# dpil 19. to costs. Appeals allowed. Cases remanded. UNION OF INDIA v. A. L. RALLIA RAM

- **Citation:** [1964] 3 S.C.R. 164
- **Court:** Supreme Court of India
- **Decided:** 1964
- **Bench:** B. P. Sinha C. J, J.C. Shah, N. Rajagopala Ayyangar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/dpil-19-to-costs-appeals-allowed-cases-remanded-union-of-india-v-a-l-rallia-ram-2873
- **Pages:** 27

## Headnote

Arbitration-Tender for purchase of goods-Acceptance of
-0.lause for reference to arbitration-If binding on Government
-Reference of specific question of law-Arbitrator framing
$1$Ues-Parties agreeing to iasuea being decided-If amounts to
•·
reference of specific question of law-Setting aside of awardBrror on the face of the award-Government of India Act, 1935,
(<ho. 5 Oh. 2.), a.175 (3).
.
In 1946, the Chief Director of Purchases (Disposals),
Food Department, Government .of India, invited tenders for
purc!iasing war surplus Amedcan Cigarettes. The respondent
submitted a tender offering to purchase the entire stock. This
tender was accepted by a letter with which was enclosed a
Form containing the general conditions of contract including a
clause for arbitration. The respondent took delivery of29,93, 597
packets and paid Rs. 17,78,573/6/4 for them. On inspection
some of the cigarettes were found to be mildewed and unfit for
use. Ultimately, the Government decided to cancel the contract
with respect to the undelivered cigarettes and. offered to take
back from the respondent cigarettes which "wei:e in their original
packing and could be identified, subject to the condition that
no claim will be made by the respondent in respect of freight,
storage, rents, charges or any other expenses incurred by him
in respect of the cigarettes taken back.". The respondent
accepted this offer reserving his right to claim incidental
expenses. He returned 24,13,500 packets and Government
refunded Rs. 14,54,215/7/- to him. Thereafter, each party, in
accordance with the arbitration clause, appointed an arbitrator
~
•
3 S.C.R.
SUPREME COURT REPORTS
165
and
the
arbitrators
entered
upon
the
reference.
The parties filed their statements of claim and written statements. Issues were framed and the parties ogreed that the
di;pute between them be tried on those issues. As the arbitra·
tors were unable to agree upon the decision they appointed an
umpire. The umpire gave an award awarding to the rc,pondent Rs. 1,32,417/10/· for loss suffered in respect of cigarettes
not returned, Rs.
1,25,000/· for incidental expenses
and
Rs. 68,833/12/3 as interest. The respondent applied to the
Subordinate Judge for filing the award and the appellant
applied for setting aside the award. The Judge ordered that a
decree be issued in terms of the award.
In appeal the High
Court confirmed the order. The appellant contended that
there was no arbitration agreement as the contract was not
executed in accordance with s. 175 (3) of the Government of
India Act, 1955, and that there was error of law apparent on
the face of the award. The respondent contended that the
agreeing by the parties to a trial of the issues raised amounted
to a reference of specific questions and the a ward on such
reference could not be set aside even if there was error apparent
on the face thereof.
Held
that there was a binding arbitration agreement
between the parties and the arbitrators had jurisdiction to enter
upon the reference. The letter of acceptance of the tender
signed by the Dfrector of Purchases fulfilled all the requirements
of s. 175 (3)· of the Government of India Act.
Section 175 (3)
did not require the execution of any formal document nor was
there any such direction by the Governor-General in respect of
sale of disposals goo.ds.
The goods offered to be sold belonged
to the Government oflndia and all the action in respect thereof
wa.,
taken by the Government and in the name of the
Government. There was thus a binding contract between the .
parties which contained an arbitration clause,
Further, the
appellant was not precluded from challenging the existence of
a binding arbitration agreement on account of its h.1ving
submitted to the jurisdfctbn of the arbitrators and on account
,,fits not having raised the objection before t.hem, •s the jurisdic·
tion of the arbitrators depended upon the existence of such an
agreement.
Seth Bikhraj Jaipuria v. Union of India, (1962] 2 S.C.R.
880, referred t

## Text

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.
. .
164
SUPREME COURT REPORTS [1964]VOL.
196J
accordance with law.
There would be no order as
Clllllr•I Bo.k •f
l•diis Ltd,
••
P. S. · Rajogopalan
Gajmdratatkat J,
1969
.dpil 19.
to costs.
Appeals allowed.
Cases remanded.
UNION OF INDIA
v.
A. L. RALLIA RAM
(B. P. SINHA C. J., J.C. SHAH and
. N. RAJAGOPALA AYYANGAR JJ.)
Arbitration-Tender for purchase of goods-Acceptance of
-0.lause for reference to arbitration-If binding on Government
-Reference of specific question of law-Arbitrator framing
$1$Ues-Parties agreeing to iasuea being decided-If amounts to
•·
reference of specific question of law-Setting aside of awardBrror on the face of the award-Government of India Act, 1935,
(<ho. 5 Oh. 2.), a.175 (3).
