judgement:
No. 136 of 1971.
Appeal by special leave from the judgment and order dated August 6, 1970 of the Madhya Pradesh High Court, Indore Bench in Civil Revision No. 415 of 1969 I. N. Shroff, for the appellant.
section V.Gupte, section K. Mehta and K. L. Mehta,for respondent No.1.
Vaidialingam, J. Civil Miscellaneous Petition No. 5801 of 1971, is by the first respondent, is an application under sections 17 and 29 of the (hereinafter to be referred as the Act) to pass a judgment and decree according to the Award of the arbitrator dated August 24, 1971 and to grant interest from the date of the decree, on the amount found payable by the appellant.
Civil Miscellaneous Petition No. 5802 of 1971, by the State of Madhya Pradesh, the appellant in the Civil Appeal, is an application requesting this Court to decline to take the Award dated August 24, 1971 on its file.
Without prejudice to the above prayer, there is a further request made to this Court to set aside or modify the Award in certain respects.
The relevant facts leading up to the filing of the two applications may be adverted to The erstwhile State of Madhya Bharat and entered into a contract with M/s. Saith & Skelton ( P.) Ltd., the first respondent, for the supply and erection of Pen, stocks for Gandhi Sagar Power Station, Chambal Hydel works.
The acceptance of the contract was by tender No. Project/SE/ 235 2522 F/II/25 dated June 5, 1956.
Under the said contract, the first respondent firm was required to supply material for the five penstocks of P.O.R. Jhalwar Road, Railway Station at Rs. 1,570 per M. Ton within the time stipulated, the total quantity being 463.939 M. Tons.
The material was to be transported from Jhalwar Road Railway Station to the works site by the consignee, ,,he Madhya Bharat Government, and the work of erection was to commence on the receipt at the work site of running length of 96 ft. for any of the penstocks.
Clause 21 of the contract provided for any question or dispute, arising under the conditions of the contract or in connection therewith, to be referred to the arbitrators, one to be nominated by the State and the other by the firm The said clause also provided for the matter being referred to an Umpire to be appointed by the arbitrators in case of disagreement between them.
That clause also referred to certain other matters relating to arbitration proceedings.
Disputes arose between the appellant and the respondent firm with reference to the performance of the contract.
The firm intimated the appellant on December 31, 1959 nominating one Shri T. R. Sharma, as an arbitrator under Cl.
21 of the contract and also called upon the appellant to nominate an arbitrator.
The Directorate General of Supplies and Disposals, who were acting as the agent of the Madhya Bharat Government, nominated one Shri G. section Gaitonde, as an arbitrator on behalf of the appellant.
But the said arbitrator resigned his appointment and in consequence on April 26, 1960 one Shri R. R. Desai, was nominated as an arbitrator on behalf of the appellant.
This nomination was also by the Directorate General of Supplies and Disposals.
On September 6, 1960, the two arbitrators appointed one Sri R. C. Soni, as an Umpire.
The two arbitrators disagreed in their views resulting in the matter being referred to the Umpire on October 20, 1961.
According to the appellant, the appointment of Shri Gaitonde, in the first instance and of Shri R. R. Desai, later, as an arbitrator, by the Directorate General of Supplies and Disposals was without any authority from the appellant.
Later on, the Directorate General of Supplies and Disposals again reappointed Shri R. R. Desai as an arbitrator on behalf of the appellant on January 4, 1961.
According to the appellant the appointment of Shri R. C. Sone, as Umpire on September 6, 1960 was not valid.
Accordingly, the appellant filed in the Court of the Additional District Judge, Mandsaur, Civil Miscellaneous Case No. 16 of 1962 under section 5 of the Act, for setting aside the nominations, as arbitrators of Shri T. R. Sharma and Shri R. R. Desai, as well as the appointment by them of Shri R. C. Soni, as the Umpire.
By order dated October 19, 1963, the Addl.
District Judge, Mandsaur held that the appointments of Shri R. R. Desai, as an arbitrator and Shri 236 R. C. Soni, as Umpire, were both invalid and not binding on the appellant.
The firm filed all appeal before the High Court of Madhya Pradesh against the order of the Addl.
District Judge.
This appeal was later oil treated as a Revision and numbered as Civil Revision No. 415 of 1969.
The High Court, by its order dated August 6, 1970 appointed Shri R. C. Soni as the Sole Arbitrator under section 12(2) of the Act and accordingly modified the order of the Addl.
District Judge, Mandsaur.
The appellant filed Special Leave Petition No. 2370 of 1970 in this Court for grant of Special Leave to Appeal against the order of the High Court dated August 6, 1970.
The firm entered caveat.
On January 29, 1971, this Court ranted Special Leave land, by consent of parties, appointed an arbitrator, whose Award is sought to be made a decree of the Court by the respondent in its application C.M.P. No. 5801 of 1971 and is sought to be set aside by the appellant by C.M.P. No. 5802 of 1971.
As the terms of the order passed by this Court are material, it is reproduced below : Special Leave is granted.
The appeal is allowed The appointment of Shri R. C. Soni as the sole arbitrator is set aside by consent of the parties.
Mr. V. section Desai, Senior Advocate, is appointed Arbitrator by consent of the parties to go into all the questions in this matter and make his awar.
The remuneration for the arbitrator would be Rs. 5,000, which will be shared by both the parties equally.
The arbitrator will make his award within three months from today.
The parties will be at liberty 1 to mention for extension of time, for making the award.
G. K. Mitter J, January 29, 1971.
A. N. Ray J." On February 1, 1971 this Court gave directions in the appeal,, in the presence of the counsel for both parties, that the records of the arbitration be called for forthwith and sent to the sole arbitrator Mr. V. section Desai, appointed as per order dated January 29, 1971.
Again on April 30, 1971, this Court,, in the presence of the counsel for both the parties, extended the time for making the Award by four months and also permitted the arbitrator to hold the arbi tration proceedings at Bombay.
The arbitrator gave his Award on August 24, 1971 and filed the same in this Court, the next day.
He also crave notice to the parties of the Making and signing of 237 the Award.
A signed copy of the Award was also sent to both the parties.
The operative part of the Award is as follows : (1) The opponents, the State of Madhya Pradesh will pay to the claimants a sum of Rs. 1,79,653.18 p. for the balance payable to them in respect of the price of supply and erection of the 5 penstocks.
(2) The State will also pay interest on the said amount at 9% per annum simple interest from 7th June, 1958 to the date of decree.
The State will also refund to t,he claimants a sum of Rs. 15,414,19 p. which they have recovered from the claimants as excess railway freight.
V. section Desai, Sole Arbitrator.
" In C.M.P. No. 5801 of 1971, the firm prays for passing a judgment and decree, according to the Award and also prays for grant of interest from the date of decree at the rate of 9% per annum.
On the other hand, the appellant State, in its application C.M.P. No. 5802 of 1971 prays for an order declining to take the Award on its file or in any event to set aside or modify the award in respect of interest granted prior to August 24, 1971 as well as the direction regarding the refund by the appellant of the sum of Rs. 15,414.19 P.
The Award is also sought to be modified on the ground that the award of interest at 9% is very excessive.
The question of pronouncing judgment according to the Award, as provided under section 17 of the Act and which is the prayer in C.M.P. No. 5801 of 1971 will arise only if the prayer to set aside the Award made in C.M.P. No. 5802 of 1971, by the State, is rejected.
Therefore, we will proceed to consider the contentions raised by Mr. 1.
N. Shroff, learned counsel for the appellant, in support of the application C.M.P. No. 5802 of 1971.
Mr. Shroff has raised the following four contentions: (1) The arbitrator had no power to suo motu file his Award, as he has done in this case, and as such no action can be taken on such an Award; (2) This Court is not the Court as contemplated by section 14(2) read with section 2(c) of the Act.
Hence the filing of the Award in ' this Court is illegal and ineffective in law; (3) The arbitrator had no jurisdiction to award interest from a period anterior to the date of the award or reference; and (4) The Arbitrator has committed a manifest error in directing the refund of Rs. 15,414.19 P. when this amount has already been taken into account in arriving at the figure of Rs. 1,79,653.18 P. 238 We will now proceed to deal with these contentions scriatim.
With regard to the first contention, which relates to the validity of the filing of the Award in this Court suo motu, reliance is placed by Mr. Shroff on section 14(2) of the Act.
It is the contention of the counsel that under this section an arbitrator can cause an award to be filed in court only under two circumstances : (a) when a request to do so is made by any party to the ' arbitration agreement or any person claiming under such party; and (b) when the arbitrator is directed by the Court to file the award.
In this case, it is pointed out,, that no such request was made by any of the parties to the arbitration agreement or any person claiming under such party to the arbitrator to file the Award.
It is pointed out that there was no direction by this Court to the arbitrator to file the Award.
Hence it is urged that the filing of the Award suo motu is illegal, as being contrary to the terms of section 14(2) of the Act.
Mr. section V. Gupte, learned counsel for the respondent firm, referred us to section 38 of the Act and pointed out that the scheme of the Act clearly shows that the Award has to be filed in the Court by the arbitrator either suo motu or on request made by the parties to the arbitration agreement or any person claiming under such party or on being directed by the Court.
