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

LegalCrystal Citation
SubjectContract
CourtDelhi High Court
Decided On
Case NumberFirst Appeal No. 71 of 1975
Judge
Reported inAIR1981Delhi348; 20(1981)DLT51; ILR1981Delhi88
ActsCode of Civil Procedure (CPC), 1908 - Sections 98 and 98(2)
AppellantUnion of India
RespondentRampur Distillery and Chemical Co. Limited and anr.
Advocates: D.P. Wadhawa,; A. Ahlawat,; A.K. Sen and;
Cases ReferredF.R. Absalom Ltd v. Great Western Garden Village Society
Excerpt:
.....(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 specified therein, 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 before the expiration of the period of this contract or extension thereof.'; at the commencement of the contract the appellant exercised the option under clause 2 of the contract and increased the quantity by 50% raising the total quantity to 15,04,500 litres when a balance quantity of 64,500 litres remained to be supplied. on 19-12-1970 appellant in purported exercise of their option extended the contract for another year i.e., from 24-1-1971 to 23-1-1972 and demanded afresh from..........quantity to be delivered was to be intimated through supply orders which were to be issued from time to time during 'the currency of contract'. clause 3 of the contract is the material clause and the dispute centres round the meaning of this clause. that clause says: '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 specified 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 before the expiration of the period of this contract or extension thereof'. at the commencement of the contract the government exercised.....
Judgment:

Avadh Behari Rohatgi, J.

(1) Rum is a favorite drink in the defense forces, the appellant, Union of India, purchases large quantities of rum for supply to the armed forces. They made one such contract with the respondent Rampur Distillery and Chemical Co. Ltd., (Distillery). This contract, thanks to its draftsman, has been fruitful not only in raising disputes between the parties but it has also led to a sharp difference of opinion between two learned judges of this court.

(2) The Government entered into a contract dated 24th January, 1970 with the Distillery for the purchase of 10,03,000 litres of rum. Clause 2 of the contract says that this quantity is approximate and is subject to increase or decrease by 50 per cent at the option of the purchaser. The exact quantity to be delivered was to be intimated through supply orders which were to be issued from time to time during 'the currency of contract'. Clause 3 of the contract is the material clause and the dispute centres round the meaning of this clause. That clause says:

'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 specified 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 before the expiration of the period of this contract or extension thereof'.

At the commencement of the contract the Government exercised the option. They increased the quantity by 50 per cent. This means 10,03,000+5, 01,500=15,04,500 litres of rum were to be supplied. The Distillery started supplying rum according to the supply orders issue to them from time to time. Supply orders were issued for a quantity of 14,40,000 litres. A balance quantity of 64,500 litres remained to be supplied, when on 19th December, 1970, the Government in purported exercise of their option extended the contract for another year, i.e. from 24-1-71 to 23-1-72. They demanded again from the Distillery the full quantity of 10,03,000 litres of rum subject to increase or decrease by 50 per cent on the same terms and conditions. Their case was that the Distillery was bound to supply to them in addition the balance quantity of 64,500 litres an additional quantity of 10,03,000 litres subject to variation term.

(3) The Distillery disputed their liability to supply the additional quantity of 10,03,000 litres. They maintained that they were liable to supply only the balance quantity of 64,500 litres of rum which, they said, they were ready and willing to do. Disputes arose between the parties. The contract provided for arbitration. So in accordance with clause 23 of the contract the matter was referred to the sole arbitrator, Ch. Ramakrishna Rao, Add1. Legal Advisor, Ministry of Law and Justice.

(4) The arbitrator took upon himself the burden of the reference. He made and published the award on 7th December, 1973. He held that the Government's right was only to extend the period of delivery for the balance quantity of 64,500 litres of rum. In his view the Government had no right to renew the contract for the entire quantity, namely 10,03,000 litres subject to increase or decrease by 50 per cent. So he decided in favor of the Distillery.

(5) The arbitrator filed the award in court. To the award objections were taken by the Government they moved for setting aside the award. Prithvi Raj, I on the original side of this court dismissed the objections of the Government by judgment dated August 7, 1975. He made the award a rule of the court and passed a decree in accordance therewith.

