Devkinandan and Co. of Bindki vs Union of India (UOI)

Shamsher Bahadur, J.—The appeal is directed against the order of the Subordinate Judge, Delhi, who has set aside the award made by the Arbitrator on 10th of February, 1953.

There were claims and counter-claims in respect of three contracts executed between the appellant, Messrs Deoki Nandan and Co., and the Union of India. These three contracts related to the supplies respectively of 100 tons of dal arhar, 40 tons of dial urd and 162 tons of dal chana. The dal arhar contract was made on 18th of April, 1951, the dal urd on 20th of March, 1951 and the dal chana on 21st of March, 1951, The Union of India made their claim on 16th of May 1952 before the Arbitrator and they claimed a sum of Rs. 17,540/-from the appellant-firm.

A credit was given to the firm for a sum of Rs. 9,913/12/- on account of "security in hand" and Rs. 48/3/- refundable to them on account of sale proceeds of refractions, the total claim amounting to Rs. 7,548/1/-. The appellant-firm in their turn claimed damages to the tune of Rs. 40,030/- in respect of the contracts of dal urd and dal chana. In respect of the dal urd contract, a sum of Rs. 580/- was claimed. As this is no longer a subject matter of this appeal, nothing more need be said about it. As for the third contract In respect of Dal chana a sum of Rs. 39480/- was claimed. In his award of 10th of February, 1953, the Arbitrator, Mr. Raizada, who is an Advocate of this Court, allowed the following two items to the appellant-firm:

(i) Refundable Security Money and sale proceeds of refractions ... ... Rs. 9,913/12/-. (ii) Price of about 546 maunds and 20 seers of dal chana @ Rs. 9/- per maund and Re. 1/- per maund and handling charges about... Rs. 5.460/- _____________ Total Rs. 15,421/15/-

The Arbitrator in result gave an award in favour of the appellant-firm for a sum of Rs. 15,421/15/-.

Both parties filed objections before the learned Subordinate Judge who framed the following three issues :

(i) Is the award in excess of the arbitration agreement? Its effect.

(ii) Is the award liable to be set aside for the reasons given in paras 2, 3 and 4 of the objection petition filed By the Union of India?

(iii) Are the objections filed by the Union of India barred by time?

The learned Judge has found in favour of the appellant on issue No. 2 and against it on issue No. 3. Neither the Union of India nor the appellant are contesting the decision of the Subordinate Judge on these issues. The single issue which is, therefore, the subject-matter of this appeal is the first one, in which the jurisdiction of the Arbitrator has been challenged.

The substance of the controversy relates to the price of the goods, supplied. The supplies were to be made according to the contract at the rate of Rs. 23/- per maund. On 11th of April, 1951, the appellant despatched one wagon of dal chana to the Union of India and it is common ground that the goods sent were rejected at the instance of the inspecting officer whose decision according to the conditions of the contract was final.

Both sides have placed reliance on the letter of the 7th of June 1951 (Exhibit C. W. 1/10) addressed by the respondent-Union to the appellant. It was stated in this letter that the consignment of 208 bags of dal chana though rejected in the first instance by the inspecting officer had been recommended on appeal to be retendered after "fumigation and cleaning". Unfortunately for the appellant, a ceiling price was fixed by the Government for dal chana on 8th of May, 1951 at Rs. 14/- per maund.

In the letter, Exhibit C. W. 1/10, it was pointedly brought to the notice of the appellant firm that the ceiling price introduced by the notification of 8th of May 1951 would govern the rate of the goods when retendered. What is required to be done in respect of the rejected goods was some processing to be carried on behalf of the appellant and at its own risk and cost. The processing had to be done by the agents of the respondent-Union but it was not guaranteed that even with this assistance the goods when retendered would be accepted.

This, coupled with the specific mention of the revised rate in the notification leaves no room tor the contention that the price payable for the consignment was anything but the ceiling price which came to be fixed on 8th of May, 1951. It is well to observe that the appellant-firm raised no protest to the ceiling price which according to the respondent-Union was to be paid for this consignment. Indeed, the appellant itself decided to remove the rejected) consignment and did not accept the offer of having the dal chana processed, fumigated or cleaned.

The upshot was that this rejected consignment was received by the appellant on 10th of July, 195S vide receipt, Exhibit P. 47/C. Thereafter, It appears that the consignment was delivered to the Regional Food Commissioner of Lucknow. It had been assumed that this delivery was made at the instance of the respondent-Union though no proof appears to have been adduced in its support.

