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Ghosh Singh Partners Ltd. Vs. Union of India (Uoi) - Court Judgment

LegalCrystal Citation
SubjectConstitution
CourtKolkata High Court
Decided On
Case NumberA.F.O.D. No. 13 of 1955
Judge
Reported inAIR1959Cal287
ActsGovernment of India Act, 1935 - Sections 40(1) and 175(3) - Schedule - Article 166(1); ;Constitution of India - Article 299(1); ;Evidence Act, 1872 - Sections 101 to 104; ;Contract Act, 1872 - Section 230(3);
AppellantGhosh Singh Partners Ltd.
RespondentUnion of India (Uoi)
Respondent AdvocateG.P. Kar, Adv.
DispositionAppeal dismissed
Cases Referred and Dattatraya Moreshwar v. State of Bombay
Excerpt:
- p. chakravartti, c.j. 1. the only question involved in this appeal is whether between the appellant company and the union of india, there is a binding arbitration agreement. sarkar, j., has held that there is none. he was invited by the appellant to make appropriate orders with regard to an agreement set up by it, but he declined to do so in the view that the agreement, being contained in a contract which did not accord with section 175(3) of the government of india act 1935, could not bind the union of india. the appellant questions that finding and contends that, although the contract containing the agreement was not executed in accordance with the provisions of section 175(3), those provisions are only directory and the contract accordingly was not void. 2. since the only question.....
Judgment:

P. Chakravartti, C.J.

1. The only question involved in this appeal is whether between the appellant company and the Union of India, there is a binding arbitration agreement. Sarkar, J., has held that there is none. He was invited by the appellant to make appropriate orders with regard to an agreement set up by it, but he declined to do so in the view that the agreement, being contained in a contract which did not accord with Section 175(3) of the Government of India Act 1935, could not bind the Union of India. The appellant questions that finding and contends that, although the contract containing the agreement was not executed in accordance with the provisions of Section 175(3), those provisions are only directory and the contract accordingly was not void.

2. Since the only question canvassed before us was a pure question of law, it is not necessary to state the facts in detail. It will be sufficient to say that the appellant company entered into a contract with the General Manager of the East Indian Railway, Calcutta, and the Engineer-in-Chief for the Loco Building Works Project, Mihijam, for the supply of two crores of bricks during the year 1948-49. The appellant's case is that under the terms of the contract, the Engineer-in-Chief was to arrange for permits and priorities for the supply of coal to the appellant, but he failed to do so and, as a consequence thereof, an enormous quantity of moulded bricks were spoiled by the rains and the appellant suffered heavy loss. Various claims appear to have been submitted to the General Manager and the Engineer-in-Chief by the appellant company, but they were all rejected. In the end, the appellant asked the Engineer-in-chief to refer the dispute to arbitration in accordance with the agreement contained in the contract, but that request also was turned down on the ground that the agreement did not cover the disputes set up by the appellant. Thereafter, the appellant made the application out of which this appeal arises. It was an application under Section 20 of the Arbitration Act and by it, it was prayed that this Court might direct the agreement to be filed and might also make an order, referring the disputes to arbitration in accordance with the terms of the agreement.

3. According to the appellant company, the contract was evidenced by a tender and acceptance thereof in writing, dated the 4th of August, 1948 and also by a Work Order of a later date. Sarkar, J., did not find any arbitration agreement in the tender or its acceptance and it is stated in his judgment that, ultimately, the appellant did not rely before him on those documents as constituting or containing any agreement for arbitration. There was, however, the Work Order in the form of an offer made by the petitioner and an acceptance of it by the General Manager of the East Indian Railway. The first paragraph of the Work Order where the offer is said to be contained is wholly ungrammatical and almost unintelligible, but the words, 'in accordance with the terms of the East Indian Railway Standard Specifications and General Conditions of Contract (1940 Edition),' are there. It does not appear to have been disputed before the learned Judge that the Work Order did contain an offer in those terms and that the offer, such as it was, had been accepted by the Engineer-in-Chjet and the General Manager. The General Conditions which were thus imported into the contract do contain an arbitration clause in paragraph 65 and it says that in the event of any question or dispute arising in connection with the contract, the same shall be referred to the decision of two arbitrators, one to be nominated by each party and, in the case of the arbitrators not agreeing, to the decision of an umpire to be appointed by them in writing. The arbitration clause excepts disputes relating to matters, the decision of which is specially provided for in the conditions, but it does not appear to have been the case of either party that the disputes in the present case came within the exceptions.