The counsel pointed out, there is no prohibition in section 14(2) of the Act, against the arbitrator filing the Award in Court suo motu.
The question specifically arose before the Nagpur High Court in Narayan Bhawu vs Dewajibhawu(1).
The High Court held that there is nothing in section 14(2) of the Act, which precludes the arbitrator from filing the Award suo motu and it is not correct to say that the Award should be filed only if the parties make a request to the arbitrator to file the award or make an application to the Court for that purpose.
We are in agreement with this view of the law, especially when there is no prohibition in the Act, particularly in section 14(2) against the arbitrator filing suo motu his Award in Court.
Mr. Shroff referred us to the decision in Parasramka Com mercial Company vs Union of India(2).
From the facts stated in the said decision, it is seen that the arbitrator made his Award and signed the same on April, 26, 1950.
The arbitrator without sending any notice of the making and signing of the Award, sent a copy of the signed Award to the parties.
The appellant therein acknowledged receipt of the said signed copy of the Award by his letters dated 5th and 16th May, 1950; but he filed an application on March 30, 1951 in the Subordinate Judge 's Court for passing a decree in terms of the Award.
An objection was raised by the (1) A I R (2) ; 239 opponent that the application was out of time under article 178 of the Indian Limitation Act, 1908, as not having been filed within 90 days of the date of service of the notice of the making of the Award.
It is also seen that the arbitrator on July 3, 1951 filed the original Award before the Court suo motu.
The Subordinate Judge rejected the application filed on March 30, 1951 as barred by time.
That order was confirmed by the High Court.
This Court, after a consideration of section 14(1) of the Act held that the serving, by the arbitrator on the appellant before this Court of a signed copy of the Award amounted to giving him notice in writing of the making of the Award.
This Court further upheld, as correct, the view of the Subordinate Judge and the High Court that the application filed by the appellant, beyond the period prescribed under article 178 of the Indian Limitation Act, 1908, was barred.
This Court did not express any view regarding the action taken by the arbitrator in filing suo motu the Award and left open the question as follows : ". .
But we make it clear that the other part of the case, namely what is to happen to the award sent by the Arbitrator himself to the court has yet to be determined and what we say here will not affect the determination.
of that question.
Obviously enough that matter arises under the second sub section of section 14 and will have to be considered quite apart from the application made by the company to have the award made into rule of Court.
" Again the question whether a plea of limitation can be raised with respect to the suo matu filing of the award by the arbitrator was left open as.
follows : ".
As to whether, similar objections can be raised in answer to the award filed at the instance of the arbitrator is a question which we cannot go into the present appeal and no expression of opinion must be attributed to us on that point." Therefore, it is clear from what is stated above that in the said decision this Court had no occasion to consider whether an award can be filed suo motu by an arbitrator nor the further question whether such filing should be within the period of limitation provided under the relevant provisions of the Limitation Act.
In the case before us the period of limitation is dealt with under Entry 119 of the Schedule to the .
As the arbitrator in this case made his Award on August 24, 1971 and filed the same the next day, the question of limitation, if any, does not at all arise.
We do not express any opinion whether the period of limitation will apply when the arbitrator files his award Suo 887Sup.
CI/72 240 motu.
As the filing of the Award by the Arbitrator suo motu is legal, the first contention of Mr. Shroff has to be rejected.
The second contention of Mr. Shroff is that this Court is not "Court" as &fined under section 2(c) of the Act, where the Award could be filed.
Section 2 (c) of the Act is as follows : "2.
In this Act, unless there is anything repugnant in the subject or context, (c) "Court" means a Civil Court having jurisdiction to decide the questions forming the subject matter of the reference if the same had been the subject matter of a suit, but does not, except for the purpose of arbitration proceedings under section 21, include a Small Cause Court." According to Mr. Shroff the Award should have been filed, not in this Court, but in the Court of the Addl.
District Judge, Mandsaur, as that is the Court which will have jurisdiction to entertain the suit regarding the subject matter of the reference.
We are not inclined to accept this contention of Mr. Shroff.
It should be noted that the opening words of section 2 are "In this Act, unless there is anything repugnant in the subject or context.
Therefore the expression "Court ' will have to be understood as defined in section 2(c) of the Act, only if there is nothing repugnant in the subject or context.
It is in that light that the expression "Court" occurrmg in section, 14(2) of the Act will have to be understood and interpreted.
It was this Court that appointed Shri V. section Desai on January 29, 1971, by consent of parties, on an arbitrator and to make his Award.
It will be seen that no further directions were given in the said order which will indicate that this Court had not divested itself of its jurisdiction to deal with the Award or matters arising out of the Award.
In fact the indications are to the contrary.
The direction in the order dated January 29, 1971 is that the arbitrator is "to make his Award".
Surely the law contemplates further steps to be taken after the Award has been made, and quite naturally the forum for taking the further action is only this Court.
There was also direction to the effect that the parties are at liberty to apply for extension of time for making the Award.
, In the absence of anv other court having been invested with such jurisdiction by the order, the only concluonsion that is possible is that such a request must be made only to the court which passed that order, namely, this Court.
That this Court retained complete control over the arbitration proceedings is made clear by its orders dated February 1, 1971 and April 30, 1971.
On the former date, after hearing counsel for both the parties, this Court gave direction that the record of 241 the arbitration proceedings be called for and delivered to the Sole Arbitrator Mr. V. section Desai.
On the latter date, again, after hearing the counsel, this Court extended the time for making the Award by four months and further permitted the arbitrator to hold the arbitration proceedings at Bombay.
The nature of the order passed on January 29, 1971 and the subsequent proceedings, referred to above, clearly show that this Court retained full control over the arbitration proceedings.
Mr. Shroff referred us to the fact that in the order dated January 29, 1971, it is clearly stated "The appeal is allowed".
According to him, when the appeal has come to an end finally, this Court had lost all jurisdiction regarding the arbitration proceedings and therefore the filing of the Award should be only in the Court as defined in section 2(c) of the Act.
Here again, we are not inclined to accept the contention of Mr. Shroff.
That the appeal was allowed, is no doubt correct.
But the appeal was allowed by setting aside the order of the High Court and this Court in turn appointed Mr. V. section Desai as the Sole Arbitrator.
All other directions contained in the order dated January 29, 1971 and the further proceedings, as pointed out earlier, indicate the retention of full control by this Court over the arbitration proceedings.
In Ct. A. Ct.
Nachiappa Chettiar and others vs Cf.
A. Cf.
Subramaniam Chettiar(1), the question arose whether the trial eourt had jurisdiction to refer the subject matter of a suit to an arbitrator when the decree passed in the suit was pending appeal before the High Court.
Based upon section 21, it was urged before this Court that the reference made by the trial court, when the appeal was pending, and the award made in consequence of such reference, were both invalid as the trial court was mot competent to make the order of reference.
This Court rejected the said contention and after a reference to sections 2(c) and 21 of the Act held that the expression "Court" occurring in section 21 includes also the Appellate Court, proceedings before which are a continuance of the suit.
It was further held that the word "suit" in section 21 includes also appellate proceedings.
In our opinion, applying the analogy of the above decision, the expression "Court" occurring in section 14 (2) of the Act will have to be understood,in the context in which it occurs.
So understood, it follows that this Court is the Court under section 14(2) where the arbitration Award could be validly field.
The decision in Union of India vs Surjeet Singh Atwal(2) relied on by Mr. Shroff, dealt with a different aspect and therefore, it is not necessary for us to refer to the same.
The above reasoning leads us to the conclusion that the filing of the Award in this Court by the arbitrator was valid and legal.
The second contention of Mr. Shroff will stand rejected.
(1) ; (2) 242 The third contention of Mr. Shroff is that the arbitrator had no jurisdiction to award interest from a period anterior to the date of award or reference.
Before we deal with this contention, it is necessary to refer to the findings of the arbit rator in his Award.
Issues Nos. 6, 7 and 19 frame by the arbitrator and which are relevant on this aspect are as follows: "6 (a) Was the claimant entitled to the payment for supply as well as for erection on the total weight of 463.939 M. tons inclusive of electrodes ? 6 (b) If not, what are the weights on which the price of supply and the erection charges are to be calculated.
What is due to the claimant from the respondent in respect of the supply and erection of the penstocks ? 19.
Are any of the parties entitled to interest and/ or any other relief.
" On issue No. 6(a) the arbitrator found that the firm was entitled to the same weight both for the calculation of price as well as for the price for erection and the said weight was 463.939 M. Tons inclusive of electrodes.
In view of the above finding on issue No. 6(a), the arbitrator held that issue No. 6(b) does not survive.
On issue No. 7 he found that for the price of supply and erection of 463.939 M. Tons at the rate specified in contract, the total price due to the firm comes to Rs. 12,15,520.18P.
It was admitted before the arbitrator that the firm had been paid by the State of sum of Rs. 10,35,867/.