On these facts, the question arises whether the price which is payable by the respondent-Union for the consignment received by the Regional Food Commissioner is Rs. 14/- per maund or Rs. 23/- per maund. The question whether or not the rejection was valid is not one for consideration of the Arbitrator. As rightly pointed out by the learned judge, (this question is definitely excluded from the purview of the Arbitrator under clause 19 of Exhibit C. W. a/24.

The Arbitrator in his conclusion appears to have been swayed by the consideration that the right of rejection had not been validly exercised on behalf of the Union. This was not a question at large for the decision of the Arbitrator and it seems to me that when the appellant had reconciled itself to the position of its goods being rejected, there is no merit in the point raised in support of the finding of the Arbitrator.

To allow any other rate other than the ceiling rate would result in a direct contradiction of the-statutory notification issued by the Union Government on 8th of May, 1951 fixing the ceiling price of dal chana at Rs. 14/- per maund. It has been uniformly held by courts that if an Arbitrator awards damages which have the effect of legalising an act which has been declared! to be unlawful it amounts to misconduct. In Bajranglal Laduram Vs. Ganesh Commercial Co. Ltd, fit was observed, by Chief Justice Harries in the Division Bench judgment that:

"to allow the arbitrators to award such damages would be to legalise an act which has been declared to bo an offence under the relevant statute and cannot possibly be permitted by a Court of Law."

It was found that

"the assessment of damages based upon black market prices would amount to legal misconduct and would vitiate the award)."

True, the price of Rs. 23/- per maund was fixed by agreement but it was superseded by the notification of 8th of May, 1951, after which date Rs. 23/- per maund for dal chana became a black market rate. The observations of Bachawat J. in Bejoy Singh Vs. Bilasroy and Co., also support the view which has been taken by the learned Subordinate Judge. At page 537, it was thus observed by the learned Judge;

"If the date of breach is a date when the Jute Price Control Order was in operation the ordinary measure of damages is the difference between the contract price and the maximum price fixed by the Control Order. Any claim in excess of such difference is illegal and in contravention of the Control Order and the arbitrators are guilty of misconduct if they recognise and allow such claim whether the claim is on the basis of an illegal market price on the date of the breach."

The ceiling rate was fixed in pursuance of a uniform policy embodied in a statutory notification and though it has hit hard the appellant, it is not possible to afford relief, as held in the Calcutta authorities. A similar view was taken by another Bench of the Calcutta High Court (Chakravartti C. J. and S. R. Das Gupta J.), in Hanutmull Boid Vs. Fatehchand Murlidhar,

The control rate on the date is to govern the price of the goods supplied to the respondent. In the present case, there is no proof that the goods had actually been accepted before the 8th of May, 1951 when the new ceiling was introduced. As the entire basis of the assessment of damages made by the Arbitrator is based on a misappreciation of file legal position, it stands vitiated and no decree can be passed in accordance thereof.

The learned counsel for the appellant has, however, urged that the firm in any event is entitled to the amount of security. I should have been inclined to grant this relief to the appellant but as the parties joined issue only on the question whether the award was enforceable or not as a whole, this point does not seem to arise. Moreover, from the claim preferred by the Union of India before the Arbitrator, it appears that the security was not one Which was earmarked for these contracts. If the amount was taken as a security for these contracts, there does not seem any valid reason to withhold it. However, I leave it to the good sense of the Union Government to meet the claim of the appellant in a just and equitable manner.

I would like to say a few words about the last contention of the learned counsel for the appellant that the notification of 8th of May 1951 is ultra vires being directed specially against the appellant and thereby constituting a mala fide piece of legislation. In the exercise of sovereign powers undoubtedly vested in the respondent-Union, the price fixation order has been made and there is no material to draw the inference that it was made designedly to jeopardise the interests of the appellant.

The notification though it, followed in the wake of the contracts which are the subject-matter of this appeal it cannot be presumed that it was aimed or hit against the appellant or was an act in pursuance of the sole object of throwing overboard the contracts in dispute. The notification does appear to violate the sanctity of contract but there is no ground to uphold the contention of the counsel for the appellant that the notification is ultra vires made in violation of the fundamental rights.

In the result, I would dismiss this appeal but in tile circumstances I would make no order as to costs.