TMI Blog1960 (1) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... establishments and contingencies provided by the Agents on the Government's account for carrying out the purchase and supply of ghee, and (3) the buying remuneration. In consideration of the Government paying to the Agents a sum of rupee one and anna one only per one hundred pounds nett weight of finally accepted ghee, as combined financing and overhead (mandi) charges, the Agents by clause 13 undertook to provide the working capital and also to bear the costs, charges and expenses, including financing and overhead charges incurred by them in buying ghee in the market. 2. The Agents also undertook, by clause 14, to bear the establishment and contingency charges for the due performance by them of the terms of the agreement, and the Government agreed to pay in consideration thereof annas 14 and pies 6 per every hundred pounds of ghee accepted. The Government also agreed to pay to the Agents remuneration for services rendered in purchasing ghee, at the rate of one rupee per one hundred pounds nett weight of accepted ghee. 3. Pursuant to the agreement, the Agents supplied from time to time ghee to the Government of India, as required. In September, 1939, the World War I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Purchases called upon the Agents to submit the report of their auditors on the agency accounts, for the ghee supplied, as also a statement in detail, showing the actual expenditure incurred. 5. The notice dated May 17, 1945, was waived by mutual consent, and under an arrangement dated May 16, 1946, the Agents agreed to supply five thousand tons of ghee by October 31, 1946, on which date, the agreement dated May 3, 1937, was to come to an end. 6. By their letter dated July 1, 1946, the Agents claimed that a dispute had arisen under the contract, and appointed one Nigam to be arbitrator on their behalf to adjudicate upon the dispute, pursuant to clause 20 of the terms of the agreement dated May 3, 1937, and called upon the Government of India to appoint their arbitrator. The Government of India, by their letter dated July 10, 1946, nominated one Rangi Lal to be arbitrator on their behalf. Before the arbitrators, the Agents made their claim under four heads : (1) The Agents claimed that the agreement dated June 20, 1942, was not binding upon them, and they were entitled to ₹ 23,08,372-8-0 being the difference between the buying remuneration, establishment and contingenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment, for settling the dispute. 9. Against the order of the Subordinate Judge, the Union of India appealed to the High Court of East Punjab. Khosla, J., who heard the appeal, confirmed the order passed by the court of first instance. The learned Judge agreed with the view of the Subordinate Judge that the umpire had been guilty of judicial misconduct. The learned Judge observed in his judgment that the claim of the Agents, as described in Schedules B and C, was not beyond the arbitration agreement. In so observing, presumably, the learned Judge committed some error. The Subordinate Judge had come to the conclusion that the claim described in Sch. C, was beyond the arbitration agreement, and no reasons were given by Khosla, J., for disagreeing with that view. 10. Appeal 31 of 1953 under the Letters Patent, against the judgment of Khosla J., was dismissed by a Division Bench of the High Court of East Punjab, observing that the claim detailed in Sch. B arose out of the contract, but that it was unnecessary to decide whether the claim described in Sch. C for an increase in the financing and overhead mandi charges, was properly ruled out by the umpire. 11. In the meantime, by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overnment of India. Inter alia, it was denied that any assurances were given by the Director of Purchases or that the Agents continued to supply ghee relying upon such alleged assurances. It was asserted that the Agents continued to supply ghee without insisting upon any modification of the agreement, because they found, and it must be presumed that they found, it profitable to do so under the terms fixed under the supplementary contract dated June 20, 1942. The claims made for the additional buying remuneration, for mandi charges and for establishment and contingency charges, were denied. It was urged that, in any event, the claim for additional buying remuneration and for mandi charges and for reimbursement of establishment and contingencies, was not covered by clause 20 of the agreement, under which the submission to arbitration was made, and the arbitrators had no jurisdiction to adjudicate upon those claims. 13. On the claim made by the Agents, and the denial thereof, the arbitrators incorporated the points of contest in the form of certain issues. On May 2, 1954, the arbitrators made an award rejecting the primary claim on the view that the supplementary agreement dated Ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave of the High Court under clause 133(1)(a) of the Constitution. 