(6) From the order of Prithvi Raj, J. the Government appealed. The appeal came up for hearing before Sachar and Kumar, JJ. They differed. Kumar, J. held that a specific question of law had been referred to the arbitrator and the arbitrator having answered the question of law the decision of the arbitrator was final end binding on the parties. He upheld the judgment of Prithvi Raj, J.and dismissed the appeal with costs.

(7) Suchar J. dissented. He rested his decision on two grounds. In the first place he held that no specific question of law was referred to the arbitrator and that a 'general' reference was made to him. Secondly he ruled that the award of the arbitrator was a speaking award and that it disclosed an error on its face in as much as the arbitrator had misconstrued clause 3 of the contract. He set aside the order of Prithvi Raj, J. and remitted the award back to the arbitrator for reconsideration. On this difference of opinion the appeal has come to me as a third judge for hearing under s. 98 of the Code Of Civil Procedure.

(8) The dispute between the parties revolves round clause 3 of the contract, as I have said. It was on the meaning, effect and construction of this clause that the parties differed. According to the Government this clause gave them a right to renew the contract for another year which would entitle them to purchase from the Distillery a quantity of 10,03,000 litres of rum over again with the variation clause of 50 per cent on the same terms and conditions as the original contract dated 24th January, 1970. The Distillery contested this construction of the clause. They said that the Government had no right to claim the quantity of 10,03,000 litres from the Distillery at the same price over again and all that this clause meant was that the balance quantity of rum which remained to be supplied under the original contract could be asked to be delivered in the following year.'.

(9) By their telegram and letter dated 19th December, 1970 the Government asked the Distillery to supply 10,03,000 litres of rum during the next year. The Distillery in their reply dated 23rd January, 1971 refuted the claim of the Government and said that the period of delivery of the balance of the original quantity could be extended and that clause 3 did not mean that the Government had a right to purchase the same quantity of rum as stipulated in the original contract once again at the old rate. The Distillery expressed their readiness and willingness to accept the supply order for the remaining quantity of 64,500 litres but beyond this they were not obliged under the contract*to supply any further of fresh quantity of rum at the old rates, they maintained ; On 30th January, 1971 the Government replied that the contention of Distillery has been carefully examined and that the Government's stand is perfectly in accordance with the terms and conditions of the contract. By their letter dated 18th February, 1971 the Distillery retaliated' that the interpretation put by the Government on the contract was not correct. The Government in their letter dated 27th February, 1971 reiterated their stand and stated that a new running contract came into existence from 24-1-71 to 23-1-72 and the Distillery was obliged to supply 10,03,000 litres. It was further stated that because of the failure of Distillery to supply further quantity the Government was constrained to cancel the extended contract and was free to purchase the quantity of 10,03,000 litres at the risk and cost of the Distillery. It is common ground that before the Government made the risk purchase a demand for arbitration was made.

(10) On March Ii, 1971 the Distillery's solicitors wrote to the Government asking them to appoint an arbitrator in terms of clause 23. In this letter they said: '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 an arbitrator so that the dispute may be referred to him for the adjudication.' The Government acceded to this request. On the 4th June, 1971 they appointed Mr. P.H. Ramchandani as the sole arbitrator for the adjudication of the disputes. On his retirement Ch. Ramakrishna Rao became the .sole arbitrator.

(11) From the correspondence it appears that the bone of contention between the parties was clause 3 of the contract. On its meaning and interpretation the parties differed. The matter went to the arbitrator. Before the arbitrator this was the question raised by the Distillery in their claim petition. The Government in their reply contended for a different interpretation of this clause. The arbitrator decided the dispute. He upheld the contention of the Distillery. He rejected the case of the Government.

(12) The Government came to court. In their objection petition dated 17-1-74 before the learned single judge and the grounds of appeal in this court the question of construction is the only question which has been raised by the Government. It is true that the arbitrator framed the following three issues for determination:

'1. Whether on the facts and circumstances of this case the respondent could not claim from the claimant a 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 claimant can be held guilty of breach of contract as extended up to 23.1.1972

3.Reliefs to which the parties are entitled.'

