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Union of India (Uoi) Vs. Bungo Steel Furniture (Pr.) Ltd. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtKolkata High Court
Decided On
Case NumberAppeal No. 13 of 1961 (Award Case No. 227-A of 1957)
Judge
Reported inAIR1963Cal70
ActsArbitration Act, 1940 - Sections 13, 16, 16(1), 29, 30, 39 and 64
AppellantUnion of India (Uoi)
RespondentBungo Steel Furniture (Pr.) Ltd.
Appellant AdvocateG.P. Kar and ;Raman Dutta, Advs.
Respondent AdvocateSubimal Roy, ;Samaren Sen and ;S.B. Mukherjee, Advs.
DispositionAppeal allowed
Cases Referred(Kissen Lal Bangur v. Banwarilal Gadodia
Excerpt:
- .....rs. 4/12/6 per bin for extra partition. the contract no. a. t. 1048 was for the supply of 2000 steel bins at rs. 132/8/- per bin inclusive of the price of steel. the umpire found that on february 20, 1946 the parties agreed to a modification of the contracts and the agreed modification was that the supply under contract no. a. t. 1000 would be reduced to 1805 bins and the supply under contract no. a. t. 1048 would be reduced to 367 bins so that the total supply under the two contracts would be 4700 (sic) bins. the umpire found that only 1805 bins had been manufactured under contract no. a. t. 1000 and 367 bins had been manufactured under contract no. a. t. 1048 and that in all 2172 bins were manufactured by the respondents and were accepted by the government of india, and that the.....
Judgment:

Bachawat, J.

1. This is an appeal by the Union of India from an order refusing to set aside an award. The disputes arise out of two contracts being A. T. 1000 dated November 30, 1944 and A. T. 1048 dated June 25, 1945 between the Government of India and the respondents Messrs. Bungo Steel Furniture (Pr.) Ltd. Both contracts contain the usual arbitration clause embodied in Clause 21 of the genera) conditions of contract in Form No. W.S.B. 133 for reference of any question or dispute arising in connection with the contract or arising under the conditions thereof. The claims and the counter claims of the parties under the two contracts were referred to the arbitration of the umpire Sir Rupen Mitter. The award of the learned umpire is dated September 2, 1959. The umpire found that the contract No. A. T. 1000 was for the supply of 4700 bins at Rs. 107/2/6 per bin inclusive of the price of steel, in respect of the supply under contract No. A. T. 1000 the Government of India agreed to pay an extra Rs. 4/12/6 per bin for extra partition. The contract No. A. T. 1048 was for the supply of 2000 steel bins at Rs. 132/8/- per bin inclusive of the price of steel. The umpire found that on February 20, 1946 the parties agreed to a modification of the contracts and the agreed modification was that the supply under contract No. A. T. 1000 would be reduced to 1805 bins and the supply under contract No. A. T. 1048 would be reduced to 367 bins so that the total supply under the two contracts would be 4700 (sic) bins. The umpire found that only 1805 bins had been manufactured under contract No. A. T. 1000 and 367 bins had been manufactured under contract No. A. T. 1048 and that in all 2172 bins were manufactured by the respondents and were accepted by the Government of India, and that the respondents were entitled to the price of 2172 bins so supplied inclusive of the price of steel amounting to Rs. 2,42,044/-. The umpire also found that the Government of India wrongfully cancelled the contract with respect to the balance 2528 bins and that at the time of this cancellation the component parts of the balance 2528 Bins had not been assembled into finished bins.

2. The umpire also found that the respondents were entitled to credit for the sum of Rs. 10,385/- on account of the cost of supply of the extra partitions for 2172 bins. The learned Judge has held that this finding is erroneous and the error is obvious on the face of the award and he modified the award accordingly by reducing the amount awarded to the respondents by the sum of Rs. 10,3885/-. This finding of the learned Judge is not challenged in this appeal. The respondents have not filed any appeal from the judgment modifying the award. The umpire also found, that the respondents were entitled to credit for the sum of Rs. 27,969/- on account of payment made by them towards the cost of steel on M.R.O. and that the Government of India was entitled to a cross credit for a sum of Rs. 7,851/-on account of payment made by it to the respondents directly; these two findings are not challenged by the parties.