.
In 1946, the Chief Director of Purchases (Disposals),
Food Department, Government .of India, invited tenders for
purc!iasing war surplus Amedcan Cigarettes. The respondent
submitted a tender offering to purchase the entire stock. This
tender was accepted by a letter with which was enclosed a
Form containing the general conditions of contract including a
clause for arbitration. The respondent took delivery of29,93, 597
packets and paid Rs. 17,78,573/6/4 for them. On inspection
some of the cigarettes were found to be mildewed and unfit for
use. Ultimately, the Government decided to cancel the contract
with respect to the undelivered cigarettes and. offered to take
back from the respondent cigarettes which "wei:e in their original
packing and could be identified, subject to the condition that
no claim will be made by the respondent in respect of freight,
storage, rents, charges or any other expenses incurred by him
in respect of the cigarettes taken back.". The respondent
accepted this offer reserving his right to claim incidental
expenses. He returned 24,13,500 packets and Government
refunded Rs. 14,54,215/7/- to him. Thereafter, each party, in
accordance with the arbitration clause, appointed an arbitrator
~
•
3 S.C.R.
SUPREME COURT REPORTS
165
and
the
arbitrators
entered
upon
the
reference.
The parties filed their statements of claim and written statements. Issues were framed and the parties ogreed that the
di;pute between them be tried on those issues. As the arbitra·
tors were unable to agree upon the decision they appointed an
umpire. The umpire gave an award awarding to the rc,pondent Rs. 1,32,417/10/· for loss suffered in respect of cigarettes
not returned, Rs.
1,25,000/· for incidental expenses
and
Rs. 68,833/12/3 as interest. The respondent applied to the
Subordinate Judge for filing the award and the appellant
applied for setting aside the award. The Judge ordered that a
decree be issued in terms of the award.
In appeal the High
Court confirmed the order. The appellant contended that
there was no arbitration agreement as the contract was not
executed in accordance with s. 175 (3) of the Government of
India Act, 1955, and that there was error of law apparent on
the face of the award. The respondent contended that the
agreeing by the parties to a trial of the issues raised amounted
to a reference of specific questions and the a ward on such
reference could not be set aside even if there was error apparent
on the face thereof.
Held
that there was a binding arbitration agreement
between the parties and the arbitrators had jurisdiction to enter
upon the reference. The letter of acceptance of the tender
signed by the Dfrector of Purchases fulfilled all the requirements
of s. 175 (3)· of the Government of India Act.
Section 175 (3)
did not require the execution of any formal document nor was
there any such direction by the Governor-General in respect of
sale of disposals goo.ds.
The goods offered to be sold belonged
to the Government oflndia and all the action in respect thereof
wa.,
taken by the Government and in the name of the
Government. There was thus a binding contract between the .
parties which contained an arbitration clause,
Further, the
appellant was not precluded from challenging the existence of
a binding arbitration agreement on account of its h.1ving
submitted to the jurisdfctbn of the arbitrators and on account
,,fits not having raised the objection before t.hem, •s the jurisdic·
tion of the arbitrators depended upon the existence of such an
agreement.
Seth Bikhraj Jaipuria v. Union of India, (1962] 2 S.C.R.
880, referred to.
Held
further, that agreeing to a trial of the dispute
on the issues raised by the arbitrators ·could not be regarded as
reference of specific questions of law implying an agreement
b<twem the partie• that they intenc ~d to give up their right
to challenge the award before the court even if the aw~rd w4s
196!
Union of lndi•
v.
A. L. Ralli• Ram
1963 .-
Un.iffll •J lniia
...
A. L. RtJl/ia Ram
166
SUPREM:E COURT REPORTS [1964]VOL.
vitiated cm account of an error apparent on ·the face thereof.
The parties merely agreed to have their differences adjudicated
on the issues raised, and not to submit the i"ues raised for
adjudication. Besides, the agreement before the arbitrators
could not amount to a fresh arbitration agreement independent
of· the criginal agreement, for to be valid and binding the
agreement had to satisfy the requirements of s. 175 (3) of the
Government of India Act, 1935. The appellant was entitled
lo attack the award on the ground of error apparent on the
face thereof.
Champuy Bhara and Company v. Jivraj Ballqo Spinning
and Weaving Company Ltd., (1923) L.R. 50 I.A. 32+, Seth
1'/iawarda• Pherumal v. Unio11 of India; [1955] 2 S.C.R. +8,
F.R. Absalon& Ltd. v. Great Wultm (London) Gardon Village
Socit.ty, [1933] A.C. 592, M/1. Alopi Perahad & Sona Ltd.
v; Union of India, [1960] 2 S.C.R. 793 and Durga Pro1ad
Ohamllria v, Sewkiiliendlll Blsalt•r, A.I.R. ( 1949) P.C. 334,
referred to.
Held
further that there was error of law on the face of
the award in so far as it awarded incidental exprnsesand
interest to the respondent and this part of the award had
to be set aside.
