Skip to content


Union of India Vs. Rampur Distillery and Chemical Co. Ltd. and anr. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtDelhi High Court
Decided On
Case NumberFirst Appeal No. 71 of 1975
Judge
Reported inILR1981Delhi62
AppellantUnion of India
RespondentRampur Distillery and Chemical Co. Ltd. and anr.
Advocates: D.P. Wadhawa,; A. Ahlawat,; B. Mohan and;
Cases ReferredDairy Farm Society Ltd. v. Union of India
Excerpt:
arbitration act, 1940--decision of the arbitrator is final on specific question of law is referred to depends upon the character of the reference.; in this case, the appellant placed an order on 24-1-1970 with the respondent for the purchase of 10,03,000 litres of rum. clause 2 of the contract provided that the said quantity was subject to increase or decrease by 50% at the option of the purchaser. clause 3 of the contract read as under :; 'period of running contract ; the running contract shall be for a period of one year from the date of acceptance of tender which may, at the option of the government, be from time to time extended on the same terms and conditions as specified herein, for a further period up to one year (12 months) subject to a notice in writing given to the contractor.....s.n. kumar, j.(1) this is an. appeal against the order of the learned single judge on a petition praying for setting aside of an award dated 7th december, 1973 made by ch. ramakrishna rao, additional legal adviser, ministry of law & justice. the petition seeking to set aside the award was numbered as suit no. 25-a of 1974. the learned single judge referred to the pleadings of the parties, the correspondence exchanged between the parties before submission to the arbitrator was made, and the contentions raised in this court and found that 'the controversy between the parties was in regard to the interpretation of the clauses of the agreement, inparticular clause 3 thereof'. the learned judge then referied to the letter dated 11th march 1971 wherein a request was made to the secretary,.....
Judgment:

S.N. Kumar, J.

(1) This is an. appeal against the order of the learned Single Judge on a petition praying for setting aside of an award dated 7th December, 1973 made by Ch. Ramakrishna Rao, Additional Legal Adviser, Ministry of Law & Justice. The petition seeking to set aside the award was numbered as Suit No. 25-A of 1974. The learned Single Judge referred to the pleadings of the parties, the correspondence exchanged between the parties before submission to the arbitrator was made, and the contentions raised in this Court and found that 'the controversy between the parties was in regard to the interpretation of the clauses of the agreement, inparticular clause 3 thereof'. The learned Judge then referied to the letter dated 11th March 1971 wherein a request was made to the Secretary, Government of India, Ministry of Food and Agriculture to appoint an arbitrator. The learned Judge came to the conclusion that a reading of the request made to the Secretary to the Govt. of India and the letter of the Secretary dated 4th June 1971 appointing the sole arbitrator 'leaves no manner of doubt that the question of law, namely, interpretation of Clause 3 was specifically referred to the sole arbitrator for his decision' and since the parties wanted a decision on a point of law, namely, the interpretation of Clause 3 of the agreement as a separate and distinct matter, the court cannot interfere with the award of the arbitrator. Relying on the ruling of the Supreme Court in M/s. Alopi Parshad and Sons, Ltd. v. Union of India, : [1960]2SCR793 , the learned Single Judge held that since the reference was of a specific question of law, the award shall bind the parties.

(2) In this appeal, two contentions are raised, (1) that the submission to the sole arbitrator was not a submission of a specific question of law and the award can be challenged, (2) that the arbitrator has committed an error of law which is evident on the face of the award.

(3) The undisputed facts are that the appellants invited tenders on 1st December, 1969 on running contract basis for the supply of approximately 22,02,330 litres of Rum within a period of one year from the date of acceptance of tender. (The tender was issued subject to the terms and conditions already communicated to the prospective tenderers by letter dated 9th August 1968). The tenderers were also requested to indicate the quantity of Rum that they will be able to supply on one month's notice. It was further clarified in the invitation to tender that the quantity afore-mentioned was only approximate and the exact quantity to be supplied during the period, i.e. one year will be specified in the acceptance of tender which would be subject to increase or decrease of 50 per cent at the option of the purchaser. The tenderers were given the option to quote for the entire quantity or for a smaller quantity. For other terms and conditions applicable to the tenders the tenderers were referred to the terms and conditions circulated earlier. One of the conditions thus circulated was as follows:

2. Period Of The Contract : The contract may be placed on an ad hoc basis or on running contract basis. The running contract shall be for a period of one year from the date of Acceptance of Tender which may, at the option of the Government, be from time to time extended on the same terms and conditions as specified herein, for a further period up to one year (12 months) subject to a notice in writing given to the contractor in that behalf one month before the expiration of the period of this contract or extension thereof'.

