Case: Seth Thawardas Pherumal Vs. Union of India

This appeal and Civil Appeal No. 12 of 1954, which will also be governed by this judgment, raise the same points though there are some differences in the facts. We will deal with Civil Appeal No. 260 of 1953 first.2. The suit there related to an arbitration matter. The appellant before us, whom it will be convenient to call the contractor, entered into a contract with the Dominion of India through an Additional Chief Engineer of the C. P. W. D. on 1-11-1945 for the supply of bricks to the C. P. W. D., a department of the Dominionarose about a number of matters. Clause 14 of the agreement provided that all disputes arising out of or relating to the contract should be referred to the Superintending Engineer of the Circle for the time being Accordingly, there was a reference on 21-11-949 and an award followed on 8-5-1949. It was filed in the Court of the Subordinate Judge, Dhanbad, and the contractor prayed that it be accepted and that a decree be passed in terms ofDominion of India filed objections under section 30 of the Arbitration Act, 1940 and prayed that the award be set aside and alternatively that it be modified or corrected. The contractors application was registered as a suit under section 20(2) of the Act and a decree was passed in terms of the award 18-3-1950.By that time the Constitution had come into force and the Union of India replaced the Dominion of India as a defendant. The Union of India filed an appeal to the High Court. The appeal was allowed in part. The contractor thereupon appealed to this Court.4. The dispute that was referred to the arbitrator consisted of 17 heads of claim but only three of them are contested here, namely items 5, 8 and 17.5. In the 5th head of claim the contractor claimed Rs. 75,900 as the price of 88 lacs of katcha bricks that were destroyed by rain. These bricks were not the subject-matter of the contract but the contractor put his claim in this way.The contract was for the supply of 2 1/2 crores of pucca bricks which had to be delivered according to the following schedule-30 lacs by 25-1-4650 lacs by 25-2-4655 lacs by 25-3-4655 lacs by 25-4-4660 lacs bywas to be at the kiln site. In order to keep to this schedule the contractor had to think ahead and work to a particular a time table. First, he had to prepare katcha or unbaked bricks and place them in his kilns for baking. While this lot was baking he had to prepare and stock another lot of katcha bricks ready to take the place of the baked bricks as soon as they were removed, It was the duty of the C. P. W. D. to remove these bricks as soon as they were ready for delivery, that is to say, as soon as they were fullya Certain stage of the contract the C. P. W. D. failed to remove the baked bricks which were ready for delivery and removal, This caused a jam in the kilns and prevented the contractor from placing a fresh stock of unburnt bricks in the kilns, and in the mean while his stock pile of katcha bricks ready for baking kept on mounting up. Had everything been done to time the 2 1/2 crores of bricks would have been delivered before the rains setowing to the default of the C. P. W. D. in not removing the burnt bricks which were ready for removal, delay occurred in the time table and the rains set in with the result that 88 lacs of katcha bricks were destroyed by the rains. As this loss was occasioned by the default of the C. P. W. D. the contractor claimed that he should be paid their price.The reply of the Union Government was two-fold. First, it contended that the katcha bricks formed no part of the contract and even if it was at fault in not taking delivery of the burnt bricks in time all that it could be held liable for would be for breach of that contract; and said that the loss that was occasioned by the damage caused to the katcha bricks which formed no part of the contract, was too remote.Secondly, that compensation for this loss could not in any event be claimed because this kind of situation was envisaged by the parties when the contract was made and they expressly stipulated that the Dominion Government would not be responsible. The Union Government relied on additional clause 6 of the agreement which is in these terms: "The department will not entertain any claim for idle labour or for damage to unburnt bricks due to any cause whatsoever." The arbitrator held that this clause was not meant "to absolve the department from carrying out their part of the contract" and so he awarded the contractor Rs. 64,075 under this head.We are clear that the arbitrator went wrong in law. Government departments have their difficulties no less than contractors. There is trouble with labour, there is the likelihood of machinery breaking down in out of the way places and so forth; there was also the danger of thunder storms and heavy showers of rain in the month of May : it will be remembered that the last date of delivery waswith that in view, Government expressly stipulated, and the contractor expressly agreed, that Government was not to be liable for any loss occasioned by a consequence as remote as this, then that is an express term of the contract and the contractor must be tied down to it. If he chose to contract in absolute terms that was hishaving contracted he cannot go back on his agreement simply because it does not suit him to abide by it. This is not to say that Government is absolved from all liability, but all it can he held responsible for is for damages occasioned by the breach of its contract to remove the pucca bricks which it had undertaken to remove. But what would such a breachcontractor had a duty under section 73 of the Contract Act to minimise the loss, accordingly he would have had the right to remove the bricks himself and stack them elsewhere and claim compensation for the loss so occasioned; and indeed two of his heads of claim (not in dispute here) relate to that.He has been awarded Rs. 11,744-11-0 under claim No. 4 for the extra load in connection with the stacking of 1 crore 7 lacs of bricks due to the accumulation at the kiln site owing to the departments failure to work to its part of the time table, and in addition, he has been given Rs. 15,500 under claim 13 for the cost of levelling and dressing land to enable him to stack these extrahe could have sold the bricks in the market and claimed the difference in price, but ordinarily he could not have claimed compensation for damage done to the katcha bricks unless he could have shown that that kind of damage, ordinarily too remote, was expressly contemplated by the parties when the contract was made: section 73 of the Contract Act. Here it is clear that this was in their express contemplation and they chose to provide against such a contingency by making clause 6 an express clause in theircan therefore be no doubt that the arbitrator was wrong in his law. His construction of the terms of the contract was at fault. The question now arises whether his decision on this point is final despite it being wrong in law.

Court's reasoning:
An arbitrator is not a conciliator and cannot ignore the law or misapply it in order to do what be thinks is just and reasonable. He is a tribunal selected by the parties to decide their disputes according to law and so is bound to follow and. apply the law, and if he does not, he can be set right by the Courts provided his error appears on the face of the award. The single exception to this is when the parties choose specifically to refer a question of law as a separate and distinctis undeniable but it is not enough that the dispute should fall within the clause. It is also necessary that the parties should define what the dispute is and agree to refer the dispute so set out and defined to arbitration, or, if they do not, that the Court should compel them to dostress the word "specifically" because parties who make a reference to arbitration have the right to insist that the tribunal of their choice shall decide their dispute according to law, so before the right can be denied to them in any particular matter, the Court must be very sure that both sides wanted the decision of the arbitrator on a point of law rather than that of the Courts and that they wanted his decision on that point to be final.The dispute sprang out of a series of claims made in a number of letters written by the contractor to the Additional Chief Engineer, C. P. W. D. and culminated in a petition, Ex. B(1), in which the contractor summarised his claims. The document is not dated. On receipt of this, someone on behalf of the C. P. W. D. invoked the jurisdiction of the arbitrator. That letter has not been filed. The arbitrator then wrote to the contractor and asked him to submit a statement ofletter has not been filed either but reference is made to it in Ex. C (l), the statement of claim which the contractor filed in response to that letter. As the material documents setting out the terms of reference are not here, we were asked by both sides to infer what the terms were from this statement of claims and the recitals in the award.We are of opinion that this is not the kind of specific reference on a point of law that the law of arbitration requires. In the first place, what was shown to us is no reference at all. It is only an incidental matter introduced by the Dominion Government to repel the claim made by the contractor in general terms under claim No. 3. In the next place this was the submission of the contractorreference requires the assent of both sides. If one side is not prepared to submit a given matter to arbitration when there is an agreement between them that it should be referred,then recourse must be had to the Court under Section 20 of the Act and the recalcitrant party can then be compelled to submit the matter under sub-sectionthe absence of either, agreement by both sides about the norms of reference, or an order of the Court under Section 20(4) compelling a reference, the arbitrator is not vested with the necessary exclusivein our opinion, is clear from the passages we have quoted from the award.We hold that clause 6 expressly releves the union Government of all liability under this head of claim and that the arbitrator was wrong in awarding any sum on thatNow it is admitted that the contract contains no clause about rations and it is also evident that the question was not raised when the tender was accepted on behalf of the Dominion Government. The question was raised in a letter to the Executive Engineer, and