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Judgment
Bakthavatsalam, J.—The defendants in this suit are the appellants. The appeal is preferred against the judgment and decree passed by S.
Natarajan, J. in C.S. No. 10 of 1971 on 31.10.1978, directing the defendants to pay the plaintiffs a sum of Rs. 5,35,409.75 with interest at 6%
p.a. from the date of plaint till the date of payment, with costs.
The appellants were being sent gift parcels from foreign countries under the Indo-U.S. agreement for providing relief to refugees from Tibet and
other countries. In order to make suitable arrangements for clearing the said parcels arriving by ships at Madras, the Regional Director (Food)
Southern Range, called for tenders from clearing and forwarding agents at Madras and notified that the appointment would be for a period of two
years. The respondents were one of the tenderers and they submitted their tender on 28.5.1965 quoting their rates. The Regional Director called
the parties for further negotiations and after holding such negotiations, the Regional Director appointed the respondents as clearing and forwarding
agents for a period of two years, i.e. from 12.7.1965 to 11.7.1967 with an option to the appellants to extend the period by one year on the same
terms. The rates fixed for the appellants were Rs. 1/-. per bag for wagon loading according to category of weight and 12/13 paise for parcels to
be booked as ""smalls outside the harbour"". The rates, as finally fixed under the contract, were in two categories, viz., (i) loading in wagons inside
the harbour according to weight and (ii) booking to be made outside the harbour in railway stations as ""smalls"" according to weight. The
respondents were sending reports every day to the Department about the number of parcels cleared and the mode of their despatch and the
reports were being approved by the Department.
At one stage, the Regional Director (Food), Southern Range asked the respondents to load the packages in wagons outside the harbour, i.e. in the
Royapuram and Beach stations. In the first instance, the respondents obeyed the directions and loaded packages in wagons outside the harbour
thinking that the charges incurred by them for transporting the packages from the harbour to wagons stationed in Royapuram and Beach stations
would be separately paid to them by the Department. When the charges were claimed, the Regional Director did not give any reply to the demand
made for transport charges and hence the respondents resorted to loading the wagons inside the harbour as per the terms of the agreement. From
the commencement of the contract the respondents used to prepare the bills and the bills used to be scrutinised and passed for payment in full
within a reasonable time. In Bill Nos. 26, 31, 33, 34 and 49 the respondents claimed not only the loading charges in wagons, but also transport
charges on account of having transported the goods from the harbour to railway stations outside the harbour and loading the packages in wagons
stationed there. The Regional Director, without giving reasons, disallowed a sum of Rs. 31,151.80 and paid the balance also. The respondents
received the payment under protest and without prejudice to their rights to claim the disallowed amounts. With reference to certain other bills also,
the Regional Director, without any justification, disallowed payment of a sum of Rs. 2,98,935.90. The above said bills related to loading of wagons
inside the harbour for which specific rates had been provided in the contract but without paying the respondents as per the agreed rates, the
Regional Director had chosen to give rates fixed for booking of packages as ""smalls"".
The Regional Director (Food), not only failed to make payments to the respondents in according with the terms of the contract, but went a shop
further and attempted to call for fresh tenders for offering the clearing agency which had been entrusted to the respondents for the period from
12.7.1965 to 11.7.1967. Aggrieved by this, the respondents filed writ petition No. 4242 of 1965 before this Court and the Regional Director gave
an undertaking in that writ petition that the department would not give the contract to any new party, but at the same time, the department
maintained that they would be well within their rights to terminate the contract with the respondents Thereupon, the respondents filed a suit O.S.
No. 2716 of 1966 on the file of the City Civil Court, Madras and obtained an order of interim injunction restraining the Regional Direct to (Food)
from terminating the contract. The Regional Director preferred an appeal against the order of injunction to the Principal City Civil Judge, Madras
where the order of injunction had been vacated. When the respondents filed revision, C.R.P. No. 1932 of 1966 before this Court this Court
restored the order of injunction against the Regional Director.
The Regional Director began adopting a hostile attitude towards the respondents and made illegal and unjustified deductions in the bills submitted
by the respondents and attempted to justify the deduction by saying that the contract rates had been fixed on an irrational basis and the tender had
been accepted without due attention being paid to rates. Nevertheless, deductions had been made in various bills and the total amount of
deductions made in the bills submitted for the period to 14.10.1966 came to Rs. 3,21,087.70. The respondents, while reiterating their demand for
payments being made in accordance with the bills were prepared to have the matter decided by direct negotiations and arbitration. The Region is
Director expressed his willingness to have the matter settled without going to Court, and asked the respondents to quote a special rate of 75 paise
per packet for loading into wagons at various city rail-heads. Though the respondents were (sic) bound to accept the reduced rate indicated by the
Regional Director, they agreed to offer the special rate with a view to reach a settlement. However is made clear that they were prepared to
accept a settlement on the basis of the reduced rates it the claim was settled within a period of by a months from 2.1.1968. On 26.2.1968, the
Regional Director wrote a letter to the respondents saying that the settlement proposal was receiving the immediate attention of the Ministry at
New Delhi and therefore, the offer may be kept open for one more month. The respondents, by letter dated 27.2.1968 agreed to keep the offer
open for another month from 2.3.1968. On 23.3.1968, the respondents received a letter from the Regional Director asking them to confirm that
the concessional rate of 75 paise per package offered for loading the gift parcels into wagons at the various rail-heads in the city will also apply for
wagon loading at Madras harbour itself. In the same letter the Regional Director also asked the respondents whether they were agreeable to
reduction of the rates for the other two smaller weight categories of parcels.