(4) Circular letter contained an arbitration clause. Other conditions are not relevant for our purposes. The tenders were to be submitted in a prescribed form. The respondent submitted its tender for the entire quantity, but the appellants accepted the tender for a smaller quantity by a telegram dated 24th January 1970. The accepted quantity was 10,03,000 litres subject to increase or decrease by 50% at the option of the appellants. A comprehensive acceptance of tender was then issued containing all the terms and conditions and the document was described as a 'Running Contract'. Under the acceptance of tender, which the parties agree was the sole repository of the contract terms between them, it was provided in Cl. 2 that the quantity to be delivered subject to the option was 10,03,000 litres and on minimum 30 days notice, 1,44,000 litres of Rum had to be delivered. The quantity .of 10,03,000 litres was again described as approximate in the acceptance of tender and the exact quantity to be delivered was to be intimated through specific supply orders to be issued from time to time during the currency of the con- tract. In other words, both the total quantity as well as the time of delivery, were left open for the purchaser to determine by issue of supply orders. However, the parties treated it as a concluded contract. Clause 2 of the conditions circulated before the invitation to tender and reproduced above was in- corporated as 'Clause 3' in the formal Acceptance of Tender. Supply orders were issued by the appellants from time to time, the appellants also exercised option of the increase in quantity by 50 /o and a total quantity of 14,40,000 litres was delivered by the appellants over a period of 10 months The respondent was also willing to supply further quantity of 64,500 litres of Rum under the running contract but no supply order was placed with the respondent for this quantity. The period of the 'running contract' was up to 23rd January, 1971 because the acceptance of tender was issued on 24th January 1970. On 19th December ) 970, the appellants sent a telegram which read:

8/6/43/70Pur 11 (.) Rum for defense (.)ln pursuance of clause three read with clause 2(1) of running- contract even number dated twenty fourth January seventy for supply of ten lakh and three thousand litres Rum subject to increase/decrease by fifty per cent valid up to twenty third January seventy one is hereby ex- tended for further period of one year that is up to twenty third January seventy two on same terms and conditions for full quantity (.) without prejudice to Government rights (.) Acknowledge'.

On the same date a letter was sent by the appellants to the respondent to .the same effect. On 22nd December 1970 the appellants issued supply orders for a total quantity of 4,32,000 litres of Rum. The respondent in reply wrote to the appellants that Clause 3 of the contract between the parties does not mean that the appellants had the right to purchase the same quantity of Rum all over again and it was only the period of delivery of the already contracted Rum, i.e. 15,01,000 litres could be extended, if the same was not completed within the duration of the running contract. By letter dated 30th January 1971 the appellants replied that the contention of the respondent has been carefully examined and that the Government's stand is perfectly in accordance with the terms and conditions of the contract. The respondent was, thereforee, called upon to make the supplies of 4,32,000 litres of Rum. On 18th February 1971 the respondent replied and stated that it has given the matter considered thought again and it does not agree with the interpretation given by the appellants to the contract and they reiterated their position as stated in its letter dated 23rd January 1971. In reply to this letter, the appellants wrote a letter on 27th February 1971 staling that by the letter of extension dated 19th December 1970 a new running contract came into existence for the period from 24th January 1971 to 23rd January 1972. The appellants further contended that since the respondent has not agreed with the view taken by the appellants, the appellants cancel the contract and shall proceed to purchase the quantity at the risk and cost of the respondent. It is common case of the parties that before any risk purchase was made as threatened by the appellants by a letter sent through the advocates for the respondent on 11th March 71 the Secretary to the Government of India in the Ministry of Food and Agriculture, Department of Food, Army Purchase Organisation, New Delhi, was asked to appoint an arbitrator in accordance with the arbitration agreement between the parties contained in Clause 23 of the Contract. In the first paragraph of the letter the respondent brought to the notice of the Secretary the substance of the provisions of Clause 23 which provided that in the event of any dispute or difference arising under or out of or in connection with the conditions of the contract or touching or concerning the construction or meaning of conditions or any matter taken therein or as to the rights and duties or liabilities of the parties the same shall be referred to the sole arbitration of any person to be appointed by him. In the second and the last paragraph the respondent stated as under:

