24 March 1955
Supreme Court






RESPONDENT: THE UNION OF INDIA(and connected appeal)

DATE OF JUDGMENT: 24/03/1955


ACT: Arbitration  Act,  1940,  (Act  X  of  1940),  s.  16(1)(c)- Arbitration -Award-Legality thereof-When can be  challenged- Arbitrator  Condition precedent for his  jurisdiction-Award- When final-Both parties specifically referring a question of law  for the decision of arbitrator-Cases where question  of law   specifically   referred  and  cases   where   decision incidentally material (however necessary) in order to decide the  question  actually  referred-Distinction  between-Wrong construction  of  contract-Error  of  law-Interest  awarded- Contract not providing for it-Requirements of Interest  Act, 1839 (Act XXXII of 1839) not fulfilled-Specific type of loss actually  contemplated  by the  parties-Express  stipulation that  no  damage will be payable Parties bound down  to  the agreement-Agreement  on  which suit based not found  in  the written  contract  but  implied under s.  9  of  the  Indian Contract  Act,  1872-Matter not covered by  the  arbitration clause Error of law apparent on the face of the award,

HEADNOTE: The  appellant, a contractor, entered into a  contract  with the Dominion of India for the supply of bricks.  A clause in the  contract  required  all  disputes  arising  out  of  or relating  to  the  contract to be  refered  to  arbitration. Disputes  arose  and  the matter  was  duly  referred.   The arbitrator  gave an award in the contractor’s  favour.   The Union  Government, which by then had displaced the  Dominion of India, contested the award on a number of grounds. Held:(1)  that it is not enough for the contract to  provide for arbitration; more is necessary.  An arbitrator only gets jurisdiction  when  either, both  the  parties  specifically agree to refer specified matters or, failing that, the court compels  them to do so under the arbitration clause  if  the dispute is covered by it; (2)  the legality of an award cannot be challenged on facts, but  it can be challenged on questions of law  provided  the illegality is apparent on the face of the award: s. 16(1)(c) of the Arbitration Act; (3)  the  only exception is when both  parties  specifically refer a question of law for the decision of the  arbitrator. In  that  event  they  are bound by  his  decision  on  that particular question as well as by his decision on the facts. But  a  distinction must be drawn between cases in  which  a question of law is specifically referred and those in  which a  decision is incidentally material (however necessary)  in order  to  decide the question actually referred.   The  law about this is the same in India as in England. 1923 A.C. 395 and 1933 A.C. 592, followed. 54 C.W.N. 74 at 79, 50 I.A. 324 at 330



49 331, 54 I.A. 427 at 430, 29 I.A. 51 at 60, 1942 A.C. 356  at 368 referred to and 1950 S.C.R. 792 at 798, explained; Quaere:-Whether the courts will interfere when a question of law   is  specifically  referred  if  the  arbitrator   acts illegally  in deciding it, such as deciding on  inadmissible evidence or on principles of construction which the law does not countenance. 1923 A.C. 395 at 409, referred to; (4)  a wrong construction of the contract is an error of law and can be challenged provided the error appears on the face of the award; (5)  so  is the awarding of interest when the contract  does not  provide  for  interest  and  the  requirements  of  the Interest Act are not fulfilled:65 I.A. 66, referred to. Quaere:   whether the Interest Act applies to arbitrations; (6)  when  a specific type of loss is directly  contemplated by  the parties to a contract and they  expressly  stipulate that  no damages will be payable in respect of it they  must be  bound down to their agreement and any claim for  damages in respect of such loss must be dismissed; (7)  when the agreement on which the suit is based is not to be found in a contract which has been reduced to writing but has  to be implied under s. 9 of the Contract Act  then  the matter  is not covered by an arbitration clause of the  kind referred to above because the dispute in such a case  arises out  of and relates to the implied agreement and not to  the written contract: 1942 A.C. 356 at 371, referred to.