Incidental expenses were awarded in respect
of expenditure by the respondent on advertisement, publicity,
storage, agency commission and
other overhead expcnse11
incurred after the respondent took delivery of the cigarettes, i.e.
when he had become owner of the good•. The expenditure
was in respect of his own goods and the re1pondent could not
claim it as compensation for breach of warranty in respect of
the goods retained. Interest was awarded on all the moneys
paid by the respondent to the Government with respect to the
goods returned from the date of payment to the date of return.
Such interest was payable neither under s. 61 (2) of tlie Sale
of goods Act as it was not a claim for refund of sale price nor
under the Interest Act. In the absence of any usage, contract,
express or implied, or of any provision of Jaw to j11stify the
award of interest, interest cannot be awarded by way of
damages. In respect of that part of the contract which was
abandoned, if any liability to pay interest had arisen it was for
the respondent to claim it in settling the terms of cancellation
of the contract. Interest could not be awarded on equitable
grounds.
Bengal Nagp'Ur Railway Company Ltd. v. Ruttanii Ramji,
(1937) L.R. 65 I.A. 66 and Maine and New Brunswick Electrical Pou:er Company v. Hart, [1929] A.C. 631, referred to.
CIVIL
APPELLATE
Appeal No. 414 of 1961.
jURISDTCTfON :
Civil.
-
-
3 S.C.R.
SUPREME COURT REPORTS 107
Appeal from the judgment and decree dated
April 17, 1958 of the Punjab High Court in F.A.O.
No. 75of1951.
Bishan Narain, Naunit Lal and R.N. Sachthe11,
for the appellant.
G.S. Pathak, Anant Ram Whig, B. Datta and
Grnn Singh Vohra, for the respondent.
1963. April 19. The Judgment of the Court wu
delivered by
1963
Unio111j I1tiia
y,
A. L. Ro/Ii• /!am
SHAH J.-This is an appeal with certificate
.;,.,,, '.
under Art. 133 (l) (c) of the Constitution against the
order of the High Court of Punjab in First Appeal
No. 75 of 1951 confirming the order of the Subordinate judge, Delhi, refusing a motion to set aside ar
award directing payment by the Union of India ol
Rs. 3,26,251/6/3 with costs and future interest a
4~ per cent to the respondent.
In August, 1946, the Chief Director of Purchases (Disposals), Food Department, Government
of India, invited tenders for purchasing the stock of
American cigarettes lying in Calcutta, Karachi,
Delhi and Agra.
The respondent submitted his
tender offering to purchase the entire stock at uniform rate of Re. -/8/3 per packet of 20 cigarettes.
The total value of the stock offered at that rate
amounted approximately to Rs. 39 lakhs.
The
Government of India accepted the tender.
The
acceptance letter (with which was enclosed Form
F. D. (M) 70 setting out the general conditions of
contract) was signed by the Chief Director of
Purchases. Condition No. 13 in Form F. D. (M)
70 contained an arbitration clause :
"In the event of any question or dispute arising under thtse conditions or any specii1l
I9G3
Unien of India
•..
,f L. !141/ia R•m
Shah J.
•
HlS SUPREME COURT REPORTS [1964'] VOL.
Conditions of Contract or in connection with.
this contract (except as to any matters the
decision of which is specially provided for by
these conditions) the same shall be referred to
the award of an arbitrator to be nominated by
the Chief Director and an arbitrator to be
nominated by th.e Contractor or in the case of
the said arbitrators not agreeing, then to the
award of an Umpire to be appointed by the
arbitrators in writing before proceeding on the
reference and the decision of the arbitrators, or
in the event of their not agreeing of the Umpire
appointed by them shall be final and conclusive
x
x
x
x."
The respondeRt took delivery of 29,S3,597
packets of cigarettes and paid Rs. 17,78,573/6/4
but on inspection he found that some cigarettes were
mildewed and unfit for use. A Board of Survev
appointed by the Government of India to inspect
the undelivered stock reported that cigarettes of the
value of Rs. 6,58,453/- were wholly "unfit for issue,"
for
the remaining cigarettes the
Board recommended reduction in price at certain rates. The
respondent did not agree to accept the goods on the
revised terms reported by the Board and requested
the Government of India
to agree to a uniform
reduction of 50 per cent in price on the cigarettes
delivered to him as well as those still lying with the
Government. The Government of India thereafter
decided to cancel the contract in respect of the
undelivered
cigarettes, and offered to take back
from
the respondent, out of the stock of cigarettes
delivered such as "were in their original packing
and could be identified," subject to the condition
that no claim will be made by the respondent in
respect of freight, storage, rents, charges or any other
expenses incurred by the respondent in connection
with the cigarettes taken back by the Government.
, .
The· respondent accepted
the offer made by the
-
ll
3 S.C.R.
SUPREME COURT REPORTS
169
Government, reserving his right "to claim incidental
expenses."
