiff has, therefore, miserably failed to prove that he suffered any damages on account of stoppage of the work by the defendant and its servants. Since the plaintiff is not entitled to any damages, there is no question of payment of any interest. Moreover, no interest can be awarded on damages. The plaintiff's suit has been rightly dismissed.

10. Accordingly, the appeal fails and it is dismissed with costs. Counsel's fee as per schedule, if certified.


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