JUDGMENT

D. A. DESAI, J.:— In this appeal by special leave a very interesting question in the field of law of arbitration which honest men dread more than the dreaded law suits arises for our consideration.

2. First respondent Cochin Shipyard. Limited (respondent for short invited tenders for construction of Building Dock at Cochin. As there was only one tender that of Tarapore & Company, the appellant, the respondent called fresh tenders somewhere in July, 1971. In December, 1971, the respondent invited tenders for construction of a Repair Dock also at Cochin. There were two tenders for Building Dock, namely, one of the appellant and one by M/s. National Building Construction Corporation, a Government of India undertaking, the value of the tender of the latter being double that of the appellant. For the construction of the Repair Dock, the only tender was of the appellant. In view of the limited number of tenders received, the appellant was invited to negotiate the terms of tender. The value of the works to be executed was over Rs. 24 crores. In view of the huge investment in the project, the tenders were examined by a committee called the Tender Committee constituted in accordance with the approval of the Ministry of Shipping and Transport for examining and evaluating the tenders received for the Building Dock and the Repair Dock. The Tender Committee taking note of the poor response to the invitation to tender and costly affair decided to accept the tender of the appellant inter alia for the reasons (i) that works of such complexity and magnitude have not been undertaken before by any Indian contractor, (ii) that the plant and equipment required for the work are not available indigenously, (iii) that if the contractor is to procure the specialised equipment required for this work, there is hardly any assurance that after these works are over, he would find any substantial use for the same, (iv) that excavation and subsequent construction involve dewatering which introduces considerable amount of uncertainty and that during the discussions, the apprehension of the tenders of this kind was voiced and noticed by the Committee, and (v) that RCC Piling also requires highly skilled and complex technical operations and it involves a large element of risk and uncertainty in the work. Both the tenders of the appellant were accepted, and contracts were entered into between the parties. Both the parties while entering into contracts were aware and conscious of the fact that equipment and technical know-how would have to be imported involving a huge outlay of foreign exchange. Appellant-contractor quoted rates on two alternative bases depending-upon whether it had to import equipment and know-how at its cost involving Rs. 2 crores in foreign exchange or the equipment and knowhow were to be imported by the respondent at its cost and made available for use of the appellant in which case the appellant would be liable to pay hire charges for the pile driving plant at the rate of Rs. 23/- per metre of 600 mm dia. RCC cast-in-situ pipe and Rs. 16/- per metre of 500 mm dia. RCC cast-in-situ pipe and at the rate of Rs. 300 per forme of steel sheet piles driven to be recovered, from the running bills payable to the appellant-contractor. The appellant was given to understand by a note in the invitation to tender that foreign exchange in Yen Credit to the tune of Rs. 38 lacs is earmarked for the purchase of construction. equipment, accessories etc. from Japan for works of Building Dock, Repair Dock, the three Quays etc. On January 24, 1973, work order for Building Dock and Repair Dock was issued by the respondent in favour of appellant and in this work order as recommended by the Tender Committee, the respondent adopted the alternative B as set out in the tender, namely, that the contractor was to procure the equipment and know-how at a cost of about Rs. 2 crores; in foreign exchange. In order to make this aspect specific, additional condition No.