24,13,500 packets of cigarettes in the
original packing were then returned by the respondent and between June 13, 1947 and February 8,
1948, Rs. 14,54,215/7/- were refunded to him by the
Government of India.
On June 26, · 1948 the respondent addressed a
letter to the Director General of Disposals intimating that he had appointed M. W. Lewis as arbitrator on his behalf in accordance with cl. 13 of the
general conditions of F. D. (M) 70 and called upon
the Director General of Disposals to appoint his
arbitrator. By
his letter dated July 7, 1948 the
Director General informed the respondent that the
Government of India had appointed Bakshi Shiv
Charan Singh as their arbitrator, reserving fu II
liberty to take all pleas before the arbitrator including the plea that no dispute between the parties
which could be referred to arbitration survived.
The
arbitrators entered upon the reference
but could not agree upon a
decision, and the
dispute was referred to an umpire. The umpire by
his award dated January 30, 1950 awarded to the
respondent Rs. 1,32,417 /I 0/-
for loss suffered in
r'espect
of the
6.34,270 packets of cigarettes not
returned by him; Rs. 1,25,000/-
for
incidental
expenses;
and
Rs. 68,833/12/3 as interest. The
umpire
accordingly awarded against the Union of
In::lia Rs. 3,26,251/6/3 and future interest and costs
of the arbitration.
The respondent applied to the Subordinate
Judge, Delhi for filing the award under s. 14 of the
Arbitration Act, and the Union of India applied for
an order setting aside the award. It was contended,
inter alia, by the Union of India that there was
no legally binding contract between the Union and
the respondent, for
the acceptance note was not
u.w. " lnii•
v.
A. L, l!lillic l!.m
Sio.i. J.
1969
Utjion of. India
v.
A. L. Rallia Ram
Shah J,
170 SUPREME COURT REPORTS [1964] VOL.
signed on behalf of the Governor-General of India,
and the entire proceeding· including the appointment of the arbitrators and the umpire was vitiated
for
want of compliance with s. 175 (3) of the
Goyc:rnment of India Act, and that io any event the
award contained
errors of law apparent on its
face. The Subordinate Judge, refused the motion
for setting aside the award and ordered that a decree
be issued in terms of the award.
In appeal against
the order refusing to set aside the award, the High
Court of Punjab confirmed the order.
Two questions arise for determinatio'l in this
appeal :-
·
(I) Whether the award is liable to be set aside
on the ground that there was in existence
no valid arbitration agreement in conformity with s. l 7-~ (3) of the Government
of India Act, 1 \135 which authorised the
umpire to make his award ; and
(2) whether the award is liable to be set aside
on the ground that it is erroneous on the
face thereof.
The letter accepting the tender dated Septem;;
ber \l, I 941i issued under the signature of the Direc•
tor of Purchases recited that the tender submitted by .
·the respondent was accepted to the extent shown in
the schedule attached to the letter and subject to the
special terms and conditions in the letter from the
Chief Director of Purchases, and the' general condi·
tions of contract in Form F. D. {:If) 70 which accompanied that
letter. The general conditions
of contract by the first clause defined •Government'
as meaning "the
Governor-General for India in
Council and when the context so admit•; his successors and assigns and the Government of India and
officers acting for him or them:"
By cl. 2 it waa
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•
•
3 S.C.R. SUPREME COURT REPORTS
171
provided that the Governor-General for India in
Council was not bound to accept the highest or any
tender or to assign reasons for non-acceptance. The
other clauses prescribed conditions for payment of
price, state of goods, risk, delivery, liability, failure
to pay price and failure to take delivery after payment, recovery
of sums due, etc. By cl. 13, the
arbitration clause was incorporated as a term of the
contract.
Acceptance of the tender was therefore
subject to the special conditions in the letter of the
Chief Director of Purchases and the ger:eral conditions in F. D. (M) 70, and in case of conflict special
conditions were to prevail over the general conditions.
Did the terms of the acceptance letter which
formed the contract between the parties comply with
the requirements of the Government of India Act,
1935? Section 175 (3) provided :
"All contracts made in the exercise of the
executive authority of the Dominion or of a
Province shall be expressed to be made by the
Governor-General, or by the Governor of the
Province, as the case may be, and all such
contracts and all assurances of property made
in the exercise of that authority shall be executed on behalf of the Governor·General or
Governor by such persons and in such manner
as he may direct or authorise."
·
The section was in terms mandatory. Before a
liability binding the Dominion of India could arise,
the contract had to be expressed to be made by the
Governor·General, if it was made in exercise of the
executive authority of the Dominion, and it had to
be executed on behalf of the Governor· General,
and by such persons and in such
manner as he
directed or authorised. This Court in Seth Bikhraj
Jaipuria v. Union of India ('), held in dealing with
the validity of contract which did not conform to
(I) [1962) 2 S, C. R, 880;
lffiJ
lt•i111 •I Iltii•
y,
.t. L. R•lli< R..,
Slid J.
19'63
Ulliun of 'India
••
'4. L. Ifalli• l!am
Shah J.
