DEVIPRASAD KHANDELWAL Vs. UNION OF INDIA

JUDGEMENT

(1.) THIS is a petition under Sections 33 and 5 of the Arbitration Act, 1940, challenging the existence and, in the alternative, the validity of an arbitration agreement and, in case the existence and validity of the said arbitration agreement are established, to have the effect thereof determined, and for leave of the Court to revoke the authority of the arbitrator appointed under the said arbitration agreement.

(2.) THE facts leading to this petition briefly stated are that on or about 4th of August 1958, the Regional Director (Food), Western Region, Bombay, Government of India, Ministry of Food, issued a tender notice on behalf of the President of India, inviting tenders for purchase of approximately 244 tons of used iron hoops (scrap released from gunny bales) lying in the Government of India godowns at Thana Street, Bombay 9 on the terms and conditions of sale set out in Appendix 'a' to the tender notice. The goods were described in Appendix 'c' to the said tender notice. On 18th August 1958 the petitioners submitted a tender offering to purchase the said goods at the rate of Rs. 607 per ton. The tender was accompanied by a letter of that date addressed to the President of India through the said Regional Director, (Food ). The said letter stated that the petitioners had thoroughly read and understood the terms and conditions contained in the tender and the Appendices thereto and agreed to abide by them. The petitioners enclosed a cheque for Rs. 15,000 as earnest money along with the said tender in terms of clause 6 of the tender notice. It appears that on the same day, namely, 18th August 1958, the petitioners addressed a letter to the Iron and Steel Controller at Calcutta, stating that the Regional Director (Food), Bombay had invited tenders for about 244 tons of used iron hoops (released from gunny bales) and that the petitioners understood that the controlled maximum price chargeable for the said goods was Rs. 335 per ton. They requested the Iron and Steel Controller to confirm if the petitioners' contention was right and whether the Regional Director (Food), could charge price higher than the controlled price. The reference to controlled price appears to have been to the price fixed on 3rd August 1957 by Scrap Price Circular No. 5 of 1957, issued by the office of the Iron and Steel Controller. From the said letter of 18th August 1958 addressed to the Iron and Steel Controller and from the subsequent correspondence and events, it appears that while in the tender the petitioners offered to buy the said scrap at the price of Rs. 607 per ton, they had mental reservations about the price, and hoped to get the price reduced to the controlled price fixed under clause 27 (1) of the Iron and Steel Control Order, 1956, whatever that price was at the relevant time, and there is no dispute about the fact that the said price was much less than Rs. 607 per ton. The price of Rs. 607 per ton was the highest offer pursuant to the tender notice. However, as the price of Rs. 607 per ton was in excess of the controlled price fixed under clause 27 (1), the Regional Director (Food), Bombay, approached the Iron and Steel Controller with a request to fix special price for the said 244 tons of iron hoops described in Appendix 'c' to the tender notice under clause 27 (2), and by an order dated 4th September 1958, addressed by the Iron and Steel Controller to the Regional Director (Food), Bombay, the Iron and Steel Controller fixed the special selling price of the said goods by the Government of India at Rs. 607 per ton, purporting to be in exercise of the power vested in the Iron and Steel Controller under sub-clause (2) of clause 27 of the Iron and Steel Control Order 1956. Thereafter by his letter of 25th September 1958 addressed to the petitioners, the Regional Director (Food), Bombay, stated that the petitioners' tender dated 18th August 1958, wherein the petitioners had offered to purchase the stock of approximately 244 tons of iron hoops lying at the Government of India godowns, Thana Street, Bombay 9 at Rs. 607 per ton had been accepted by the Government subject to the terms and conditions of the tender. In the second para of the said letter, the Regional Director (Food), Bombay, stated that a special selling price of Rs. 607 per ton for the said lot of iron hoops had been flied by the Iron and Steel Controller in his letter dated 4th September, 1958. In the subsequent paragraphs of the said letter the Regional Director (Food), Bombay, has outlined a procedure for the performance of the contract. The said procedure is the subject matter of controversy, and the petitioners contend that these are fresh terms not already contained in the terms and conditions of the tender and, therefore, the said letter contains a counter offer which the petitioners have at no time unconditionally accepted and, therefore, there is no concluded contract. This letter was replied to by the petitioners by their letter of 30th September 1958, in which they stated that they understood from paragraph 2 of the letter of the Regional Director (Food) Bombay, that the disposal of the materials in question fell under the Iron and Steel Control Order 1956, and the price was governed by "schedule V". They requested the Regional Director (Food), Bombay, to furnish to them copies of correspondence exchanged with the Iron and Steel Controller in connection with the price fixation. They further stated that as regards the price, in view of the fact that the price was controlled, the controlled price applicable according to the Iron and Steel Control Order, 1956, would be applicable. In one of the paragraphs of the said letter, they said, "we however, accept the order". The contention of the respondents is that the letter of the Regional Director (Food), Bombay, dated 25th September, 1958, in its first paragraph contained an unconditional acceptance of the tender. The second paragraph sets out the controlled price specially fixed by the Iron and Steel Controller for the said goods and the subsequent paragraphs outline a procedure for performance of the contract which was in accordance with the contract. In the alternative, their contention is that even if it be held that the third and the subsequent paragraphs of the said letter contained new terms and, therefore, the letter of 25th September, 1958, contained a counter offer, the petitioners' letter of 30th September, 1958 contained an unconditional acceptance of the counter offer and the contract was, in any event, concluded. However, these are matters in controversy. I shall deal with them later. It appears that thereafter the petitioners failed to pay the sum of Rs. 1,33,108 demanded in the letter dated 25th September, 1958, by the Regional Director (Food), Bombay within one week of the acceptance of the tender. The Government forfeited the earnest money of the petitioners and proceeded to resell the goods and, ultimately, on 31st October 1960 they sold the said goods through Govt. auctioneers at the rate of Rs. 360 per ton and realised a sum of Rs. 87,840. The respondents then claimed from the petitioners as and by way of damages a sum of Rs. 99,064, being the difference between the contract price of Rs. 1,48,108 and the market price prevalent on the date of the breach, namely Rs. 49,044. Alternatively, the respondents claimed from the petitioners a sum of Rs. 60,268 being the difference between the contract price of Rs. 1,48,108 and the actual resale price of Rs. 87,840. As the petitioners failed to pay the amount of damages, the respondents appointed one V. Ramaswami Iyer as the sole arbitrator to decide the disputes between the petitioners and the respondents, pursuant to clause 12 of the terms and conditions of sale which contained the arbitration agreement. Before the arbitrator the petitioners appear to have taken the contention that there was no concluded contract. On 12th December 1962 the said arbitrator gave a direction that as the petitioners challenged the existence and validity of the arbitration agreement, they were directed to apply to the Court under Section 33 of the Arbitration Act, 1940, within a month. Accordingly on 18th January 1963 the petitioners filed this petition.

