Falshaw, J. - (1.) THIS is an appeal by the Union of India against the order of a Sub Judge at Delhi rejecting the Government's application for setting aside an arbitration award and making the award delivered by the Umpire after a difference between the arbitrators for the payment of Rs. 3,26,251-6-3 with costs and further interest at the rate of 41/2 per cent per annum in favour of the claimant, Mr. A. L. Rallia Ram, a rule of the Court.
(2.) THE history of the case is as follows: In August 1946 the Chief Director of Purchases (Disposals) of the Food Department of the Government of India invited tenders for the purchase of the entire stock of American cigarettes lying with the Government. THE claimant's tender for the purchase of the whole stock at Rs. 0-8-3 per packet of 20 cigarettes was accepted by the acceptance note Ex. P. 9 dated the 9th of September, 1946, the total purchase price being Rs. 38,93,933-7-9. THE stocks were lying in Assam and Calcutta and delivery was to be taken at Calcutta in five in stalemates against payment of instalments, and there is no doubt that the claimant actually paid a sum of over Rs. 17,70,000 to the Government. He actually took delivery of a large quantity of the cigarettes but owing to the peculiar conditions at Calcutta at that time when there were communal disturbances and proper arrangements were difficult he had to take delivery somewhat hurriedly and without having the opportunity for even the limited inspection which he was allowed under the terms of the contract. He claimed in fact that the stock of cigarettes should have been properly surveyed by the Government before any deliveries were taken and that on a proper inspection of the cigarettes he found that a very large quantity of them were mildewed or in fact infected with insect or otherwise in a poor condition. His protests led to the holding of a survey by a Board appointed by the Government of the undelivered cigarettes, the result of this survey being a report to the effect that cigarettes amounting to Rs. 6,58,453-2-0 were wholly unfit for issue at all, these being classified under the heading 'A' while a quantity of the cigarettes fell into the category 'B' on which a reduction of 37 1/2 per cent in price was recommended, and a further quantity in category 'C' was recommended to be sold at 25 per cent reduction. This, however, was not acceptable to the claimant who suggested to the Food Member on the 19th of February, 1947 that a flat reduction of 50 per cent should be allowed on the stocks already taken by him as well as those still lying with the Government, or in the alternative the Government should take back from him the cigarettes of which he had already taken delivery at cost. The Government decided to cancel the contract altogether in respect of the undelivered cigarettes and to take back from him such delivered cigarettes as were in the original packing and could be identified, and even in the case of unidentifiable stocks the contract was also to be cancelled provided that the claimant was not responsible for the deterioration during their custody with him and subject to the condition that no claim would be made by the claimant in respect of freight, storage, and landing charges incurred by him in connection with the stock taken back by the Government. These terms were accepted by the claimant except that he reserved his right to claim incidental expenses. This led to the referring of the dispute between the parties to arbitration. The arbitration proceedings culminated in the award by the Umpire to whom the disputes were referred after the disagreement between the arbitrators dated the 30th of January 1950. The award contains a detailed discussion covering 14 pages and by it the Government was ordered to pay the contractor a sum of Rs. 3,26,251-6-3, (1) Rs. 68,833-12-3 on account of interest, (2) Rs. 1,32,417-100 on account of loss suffered by the purchaser with respect to 6,34,270 packets and (30 Rs. 1,25,000 on account of incidental expenses together with Rs. 4,000 as costs of the arbitration proceedings and future interest at the rate of Rs. 4 1/2 per cent from the 1st of April 1950. The Government opposed the filing of the award on grounds which gave rise to the following issues: 1. Is there any valid contract or a valid agreement of reference to arbitration between the parties? 2. Is not the defendant entitled to raise the pleas given in issue No.1? 3. Has the Umpire misconducted himself and or the proceedings? 4. Is the award void and in excess of the jurisdiction of the Umpire? All these issues were decided in favour of the claimant and the Government's objections were overruled.