172
SUPREME COURT REPORTS [1964] VOL.
the requirements of s. 175 (3) of the Government of
India Act, that the provisions
of s. 175 (3) were
mandatory and not directory and if the contract did
not conform to
the requirements
prescribed by
s. 175 (3), no obligation enforceable at law flowed
therefrom.
The authority of an arbitrator depends upon
the authority conferred by the parties by agreement
to refer their differences to arbitration.
By s. 2 (a)
of the Arbitration Act, 1940 "arbitration agree·
ment" means "a written agreement to submit present
or future differences to arbitration, whether an
arbitrator is named therein or not." A writing
incorporating a valid agreement to submit differences
to arbitration is therefore requisite : it is however
not a c0ndition of an effective arbitration agreement
that it must be incorporated in a formal agreement
executed by both the parties
thereto, nor is it
·required to be signed by the parties; There ·must
be. an agreement to submit present or future differences
to arbitration, this agreement must be in writing,
·and m·ust be accepted by
the parties. Clause 13
in Form F.D. ( M) 70 fulfils all these requirements.
But the Dominion of India being a party to the
arbitration agreement, to be binding the agreement
had also to conform to the requirements of s. 175 (3)
of the Government of India Act,
1935,
for an
a~bitration agreement
is
a contract within the
meaning of the Government
of India Act and it
must, to bind the Dominion of India, be made in
the form prescribed by that section. The question
which then falls to be determined is whether the
letter accepting the tender of the respondent
conformed to the requirements of s. 175 (3) of the
Government of India Act.
Section 175 (3) does not in terms require that
· a formal document executed on behalf of the -
Dominion of India, and the other contracting party,
'
•
•
,
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a s:c.R..
SUPREME COURT REPORTS
i73
.·
'
'.
'
'
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'
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\
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alone is effective. In the absence of any direction
by the Governor-General under s. 175 (3) of the ·
Government of India Act prescribing the manner
a valid contract may resu It from correspondence if
the requisite conditions are· fulfilled. The contraets
for sale of "W ar·disposal"-goods were not directed
by the Governor-General to . be made by a formal
document· executed on behalf ·of · the Governor·
General as well as by
the~ purchasing. party .•. Itis
true thats. 175 (3) uses the expression . "execfrted"
but that does not by itself contemplate executi6n0fa
formal contract by the contracting parties: A tender
for purchase of goods in pursuance of- an invitation
issued by or on behalf of the . Governor-General c)f
India and acceptance in writing which is expressed
to be made in the name of the Governor-General
and is executed on his behalf by a person .authorised
in that behalf would conform to the requirements
ofs. 175 (3).
;
· ·
. .
"
· . The goods offered to be sold. belonged . to the
Gcivernment of India. The tender notice ·was also
issued by the Government of India, .Depai-tment'of·
Food. _ The title of the notice was "Tender Notki:
issued by the Gcivernment of India, Department of
Food (Division .III), New 'Delhi." The name of
the authority issuing the tender notice was "Govern·
rnent of India, Department of Food (Division III),
office of the Chief. Director of Purchases, Jamnagar
House, New Delhi." By cl. 9. delivery was to be
[made, ei site the Government agreeing to afford
- r assistance for movement to the. extenffeasible, and
:·by cl .. 11 import· duty on the . cigarettes was to be
. paid by . the Government. Clause 6 provided . that
the stock. of cigarettes to be delivered 'will be
surveyed by the Survey Board .· appointed hy. the
· Government of India and the , decision of the.Board.
shall be binding. on _ the tenderer.. In the letter
dated August · 21, 1946, submitting his tender the
respondent stated th'at he . 'was ·williirg - tO offer_ a .
· ~um·~~·o11~,~.
:v• .. ~ ;
A. L, R•lli• /lam
1US
(htiorJ •/ In.Ji•
••
.4 L. Rallin Ram
Shh J.
174 SUPREME COURT REPORTS [1964] VOL.
rate of Re.·/8/3 per packet only on the. condition
that the Government gave "a guarantee not to
undersell the cigarettes at any stage." It appears
that the' respondent had a discussion with the Chief
Director on September 3, 1946, and certain terms
were agreed upon, which were to be incorporated
in the acceptance letter.· In his letter dated
September 4, 1946, the respondent set nut these
terms. These terms clearly show that the Government undertook certain obligations, such as appointment of a Survey Board, if the goods were rejected on
the ground that they were unfit for consumption, issue
of separate delivery letters for
each Depot to
facilitate
delivery,
and an
assurance
that the
Government shall tender help in getting railway
priority and other transport facilities in the dispatch
of goods lying at the various depots, undertaking
transportation from the Assam Depot to Calcutta
at the risk and cost of the Government.
These
conditions were
incorporated in the acceptance
note issued by the Chief Director of Purchases. The
acceptance note is also headed "Government of India,
Department of Food. (Div.
