1. This is an appeal brought by the Union of India against an order passed under Section 34 of the Indian Arbitration Act refusing to stay the suit which .was brought by the plaintiff Din Dayal Kapur for the recovery of Rs. 14,420/- on the 12th June 1950.
2. On the 25th October 1950, the Government Pleader on behalf of the Union made an application under Section 34 of the Arbitration Act for stay of proceedings alleging that the Union was always ready and willing to do everything necessary for the proper conduct of arbitration. To this the plaintiff took objection and stated in his reply dated the 15th November 1950 that the arbitration clause was void for uncertainty, that the claims of the plaintiff were outside the arbitration clause, that the Superintending Engineer and the Executive Engineer were guilty of fraud inasmuch as they altered the terms of the contract and that the Union had repudiated the contract.
3. On the 5th July 1943, the plaintiff hadsubmitted a tender which is marked ExhibitD. 2. To this was attached a schedule givingthe rates at which the plaintiff offered to dothe job which was re-roofing of the hospital.The Executive Engineer to whom the tenderwas submitted signed the schedule on the 9thof July 1943. The contractor was then askedto do some additional work which was the replacing of a 'torn ceiling' and this wasfinished by the plaintiff on the 6th July. Theplaintiff had received a sum of Rs. 41,000/- outof the sums due to him by June 1944. On behalf of the Government, the contract wasaccepted by the Superintending Engineer,Arrears Circle, C.P.W.D., on the 26th August1947; it had been signed by the plaintiff on the5th July 1943. It is the case of the Government that contracts such as_ this can be accepted and signed by Superintending Engineersonly and Executive Engineers have no powerto sign them.
4. In his plaint the plaintiff. Din Dayal Kapur, after reciting the facts alleged that the work was done in accordance with the rates given in schedule 'A', that the Government failed to supply asbestos sheets as a result of which the completion of the work delayed, that on the 30th May 1944, the Superintending Engineer ordered a torn ceiling to be replaced for which the Executive Engineer sent up an estimate of Rs. 15,000/- and the plaintiff was ordered by the Engineer-in-charge to carry out this extra work, that for this extra work the plaintiff offered to accept the rates given in the schedule and that the Superintending Engineerper his letter No. 3994/Cons-53 dated the 12thNovember 1945 reduced the rates which he wasnot entitled to do and which the plaintiff refused to accept. He further alleged that theAviation Division, Gaya, came to an end anda bill was made on the 4th December 1947.On these allegations the plaintiff claimedRs. 14,420/- with interest. As the defendantapplied for stay, no written statement was filed.
5. Certain letters have been placed on therecord by the plaintiff which have been admitted by the defendant. The first is dated the14th July 1947 which is sent by the plaintiffto the Superintending Engineer saying that atthe time of allotting the work to him annaseight per sq. ft. was agreed between him andthe Executive Engineer and an agreement wasdrawn up in accordance with that. In replyto this letter the Superintending Engineerwrote on the 6th August 1947 saying:
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'This rate was only recommended by the Executive Engineer to the Superintending Engineer who was the competent authority and who finally approved the rate of -/6/- per sq. ft., based on proper analysis. The undersigned is therefore unable to revise the orders already passed by the previous Superintending Engineer.
The Executive Engineer is being asked to finalise your account and the case has been treated as closed.'
Another letter was sent to the plaintiff by the Executive Engineer dated the 11th September 1947 in which it was stated:
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'Subject to the condition that the correction in the rate of item 1 from -/8/- to -/6/- is to be initialled by you. Further, it is ruled that the final orders in respect of this item have already been passed and communicated to you under S.E., Arrears Clearance Circle No. Con/58, dated 6-8-1947.
You are therefore requested to attend Divisional Office within one week for initialling the corrections in 'the agreement failing which the amount due to you will be credited to deposit.'
The language used is ununderstandable, but it appears that the plaintiff was asked to come and initial the corrections, and if he did not do so within a week, the amount due to the plaintiff would be credited to his account. The plaintiff on the 21st September 1947 replied to this letter indicating his willingness to sign the contract provided he was paid at -/8/- and not -/6/-. On the 11th December 1948, Bakhshi Mehtab Singh, an Advocate, wrote a letter on behalf of the plaintiff to the defendant in which he complained that the contract which was prepared after he had taken the work was not signed till the 26th August, and that also by an officer of the Arrears Clearance Section, He claimed the amount which is now being claimed, i.e., Rs. 9,420/- due on the basis of the amount of the work done and Rs. 5,000/- as damages.
To this a reply was sent by the Chief Engineer, Civil Aviation Wing, on the 28th March 1949 in which 'inter alia' it was said:
'The Executive Engineer had no authority to sign the contract under Section 175(3) of the Government of India Act and he had not signed it but had merely put his signatures at the foot of each page for the purpose of identity leaving the body of the document to be executed by the Superintending Engineer.
* * * *Your client is therefore entitled to those rates only which were finally accepted by the Superintending Engineer according to which accounts of your client have already been finalised.'
The letter further went on to say:
'The claim is denied. There is no authentic proof of the item in question having been executed by your client. The measurements taken by the Overseer Were not accepted by the Executive Engineer as no such item of work was done by your client.'
On the 26th April 1949 on behalf of the plaintiff Bakhshi Mehtab Singh again wrote a letter in which be said 'inter alia' as follows:
'The tender of my client definitely gave the rate of As. -/3/- per sq. ft. for roofing work and it is signed by the contractor and the Executive Engineer both on 5-7-1943. As a reference in a later inter-departmental correspondence shows, that tender of my client was forwarded by the Executive Engineer to the Superintending Engineer per his letter No. 4065 dated 12-7-1943 (of course not to the knowledge of my client).'
The Additional Chief Engineer by his letter dated the 23rd June 1949 said:
'From this it would be clear that your client commenced the work without settling rates for the several items thereof with the authority competent to enter into a contract for construction of the work. He thus agreed by conduct to do the work at reasonable rates prevailing in the locality at that time. The reasonable rates worked out by the competent authority are however not now acceptable to your client.''
And they offered to send the matter to arbitration and asked the plaintiff to name any two Superintending Engineers of the Central P.W.D. out of whom the Government would select one.
6. It is necessary to give certain portions of the contract Exhibit D. 1. The estimated cost in the memorandum attached to this document is Rs. 44,085/-. In the schedule which is attached the total cost has remained the same but the rates have been cut down from -/8/- to -/6/-. Paragraph 12 of the Conditions of Contract provides as follows:
'Clause 12: The Engineer-in-charge shall have power to make any alterations in, omissions from, additions to, or substitutions for, the original specifications, drawings, designs and instructions, that may appear to him to be necessary or advisable during the progress of the work, and the contractor shall be bound to carry out the work in accordance with any instructions which may be given to him in writing signed by the Engineer-in-charge, and such alterations, omissions, additions or substitutions shall not invalidate the contract; and any altered, additional or substituted work which the contractor may be directed to do in the manner above specified as part of the work shall be carried out by the con-tractor on the same conditions in all respects on which he agreed to do the main work, and at the same rates as are specified in the tender for the main work. The time for the completion of the work shall be extended in the proportion that the altered, additional or substituted work bears to the original contract work, and the certificate of the Engineer-in-charge shall be conclusive as to such proportion.