(13) But this d.oes not mean that the whole question had been referred to the arbitrator. It was not a 'general' reference, as Sachar J. held : I agree with Kumar J. that it was a reference of a specific question of law to the arbitrator. And the question of law was: What is the meaning, effect and construction of clauses 2 and 3 of the contract? If it is held that there is a renewal of the contract then it must follow that the Distillery was in breach of contract. But if there is no right to renew the contract on the old terms and conditions then the question, of breach will not arise. So the Tight and not the risk purchase was the essence of the matter. And this right, was sought to be founded on clause 3 and clause 3 alone on the specific question of the meaning and interpretation of the clauses of the contract and in particular clause 3 the parties invited the arbitrator to give his decision. Clause 23 of the contract is widely worded. Any dispute or difference 'touching or concerning the construction, meaning, operation of conditions' of the contract can be referred to the arbitrator.

(14) This being a reference of a specific question of law as a separate and distinct matter the rule laid down by the House of Lords in Government of Kelantan vs. Duff Development Company 1923 Ac 395 (1) will apply. In that case the House of Lords approved the following dictum of Channell, J. in Re King and Duveen (1913) 2 K.B.32:

'IT is equally clear that if a specific question of law is submitted to an arbitrator for his decision, and he does decide it, the fact that the decision is erroneous does not make the award bad on its face so as to permit of its being set aside. Otherwise it would be futile ever to submit a question of law to an arbitrator.'

Viscount Cave said:

'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' (P 409).

(15) The Supreme Court in Kapoor Nilokheri Cooperative Dairy Farm Society Ltd. v. Union of India, : AIR1973SC1338 has held that where an arbitrator is called upon to decide the effect of the agreement, he has really to decide a question of law, i.e., of interpreting the agreement and hence 'his decision is not open to challenge. Sachar J. was of the view that this observation of the Supreme Court at page 1342 was mere obiter. I do not agree. Even an obiter dicta of the Supreme Court is binding on us, though I do not think that it is mere obiter. The Supreme Court following the Privy Council in Durga Prasad Chemaria v. Sewkishendas and Ghulam Jilani vs. Muhamad Hassan (1901) 29 Ind App 51 positively held that the effect of the agreement is question of law. Whether it is a question of construction of the cancellation deed as was the case in Kelantan Government (supra) or the effect of the agreement as in the case of Nilokheri the question is one of law, pure and simple. And where a matter of law has been specifically referred to arbitration the courts have no right to review the decision of the arbitrator.

(16) Whether a question of law has been specifically submitted to arbitration will depend on the character of the reference in each case. No particular form of reference is obligatory. Now in the present case on the basis of undisputed facts the arbitrator was asked simply and specifically to decide the true interpretation of clauses 2 and 3 of the contract. The parties had the specific question of law in mind. It had troubled them all through. And tribunals no less. The point of law the arbitrator was required to decide on the agreed facts was: What is the true construction of particular clauses in the contract The arbitrator did decide this question of law as a separate and distinct matter. It did not arise incidentally before him. SOF.R. Absalom Ltd v. Great Western Garden Village Society 1933 A.C. 592 has no application. The arbitrator was the final judge of law. His award is, there fore, unimpeachable.

(17) On the authorities, thereforee, it appears to me that the reference to the arbitrator in this case was a reference as to construction. The mere dissent of the court from the arbitrator's conclusion on construction is not enough to permit of its being set aside. The award in my opinion is good and ought to stand. That was the view of Prithvi Raj, J. That was the view of Kumar, And that is my view also.

(18) I now turn to the second question. Sachar J. held that the award in question was a speaking award and that the arbitrator was wrong in interpreting clause 3 of the contract. He thought the arbitrator's construction was 'perverse'. He said: '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........ 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 assent to this conclusion. The clause does not mean this. It means, as was held by the arbitrator, that the period of delivery of the original quantity of 10,03,000 litres, subject to the variation term, can be spread over a further period of one year at the option of the Government. It gave to the Government greater and longer time to take delivery of the contracted quantity of 10,03,000 litres subject to variation. The clause gave an allowance, an indulgence so to speak, of additional time for delivery. The period of delivery could be lengthened out beyond the original limit of one year at the option of the Government but not beyond the next 12 months. The prolongation of the period of delivery was plainly its meaning and distinctly its intention. It does not embrace the right to renew the entire contract on the same terms and conditions. The Government had no right to compel the Distillery to supply a like quantity as fixed in the original contract. The delivery of the original quantity could be carried forward. It could be continued over the next year. That was all.