4. It was the arbitration agreement contained in paragraph 65 of the General Conditions of contract, which had been incorporated into the Work Order by reference, that the appellant company sought to enforce by its application under Section 20 of the Act. The application was opposed by the Union of India which used an affidavit affirmed by one Narendra Nath Pal, described as an Assistant Engineer, Chittaranjan Locomotive Works. The only ground of opposition, with which we are concerned, was that the contract relied upon by the appellant company had not been made in compliance with the provisions of Section 175(3) of the Government of India Act, 1935 and, consequently, it was void and consequently the arbitration agreement contained in it was not binding on the Governor-General in Council, not binding now on the Union of India. Tbe whole argument before the learned trial Judge as well as before us turned on that contention of the respondent Union.

5. In the course of bis judgment, the learned Judge dealt rather extensively with the effect of the decision of the Supreme Court in the case of Chatturbhuj Vithaidas v. Moreshwar Parashram, : [1954]1SCR817 . It was contended before us that the learned Judge had gone to the wrong case and thereby misled himself, whereas if he had referred to two other decisions almost directly in point, one of the Federal Court and another of the Supreme Court itself, he would have come to an exactly contrary conclusion. The cases said to have been Overlooked are J.K. Gas Plant . V Emperor, 1947 FCR 141 : (AIR 1947 FC 38) and Dattatraya Moreshwar v. State of Bombay, : 1952CriLJ955 .

6. The criticism that the learned Judge had gone to a wrong case and thereby misdirected himself does not appear to be justified, for, so far as can be seen from the judgment, it was the appellant itself which invoked the decision in : [1954]1SCR817 and contended on the supposed authority of that decision that the contract before the learned Judge was valid and binding on the Government. Indeed, that appears to have been the only contention put forward before him and, but for a reference to a short point contained in the last but one paragraph, the whole of the judgment of the learned Judge is occupied with the contentions of the appellant, based on the decision of the Supreme Court in Chatturbhuj's case, : [1954]1SCR817 .

7. It is true that the decisions in 1947 FCR 141: (AIR 1947 FC 38) and : 1952CriLJ955 , were not cited before the learned Judge, but it appears to me that those decisions can by no means be said to be more relevant to the question before us than the decision actually cited before and considered by the learned Judge. The decision in the former case was concerned with the interpretation of Section 40(1) of the Ninth Schedule to the Government of India Act, 1935, and the latter decision was concerned with the interpretation of Article 166 of the present Constitution of India. The subject-matter of both those provisions is how an order made by a Government is to be expressed and authenticated and what the effect will be if it is not expressed and authenticated in the manner prescribed by the section. The decision in : [1954]1SCR817 , is, on the other hand, concerned with the true interpretation of Article 299(1) of the Constitution which corresponds, in all material particulars, to Section 175(3) of the Government of India Act, 1935. The subject-matter of both these provisions is in what form and what manner must contracts by the Central or a State Government be made and expressed, if they are to be binding on such Governments. I should, therefore, think mat the decision which the appellant company itself cited before the learned trial Judge was really the decision in point or at least it was more in point than the other two decisions which, according to the contention before us, ought to have been applied and followed.