JUDGMENT: CIVIL  APPELLATE JURISDICTION: Civil Appeal No. 260 of  1953 and connected appeal (C.A. No. 12 of 1954). Appeals  from the Judgment and Decree dated the 11th day  of May  1951  of  the  High Court of  Judicature  at  Patna  in Miscellaneous  Appeal  No. 253 of 1950 and  in  appeal  from Original  Order  No. 252 of 1950 arising out  of  the  order dated  the 11th day of May 1951 of the Court of  Subordinate Judge, Dhanbad in Suit No. 34 of 1949 and in Title Suit  No. 27 of 1949 respectively. Mahabir Prasad, Advocate-General for the State of Bihar  (S. P.  Varma  and M. Sinha, with him), for  the  appellant  (In Civil Appeal No. 260 of 1953). Mahabir Prasad, Advocate- General for the State of Bihar (M. M. Sinha for R. C. Prasad, with him), for the appellant  (In Civil Appeal No. 12 of 1954). 7 50 C.   K. Daphtary, Solicitor-General for India (Porus A. Mehta and  P. G. Gokhale, with him), for the respondent  (In  both the Appeals). 1955.  March 24.  The Judgment of the Court was delivered by BOSE  J.-This appeal and Civil Appeal No. 12 of 1954,  which will  also  be  governed by this judgment,  raise  the  same points  though there are some differences in the facts.   We will deal with Civil Appeal No. 260 of 1953 first. The  suit  there  related to  an  arbitration  matter.   The appellant before us, whom it will be convenient to call  the contractor,  entered  into a contract with the  Dominion  of India  through an Additional Chief Engineer of the  C.P.W.D. on  1-11-1945  for the supply of bricks to the  C.P.W.D.,  a department of the Dominion Government.  Disputes arose about a  number of matters.  Clause 14 of the  agreement  provided that all disputes arising out of or relating to the contract should  be  referred to the Superintending Engineer  of  the



Circle  for  the  time  being.   Accordingly,  there  was  a reference  on 21-1-1949 and an award followed  on  8-5-1949. It was filed in the Court of the Subordinate Judge, Dhanbad, and  the  contractor prayed that it be accepted and  that  a decree  be  passed in terms of it.  The  Dominion  of  India filed  objections under section 30 of the  Arbitration  Act, 1940   and   prayed  that  the  award  be  set   aside   and alternatively  that  it  be  modified  or  corrected.    The contractor’s  application  was registered as  a  suit  under section 20(2) of the Act and a decree was passed in terms of the award on 18-3-1950. By  that time the Constitution had come into force  and  the Union  of  India  replaced  the  Dominion  of  India  as   a defendant.   The Union of India filed an appeal to the  High Court.   The  appeal was allowed in  part.   The  contractor thereupon appealed to this Court. The dispute that was referred to the arbitrator consisted of 17 heads of claim but only three of them are contested here, namely items 5, 8 and 17. 51 In  the 5th head of claim the contractor claimed Rs.  75,900 as the price of 88 lacs of katcha bricks that were destroyed by  rain.  These bricks were not the subject-matter  of  the contract but the contractor put his claim in this way. The  contract  was for the supply of 2-1/2 crores  of  pucca bricks which bad to be delivered according to the  following schedule- 30 lacs by 25-1-46 50 lacs by 25-2-46 55 lacs by 25-3-46 55 lacs by 25-4-46 60 lacs by 25-5-46. Delivery  was to be at the kiln site.  In order to  keep  to this schedule the contractor bad to think ahead and work  to a particular time table.  First, he had to prepare katcha or unbaked  bricks  and  place them in his  kilns  for  baking. While  this  lot  was baking be had  to  prepare  and  stock another lot of katcha bricks ready to take the place of  the baked bricks as soon as they were removed.  It was the  duty of the C.P.W.D. to remove these bricks as soon as they  were ready  for  delivery,that is to say, as soon  as  they  were fully baked.   At  a  certain  stage  of  the  contract  the C.P.W.D.  failed to remove the baked bricks which were ready for  delivery and removal.  This caused a jam in  the  kilns and  prevented the contractor from placing a fresh stock  of unburnt bricks in the kilns, and in the meanwhile his  stock pile of katcha bricks ready for baking kept on mounting  up. Had everything been done to time the 2-1/2 crores of  bricks would  have  been delivered before the rains  set  in.   But owing  to  the default of the C.P.W.D. in not  removing  the burnt bricks which were ready for removal, delay occurred in the  time table and the rains set in with the result  that88 lacs  of katcha bricks were destroyed by the rains. As  this loss  was  occasioned  by the default of  the  C.P.W.D.  the contractor claimed that be should be paid their price. The  reply of the Union Government was two-fold.  First,  it contended  that  the  katcha bricks formed no  part  of  the contract and even if it was at fault in not 52 taking  delivery  of the burnt bricks in time  all  that  it could  be  held  liable  for would be  for  breach  of  that contract; and said that the loss that was occasioned by  the damage  caused to the katcha bricks which formed no part  of the  contract was too remote.  Secondly,  that  compensation for this loss could not in any event be claimed because this