(3.) THE learned Solicitor General first attacked the award on the ground that it contained errors of law patent on the fact of the record. In particular it was contended that the Umpire had clearly made a mistake in respect of his interpretation of the combined effect of clause 4 of the general conditions of contract and clause 6 of the terms contained in the letter of acceptance of the tender, and also that the Umpire had clearly erred in allowing interest, which actually was not allowed as interest but as damages on the principle that after the cancellation of the contract by the Government the claimant was entitled to be indemnified for all the expenses incurred by him in connection with the contract, and these included the interest which he himself had to pay to the Bank from whom he borrowed Rs. 17,00,000 which he actually deposited with the Government, and part of which was ultimately refunded to him. It is, however, contended on behalf of the claimant that where a point of law is referred to an arbitrator for his decision the court cannot interfere even if it considers that the point has been wrongly decided. The learned Solicitor General relied on the decision of the Supreme Court in Thawardas Pherumal v. Union of India, (1955) 2 SCR 48: ((S) AIR 1955 SC 468). That was a case in which a contractor had entered into a contract with the Dominion of India for the supply of bricks and the contract contained the usual clause for referring all disputes arising out of or relating to the contract to arbitration. Disputes arose and the matter was referred to an arbitrator who gave an award in the contractor's favour. The Supreme Court found that the arbitrator in that case had in fact erred in law, and the question arose as to whether the court should interfere to set aside the award. The matter was dealt with as follows: "In India this question is governed by section 16(1)(c) of the Arbitration Act of 1940 which empowers a Court to emit an award for reconsideration "where an objection to the legality of the award is apparent upon the fact of it." This covers cases in which an error of law appears on the face of the award. But in determining what such an error is, a distinction must be drawn between cases in which a question of law is specifically referred and those in which a decision on a question of law is incidentally material (however necessary) in order to decide the question actually referred. If a question of law is specifically refereed and it is evident that the parties desire to have a decision from the arbitrator about that rather than one from the Courts, then the Courts will not interfere, though even there, there is authority for the view that the Courts will interfere if it is apparent that the arbitrator has acted illegally in reaching his decision, that is to say, if he has decided on inadmissible evidence or on principles of construction that the law does not countenance or something of that nature. See the speech of Viscount Cave in Kelantan Government v. Duff Development Co. Ltd., 1923 A. C. 395 at p. 409. But that is not a matter which arises in this case. The law about this is, in our opinion, the same in England as here and the principles that govern this class of case have been reviewed at length and set out with clarity by the House of Lords in Absalom Ltd., v. Great Western (London) Garden Village Society Ltd., 1933 AC 592 and in 1923 AC 395. In Durga Prasad v. Sewkishendas, 54 Cal, WN 74: (AIR 1949 PC 334) the Privy Council applied the law expounded in Absalom's case, 1933 AC 592 to India. See also Champsey Bhara and Co. v. Jivraj Balloo Spinning and Weaving Co., Ltd., 50 Ind App 324: (AIR 1923 PC 66) and Saleh Mahomed Umar Dossal v. Nathoomal Kessamal, 54 Ind App 427: (AIR 1927 PC 164). The wider language used by Lord Macnaghten in Ghulam Jilani v. Mahammad Hassan, 29 Ind App 51 had reference to the revisional powers of the High Court under the Civil Procedure Code and must be confined to the facts of that case where the question of law involved there, namely limitation, was specifically referred. An arbitrator is not a conciliator and cannot ignore the law or misapply it in order to do what he thinks is just and reasonable. He is a tribunal selected by the parties to decide their disputes according to law and if he does not he can be set right by the Courts provided his error appears on the fact of the award. The single exception to this is when the parties choose specifically to refer a question of law as a separate and distinct matter. Reference was made to a decision of this Court in A. M. Mair and Co. v. Gordhandas Sagarmull, 1950 S. C. R. 792 at p. 798: (AIR 1951 SC 9 at p. 11) where Fazl Ali. J. quoted a passage from Viscount Simon's speech in Heyman v. Darwins Ltd., 1942 AC 356 at p. 368 where the learned Chancellor (Viscount Simon) in turn quoted from Lord Dunedin in another case. It was argued on the basis of this that if you have to have recourse to the contract to establish your case, then the dispute must fall within the arbitration clause. That is undeniable but it is not enough that the dispute should fall within the clause. It is also necessary that the parties should define what the dispute is and agree to refer the dispute so set out and defined to arbitration, or, if they do not, that the Court should compel them to do so: See Lord Macmillan in Heyman's case, 1942 AC 356 at pp. 369 and 370. If, therefore, no specific question of law is referred, either by agreement or by compulsion, the decision of the arbitrator on that is not final however much it may be within his jurisdiction and indeed essential, for him to decide the question incidentally." One of the cases referred to in this judgment, the decision of the Privy Council in 54 Cal WN 74: (AIR 1949 PC 334) was relied on by the lower court as a ground for refusing to interfere. The view expressed therein was that where a question of law is specifically referred to the arbitrator for decision and he decides it, it would be contrary to well-established principles for a Court of law to interfere with the award even if the Court itself would have taken a different view of the point of law had it been before it, and it is clear that this view has been accepted by the Supreme Court.;