(3.) THE contentions raised by the petitioners are fully set out in the petition and briefly summarised are that there was no concluded contract in fact between the petitioner and the respondents. In the alternative, the petitioners contend that the Regional Director (Food), Bombay, was not a person directed or authorised by the President of India to enter into contracts of the nature of Ex. B (collectively) to the petition and that in any case, the said contract was not expressed to be made by the President of India or in his name, and therefore, the contract contravened the provisions of Article 229 of the Constitution of India and was, therefore null and void and unenforceable. The petitioners have also challenged the legality and validity of the contract containing the arbitration agreement on the ground that the sale of iron hoops was at a price in excess of the price for such goods notified under clause 27 (1) of the Iron and Steel Control Order 1956. The petitioners have further challenged the validity of the order of the Iron and Steel Controller dated 4th September 1958 fixing the special selling price of the Government for these goods at Rs. 607 per ton on the grounds: (a) that such fixation cannot be made, except by a notification published in the Gazette of India, (b) that such fixation cannot be made without the approval of the Central Government, (c) that the Order of 4th September 1958 does not, as required by the proviso to sub-clause (2) of clause 27, direct that the maximum prices fixed under sub-clause (1) or (2) shall not apply to the stock in question, (d) that the said order purports to fix the price at which the said goods are permitted to be sold, and not the maximum price, and clause 27 authorised only fixation of maximum price, (e) that the said order of 4th September 1958 contravenes the provisions of Article 14 of the Constitution of India, as it denies to the petitioners equality before the law and (f) that the order of 4th September' 1958 contravenes the provisions of Article 19 (l) (f) and (g) of the Constitution of India, as it takes away the petitioners' right to dispose of property or the right to carry on trade or business. With regard to the contravention of Art. 19 (1 ) (f), the contention of the petitioners is that as the petitioners would, under the contract in question, acquire the said scrap at the price of Rs. 607 per ton, which was a special selling price of the Government, they would be compelled under the Scrap Price Circular to sell the same goods at the price of Rs. 335 per ton and thus be put to loss, and this in effect took away their right to dispose of property.