In view of this admission the arbitrator found that the balance payable to the firm towards the price for supply and erection is, Rs. 1,79,653.18 P. On issue No. 19, the arbitrator found that the firm is entitled to interest at 9% per annum on the balance of Rs. 1,79,653.18 P. from June 7, 1958, the date on which the final inspection of the, penstock took place.
The interest was to be paid till the date of the decree.
It is on the basis of the above findings that the arbitrator made the Award, the operative part of which has already been extracted in the earlier part of the judgment.
The direction regarding the payment of Rs. 1,79,653.18 P. is not challenged by the State.
It is only the direction regarding the period from which interest is payable, that is under challenge.
The arbitrator has made the interest payable from June 7, 243 1958, on the ground that it was the date on which final inspection took place and when the amount become payable to the. respondent.
Mr. Shroff referred us to a decision of the Judicial Com mittee and to certain decisions of this Court to the effect that section 34 of the Code of Civil Procedure will not apply to the proceedings before an arbitrator, as he is not a Court and that interest cannot be awarded by way of damages.
He further referred to those decisions in support of his contention that in the absence of any usage or contract, express or implied, or of any provision of law to justify the award of interest on an amount for a period before the institution of the suit, interest anterior to the date of the suit cannot be allowed.
The decisions referred to by Mr. Shroff are Bengal Nagpur Raliway Company Limited vs Ruttanji Ramji and others(1),, Seth Thawardas Pherumal vs The Union of India(2), Mahabir Prashad Rungta vs Durga Datt(3), Union of India vs A. L. Rallia Ram(4), Vithal Das vs Rupchand and others(5) and Union of India vs Bungo Steel ' Furniture Pvt.
Ltd. (6).
It is no doubt true that for awarding interest under the Interest Act, 1939, or under section 34 of the.
Code of Civil Procedure, certain circumstances must exist.
But one of the principles laid down is that interest prior to the institution of a suit can be awarded if there is any provision of a suit can be awarded if there is any provision of law to justify the award of such interest.
In the cases, referred to above, it is seen that there was neither any agreement pleaded for payment of interest; nor was any provision of law entitling the party to recover interest prior to the period of the suit or arbitration proceedings, referred to or relied upon.
Under such circumstances it was held that the arbitrator or a court had no power to award interest prior to the date of the Award.
In Union of India vs Bungo Steel Furniture Pvt.
Ltd. 17)this Court recognised the power of an arbitrator to award interest on the amount of the award from the date of the award till the date of the decree.
According to Mr. Shroff, the power of the arbitrator to award interest is only from the date of the award and not for any period anterior to that date.
In Firm Madanlal Roshanlal Mahajan vs Hukamchand Mills Ltd. Indore(7), the power of the arbitrator, to whom the subject matter of a suit had been referred for arbitration, to award pendente life interest was considered by this Court.
It was held in (1) L.R. 65 I.A. 66.
(2) (3) ; (4) ; (5) [1966] Supp.
S.C.R. 164.
(6) ; (7) ; 244 the said decision that all the disputes in the suit were referred to the arbitrator for his decision.
One of the disputes, so referred, was whether the respondent therein was entitled to pendente lite interest.
h was held that though in terms, section 34 C.P.C. does not apply to the arbitration, it was an implied term of the reference in the suit that the arbitrator was to decide the dispute, according to law, to grant such relief with regard to pendente lite interest as the Court itself could give, if it decided the dispute.
It was further held that such a power of the arbitrator was not fettered either by arbitration agreement or by the Act.
The decision in Seth Thawardas Pherumal vs The Union of India(1) distinguished on the ground that the said decision is silent on the question whether an arbitrator can award interest during the pendency of the arbitration proceedings if all the disputes in the suit including the claim for interest were referred for arbition.
From the decision in Firm Madanlal Roshanlal Mahajan vs Hukamchand Mills Ltd. Indore(2), it is clear that if all the disputes are referred for arbitration, the arbitrator has power to award interest pendente lite, i.e. during the, pendency of the arbitration proceedings.
In the case before there is no controvery that all the disputes including a claim for payment of the amount with interest was referred to the arbitrator.
The arbitrator, as pointed out earlier, found that the firm was entitled to the Payment as price in the sum of Rs. 1,79,653.18 P.
The arbitrator has further found that this amount became payable as balance price for the goods supplied by the firm on June 7, 1958, on which date the final inspection took place.
If that is so, section 61 of the Sat , of Goods Act, 1930 squarely applies and it saves the right of the seller (in this case the firm) to recover interest, where by law interest is recoverable.
Sub section (2) of section 61, which is material is as follows : "61 (2) In the absence of a contract to the contrary the Court may award interest at such rate as it thinks fit on the amount of the 'Price , (a) to the seller in a suit by him for the amount of the price from the date of the tender of the or from the date on which the price was payable.
(b) to the buyer in a suit by him for the refund of the price in a case of a breach of the contract on the part of the seller from the date on which the payment was made." (1) (2) ; 245 in the case before us, admittedly the contract does not pro vide that no interest is payable on the amount that may be found due to any one of them.
if so, it follows that the seller, namely, the firm is entitled to claim interest from the date on which the price became due and payable.
The finding of the arbitrator in this case is that the price became payable on June 7, 1958.
As held by this Court in Union of India vs A. L. Rallia Ram(1), which related to an arbitration proceeding, under sub section (2) of section 61, in the absence of a contract to the contrary, the seller is eligible to be awarded interest on the amount of the price for the goods sold.
On this principle it follows that the award of interest from June 7, 1958 is justified.
If the contention of Mr. Shroff that under no circumstances anarbitrator can award interest prior to the date of the Award, or prior to the date of reference, is accepted, then the position will be very anomalous.
As an illustration, we may point out that there may be cases where the only question that is referred to the arbitrator is whether any of the parties is entitled to claim interest on the amount due to him from a date which may be long anterior to the date of reference.
When such a question is referred to the arbitrator, naturally he has to decide whether the claim for award of interest from the date referred to by the parties is acceptable or not.
If the arbitrator accepts that claim, he will be awarding interest from the date which will be long prior even to the date of reference.
Therefore, the question ultimately will be whether the dispute referred to the arbitrator included the claim for interest from any particular period or whether the party is entitled by contract or usage or by a provision of law for interest from a particular date.
Mr. Shroff further contended that the award of interest at 9% per annum is exorbitant.
The short answer for negativing this contention is that it is seen from the claim statement filed by both the appellant and the respondent firm that each of them claimed for payment of the amount, due to them with interest at 12% per annum under section 61 of the .
Therefore, it follows that the rate of interest awarded is not excessive.
As we have already held that the arbitrator has got power in this case to award interest from June 7, 1958 at the rate specified by him, the third contention of Mr. Shroff will have to be rejected.
The last contention of Mr. Shroff relates to the direction regarding the refund of Rs. 15,414.19 P. The contention is that this amount has already been taken into account by the arbitrator when he directed the payment of Rs. 1,79,653.18 P. Mr. Shroff (1) ; 246 was not able to satisfy us that the amount, directed to be paid as refund, has been already taken into account in the amount fixed as the balance price payable by the State.
Therefore, this contention also will have to be rejected .
Now that we have rejected all the contentions of Mr. Shroff raised in C.M.P. No. 5802 of 1971, it follows that the prayer asked for,therein cannot be granted.
Now coming to C.M.P. No. 5801 of 1971, filed by the firm, that application is accepted and a judgment and decree are passed on the basis of the Award as against the State is favour of the respondent firm.
The appellant State will pay to the respondent firm a sum of Rs. 1,79,653.18 P. with 9% per annum simple interest from June 7, 1958, till the date of the decree and thereafter at 6% till the date of payment.
The appellant State will also refund to the respondent firm a sum of Rs. 15,414.19 P. which they have recovered from them as excess railway freight.
In the result, C.M.P. No. 5802 of 1971 will stand dismissed with costs.
C.M.P. No. 5801 of 1971 is allowed with costs.
A. decree as stated above will issue.

summary:
Disputes having arisen between the appellant and the respondent with reference to the performance of a contract which provided for arbitration, steps were taken to appoint arbitrators and an umpire.
The appellant filed a petition in the District Judge 's Court, having jurisdiction over the matter, for setting aside the nominations.
When the matter came up to this Court in appeal, this Court appointed a sole arbitrator with consent of the parties.
Thereafter in the presence ' of counsel for both parties this Court gave directions in the appeal that the arbitration records be sent to the sole arbitrator, and later extended the time for making the award, and gave directions regarding the venue.
The arbitrator gave his award, directing the payment of a certain sum by the appellant to the respondent with simple interest at 9% from a date anterior to the reference, and filed the award ip.
this Court 'the next day.
The respondent filed a petition for passing a decree in terms of the award but the appellant opposed the petition.
On the questions : (1) Whether the arbitrator had no power suo motu to file his award; Whether the award should not have been filed in this Court as it is not the Court contemplated by sections Z((4) and 14(2) of the ; and (3) Whether the arbitrator had no jurisdiction to.
award the interest from a date anterior to the date of award or reference, HELD : (1) There is nothing in section 14(2) of the Act which precludes the arbitrator from filing the award suo motu and it is not correct to say that the award should be filed only if the parties make a request to the arbitrator to file it, or make an application to the Court for that purpose.