SINCE disputes and differences have arisen as to the interpretation of certain clauses of the said A/T between our clients and the Government, we, on behalf of our clients, hereby give you notice to appoint as arbitrator so that the dispute may be referred to him for adjudication.'

The Secretary to the Government of India, in reply to this letter, made the appointment of the arbitrator by his letter dated 4th June 1971. A copy of this letter was sent to the arbitrator as well as the appellents. The letter was addressed to the respondent. The reference number and date of the letter in reply to which the Secretary purported to write on 4th June 1971 is not the same as borne by letter dated 11th March 1971. The parties, however, did not attach any significance to this discrepancy and submitted that it may be treated that the appointment of the arbitrator was made in responce to the request contained in letter dated 11th March 1971. While making the. appointment the Secretary has not specified the dispute and has stated that since the respondent has requested through counsel that disputes have arisen in connection with the contract dated 24th January 1970 he is making appointment of the arbitrator. It is not disputed, that the appellants did not seek submission of any dilute for adjudication. The submission to arbitration was sought only by the respondent and that dispute was described in the last paragraph of the letter dated 11th March 1971 'as to the interpretation of certain clauses of the. . A/T'. The first question that arises and may be stated as, whether there was a submission of a specific question of law to the arbitrator or not? It is evident that no question of law, as such, was framed which was the subject matter of the submission to the arbitrator. What was submitted to the arbitrator was a question of interpretation of the relevant terms of the contract and nothing more. In M/s. Kapoor Nilokheri Co-op, Dairy Farm Society Ltd. v. Union of India and others : AIR1973SC1338 , their Lordships of the Supreme Court held that a decision by an arbitrator as to the effect of an agreement is really a decision of a question of law, i.e. of interpreting the document. Undoubtedly, thereforee, a point of law was submitted for decision to the arbitrator in the present case. Should it make a difference that the submission sent to the arbitrator for decision, as in the present case, is not couched or arranged in the form of a question. There are authorities to the effect that when disputes formulated in the form of issues framed in a suit, are referred to an arbitrator for decision and only some of the issues are, on points of law, the decision of the artbitrator on issues of law is not open to challenge for the reason that the submission in respect of those issues is a submission for decision of specific question of law. (See-Darga Prasad Chamaria and Anr. V. Sewkishondas Bhattar and others, Air 1949 Privy Council 334(3) and Haji Habib Haji Pir Mohammad v. Bhikarn chand Jankilal shop and others, Air 1954 Nagpur 306 (4). Each case has to be decided on the terms of the particular submission. I know of no authority and none was cited before us which involved facts similar to the present case. Looking at the matter on principle. I think it should not make any difference if the submission to the arbitrator is not given the form of a question, or that it does not state the different interpretations which gave rise to the dispute provided the whole dispute submitted to the arbitrator is only a point of law' and. nothing more.

(5) Lord Wright in his opinion observed 1933 A.C. 592 that the rule is that where an error of law appears on the face of the award the error can be reviewed and it applies to the ordinary case where the submission 'refers to the arbitrator the whole question whether it depends on law or on facts. To be contracted with such cases there is a special type of case where a different rule is in force, so that the Court will not interfere even though it is manifest on the face of the award that the arbitrator has gone wrong in law. This is so when what is referred to the arbitrator is not the whole question whether involving both fact or law, but only some specific question of law, that is to say, where apoint of law is submitted as, in express terms as the separate question submitted, which is all that the arbitrator is required to decide, no fact being, quoad that submission, in dispute.' The learned Lord further observed:

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 true effect of the contract on the basis of undisputed facts, as in the Kelantan case 1923 A.C. 395, or as a separate and distinct matter on facts to be separately assumed or found as in re. King and Duveen, 1913(2) K.B 32. There is no reason to think that the parties had any specific questions of law in mind at all. What was wanted was a practical decision on the di4sputed issues. Even if questions of law were bound to emerge, the parties may never have envisaged them in going to arbitration. 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.'