8. To turn now to the merits of the controversy between the parties, it is necessary first to examine the nature of the contract as embodied in the Work Order. It purports to be a contract between the appellant company on one part and the General Manager of the East Indian Railway as also the Engineer-in-Chief of the Loco Building Works Project, Mihijam, on the other part. Speaking for myself, I have some doubt if the General Manager could be said to have been a party to the contract, because, unlike the Engineer-in-Chief, he does not sign the Work Order itself at the bottom, but signs an endorsement set out below the main contract in the words. 'I agree to pay the above mentioned rates for finished and approved works.' One would think that what the General Manager was doing was that he was merely approving of the rates, but no point was sought to be made before us by Mr. Kar, who appears on behalf of the Union of India, that the General Manager was not one of the contracting parties at all, but had only approved of the rates agreed to between the appellant and the Engineer-in-Chief. Probably, the reason why the point was not taken is that the rates referred to were the rates for the work provided for in the contract and since the General Manager was approving of those rates and putting his signature on the very paper which contained the contract, though below an endorsement of his own, he was, in effect, making himself a party to the contract. Leaving the Engineer-in-Chief aside, the contract was thus one between the appellant company and the General Manager, East Indian Railway, Calcutta.

9. It may pause here a moment to mention an argument which appears to have been advanced before the learned trial Judge, but was not repeated before us. It was contended in the trial Court that since the word 'Railway' had been defined in the General conditions as including the Governor General, a contract with an Officer, authorised to speak for a Railway, would be a contract with the Governor-General himself, irrespective of the provisions of Section 175(3) of the Government of India Act, 1935. The learned Judge had no difficulty in repelling that contention and I am mentioning it only for placing it on record that it was not advanced before us again.

10. To return now to the contract, the question is whether it accorded with or contravened Section 175(3) of the Government of India Act of 1935 and if it did contravene the section in the sense of not being in accordance with it, whether it would be inoperative against the Governor General and now against the Union of India. Under Section 175(3) a contract if it is to bind the Governor-General has to be 'expressed to be made by the Governor-General' and further it has to be 'executed on behalf of the Governor-General ...... by such persons and in such manner as he may direct or authorise.' It was conceded by Mr. Kar before us that the General Manager of the East Indian Railway was a person authorised by the Governor-General to enter into contracts on his behalf. The latter of the two conditions I have just mentioned was thus satisfied by the contract before us. Mr. Kar contended that it would not be sufficient that a contract had been entered into by a person authorised by the Governor-General to do so, but it had also to be 'executed on behalf of the Governor-General.' I do not, however, think that this condition on which Mr. Kar was insisting was anything different from the first of the two main conditions I have already mentioned, namely that the contract shall be expressed to be made by the Governor-General. It was also contended by Mr. Kar that in addition to being executed by a person authorised by the Governor-General to execute it and in addition to being executed on behalf of the Governor-General, the contract was also to be executed in such manner as the Governor General might direct. I can see no point in that contention, because it had never been pleaded that the Governor-General had prescribed a particular manner in which contracts made on his behalf were to be executed and that such manner had been disregarded in the present case. If the Union of India sought to prove the invalidity of the contract on the ground that it had not been executed in the manner prescribed by the Governor-General, it ought to have proved what that manner was, where it was to be found and in what respect it had not been complied with. No such thing was done. I, therefore, do not think that we are required to look For compliance with any conditions other than the two conditions which I have already mentioned. Although the contract did comply with one, on the concession made before us, the other was not complied with, because it is not even the appellant's case, as it could not possibly be in the face of the contract, that it was 'expressed to be made by the Governor-General.'

11. We have, therefore, before us a contract which was executed by a person authorised by the Governor-General to execute it on his behalf, but which was not expressed to be made by the Governor-General. The question is whether a contract not complying to that extent with the provisions of Section 175(3) of the Government of India Act of 1935 would be binding on the Governor-General. In my view, that exact question was dealt with by the Supreme Court in the case of : [1954]1SCR817 and the effect of that decision is what was found by the learned trial Judge.

