Bench- J.C., SHAH.
On May 3, 1937, M/s. Alopi Parshad and Sons Ltd., the Agents signed an agreement, where they were appointed by the Governor-General for India in Council, from October 1, 1937 as there was the requirement of agents for purchasing ghee for the use of the Army and under clause 12 of the signed agreement, the Government of India accepted to pay the Agents for the following:-
1. the actual expenses incurred for purchasing ghee,
2. cost of empty tins,
3. expenses incurred on clearance of Government tins from the railway,
4. export land-customs duty levied on ghee purchased and exported from markets situated in Indian States, octroi duty, terminal tax or other local rates on ghee, and
5. certain charges incurred by the Agents.
6. The financing and the overhead (mandi) charges incurred in the buying market.
Supplying of ghee continued by the Agents, as required. In September, 1939, due to the World War II there was an increase in the demand of ghee. On June 20, 1942, the original agreement was revised by both the parties to the agreement and it was decided that the revised agreement will be effective from 11th September, 1940.
On December 6, 1943, the Agents demanded the enhancement in the remuneration, establishment and contingencies, and mandi and financing charges. The Government didn’t replied immediately, and the Agents continued to supply ghee till May, 1945.
On May 17, 1945, the Government of India served the agents with a notice of termination of the agreement under clause 9 of the revised agreement.
On March 1, 1954, the Agents submitted their claim, challenging that the revised agreement was void and not binding upon them which was signed on June 20, 1942, by the mutual consent of both parties, and that, for their demand made on December 6, 1943, were assured by the Chief Director of Purchases that their demand will be considered. The Agents also claimed that they were constantly demanding an increase in the mandi and financing charges, and have been given repeated verbal assurances that their demands would be satisfied. But the Director of Purchases denied the claims made by the Agents by saying there were no any assurances given to the Agents by him as such.
The arbitrators rejected the claim of the appellant and said that the agreement of 1942 was binding but then awarded a sum of money for loss suffered by the agents.
The case was filled in the Court of the Commercial Sub-judge, Delhi. The Sub-judge relied that there was an error on the face of the award but failed to set aside as the award of arbitration was binding on the parties.
On appeal the High Court held that the award was liable to be set aside as no specific questions of law had been referred to the arbitrators and that the award was vitiated by errors apparent on the face of the award. In case of a reference of a specific question, the award is not liable to be set aside on the ground of an error even if the answer to the question involves an erroneous decision on a point of law. This award was liable to be set aside as there was a general reference and not a specific reference on any question of law.
Whether the agreement dated June 20, 1942, was not binding upon the agents, and they were entitled to be given compensation on the basis of quantum meruit.
Supreme Court discussed the following arguments:-
1. Counsel for the Agents quoted Section 56 of the Indian Contract Act, which says that a contract becomes void, even after a contract is being made, if it becomes impossible to perform the contract or become unlawful, out of any event, and it becomes impossible for the promisor to prevent such event.
Court said that performance of contract had not become impossible, in fact the agents performed their part and even got the remuneration for the same. The Court also said that the expressed covenants are not to be ignored for any vague plea.
2. SC also agreed with the High Court saying, the award was liable to be set aside as there was a general reference and not a specific reference on any question of law.
3. SC find the plea unnecessary to consider, and therefore unable to agree with the contention that the arbitrators were justified in ignoring the express covenants, and in proceeding upon the basis of quantum merit.
Supreme Court accordingly, agree with the view of the High Court that the Award of the arbitrators was liable to be set aside.