3. The umpire found that the Government of India was under an obligation to supply steel for the manufacture of the bins and that it did supply such steel, He disbelieved the respondents' case that they had rejected the steel sheets supplied by the Government and had used steel sheets from their own stocks and that the steel sheets supplied by the Government became rusted and were still lying in their factory grounds in masses of powdered rusts. He found that (a) the price of the total quantity of steel supplied by the Government to the respondents at basic rates was Rs. 2,53,521/-. (b) the price of the steel used for making 2172 finished bins amounted to Rs. 87,696/- and, the Government was entitled to credit for this sum of money and (c) no surplus steel was left after manufacture of 2172 finished bins and the component parts and the unfinished bins, It follows from these findings that the price of the steel used up in making the component parts of the unfinished bins amounted to Rs. 1,65,825/-.

4. The umpire found that the respondents were entitled to compensation for the wrongful cancellation of the balance 2528 bins. His findings on this point are as follows;

'I further hold that the cancellation by Government for the balance was wrongful. There is however no evidence relating to the manufacturing cost of the aforesaid remaining component parts. By way of compensation for the wrongful termination of the contract by Government as aforesaid I give the company the amount representing the value of the steel used up in making the said component parts which had not been assembled into completed bins. I therefore do not allow the Government credit for the value of the steel used up in manufacturing those component parts.'

5. The legality of these findings is challenged by the Union of India. The respondents had made various inflated claims on account of damages but the claim finally made by them on this account is thus recorded in the award. 'The company claims the price of 2528 bins by way of damages for the wrongful cancellation of the contract'. Obviously the respondents were not entitled to the price of the unfinished 2528 bins under Section 55 of the Indian Sale of Goods Act 1930 and as a matter of fact the umpire did not give them such price. Those bins had not been completely manufactured and the property therein could not have passed to the Government. The respondents having elected to treat the cancellation of the balance of 2528 bins by the Government as a wrongful repudiation of the contract, were entitled to claim damage for non-acceptance of those 2528 bins under Section 56 of the Indian Sale or Goods Act, 1930. Section 73 of the Indian Contract Act, provides for the measure of compensation for loss or damage caused by breach of the contract. The party damnified is entitled to compensation for any loss by damage caused to him by the breach which naturally arises in the usual course of things from such breach, or which the party knew when he made the contract likely to result from the breach of it. Like the Court, the umpire is bound to apply the law of land including Section 73 of the Indian Contract Act.

6. Now the amount representing the value of the steel used up in making the component parts of the unfinished 2528 bins could not be the true measure of damages for their non-acceptance. The umpire did not find that me respondents suffered any special damages. The ordinary damages for non-acceptance of the 2528 bins would be their contract price less the cost of the labour and material required for their manufacture. The umpire found that there was no evidence relating to the manufacturing cost of the component parts of the 2528 unfinished bins. Strictly speaking, therefore, the respondents had failed to prove the resulting damage. It may be noted that the learned Judge has so read the award and has observed that the umpire proceeded on the footing that no damage has been proved to have been suffered by the respondents. But even assuming for a moment that the cost of the labour required for the manufacture of the 2528 bins was nil, the highest damages which could be awarded for their non-acceptance would be Rs. 1,03,066/- being the difference between their contract price at Rs. 107/2/6 per bin Inclusive of the price of extra partition amounting to Rs. 2,68,891/- and the value of the steel used up in manufacturing their component parts amounting to Rs. 1,65,825/-. On no basis the award for the sum of Rs. 1,65,825/- representing the value of the steel used up in making their component parts could be awarded to the respondents.

7. The learned Judge wrongly thought that the umpire has disallowed compensation to the respondents. The umpire distinctly awarded by way of such compensation the amount representing the value of the steel used up in making the component parts of the unfinished bins. The award plainly proceeds upon the footing that the respondents are entitled to the amount representing the value of the steel used up in the making of the component parts by way of compensation and that on the other hand the Government was entitled to the value of such steel by way of price of goods sold and delivered. The umpire distinctly found that the price of the total steel supplied by the Government including the steel used up in the manufacture of the component parts of the unfinished bins was Rs. 252521/- on the footing that the property in the steel had passed to the respondents. This finding is amply supported by the conditions of the contract particularly by Sub-clauses (A), (D) and (E) of Clause 17 of its Special Conditions.

