(1) This is an appeal by the Union of India against the order of a Subordinate Judge dismissing objections against an arbitration award and making it a rule of the Court and passing a decree is accordance with the award in favour of the respondent Messrs. United Timber Works of Jagadhri.
(2) The facts of the case are that in 1952 the Union of India through the Director General of Supplies and Disposals placed an order with the respondent firm for the supply of 61,490 cubic feet of kiln seasoned mango planks, to be used for the manufacture of ammunition boxes, at Rs. 8/10/- per cubit foot. The terms of the contract were that 6,600 c. ft. were to be supplied by the 15th of June and the balance in monthly instalments of 20,000 c. ft. the last of which was due by 15-9-1952. It was specified in the contract that failure to adhere to the monthly quota of supplies specified would mean automatic cancellation of the outstanding quantity in the particular month at the risk and cost of the contractor.
(3) There seems to be no doubt that the contractor fell sadly behind as regards delivery, and the Department wrote on 20-8-1952, to the effect that although by that time 46,000 c. ft. should have been supplied only 5, 565, c. ft., had been supplied. The explanation for the delay was asked for and it was intimated that unless the outstanding quantity was delivered before the expiry of the final delivery date, 15-9-1952, the Department would be compelled to enforce the terms of the contract.
(4) The contractor wrote on the 21st of August explaining his difficulties and requesting that the time for delivery should be extended up to the middle of January 1953. On the 16th of October the Department again wrote saying:
'According to the terms of the contract you should have supplied 6, 600 c ft. by 15-6-1952 and the balance in monthly instalments of 20,00 c. ft., to be completed by 15-9-1952. Since you have failed to complete the contract strictly in accordance with the terms of delivery, the position of the requirements has considerably changed and as a result 50 per cent of the stores ordered against the subject A. T. are no longer required. Your request for extension in the delivery date up to 15-1-1953 cannot be agreed to for the entire contracted quantity as per amendment to the Schedule as under, the balance being cancelled without financial repercussions on either side. Please note, however, that in respect of quantities for which extension up to 15-1-53 is granted, the right to recover liquidated damages at 2 per cent per month or part of a month beyond 15-9-52 in exercise of any right under clause 11 (iii)(a) of the general conditions of contract is hereby reserved.'
The schedule was amended accordingly, the figure of 30,745 c. ft. being substituted for 61,490 c. ft. and Rs. 2,65,175/10/- having substituted for the total cost of Rs. 5,30,351/4/- and it was stated to be without prejudice to the rights under the terms of the contract.
(5) The contractor replied on 13-11-1952, regretting that a substantial quantity had been cancelled without notice resulting in heavy loss and reserving his rights under the contract. Thereafter it seems that the supply of the contract. Thereafter it seems that the supply of the quantity as educed above was actually made and paid for, but the contractor then claimed Rs. 72,000/- as damages by way of loss of profit for the cancellation of half or the contracted supply. The dispute was referred to arbitration under the terms of the contract, one arbitrator being appointed by the Government and one by the contractor. Before these arbitrators the contractor put forward his claim for Rs. 72,000/- as damages while the Government put in a counter claim for Rs. 10,448/- as liquidated damages for delay in supplies beyond the contracted delivery period originally stipulated in the contract.
(6) After disagreement between the arbitrators Mr. Hari Krishana Bhargava Advocate was appointed as Umpire and he gave his award in favour of the contractor for the payment of Rs. 15,900/- as compensation for loss of profit together with Rs. 1,600/- as costs also awarding future interest at 6 per cent per annum from the date of the award until payment.
(7) The filing of the award was opposed on behalf of the Government on grounds giving rise to issues both regarding the alleged misconduct in the arbitration proceedings and whether the award was otherwise illegal or erroneous. From the judgment of the lower Court however, it would seem that the only argument before him was based on the allegation that the award was invalid because it contained an error of law on the face of it. The main argument advanced before the learned Sub-ordinate Judge was based on the reliance on the terms of the original contract, by which failure to deliver any monthly quota was to mean automatic cancellation of the contract of the outstanding quantity, but in the light of the facts set out above it is clear that this argument was untenable, and that in fact the Government had not enforced the term of automatic cancellation on default of any delivery when due but had itself, a month after the last date for delivery, agreed to extend the period for delivery up to the middle of January 1953 while at the same time reducing the quantity to be supplied by one half.
(8) The matter has been somewhat differently argued before me and it is contended that the passage in the award of the Umpire in which, after setting out the facts, he has discussed the case and arrived at his conclusion contains a manifest error of law. This passage reads:
'Regarding the claim of Rs. 72,000/- of Messrs. United Timber Works the narration given in the opening part of the award discloses the main facts that have given rise to the controversy. It is not the claimants' case that they actually manufactured the balance quantity of Mango Planks and offered them and they were not accepted and thus they suffered actual damages or loss, but their case is that a substantial quantity was cancelled illegally without notice and if this had not been done, they would have earned a profit of Rs. 72,000/- and so they claim the amount as damages by way of 'Loss of Profit.' It is undeniable that the original delivery period could not be adhered to by the claimants. The quantity supplied within 15-9-52 the final time limit under the original D/P was about 10,000 c. ft., only.