The arbitrator having filed the award the next day after making it, no question of limitation arises.
[239 G B] Narayan Bhawu vs Dewajibhawu, A.I.R. 1945 Nag. 117, approved.
(2) The expresion 'Court ' occurring in section 14(2) of the Act will have to be understood in the context in which it occurs, because, the definition of the word in section 2(c) applies only when there is nothing repugnant in the subject or context.
The word 'Court ' would include 'an appellate court ' and the word 'suit ' would include 'appellate proceedings '.
Merely because the order of this Court appointing the sole arbitrator stated 'the ,appeal is allowed ' it is not as if this Court had lost all jurisdiction regarding the arbitration proceedings.
The various directions given by this Court indicate that this Court retained full control over the arbitration proceedings.
Therefore this Court is the Court under section 14(2) where the arbitration award should be validly filed.
[240 E. H; 241 B D] 234 Ct. A. Ct.
Nachiappa.
Chettiar & Ors.
V. Ct.
A. Ct.
Subramaniam Chettiar; , , referred to.
(3) In the present case, all the disputes including the claim for the payment of interest had been referred to the arbitrator.
The contract does not provide that no interest was payable on the amount that may be found due.
Therefore the respondent was entitled, under section 61 (2) of the , to claim interest from the date on which the price became due and payable.
The arbitrator had found that the price had become payable from a date anterior to the date of the award.
There fore, the award of interest from the anterior date was justified.
The award of interest at 9% 'is also not exorbitant because the parties themselves claimed interest at 12%, [245 A G] Union of India vs A. L. Rallia Ram, ; and Firm Madanlal Roshanlal Mahajan vs Hukumchand Mills Ltd. Indore; , , followed,


judgement:
Appeal No. 2172 of 1968.
Appeal from the judgment and order dated August 10, 1967 of the Delhi High Court in Letters Patent Appeal No. 97 D of 1965.
Frank Anthony, K. B. Rohatgi and P. Parameswara Rao, for the appellant.
Jagadish Swarup, Solicitor General of India and section P. Nayar.
for the respondent.
451 The Judgment of the Court was delivered by Beg, J.
This is an appeal by grant of a Certificate of the Delhi High Court under Article 132 read with Article 133(1)(b) and (c) of the Constitution.
The Appellant had filed a petition under Article 226 of the Constitution for quashing an order dated 10 3 1960 and had prayed for a consequential order also in the nature of a mandamus.
Information of the impugned order (Annexure 'C ' to the petition), given to the petitioner, reads as follows "The Union Public Service Commission have in pursuance of Rule 5 of the Central Information Service Rules, 1959, recommended Shri P. B. Roy, at present officiating as Editor in the Publications Division, for appointment, in a substantive capacity, to Grade III of the service at its initial constitution.
Shri Roy is informed that the President has been pleased to post him as an Assistant Editor in the Publications Division with immediate effect".
Those relevant facts, preceding and following the impugned order, which are admitted by both sides may now be mentioned.
In 1955, the post of Editor, Publications Division, in the Department of Information and Broadcasting of the Government of India (hereinafter referred to as ',the Department '), was advertised.
The appellant, who had applied for the post, was selected by the Union Public Service Commission, and, on its recommendation, was offered a temporary post of Editor in the Publications Division of the Department on an initial salary of Rs. 720 per month in the scale of Rs. 720 40 1000 together with the usual allowances.
The material terms and conditions of this employment were: (i) The post is to be gazetted Class I; (ii) The temporary post was sanctioned upto 28 2 1957 but was likely to continue; (iii) Shri Roy (the Appellant) will be governed by the Central Civil Services (Temporary Service Rules) and other Rules applicable to temporary Govt.
servants of his category; (iv) He was to be on probation for 6 months which may be extended at the discretion of the appointing authority.
The Appellant had reported for duty on 1st August, 1956, as directed. 'On 27 3 1957, the Appellant,s probation was extended 452 by three months.
Immediately thereafter, on 28 3 57, the Appellant 's services were terminated under Rule 5 of the Central Civil Services (Temporary Service) Rules 1949, (Annexure 'D ' to the Rejoinder Affidavit of 20th February, 1964).
On 5 3 1957, the Appellant made a representation against this termination of his service (Annexure 'B ' to the Rejoinder Affidavit).
On 27 4 1957 in response to this representation, the above mentioned termination to the Appellants service was rescinded(Annexure 'F ' to the Re joinder Affidavit).
On 28 4 1958, the President was pleased to terminate the probationary period of the.
Appellant and permitted him to continue in his, post in a temporary capacity (Annexure 'B ' to the Affidavit supporting the Petition), On 16 2 1959, the President of India, in exercise of powers conferred by the Proviso to Article 309 of the Constitution of India, promulgated the Central Information Service Rules, 1959 (hereinafter referred to as the Rules), which came into force on 21 2 1959.
These rules were meant for the creation of a Central Information Service with prescribed grades and their strengths.
Entry into this service was open to "departmental candidates" by a procedure laid down in Rule5 for the initial constitution of the service.
In accordance with this procedure, the Appellant was required to appear before a Selection Committee on a given date, and, after selection, he was posted by the impugned order as indicated above.
On 11 31960, the Appellant assumed charge of the post thus assigned to him on the recommendation of the Union Public Service Commission.
The Appellant then made a representation, dated 11 3 1960 (Annexure 'E ' to the Rejoinder Affidavit), against his appointment in Class II grade III post.
He made other similar representations after that.
His last representation was made on 25 8 1962.
the Appellant received a communication dated 10 12 1962 forward ing extract of an order dated 26 11 1962 which said : "The representation from Shri P. B. Roy has been carefully considered in the Ministry.
All relevant facts were fully taken into account, by the Departmental Promotion Committee, before drawing up the recent panel of Grade III officers considered suitable for promotion to Grade II.
Shri Roy may be informed accordingly".
The Appellant, treating this as the rejection of his last representation, filed his petition on 11 1 1963 which was allowed by a learned Judge of the Punjab High Court, sitting on the Circuit Bench at Delhi.
A Letters ' Patent Appeal against this decision had been allowed by a Division Bench of the Delhi High Court which then granted a certificate on 12 8 1968 for leave to Appeal primarily because it held that the required test relating to valuation of the subject matter had been satisfied.
453 The learned Judge who had initially heard the petition had pointed out that the representation of the Appellant was first rejected on 29 7 1960 and that it did not matter that the petitioner had continued making subsequent representations.
The learned Judge had noticed the explanation that the petitioner could not approach the Court as he was admitted to a Tuberculosis Clinic in June,. 1961.
The learned Judge, having found that this was not sufficient to explain the delay between 29 7 1960 and June 1961 was disposed to reject the petition on the ground of laches.
But, in view of the decision of the majority of the Full Bench of the Punjab High Court in section Gurmej Singh vs Election Tribunal, Gurdaspur(1), the delay in filing the petition was overlooked on the ground that, after the admission of a Writ Petition and hearing of arguments, the rule that delay may defeat the rights of a party is relaxed and need not be applied if his case is "positively good".
The learned Single Judge had come to the conclusion, on the facts stated above, that the petitioner 's case would be governed by the decision of this Court in Moti Ram Deka & Ors.
vs General Manager, North East Frontier Railway (2 ) , as the petitioner 's prospects and emoluments were adversely affected by the impugned order.
The learned Judge thought that the mere fact that the Department was reorganized and that the petitioner was to be fitted into an appropriate category by the procedure laid down in Rule 5 did not take away the effect, that is to say, the loss of his emoluments, of the procedure to which the petitioner had been subjected.
This view implied that article 311 of the Constitution was attracted by the case despite the above mentioned creation of the Central Information Service by the rules.
The Division Bench which heard the Appeal of the Union of India was not inclined to interfere with the discretion of the learned Single Judge in rejecting the objection to the petition on the ground of delay.
We too will not enter into this question which was not argued before us.
The Division Bench, after reviewing facts ' leading to the absorption of the Appellant into a newly constituted Central Information Service, in accordance with the procedure laid down in Rule 5 mentioned above, held that the "News and Information Cadre" of the Department, in which the Appellant was initially appointed, had been superseded by the cadres and grades constituted by the rules of the new service.
It overruled the contention of the Petitioner that the effect of the rules was merely to transfer employees in existing posts to corresponding posts with new designations.
It held that the Rules did create an altogether new service.
It pointed out that the process of entry into the new service was of (1) [1964] P.L.R. p. 589.
(2) A.T.R. 1964 S.C. P. 600.
454 selection of each individual candidate after an examination of his individual record and qualifications by a Selection Committee be, fore which he appeared so that there could be no automatic fitting into some corresponding appropriate post of a predetermined class and grade.
The rules and process for the constitution of the new service did not guarantee the class or grade or emoluments enjoyed by any candidate in a cadre in which he served prior to the setting up of the new service.
It, therefore, held that no question of demotion or reduction in rank, without observing the procedure laid down in article 3 1 1 of the Constitution, arose at all in the instant case.
