R. Prince And Co. v. Governor General In Council .

1. The facts relevant for the decision of the present appeal are briefly stated, as follows. Messrs R. Prince and Company contracted on 7-12-1944 to supply five tons of almond kernels to the Government at the rate of Rs. 215/- per 100 lbs. on terms, conditions and specifications agreed to between the parties. One of the terms of the agreement was that “conditions of contract governing Department of Supply Contract form W.S.B 133” apply to this agreement. The suppliers tendered the goods at Karachi on 23-12-1944 but the same were rejected on the payment on the ground that the specifications and suppliers were informed of the rejection on 9-1-1945. The suppliers contended that the rejection was illegal and unjustified but the purchasers refused to accept the goods. The suppliers then sold the goods in the market at the rate of Rs. 95/- per maund and claimed damages from the Government. The Government did not accept the claim made by the claimants.

2. Thus the dispute which had arisen between the parties was referred to the arbitration of Mr. R.N Tandan and Shri Azmatullah Advocates in accordance with cl. 21 of the Conditions of Contract Form W.S.B 133. The arbitrators appointed Mr. Tara Chand Aggarwal Sub Judge as an umpire. The claimant before the arbitrators claimed Rs. 18,459/10/6 as damages under the following headings:

1. Difference between the contract and sale price Rs. 11,747/3/6. 2. Other damages and expenses Rs. 462/7/-. 3. Damages for loss of reputation Rs. 5,000/-. 4. Refund of security deposited with the Government Rs. 1,250/-. Total: Rs. 18,459/10/6.

3. The claimant also claimed interest from the date of breach of the contract till the date of the payment on the ground that the goods tendered were in accordance with the specifications and rejection of goods was mala fide as the Government did not require them and wanted to get out of the contract somehow or other. It is to be noticed that in this petition of claim made before the arbitrators the claimant did not allege that Capt. Bristow. Assistant Inspector of Foodstuffs, Sind Area Karachi, was not authorized to reject the goods.

4. The Government replied by urging that the decision of the Inspector was final under cl. 13(v) of general Conditions of Contract and the arbitrators have no jurisdiction in going into the Page: 241matter or the correctness of the order of the Inspector and that in any case the goods were rightly rejected as they were not in accordance with the specifications. The arbitrators framed nine issues and the one material issue is issue No. 4 reading

“Whether the decision of the Inspector in rejecting the goods is final and cannot be challenged”

5. The arbitrators disagreed on this matter and gave & different award on 25-6-1947. The High Court refused permission to Shri Tara Chand Agarwal to act as an umpire in the case and therefore an application had to be made under Section 8 of the Arbitration Act. The Court on this application appointed Shri Jamil-ul-Rahman to act as an umpire. He however, left India before deciding the matter. The claimant then suggested names of three persons and requested the Government by letter dated 16-1-1948 to appoint any one of those persons to act as an umpire.

6. The Government accepted the nomination of Shri Jaspat Rai Kapur as is contemplated in Section 8(1)(c) of the Arbitration Act. The parties appeared before the umpire without any objection having been raised by any of the parties to the authority of this umpire to act as such and after hearing the parties the umpire came to the conclusion that Mr. Bristow was not empowered within the terms of the contract and that in any case he did not apply his mind when rejecting the goods and on Doth these grounds his decision rejecting the goods cannot be considered to be final.

7. The umpire further held that according to the terms of the contract the goods could not be rejected on the ground of “excessive damaged pieces” and holding the Government guilty of the breach of the contract awarded Rs. 10,964/11/6 to the claimant by his award dated 21-6-1948. The award was filed in Court and the Government prayed that the award be set aside under Section 30 of the Arbitration Act on various grounds including the ground that the arbitrators and the umpire had no jurisdiction to adjudicate upon the correctness or otherwise of the rejection of the goods by the Inspector under cl. 13 of the agreement.