In the present case, there was no dispute or claim for money on either side and no facts were in dispute when arbitration was sought. In fact, there was no other difference. Parties admittedly were at variance only about the interpretation of one or two clauses of their contract. All that they were asking the arbitrator was to give his interpretation of C1.3 of their contract so that they know who is right and who is wrong. Can it further be said, that while doing so, they also intended to give up their right to resort to the courts even if the award is erroneous? Intention to this effect is evident from the arbitration agreement itself. The parties specifically agreed that any dispute in respect of the construction of any of the provisions of the contract shall be decided by the arbitrator and the award shall be final.

(6) It is not now necessary for me to consider and decide the second contention raised before us, but arguments were addressed at length and it is proper that the award be considered to find out whether there is any error of law on its face.

(7) It is well settled that an arbitrator is the sole and final judge of all facts and law. He may, however, commit error. But his decision cannot be successfully challenged unless he commits an error of law which is apparent on the face of the award or of a document, if any, which forms part of the award. It is well settled that courts only interfere when the error is apparent on the face of the award or the document forming part.

(8) In Government of Kelentan v. Duff Development Co. 1923 A.C. 395. Lord Cave staking for the majority of the House Bold that where a question of construction is the very thing referred for decision to' the arbitrator upon that point cannot be set aside by the court only because the court itself would have come to a different conclusion. It was however pointed out that if it appears from the award that the arbitrator has proceeded illegally, for instance, that he decided on principles of construction which the law does not countenance, then there is error in law which may be a ground for setting aside the award, but the more dissent of the Court from the arbitrator's conclusion on construction is not enough for that purpose. Learned Lord, in the following words, stated the point for decision before the arbitrator:

BEFORE dealing specifically with the points raised on the appeal, it is desirable to refer to a question winch was mentioned (though not decided) in the judgments of the learned judges of the Court of Appeal and which was again raised in the argument before this House namely, the question whether there was not here such a reference to the arbitrator on the construction of the deed of cancellation that his conclusions on that point must be accepted as final and not open to be questioned on application to the Court. My Lords, in my opinion there was in this case a reference to the arbitrator of the questions which had arisen on the construction of the deed of cancellation. The arbitration clause in the deed applied in terms to every dispute, difference or question which might arise between the parties touching the 'construction, meaning, or effect' of the deed. The appointment of the arbitrator showed that differences had arisen as to the construction, and the arbitrator was appointed to determine those differences.'

AND Held:

NO doubt an award may be set aside for an error of law appearing on the face of it, and no doubt a question of construction is (generally speaking) a question of law. But where a question of construction is the very thing referred for arbitration, then the decision of the arbitrator upon that point cannot be set aside by the Court only because the Court would itself have come to a different conclusion. If it appears by the award that the arbitrator has proceeded illegally for instance, that he has decided on evidence which in law was not admissible or on principles of construction which the law does not countenance, then there is error in law which may be ground for setting aside the award ; but the more dissent of the Court from the arbitrator's conclusion on construction is not enough for that purpose....'

In F.R. Absalam, Limited and Great Western (London) Garden Village Society, Limited, 1933A.C.592 the House of Lords again considered this question. In this case, the Court of Appeal had set aside the order of the Divisional Court and had upheld the award. On leave being given the matter came up for consideration and decision before the House. In the Court of Appeal, Scrutton L.J. took the view that the question which was referred to the arbitrator involved a decision as to construction of the contract and the arbitrator had construed the relevant clause and his award could not thereforee be interfered with. The point of his judgment was that the arbitrator having been selected to decide a question of construction, his decision cannot be questioned. Greer L.J. further observed that it made no difference that the submission did not expressly submit the particular question. The submission in Absalom's case was in the following terms: '(1) the arbitrator to hear and determine disputes in regard to (i) the issue of certificate ; and (ii) the validity of the notice served under condition 26'. When the matter came before 'the House of Lords, looking at the submission and the facts leading to the dispute Lord Russel of Killowen opined:

THE primary quarrel between the parties was whether, if the value of the work executed and materials on site up to and including March 11, 1929, had been truly assessed, the net value available for certification on that date was in excess of (as the contractor alleged) or less than (as the employer contended) the amount which had actually been certified up to and including that date-namely, 94341. Those were the disputes which were the foundation of the suspension of work on the one hand and the service of the notice on the other. Those were the disputes 'in regard to the issue of certificates and the validity of the notice' which were in general terms submitted to the arbitrator. No specific question of construction or of law was submitted. The parties had, however, been ordered to deliver pleadings, and by their statement of claim the contractor had claimed that the arbitrator should under his powers revise the last certificate issued so as to include therein the excess net value which they had alleged and which the arbitrator has found (though for a reduced amount) to have existed on March 11, 1929. 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 had 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.'

(9) It was found that condition 26 did not need interpretation and the dispute was governed by condition 30 which was construed by the arbitrator wrongly in the opinion of the House of Lords. In these circumstances, the House was of the opinion that this case was different from the Kelantan's case.

(10) In the present case, it has not been even suggested that the arbitrator has applied any principle of construction which the law does not countenance while construing the provisions of the contract in respect of which there was difference of opinion between the parties. I, thereforee, hold that there is no error of law apparent on the face of the award and it has to be upheld.

(11) I must mention one other point. During the hearing of the appeal, we had allowed parties to file affidavits to show how they have been dealing with similar contracts entered into between them in the past. I do not think sitting in appeal arising out of an award we have the legal authority to allow leading of evidence even on affidavits. The jurisdiction of the Court in the matter of arbitration awards is quite limited. In this view of the matter, I need not comment upon the affidavits filed.

(12) In the result, the appeal is dismissed with costs.

(13) Sachar, J I have had the advantage of reading the Judgment of my brother Kumar, J. but regre that I have to differ with it. The facts have been mentioned in great detail by my learned brother, and I need not repeat them. The learned single Judge and my brother have taken a view that as a specific question of law was referred to arbitration it is not open to this court to examine the infirmity in the award even if there was an error apparent on the face of it.

(14) Admittedly the contract which was entered into by the acceptance of the tender on 4-1-1970 was subject to the conditions one of which was mentioned in clause 3 which reads as under : 'Period of Running Contract, The running contract shall be for a period of one year (Twelve Months) from 24-1-1970 .to 23-1-1971 which may at the option of the Government, be from time to time extended on the same terms and conditions as specifed herein, for a further period up to one year (twelve months) subject to a notice in writing given to the contractor in that behalf of one month extension thereof.' It was in pursuance of this clause that the appellant Union of India exercised its option for a further period of one year from 24-1-1971 to 23-1-1972 for the supply of full quantity of 10,03,000 litres of Rum (subject to increase or decrease by 50%) communicated by their letter dated 19-12-1970. The respondent however, challenged the right of the appellant to extend this period of contract for one year and was only willing to accept the responsibility to supply the balance quantity of 64,500 litres (outstanding from the previous contract). As the agreement .between the parties contained the arbitration clause 23 which provided that in the event of any question, dispute or difference arising under or out of in connection with the conditions mentioned in this schedule touching or the construction operation of conditions as to the rights and liabilities of the parties hereto respectively or otherwise however, in connection with this contract....... The same shall be referred to the sole arbitration of any person appointed by the Secretary to the Government of India administratively dealing with the contract at the time of such appointment.. . ., the respondent by its letter dated 11-3-1971 invoked clause 23 and asked the matter to be referred to the sole arbitrator. It was on this basis that the arbitrator was appointed by means of letter dated 4-6-1971 issued by the Government of India which stated that the dispute having arisen in connection with the contract, an arbitrator was being appointed. It is also relevant to note that in that letter dated 11-3-1971, the penultimate para of the letter is as under : 'Since disputes and differences have arisen as to the interpretation of certain clauses of the said A/T between our clients and the Government we, on behalf of our clients, hereby give notice to appoint an arbitrator so that the dispute may be referred to him for adjudication.

