Case: The State Of Bihar Vs. M/S. Karam Chand Thapar &amp; Brothers Ltd

Section 175 (3) is as follows :"Subject to the provisions of this Act with respect to the Federal Railway authority, all contracts made in the exercise of the executive authority of the Federation 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."Under this section, a contract entered into by the Governor of a Province must satisfy three conditions. It must be expressed to be made by the Governor; it must be executed; and the execution should be by such persons and in such manner as the Governor might direct or authorise. We have now to examine whether the agreement to refer to arbitration dated February 6, 1948, satisfies the above conditions. It is expressed to be made between the Governor of Bihar and the respondents. It is also a formal document executed by one Y. K. Lall, Executive Engineer, Ranchi Division, and by thenotification, in so far as it is material, is as follows :"In exercise of the powers conferred by sub-section (3) of section 175 of the Government of India Act, l935, the Governor of Bihar is pleased, in supersession of all existing orders, to direct that the under mentioned classes of deeds, contracts and other instrument may be executed on his behalf as follows :A. In the case of the Public Works Department (subject to any limits fixed by Departmental orders)............................................................................................2. All instruments relating to the execution of works of all kinds connected with buildings, bridges, roads. canals, tanks, reservoirs, docks and harbours and embankments, and also instruments relating to the construction of water works, sewage works, the erection of machinery, and the working of coal mines. By Secretaries to Government, Chief Engineers, Superin tending Engineers, Divisional Officers, Sub Divisional Officers, Assistant or Assistant Executive Engineers, and the Electric inspector............................................................................................12. All deeds and instruments relating to any matters other than those specified in heads 1 to 11.By Secretaries and Joint Secretaries to Government."There was a discussion in the courts below as to whether the present agreement fell within item 2 or item 12. If the agreement could be held to be an instrument relating to the execution of works, it would fall within item 2, and the Executive Engineer would be a person authorised under this notification to enter into this contract, but if it does not fall within that item, it must fall within entry 12, in which case he would not be competent to execute the agreement. Both the courts below have held that the agreement to refer to arbitration was not one relating to execution of works as that had been completed and the dispute related only to payment of the bills, and that further the essential feature of an arbitration agreement was the constitution of a private Tribunal and it could not, therefore, be brought within item 2 and that accordingly it fell within item 12. But the learned Judges of the High Court were also of the opinion that Y. K. Lall, the Executive Engineer had in fact been specifically authorised to execute the arbitration agreement, and that that was sufficient for the purpose of S.175 (3). The appellant impugns the correctness of this conclusion and contends that it is not warranted by the record. It becomes, therefore, necessary to refer in some detail to the correspondence bearing on this point. On July 26, 1947, Mr. Murrel, Secretary to the Government, wrote to Col. Smith as follows:"I am directed to say that the Government of Bihar propose to appoint you as Arbitrator for the settlement of a claim put forth by Messrs. Karam Chand Thapar and Brothers Limited in connection with the construction of the Hinoo Aerodrome at Ranchi-Job 108. . . . . If you agree to undertake the work, . . . . the necessary forms of acceptance of appointment to Arbitrator, etc., may please be forwarded to this Department for completion by the Government of Bihar and by the Contractor."To this, Col. Smith sent a reply agreeing to act as arbitrator. In that letter he also suggested that the contract between the parties might be suitably amended so as to permit arbitration. This is significant, because under cl. 23 of the contract, all disputes between the parties had to be referred to the Superintending Engineer whose decision was to be final, and if that had been amended as suggested the arbitration clause would have become part of the original contract and there would have been no occasion for there present contention. Referring to the above suggestion for amending the agreement, the Secretary, Mr. Murrel, wrote on September 5, 1947. to Col. Smith that the opinion of the Legal Remembrancer would have to be got. On, January 19, 1948, Col. Smith wrote to the Secretary that he was ready to take up his duties as arbitrator and again desired that the contract should be amended so as to provide for arbitration. On January 27, 1948, the Secretary to the Government informed Col. Smith that opinion had been received from the Legal Remembrancer that an agreement for arbitration should be executed in accordance with the provisions of the Arbitration Act and that a "draft agreement (copy enclosed) has been drawn up accordingly and steps are being taken to execute it as quickly as possible". On the same date, the Executive Engineer wrote to the respondents as follows :"It has since been decided by Government to determine your claims in connection with the above through arbitration conducted in accordance with the provisions of the Arbitration Act 1 of 1940. You are, therefore, requested to please attend the Divisional Office immediately to execute necessary agreement for the purpose."Pursuant to this letter, the respondent joined in the execution of the agreement dated February 6, 1948, along with the Executive Engineer for referring the dispute to arbitration. On February 25, 1948, the Secretary informed the arbitrator that the draft agreement had been slightly modified in consultation with the Government Pleader, and he also wrote to the Executive Engineer that certain formal corrections should be made in the agreement and signed by both the parties. And that was done.

Court's reasoning:
3. Having carefully gone through the correspondence, we agree with the learned Judges of the High Court that the Executive Engineer had been authorised by the Governor acting through his Secretary to execute the agreement for reference to arbitration. It will be seen that it was the Secretary who from the very inception took the leading part in arranging for arbitration. He was throughout speaking in the name of and on behalf of the Government and he did so "as directed." The subject-matter of the arbitration was a claim which concerned the Government. The proposal at the earlier stages to amend cl. 23 of the original contract so as to include an arbitration shows that the intention of the parties was to treat the agreement for arbitration a part and parcel of that contract. Even after the agreement was executed, the Secretary made corrections and modifications in the agreement on the basis that it was the Government that was a party thereto. The conclusion from all this is, in our judgment, irresistible that Y. K. Lall, the Executive Engineer had been authorised to execute the agreement dated February 6, 1948.4. It was suggested that the Secretary was possibly labouring under a mistaken notion that the agreement to refer to arbitration was covered by item 2 and acting under that misconception he directed Y. K. Lall to execute the agreement. Even if that were so, that would not make any difference in the position, because the Secretary undoubtedly did intend that Y. K. Lall should execute the agreement and that is all that is required under S. 175S. 175 (3) does not prescribe any particular mode in which authority must be conferred. Normally, no doubt, such conferment will be by notification in the Official Gazette, but there is nothing in the section itself to preclude authorisation being conferred ad hoc on any person, and when that is established, the requirements of the section must be held to be satisfied. In the result, we hold that the agreement dated February 6, 1948, was executed by a person who was authorised to do so by the Governor, and in consequence there was a valid reference tofacts are that the arbitrator sent to each of the parties a copy of the award signed by him and a third copy also signed by him was sent to the court. The copy of the award which was sent to the Government would appear to have been insufficiently stamped. If that had been produced in court, it could have been validated on payment of the deficiency and penalty under S. 35 of the Indian Stamp Act, 1899. But the Government has failed to produce the same. The copy of the award which was sent to the respondents is said to have been seized by the police along with other papers and is not now available. When the third copy was received in court, the respondents paid the requisite stamp duty under S. 35 of the Stamp Act and had itcannot, in our opinion, be any doubt that it is the original and not a copy of the award. What the arbitrator did was to prepare the award in triplicate, sign all of them and send one each to the party and the third to the Court. This would be an original instrument, and the words, "certified copy" appearing thereon are a misdescription and cannot have the effect of altering the true character of the instrument. There is no substance in this contention of the appellant either.