kind  of  situation was envisaged by the  parties  when  the contract  was  made and they expressly stipulated  that  the Dominion  Government  would not be responsible.   The  Union Government relied on additional clause 6 of the agreement which is in these terms: "The department will not entertain any claim for idle labour or   for  damage  to  unburnt  bricks  due  to   any   cause whatsoever". The  arbitrator  held  that this clause was  not  meant  "to absolve  the department from carrying out their part of  the contract" and so he awarded the contractor Rs. 64,075  under this head. We  are  clear  that  the  arbitrator  went  wrong  in  law. Government departments have their difficulties no less  than contractors.   There  is trouble with labour, there  is  the likelihood  of  machinery breaking down in out  of  the  way places  and so forth; there was also the danger  of  thunder storms  and  heavy showers of rain in the month of  May:  it will be remembered that the last date of delivery was  25-5- 46. if, with that in view, Government expressly  stipulated, and the contractor expressly agreed, that Government was not to  be  liable for any loss occasioned by a  consequence  as remote as this, then that is an express term of the contract and the contractor must be tied down to it.  If he chose  to contract in absolute terms that was his affair.  But  having contracted he cannot go back on his agreement simply because it  does  not suit him to abide by it.  This is not  to  say that  Government is absolved from all liability, but all  it can be held responsible for is for damages occasioned by the breach  of its contract to remove the pucca bricks which  it had  undertaken  to remove.  But what would  such  a  breach entail? 53 The  contractor had a duty under section 73 of the  Contract Act to minimise the loss, accordingly he would have had  the right to remove the bricks himself and stack them  elsewhere and  claim  compensation  for the loss  so  occasioned;  and indeed  two  of  his heads of claim (not  in  dispute  here) relate  to that.  He has been awarded Rs. 11,744-11-0  under claim  No.  4  for the extra load  in  connection  with  the stacking of I crore 7 lacs of bricks due to the accumulation at  the kiln site owing to the department’s failure to  work to its part of the time table, and in addition, he has  been given  Rs. 15,500 under claim 13 for the cost  of  levelling and dressing land to enable him to stack these extra bricks. Alternatively,  he could have sold the bricks in the  market and claimed the difference in price, but ordinarily he could not have claimed compensation for damage done to the  katcha bricks unless he could have shown that that kind of  damage, ordinarily  too  remote, was expressly contemplated  by  the parties  when  the  contract was made:  section  73  of  the Contract  Act.   Here  it is clear that this  was  in  their express contemplation and they chose to provide against such a contingency by making clause 6 an express clause in  their contract.   There  can  therefore  be  no  doubt  that   the arbitrator  was wrong in his law.  His construction  of  the terms of the contract was at fault.  The question now arises whether his decision on this point is final despite it being wrong in law. In  India this question is governed by section 16(1) (c)  of the Arbitration Act of 1940 which empowers a Court to  remit an award for reconsideration "where an objection to the legality of the award is apparent upon the face 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 referred and it is evident that the 54 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.(1)  at page 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 F. B. Absalom  Ltd.  v.  Great  Western (London)   Garden   Village  Society(1)  and   in   Kelantan Government  v. Duff Development Co.(1). In Durga  Prasad  v. Sewkishendas (3) the Privy Council applied the law expounded in Absalom’s case(2) to India: see also Champsey Bhara & Co. v.  Jivraj  Balloo  Spinning and Weaving  Co.(4)  and  Saleh Mahomed  Umer Dossal v. Nathoomal kessamal (5).   The  wider language  used  by  Lord  Macnaghten  in  Ghulam  Jilani  v. Muhammad Hassan(1) bad 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 so  is bound  to follow and apply the law, and if he does  not,  he can be set right by the Courts provided his error appears on the face 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. (1)  [1923] A.C. 395. (2)  [1933] A.C. 592. (3)  54 C.W.N. 74, 79. (4)  50 I.A. 324, 330 & 331. (5)  54 I.A. 427, 430. (6)  29 I.A. 51, 60. 