An award of arbitrators can be set aside if it is erroneous on the face of it, which means that it is based on a legal proposition that is erroneous.

Judgment

SHAH, J. : On May 3, 1937, M/s. Alopi Parshad and Sons Ltd., who will hereinafter be referred to as the Agents, were, under an agreement in writing, appointed by the Governor-General for India in Council, as from October 1, 1937, agents for purchasing ghee required for the use of the Army personnel. The Government of India, by cl. 12 of the agreement, undertook to pay to the Agents the actual expenses incurred for purchasing ghee, cost of empty tins, expenses incurred on clearance of Government tins from the railway, 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 certain other charges incurred by the Agents. The Government also agreed to pay to the Agents at rates specified in the agreement:

(1) the financing and overhead (mandi) charges incurred in the buying markets,

(2) the cost of establishments and contingencies provided by the Agents on the Government s account for carrying out the purchase and supply of ghee, and

(3) the buying remuneration.

In consideration of the Government paying to the Agents a sum of rupee one and anna one only per one hundred pounds net weight of finally accepted ghee, as combined financing and overhead (mandi) charges, the Agents by cl. 13 undertook to provide the working capital and also to bear the costs, charges and expenses, including financing and overhead charges incurred by them in buying ghee in the market.

2. The Agents also undertook, by cl. 14, to bear the establishment and contingency charges for the due performance by them of the terms of the agreement, and the Government agreed to pay in consideration thereof annas 14 and pies 6 per every hundred pounds of ghee accepted. The Government also agreed to pay to the Agents remuneration for services rendered in purchasing ghee, at the rate of one rupee per one hundred pounds net weight of accepted ghee.

3. Pursuant to the agreement, the Agents supplied from time to time ghee to the Government of India, as required. In September, 1939, the World War II broke out, and there was an enormous increase in the demand by the Government of ghee. On June 20, 1942, the original agreement was, by mutual consent, revised, and in respect of the establishment and contingencies, the uniform rate of annas 14 and 6 pies per hundred pounds of accepted ghee, was substituted by a graded scale: for the first 5 thousand tons, the Agents were to be paid at the rate of Re. 0-14-6 per hundred pounds, for the next five thousand tons, at the rate of annas 8 per hundred pounds, and at the rate of annas 4 per hundred pounds, for supplies exceeding ten thousand tons. Even in respect of remuneration for services, a graded scale was substituted: for the first five thousand tons, remuneration was to be paid at the rate of Re. 1 per hundred pounds, at the rate of annas 8 per hundred pounds, for the next five thousand, and annas 4 per hundred pounds, for supplies exceeding ten thousand tons. This modification in the rates became effective from September 11, 1940.

4. By their communication dated December 6, 1943, the Agents demanded that the remuneration, establishment and contingencies, and mandi and financing charges, be enhanced. In respect of the buying remuneration, they proposed a 25 per cent, increase; in respect of establishment and contingencies, they proposed an increase of 20 per cent, and in respect of mandi and financing charges, an increase of 112 per cent. This revision of the rates was claimed on the plea that the existing rates, fixed in peace time, were "entirely superseded by the totally altered conditions obtaining in war time." To this letter, no immediate reply was given by the Government of India, and the Agents continued to supply ghee till May, 1945. On May 17, 1945, the Government of India, purporting to exercise their option under cl. 9 of the agreement, served the Agents with a notice of termination of the agreement. On May 22, 1945