16. The extent of the jurisdiction of the court to set aside an award on the ground of an error in making the award is well-defined. The award of an arbitrator may be set aside on the ground of an error on the face thereof only when in the award or in any document incorporated with it, as for instance, a note appended by the arbitrators, stating the reasons for his decision, there is found some legal proposition which is the basis of the award and which is erroneous - Champsey Bhara and Company v. Jivaraj Balloo Spinning and Weaving Company, Limited L.R. 50 IndAp 324 If, however, a specific question is submitted to the arbitrator and he answers it, the fact that the answer involves an erroneous decision in point of law, does not make the award bad on its face so as to permit of its being set aside - In the matter of an arbitration between King and Duveen and Others L.R. (1913) 2 K.B.D. 32 and Government of Kelantan v. Duff Development Company Limited L.R. 1923 A.C. 395 17. Was the reference made by the parties to the arbitrators a specific reference, that is, a reference inviting the arbitrators to decide certa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h clause 12(b)(2) of the agreement, the rate at which establishment and contingency charges were to be paid, was expressly stipulated, and there is no dispute that the Government of India have paid to the Agents those charges at the stipulated rate for ghee actually purchased. The award of the arbitrators shows that the amount actually received from the Government, totalled ₹ 6,04,700-9-0, whereas, according to the account maintained by the Agents, they had spent ₹ 6,77,542-0-3. Granting that the Agents had incurred this additional expenditure under the head 'establishment and contingencies', when the contract expressly stipulated for payment of charges at rates specified therein, we fail to appreciate on what ground the arbitrators could ignore the express covenants between the parties, and award to the Agents amounts which the Union of India had not agreed to pay to the Agents. The award of the arbitrators, awarding additional expenses under the head of establishment and contingencies, together with interest thereon, is on the face of it erroneous. 20. Before the arbitrators, a number of arhatias, who supplied ghee to the Agents, appeared and produced extra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to a contract to ignore the express covenants thereof, and to claim payment of consideration for performance of the contract at rates different from the stipulated rates, on some vague plea of equity. The parties to an executory contract are often faced, in the course of carrying it out, with a turn of events which they did not at all anticipate - a wholly abnormal rise or fall in prices, a sudden depreciation of currency, an unexpected obstacle to execution, or the like. Yet this does not in itself affect the bargain they have made. If, on the other hand, a consideration of the terms of the contract, in the light of the circumstances existing when it was made, shows that they never agreed to be bound in a fundamentally different situation which has now unexpectedly emerged, the contract ceases to bind at that point - not because the court in its discretion thinks it just and reasonable to qualify the terms of the contract, but because on its true construction it does not apply in that situation. When it is said that in such circumstances the court reaches a conclusion which is 'just and reasonable' (Lord Wright in Constantine Steamship Line Ltd. v. Imperial Smelting C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;s case - (1952) A.C. 166 - already referred to. In India, in the codified law of contracts, there is nothing which justifies the view that a change of circumstances, completely outside the contemplation of parties at the time when the contract was entered into, will justify a court, while holding the parties bound by the contract, in departing from the express terms thereof. 1949 2 KB 632 was a case in which on the true interpretation of a contract, it was held, though it was not so expressly provided, that the profits of a private contractor, who had entered into a contract with the Commissioners of Works to make certain building constructions and such other additional constructions as may be demanded by the latter, were restricted to a fixed amount only if the additional quantity of work did not substantially exceed in value a specified sum. The Court in that case held that a term must be implied in the contract that the Commissioners should not be entitled to require work materially in excess of the specified sum. In that case, the Court did not proceed upon any such general principle as was assumed by Denning, L.J., in 1951 1 KB 190 23. We are, therefore, unable to agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be adjudicated by the arbitrators in a reference made under clause 20 of the agreement, in the circumstances of the case before us, compensation on that basis could not be claimed. 25. The plea that there was a bar of res judicata by reason of the decision in the Letters Patent Appeal No. 31 of 1953, has in our judgment, no force. The Subordinate Judge set aside the award on the ground that there had been judicial misconduct committed by the umpire and also on the view that the claims made, as described in Schedules B and D, were not outside the competence of the arbitrators. The High Court in appeal under the Letters Patent, did confirm the order, setting aside the award; but there was no binding decision between the parties that the claim described in Sch. B, that is, the claim for establishment and contingency charges, was within the competence of the arbitrators in reference under clause 20. It may be observed that according to the High Court of East Punjab in the Appeal No. 31 of 1953, under the Letters Patent, it was not necessary to express any opinion whether the claim in Sch. C was within the competence of the arbitrators, and the claims described in Sch. D does not ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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