III) New Delhi" and
refers to the obligations of the Dominion in els. 6,
9, 10 and by cl. 13 made the special conditions
prevail over the general conditions
which were
mcorporated in the contract. The correspondence
between the parties ultimately resulting in the
acceptance note, in our judgment, amounts to a
contract expressed to be made by the Government
and therefore by the Governor-General, because it
was the Governor-General who had invited the tender
. through the Director of Purchases, and it was the
Governor·General who through the . Chief Director
of Purchases accepted the tender of the respondent
subject to the conditions prescr.ibed therein. The
authority of the Chief Director of Purchases to con·
tract for sale of "War-disposal" goods and sign the
contract is not denied. The Chief Director of Purchases has subscribed his signature in his official
-
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I
3 S.C.R. SUPREME COURt REPORTS
175
designation and he has not stated in the description
that the contract was executed on behalf of the
Governor-General, but on a fair reading of the
contents of the letter, in the light of the obligations
undertaken thereunder, it would be reasonable to
hold that the contract was executed on behalf of the
Governor-General. No rules made by the GovernorGeneral have been placed Qefore the Court showing
that in executing a contract for the sale of "Wardisposal" goods, the officer authorised in that behalf
must describe himself as signing on behalf of the
Governor-General of India.
The High Court held that the Government of
India having agreed to refer differences to arbitration
and having taken part in the proceeding before the
arbitrators and the umpire, had waived the objection
as to the illegality of the contract and could not
therefore raise any such objection in an application
for setting aside the award. We are unable to agree
with that view.
The requirements of s. 175 (3) of
the Government of India Act are mandatory, and
the fact that the Government of India did not
contend before the arbitrator that there was in law
no arbitration agreement on which the arbitrator
was competent to act would not invest the arbitration
agreement with any validity. It i~ from the terms
of the arbitration agreement that the arbitrator
derives his authority to arbitrate: if in law there is
no valid arbitration agreement, the proceedings of
the arbitrator could be unauthorised. Every contract
to bind the Government must comply with the
requirements of s. 175 (3) of the Government of
India Act, 1935, and waiver will not preclude the
Government from pleading absence of a contract in
consonance with the law. An award being a decision
of an arbitrator whether a lawyer or a layman
chosen by the parties, and entrusted with power to
decide a dispute submitted to him is ordinarily not
liable to be challenged on the ground that it is
19~3
U ninn of !Ult
v.
A. l. llallic I• n
---.
$ha\ J
Vni~11 of Indi1
v.
A. L. Rsllia H•m
.S:As/i J.
i 76 StJi>RE?\1E COURT REPORTS [1964] vet.
erro11eous.
In order te make ar1'itration ei'~ctive
and the awards enforceable, machinery is devised
for lending the . assistance of the ordinary coutts.
The Court is also entrusted with power to modify or
correct the award on the ground or-imperfect form or
clerical errors, or decision on questions not referred,
which are severable from those referred. The Court
has also power to remit the award when.it has left
some matters referred undetermined, or when the
award is· indefinite, where the objection to the
legality of the award is apparent on the face of the
award. The Court may also set aside an award on
the ground of corruption or misconduct of the arbitrator, or that a party has been guilty of fraudulent
concealment or wilful deception. But the Court
cannot interfere with the a ward if otherwise proper
on the ground that the decision appears to it to be
erroneous. The award of the arbitrator is ordinarily
final and conclusive, unless a contrary intention is
disclosed by the agreement. The a ward is the .
decision of a domestic tribunal chosen by the parties,
and the civil courts· which are entrusted with the
power to facilitate arbitration and to effectuate the
awards, cannot exercise appellate powers ov.er the
decision.. Wrong or right the decision is binding, if
it be reached fairly a(ter giving adequate opportunity
to the parties to place their grievances in the manner
provided by the arbitration agreement. But it is now
firmly established that an a ward is bad on the ground
of error of law on the face of it, when in the award
itself or in a document actually incorporated in it,
there is found some legal proposition which is the
basis of the award and which is erroneous.
An error
in law on the face of the award means : "you can
find in the award or a document actually incorporated thereto, as for instance, a note appended by the
arbitrator stating the reasons for his judgment, some
legal proposition which is the basis of the award
:and which you can then say is erroneous.
It does
not mean that if in a narrative a 'reference is made to
-
I
-
3 S.C.R.
SUPREME COURT REPORTS
177
a contention of one party, that ·opens the door to
setting first what that contention is, and then going
to the contract on which the parties' rights depend
to see if that contention is sound" Champsey Bhara
and Company v. Jivraj Balloo Spinning and Weaving
Company Ltd. (' ). But this rule does not apply
where questions of law are specifically referred to the
arbitrator for his decision ; the award of the arbitrator on those questions is binding upon the parties,
for by referring specific questions the parties desire to
have a dechion from the arbitrator on those questions
rather than from the Court, and the Court will not,
unlest it is satisfied that the arbitrator had proceeded
illegally interfere with the decision.