12. It is true that in the case I have just referred to the Supreme Court was not dealing with Section 175(3) of the Government of India Act, 1935, but was dealing with Article 299(1) of the Constittution and that even with Article 299(1), it was dealing not directly, but only incidentally. The question before the Supreme Court was whether by reason of the provisions of Section 7(d) of the Representation of the People Act, the appellant before them was a person disqualified for being chosen as, and for being, a member of Parliament on the ground that he had himself had a share or interest in a contract for the supply of goods to the Central Government. It will be noticed that all that Section 7(d) requires is a share or interest in a contract for the supply of goods to the appropriate Government and not that the Government concerned should be bound by the contract and it should be enforceable against it. The Supreme Court found on the facts that the contracts with which the appellant before them had been concerned were contracts for the supply of goods to the Central Government and that finding, as they pointed out, was sufficient to bring the appellant within the mischief of Section 7(d) of the Representation of the People Act. The Court, however,' did deal with an argument on Article 299(1), of the Constitution addressed to them and did pronounce on the effect of the Article, although they may not have made a comprehensive declaration.

13. In all material respects, the contract before the Supreme Court and the contract before us are similar. The contract before the Supreme Court had been executed by the Chairman of the Board of Administration and his authority to contract on behalf of the Governor-General was not questioned. Similarly, the authority of the General Manager of the East Indian Railway to contract on behalf of the Governor-General has not been questioned before us, but, on the other hand, conceded. 'The only flaw,' as the judgment puts it, in the contract before the Supreme Court was that they were not in proper form and they were not in proper form, as they were not 'expressed to be made by the President.' In the case before us as well, the contrart is not in proper form, that is to say, not in the form prescribed by Section 175(3) of the Government of India Act, 1935, because it is not a contract expressed to be made by the Governor-General' and that defect is the only defect. The position with regard to the contracts is thus precisely the same.

14. With regard to the contracts before them, the Supreme Court held that although they were not altogether void, being binding on the officer who had entered into them on Government's behalf, they were not binding on Government themselves, although Government would perhaps be bound, if they ratified the contracts. Where there was no question of ratification, the contracts, as such, could not be enforceable against Government by reasons of the provisions of Article 299(1), and, necessarily, Government could not be sued on them. It appears to me that in view of these observations of the Supreme Court to the effect that a contract not satisfying the requirement of Article 299(1), would not bind the Union of India, it must be held that a contract not in compliance with Section 175(3) would, similarly, not bind the Governor-General of India and now the Union of India.

15. I confess that I do feel some difficulty, which I have expressed on other occasions and which arises out of certain further observations made by the Supreme Court in the same case. While holding that contracts not complying with Article 299(1), would not bind the Union Government, the Supreme Court also observed that Section 230(3) of the Indian Contract Act would apply to, contracts of that character and that the case of such contracts was exactly the kind of case that Section 230(3) was designed to meet. This observation, causes some doubt as to what the real view of the Supreme Court was as to the effect of such contracts, so far as Government were concerned. As I have observed in another case, if Section 230(3) applies, it can apply only if there be a liability of the principal under the contract and if such a Eability of the Government could arise under a contract, although it did not comply with the requirements of Article 299(1), , it would seem to be implied that the provisions of the Article were not mandatory, Where an agent is sued under Sub-section (3) of Section 230, he is sued on the basis of not any liability of his own or any contract, entered into by himself on his own behalf, but in respect of the liability of his principal who, for some reason or other, cannot be sued, that is to say, cannot be proceeded against or brought before the Court. Section 230(3), I venture to think, applies only to a case where the principal, being liable, cannot, for some reason or other, be sued, but not also to a case where the principal cannot be sued, because in law he is not liable under the contract at all. The Supreme Court observed more than once that the effect of the technical flaw in the the contracts before them was that the principal could not be sued upon them, but they added that the contracts could be enforced under Section 230(3) of the Indian Contract Act against the Officer who had actually entered into the contracts and who was Government's agent. This view would seem to imply that non-compliance with the provisions of Article 299(1), would not prevent a liability of the Government arising, but if a liability did arise, it is not too clear what the reason for the inability to sue Government on the contract could be. The full implications of the decision of the Supreme Court will perhaps be considered when a proper occasion arises, but it appears to me that even on the basis that all that the Supreme Court held was that Government could not bo sued on a contract, not complying with the provisions of Article 299(1), , the case of the appellant must fail. Whether or not the contract was void against the Governor-General and, equally, whether or not it was void as against the Union of India, it is sufficient to note that if, the Union of India cannot be sued on it, it cannot also be taken to arbitration. It must, therefore, be held on the authority of the decision of the Supreme Court that the appellant was not entitled to enforce the agreement as against the Union of India so as to compel them to go to arbition any more than it could sue them upon the contract.