8. The claimant in reply urged that the umpire was entitled to give his decision on the finality of rejection of the goods by the Inspector as the matter had been referred to him for decision. The parties produced evidence before the Court and stated that all he evidence produced before the arbitrators and the umpire may be treated as evidence in these proceedings. The trial Court held that the umpire had exceeded his jurisdiction in going into the matter of rejection of the goods by the Inspector and therefore the award must be set aside and that the Government was not estopped from raising this plea.

9. The trial Court further held that Mr. Bristow was the Assistant Inspector and was acting on behalf of the Inspector and rejection of goods by him was final under cl. 13(v) of the agreement. It was also held by the trial Court that Shri Jaspat Rai Kapur was appointed an umpire within the terms of cl. 21 of the contract and was bound by its terms. On these findings the award was held not to be valid and was set aside. The claimant has appealed to this Court under Section 39(i) of the Arbitration Act.

10. Shri A.N Grover, the learned counsel for the appellant has contended before me that the findings of the umpire to the effect that the goods were not rejected by the Inspector as provided in cl. 13 of the agreement and the rejection was not in accordance with Conditions of Contract cannot be questioned in the present proceedings in Court and the Court was not entitled to go into the correctness of this decision as it was not a Court of appeal against the award given by the umpire and for this purpose he has relied on — ‘A.M Mair and Co. v. Gordhandass Sagarmaul, AIR 1951 SC 9 (A); ‘Ruby General Insurance Co. Ltd. v. Pearey Lal Kumar’, AIR 1952 SC 119 (B), and ‘Mohindra Supply Co. Delhi v. Governor-General-in-Council.’ AIR 1954 Punj 211 (C) in support of his contention. In the alternative the learned counsel argued that in any case the question whether the decision was that of the Inspector or not was placed before the umpire inviting his decision thereon and therefore he had jurisdiction to decide that matter. It was also argued that the finding of the trial Court that the rejection of the goods was by the Inspector whose decision was final was not borne out by the evidence on the record as Mr. Bristow was neither the Inspector nor did he apply his mind to the matter.

11. Sri Daya Krishan Mahajan, the learned counsel for the respondent, in reply argued that the cases cited by Shri A.N Grover supported the contention that the arbitrators cannot decide his matter and for this reason the award was bad and was rightly set aside. He then raised two points which had not been raised in the trial Court, namely (1) the alleged contract was not executed in accordance with the provisions of Section 175(3) of the Government of India Act, 1935 and therefore there was no valid contract and no valid arbitration agreement and (2) the umpire was not appointed by the arbitrators and therefore Shri, Jaspat Rai Kapur had no jurisdiction to act as such and therefore the entire arbitration proceedings were bad and illegal.

12. I shall first deal with the new point raised by the learned counsel for the respondent. The first of those two points relates to Section 175(3) of the Government of India Act, 1935 which has been incorporated in substance in Article 299 of the Constitution of India. It is argued that the contract for supply of five tons of almond kernels was not executed in the manner laid down in Section 175(3) of the Government of India Act and as there is no valid contract for supply of these goods, therefore the Form W.S.B 133 has no application to it and for this reason cl. 21 which is the arbitration agreement is not binding between the parties. Now, there is no evidence on the record whether as a matter of fact any formal document regarding the supply of these goods was executed between the parties or not for simple reason that this point was not raised either before the arbitrators or before the umpire or before the Trial Court. Before the point was raised before me it appears that the Government had considered the contract and the arbitration agreement to be valid and binding between the parties. Two arbitrators were appointed as contemplated in cl. 21 of the agreement. Objections regarding the scope of the jurisdiction of the arbitrators were raised but it was never suggested that there was no valid arbitration agreement at all. When the arbitrators had differed and the umpire was appointed with the agreement of the parties the Government did not suggest before the umpire that as there was no valid arbitration agreement he had no jurisdiction to hear the dispute. The umpire made an award in favour of the claimant and under Article 158. Indian Limitation Act the Government had thirty days from the date of the service of the notice of the filing of Page: 242the award within which to file objections to the award. Objections were filed but no objection was made regarding the validity or existence of the arbitration agreement. No application was made under Section 33 of the Arbitration Act during all this time challenging the existence and the validity of the arbitration agreement. It appears to me too late now long after the expiry of one month under Article 158 of the Limitation Act to raise this objection in appeal i.e at the time of the arguments when the claimant had no opportunity to adduce any evidence upon the question of fact whether agreement between the parties was executed or signed in accordance with Section 175(3) of the Government of India Act, 1935, vide — ‘Kalvanpur Lime Works Ltd. v. State of Bihar’, AIR 1954 S.C 165 (D). In fact it is very surprising that the Government should have instructed the counsel to raise this point which involves questions of fact and law at the time of arguments in appeal when it had not been taken at any stage of the proceedings that had been going on since 1945 or 1946. I therefore hold that it is not open to the respondent to raise this point at this stage of the proceedings for the first time.

13. The second objection of the learned counsel for the respondent relates to the effect on the nomination of the umpire. The arbitrators in accordance with cl. 21 appointed Shri Tara Chand Aggarwal to act as umpire but he became incapable of acting as such as the High Court did not grant him the necessary permission. The Court then appointed Shri Jamil-ul-Rahamand under Section 8 of the Arbitration Act but he refused to act or became incapable of acting as he migrated to Pakistan in 1947. The claimant then required the Government to choose an umpire out of the three names suggested by him and the Government by letter dated 16-1-1948 agreed in the appointment of Shri Jaspat Rai Kapur and therefore there was no defect in his appointment as it is in accordance with the procedure laid down in Section 8 of the Arbitration Act.

14. In any case the Government is estopped from raising this plea at this stage. The Government fully knew all the circumstances in which the umpire had been appointed as it was a consenting party to the appointment and no objection as to the defect in his appointment was raised before him or before the Court. Even if there was any defect in the appointment the Government knowing of the defect took part in the proceedings before the umpire without raising any objection at the first opportunity and allowed the award to be made without any protest taking a chance of a favourable decision and in such circumstances it must be held that the Government acquiesced in the appointment and waived the objection raised, now, vide — ‘Sheonath v. Ram-nath’, 10 Moo Ind App 413 (E), at page 426. Moreover, this objection was not raised within the time allowed by Article 158, Limitation Act and was raised for the first time in the course or argument before this Court in appeal and in my opinion it is too late to raise the objection now. Russell has described the legal position in his book on Arbitration, 1952 Edition, at page 3 in these words:

“If the parties to the reference either agree beforehand to the method of or afterwards acquiesce in the appointment made, with full knowledge of all the circumstances they will be precluded from objecting to such appointment invalidating subsequent proceedings. Attending and taking part in the proceedings with full knowledge of the relevant fact will amount to such acquiescence.”

15. It is therefore clear that the Government is estopped from raising the objection as to the defect, in the appointment of the umpire.

16. This brings me to the arguments of the learned counsel for the appellant. Clause 21 of the arbitration agreement reads:

“21. Arbitration.

In the event of any question or dispute arising under these conditions or any special conditions of contract or in connection with this contract except as to any matter the decision of which is specially provided for by these conditions the same shall be referred to the award of an arbitrator to be nominated by the Purchaser and an arbitrator to be nominated by the Contractor, or in case of the said arbitrators not agreeing then to the award of an Umpire to be appointed by the arbitrators in writing before proceeding on the reference and the decision of the arbitrators, or in the event of their not agreeing, of the Umpire appointed by them, shall be final and conclusive and the provisions of the Indian Arbitration Act, 1940 and of the Rules there under and any Statutory modification thereof shall be deemed to apply to and be incorporated in this contract.

Upon every and any such reference, the assessment of the costs incidental to the reference and award respectively shall be in the discretion of the arbitrators or in the event of their not agreeing, of the Umpire appointed by them.

Under the contract shall, if reasonably possible, continue during the arbitration proceedings, and no payment due to or payable by the purchaser shall be withheld on account of such proceedings.

The venue of arbitration shall be the place-from which the Acceptance Note is issued or such, other place as the purchaser at his entire discretion may determine.”.

17. And clause 13(iii) reads:

“13. Inspection and Rejection.

(iii) Inspector-Final Authority and to Certify Performance:

(a)………………….

(b) To reject any stores submitted as not being in accordance with the particulars.”.

18. Clause 13(v)(d) reads:

“The Inspector's decision as regards rejection-as aforesaid shall be final and binding on the parties.”

19. It is clear from these clauses of the contract that the decision of the Inspector is final and any dispute relating to his decision cannot be adjudicated upon by the arbitrators or umpire, as such, dispute does not fall within the scope of the arbitration agreement and the reference does not embrace the dispute relating to the Inspector's decision.

20. The question that requires decision is-whether the umpire could in spite of Government's objection adjudicate upon these matters. It is well established that an arbitrator or umpire must not go beyond the submission and although there is-a presumption in favour of the validity of the award and the onus of proving that the arbitrator has exceeded his jurisdiction rests on the person alleging it but if an award extends to matters not within the scope of the submission it must be held to be void to the extent that it is in excess of the submission. An arbitrator cannot give himself jurisdiction by a wrong decision as to the facts Page: 243upon which the limit of his jurisdiction depends, and where there is a difference between the parties as to the authority of the arbitrator under an agreed submission the decision rests with the Court and not with the arbitrator. It was observed by Lord Sumner in — ‘Produce Brokers Co., Ltd. v. Olympia Oil and Cake Co. Ltd.,’ 1916-1 AC 314 (P).

“My Lords, nobody doubts that arbitrators have a limited jurisdiction conferred by the submission, which they cannot exceed, and that equally they cannot amplify that jurisdiction by erroneously finding facts which the submission does not authorize them to decide as arbitrators.” Relying on this decision it was observed in ‘Attorney-General for Manitoba v. Kelly,’ (1922) 1 AC 268 (G), by the Privy Council.”

“Whenever there is a difference of opinion between the parties as to the authority conferred on an umpire under an agreed submission, the decision rests ultimately with the Court and not with the umpire. It would be impossible to allow an umpire to arrogate to himself jurisdiction over a question which, on the true construction of the submission, was not referred to him. An umpire cannot widen the area of his jurisdiction by holding, contrary to the feat, that the matter which he affects to decide is within the submission of the parties.”

21. In the present case the condition precedent to the umpire's jurisdiction was that the dispute should not have been settled by the Inspector. The question whether the decision was by the Inspector or not was not referred for decision by the arbitrators or the umpire and therefore they could not clothe themselves with jurisdiction by finding the preliminary fact that the rejection of the goods' was not by an Inspector or it was not in accordance with the contract and then assume jurisdiction to decide the dispute.

22. The learned counsel for the appellant has relied on the decision of their Lordships of the Supreme Court in AIR 1951 SC 9 (A). In that case the dispute was whether the extension of time for delivery was granted within the time limited in the contract or not. The Supreme Court decided that the dispute was covered by the arbitration clause and it was observed in the course of the judgment:

“If, therefore, we come to the conclusion that both the disputes raised by the respondents fall within the scope of the arbitration clause, then here is an end of the matter, for the arbitrators would have jurisdiction to adjudicate on the disputes, and we are not concerned with any error of law or fact committed by them or any omission on their part to consider any of the matter. In this view it would not be for us to determine the true construction of the contract and ind out whether the respondents' contention is correct or not. Once the dispute is found to be within the scope of the arbitration clause, it is 10 part of the province of the Court into enter to the merits of the dispute.”

23. It is implicit in this judgment that the decision regarding the scope of the arbitration agreement rest with the Court and not with the arbitrators or umpire. The learned counsel then referred to AIR 1952 SC 119 (B). In that case the dispute between the parties was described in the judgement as follows:

“The position therefore is that one party relying upon the arbitration clause says that here has been a breach of its terms and the other arty, also relying on that clause, says that there has been no breach but on the other hand the requirements of that clause have been fulfilled. It is thus clear that the difference between the parties is a difference arising out of the policy and the arbitrator had jurisdiction to decide it, the parties having made him the sale judge of all differences arising out of the policy.”