55 Reference was made to a decision of this Court in A. M. Mair & Co. v. Gordhandass Sagarmull(1) where Fazl Ali, J.  quoted a passage from Viscount Simon’s speech in Heyman v.  Darwins Ltd.") where the learned Lord 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(1) just cited at pages  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.  Lord Russell of  Killowen and Lord Wright were both in the earlier case, F. R. Absalom Ltd. v. Great Western (London) Garden Village Society(1), as well  as in Heyman’s case(2) and they would have pointed  to any distinction had there been a likelihood of conflict; but in  fact  there  is none and we do not read  Fazl  Ali  J.’s judgment as a decision to the contrary. We have next to see whether the arbitrator was  specifically asked  to construe clause 6 of the contract or any  part  of the   contract,   or  whether  any  question  of   law   was specifically  referred.  We stress the  word  "specifically" because parties who make a reference to arbitration have the right  to  insist that the tribunal of  their  choice  shall decide  their dispute according to law, so before the  right can  be denied to them in any particular matter,  the  Court must be very sure that both sides wanted the decision of the arbitrator on a point of law rather than that of the  Courts and  that  they  wanted his decision oil that  point  to  be final. (1) 1950 S.C.R. 792 at 798.  (2) 1942 A.C. 356 at 368.   (3) 1933 A.C. 592. 56 The clause in the contract that requires disputes about  the contract  to be referred to arbitration is clause 14 and  is in the following terms: "Except  where  otherwise  provided  in  the  contract   all questions  and  disputes  relating to  the  meaning  of  the specification and instructions here in before mentioned  and as  to  quality of materials or as to  any  other  question, claim, right, matter or thing whatsoever in any way  arising out   of  or  relating  to  the   contract,   specification, instructions,  orders  or  these  conditions,  or  otherwise concerning the supplies whether arising during the  progress of  delivery or after the completion of abandonment  thereof shall  be referred to the arbitration of the  Superintending Engineer  of  the Circle for the time being  in  the  manner provided  by law relating to arbitration for the time  being in force who after such investigation as he may think proper shall deliver his award which shall be final, conclusive and binding on all parties to the contract". The  dispute  sprang  out of a series of claims  made  in  a number   of  letters  written  by  the  contractor  to   the Additional  Chief  Engineer, C.P.W.D. and  culminated  in  a petition, Ex.  B(1), in which the contractor summarised  his claims.   The  document is not dated.  On receipt  of  this, someone  on behalf of the C.P.W.D. invoked the  jurisdiction of  the  arbitrator.  That letter has not been  filed.   The arbitrator  then  wrote to the contractor and asked  him  to submit a statement of claim.  That letter has not been filed either  but  reference  is  made to it  in  Ex.   C(1),  the statement  claim which the contractor filed in  response  to that  letter.   As the material documents  setting  out  the terms of reference are not here, we were asked by both sides to  infer what the terms were from this statement  of  claim and the recitals in the award.  The learned counsel for  the contractor relied on the following: In the statement of claim- "Item 5.-Loss of katcha bricks............     Rs. 75,900. The chief reason of the destruction of these bricks was  the failure of the department to lift the 57 monthly quota of bricks The argument of the department  that



they are not liable to compensate us on this account because of clause 6 of the agreement is not correct. Clause 6 refers to only such cases over which the department has no control.  But if the department would have lifted the bricks (this was entirely under their control) then no  such loss  would have occurred.  Also be it noted that  clause  6 refers  only  to ’damage’ and not  to  ’destruction......... Damage  means only partial loss.............it  cannot  mean total destruction.: The award states-    "The  statement  of claims submitted  by  the  contractor contains seventeen items in respect of which the  contractor claimed  a total payment of Rs. 4,76,138-12-0 plus  interest i.e., approximate total amount claimed: Rs. 5,03,803-12-0 as detailed below". Then follow the seventeen items of which item 5 is-   "Payment for katcha bricks destroyed by rain: Rs. 75,900". The body of the award deals with this as follows:              "               Claim No. 5. Payment for 88. lacs of katcha bricks destroyed by rain. The contractor argued etc The Executive Engineer stated .........The C.P.W.D. moreover were safeguarded by clause 6 of the contract............ The  contractor  maintained that clause 6  of  the  contract could not be invoked when the department was at fault as  in this case.  Clause 6 was meant to cover contingencies  which were not of the department’s own making. I hold that the removal of the bricks in such a manner or to prevent  accumulation  in excess of 60 lacs was  an  implied contractual obligation on the part of the C.P.W.D........  I further  hold that the C.P.W.D. cannot take  shelter  behind clause  6  of  the  contract.  This clause  is  not,  in  my opinion, meant 8 58 to  absolve the department from carrying out their  part  of the  contract.  It is impossible not to admit  this  without offending the rudiments of common sense reasoning". We  are  of opinion that this is not the  kind  of  specific reference  on  a point of law that the  law  of  arbitration requires.   In the first place, what was shown to us  is  no reference   at  all.   It  is  only  an  incidental   matter introduced  by  the Dominion Government to repel  the  claim made  by the contractor in general terms under claim No.  5. In the next place, this was the submission of the contractor alone.   A reference requires the assent of both sides.   If one  side  is  not  prepared to submit  a  given  matter  to arbitration when there is an agreement between them that  it should  be referred, then recourse must be had to the  Court under  section 20 of the Act and the recalcitrant party  can then  be  compelled to submit the matter  under  sub-section (4).   In  the absence of either, agreement  by  both  sides about the terms of reference, or an order of the Court under section 20(4) compelling a reference, the arbitrator is  not vested   with   the   necessary   exclusive    jurisdiction. Therefore,  when  a question of law is the point  at  issue, unless  both sides specifically agree to refer it and  agree to  be bound by the arbitrator’s decision, the  jurisdiction of the Courts to set an arbitration right when the error  is apparent  on the face of the award is not ousted.  The  mere fact  that both parties submit incidental arguments about  a point of law in the course of the proceedings is not enough. The  language of Lord Wright in F. R. Absalom Ltd. v.  Great Western (London ) Garden Village Society(1), a case  similar to this so far as this point is concerned, is apposite here-



"There is here no submission of any specific question of law as  such  and  as  a specific  question  of  law;  no  doubt incidentally,  and indeed necessarily, the  arbitrator  will have  to  decide some questions on the construction  of  the building  contract, but. the two matters submitted are  both composite  questions  of law and fact; there is  no  express submission of the (1)  [1933] A.C. 592, 616. 59 true  effect  of  the contract on the  basis  of  undisputed facts,  as  in  the Kelantan case(1) or as  a  separate  and distinct matter on facts to be separately assumed or  found, as  in In re King and Duveen(2)..........The arbitrator  was not being asked simply and specifically to decide, upon some agreed or assumed basis of fact, the true interpretation  of either  clause 26 or clause 30 of the conditions or of  both together; he was being required to make an award on the  two matters  submitted  on whatever questions of  fact  and  law might emerge". Clause 32 of the contract in the House of Lords case was the equivalent of clause 14 in ours.  It ran-   "Provided  always that in case any dispute  or  difference shall  arise  ............. as to the  construction  of  the contract   or   as   to  any   matter   or   thing   arising thereunder............  such dispute shall be and is  hereby referred to the arbitration and final decision of etc." The  arbitrator  relied on that to invest  him  with  juris- diction to determine,, as a matter of law, the  construction of clauses 26-30 of that contract.  The House of Lords  held that  in  the  absence of a  specific  reference  about  the construction of the contract the jurisdiction of the  Courts was  not taken away.  Lord Russell of Killowen put  it  this way at page 610- "No  specific  question  of  construction  or  of  law   was submitted.   The  parties  had,  however,  been  ordered  to deliver  pleadings,  and  by their statement  of  claim  the contractor had claimed that the arbitrator should under  his powers revise the last certificate issued etc...... It is at this  point  that  the  question  of  the  construction   of condition  30 arose as a question of law,  not  specifically submitted, but material in the decision of the matters which bad been submitted.  This question of law the arbitrator has decided; but if upon the face of the award he has decided it wrongly  his decision is, in my opinion, open to  review  by the Court". That  is  exactly  the position here.   Simply  because  the matter was referred to incidentally in the plead- (1) [1923] A. C. 395.            (2) [1913] 2 K.B. 32, 36. 60 ings  and arguments in support of, or against,  the  general issue  about  liability for damages, that is not  enough  to clothe the arbitrator with exclusive jurisdiction on a point of law. The  next question is whether the error is apparent  on  the face of the award.  That; in our opinion, is clear from  the passages we have quoted from the award. We   hold  that  clause  6  expressly  relieves  the   Union Government  of  all liability under this head of  claim  and that  the arbitrator was wrong in awarding any sum  on  that account. The  next head in dispute is item No. 8 in the statement  of claim: "Cost of additional wages paid to the coolies on account  of non-supply of ration and cloth-Rs. 51,495". Here again no specific question of law was referred, so  all



we have to see is whether there is an error of law  apparent on the face of the award. The  contractor put his case as follows in the statement  of claim: "At  the  time when this work was allotted to us  there  was rationing  system  in the locality.  As  per  conditions  of contract we were bound not to employ local labour and we had to import coolies from far off places.  We had in our employ about  1800 coolies and it was an impossibility  to  arrange their ration from open market.  This difficulty was  brought to  the  notice  of  the  authorities  concerned,  and  they promised  us  to  supply ration.  It  was  only  after  this promise that we signed the agreement..... From a perusal  of these letters it is clear that the department promised us to supply ration............... These circumstantial  evidences are  sufficient  enough  to show that  there  was  a  mutual understanding  between  the  parties  that  ration  will  be supplied.   In the eyes of law even circumstantial  evidence is  sufficient to prove that such a promise was  made.   Any breach  of that promise makes the department legally  liable to  compensate for that loss.......... Apart from the  legal responsibility  it was also a moral responsibility  for  the department to supply ration". 61 This claim, therefore, was not grounded on any clause of the contract,  nor was it said to be implied in  the  -contract. What  was relied on was a collateral promise evidenced,  not by  the  contract,  but  by  two  letters  written  by  "the department"  and a promise by "the  authorities  concerned"; and   later   this  promise  is  turned   into   a   "mutual understanding"  and to a "moral responsibility" in  addition to a legal one. The  arbitrator  dealt with this as follows.   He  began  by saying- "The contractor stated that when he submitted his tender  on 25-9-45  he  did  so  in  the  bona  fide  belief  that  the department would make the necessary arrangements, etc." Then  he  sets  out the following  dates.   On  1-11-45  the contractor  was told that his tender had been accepted.   On 9-11-45 the contractor "warned" the Executive Engineer about his  "immediate  requirements in respect of  rations".   The contract was finally accepted and signed on 22-11-45. Now  it  is admitted that the contract  contains  no  clause about  rations and it is also evident that the question  was not  raised  when the tender was accepted on behalf  of  the Dominion Government.  The question was raised in a letter to the  Executive  Engineer,  and  the  contractor  signed  the contract without waiting for a reply. It  is  well settled that governments can only be  bound  by contracts  that  are entered into in a  particular  way  and which  are signed by the proper authority.  A  reference  to the agreement, Ex.  A(1), will show that it was accepted  on behalf  of the Dominion Government by the  Additional  Chief Engineer and not by an Executive Engineer.  A letter written to the Executive Engineer would therefore have no effect and even  if it be assumed that the letter was forwarded to  the Additional  Chief Engineer for consideration, what  does  it amount  to?  A tender embodying certain terms  is  submitted and  is accepted on 1-11-45.  Both sides are agreed  on  all matters  contained in it and their conduct shows  that  both sides  indicated  that  the contract should  be  reduced  to writing.  Be- 62 fore  the agreement is signed, one party wants to include  a further condition in the contract.  We will assume that  the



