The Government of Madras vs The Superintending Engineer P.W.D. and Another

M. Anantanarayanan, C.J.—With reference to a contract between Messrs. Indians Hume Pipe Co., Ltd. and the Government of Madras,

represented by the Superintending Engineer (Public Health), Madras, there was an arbitration upon certain matters as provided for in the contract

itself. The arbitrator was the Superintending Engineer (Special Buildings Circle), P.W.D. and the relevant findings in the award are (1) that the

extra amount claimed by the company to the tune of Rs. 57,637-16 due to price variations, should be negatived and (2) that no interest can be

claimed by the company after 26th December, 1963. With regard to these findings of the award there were two petitions before Sadasivam, J.,

O.P. No. 182 of 1965, a petition by the Superintending Engineer for recording the award by its reception into Court O.P. No. 241 of 1965 by

Messrs. Indian Hume Pipe Co., Ltd., u/s 30 of the Arbitration Act, to set aside the award. The learned Judge allowed the application by the

company and dismissed the application by the arbitrator and the. relevant appeals are from his decision in the matters.

There are two grounds which arise for our determination within the compass of these appeals. The first is whether the award of the arbitrator is

vitiated by error of law apparent on the face of the record, both with regard to the negation of the benefit of the price variation clause and with

regard to interest. In a sense this; may be said to be the part of the appeals that concerns the merits. The second question follows inevitably from

the findings on the first, even if these findings are in favour of the company. That question is whether, even assuming that the award is totally

erroneous and unsustainable, it can be set aside within the scope of Section 30 as amounting to ''legal misconduct'' on the part of the arbitrator :

That question depends on the principles of law to be applied in the reversal or modification by the Court, of such an award by a domestic tribunal.

We find from the judgment of the learned Judge (Sadasivam, J.) that though he has proceeded fully into the merits he has not discussed the relevant

aspect of the second question, which is equally vital. Certain authorities have also been referred to before us on this second aspect We shall first

set forth the essential facts, and deal with the merits of the argument that the award is prima facie quite unsustainable, and then proceed to the

question of law which is involved.

The documents which will be sufficient for determination of the main issue of fact are the contract itself, certain particulars to be gathered in the

claim statement certain passages in the correspondence between the parties, and G.O. Ms. No 3436 (Health), dated 26th November, 1967. We

may add that many of the facts of the records are not in dispute. Thus, for instance, it is not in dispute that the contract itself provided for a price

variation clause. This states that prices were based on current controlled rates for steel and cement and if there was any rise in the price of

materials, the Government were bound to pay for the increase subject to the production of certificates from the respective controllers. There is

another clause by which the company was entitled to apply for extension of time for completion of the contract, on certain particularised grounds.

This clause clearly states that the Superintending Engineer (Public Health) with whom the contract was executed formally, was entitled, if he was

satisfied about the cause for the delay, to grant this extension, of time.

What actually happened between the parties was that the contract was not completed within the time originally specified, and the company

prayed for extension of time, invoking several of the contingencies which are referred to in the contract as amounting to justification for the grant of

extension of such time. The Superintending Engineer (Public Health), who, under the contract, was entitled to extend the time for completion of the

contract, addressed a letter to the company, dated 26th September, 1957, which is of some importance. In the first paragraph he states that he has

addressed the higher authorities, namely, the authorities of the Government for according sanction for extension of time upto 31st March, 1958, for

the two contracts in question. In other words, he unambiguously declares that he himself was not competent to grant this extension of time, but that

it had to be formally sanctioned by the Government. In the succeeding paragraph, he informs the company that, assuming that the extension is

granted, the company will not be entitled to the benefit of the price variation clause during the extended period. That is his view or decision,

whichever it might be termed and the language is quite categorical that this officer was of the view that the extension should be granted,, only

subject to the condition that the company could not invoke the price variation clause, if there was an increase in price.

However that might be, the Government finally sanctioned the extension of time by G.O. Ms. No. 3436, dated 26th November, 1957. This is a

very brief order in. clear terms, amounting to an extension of time for completion of the contract, without any conditions whatever attached to the

grant. There is no reference at all to the price variation clause, and it is not stated that the company cannot invoke the benefit of this clause, in case

it should establish an increase in prices, during this, period, of the controlled commodities.

Such increases did occur, and the company invoked the price increase clause during the extended period, and sought to recover the amount

already referred to by us. This was the subject of the arbitration and the award. The arbitrator held, for reasons that we need not go into at the

moment, that the Government order must be construed as subject to the previous correspondence, and that, since it was the Superintending

Engineer (Public Health) who under the contract, was entitled to extend the time, the Government order must be read as though the extension was

subject to the condition that the price variation clause could not be invoked by the company. The learned Judge (Sadasivam, J.) pointed out that,

on several grounds, this view was totally erroneous and unsustainable.

On this point, we are in entire agreement with the learned Judge, and indeed, it is difficult to see how any other view is possible. First of all, the

contract, though formally between the company and the Superintending Engineer (Public Health) could not actually be construed as such, for a

very simple reason. The last paragraph of the contract describes the contracting parties, and the Superintending Engineer claims that he enters into

the contract ""for and on behalf of and by the order and direction of His Excellency the Governor of Madras "". Thus it is very clear that the

Superintending Engineer (Public Health) is a nominee of the Government, who enters into the contract as authorised by the Government and under

the directions of the Government. Indeed, it was for that very reason that the Superintending Engineer later affirmed that he could not grant

extension of time prayed for, and that he could only address the Government for sanction. Secondly, it is equally clear that the Government Order

granting extension of time is unconditional in its terms. Here, the arbitrator read the record in a perspective, precisely opposite to the perspective

which should have been adopted. The Government, in promulgating the Government Order, were perfectly aware of the prior correspondence,

and what the Superintending Engineer had told the company. Nevertheless, they chose to extend the time, without any contingency of qualification

whatever being attached thereto. This necessarily implies that they did not think it right or expedient, that the company should be deprived of the

benefit of the price variation clause, during the extended period of the contract. It must be borne in mind that the Government were the sole judges

in this matter, that the Superintending Engineer could only place the merits before them, and that it is the decision of the Government alone that

really determined the respective rights of parties.

Therefore, we have no doubt whatever that the award is vitiated by errors apparent on the face of the record, and if such an award by the

arbitrator could be held as amounting to '' legal misconduct'', Section 30 could have been rightly invoked by the company in its application.

The authorities on this aspect are very clear, and we think it is sufficient to refer to the following among them : Chamsey Bhara Co. v. Jiraj

Belloo Co. 44 M.L.J. 706 : 1923 L.R. 50 IndAp 324 : AIR 1923 P.C 66 Union of India (UOI) Vs. A.L. Rallia Ram, , Jivarajbhai Ujamshi Sheth

and Others Vs. Chintamanrao Balaji and Others, and Vellore Electric Corporation Ltd. Vs. State of Madras and Another, . As the Judicial

Committee observed in Champsey Bhara Co. v. Jivraj Belloo Co. 44 M.L.J. 706 : 1923 L.R. 50 IndAp 324 : AIR 1923 P.C 66 it is not every

error of law, which necessarily vitiates an award. If a specific question of law is the sole content of the reference to arbitration, even an erroneous

finding on that question of law, may not vitiate the award. Further, errors which are ancillary to, and part of, the narrative of the facts embodied in

the award, may not vitiate the award. But a legal proposition which is the basis of the award, does make the award itself erroneous. The Supreme

Court pointed out in Union of India (UOI) Vs. A.L. Rallia Ram, that the award of an arbitrator is ordinarily final and conclusive. It is the decision

of a domestic tribunal chosen by the parties, and Courts should not exercise appellate powers over the decision, whether it is erroneous or

otherwise. An award which is bad on the ground of an error of law on the face of the award, is sufficient to vitiate the award. But this subject to

the qualification that where the reference itself is on a question of law, an erroneous conclusion on that question may not vitiate the award, or

amount to ""legal misconduct"". Jivarajbhai Ujamshi Sheth and Others Vs. Chintamanrao Balaji and Others, reiterates these principles and affirms

that the Court cannot go into the fallacious nature or otherwise of the reasoning that sustains the award, and it is not open to the Court to attempt

to probe into the mental process by which the arbitrator has reached his conclusion, where this is not disclosed by the terms of the award.

The Bench decision of this Court in Vellore Electric Corporation Ltd. Vs. State of Madras and Another, , is interesting for the reason that it

related to an award said to be purely upon a question"" of law, which was attacked because of the error of law embodied in the award. Ganapatia

Pillai, J., delivering the judgment of the Court, referred to the dicta of Viscount Cave, L.C. in Kalanten Government v. Duff Development Co. L.R.

(1923) A.C. 395. In that passage the question of the intrusion of extraneous matter in the award is dealt with and it is observed that if the arbitrator

took into account the facts of negotiations which were extraneous in interpreting the contract "" he was in error "". Further "" the surrounding

circumstances may not be used for the purpose of adding to a deed a stipulation to which the parties did not intend by that deed to agree.

We consider that these passages are very pertinent to the present context. Whatever might have been the prior correspondence and whatever

might have been the views of the Superintending Engineer (Public Health) about the degree to which the company could or could not invoke the

benefit of the price variation clause, the fact remains that there are only two effective documents in the entire record. The first is the contract, which

includes the power of the Government to extend the time and the second is the Government Order actually extending the time. The, learned

Government Pleader does not argue, that, under the contract, the Government were bound to suspend the price variation clause during the

extended time, or they had no power to furnish the benefit of the clause, even for the extended period of the contract. Obviously, they had the

power and discretion to do so. In interpreting the Government Order, the prior correspondence should not have been referred to at all, and the

views of the Superintending Engineer are totally irrelevant. As we have pointed out, the true contracting parties are the Government and the

company, and the only proper interpretation of the Government Order is that, fully cognisant of the prior facts and correspondence, the

Government chose to extend the time in an unqualified manner, thereby implying that the benefit of the price variation clause was available to the

company, during the extended period also. In other words, the arbitrator has interpreted the vital document, in the light of some opinion of the

officer earlier expressed, which is wholly irrelevant and inadmissible, as far as that task of interpretation is concerned.

As we have observed earlier, the learned Judge (Sadasivam, J.) has not discussed this aspect of "" legal miscondut"". A case which is very close

to the context is Welford Baker & Co. v. Meefie & Sons 84 L.J.K.B. 2221, the facts of which will be found set forth in Russell on Arbitration,

17th Edn., page 180. There was a contract for sale of sugar in that case, and there was no provision for suspension of deliveries owing to causes

beyond the control of the sellers. In a dispute which led to arbitration, a former contract between the parties containing such a suspension clause,

was relied on by the arbitrator in interpreting the contract. This was held to amount to ""legal misconduct"" inasmuch as the arbitrator had looked to

another document which was inadmissible for the purpose, and which further went to the root of the question submitted to him for decision. In the

present case, the precise parallel is the use of the letter of the Superintending Engineer to the Government, by the arbitrator, in order to modify the

Government order, in a form that was not warranted by its terms.

We have no hesitation whatever, therefore, in dismissing the appeal by the State on this ground. Regarding the ground relating to interest, the

learned Judge has himself pointed out that the company had made the demand for interest at six per cent. per annum in its letter, dated 25th

December, 1963, and that the company would be indisputably entitled to such interest under the law, and under the Interest Act. This ground of

appeal has also therefore to fail. As the company has now filed a suit on the contract (O.S. No. 179 of 1966), we desire to make it explicit, that

our conclusions will not prejudice that suit in any manner.

In the result, both the appeals by the Government are dismissed with cost--One set.