8. The learned Judge also wrongly assumed that the umpire had found that the Government being the wrong doer was not entitled to the price of steel used up in making the unfinished bins to which the Government would have been otherwise entitled. The finding of the umpire Is that the Government was entitled to the amount representing the value of the aforesaid steel, but since the Government was entitled to the identical amount of money by way of compensation, the two amounts should be set off against each other and should not be carried to the final account.

9. Not only the umpire did not find that the Government was not entitled to the price of the steel used up in the manufacture of the component parts of the unfinished bins but also under the law he could not record such a finding. The respondents having rightfully put an end to the contract on its wrongful repudiation by the Government were entitled to damages for the breach and at the same time were bound to restore all benefits received by them under the contract. In Muralidhar Chatterjee v. International Film Co. their Lord-ships of the Privy Council held that a contract which may be 'put an end to' under Section 39 of the Indian Con-tract Act, 1872, is 'voidable', that Section 64 of the Act applies to cases of rescission under Section 39 and that, therefore, where a party has wrongfully refused to perform his part of the contract and the other party has rightfully put an end to the contract under Section 39 that other party is liable under Section 64 to restore to the wrong doer any benefit received from him under the contract. Sir George Rankin observed at p. 48.

'The fact that a party to a contract is in default affords good reason why he should pay damages, but further exaction is not justified by his default. Where a payment has been made under a contract which has -- for whatever reason -- become void the duty of restitution would seem to emerge'.

Their Lordships of the Privy Council held that the appellant in that case who had wrongfully cancelled a contract for distribution of cinema films was entitled to recover from the respondents a sum of Rs. 4,000/-paid to them under the contract subject to the right of the respondents to set off the amount due to them as damages for the appellant's repudiation and breaches of the contract. Their Lordships further held that this sum of Rs. 4,000/- was a benefit received by the respondents under the contract notwithstanding that they had spent the said sum of money in connection with the contract, in this connection Sir George Rankin observed at p. 49--'He was paying the money to the respondents in part discharge of the consideration due, or to become due, to them from him under the contract now rescinded. It was a benefit or advantage, it was received, and it was received under the contract. Sections 64 and 65 do not refer by the words 'benefit' and 'advantage' to any question of 'profit' or 'clear profit', nor does it matter what the party receiving the money may have done with it. To say that it has been spent for the purposes of the contract is wholly immaterial in such a case as the present. It means only that it has been spent to enable the party receiving it to perform his part of the contract -- in other words, for his own purposes. If on the footing that all sums received have to be returned, the respondents can show that after paying for the positive print, the shipping charges and so forth they have made a loss owing to the refusal of the appellant to carry out the contract, then these charges will be reflected in their claim for damages.'

10. Similarly, the steel received by the respondents in the instant case from the Government and used up by them in the manufacture of the component parts of 2528 unfinished bins is a benefit received by them under the contract and they are liable to restore the value of this steel to the Government. If, for some reason, the steel so used up became useless or valueless, that fact would be reflected in their claim for damages. But the umpire did not find that the steel had become valueless or useless. On the contrary he rejected the respondents' case that the steel sheets supplied by the Government had become rusted.

11. Clearly, therefore, the award of the umpire with regard to the compensation for the wrongful cancellation of the contract is erroneous in law and the error appears on the face of the award. Consequently, the award to that extent is invalid. Where the objection to the legality of the award appears on the face of the award the ordinary rule is to remit the award to the umpire under Section to (1) (c) of the Arbitration Act, 1940. In this case, however, neither party presses for remission of the award. Nor is it possible to remit the award. The umpire is now dead. Assuming for a moment that the Court has power under Section 16 to remit the award for re-consideration by an umpire appointed by the Court in place of the deceased umpire neither party prays before us for the appointment of a new umpire. Besides, the conditions of Section 8 of the Arbitration Act have not been satisfied and this Court is not in a position to appoint a new umpire. The power of the Court to appoint an umpire is regulated by the provision of the Arbitration Act; apart from those provisions this Court has no inherent power to appoint an umpire. In the instant case it is also not possible to modify the award by striking out the invalid portion relating to the award of compensation. Neither party has asked us to modify the award under Section 15(b) of the Arbitration Act nor is the error such that the award can be amended without affecting the decision. If the award relating to the compensation is struck out, it will follow that the umpire has left undetermined one of the vital questions referred to him, viz., amount of the compensation payable to the respondents. In other words, if the offending portion of the award is struck out, the award will not be final. The reason why the respondents do not pray for modification of the award is obvious. If the award to the contractor by way of compensation is struck out and the Government in its turn is given credit for the sum of Rs. 1,65,825/-, the amount awarded to the respondents would be reduced to an insignificant sum. Having regard to the objection as to the legality of the award we are bound to hold that the award is invalid and as such liable to be set aside under Section 30(c) of the Indian Arbitration Act.