Mr Anthony, appearing on behalf of the Appellant, has assailed the correctness of the decision of the Division Bench of the Delhi High Court on five grounds.
We will take up and consider each of these seriatim.
Firstly, it is contended that the Division Bench had erred in allowing an affidavit to be filed on 26 6 1967 before it, without affording an opportunity to the Appellant to repel its contents by filing a counter affidavit.
It was urged that the result was that an altogether new case, neither argued before nor referred to by the learned Single Judge, had been allowed to be raised.
This ground is no doubt mentioned among the grounds on which a certificate of the fitness for an appeal to this Court was sought.
The Judgment of the Division Bench mentions that, in the course of arguments, the question arose whether the post of Editor in the Publications Division was abolished or had ceased to exist.
It appears that an affidavit was then allowed to be filed before the Division.
Bench on behalf of the Union.
of India in which it was stated that two posts of Editors in the scale of Rs. 720 40 1000 in the Publications Division had ceased to exist as a consequence of the inclusion of two posts in the revised grade of Rs. 700 40 1100 50/2 1250 with effect from 1 7 1959 in the Central Information Service constituted from 1 3 1960.
There is nothing in the Judgment or anywhere else to show that the petitioner had asked for any opportunity to controvert any statement made in the affidavit dated 26 7 1967 and had been denied that.
The case and the contention on behalf of the Appellant have been that the new posts in the services are really old posts in a new garb.
This raised what was primarily a question of law, depending for decision upon an interpretation of the relevant rules of which the Court takes judicial notice.
The rules certainly did not provide for the continuance of any ex. cadre posts outside the new service introduced by the rules.
Facts stated in the Affidavit of 26 7 1967 could have some bearing on the question whether there were two posts in the revised scale which could be considered as corresponding posts.
They could, if they had 455 any effect on the respective stands, perhaps help the Appellant 's case that there was nothing more than a re designation of posts with same duties and corresponding scales.
And, this seems to explain why there is nothing to show that the Petitioner Appellant asked for an opportunity to meet any allegation made in the affidavit of 26 7 1967 filed on behalf of the Union.
Moreover, what the fresh affidavit contained about the dis appearance of the temporary post given to the Petitioner in 1956 before the Rules came into force flowed logically from the order of Petitioner 's initial appointment in a temporary post which was to continue only upto 28 2 1957, unless its life was shown to have been extended for some definite or indefinite period.
The Petitioner had not averred anywhere that the post was continued beyond 28 2 1957 for any period by any order or rule.
Indeed, the very argument advanced on behalf of the Appellant, that his initial post merged in another corresponding post, implied that the post to which he was initially appointed at least lost its identity or could not be deemed to continue without a transmutation.
The question whether the constitution of the Central Information Service did or did not involve fresh appointments to new posts but was simply an automatic process of transmutation by the pooling together of existing incumbents of certain posts to form a new service, as the appellants alleged, was already the subject matter of assertion made in the Rejoinder Affidavit of the Petitioner and counter assertions in a reply filed to the Rejoinder on 2 4 1964.
The affidavit of 24 6 1967 did not introduce anything new but only clarified the position still more.
We find no force in the first objection.
Secondly , it is contended that the impugned order constitutes.
on the face of it, a reduction in rank of the petitioner Looking at the communication dated 10 3 1960, set out above, we find nothing ,there to indicate that the petitioner had been demoted as a measure of punishment.
To hold, as it was suggested that we should, that the procedure laid down by Rule 5 was adopted as a cloak to cover up an intended reduction in rank and emoluments of an officiating Editor, by appointing him in a permanent substantive capacity of a grade, carrying lesser emoluments in the new service, would necessitate going behind the order 'of 10 3 1960.
At any rate, on the face of it, the order discloses no such devious action against the Appellant.
Thirdly, it was contended that the impugned order violates article 14 and 16 of the Constitution inasmuch as it places an employee who was serving as an Editor in a post of lower grade with less emoluments whereas no such result had followed in the case of any other employee in the Information and Broadcasting 456 Department.
We are unable to see how an order which has the effect of terminating an officiating appointment, in which the petitioner had no right to continue, and which gives him a fresh appointment, with a different designation but permanent tenure and prospects, constitutes a violation of either article 14 or 16 of the Constitution simply because the process which resulted in such an order did not have a similar effect upon the position or rights of any other servant in the Department.
Indeed, the Selection Committee had, apparently after taking into account the special features of the petitioners individual case, recommended the maximum pay, in the class and grade of the post given to him, and the petitioner got this exceptional pay.
Even his prospects improved to the extent that from the precarious position of a temporary servant he had moved into a permanent service.
It could not be definitely stated that his position had worsened on the whole.
He was at least no longer subject to the hazards of temporary employment which could be terminated by a month 's notice at any time.
The results of applying Rule 5 to the facts of individual cases could not be expected to be identically similar in all cases.
All candidates were subjected to the same process or pro cedure contemplated by Rule 5.
It is not the Appellant 's case that the Selection Committee did not function honestly or that its proceedings.
were vitiated by any defect in its constitution or of any bias on its part or any unifairness or inequality of the test applied in judging the merits of the Appellant as against other candidates.
The alleged defect with the material said to have been used by the Committee is another matter which we will consider last.
Fourthly, it was urged that Rule 5 mentioned above is itself void for conflict with the provisions of Article 311 and 14 and 16 of the Constitution.
It was urged that Rule 5 permits violation of article 311 of the Constitution inasmuch as it enables that to be done indirectly which could not be, done directly.
The Rule reads as follows : 5.
INITIAL CONSTITUTION OF THE SERVICE: (1) The Commission shall constitute a Selection Committee with the Chairman or a Member of the Commission as President and not more than three representatives of the Ministry of Information and Broadcasting as members, to determine the suitability of departmental candidates for appointment to the different grades and to prepare an order of preference for the initial constitution of the service: 457 (2) On receipt of the Committee 's report the Commission shall forward its recommendations to the Government and such recommendations may include a recommendation that a person considered suitable for appointment to a grade may, if a sufficient number of vacancies are not available in that grade, be appointed to a lower grade; (3) Vacancies in any grade which remain unfilled after the appointment of departmental candidates selected under sub rules (1) and (2) above shall be filled by direct recruitment through the Commission.
Rule 3 indicates that appointments to the newly created ' service could take place either by selection under Rule 5 or by direct recruitment with which we are not concerned here.
The grades and the fixation of an authorized strength of each grade are provided for by Rule 4.
Only posts in the first 3 grades are classified as Class I (Gazetted) posts.

dataset_name: IN-Abs

summary:
The appellant was holding a temporary post of Editor in the Publications Division of the Department of Information and Broadcasting.
The temporary post was sanctioned upto 28 2 1957.
On 16 2 1959, the President of India, in exercise of the powers conferred by the proviso to article 309 of the Constitution, promulgated the Central Information Service Rules, 1959.
These Rules were meant for the creation of a Central Information Service with prescribed grades and strengths, and entry into the service was open to departmental candidates according to r. 5 for the initial constitution of the service.
The appellant was chosen by the Selection Committee and was posted as an Assistant Editor.
He challenged the order.
A single Judge of the High Court allowed the petition.
On appeal, in the course of arguments, the question arose whether the post of Editor was abolished or had ceased to exist and the respondent was allowed to file an affidavit stating that the post of Editor had ceased to exist.
The Division Bench then held that there was no question of demotion or reduction in rank and hence that article 31 1 was not applicable.
In appeal to this Court, it was held (1) The additional affidavit filed by the respondent did not introduce anything new but only clarified the position.
[455 E] (a) There was nothing to show that the temporary post of Editor in which the appellant was initially appointed had been continued beyond 28 2 1957 for any period.
[455 C] (b) The question whether the constitution of the Central Information Service involved fresh appointments to new posts or its effect was merely to transfer existing employees to corresponding posts with new designations was already before the court.
[455 D E] (c) The appellant himself never asked for any opportunity to meet any allegation in the additional affidavit.
[454 F G] (2) There is nothing to indicate that on the face of the impugned order, that the appellant had been demoted as a measure of punishment.
[455 F G] (3) it could not be held that the order, which had the effect of terminating an officiating appointment in which the appellant had no right to continue and which gave him a fresh appointment with a different designation, 'out permanent tenure and prospects, constituted a 450 violation of either article 14 or 16, simply because the process which resulted in such an order did not have a similar effect upon the position or rights of any other person in the Department; especially when, after taking into account the appellant 's individual case, the Selection Com mittee recommended the maximum pay in the class and grade of the post given to him.
[456 A C] (4) (a) The new rules had the effect of constituting a new service with a fair and reasonable procedure for entry into it.
, Such a procedure could not be characterized as a device to defeat the provisions of article 311 or a fraud upon the Constitution simply because the result of subjection to the process of appraisement of the merits of each candidate may not meet the expectations of some candidates.
[457 F G] (b) Article 311 afford , a reasonable opportunity to defend against threatened punishment to those already in Government service.
Rule 5 of the Central Information Service Rules provides a method of recruitment or entry into a new service of persons who, even though they may have been serving the Government had no right to enter the newly constituted service before going through the procedure prescribed by the rule.