'And if the altered, additional or substituted work includes any class of work, for which no rate is specified in this contract, then such class of work shall be carried out at the rate entered in the schedule of rates of the Gaya district which was in force at the time of the acceptance of the contract minus/ plus the percentage which the total tendered amount bears to the estimated cost of the entire work, put to tender; and if the altered, additional or substituted work is not entered in the said schedule of rates, then the contractor shall within seven days of the dateof his receipt of the order to carry out the work, inform the Engineer-in-charge of the rate which it is his intention to charge for such class of work, and if the Engineer-in-charge does not agree' to this rate he shall, by notice in writing, be at liberty to cancel his order to carry out such class of work, and arrange to carry it out in such manner _ as he may consider advisable, provided always that if the contractor shall commence work or incur any expenditure in regard thereto before the rates shall have been determined as lastly hereinbefore mentioned, then and in such case he shall only be entitled to be paid in respect of the work carried out or expenditure incurred by him prior to the date of the determination of the rate as aforesaid according to such rate or rates as shall be fixed by the Engineer-in-charge. In the event of a dispute, the decision of the Superintending Engineer of the Circle shall be final.'
Clause 25 provides for arbitration as follows:
'Clause 25 : Except where otherwise provided in the contract all questions and disputes relating to the meaning of the specifications, designs, drawings, and instructions hereinbefore mentioned and as to the quality of workmanship, of materials used on the work, or as to any other question, claims, right, matter or thing whatsoever, in any (sic) arising out of, or relating to the contract, designs, drawings, specifications, estimates, instructions, orders, or these conditions, or otherwise concerning the work, or the execution, or failure to execute the same, whether arising during the progress of the work, or after the completion or 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 this contract.'
7. The 12th clause seems to provide for cases of additional work which the contractor may be called upon to execute. (1) It has to be paid for at the same rates as are specified in the tender for the main work. (2) If it is not so specified then at the rates contained in the schedule for Gaya district along with the variations in percentages contained in the tender. And (3) if it is not in the schedule of the Gaya district then the contractor has to demand the rate within 7 days and the Engineer-in-charge may agree to this rate or may not and in the latter event he has to cancel the contract. (4) In the event of a dispute, the decision of the Superintending Engineer of the Circle shall be final.
8. Plaintiff's counsel has submitted that, (i) Clause 25 does not apply because the matterfalls within Clause 12 of the Conditions of the Contract; (ii) there was no completed contract as the acceptance of the Governor General through the Superintending Engineer, Arrears Circle, was in 1947 three years after the completion of the works and there the rate given is-/6/- whereas the plaintiff had settled with the Enginear-in-charge at -/8/-. The parties were not 'ad idem' as to the rates; (iii) there are material alterations in the contract which are unauthorised and amount to fraud; (iv) the letter of the 28th March 1949 amounts to repudiation of the contract; and (v) that there is no Superintending Engineer of Gaya Circle to whom reference can be made under Clause 25 of the Conditions of the Contract. The Circle has, according to the contention of counsel, been abolished.
9. One witness only has appeared in the witness-box, D. W. 1 Sri Ram Khosla, who is a cashier of the Central P. W. D. of the Allahabad Aviation Division. He proved Exhibit D. I, which in the examination-in-chief he stated was signed by the Superintending Engineer Andrews and in cross-examination he stated that it was signed by H. P. Sinha with whose signatures he was familiar. It appears from the evidence of this witness that as the contract which is now in dispute was among 'the arrears of work' it was sent to H. P. Sinha who was in charge of Arrears Circle in 1947. From this I am asked to conclude that the Aviation Circle in Gaya is no longer in existence. Counsel for the appellant was unable to give me any information on the point, and it appears to me that whatever work was left in arrears of the Gaya Circle is now being done by the Superintending Engineer Mr. H. P. Sinha and therefore I am of the opinion that there is no longer any Gaya Circle in existence.
10. The plaintiff has alleged that the change in the schedule was made without his consent. A perusal of the evidence so far placed on the record and to which I have made a reference shows that the change was made without the concurrence of the plaintiff. Plaintiffs counsel has submitted that a material alteration in the contract such as exists in this case avoids the contract and therefore the contract does not subsist. He relies on a judgment of Lort Williams J. in 'Bahadurmal v. Nagarmat,', ILR (1941) 1 Cal 45t. It is not necessary to refer to decided cases as to the effect of material alterations in agreements of this kind. But the contention of the plaintiff that some substantial question of law will arise in this case and which will in case of arbitration be decided by a lay arbitrator seems to be correct. It is unfortunate that in India there is no power in the Court to require an arbitrator to state a case for the decision of the Court. I am of the opinion that the questions which arise in this ease should not be left to a departmental arbitrator whose very existence and identity is in dispute. It will be more satisfactory for the case to be decided by the Court.