24. And it was observed in the course of the judgment:

“No question of determining the effect of the arbitration agreement arises, because there is no dispute between the parties as to what it means. The language of the arbitration clause is quite clear, and both parties construe it in the same way.”

25. It is therefore clear that in neither of these two cases was there a dispute relating to the scope of the arbitration agreement and these decisions are therefore of no assistance to the appellant. The last case referred to by the learned counsel for the appellant is reported in AIR 1954 Punj 211 (C). In that case Weston C.J observed:

“If it is found that the rejection of the goods made by the Inspector was within his powers, there can be no doubt that, as under the terms of the contract itself such rejection was made final and binding, then by reason of the saving part of cl. 21 of the General Conditions of Contract termed W.S.B 133 that rejection could not be the subject of arbitration.”

26. The Hon'ble Chief Justice thereafter proceeded to decide the matter on the merits and came to the conclusion that there was no rejection by the Inspector in accordance with the terms of the agreement. As far as this decision goes it appears to me that it is against the contention of the learned counsel for the appellant that the scope of the reference is to be decided by the arbitrators or the umpire and that the correctness of the decision is not liable to be challenged, in Court in proceedings under the Arbitration Act.

27. I am therefore of the opinion that it is for the Court to decide in these proceedings whether the umpire exceeded his jurisdiction in adjudicating upon the rejection of the goods by the Inspector.

28. It was then argued by the learned counsel for the appellant that in any case the dispute that was referred to the umpire was embodied in the issues framed by the arbitrators and one of the issues framed by the arbitrators was to the effect that the decision of the Inspector in rejecting the goods is final and cannot be challenged and therefore the umpire's decision on this issue is final and binding on the parties. There is no force in this argument.

29. The trial Court found that Shri Jaspat Rai Kapur was appointed umpire under cl. 21 of the General Conditions of the Contract and this finding was not challenged before me. The jurisdiction of the umpire therefore was circumscribed by the terms of cl. 21 The issue to which reference has been made above arose out of the Government's objection that the Inspector's decision was final and could not be adjudicated upon by the arbitrators.

30. That objection must be deemed to have been repeated before the umpire. It was really a dispute relating to the jurisdiction of the umpire and therefore his decision on that matter could not be considered to be final in these proceedings. I therefore repel this argument of that learned counsel for the appellant.

31. Finally the learned counsel half-heartedly argued that Mr. Bristow's decision was not final as it is not proved that he was an Inspector. Now, Inspector is defined in Form W.S.B 133 as follows:

“The term ‘the Inspector’ shall mean any person nominated by or on behalf of the Purchaser to inspect supplies stores or work under the contract or his duly authorsed agent.”

32. Mr. Bristow was examined by the arbitrators and he has stated that he was appointed an Assistant Inspector of Foodstuffs in the Sind Area by the Inspector of Foodstuffs, Delhi. He has further stated that he had authority to reject or accept the goods on the basis of laboratory tests and in this case he rejected the goods on the basis of that test. There is no reason to doubt the correctness of this statement and as he was an Assistant Inspector he must be considered to come within the definition of ‘Inspector’.

33. In any case he was appointed by the Inspector and he was acting on his behalf and had the authority to reject the goods. As a matter of fact the real objection of the claimant was not that Major Bristow was not authorised to reject the goods but that he did not apply, his own mind to the rejection of the goods but relied on certain laboratory rests which he should not have done. As far as I can see whether the goods were rejected on the basis of laboratory tests or on other basis once the goods are rejected by the Inspector or his nominee the decision is final.

34. Therefore, the umpire exceeded his jurisdiction when he decided that the decision was not of the Inspector and that the rejection of the goods was not in accordance with the conditions' of the contract.

35. It is therefore clear that in the present case the umpire acted in excess of his authority and the award therefore must be set aside. For the reasons given above I dismiss this appeal but considering all the circumstances of the case I leave the parties to bear their own costs throughout.

V.B.B

36. Appeal dismissed.