The fields of operation of article 311 and r. 5 are quite different and distinct.
[457 G H; 458 A B] (c) The definition of 'departmental candidates ' in r. 2(b) was meant only as an aid in interpreting r. 5 and was not intended to operate as a fetter on the functions and powers of the Selection Committee.
It does not require that all persons falling within the definition of 'departmental candidate ' should be placed in a single class, Under r. 5 the Selection Committee could assign different grades to the departmental candidates.
The post actually held by the appellant before his selection for appointment to the newly constituted service did not automatically or wholly determine the position of a departmental candidate who offered himself to the process of appraisement of his merits by the Selection Committee to be made on the totality of relevant facts.
That Committee was presided over by the Chairman or a Member of the Union Public Service Cornmission and had officials of the Department on it who were in a position to correctly evaluate the appellant 's merit 's and the weight to be attached to his confidential records.
[459 B H] (5) The appellant 's allegations of mala fides and that he was the victim of the prejudice and machinations of an (unnamed) officer in the Transport Ministry, could not properly be tried in writ proceedings and without impleading that official.
[460 F G]


judgement:
o. 1067 of 1971.
Appeal by special leave from the judgment and order dated October 30, 1970 of the: Delhi High Court in F.A.0.
(O.S.) No. 40 of 1970.
N. A. Palkhivala, D. Mukherjee, R. H. Dhebar and A. J. Rane, for the appellants.
V. M. Tarkunde, G. L. Sanghi, B. R. Agarwala and Janendra Lal, for respondent No. 1.
A. K. Sen, G. L. Sanghi and B. R. Agarwala, for respondent No. 2.
The Judgment of the Court was delivered by P. Jagammohan Reddy, J.
This appeal is by special leave.
The question for consideration is whether there is a binding, valid and concluded contract between the appellants and the respondents.
On an application filed by the respondents under section 20 of the Arbitration Act a single Judge of the Delhi High Court directed the appellants to file the arbitration agreement to refer the disputes between the parties arising under the contract to arbitrators.
An appeal against that order to a Division Bench was dismissed.
In order to understand the scope of the controversy, a few facts may be stated.
On the 21st March 1968, a notice of Global Tender No. 1 of 1968 was issued by the President of India, therein referred to as the Government of India, Ministry of Railways (Railway Board) proposing to sell 80,000 tones of surplus released serviceable and scrap rails, as per details given in the schedule thereto, to established buyers abroad or their accredited agents.
It invited offers in respect thereof to be addressed to the President of India and sent to Shri R. No. Mubayi, Director, Railway Stores, Railway Board.
With this notice were enclosed the general conditions of tender, special conditions of tender, instructions to tenderers, including proforma for performance guarantee and deed bonds as in clauses 4A and 4B, shipping terms and schedule of stocks available as on 1st March 1968.
In the general conditions the seller was defined to mean the President of India acting through the Director, Railway Stores, Railway Board, unless the context otherwise provided.
The delivery F.O.B. (Free an Board /F.A.S. (Free Alongside Ship) invoices and freight were dealt with in clause 9.
The default clause in clause 11 provided that where a buyer fails to execute the contract the seller was to have power under the hand of the Director, Railway Stores, Railway Board, to declare the contract at an end 439 at the risk and cost of the buyer.
The special conditions of tender dealt with prices, quotations, payments, terms of shipment, weighment, basis of sales and handling at ports, force majeure, arbitration, legal jurisdiction, acceptance of offers and title and risk.
In the instructions to tenderers, the tenderers were requested to quote their highest offer indicating the price per metric tonne inclusive of export incentive of 5% of F.O.B. value currently applicable as guarantee by the Government of India which will always be to, the sellers benefit for handing over of the rails F.O.B. docks/F.A.S./F.O.B. Indian Port or C.I.F. destination port.
The tenderer was required to offer comments clause by clause on the 'general conditions of tender ' and the 'special conditions of tender ' either confirming acceptance of the clauses or indicating deviation therefrom, if any.
It was further provided that the contract will come into force from the date the buyers ' letter of credit is accepted by the sellers ' nominee.
In 4A of these instructions the proforma deed bond was given which was to be signed by the tenderer and the acceptance was to be signed for and on behalf of the President of India by the person designated for that purpose.
Similarly, para 4B. gave the proforma performance guarantee bond to be addressed to the President of India executed by the tenderer and accepted for and on behalf of the President of India by the ,person so designated.
The terms and conditions also set out the shipping terms in detail, though a few of them were also mentioned in the special conditions under the headings Shipment, Terms of Shipping and Receiving Notice.
It appears that the terms and conditions enclosed with the tender notice annexed to the petition filed in court were not full and complete.
Consequently the appellant has annexed a true copy of the enclosures with the special leave petition and prayed that this may be admitted in evidence.
As there was no dispute in respect of the contents thereof, we have allowed this prayer because without them it is not possible to arrive at a just conclusion.
Pursuant to this tender notice, the respondents, by their letter, exhibit 'B ', dated 21 5 1968, offered to buy 80,000 tonnes of rails at $45.1 per tonne F.O.B. Indian Ports on the term and conditions set out therein.
In reply thereto, by a letter dated 25 5 1968, the Dy. Director, Railway Stores, Railway Board, P.C. Oak in para 1 (6) categorically.
stated by reference to para 14 of the conditions of the letter of the respondents that as shipping terms have finan cial implications they were requested to indicate with reference to the tender which particular clauses they desire to re negotiate and settle.
In para 2 it was stated that the offer of the respondents was not addressed to the President of India as required under clause 1(3) of the Instructions to the Tenderers and, therefore, the Respondents were required to confirm that their offer was deemed to 'nave been addressed to the President of India and ' is 440 open for acceptance on behalf of the President, it was further stated in para 4 that they should send the reply addressed to the President of India through the Director of Railway Stores, Railway Board covering all the points indicated therein, to reach them not later than 28 5 1968.
No reply was, however, received by the time indicated in the letter of the appellants and while so stating another letter was addressed to the Respondents on 3 6 68 by C. Parasuraman for Secretary, Railway Board, seeking further clarification in respect of items Nos. 26 and 27 of the offer contained in the aforesaid letter of the Respondents dated 21 5 1968.
There were also two other clarifications in respect of the weight of the tonne for which $45.1 was quoted and the option to transfer the contract in the name of the foreign principles which it was stated, could not be agreed to straightaway unless and until they knew the names of the foreign principles and their willingness to enter into a legal binding guarantee of all the terms and conditions of the contract.
The Respondents wrote subsequently to the Director, Railway Stores on the 15th June, 29th June, 8th July and the three letters on 10th July and one on the 15th July 1968, some of which were written after a discussion with the Director of Railway Stores in the presence of the Director of Finance, Mr. Datta.
On the same day as the letter of 15th July was sent by the Respondents, P. C. Oak signing for the Secretary of the Railway Board, addressed the following letter of acceptance, No. 68/RS(G)/709/10 to the Respondents "Subject: Tender No. 1 of 1968 for Export sale of used re rollable and repayable steel rails.
Reference: Your letter Nos.
Nil dated 21 5 68, 15 6 68, 29 6 68, 8 7 68, 10 7 68 and 15 7 68.
Kindly be advised that your offer (at $39 per long ton F.O.B. Indian Port for export and Rs. 458/ per long ton for indigenous consumption) with terms and conditions referred to in your above letters is hereby accepted.
Formal contract will be issued shortly.
Kindly acknowledge receipt.
Yours faithfully, Sd./ P. C. Oak.
for Secretary, Railway Board".
Thereafter, it is alleged that several draft agreements were.
exchanged regarding which there is a dispute but ultimately be, fore us it is not contested that a draft agreement, which the appellants say is the 5th draft, but according to the Respondents is 441 the final draft, was handed over to the Respondents by P. C. Oak on 27 8 68 but this, however, was not signed.
Clause 2 of this draft agreement states.
that the contract has been concluded by the issue of seller 's letter No. 68/RS(G)/709/10 dated 15 7 68 to the buyers; that the term of the contract shall be three years from 1 11 1968 to 31 10 1971; that the buyers reserve the right to act upon the contract any time before 1 1 1 68 and start inspection and take delivery of the goods but this will not in any manner effect the terms of the contract.
Even thereafter there was further correspondence between the parties.
By letter dated 18 9 68 the Respondents wrote to the Director, Railway Stores, agreeing to several other matters to be included in the final draft and requested him to issue the 'final.
contract ' without delay.
On the 21st September 1968 the Respondents again wrote to the Director, Railway Stores, complaining that the information provided by the various Railways was not complete and requested him to contact the various Railways and obtain the required information as soon a , possible.
After the receipt of this letter the Joint Director, Railway Stores (G), wrote to the general Manager (S), All Indian Railways with a copy to the respondents calling for the required information.
In that letter the Joint Director stated thus : ". the Board have finalized an export cum internal sale contract with M/s. N. K. (p) Ltd., New Delhi for a period of 3 years, entitling them to export stock of such surplus rails available with the Railways.
The de tailed terms and conditions of the contract will be apprised to you when finalized".
