Ramaswami, J. - (1.) This appeal is brought by special leave against the judgment of the Punjab High Court in Civil Revision No. 438-D of 1964 by which the revision petition of the appellant against the order of Shri D. R. Khanna, Subordinate Judge, lst Class, Delhi dated 20th April 1964 in Suit No. 128 of 1963 was dismissed in limine. Suit No. 128 of 1963 was an application by the Union of India under Sections 5, 12 (2), 31 (3), 32 and 33 of the Arbitration Act, 1940 for obtaining a declaration that the reference of the claim of the respondent firm in respect of excess quantity of timber alleged to have been delivered and certain other matters was not covered by the arbitration agreement and for leave to revoke the authority of the Arbitrators and the Umpire. The petition was rejected by the Subordinate Judge by his order dated 20th April, 1964.
(2.) By a savingram dated 21st December, 1953 the Union of India (hereinafter called the appellant) entered into a contract of purchase of 1,01,750 cubic feet of teak logs at Rs. 9/12/- per c. ft. to be delivered F. O. R. Halisahaar and Lillooah, both in West Bengal near Calcutta. The consignee was the District Controller of Stores, Eastern Railway. The formal acceptance of tender confirming the savingram and containing the other terms of the contract was issued on 13th January , 1954. Besides the quantity of teak logs originally contracted to be supplied, the respondent firm subsequently supplied a quantity of 1676.95 c., Burma teak squares at the same rate and the contract was accordingly amended on 13th December, 1957. It was provided in Clause 17 (c) of the acceptance of tender that the respondent firm was to offer the timber for inspection at its own premises at Halishaar and Lillooah. Although the delivery time was extended from time to time, upto 26 th January, 1958, the respondent firm supplied only 77,211.80 cubic feet of timber and the contract in respect of the un-supplied quantity was cancelled on 20th June, 1958 and that the supplied quantity was repurchased by Government from third party at a loss of Rs.1,54,541.36 on 23rd July, 1958. Including this item the appellant made a claim of Rs. 3,50,085.99 against the respondent firm out of which it recouped Rs. 1,79, 366 from the sums due to the respondent firm leaving a balance of Rs. 1,70,719.99. The contract in question is governed by the arbitration agreement contained in clause 21 of the form W.S.B.133 which states as follows: "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 matters 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 thereunder 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."
(3.) In pursuance of the arbitration clause the respondent firm appointed one Mr. T. R. Sharma as its arbitrator and the appellant appointed Mr. R. R. Desai, Deputy Legal Adviser, Ministry of Law, Government of India as its nominee. Mr. P. S. Bindra, a retired District Judge was appointed as the Umpire by order of the Sub-Judge dated 2nd August, 1961. Both the parties filed their respective claims before the arbirtators. The respondent firm claimed a sum of Rs. 73, 50,000 while the appellant contended that the respondent committed breach of the contract by not supplying in the supulated quantity of timber under the contract and as such claimed damages to the extent of Rs. 3,00,000. The case of the respondent firm was that in order to cover up possible rejection, a quantity of timber much in excess of the contracted quantity was despatched to the consignees and the excess quantity measuring 3,400 tons i. e., 1,70,000 cubic feet was still lying with the Lillooah consignee and 1,500 tons i. e., 7,500, cubic feet with the Halisahaar consignee and had not been returned despite repeated requests. The respondent firm claimed return of this quantity of timber and compensation for its deterioration. It was alternatively contended that in case the "Government failed to return the whole or part of the excess timber, then payment for that quantity at the market rate should be made. The appellant in its reply denied the allegation relating to the delivery and retention of excess quantity. It was specifically denied that 4,900 tons or any quantity was due to be returned to the respondent firm or that it was entitled to recover Rupees 73,500,00 or any amount as claimed. It was contended that in norms of the contract the respondent firm was to offer inspection of the store at its own premises at Lillooah and Halisahaar but instead of doing so, the respondent firm started to despatch the logs to the DCO's Lillooah and Halisahaar to be inspected at the consignees' premises. This was done for its own convenience and at its own risk. The inspected stores were retained by the consignee while the rejected stores were to be removed by the respondent firm from the consignee's premises at, their own expense, It was submitted that the dispute raised by the respondent firm was outside the scope of the arbitration agreement and that the arbitrators had no jurisdiction to entertain such a claim. After hearing the parties the Subordinate Judge rejected the application of the appellant by his order dated 20th July, 1964;