(15) It is well settled that the court cannot review an award and correct any mistake in its adjudication unless an objection to the legality of the award is apparent on the face of it. That is to say that if you find in any note appended by the arbitrator staling the reasons for his adjudication some legal proposition which is the basis of the award and which you can say is erroneous, the court may interfere with the award vide firm Madanlal Roshanlal Mahajan v. Hukumchand Mills Ltd. : [1967]1SCR105. The arbitrator is, however, bound to follow and apply the law and if he does not he can be set right by the court provided there is an error on the face of the award, the single exception to this is when the party choses specifically to refer a question of law as a separate and distinct matter. See : [1955]2SCR48 Thawardas Pherumal and another v. Union of India (8).

(16) In the present case the award 'is a speaking one. The arbitrator has given reasons why he has held that the-respondent has not committed any breach of the contract. The award thus being a speaking one and the reasons having been given by it would be open to the court to examine the legality of the reasons and if it finds that the reasons were wrong in law it could interfere on the ground that there was patent error on the face of the award. But even this limited scrutiny has been negatived by Kumar, J. because according to him a specific question of law (namely interpretation of various clauses of the contract) was referred to the arbitration and the decision of the arbitrator even if wrong is totally immune from the scrutiny of the court. It is this finding, which with all respect to my brother I find myself unable to agree. From the correspondence and the actual terms of the contract I do not find that any specific question of law was referred to the arbitrator at all. As a matter of fact Kumar, J. himself has held that It is evident that no question of law, as such, was framed which was the subject-matter of the submission to the arbitrator. What was submitted to the arbitrator was a question of interpretation of the relevant terms of the contract and nothing more. Now clause 23 permits a general reference to the arbitration of any dispute which may arise between the parties. There was no separate agreement to refer any specific question of law to arbitration. Aid was sought of the general clause 23 relating to arbitration. What however, seems to have persuaded my brother to hold that it was a specific question of law, notwithstanding that in terms there was no specific question of law referred in the cumulative effect of correspondence and that dispute broadly related to the meaning to be given to clause 3. I find myself unable to agree with this assessment. In Thawardas Pherumal and another v. Union of india ( : [1955]2SCR48 (Supra) there is a very detailed discussion as to when on a specific question of law can be said to have been referred. It has been held in the said case If, thereforee, 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.'

'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 on that point to be final.'

The mere fact that broadly the interpretation of clause 3 of the contract was involved before the arbitrator which can be termed to be question of law does not mean that the parties had specifically agreed to refer that question of law so as to make an award immune from scrutiny by the court even if there is an error apparent on the face of the award. As the Supreme Court in the above said case stated: 'Therefore, when a question of a 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.' In the present case the observation of Lord Wright in 1933 Ac 592, referred by my brother Kumar, J. to the effect that what was wanted by the parties was a practical decision on the disputed issues. The observations of Lord Russel in the above case are also apposite wherein his lordship has held that 'no specific' question of construction of law was submitted, and 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 had 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.'

(17) In Union of India v. A. L. Rallia Ram : [1964]3SCR164 the distinction between a decision on a question of law arising in a reference made to the arbitrator and specific question of law agreed to be referred to the arbitrator was brought out and it was pointed out in para 14 that filing of pleadings pursuant to the directions of the arbitrators and agreeing to a trial of the dispute on the issues raised by the arbirtators cannot be regarded as reference of specific questions implying an agreement between the parties that they intended to give up their right to resort the Courts even if the award was vitiated on account of an error apparent on the face thereof.' Again the distinction was highlighted between a specific question of law and question of law arising for the determination of the arbitrator and it is only in the case of reference of former that the courts are precluded from interference even if there is an error apparent on the face of the award. 'The issue of law may be material for the determination of the dispute, but they are not issues of law specifically referred to the arbitrators.' Vide para 17.