On the 23rd October 1968, C. Parasuraman, for Secretary.
, Railway Board, replied to the letter of the Respondents of the 21st September 1968, stating that it was not correct that their officehas assured them that it would arrange to get the missing details from the concerned C.O.Ss.
After this letter two other letters were written by the Respondents to the Director, Railway Stores, dated 7th and 23rd November 1968.
In the first letter it was stated thus "In pursuance of your invitation we submitted our tender for purchase of used relayable and re rollable steel rails on 21 5 68.
After some negotiations the terms of the contract were finalized and the Secretary, Railway Board by his letter No. 68/RS(G)70910 dated 15 7 68,.
accepted our offer and concluded the contract.
We were informed that the formal contract will be issued shortly.
A draft of the formal contract was handed over to us on 27 8 68.
In our letter of 18 9 68, some agreed terms were set out which had to be incorporated in the formal contract.
Since the acceptance of our 442 offer we have made all arrangement for the sale of the material We beg to inform you that out of the total quantity of 88,936 tonnes of Rails already offered to us for our approval we approve and shall take delivery of 53,807 Tonnes as per list enclosed herewith.
The above quantity may kindly be reserved for us and arrangement be made for their delivery in terms of the contract.
" In the second letter, the respondents complained that though the contract for sale of used rerollable and relayable steel rails was concluded on 15 7 68 they regretted that they had not received the formal contract so far and requested that it should be sent without any further delay.
In the last paragraph of that letter, the Respondents complained that they came to know that some of the Railways who were.
holding storks are selling the steel rails which they have no right to do and requested them to stop such sales.
To this, P. C. Oak for Secretary, Railway Board, replied "Kindly refer to correspondence resting with your letters dated July 26, 1968, 18th September 1968 and No. RB/Rails/68/1/114, dated 2nd December 1968.
Your contention contained in your letter No. RB/Rails/ 68/1 dated 23 11 68 that the Railway Board is not authorized to sell rails ' to other parties because of their having concluded a contract with you is factually incorrect.
No doubt, letter No. 68/RS(G)/709/10 dated 15 7 68 indicated an intention to enter into a con tract with you, but subsequent to this, discussions had been held with you over a number of sittings on 20 7 68, 12 8 68, 26 8 68, 27 8 67 culminating in your letter dated 18 9 68.
This would amply indicate that no agreement had been reached on vital terms and conditions, and the question of the existence of a concluded contract does not arise '.
. " The Respondents replied to this letter by their letter dated 25 1 1969 expressing surprise and contesting the stand taken by the Railway Board.
In the petition of the Respondents filed in Court after setting out the relevant correspondence leading upto the letter of acceptance of P. C. Oak dated 15th July 1968, 'it was stated that that letter was a definite acceptance of the offer and constitutes a binding and valid contract between the parties.
With respect to the draft agreement of the 27th August 1968 handed over to the Respondents embodying the agreement between the parties, the averment was that the then Acting Director of Railway Stores desired certain additional terms to be embodied in the terms that were agreed to.
The additional terms were agreed to by the plaintiffs (Respondents) by their letter to the 443 Director, Railway Stores, dated 18 9 1968.
In para 16 it was further alleged that after the letter of acceptance by the appellants the then Acting Director of Railway Stores and the Director of Finance proposed to the plaintiffs that the price offered by them should be increased or in the alternative certain alterations be made in the agreed terms, but the plaintiffs having justly refused to do so, the 2nd defendant (C. Parasuraman) falsely wrote to the plaintiffs on 15 1 1969 that no concluded contract had taken place and that the Railway Board was, therefore, not precluded from selling rails to other parties.
The appellants in their written statement, raised a prelimi nary objection, namely, that the petition was misconceived as there was no arbitration agreement between the parties and so the question of enforcing the arbitration clause in the alleged contract did not arise.
It also reiterated its stand earlier taken that the letter dated 15 7 68 written by Oak on behalf of the Secretary, Railway Board, was not a letter of acceptance of the offer of the Respondents so as to amount to a concluded contract binding on the Union of India nor could it be construed as such in view of the mandatory provisions of Article 299 of the Constitution of India.
The contention was that unless and until a formal instrument of contract was executed in the manner required by Article 299 of the Constitution and by the relevant notifications, there would not be a contract binding on the Union of India and at any rate no such agreement was entered into as it was.
alleged that though interviews had taken place at various times between the plaintiffs and the several officers of the Railway Board, no agreement had been reached on vital terms and conditions.
Two submissions were urged on behalf of the appellants, namely : (1) that apart from the contention relating to article 299 of the Constitution, there was no concluded contract between the parties, because (a) the essential terms were not agreed to between them on the date when the acceptance letter was issued by P. C. Oak on 15 7 68, and (b) even it there was an acceptance as alleged, that acceptance was conditional upon a formal contract being executed by the appellants; (2) that the three mandatory requirements of article 299 of the Constitution for a valid and binding contract made in exercise of the executive power of the Union have not been complied with namely, (a) that the contract was not expressed to be in the name of the President, nor (b) was 444 it executed on behalf of the President, or (c) by a person authorized to execute it on his behalf.
The crucial question which arises for determination is whether there was a concluded contract, and if there was one, whether the mandatory requirements of Article 299 of the Constitution for entering into a valid and binding contract have been satisfied? It is now settled by this Court that though the words 'expressed ' and 'executed ' in Article 299(1) might suggest that it should be by a deed or by a formal written contract, a binding contract by tender and acceptance can also come into existence if the accept ance is by a person duly authorized on this behalf by the President of India.
A contract whether by a formal deed or otherwise by persons not authorized by the President cannot be binding and is absolutely void.
We do not for the present consider it necessary to go into the question whether and to what extent the requirements of article 299 have been complied with in this case.
What we have to first ascertain is whether apart from the contention relating to Article 299, a concluded contract has come into existence as alleged by the Respondents.
Before us detailed arguments were addressed on behalf of the appellants to show that notwithstanding the letter of acceptance of 15th July 1968, no concluded contract had in fact come into existence and though that letter accepted certain terms, there were other essential terms of the contract which had to be agreed to and were the subject matter of further negotiations between the parties; that it was the intention of the parties that all those terms were to be embodied in a formal contract to be executed which contract alone was to be binding between the parties; and that in any case the letter of acceptance and the subsequent letters were not by the Director of Railway Stores but by the Secretary to the Railway Board who was not a person authorized to enter into the agreement between the President of India represented by the Ministry of Railways and the Respondents.
On the other hand, the stand taken by the Respondents was that all the essential terms of the contract were agreed to and the contract was concluded on 15th July 1968, though at the ins tance of the Director, Railway Stores further terms with respect to the execution of the contract were the subject matter of negotiations between the parties and in any case these did not pertain to the essential terms and could not on that account detract from the binding nature of a concluded contract.
It was also contended that the letter of acceptance by P. C. Oak though signed on behalf of the Secretary, Railway Board was in fact on behalf of the said Board which was authorized to enter into such a contract.
It is in our view unnecessary to consider the several contentions as to whether all the essential terms of the contract had been agreed to or that the contract was concluded by the acceptance 445 letter of 15th July 1968 or whether the parties intended it to be a term of the contract that a formal contract should be entered into between them in order to bind the parties.
In this case, we are of the view that the Secretary to the Railway Board, on whose behalf the offer of the Respondents was accepted, was not the person authorized to enter into a contract on behalf of the President of India.
As can be seen from the various documents already extracted that the tender notice invited offers to be addressed to the President of India through the Director of Railway Stores, Railway Board.
Under the general conditions the seller was defined to mean the President of India acting through the Director, Railway Stores and in the default clause it was provided that where the buyer fails to execute the contract, the seller shall have power under the hand of the Director, Railway Stores, Railway Board, to declare the contract at an end.
In the letter written by Oak on 25 5 68, as earlier noticed, it was pointed out to the Respondents that their offer was not addressed to the President of India as required under clause 1(3) of the Instructions to the Tenderers and, therefore, the Respondents were required to confirm that their offer can be deemed to have been addressed to the President and is open for acceptance on behalf of the President and their reply should be addressed to the President of India, through the Director of Railway Stores, Railway Board.
Even the draft contract dated 27 8 68 in terms of which the Respondents were insisting on a final contract to be issued to them by the appellants was to be executed by the Respondents as buyers on ,the one part and the President of India acting through the Director, Railway Stores, Ministry of Railways (Railway Board) as the sellers, on the other.
There is little doubt that the only person authorized to enter into the contract on behalf of the President is the Director, Railway Stores.
It is true that the notification of the Ministry of Law issued in exercise of the powers under clause 1 of Article 299 of the Constitution shows that the President directed the 'authorities named therein to execute on his behalf the contracts and assurances of property specified therein.
But notwithstanding this, the President is fully empowered to direct the execution of any specified contract or class of contracts on ad hoc basis by authorities other than those specified in the said notification.
This Court had in Seth Bikhraj Jaipuria vs Union of India, (1) earlier held that the authority to execute contracts may be conferred on a person not only by rules expressly framed and by formal notifications issued in this behalf but may also be specifically conferred.