Russell on Arbitration at p. 73, 1952 Edition,has stated the law as follows:
'The Court has in the past shown itself less disposed to grant a stay where the principal issue is a question of law or the proper construction of an agreement than if the dispute involved principally questions of fact. 'Where in such a document as a building contract or a partnership agreement you have an all embracing arbitration clause, it may often be bad practice to permit matters of law or construction to go to arbitration for, though suchmatters are strictly covered by the agreement, they are questions not appropriate to be dealt with by arbitration; and, indeed, it was probably not contemplated that they should be dealt with by arbitration, and it may be futile to allow them so to be'. With regard to the construction of an agreement, in paiticular, it may be 'absolutely useless to stay the action because, it will only come back to the Court on a case stated.'
Observations made by Lord Justice Euckley in 'Edward Grey and Co. v. Tolme and Runge', (1915) 31 TLR 137 at p. 138, are in my opinion instructive. The learned Lord Justice there said:
'The question between the parties was whether in the events which had happened the contracts were alive, or dead. Then, it had been said that even it the contract was dead the arbitration clause still survived. That question could not be determined now. He would assume against the plaintiffs without deciding the question whether the arbitration clause was subsisting or not, that there might still be a case to go to arbitration. Still the question which remained was simply a question of law whether the contracts were suspended during the war or had been dissolved. In those circumstances, he thought that it must be in the discretion of the learned Judge to say that that question was not a proper one to be submitted to arbitration, but should be decided by the Court and that therefore the action should not be stayed.'
In my opinion, the observations made by the learned Lord Justice and the statement of law in Russell on Arbitration seem to show that in cases such as the one before me the matter should not be left to an arbitrator but should be decided by the Court.
11. That discretion exercised by a Court should not be interfered with by an appellate Court was laid down by Lord Russell of Killowen in 'Evans v. Bartlam', (1937) AC 473. His Lordship said at p. 482 as follows:
'In the case now under discussion, the Judge in Chambers thought it proper, in the exercise of his discretion, to set aside the judgment; and unless an appellate Court is satisfied that the discretion has been wrongly exercised and should have been exercised in the contrary way, the Judge's order should be affirmed.'
Respondent's counsel relies on this judgment and submits that the Court of first instance had exercised its discretion and had refused to stay the proceedings and this Court should not therefore interfere. This contention, in my opinion, is well founded, and if the Court below exercised its discretion judicially, a court of appeal would be very reluctant to interfere with that discretion. On this ground also, I would refuse to interfere with the order made by the trial Court.
12. Another point was raised by Bakhshi Mehtab Singh that the alteration in the schedule amounted to fraud and as there is allegation of fraud the case should not be sent to arbitration. It is not necessary for me to decide that a fraud has been committed. But there is an allegation of fraud which must add to the objections of the plaintiff against the matter being referred to arbitration.
13. Two further points have been raised, (1) that no offer of rates could be made after the completion and this would show that there was no completed contract, and (2) that preparationof the bill by the Engineer-in-charge is binding on all parties in accordance with Clauses 5 and 7 of the Conditions of Contract, but I do not think that I should give any decision on these points at this stage. These questions are additional reasons for not leading the matter to an arbitrator.
14. A further submission of Mr. Mehtab Singh was that according Jo the letter of the Chief Engineer dated the 23rd June 1949 the plaintiff had started work agreeing to reasonable rates prevailing in the locality at the time and therefore this was outside the terms of the contract. But in view of what I have said it is not necessary to go into this matter because I am of the opinion that the learned Judge has rightly exercised his discretion in favour of refusing to stay the proceedings.
15. I would therefore dismiss this appeal with costs.