16. As I have stated before, the only argument advanced before us was an argument on the effect of Section 175(3) of the Government of India Act, 1935, on contracts purporting to be made on behalf of the Governor-General, but not complying with one or more of the conditions prescribed by the section. Before the learned trial Judge reliance appears to have been placed on the observations of the Supreme Court in the case already referred to that although Government could not be sued on such a contract, as it stood, there would be nothing to prevent ratification and if Government did in a case ratify a defective contract, they would make themselves bound by it. The learned Judge pointed out that even if the Supreme Court had held what was put forward before him as their decision, the appellant could derive no benefit from that view, because there was no question of any ratification in the present case. The appellant company had not even pleaded that it had supplied any bricks to Government or that Government had taken any benefit under the contract in any other shape or form, I must add that no question of any ratification was raised before us.

17. While on this subject of ratification, I may point out that two observations of the learned trial Judge as to the pronouncement of the Supreme Court on the subject do not appear to me to be correct. The learned Judge has observed that although in the case before the Supreme Court, the benefits under the disputed contract had admittedly been received by Government, the Court had not held that thereby Government had made themselves bound by the contract. It is true that the Supreme Court did not hold that, in the case before them, the defective contract had come to be binding on Government by reason of ratification, although admittedly benefits under the contract had been taken, but I do not think that the Supreme Court was declaring the whole law regarding Article 299(1), . They referred to ratification only in passing as a mode by which a contract, otherwise not binding on Government, could be made binding, but they did not proceed further to apply the principle to the facts of the case before them, because it was sufficient to find that the appellant before the Court had been interested in a contract for the supply of goods to Government. The learned trial Judge has also observed, that there was no necessity of ratification in the case before the Supreme Court, because the person. making the contract for Government had the latter's authority to do so, but he seems to have overlooked the fact that there was another defect in the contract in that it was not one expressed to be made by the President and, therefore, if ratification could make it binding, ratification was needed.

18. Only a brief reference to the other two decisions referred to on behalf of the appellant is necessary. As I have already pointed out, the decision in 1947 FCR 141: (AIR 1947 FC 38), was, concerned with the interpretation of Section 40(1) of the Ninth Schedule to the Government of India Act of 1935. It was held that the provisions of that section were not mandatory, but directory. Equally, in the case of : 1952CriLJ955 , the Supreme Court held that the provisions of Article 166 were not mandatory, but directory. Section 40 of the Ninth Schedule to the Government of India Act, 1935 and Article 166 of the Constitution both deal with the subject of executive action of Government with this difference that the former is concerned with orders and proceedings of the Governor-General, whereas the latter is concerned with orders and other instruments of the Governor. There is also a difference in form, in that what is contained in Section 40(1) of the Ninth-Schedule to the Government of India Act, 1935, has been split up in Article 166 into Sub-articles (1) and (2). In : 1952CriLJ955 Mukherjea J. as he then was, on whose judgment the appellant before us principally relied, first gave his interpretation of Article 166 by reading all the three clauses of the Article together. He then proceeded to observe that even if Clause (1) of Article 166 was taken to be an independent provision unconnected with Clause (2) and having no relation to the purpose which was indicated therein, he would still hold that it was directory and not imperative in character. Clause (1) of Article 166, I may point out here, provides that 'all executive action of the Government of a State shall be expressed to be taken in the name of the Governor.' On the authority of the observations of Mukherjea, J., to which I have just referred, it was contended that the provision in Section 175(3) that a contract entered into by the Federation 'shall be expressed to be made by the Governor-General,' was also directory and since the only defect in the contract in the present case was that it was not so expressed, the consequence of the defect could not be that the contract was void.