(18) In the present case a reference to the arbitration file will show that he framed the following issues for determination:

1. Whether on the facts and circumstances of this case the respondent could not claim from the claimenta further quantity of 10,03,000 litres of rum subject to increase or decrease by 50% by extending the period of contract up to 23-1-1972?

2. Whether on the facts and circumstances of this case the claiment can be held guilty of breach of contract as extended up to 23-1-1972?

3. Reliefs to which the parties are entitled.?

It will thus be seen that the reference was not only made but was also understood to be a general one in which a question of interpretation of clause 3 in the sense whether government had power to renew the full contract for a period of one year or could only permit it to extend the period for delivery would no doubt have to be decided, but that would not mean that such a specific question of law had been referred to the arbitrator. Before the parties can be deprived of their rights to invoke the courts' jurisdiction to interfere in the limited scope of error of law apparent on the face of the award there must be clear indication that the parties had consciously and deliberately referred this particular question of law to the arbitrator. The fact that there was no difference as to the quantity supplied under the old contract does not mean that a specific question of law was referred to arbitration. The parties were at variance on their respective rights and it was this general dispute which was referred to the arbitrator. In this connection 1949 Pc 334 Durga Prasad Chameria and Anr. v. Sewkishendas Bhattar and others. referred by Kumar.J. would not go against my view. As pointed out in : [1964]3SCR164 (supra) in para 15 what the judicial committee had held was that the question of law was specifically referred to arbitration in a pending suit with the consent of the parties but the decision was reached in the special circumstances of the case and not on the view that where agreed issues are raised before the arbitral turn on the pleadings filed before him. the reference must be regarded as a reference on the specific questions incorporated in the issues. In my view to hold that specific question of law was referred would be stretching the scope of arbitration to cover that aspect which was not even present in the mind of the parties. I find myself unable to hold that in the present case reference was made of a specific question of la wand the court cannot even examine whether there is patent error of law on the face of the award. I must also notice : AIR1973SC1338 M/s. Kapoor Nilokheri Co-op. Dairy Farm Society Ltd. v. Union of India & others, In that case grievance was made before the Supreme Court that arbitrator had misconducted himself to decide the case not on the basis of the pleadings. All those points were decided against the objector and the court held that the arbitrator cannot be said to have misconducted himself in the matter on the question of privilege nor were the objectors entitled to any relief on any other ground. After having so decided the court noticed the argument put by the additional Solicitor General that as the claims were based on the agreement and as all that the arbitrator had to decide was as to the effect of agreement the arbitrator had really to decide a question of law i.e. interpreting the document and that his decision was not open to challenge and reference was made to 1949 Pc 334 (supra). I do not read these observations (which with very great respect were obviously obitor) to mean that when a question arises as to the interpretation of an agreement it must be treated as a submission to arbitration of specific question of law, nor do I read this Judgment to mean that if a question of law has been decided wrongly by the arbitrator the same cannot be challenged in the court, even if there is a patent error. say this because such a view would run. counter to the series of earlier Supreme Court decisions which have clearly held that if the arbitrator does not follow law correctly he could be set right by the court provide his error is apparent on the face of the award. (See : [1955]2SCR48 (supra). These observations of the Supreme Court must be understood, in the context of the case to mean that the interpretation of question of law given by the arbitrator in that case was not found to contain infirmity apparent on the face of the award and, thereforee, the award could not be set aside. The said authority did not and was not dealing with any distinction between a specific question of law being referred to arbitration and a question of law being answered on a general reference having been made to the arbitrator. This authority, thereforee, cannot be used against the appellant to preempt him from raising the question that there is an error of law apparent on the face of the award. The learned single Judge did not go into this aspect because he took the view that a specific question of law had been referred to arbitration. Kumar, J. in arriving at his finding that there was no error apparent on the face of the award has relied on the observation in 1923 A. C. 395 to the effect that the courts will only interfere if it is apparent that the arbitrator has d.ecided and applied any principle on construction which the law does not countenance. With very great respect these observations were made in the context of the specific question of interpretation having been referred to the arbitrator, but would not apply to the instant case in view of my findings that no specific question of law was referred to arbitration. In the present case the arbitrator has given the reasons for his interpreting clause 3 by staling that the word 'which may.. . from time to time extend' govern the period preceding it or the words 'Running contract' at the beginning of the clause. It appears to me that this reading of clause 3 is totally unacceptable. A mere reading of clause 3 will show that the running contract was for one year from 24-1-1970 to 23-1-1971 which at the option of the government could be extended on the same terms and conditions as specified hereinafter for a further period of one year. The word 'Running Contract' has no particular meaning except that the contract was for supply of quantity which was to be given during the year and not in one lump sum. The obvious fallacy in which the arbitrator fell was in not noticing that the option was given to extend the contract on the same terms and conditions as specified herein, which necessarily included clause 2 of the Conditions relating to the purchase of full quantity of units, the quality and price and period mentioned therein. The reasoning of the arbitrator that this only permitted the government to extend the period for one year but limited the option of the government to ask for only the balance of the agreed quantity, orders for which were yet to be placed is completely mis-reading of the contract and is unnecessarily restrictive. Clause 3 gives the government the option to extend the contract on the same terms and conditions, which inevitably must include the full quantity and not the balance outstanding of the original quantity. I cannot give any weight to the argument urged by Mr. Mohan, the learned counsel for the respondent that a contractor could not have bound himself for a further period of one year on the same old price and not ask for higher price even if in the meanwhile the price of rum had increased. All that one can say is that the parties must have considered and weighed the respective merits and the advantage of the contract. This argument of imagined hardship was negatived in : [1955]2SCR48 (supra.) wherein it was stated that if the constractor expressly agreed, that the 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 , because having contracted he cannot go back on his agreement because it does not suit him to abide but it. It is not the court to substitute any other contract for the one which the parties had entered into. I am, thereforee quite satisfied that the reasons which persuaded the arbitrator to deny to the government the option to extend the period for further period of one year on the same terms and conditions and was based on erroneous reasoning and as the error of law is apparent of the face of the award, the same cannot be upheld.

