The Reliable Water Supply Service of India Vs. Union of India (Uoi) and ors. - Court Judgment

Excerpt:
- [raghubar dayal,; v. bhargava and; v. ramaswami, jj.] the union of india entered into two contracts in november 1944 and june 1945 with the appellants, which were subsequently modified in february 1946, for the supply of 4,700 bins at an agreed price inclusive of the cost of steel. the government undertook to make available the steel required for the manufacture of the bins and accordingly,, supplied to the appellants steel valued at rs. 2,53,521 for which amount credit was to be given to the government. after 2,172 bins had been manufactured and supplied to the union, the latter cancelled the contract for the supply of the balance 2,528 bins. each of the contracts between the parties contained an arbitration clause and in accordance with this provision, the dispute arising out of cancellation of the contracts was referred to an arbitrator. the arbitrator found that the contract had been wrongfully cancelled; and that at the time of the cancellation the component parts of the balance 2,528 bins were ready but had not been assembled into finished bins. by way of compensation for the wrongful termination of the contract by the government, the arbitrator awarded damages to the company of the amount representing the value of steel used up in making the component parts for bins which had not been assembled into completed bins. this amounted to rs. 1,65,825. the government made an application to the calcutta high court for setting aside the arbitrator's award on the ground that there was a mistake of law apparent on the face of the award in the estimation of damages for wrongful termination of the contract. a single judge of the high court substantially confirmed the arbitrator's award. the govern- ment took the matter in appeal to a division bench of the high court and the two appeals filed were allowed by that bench and the award was set aside. it was contended on behalf of the appellants that the high court could not have interfered with the award of the arbitrator as there was no error on the face of the award; that the arbitrator was not bound to give -reasons for estimating the damages to which the appellant was entitled and that he had not in fact given any such reasons. held : allowing the appeal (per bhargava and raghubar dayal, jj.). the arbitrator in fixing the amount of compensation had not proceeded to follow any principles, the valdity of which could be tested on the basis of laws applicable to breaches of contract. he awarded the compensation to the extent that he considered right in his discretion without indicating his reasons. such a decision by an arbitrator could not be held to be erroneous on the face of the record. [642 a-b] the consideration that led the arbitrator to consider that the value of the steel was equal to, and not more or less than, the amount which he considered it right to award as compensation, was not indicated by him in his award. this was, therefore, clearly a case where the arbitrator came to the conclusion that a certain amount, should be paid by the government as compensation for wrongful termination of the contract, and in his discretion-he laid down that the amount should be equal to the value of the steel as it existed after it had been converted into component parts. [641 f-g] it is now a well settled principle that if an arbitrator, in deciding a dispute before him, does not record his reasons and does not indicate the principles of law on which he has proceeded, the award is not on that account vitiated. it is only when the arbitrator proceeds to give his reasons or to lay down principles on which he has arrived at his decisions that the court is competent to examine whether he has proceeded contrary to law and is entitled to interfere if such error in law is apparent on the face of the award itself. [640 h] (per ramaswami j., dissenting)-in the present case the arbitrator had estimated the measure of damages as equivalent to the value of steel used up in making the component parts. that was the legal proposition upon which he had based his award and the question was whether that legal proposition was correct. the arbitrator had found that the appellant had produced no evidence with regard to the manufacturing cost of the component parts of the 2,528 unfinished bins; he had therefore failed to prove the resultant damage on account of the breach of contract. but if in spite of this finding the arbitrator decided to award damages to the appellant, the highest amount which he could award would be rs. 1,03,066, which is the difference between the contract price and the value of the steel used up in manufacturing their component parts. the estimate of damages at this figure is based, on the assumption that the appellant had manufactured completely 2,528 bins according to the terms of the contract. the arbitrator had ignored the provisions of s. 73 of the indian contract act and had awarded damages to the appellant on a wrong legal basis. the award was therefore vitiated by an error of law apparent on the face of it. [639 c, g, h]. champsey bhara and co. v. jivraj balloo spinning and weaving co. ltd. 50 i.a. 324 and james clark (brush materials) ltd. v. -carters (merchants) ltd. [1944] 1 k.b. 566, distinguished. - 3. the clauses in the agreement which are relevant for deciding the points arising in the appeal are 48(c) and 70. clause 48(c) reads :damage and loss :(c) save as provided above, the controller shall at his own expense reinstate and make good to the satisfaction of the g. we are clear in our opinion that the claim made by the government falls within the scope of clause 48(c) and as there is a dispute between the parties about the sustainability of that claim as well as to the quantum of the loss caused, the dispute falls within the scope of clause (70). this conclusion disposes of the first contention.k.s. hegde, j1. the appellant is a company. it entered into a contract with the union of india of november 17, 1959 for fabrication of tank shells at kalai kunda. the fabricated shells were to be tolled through the tracks allotted by the air force authorities. after the manufacture of shells, the appellant applied for permission to roll the shells. the permission asked for was granted on march 24, 1960. the appellant was asked to roll those shells through the airfield and the rolling was to be done on sundays and mondays which were not flying days. in pursuance of the said permission the appellant rolled some shells on february 28, 1962. while the shells were being rolled, a shell hit a parked aircraft on the apron. the air force authorities assessed the damages caused to the plane at rs. 51,414/-. thereafter the appellant was called upon to pay the said amount. the appellant denied its liability to pay the amount demanded. then the authorities threatened the appellant that they would deduct the amount in question from its bills. the appellant protested against the threatened deduction. thereafter the union of india referred the dispute to col. j s sandhu on august 13, 1962, negativing the contention of the appellant that the dispute in question does not fall within the scope of the agreement entered into by it with the union of india. soon thereafter the appellant moved the court of civil judge, lucknow under section 5 of the indian arbitration act, 1940 for revoking the reference to the arb trator. the trial court accepted that application and ordered the revocation of the reference. the union of india look up the matter in appeal to the high court of allahabad. the appellant contested the appeal on various grounds. one of the grounds taken by him was that the appeal was not maintainable. the high court accepted that contention but converted the appeal into a revision under section 115 of the cpc. the high court set aside the order of the trial court holding that the reference was a valid one. thereafter this appeal was brought after obtaining a certificate from the high court.2. in support of the appeal, two contentions were advanced by the learned counsel for the appellant viz. (1) that the dispute in the question does not fall within the scope of clause (70) of the agreement and (2) that the high court had no jurisdiction to convert the appeal into a revision under section 115 of the cpc.3. the clauses in the agreement which are relevant for deciding the points arising in the appeal are 48(c) and 70. clause 48(c) reads :damage and loss :(c) save as provided above, the controller shall at his own expense reinstate and make good to the satisfaction of the g.e. or make compensation for any injury, loss or damage occasioned to any property or right whatever including property and right of government (or agents, servanls, or employees of government) being injury, loss or damage arising out of or in any way in connection with the execution or purported execution of the contract and further, contractor shall indemnify government against all claims enforceable against government (or any agent, servant or employee of government) or which would be so enforceable against government were government a private person, in respect of such injury (including injury government were government a private person, in respect of such injury (including injury resulting in death), loss or damage to any person whomsoever or property, including all claims which may arise under the workmen's compensation act or otherwise.clause 70 reads :arbitration : all disputes, between the parties to the contract (other than those for which the decision of the c.we. or any other person is by the contract expressed to be final and conclusive) shall, after written notice by either party to the contract to the other of them be referred to the sole arbitration of an engineer officer to be appointed by the authority mentioned in the tender documents.4. in support of the contention that the dispute in question did not fall within the scope of clause 70 of the argreement, it was urged that the contract entered into by the appellant was with the president of india and that the damage, if any, caused to the air-craft was to the property of the air force and hence the same cannot be considered as causing any loss to the property of the union government. this is an untenable contention. the government is the owner of the air-craft in question. the armed forces of this country do not form a separate legal entity. the army is only one of the many departments of the government hence the damage to the air-craft has resulted in loss to the government of india.5. the second contention advanced on behalf of the appellant is that the damages in question was not caused while carrying out the terms of the contract and therefore the same does not fall within clause 48(c). this contention again cannot be accepted from the facts set out above, about which there is no dispute, damage to the aircraft was caused while implementing the terms of the contract. we are clear in our opinion that the claim made by the government falls within the scope of clause 48(c) and as there is a dispute between the parties about the sustainability of that claim as well as to the quantum of the loss caused, the dispute falls within the scope of clause (70). this conclusion disposes of the first contention.6. turning now to the second contention, in our opinion, the application under section 5 of the arbitration act, 1940 was a misconceived application. the controversy in this case is whether the dispute in question is covered by the terras of the agreement. in other words the dispute is as to the existence of an agreement to refer disputes of the type with which we are concerned in this case, to arbitration. that being so, the case fell within the scope of section 33 of the arbitration act and not section 5. in view of the erroneous conclusion of the trial court that the air force is a legal entity different from the union government, it proceeded to take the view that the dispute in question is not covered by clause 48(c) and hence did not come within the scope of clause (70). the trial court was under the erroneous impression that the controversy before it fell within the scope of section 5 of the arbitration act. we do not know what its conclusion would have been if it had taken the correct view of the law. the facts disclosed in the application did not confer jurisdiction upon it under section 5. it did not consider the application under section 33. hence in our opinion it illegally exercised its jurisdiction under section 5. under those circumstances the high court was right in converting the appeal into a revision.7. for the reasons mentioned above this appeal fails and the same is dismissed with costs.