(19) That this is the true construction of the clause would appear from the words 'from time to time' and 'extension thereof'. These two expressions show that only the period of delivery can be enlarged 'from time to time for a further period up to one year subject to a notice in writing given to contractor in that behalf of one month before the expiration of the period of this contract or extension thereof'. The contract as a whole cannot be extended 'from to time to time'.

(20) Language plays great tricks with the human mind. Words of a mixed and wavering content are the greatest of all tricksters. So we must carefully gather the meaning of the words from the context. Here was contract for 12 months stipulating supply of a specified quantity of 10,03,000 litres of rum. A contract for a fixed period and a fixed quantity cannot be extended 'from time to time'. It is a contradiction in terms. It will destroy the integrity of the contract. What Sachar, J. seems to have missed is, and I say so with great respect, that the clause provided for extension 'from time to time' 'up to one year'. These two expressions are clearly destructive of the view that the contract itself was intended to be extended for another full year

(21) The extension clause is not a phoenix that can be raised again and again by one of the parties at 'its option from the dead ashes of its former self. By the very terms, the clause contemplates extension of delivery period 'from time to time' 'up to one year', provided notice is even one month before the expiration of the period of the contract or 'any extension thereof'. So extension can be had 'from time to time'. But only of delivery period. Not of the contract. Because the contract itself cannot be extended 'from time to time'. It was made for the indivisible period of one year. I entertain no doubt that the arbitrator's conclusion was correct. He gave a sensible meaning to the clause, dealing as he was with a commercial document in a commercial arbitration arising out of a commercial adventure.

(22) Sachar J. held that the contract can be extended on the same terms for a further period of one year. It is impossible to accept this view. The expressions used in the clause show the anxiety of the Government to retain a right to demand delivery of the contracted goods at old rates even after 'the expiration of the period of this contract'. They give themselves the right to extend delivery period from 'time to time' 'up to one year'. No new contract comes into existence. Life of the old is extended for delivery of indented goods at old rates.

(23) Stated in simple language it means that the original period of delivery shall be one year. That period can be enlarged at the option of the Government 'from time to time' for a further period 'up to one year'. This means that delivery time may be extended by two months, three months, six months and so on 'up to one year' but not beyond it. Take an example. Delivery period is extended by six months by a notice given in the stated manner. Some balance quantity remains to be delivered even then. The Government has a right to give one month's notice before the expiry of the extended period of six month and say to the contractor 'We are extending the period of delivery by another six months'.

(24) The title of the clause 'period of Running Contract' is a clear indication of the object and the purpose of the clause. If it were to be held that the Government has a right to renew the contract under this clause it will bind the Distillery in perpetuity for the Government can claim a right to perpetual renewal of the contract because the expression 'on the same terms and conditions as specified herein' would also include the right to renew the contract. So there will be a perpetual cycle to which the supplier will be tied down for ever. Such a construction of a commercial contract does not commend itself to me.

(25) In my opinion there is no error of law on the face of the award. The arbitrator was right in holding that the Government's claim that it had the right to renew the contract and demand like quantity once again was unjustified.

(26) The learned judges called upon the parties to file affidavits to show how and in what manner they understood similar contracts previously made between them and how they acted on them. Happily they did not base their decision on those affidavits. In my opinion such extrinsic evidence cannot be conclusive. It may be that the parties agreed to supply rum at the same price for a period longer than one year because they found it profitable to do so. May be that they were mistaken about their rights under the contract. The affidavits will not establish that supply was made because the Government had a right by virtue of the clause. The Court's business is, as was the arbitrator's to interpret clause 3. It cannot found its decision on commercial conduct which may be ambiguous and equivocal. The document remain central, because it is the main instrumentality that the parties rely on as the sole repository of transaction.

(27) For these reasons I entirely agree with Kumar, J. and would dismiss the appeal with costs.

(28) The matter will now go back to the division bench of Sachar and Kumar, JJ. because they heard the appeal in the first instance. The learned judges will now decide the appeal according to the opinion of the majority, as required by proviso to s. 98(2), Code of Civil Procedure.


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