The defendant, however, continued to accept deliveries even after the expiry of this time limit. Some 1,716 c. ft. was accepted between 16-9-1952 and 15-10-1952. The extension till 15-1-1953 to the extent of 50 per cent was allowed on 16-10-1952. There were protests from either side but neither party had the position clarified immediately then or shortly thereafter. The arrangement arrived at under the above referred correspondence was rather acquiesced in and carried into effect. It is contended by the claimants that the contract was alive on 16-10-52 and there could be impartial (no partial) cancellation. The 50 per cent quantity for which extension was granted was duly supplied and has been paid for.
The reason suggested by the Government in not granting extension for the entire contract was that the position of the requirements had considerably changed and as a result 50 per cent of the stores were no longer required. A statement filed on behalf of the Government however shows that the Government purchased about 27,611 c. ft. Mango Planks during the 2nd half of 1952 at Rs. 7/10/ and Rs. 7/12/- per cubic foot from elsewhere. I have carefully gone through the entire record, the correspondence that passed between the parties and the other evidence produced by them and have carefully perused the Awards of both the Arbitrators Shri Shrigopal Singh and Shri Ram Singh Gheba, and have given my thoughtful consideration to the exhaustive arguments of the learned counsel for the parties and after taking into account all the facts and circumstances and the equities surrounding the same I am of the view that the claimants should be allowed a reasonable compensation. I am not satisfied that this should be Rs. 72,000/-. The commodity ordered is not an ordinary marketable one and taking into consideration all the relevant matters I am of the opinion that about-/8/- per cubic foot or 6 per cent of purchase value will be a fair measure of compensation for 'loss of profit' claimed. So calculated the amount comes to about Rs. 15,900/-.
(9) It is contended by the learned counsel for the Union that this is manifestly a wrong decision in law, since it amounts to a finding that after 16-10-1952, although both the parties expressed doubts and reservations, they actually co-operated in carrying out and completing the contract for the delivery of half of the original quantity by 15-1-1953, which they therefore accepted as a substituted contract. The argument runs that there is no finding that the Government committed any breach of the contract, and the Umpire acted illegally, in the absence of any such finding, in awarding compensation for loss of profits on what appear to be purely equitable grounds. In fact the Umpire himself has used the words 'equities surrounding the circumstances'.
(10) It certainly appears to me to be unlikely that if this dispute had come before a Civil Court in the form of an ordinary suit, any such decree could have been passed on these grounds namely that it was not the contractor's case that he actually manufactured the balance quantity and offered it without its being accepted, and that thus he actually suffered damages or loss. I am therefore of the opinion that the award is based on a manifest error of law.
(11) It is, however, contended on behalf of the contractor that this is not the end of the matter and that if the question of law, on which the error, if any, was made, it not being conceded that there was any error, was specifically referred to the arbitrators, a wrong decision on the point will not invalidate the award. In this connection reliance was naturally placed on the decision of this Court in Union of India v. A. L. Rallia Ram, F. A. F. O. No. 75 of 1951, D/- 17-4-1958 in which it was held that where the parties appear before the arbitrators arrayed more or less as plaintiff and defendant, and after the statement of claim and its reply has been filed on the lines of a plaint and written statement in an ordinary suit, issues are framed arising out of the pleadings of the parties, some of which involve pure questions of law, it must be concluded that those questions of law have been referred to arbitration. It is pointed out that in the present case the arbitrators after stating the claim and the written statement filed on behalf of the Union of India framed a number of issues which included:
'1. Whether it was permissible for the Government to cancel the contract in part only.
2. Whether the Government was justified in cancelling the contract in part as it did. x x x x x' The first of these issues undoubtedly embodies a point of law and it is contended that therefore the award is not invalidated even if the point was decided wrongly.
(12) It is, however clear from the passage of the award which I have quoted above and my other observations that in fact the Umpire has avoided giving a finding on the issue either whether the Government could legally cancel the contract in part or whether it was justified in doing so. The award is based on the finding that both the parties accepted and carried out the contract as reduced with an extended date of delivery, and there is no finding as to whether either party committed any breach of the contract, and as I have said the award appears to be based purely on equitable grounds.
(13) In the circumstances I am of the opinion that the award is liable to be set aside on the ground of a patent error of law and I accordingly accept the appeal and set aside the order of the lower Court making the award a rule of the Court. The parties will bear their own costs.
(14) Appeal allowed.