Judgement

S. K. DAS, J. - This is an appeal on the strength of a certificate granted by the High Court of Punjab at Simla. The appellant is the Union of India and the respondent Messrs. Chaman Lal Loona and Company, military contractors at Muktsar in the district of Ferozepur, now in the Indian State of Punjab.

2. The relevant facts are these. In the Court of the senior Subordinate Judge at Ferozepur, in August, 1948, the respondent Company made an application, purporting to be an application under S.8 (2) and S.20 of the Arbitration Act, 10 of 1940, wherein the respondent alleged that in 1945 the respondent had entered into a contract for the supply of "bhoosa" (fodder) to the military department of the then undivided India through the Manager, Military Farms, Lahore Cantonment.

The contract, it was alleged was signed by the Assistant Director, Military Farms, on behalf of the then Government of India. The agreement between the parties was that the said manager would also supply, on payment of price, wire coils, the military department would give credit for the price of the coils already paid by the respondent.

In November, 1945, the respondent supplied fodder and returned 152 bundles of wire coils. The Manager, Military Farms, Lahore, informed the respondent, however, that out of 152 bundles of wire coils, said to have been sent, 24 bundles had not been received, though no note of such non-delivery was made at the time the consignment was received. The respondent had also deposited Rs.11, 026 by way of security with the military department in connection with the contract.

The agreement contained an arbitration clause to the effect that if a dispute arose between the parties it should be decided by the arbitrator named therein, viz., the District Commander concerned. The respondent said that he had a claim against the appellant for Rs. 720, the price of 24 bundles of wire coils at Rs. 30 per bundle, and for refund of Rs.11, 026, and prayed in terms of S.20. Arbitration Act that the appellant be directed to file the agreement and other relevant documents, and that the Court do refer the dispute to the arbitrator named for the purpose of filing an award.

3. As required by sub-s. (2) of S.20, Arbitration Act, the application was registered as a suit, and a notice was issued to the appellant to show cause. The appellant showed cause by a written statement filed on 4th November 1948, in which the two substantial pleas taken were- (1) that by reason of the provisions of the Indian Independence (Rights, Property and Liabilities) Order, 1947, hereinafter referred to as the Independence Order, 1947, the Dominion of India, and later the Union of India, had no liability in respect of the contract in question, the purposes of which contract as from 15th August 1947, were purposes exclusively for the Dominion of Pakistan; and (2) the Court at Ferozepore had no jurisdiction to try the suit, as the cause of action did not arise within its territorial jurisdiction.

4. The two issues which were tried by the learned Subordinate Judge were the aforesaid issues of liability and jurisdiction. On jurisdiction, he found in favour of the respondent, on the ground that the respondent was a displaced person living in Muktsar which is in Ferozepore and therefore the Court at Ferozepore had jurisdiction to try the suit. The High Court affirmed this finding, and as nothing now turns upon this issue, we are not called upon to make any pronouncement thereon.

The issue as to the liability of the appellant on the basis of the contract in question is, however, very much a live issue. The learned Subordinate Judge found in favour of the appellant on this issue, and dismissed the application. The High Court reversed that finding, and allowed the appeal. In reversing the finding of the learned Subordinate Judge, the High Court relied on the provisions of the Joint Defence Council Order, 1947, to be referred to hereinafter as Defence Order, 1947. The precise ground on