request  was  made  to the  other  contracting  party.   But without waiting for the assent of the other side, both sides accept and sign the contract as it existed before the  fresh suggestion  was made.  It is an error in law to deduce  from this  that there was acceptance of the fresh  proposal.   On the   contrary,  the  legal  conclusion  is  that  the   new suggestion  was dropped and that the contractor was  content to  accept the contract as it was without’  this  condition. In  any case, a person cannot be bound by a one-sided  offer which  is  never  accepted, particularly  when  the  parties intend that the contract should be reduced to writing.  That is the whole point of insisting on a document.  It  excludes speculation  as  to  what was and what  was  not  agreed  to however much the matter might have been raised by one of the parties during the stage of negotiation. The arbitrator continues that the contractor stated that- "it was a well known and established fact that Sindri was  a rationed  area;  that the C.P.W.D. were  giving  rations  at controlled rates to their employees and contractors  through arrangements  with the local Civil Supply Authorities;  that nobody  working  under  the C.P.W.D.  was  allowed  to  make independent  arrangements  or  approach  the  Civil   Supply Authorities direct" and  the  contractor contended that the very  fact  that  he tendered  such low rates showed that he expected  to  supply his  labourers  with  rations  at  controlled  rates.    The arbitrator  then  sets  out some more  of  the  contractor’s contentions and from them concludes that "there  was  an  implied  contractual  obligation  for   the C.P.W.D.  to  make  available  controlled  rations  to   the contractor  and that this obligation was not fulfilled  with due diligence and care". He accordingly awarded Rs. 40,000 as compensation under this head. The  error  is  apparent. -Facts must  be  based  either  on evidence or on admissions; they cannot be found to 63 exist  from  a mere contention by one side  especially  when they are expressly denied by the other.  The inference  from the  facts stated above is that the contractor entered  into the agreement with his eyes open and whatever his  one-sided hopes  may  have  been  he was content  to  enter  into  the agreement as it stood without binding the other side to  the new  conditions  and without even waiting to  ascertain  the reaction of the other side to his further proposals. It has to be remembered that rationing was not a matter that was  under  the  direction  and  control  of  the   Dominion Government.   It  was  a local matter handled  by  the  then Provincial   authorities  and  under  their  direction   and contract.   The  C.P.W.D., as a department of  the  Dominion Government, was not concerned with rationing except that its employees had to submit to rationing like everybody else  in the  Sindri  area.   This  confusion  between  the  Dominion Government  and  the  Provincial Government  occurs  in  the arbitrator’s opening sentence under this head where he  sets out the contractor’s contention that "commodities such as rations and cloth which were absolutely essential  for  the maintenance of his labourers  and  which were  under  Government control".  As the  arbitrator  bases solely on the contractor’s contentions it is evident that he failed  to appreciate the fact that the Dominion  Government and  the  Provincial  rationing  authorities  were  separate entities   distinct   from  one   another.    The   position accordingly reduces itself to this: two persons, neither  of which  is  a part of the Provincial Government  or  has  any



control over rationing, chose to enter into an agreement for work in a rationed area.  They insisted that their  contract should be reduced to writing, and that indeed was essential, this being a contract with the Dominion Government which was incapable of contracting in any other way; they agreed  upon and concluded all their terms; then, at the last minute, one side raised a point about rationing but without waiting  for a reply and without having the term entered in the contract, he  signed  the contract as it stood  before-the  point  was raised even during the negotiation.  It is 64 an error in law to hold that any contractual obligation  can be inferred or implied from these circumstances. Then  there  is  still  another  error.   If  this   implied agreement about rations and cloth does not spring out of the written  contract  but is to be inferred collaterally  as  a distinct and subsidiary contract, and we gather that that is the  finding, especially as reference was made to section  9 of  the Contract Act, then that is not a contract  to  which the arbitration clause can apply.  Wide though it is, clause 14  is confined to any matter relating to the  written  con- tract and if ration and cloth are not covered by the written contract, they are not matters that relate to it. If parties choose  to  add  a  fresh contract  in  addition  to  or  in substitution for the old, then the arbitration clause cannot cover  the  new contract.  