Back
High Court Of Madhya Pradesh
Shiv Dayal and S. P. Bhargava, JJ.
PANNALAL JUGATMAL - Appellant
Versus
STATE OF MADHYA PRADESH - Respondents
Misc. (First) Appeal 20 Of 1961
Decided On : 01/29/1953
ARBITRATION - VALIDITY OF REFERENCE - AGREEMENT TO REFER - UNILATERAL CLAUSE - SUBSEQUENT CONDUCT OF PARTIES - ERROR OF LAW APPARENT ON THE FACE OF THE AWARD - DUTY OF PROMISE TO MITIGATE DAMAGES - REAUCTION OF CONTRACTS - LIABILITY OF DEFAULTING CONTRACTOR.
Fact of the Case:
The appellant, Pannalal, was the highest bidder in an auction for the rights to collect and propagate lac in two Patwari Circles. He deposited earnest money and made partial payments towards the consideration of the lease, but failed to execute a written agreement as required by the conditions of auction. The department referred the matter to arbitration, and the arbitrator awarded that Pannalal was not entitled to a refund of his deposit and was liable to pay the outstanding balance of the contract amount. Pannalal challenged the validity of the reference and the award, contending that there was no valid agreement to refer and that the award was erroneous in law.
Finding of the Court:
The court held that there was a valid agreement to refer to arbitration, as both parties had submitted their claims and counter-claims to the arbitrator. However, the court found that there was an error of law apparent on the face of the award, as the arbitrator had failed to take into account the duty of the promisee to mitigate damages. The court held that the government should have reauctioned the contracts after Pannalal rescinded the contract, and that Pannalal was entitled to the benefit of the failure to do so.
Issues: 1. Whether there was a valid agreement to refer to arbitration. 2. Whether the award was erroneous in law.
Ratio Decidendi: 1. The court held that there was a valid agreement to refer to arbitration, as both parties had submitted their claims and counter-claims to the arbitrator. 2. The court held that there was an error of law apparent on the face of the award, as the arbitrator had failed to take into account the duty of the promisee to mitigate damages. The court held that the government should have reauctioned the contracts after Pannalal rescinded the contract, and that Pannalal was entitled to the benefit of the failure to do so.
Final Decision: The court partly allowed the appeal. The award, so far as it related to the decision on issues Nos. 15, 16 and 18, was set aside as it was invalid to that extent. The rest of the award was upheld as good and valid. The judgment and decree passed by the Additional District Judge, likewise, were also partly set aside. The matter as to the quantum of damages which the contractor is liable to pay (issues no. 15, 16 and 18) shall be remitted to the arbitrator for reconsideration and decision according to law.
( 1 ) THIS appeal under Section 39 of the Arbitration Act is directed against the refusal to set aside an award and also against the decree which was passed in terms of the award by the Additional District Judge, Balaghat.
( 2 ) RIGHTS to collect and propagate lac in Patwari Circles No. 42 and 2 of Waraseoni tahsil were auctioned for a period of three years on the 3rd October and the 4th october, 1951, respectively. The highest bids of Pannalal (hereinafter called the contractor) for Rs. 21000/- and Rs. 20000/-respectively were accepted. Pannalal deposited Rs. 500/- as earnest money for each contract. He also deposited Rs. 5500/- on the 15th October, and Rs. 661/-on the 21st November, on account of the first; and Rs. 6667/- on the 21st November on account of the second. However, the contractor did not work the contract. The case for the contractor is that the department did not enter into a written agreement as required by Article 299 of the Constitution, so that he rescinded it and asked for the refund of the deposited amount. The case for the department was that the contractor was not willing to execute an agreement and work the contract. Eventually the matter was referred for arbitration to the Deputy Commissioner, Balaghat. Shri J. P. Mishra, collector, Balaghat, gave an award on December 20, 1957, declaring that the contractor was not entitled to a refund of his deposit of Rs. 13834/-or to any damages from the State Government. On the contrary, he was liable to pay the outstanding balance of Rs. 27666/ -.
( 3 ) THE contractor filed an application in the Court of the Additional District Judge, balaghat, under Section 33, read with Sections 45 and 47, of the Arbitration Act, challenging the existence or validity of an agreement to refer and also challenging the award. The Additional District Judge ordered as above. Pannalal has now come up to this Court in appeal under Section 39 of the Arbitration Act. His contention is two-fold.
1. The arbitrator had no jurisdiction to make the award, as the reference itself was null and void; and 2. The award on its face is erroneous in law.
( 4 ) THE facts material for the determination of the contentions raised here are these. Auction took place on the 3rd and 4th October, 1951. Under the conditions of auction every intending bidder was required to deposit a minimum of Rs. 500/as earnest money for every contract that he wished to bid for. This deposit was to be returned to unsuccessful bidders. In the case of a successful bidder, the deposit was to be credited as part payment of the bid. The amount of consideration of lease was payable by instalments specified in Clause (5 ). It wilt be convenient to reproduce certain clauses of the conditions of auction relied on by the parties. Clause 2 runs thus: "if a successful bidder fails to pay the first instalment or execute the agreement bond when required to do so after the close of the auction and to complete the security bond within 45 days from the date of auction, his earnest money deposit shall be forfeited to Government and the contract shall be reauctioned at his risk. Any loss to Government accruing by such auction will be recovered from the original purchaser, as arrears of land revenue under Section 82 of the Indian Forest Act, 1927. " clause (7) reads thus: "the unsuccessful bidders shall have to sign the bid sheet immediately and the agreement bond at the close of the day's auction. In case the purchaser fails to do this or to make payments as per condition No. 4 above, any amount already paid by him shall be forfeited to government, and the contract shall be reauctioned as per condition No. 2. " clauses 10, 17 and 19 are as follows: "10. No purchaser shall be allowed to start his work unless he produces a copy of the duly executed agreement bond or a special permission in writing from the Divisional Forest Officer to that effect. . . . . " "17. In any dispute arising in connection with a contract, the party accept
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