(19) I may also mention as has been noted by my brother Kumar, J. that we had asked for further affidavits from the parties as to the manner in which previously the contracts entered into under similar circumstances have been understood and dealt with by the parties. Affidavit has been filed by Amar Singh. Assistant Director of Purchases in which he has entrusted a number of contracts which were worded similarly and in which the government exercised its option for a further period of one year on the same terms and conditions, for the following years and also that the said contracts were honoured by number of contracts. As a matter of fact it has been specifically mentioned and it 13 admitted in the counter affidavit filed by the respondent that in the year 1978 a contract was entered into with. this very respondent and that the contract was extended for the year 1979 on the same terms and conditions as in the 1978 contract and the said contract was complied with by the respondent. This information was obtained by us to find as to how the parties had previously carried out the contract. Of course how the parties ha.ve carried the clause in a particular manner may be included if the words point to the contrary I have arrived at my finding independent of this factual matter on the language of clause 3 itself, which according to me specifically gives option to the government to extend the period of contract for another year on the same terms and conditions and there is no limitation in clause 3 for only permitting the government to extend, the period limited to supply of the balance of the agreed quantity for which orders had not been placed in the previous year. Such an. interpretation would be reading the clause 3 perversely. I am of the face of the award. As the arbitrator on the erroneous view of law held that there was no breach of contract committed by the respondent he obviously did not go further into the claim made by the Union of India. As now I am holding that the award suffers from this infirmity, the result would be that the matter would have to be remitted back to the arbitrator for recunsideration of the claims filed by the parlies in the light of the opinion given by me below. I would, thereforee, allow the appeal, set aside the order of Prithvi Raj, J. and remit the award back for reconsideration as directed above. No costs.

(20) In view of the differences of opinion on a question of law, we direct that the papers be laid before Hon'ble the Chief Justice for referring the matter to a third Judge for his opinion. sd/- Rajindar Sachar Judge sd/- S. N. Kumar January 29, 1981 Judge R.S. Note: For third Judge's opinion, as referred to above see FAO(OS) 71/75 decided on 24-4-1981 by Hon'ble Mr. Justice A. B. Rohatgi and reported herein after. sd/- Editor


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //