P. N. Bhagwati, J. - (1.) This appeal, by special leave, is directed against a judgement of the High Court of Delhi setting aside an award madeby an arbitrator on the ground thathe was not a validly appointed arbitrator and hence had no jurisdiction to arbitrate and make an award. The facts giving rise to the appeal are few and may be briefly stated as follows.
(2.) The respondents - a partnership firm - entered into a contract with the appellant for the supply of 30,000 tons of East German sugar at the rate and on the terms and conditions set out in a letter dated 3rd July, 1954 addressed by the Secretary to the Government of India, in the Ministry of Food and Agriculture to the respondents. The Ministry of Food and Agriculture was concerned with the subject-matter of this contract and hence clause (9) provided that "superintendence and inspection of quality, weight and packing of sugar shall be made by a reputable superintending agency to be approved by the Government of India, in the Ministry of Food and Agriculture" and clause (10) stipulated for delivery to be made to "authorities or parties nominated by the Ministry of Food and Agriculture." There was provision for arbitration made in clause (17) and that clause also referred to the Ministry of Food and Agriculture. It was in the following terms: "ARBITRATION:All questions, disputes or differences whatsoever which may at any time arise between the parties to the agreement touching the agreement or the subject-matter thereof, arising out of or in relation thereto and whether as to construction or otherwise shall be referred to a single arbitrator for decision. Such a single arbitrator shall be nominated by the Secretary to the Government of India in the Ministryof Food and Agriculturein his absolute discretion and the decision of such arbitrator shall be final and binding upon the parties. The reference to the arbitrator shall be governed by the provisions of the Indian Arbitration Act, 1940 as amended from time to time and the rules made thereunder.:" It appears that disputes arose between the appellant and the respondents in regard to the fulfilment of this contract. The appellant made a claim for payment of Rs. 3,29,107-8-0 against the respondents by a letter dated 11th August, 1956 and threatened to recover it from the security furnished by the respondents through their bankers. The respondents disputed the claim of the appellant and by letter dated 23rd August, 1956 pointed out that it was not competent to the appellant to recover the amount of the demand from the bankers of the respondents without first establishing its claim by arbitration and suggested that it would be better still, it a special case for the opinion of the Court were stated under Section 90 of Code of Civil Procedure. The respondents also claimed to recover from the appellant under the contract diverse amounts aggregating to Rs.6,05,689. There was no response to this letter from the appellant and no steps were taken by the appellant to have the disputes referred to an arbitrator nominated by the Secretary in the Ministry of Food and Agriculture as provided in clause (17) of the Contract. In the meantime, as a result of an order made by the President under clause (3) of Article 77 of the Constitution, the Ministry of Food and Agriculture was bifurcated into two separate Ministries, one of Food and the other of Agriculture, with effect from 19th October, 1956 and sugar, the subject-matter of the contract, came to be allotted to the Ministry of Food. The respondents, by their letter dated 9th November, 1956, pointed out to the Secretary, Ministry of Food that by reason of this bifurcation, the Ministry of Food and Agriculture has ceased to exist and there was no Secretary in the Ministry of Food and Agriculture and the arbitration agreement contained in clause (17) of the contract had, therefore, become a deadletter and was no longer enforceable and once again called upon the appellant to agree in stating a special case of the opinion of the Court failing which the respondents would have to file a suit against the appellant. This letter also did not evoke any response from the appellant and the disputes remained unresolved.
(3.) On 13/14th February, 1956 the appellant addressed a letter to the respondents stating that since the Ministry of Food and Agriculture was bifurcated into Ministry of Food and Ministry of Agriculture, it was necessary to amend clause (17) of the contract so as to provide for arbitration by "the Secretary to the Ministry, Government of India administratively dealing with the subject of contract at the time of reference to arbitration, or if there is no Secretary, the administrative head of such Ministry at the time of such reference" and proposed anamendment to that effect for the acceptance of the respondents. The respondentsby there letter in reply dated 26th February, 1957. declined to accept the proposal for amendment of clause(17) of the contract and once again reiterated that the arbitration agreement contained in that clause was "dead and unenforceable". However, within a short time thereafter, another order was issued by the President under clause (3) of Article 77 of the Constitution integrating the Ministry of Food andthe Ministry of Agriculture into one single Ministry of Food and Agriculture with effect from 23rd April, 1957. This new Ministry of Food and Agriculture had two departments, one of Food and the other of Agriculture, and there was a Secretary incharge of each department. It seems that that appellant requested the Secretary, Department of Food in the Ministry of Food and Agriculture to nominate an arbitrator for adjudicating upon the disputes which had arisen between the appellant and respondents in terms of clause (17) of the contract and the Secretary, Department of Food in the Ministry of Food and Agriculture, by a letter dated 27th February, 58, nominated Shri A. V. Vishwanath Sastri, Advocate, to act as sole arbitrator to adjudicate upon such disputes. On the same day, the respondents served a notice on the appellant under Sec. 80 of the Code of Civil Procedure demanding payment of the amounts due to the respondents and stating that in case the appellant failed to meet these demands, the respondents would have to file a suit against the appellant. Though respondents gave this notice under Section 80 of Code of Civil Procedure, they did not proceed to file a suit, but instead filed their statement of claim before the arbitrator and in the statement they claimed payment of an aggregate sum of Rs.7,89,858/- from the appellant and also prayed for a declaration that the contract stood "final and properly performed" by the respondents. The appellant filed its reply disputing the claim of the respondents. The appellant also filed a statement making its own claim for Rs.3,29,107-8-0 against the respondents. It was stated in paragraph 18of the statement of claim of the appellant "that under Clause 17 of the contract the Secretary Food and Agriculture Ministry of the Government in his discretion has the right to nominate a sole Arbitrator and refer the dispute to the Arbitrator refer the dispute to the Arbitrator and that has been duly done on 27th February, 1958, and the parties have been duly notified under Secretary to the Government letter No.SIMP-3 (40) dated the 27th February, 1958." The respondents filed their written statement denying the claim of the appellant and in paragraph 18 of this written statement they averred "That para 18 of the Statement of Claim of the Government of India is not objected to." The proceedings in connection with the claim of the respondents and the counter-claim of the appellant were carried on before the arbitrator and the respondents participated in the arbitration proceedings without objection or protest against the jurisdiction of the arbitrator. The arbitrator ultimately made an award against the respondents.;