the contractor signed the contract without waiting for ais well settled that governments can only be bound by contracts that are entered into in a particular way and which are signed by the proper authority.A reference to the agreement, Ex. A(1), will show that it was accepted on behalf of the Dominion Government by the Additional Chief Engineer and not by an Executiveletter written to the Executive Engineer would therefore have no effect and even if it be assumed that the letter was forwarded to the Additional Chief Engineer for consideration, what does it amount to? A tender embodying certain terms is submitted and is accepted on 1-11-45. Both sides are agreed on all matters contained in it and their conduct shows that both sides indicated that the contract should be reduced to writing. Before the agreement is signed, one party wants to include a further condition in the contract.We will assume that the request was made to the other contracting party. But without waiting for the assent of the other side, both sides accept and sign the contractit existed before the fresh suggestion wasIt is an error in law to deduce from this that there was acceptance of the fresh proposal. On the contrary, the legal conclusion is that the new suggestion was dropped and that the contractor was content to accept the contract as it was without this condition.any case, a person cannot be bound by a one-sided offer which is never accepted, particularly when the parties intend that the contract should be reduced to writing. That is the whole point of insisting on a document. It excludes speculation as to what was and what was not agreed to however much the matter might have been raised by one of the parties during the stage oferror is apparent. Facts must be based either on evidence or on admission; they cannot be found to exist from a mere contention by one side especially when they are expressly denied by the other.The inference from the facts stated above is that the contractor entered into the agreement with his eyes open and whatever his one-sided hopes may have been he was content to enter into the agreement as it stood without binding the other side to the new conditions and without even waiting to ascertain the reaction of the other side to his further proposals.It has to be remembered that rationing was not a matter that was under the direction and control of the Dominion Government. It was a local matter handled by the then Provincial authorities and under their direction and control. The C.P.W.D., as a department of the Dominion Government, was not concerned with rationing except that its employees had to submit to rationing like everybody else in the Sindri area. This confusion between the Dominion Government and the Provincial Government occurs in the arbitrators opening sentence under this head where he sets out the contractors contention that "commodities such as rations and cloth which were absolutely essential for the maintenance of his labourers and which were under Government control.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 an arbitrator is not a "court" within the meaning of the Code nor does the Code apply to arbitrators, and but for S. 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.We pause to note that there was only a delay of five days at the outside in the overall picture. The last date for removal of the last installment of bricks was 25-5-46 and the contractor says under this head that the whole contract was completed by the end of May,is difficult to see how 88 lacs of bricks could have been damaged by rain in the last five days of May, and if the damage occurred before it would have occurred anyway, for on the contractors case he had to have a large stack of unbaked bricks on hand ready to enter the kilns in order to keep pace with his time table. However, that was a matter within the jurisdiction of the arbitrator and is not a matter in which the Courts can interfere.That concludes Civil Appeal No. 260 of 1953 and we now turn to the other appeal, Civil Appeal No. 12 of 1954. Only two items are in dispute here. Heads 4 and 17 of the claim.The over-all pattern of the claim is the same as in the other case. There was a contractor and he entered into an agreement containing the some terms and conditions, except about the details of supply. It was signed on the same day as the other and by the same authority on behalf of the Dominion Government, and the matter went before the same arbitrator and the award in this case was given on 1-5-1949, one week before the other award. Here also, no specific question of law of was referred and we need not cover the same ground. Our decision is the same here as, there.The fourth head of claim of about cloth and rations. The claim here, and the Dominion Governments reply, is the same as in the other case, but the award in this case is not based on an implied contractual obligation but on "a moral and implied obligation". The error here is even greater then before. The sum claimed was Rs. 51,495 and the amount awarded was Rs. 30,000.The seventeenth head of claim was about interest. The contractor claimed Rs.27,665 and the arbitrator awarded Rs. 9,954. There is the same error of law apparent on the face of the award.