The argument advanced by the respondent that
in the present case specific questions were referred
to the umpire, and his decision on those questions
must be regarded as binding and not liable to be
re-opened, even assuming that !here is some error on
the face of the award, must therefore be examined.
The arbitrators on July 16, 194S called upon the
parties to file their respective statements of claim and
written statement. The respondent filed on August 16,
1948, an argumentative claim petition setting out in
paragraph-22 the three heads under which he made
a total claim of Rs. 5,95,518/13/-. To this claim,
the Dominion of India filed a written statement
denying the claims made by the respondent. A
replication was filed by the respondent to the written
statement. The arbitrators recorded that the parties
had complied with the order, that issues had been
proposed by counsel for the respondent, and that the
parties were agreed that the dispute between them
be tried on those issues. Then they set out ten
substantive issues, and evidence was led before the
arbitrators. The arbitrators recorded that they were
unable to agree upon the decision, and therefore
they submitted the case to the umpire R.B. Nathoo
Ram. The umpire entered upon the reference, the
(I) (1932) L. R. 50 J, A; 32i,
1961
UnW. ef lnii•
••
~. L. R.Jli• Rom
Shoh J,
JJ69
-·-
Union of lndi•
••
"· L. Rallia Ram
SW/.
•
178
SUPREME COURT REPORTS [1964) VOL.
evidence which was recorded before the arbitraton
was accepted as evidence before the umpire, and the
umpire proceeded to pronounce his award after
recording reasons in support of his conclusions-on the
diverse issues which were raised before the arbitrators.
But filing of pleadings pursuant to the directions of
the arbitrators and agreeing to a trial of the dispute
on the issues raised by the arbitrators cannot be
regarded as reference of specific questions implying
an _agreement between the parties that they intended
to give up their right to resort to the Courts even
if the award was vitiated on account of an error
apparent on the face thereof. The cinly permissible
inference from the agreement recorded by the
arbitrators was that the parties agreed to have the
disputes adjiidicated on the issues raised, and not to
submit the issues raised for adjudication. The terms
of cl. 13 of the contract F. D.· (M) 70 which incorporated the arbitration agreement are general. By
his letter dated.June 26, 1946 the respondent intimated
the Director of Purchases that he had appointed an
arbitrator on his behalf "in accordance with clause
No.13 of the general conditions of the contract" and
the appointment of an arbitrator by the Union by
their letter dated .July 7, 1948 (subject to the reservation of a right to contend that there was no dispute)
for adjudication of the claim made by the respondent.
In these two letters there is no reference to any specific questions to be referred to the arbitrators: nor can
the filing of pleadings in support of their respective
cases by the parties pursuant to the direction given by
the arbitrator.1, and the framing of issues arising
thereon with the object of focussing the attrntion
of the parties on the question to be decided for adju·
dicating upon the dispute amount to a reference on
specific questions, rendering the award binding upon
the parties. In Seth Thawardas Pherumal v. The
Union of India ('), Bose, J, delivering the judgment
of the Court observed in dealing with the contention
that there was a reference of a specific question, and
(I) [1955) 2 S. C.R. 48.
-
l
3 8.C.R.
SUPREME COURT REPORTS 179
the award was not liable to be questioned even on
the ground that it disclosed an error on its face :
"Therefore, when a question of 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 jurisdictfon 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 1ub·
mit
incidental arguments about point
o(
law in the course of the proceedings is not
enough."
The learned Judge also observed at p. 59 after referring to F. R. Absalom Ltd. v. Great Western (London)
Garden Village Society (') :
"Simply because the matter was referred to
incidentally in the pleadings and agruments in
support of, or against, the general issue about
liability for damages, that i1 not enough to
clothe the arbitrator with exclusive jurisdiction
on a point of law."
In dealing with a similar question in M /a. A lopi
Parshad &: Sons Ltd. v. The Union of India ('), the
Court observed :
"Issues were undoubtedly raised by the arbitrators, but that was presumably to focus the
attention of the parties on the points arising for
adjudication. The Agents had made their
claim before the arbitrators, and the claim and
the jurisdiction of the arbitrators to adjudicate
upon the claim, were denied. The arbitrators
were by the terms of reference only authorized
to adjudicate upon the disputes raised. There
is no foundation for the view that a specific
(21 (lSi0] 2 S. C.R. 791.
1161
u.u.n rl """'
••
A• '- &Ui<I R.,,,
Shala/.
· /96'
Union of Indio
••
~- L. Ral/ia Ren
Shah/.
180 SUPREMB COURT REPORTS [1964] VOL,
reference, submitting a question of Jaw for the
adjudication of the arbitrators, was made."
In Durga Prosad Ohamria v. Sewkishendas
Bhattar ('), the Judicial Committee held that questions of law were specifically referred to arbitration
where in a pending suit after issues were raised
with the consent of parties "the outstanding matters"
in the suit were referred to three named arbitrators,
conferring upon them special enumerated powers.