12. Mr. Kar on behalf of the Union of India urged one other point in support of the appeal. He contended that the portion of the award whereby the umpire has given interest after the award is erroneous and should be set aside. The relevant portion of the award reads thus;

'...I award and direct the Union of India to pay the said amount to the claimant with simple interest at 5% per annum from this date till payment or realisation.'

Mr. Kar contends that under Section 34 of the Code of; Civil Procedure 1908 only the Court could, in a suit tried by it award interest from the date of the decree passed by it and that as this section does not apply to the umpire he has no power to award any interest from the date of the award. In support of his contention Mr. Kar relies upon the decision of the Supreme Court in Thawardas Pherumal v. Union of India : [1955]2SCR48 . In that case the arbitrator awarded interest @ 6% for 16 months on unliquidated damages. The Supreme Court held that the Interest Act, 1839 did not authorize award of interest on unliquidated damages. Nevertheless it was suggested that in any event the award of the interest from the date of the 'suit' was justified under Section 34 of the Code of Civil Procedure 1908. In repelling this contention Bose J. observed at p. 478:--

'It was suggested that at least interest, from the date of 'suit' could be awarded on the analogy of Section 34 of the Civil Procedure Code, 1908. But Section 34 does not apply because the arbitrator is not a Court within the meaning of the Code nor does the Code apply to the arbitrators and but for Section 34, even a Court would not have the power to give interest after the suit. This was therefore also rightly struck out from the award.'

13. These observations lend some support to the contention of Mr. Kar and consequently his contention requires close examination. Two questions arise in this connection viz. (a) whether the arbitrator or the umpire has power to direct payment of interest from the date of the award on the principal sum awarded and if so (b) whether such power is affected by Section 29 of the Arbitration Act 1940.

14. It is an implied term of the arbitration agreement that the arbitrator must decide the dispute submitted to him according to the law of the land. Accordingly, though in terms the Limitation Act 1908 did not apply to arbitration before the enactment of the Arbitration Act, 1940, it was held that the arbitrator must give effect to every defence which would have been open in a court of law including the defence of limitation (See Ram Dutt Rant Kissendas v. E. D. Sassoon and Co., ILR 56 Cal 1048 : 56 Ind App 128: (AIR 1929 PC 103) and Naamlooze Vennoots--chap Handels-en-transport Maatschappij 'Vulcan' v. Mowin-ckles Rederi, (1938) 2 All ER 152 at p. 155. On this principle it was held that though in terms Section 3(1) of the Law Reform (Miscellaneous Provisions) Act, 1934, giving a Court power to award interest on debt or damages did not apply to an arbitrator, it was an implied term of the submission that the arbitrator could award interest in a case where the Court could award it. See Chandris v. Isbrandtsen Moller Co. (1950) 2 All ER 618. Likewise it must be held that the arbitrator can award interest on the principal sum awarded during the pendency of the arbitration proceedings and further interest from the date of the award in cases where a Court of law in a suit having jurisdiction over the subject matter could under Section 34 of the Code of Civil Procedure decree interest on the principal sum adjudged from the date of the suit to the date of the decree and further interest thereon from the date of the decree to the date of payment. The point was well settled before the Arbitration Act 1940. In Bhowanidas Ramgobind v. Harsukhdas Balkisendas : AIR1924Cal524 , Mukherjee and Rankin JJ. upheld an award giving interest from the date of the award on the principal sum awarded under an arbitration agreement providing for reference of all disputes relating to the contract. They rejected the contention that the arbitrators exceeded their authority when they allowed interest after the date of the award, merely because the submission did not give him express power to do so. They held that no such inflexible rule had been laid down by the decisions in Re, Morphett, (1845) 14 LJQB 259 and Sewduttrai Narsaria v. Tata Sons Ltd., 27 Cal WN 494: (AIR 1921 Cal 576): and observed:

'In the case before us there is no controversy that If the matter in dispute went to trial the Court would in ordinary course allow interest as has been awarded by the arbitrators'.

