Arbitration Agreement Validity Confirmed, Award Partially Set Aside

The court upheld the arbitration agreement's validity under Section 175(3) of the Government of India Act, 1935, finding that the contract fulfilled the requirements. However, the court set aside the award for incidental expenses and interest, ruling that these elements were erroneously awarded. The appeal was partially allowed, maintaining the award for the loss suffered but rejecting the portions related to incidental expenses and interest. No costs were awarded, and the appeal was allowed in part.

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Issues Involved:
1. Validity of the arbitration agreement under Section 175(3) of the Government of India Act, 1935.
2. Whether the award is erroneous on the face thereof.

Detailed Analysis:

1. Validity of the Arbitration Agreement:
The primary issue was whether the arbitration agreement conformed to Section 175(3) of the Government of India Act, 1935. This section mandates that all contracts made in the exercise of the executive authority of the Dominion or a Province must be expressed to be made by the Governor-General or the Governor of the Province and executed on their behalf by authorized persons. The court noted that the acceptance letter issued by the Director of Purchases was signed on behalf of the Government of India and incorporated the general conditions of contract, including the arbitration clause. The court found that the correspondence, including the acceptance letter, amounted to a contract expressed to be made by the Government, thereby fulfilling the requirements of Section 175(3). The court emphasized that the authority of an arbitrator depends on the arbitration agreement, which must be in writing and accepted by the parties. However, it was noted that the Government of India did not waive the objection regarding the illegality of the contract by participating in the arbitration proceedings.

2. Errors on the Face of the Award:
The second issue was whether the award contained errors apparent on its face. The umpire awarded Rs. 1,32,417/10/- for loss suffered, Rs. 1,25,000/- for incidental expenses, and Rs. 68,833/12/3 as interest. The court upheld the award for the loss suffered, stating that no error was apparent in awarding the difference between the contract price and the sale price of the cigarettes. However, the court found errors in the award for incidental expenses and interest.

Incidental Expenses:
The court determined that the umpire's award of Rs. 1,25,000/- for incidental expenses was based on an erroneous assumption of law. The umpire incorrectly assumed that the respondent was entitled to expenses incurred for advertisement, publicity, storage, transport, and agency commission for the cigarettes taken back by the Government. The court clarified that the respondent, having taken delivery of the goods, became their owner and could not claim these expenses as compensation for breach of warranty. The court held that the respondent was only entitled to the difference between the contract price and the market price of the goods retained by him.

Interest:
The court found that the award of Rs. 68,833/12/3 as interest was also erroneous. The contract did not provide for payment of interest, and interest could not be awarded under Section 61 of the Sale of Goods Act. The court noted that the claim for interest was not for a refund of the price but for damages, and there was no provision in the law to award interest as damages for the wrongful detention of money. The court referred to the Judicial Committee's decision in Bengal Nagpur Railway Company Ltd. v. Ruttanji Ramji, which held that interest could not be awarded in the absence of a contract, statute, or usage.

Conclusion:
The court partially allowed the appeal, setting aside the award of the umpire in so far as it awarded interest and incidental expenses. The award for the loss suffered in respect of the packets of cigarettes was upheld. The court made no order as to costs throughout. The appeal was allowed in part.

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