But the decision was reached in the special circumstances of the case, and not on the view that where
agreed issues are raised before ihe arbitrator on the
pleadings filed before him, the reference must be
regarded as a reference on the specific questions
incorporated in the issues. •
Undoubtedly, under an arbitration agreement
which is initially in terms gene~al the parties may
after disputes have actually arisen, refer specific
questions to arbitration. But ·each case must depend
'·
upon its facts.
Filing of pleadings before the arbitrators, or even an agreement that certain issues arise
on the pleadings will not always yield the inference
that the parties agreed to refer_ specifically the questions incorporated in the issues to the arbitrator, so
as to preclude themselves from challenging the
award on the ground of error of law on the face of
the award.
The test indicated by Lord Russell of Killowen
in F. R. -Absalom Ltd. v. Great Western (London)
Garden Village Society Ltd. (') adequately brings out
the distinction between a specific refrrence of a question of law, and a question of law arising for determination by the arbitrator in-the decision of the dispute.
It was observed at p. 607 :
"
x x,
it is, I think, essential to keep the
case where disputes are referred to an arbitrator in the decision of which a question of law
(I) A.I.R. (1949) P.C SSf.
('l r19ss1A.c.592,616
•
I I
~
i
'
. 3 s.c.R.
SUPREME COURT REPORTS
181
· becomes material distinct from the case in
which a specific question of law has been referred to him 'for decision.
x x . x x
The
· authorities m·ake a clear distinction: between
these two cases, and, as they appear to me, they
decide that in the former case the Court can
· interfere if and. when_ any error of law appears
--on the face of the award, but that in the latter ,
case no such. interference is possible upon the
ground that it so appears that the decision upon
· the question of law is an erroneous one."
·
~ Then after referring· to the authorities it was ob~er~_
ved at p. 610 :
•
"
x x x The primary quarrel between
the parties was whether, ·if the value of work
executed and materials on site up to and including .l\farch 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 x : · x x - x. Those ·
were the disputes 'in regard· to the issue ·or
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 pointthat
the question of the construction of condition 30
arose as a question of law,· not specifically
· submitted, but material in the decision of the
1963
Unio11of lntis
v. -
.d • . L. RaUja Ram
Sh2h J,
196J
Union of lnii•
••
.A.. L. R•ll;. R.,,.
lili•• J.
182
SUPREME COURT REPORTS [1964] VOL.
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 th.: Court."
In the present case the respondent had claimed .
from the Dominion of India, compensation in respect of the goods delivered to him under the contract,
interest on the amounts raised by him for carrying
out the contract and for incidental expenses incurred
by him after deli very of the goods. That dispute
was referred to arbitration pursuant to clause 13 of
Form F. D.
(~1)70. Pleadings were filed by the
parties pursuant to the direction of the arbitrators,
but therepy the parties did nothing more than state
in writing their respective cases.
The parties also
agreed that certain issues arose on those pleadings
but the function of the issues was to focus the
attention of the parties to the points · on the
decision of which the adjudication of the dispute
between the parties
depended. The issues of law
may be material for the determination of the dispute, but they are not issues of law specifically
referred to the arbitrators.
,.
·There is one. more.·,, aspect which must be
considered: :· Assuming that d1,1ring:.,the course of
arbitration proceedings, the parties
m~Y. enter into
a fresh agreement 'an,d modify the original, terms
of reference, and extend or restrict their scope. But
such an agreement must, to be effective, amount to an
arbitration agreement. The
respondent
has not
relied and could not rely upon any subsequent
agreement modifying the agreement of reference ,
for any subsequent contract . between him and the
Union of India had also to satisfy the requirements
of s. 175 (3) of the Government of India, Act, 1935
or Art. 299 of the Constitution if such an agreement
took placc•after the Constitution came iuto force and
I
....
3 S.C.R.
SUPREME COURT REPORTS
183
such an agreement can only be in the form prescribed by these constitutional provisions.
By merely
assenting to the issues raised before the arbitrators
the advocate appearing on behalf of the Government of India could not assume to himself authority to bind the Dominion or the Union to a specific
reference on a question of law, because a reference
on a specific question may be effective only if there
be an agreement express or implied that the arbitrator will decide the question specifically referred
to him and that his decision will be binding upon
the parties. In the absence of any such contract
in the form prescribed, a plea of an agreement
subsequent to the reference would be futile. We
are therefore unable to agree with the High Court
that specific questions of law were referred to the
arbitrators, the decision whereof is binding upon the
parties.
The question then remaining to be decided ia
'l\hether the award of the umpire was in law erroneous on the face of it. The umpire has awarded
Rs. 1,32,417/10/- uudcr the head loss suffered by the
re,pondent in respect of the packets of cigarettes
delivered to him. He has awarded Rs. 1,25,000/- in
respect of the incidental expenses and R_s. 6~,~3:J/12/3
as
interests. The Loss sufferred in
respect of
the packets of cigarettes is computed in this manner :
the contract rate of cigarettes was l<e. -/8/3 per
packet, the respondent was able to sell the packets
supplied to him at the rate of Re.