Decided on February 15,1961

B.C.NAWN (BROS) PR. LTD. Respondents


P.C.Mallick, J. - (1.) THIS is an application under Section 33 of the Indian Arbitration Act disputing the existence of an arbitration agreement whereunder certain disputes between the parties can be adjudicated.
(2.) THERE is a contract between the parties whereby the contractor being the above respondent is to fabricate and supply 11000 tents to the Government. The Government was to supply the stores or materials to be used by the contractor for the fabrication of these tents. The contract is evidenced by a tender submitted by the contractor and accepted by an officer of the Government for and on behalf of the Governor-General-in-Council. It will be necessary to refer later to some of the terms of the contract. In terms of the contract the Government supplied materials of considerable value to the contractor and the contractor gave a bank guarantee which at the material time stood at Rs. 30 lacs. This bank guarantee was given in terms of the contract. The contractor was to be responsible for loss of materials on account of theft, pilferage and civil commotion and was to remain accountable for the materials supplied by the Government The bank guarantee was given by the contractor to cover this liability of the contractor. The Government it appears, was no longer in need of the tents and cancelled the contract. The contractor contended that by reason of the cancellation it has suffered loss. Heavy expenses amounting to over Rupees one lac have been incurred by the contractor for the purpose of the contract and the contractor claimed that it was entitled to compensation. The contractor further requested that in adjusting compensation payable to it it should be allowed to retain the stores supplied by the Government and then in the custody of the contractor. THERE was a meeting on November 27, 1946 at New Delhi in which the parties purported to settle the disputes arising out of the cancellation of the contract. What transpire in the meeting will appear from the Memorandum kept by G. T. Thandani, the then Deputy Director General (Supply). A copy of this memorandum is annexed to the petition. The correctness of this memorandum is not disputed by either party. The memorandum is set out here-under. "At a meeting held in D.D.G. (S)'s room on 27th November, 1946, the following were present: Mr. G. T. Thandhani, Deputy Director General (Supplies) Mr. P. C Bhattacharyya, Joint Financial Adviser (I and S) Mr. K.B. Rao, Director of Supplies, Mr. Ganguly -- Representing M/s B. C. Nawn and Bros. An order had Been placed with M/s B. C. Nawn and Bros, for the fabrication of 11,000 tents. It has been decided to cancel this contract and it has been agreed that in part payment of the actual expenditure incurred by M/S B.S. Nawn and Bros., they will be paid Rs. 49,000 by the Government in full and final settlement of the contract. It has also been agreed that guarantee for Rs. 17 lakhs out of the Rs. 30 lakhs given by the firm will be released immediately. The firm will keep all the material lying in their custody until such time as final disposal instructions are sent to them. The firm will be allowed to insure the material now in their possession at Government costs till the period when they have got disposal instructions. They will however not insure against civil commotion and riots and Government will not hold the firm responsible for any loss due to civil commotion and riots. Sd. G. T. Thandhani 27-11-46." On January 15, 1947 the Deputy Director (Supply) wrote a letter to the respondent which reads as follows:-- "To Messrs. B. C. Nawn and Bros. Ltd. 7, Bowbazar Street, Calcutta. Sub: This office A/Tender No. CaI/DS/6588/ X/69 Dt. 20-6-46, for fabrication of 11,000 Nos. Tents I.P. Private MK. III. * * * * * Dear Sir, As per mutually agreement, (sic) the above order is hereby cancelled in toto. The amount of Rs. 49,000/- will be paid to you towards the expenses incurred by you for making preliminary arrangements vide Govt. of India, Industries and Supplies Department letter No. P. 2110(3)/46 D/-6-12-46 as already agreed by your representative in New Delhi. You will for the present keep all the Government materials lying in your custody free of all rent until the same are removed or disposed of by Government. You will insure the same at Government's cost till the period you get final disposal instructions. Please do not insure this material against Civil Commotion and riots. Please acknowledge receipt. Yours faithfully, Sd. R. D. Patel Dy. Director (Supplies) for and on behalf of Governor General in Council." This letter was replied to by the contractor on January 23, 1947. The contractor protested that it never agreed to keep the goods free of rent indefinitely but it did not challenge the other facts stated in the letter. The post-script is important and is set out hereunder: "P. S. In this connection we would also bring it to your notice that the amount of Rs. 49,000/-as settled in the cancellation of the contract to meet our charges have not yet been paid for and a cheque may please be sent per return. As Government has still been holding a bank guarantee for 13 lacs there is no reason why this payment should be delayed. Sd. Illegible.'" Years afterwards in February 1957 the Government offered to pay to the contractor Rs. 49,000/-agreed to be paid in terms of the settlement noted above after deducting therefrom the sum of Rs. 34,853/- on account of materials alleged to have been not accounted for by the contractor. The contractor agreed to accept the said sum so offered on February 28, 1957 but "without prejudice''. The payment was actually received in May 1957.
(3.) AS indicated before the contractor claimed that it had a right to claim rent for keeping huge amount of Government materials for a pretty long time. The amount claimed on account of such rent is Rs. 1,45,719/15/3. By a letter dated March 12/14, 1960 Messrs. Dutt and Sen solicitors for the contractor demanded payment of the said sum less Rs. 14,141/- being the amount received plus interest on Rs. 49,000/- and purported to refer this claim under the arbitration claim to Sisir Kumar Mukherjee, Barrister-at-Law, for adjudication. By in letter dated March 24, 1960 the Government contended that there was no arbitration agreement in existence to adjudicate on the disputes and that the reference made by the contractor to arbitration was illegal and inoperative. Nevertheless, without prejudice to the above contention the Government appointed Mr. G.S. Gaitonde as an arbitrator.;

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