To the same effect are the decisions in Uttamchand Saligram v. Mahmood Jewa Mamooji, 23 Cal WN 704 : (AIR 1920 Cal 143) and Tulsiram v. Jhanaklal, AIR 1936 Nag 197, at p. 198-200. Likewise it was held that the arbitrator had power to allow interest pendente lite, that is to say, during the pendency of the arbitration proceedings -- see Jaharmal Debi Dutta v. Birinchi Bhusan Nandi, AIR 1920 Cal 413 at p. 414, Chidambaram v. Subramanian : AIR1953Mad492 read with the facts in paragraph 7, pp. 495-6 and in Appeal No. 261 of 1959, Award Case No. 154 of 1958 (Kissen Lal Bangur v. Banwarilal Gadodia), unreported, decided on April 10, 1961 (Cal). In the last case Lahiri C. J. pointed out that the Supreme Court case decided that neither the Court nor the abritrator could award pendente lite interest on unliquidated damages and that the Supreme Court did not overrule the long line of cases upholding the power of the arbitrator to award such interest in other cases and observed:

'To my mind, the power of the arbitrator to award pendente lite interest is not derived from Section 34 as was contended by Mr. Ray, but from the submission which, in the present case, is very wide in its terms * * * If the arbitrators' power to award interest had been confined to Section 34 which according to the Supreme Court does not apply to arbitration proceeding, the arbitrator would have no power to award interest upon the award, but it is well settled that the arbitrators can award interest upon the award.'

15. In the instant case the arbitration agreement is couched in wide terms and provides for reference of all disputes and questions arising in connection with the contract Subject to the restrictions, if any, imposed by Section 29 of the Indian Arbitration Act 1940, the umpire acting under this arbitration agreement has power to award interest after the date of the award, on the principal sum awarded.

16. The next question is whether Section 29 of the Indian Arbitration Act has affected this power and if so, to what extent. Section 29 provides that where and so far as an award is for the payment of money the Court may in the decree order interest from the date of the decree at such rate as the Court deems resonable, to be paid on the principal sum as adjudged by the award and confirmed by the decree. Having regard to this section the umpire cannot fetter the discretion of the Court with regard to the interest from the date of the decree. The award in the instant case, In so far as it gave interest from the date of the decree to be passed by the Court is in contravention of Section 29 and as such is beyond the powers of the umpire. But the award in the instant case may wall be read as an award of interest on the principal sum adjudged at 5 per cent. per annum from the date of the award upto the date of the decree and from the date of the decree till payment or realization. The award as to interest so read consists of two parts and the second part is clearly severable from the first part. The second part of the award is excessive and bad and as such may be struck out and the first part of the award may be maintained. In my opinion, the umpire has authority to direct payment of interest on the principal sum adjudged from the date of the award upto the date of the decree to be passed by the Court. Beyond doubt an umpire had such power before the passing of the Arbitration Act, 1940 and, in my opinion he continues to retain the power after the passing of that Act. There is nothing in Section 29 of the Arbitration Act which takes away this power. In these circumstances, the Court should maintain the award in the instant case in so far as it directs payment of Interest at 5 per cent. per annum on the principal sum adjudged from the date of the award upto the date of the decree and should under Section 29 of the Arbitration Act itself decree interest on the principal sum adjudged by the award from the date of the decree. The learned Judge has substantially done this; he has passed judgment for interest according to award, and in substance he has maintained the award as to interest at 5 per cent. per annum from the date of the award upto the date of the decree and has decreed interest at the same rate from the date of the decree until payment or realization. It may be noted that the award with regard to interest was not challenged either in the petition or in the argument before the learned Judge. Consequently the learned Judge did not deal with this matter in his judgment. It follows that the contention of Mr. Kar that the award in so far as it directs payment of interest from the date of the award is unsound and must be rejected. But we are bound to hold for other reasons already given that the entire award must be set aside.

17. We pass the following order. The appeal be and is hereby allowed. The award be and is hereby set aside. The respondent do pay to the appellant costs of and incidental to the appeal and to the application in the Court below. Certified for two counsel.

Laik J.

18. I agree.


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