See Lord Macmillan in  Heyman  v. Darwins Ltd.(1). The  last  item in dispute in this appeal is  claim  No.  17 about  interest.  The statement of claims sets out "Item  17-Interest on the amount of money involved  in  this claim at the rate of Rs. 6 percent.Rs. 27,665.   This  work was finished in May 1946 and it was proper  for the  department to have decided all our claims at  least  by 31st December 1947........................ But this was  not done.  Due to this a heavy amount remained blocked up and we were  compelled to take money from our bankers on  interest. We therefore pray for interest for 16 months from 1-1-48  to 31-4-49". The arbitrator held--     "The contractor’s contention that his claims should have been settled by January 1948 is, in my opinion,  reasonable. I therefore award interest at 6% for 16 months on the  total amount of the awards given i.e., Rs. 17,363". Then the arbitrator sets out the amounts awarded under  each head  of  claim.   A perusal of them shows  that  each  bead relates  to a claim for an unliquidated sum.   The  Interest Act, 1839 applies, as interest is (1)  [1942] A.C. 356 at 371. 65 not  otherwise  payable  by law in this kind  of  case  (see Bengal Nagpur Ry.  Co. v. Ruttanji Ramji(1)), but even if it be  assumed  that  an arbitrator is  a  "court"  within  the meaning of that Act, (a fact that by no means appears to  be the  case),  the following among other  conditions  must  be fulfilled before interest can be awarded under the Act:- (1)  there must be a debt or a sum certain; (2)  it must be payable at a certain time or other- wise; (3)  these  debts or sums must be payable by virtue of  some written contract at a certain time; (4)  There  must have been a demand in writing stating  that interest will be demanded from the date of the demand. Not  one  of these elements is present,  so  the  arbitrator erred  in  law in thinking that he had the  power  to  allow interest   simply   because  he  thought  the   demand   was



reasonable. It  was  suggested that at least interest from the  date  of "suit" could be awarded on the analogy of section 34 of  the Civil  Procedure Code, 1908.  But section 34 does not  apply because an arbitrator is not a "court" within the meaning of the  Code nor does the Code apply to arbitrators,  and,  but for  section  34, even a Court would not have the  power  to give  interest  after the suit.  This was,  therefore,  also rightly struck out from the award. We pause to note that there was only a delay of five days at the  outside  in the over-all picture.  The  last  date  for removal of the last instalment of bricks was 25-5-46 and the contractor says under this head that the whole contract  was completed  by the end of May, 1946.  It is difficult-to  see how 88 lacs of bricks could have been damaged by rain in the last five days of May, and if the damage occurred before  it would have occurred anyway, for on the contractor’s case  he had to have a large stack of unbaked bricks on hand ready to enter  the kilns in order to keep pace with his time  table. However, that was a (1)  65 I.A. 66. 9 66 matter within the jurisdiction of the arbitrator and is  not a matter in which the Courts can interfere. That concludes Civil Appeal No. 260 of 1953 and we now  turn to the other appeal, Civil Appeal No. 12 of 1954.  Only  two items are in dispute here.  Heads 4 and 17 of the claim. The  over-all  pattern of the claim is the same  as  in  the other  case.  There was a contractor and he entered into  an agreement  containing the same terms and conditions,  except about the details of supply.  It was signed on the same  day as  the  other and by the same authority on  behalf  of  the Dominion  Government., and the matter went before  the  same arbitrator and the award in this case was given on 1-5-1949, one  week  before the other award.  Here also,  no  specific question of law was referred and we need not cover the  same ground.  Our decision is the same here as there. The  fourth head of claim is about cloth and  rations.   The claim  here.,  and the Dominion Government’s reply,  is  the same as in the other case, but the award in this case is not based  on an implied contractual obligation but on "a  moral and  implied  obligation".  The error here is  even  greater than before.  The sum claimed was Rs. 51,495 and the  amount awarded was Rs. 30,000. The  seventeenth  head  of claim was  about  interest.   The contractor claimed Rs. 27,665 and the arbitrator awarded Rs. 9,954.  There is the same error of law apparent on the  face of the award. The High Court was right in dismissing the claims made under the heads in dispute here.  The two appeals fail and each is dismissed with costs in this Court.                Appeals dismissed. 67