In this case the letter of ac ceptance dated 15 7 1968 was on behalf of the Secretary, Railway Board, who is not authorized to enter into a contract on behalf of the President.
(1) ; 446 It is contended that clause 43 of part XVIII and Part XII empower the Secretary, Railway Board to enter into such con tracts.
Clause 43 of Part XVIII provides that all deeds and instruments other than those specified in that part may be executed by the Secretary or the Joint Secretary or the Deputy Secretary or the Under, Secretary in the Railway Board or a Director, Joint Director, Deputy Director or Assistant Director in the Railway Board.
It is submitted that as nothing has been specified in Part XVIII relating to the contract of the type we are considering, the Secretary, Railway Board is authorized to enter into a contract on behalf of the President.
This submission is untenable because clause 9 specifically provides for the contracts connected with the sale of scrap, ashes, coal, dust, empty containers and stores.
The tender, it will be observed, is for rails which are scrap as well as rerollable and relayable but it is urged that relayable rails are not stores nor can they be considered as scrap and as these are not covered by clause 9, the Secretary, Railway Board is fully empowered by the President to enter into a contract on his behalf.
We cannot accept this argument because in our view relayable rails are part of the stores.
It may be that some of these rails which are part of the stores may be considered to be in a condition which the authorities concerned think should be disposed of.
The contracts relating to the goods of the nature specified in the tender notice are, therefore, dealt with by clause 9, as such clause 43 will have no application.
Part XLI empowers the Secretaries to the Central Government in the appropriate Ministries or Departments to execute any contract or assurances of property relating to any matter whatsoever and is in these terms : "Notwithstanding anything hereinbefore contained any contract or assurance of property relating to any matter whatsoever may be executed by the Secretary or the Special Secretary or the Additional Secretary or a Joint Secretary or a Director or where there is no Additional Secretary or a Joint Secretary or a Director, a Deputy Secretary to the Central Government in the appropriate Ministry or Department and in the case of.
" The contention on behalf of the Respondents is that since Railway Board is a Department of the Government, the Secretary to the Department is authorized to enter into a contract under the above provision.
This submission in our view, is equally misconceived because reading the above requirement carefully it will appear that the persons there mentioned should be Secretary.
Special Secretary etc., to the Central Government in the appropriate Ministry or Department and not that the Secretary to any Department or office of the Government of India is empowered thereunder.
It is however contended that the Secretary to the 447 Railway Board is a Joint Secretary to the Government of India and as such under the above Provision the acceptance letter should be considered to have been executed on behalf of the president Even this submission lacks validity because as pointed out on behalf of the appellant, at the relevant time the Secretary to the Railway Board did not have any status as Secretary to the Central Government.
The status of a Joint Secretary was only conferred on him by a notification by the Government of India in the Ministry of Railways for the first time on 15 9 1969 with effect from that date.
An affidavit of the Deputy Secretary to the Railway Board (Ministry of Railways) has been filed before us setting out the above fact and enclosing the said notification.
Then again it was urged that the members of the Railway Board were Secretaries to the Central Government and hence the Board on whose behalf the Secretary communicated the acceptance could enter into a binding contract.
This submission also is without force because there is no material before us to conclude that the Board was so authorized.
In these circumstances, even if the correspondence shows that the formalities necessary for a concluded contract have been satisfied and the parties were ad item by the time the letter of acceptance of the 15th July 1968 was written, about which we do not wish to express any opinion, there is no valid or binding contact because the letter of acceptance, on the evidence before us, is not by a person authorized to execute the contracts for and on behalf of the President of India.
On the evening before the day the judgment in the case was due to be delivered, an application dated 7 2 72 was filed enclosing an affidavit of R. N. Mubayi who was Director, Railway Stores, between 18 12 1965 to 30 9 1969 as also an affidavit of R. B. Lal, Managing Director of the Respondent No. 1 to take them in evidence and consider the facts stated therein before judgment is delivered, and if necessary, to call for the file and give a re hearing.
The affidavit of Mubayi states that only after he recorded on the relevant file and issued instructions to his Deputy Director, Shri P. C. Oak to convey the acceptance of the offer of M/s. N. K. Private Limited, that the acceptance was conveyed by Shri P. C. Oak to the said company.
The affidavit of R. B. Lal says that though the affidavit filed by P. Lal, Deputy Secretary, Railway Board stating that the Secretary, Railway Board, did not have the status of Secretary, Special Secretary, Additional Secretary, Joint Secretary or Deputy Secretary to the Government of India in the Ministry of Railway, he has not denied that the Secretary did not have the status of a Director.
It is further submitted in that affidavit that the Secretary of the Board had the status of a Director at the relevant time and as mentioned in Part XLI of the Notification of the Ministry of Law, 'a Director ' is authorized to accept offers.
448 Apart from the question whether we should admit additional evidence at this stage in this case and though we had rejected an earlier submission to call for the files, having regard to the facts stated by R. N. Mubayi, Director of Railway Stores during the relevant period that it was he who had asked P.C. Oak to accept the offer and had so endorsed it on the file, as also the affidavit of R. B. Lal that the Secretary to the Board was the Director of Railway Stores, we withheld the judgment and called for the file to satisfy ourselves.
The file has been submitted to us by the appellants along with an affidavit of R. Srinivasan, Joint Director, Railway Board in which it is categorically averred that at the relevant time, namely, 15 7 68, the Secretary Railway Board did not have the status of the Director under Para XLI of the Notification of the Ministry of Law or at all.
A perusal of the relevant file relating to the letter of acceptance would show that on 15 7 68, Shri Oak made the following endorsement: "Reference to Board 's orders at page 38/N, draft letter accepting M/s. N.K. (P) Ltd., offer is being issued today.
D.R.S. may kindly see before issue", and this endorsement was merely signed by R.N. Mubayi.
We are not here referring to the other proceedings on the file as to whether the execution of a formal contract was a condition precedent and as one of the terms of the contract but even the above endorsement does not show that the letter of acceptance of 15 7 68 was issued on the orders and directions of Mubayi as alleged by him in the affidavit.
What it in fact shows is that it is the Board that issued the orders of acceptance and that the acceptance letter was only to be seen by him.
Even the draft letter issued does not contain his initials or his signature in token of his having seen or approved it.
The letter of acceptance not having been issued on the orders of the Director, Railway Stores, there was no concluded contract as on that date, by a person authorized to enter into a contract.
There is also nothing to show that the Secretary to the Board was the Director, Railway Board as further alleged in the affidavit of R. B. Lal.
In this view the appeal is allowed and the application under section 20 of the Arbitration Act is dismissed but there will be no order as to costs of the appellants.
On the other hand, we direct the appellants to pay the costs of the Respondents because special leave was granted on condition that the petitioner will pay the costs of the Respondents in this appeal in any event.
S.C. Appeal allowed.

summary:
A global tender to sell surplus serviceable and scrap rails was issued to established buyers by the Government of India and pursuant to this tender notice, the respondents by their letter dated 21 5 68 offered to buy the rails at a particular price and Shri P. C. Oak, Deputy Director, Railway Stores, Railway Board, on behalf of the Secretary, Railway Board,, accepted the respondents ' offer with the terms and conditions mentioned in the letters sent by the respondent on 15 7 68.
Negotiations for the final contract, however, took place between the parties and on 15 7 68, the respondents complained that some of the Railways who were holding stocks are selling the steel rails which they have no right to sell in view of the concluded contract; but Shri P. C. Oak for Secretary, Railway Board, replied that subsequent to 15 7 68, there were negotiations for the vital terms and conditions of the contract and so the question of the existence of a concluded contract did not arise.
At this, the respondents filed a petition in Court under section 20 of the Arbitration Act, after setting out the relevant correspondence leading upto the letter of acceptance of 15th July 1968 and it was stated that, the letter was a definite acceptance of the offer and constitute a valid and binding contract between the parties.
In the written statement, the appellants raised a preliminary objection that the petition was misconceived as there was no arbitration agreement between the parties and so the question of enforcing the arbitration clause in the alleged contract did not arise.
Further, it was contended by the appellants that the letter of acceptance and the subsequent letters were not by the Director of Railway Stores, but by the Secretary to the Railway Board, who was not a person authorized to enter into the agreement between the President of India represented by the Ministry of Rail ways and the respondents as required under article 299 of the Constitution.
Allowing the appeal.
BELD : The Secretary to the Railway Board, on whose behalf the offer of the respondents was accepted, was not the person authorized to enter into a contract on behalf of the President of India, as required under article 299, and therefore, the contract, if any, was not binding on the appellants.
Further, it was not correct to say that Clause 43 of Part XVIII and Part XLI empowered the Secretary, Railway Board to enter into such contracts; because Clause 9 specifically provided for the contracts connected with the sale of scrap; ashes coal, dust, empty containers and stores; and repayable rails, being part of the stores, it was covered by Clause 9 and the Secretary, Railway Board, was not empowered by the President to enter into a contract on his behalf.
[445 B] Seth Bikhraj Jaipuria vs Union of India, [1962] 2 S.C.R. 880, referred to. 438