JUDGMENT

Hansaria, J.-Special leave granted.

2. The appellant entered into an agreement with respondent No. 2 (which was subsequently amalgamated with the first respondent and became one of its division) on 13.8.1982 whereunder the respondent was to undertake filling of vials with medicines. The agreement was for the period from 1.4.1982 to 31.3.1984, subject to renewal by mutual agreement thereafter. It was also subject to termination by either party by giving three months notice to the other. Such a notice was given by the appellant on 28.12.1983 stating that the agreement would stand terminated with effect from 1.4.1984. During the subsistence of the agreement, the respondent undertook some work which, according to the appellant, was not in terms of the agreement. After the defect came to thhe notice of the appellant, which was sometime in the second half of 1985, it called upon the respondent, by its letter of 10.11.1987, to reimburse the loss which was stated to be a sum of Rs. 161.82 lacs. The respondent disputed the claim by its letter 27.11.1987, whereupon by invoking clause 19 of the agreement, the appellant referred the dispute to respondent No. 3 who had been appointed by