An extension clause in a contract that allows for the extension of the delivery period for a further period of one year on the same terms and conditions does not give the party exercising the option the right to renew the contract for the entire quantity of goods again.

( 1 ) RUM is a favourite drink in the defence forces, the appellant, Union of India, purchases large quantities of rum for supply to the armed forces. They made one such contract with the respondent, Rampur Distillery and Chemical Co. Ltd. , (Distillery ). This contract, thanks to its draftsman, has been fruitful not only in raising disputes between the parties but it has also led to a sharp difference of opinion between two learned judges of this court.

( 2 ) THE Government entered into a contract dated 24th January, 1970 with the Distillery for the purchase of 10,03,000 litres of rum. Clause 2 of the contract says that this quantity is approximate and is subject to increase or decrease by 50 per cent at the option of the purchaser. The exact quantity to be delivered was to be intimated through supply orders which were to be issued from time to time during "the currency of contract". Clause 3 of the contract is the material clause and the dispute centres round the meaning of this clause. That clause says:

"period of Rmanuig Contract The running contract shall be for a period of one year (Twelve months) from 24-1-1970 to 23-1-1971 which may at the option of the Government be from time to time extended on the same terms and conditions as specified herein, for a further period upto one year (Twelve months) subject to a notice in writing given to the contractor in that behalf of one month before the expiration of the period of this contract or extension thereof". At the commencement of the contract the Government exercised the option. They increased the quantity by 50 per cent. This means 10,03,000+5, 01,500=15,04,500 litres of rum were to be supplied. The Distillery strated supplying rum accord-ing to the supply orders issue to them from time to time. Supply orders were issued for a quantity of 14,40,000 litres. A balance quantity of 64,500 litres remained to be supplied, when on 19th December, 1970, the Government in purported exercise of their option extended the contract for another year, i. e. from 24-1-71 to 23-1-72. They demanded again from the Distillery the full quantity of 10,03,000 litres of rum subject to increase or decrease by 50 per cent on the same terms and conditions. Their case was that the Distillery was bound to supply to them in addition the balance quantity of 64,500 litres an additional quantity of 10,03,000 litres subject to variation term.

( 3 ) THE Distillery disputed their liability to supply the additional quantity of 10,03,000 litres. They maintained that they were liable to supply only the balance quantity of 64,500 litres of rum which, they said, they were ready and willing to do. Disputes arose between the parties. The contract provided for arbitration. So in accordance with clause 23 of the contract the matter was referred to the sole arbitrator, Ch. Ramakrishna Rao, Add1. Legal Advisor, Ministry of Law and Justice.

( 4 ) THE arbitrator took upon himself the burden of the reference. He made and published the award on 7th December, 1973. He held that the Government s right was only to extend the period of delivery for the balance quantity of 64,500 litres of rum. In his view the Government had no right to renew the contract for the entire quantity, namely 10,03,000 litres subject to increase or decrease by 50 per cent. So he decided in favour of the Distillery.

( 5 ) THE arbitrator filed the award in court. To the award objections were taken by the Government they moved for setting aside the award. Prithvi Raj, I on the original side of this court dismissed the objections of the Government by judgment dated August 7, 1975. He made the award a rule of the court and passed a decree in accordance therewith.

( 6 ) FROM the order of Prithvi Raj, J. the Government appealed. The appeal came up for hearing before Sachar and Kumar, JJ. They differed. Kumar, J. held that a specific question of law had been referred to the arbitrator and the arbitrator having answered the question of la