19. In my opinion, there is a great deal at difference between Section 40 of the Ninth Schedule to the Government of India Act, 1935 and Article 166(1) of Constitution, on the one hand, and Section 175(3) of the Government of India Act, 1935, on the other. The difference was pointed out by the Supreme Court in the case to which I have already referred. 'None of these provisions,' observed the Supreme Court, 'is quite the same' as Article 299(1), . Indeed, as Mukherjea, J., himseli pointed out in the very judgment on which the appellant relied. Article 166(1) did not lay down how nn executive action of the Government or a State was to be performed, but only prescribed the mode in which such act was to be expressed. Section 175(3) of the Government of India Act, on the other hand, lays down not merely how a contract entered into in exeicisc of the executive authority of the Federation or a Province is to be expressed, but also how, by whom and in what manner, it is to be entered into, if it is to bind the Government. In one case, the subject-matter of the provision is the expression in language of an act otherwise done, but in the other case, it is the performance of the act itself, though its expression also is combined therewith. The reasons which justify the view that provisions like Section 40(1) of the Ninth Schedule to the Government of India Act, 1935 and Article 166(1) of the Constitution are directory do not, in my view, apply to provisions like Section 175(3) of the Government of India Act, 1935, or Article 299(1), of the Constitution.

20. The only point canvassed before us being the validity or otherwise of the contract as against the Union of India, in view of the provisions of Section 175(3) of the Government of India Act, 1935. and our opinion being against the contention of the appellant on that question, this appeal must fail.

21. It is, accordingly, dismissed.

22. It is certainly a strong thing to hold that even if a contract be made on behalf of a Government by a person authorised to make it and even if as regards everything else, the contract be perfectly in order, the Government will still not be bound by it, if if suffers from the single detect of not being expressed as made by the Governor-General or the Governor, as the case may be. It the matter were res integra, we would have given serious consideration to the question whether at least so far as it required the contract to be expressed as made by the Governor-General or the Governor, Section 175(3) was not merely directory. But the question is no longer an open one for a High Court. The contracts before the Supreme Court in Chatturbhuj's case, : [1954]1SCR817 suffered only from that single defect and since it was yet held that they were not valid and enforceable against the Government by reason of tbe provisions of Article 299(1), of tbe Constitution, we have no option but to hold in the present case that the arbitration agreement was not enforceable against the old Government of India and is not enforceable against the Union by reason of the provisions of Section 175(3) of the Government of India Act, 1935.

23. We do not, however, think that after having carried on a prolonged correspondence with the appellant through their Officers regarding the execution of the contract on tbe basis that a valid contract existed and after having adopted all that correspondence by their affidavit in opposition, it was very meritorious on the part of the Government to try to avoid arbitration by relying on a purely technical plea. There will therefore be no order for costs in this appeal. Indeed, Government even said in their affidavit that they had carried out their obligation to recommend priorities, which suggested that they were accepting the contract as binding on them. Since, however, no case of ratification was sought to be made before us, we are not required to examine the conduct of Government further, but we are clearly of opinion that although they succeed against the appellant on the only question of law raised in the appeal, they have not deserved costs.

S.C. Lahiri, J.

24. I agree.


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