The correspondence went on like this and the respondents, in accordance with the directions of the Regional Director, wrote a letter on 22.4.1968
to the President of India and a covering letter addressed to the Regional Director and sent both the letters to the Regional Director. The
respondents made it clear in those letters that they would accept the revised rates only in respect of the bills for which payments had been received
under protest and not the earlier bills which had been paid in full by the appellants and further more, the revised offer would be valid only for a
period of thirty days. The offer of the respondents was not accepted by the President and consequently there was no settlement of the claim as per
the terms offered by the respondents within the time given by them. This led to further correspondence between the respondents and the
Department. The respondents pointed out that since the claim had not been settled within the time stipulated by them, their offer to receive
payments at 75 paise per package was no longer open, that as such, they could not be called upon to furnish ""No Demand Certificates"" and that
they were entitled to claim the full amounts due to them as per the bills submitted by them. The subsequent payments made by the appellants were
received by them without prejudice to their rights. Hence, the appellants had yet to pay the respondents a sum of Rs. 4,48,409.75 as per contract
rates, together with interest at 6 per cent per annum from the date of expiry of the contract. Besides, the appellants are also bound to refund the
earnest money deposit of Rs. 5,000/-. and as such the appellants are bound to pay the respondents a sum of Rs. 5,35,409.75. The cause of action
for the suit arose at Madras where the contract was entered into and on various dates when services were rendered by the respondents and there
was correspondence between the respondents and the Regional Director and lastly on 16.4.1968 when the Regional Director asked the
respondents representative to meet him on 22.4.1968 when the respondents informed the Regional Director that they were prepared to wait till
22.5.1968. After excluding the time given under S.80 of the Code of Civil Procedure, by notice dated 8.12.1969, the suit claim is made.
The suit claim is resisted by the appellants on various grounds. It is specifically stated that the respondents'' persistence in loading the wagons
only inside the harbour was in violation of the terms of the agreement and the instructions given to them and that the respondents, having
undertaken by their letters dated 30.3.1968 and 22.4.1968, not to insist on additional charges for transport from the harbour to various rail-heads
in the city, are estopped from claiming transport charges contrary to the terms of the said letters. It is further stated that the acceptance of the
revised rates by the respondents by their letter dated 22.4.1968 was in partial modification of the agreement dated 13.5.1965 in so far as it related
to rates alone. It is also stated that the rates quoted by the respondents were to cover all services rendered by them including transport of
packages and the rates were not for mere loading alone. The further defence was that Clause 18 of the agreement specifically provides for
settlement of disputes and differences between the parties by arbitration, that in as much as the respondents have deliberately avoided recourse to
arbitration proceedings, the respondents must be deemed to have waived their right to claim further amounts from the appellants and that the
respondents had accepted, by their letters dated 22.4.1968 that a uniform rate of 75 paise per package should be paid for wagon loading
operations, whether they be inside the harbour or at city rail-heads outside the harbour, and on account of the modification of the agreement, the
terms of the agreement so far as they related to rates, must be understood to have been modified. The acceptance of revised rates by the
respondents was unconditional and in any event, the respondents had made payments in accordance with the revised rates and the acceptance of
those payments by the respondents sealed the matter of rates once and for all. It is further stated that the letter addressed to the President of India,
by the respondents regarding their willingness to accept the revised rates, i.e. at the rate of 75 paise per package for all wagon loadings contained
an unconditional acceptance and as such, the payments made for the bills submitted by the respondents cannot be re-opened, that though the
respondents say that their offer to accept the revised rates was open only upto 22-5-1968, the respondents had been submitting bills even after
that date at the sanctioned and revised rates and they continued to do so until all their bills were settled, and as such, the respondents cannot now
say that their offer of revised rates was a conditional one and ceased to have effect after 22-5-1968. The further defence was that the suit claim
was barred by limitation because clause 18 of the agreement provides for settlement of disputes and differences arising under the contract by
arbitration. The demand for arbitration has to be made within a period of one year from the date of termination or completion of the contract and if
no demand for arbitration is made within the time limit of one year, the claims of the contractor have to be deemed as waived and absolutely
barred and the Government shall stand discharged and released of all liabilities under the contract. Since the respondents have not asked for
arbitration within one year from the date of completion of the contract, it is claimed by the appellants, that the suit claim must be held to be affected
by the rule of limitation.
On the side of the respondents Exhibits P.1 to P.48 were marked and on the side of the appellants Exhibits D.1 to D.86 were marked. Both
parties were content to sustain their respective cases on documentary evidence and hence neither side had examined any witness to adduce oral
evidence. S. Natarajan, J. decreed the suit directing the appellants to pay a sum of Rs. 5,35,409.75 to respondents with interest thereon at 6 per
cent per annum with costs, as stated above.
Though many issues were raised before the learned single Judge, Mr. P. Narasimhan, the Learned Counsel appearing for the appellants
restricted his arguments with regard to the questions of maintainability of the suit, the limitation of the suit and on the principles of accord and
satisfaction. Learned Counsel refers to clause 18 in the agreement, which refers to arbitration and the relevant portions of clause 18 are to the
following effect:
Arbitration"" All disputes and differences arising out of or any way touching or concerning this agreement whatsoever (except as to any matter the
decision of which is expressly provided for in the contract) shall be referred to the sole arbitration of any person appointed by the Secretary of the
Ministry of the Government of India administratively dealing with the contract at the time of such appointment or if there be no Secretary, the
Administrative head of such Ministry at the time of such appointment. It will be no objection to any such appointment that the person appointed is a
Government servant, that he has to deal with the matters to which the agreement relates, and that in the course of his duties as such Government
servant he has expressed views on all or any of the matters in disputes of difference. The award of such Arbitrator shall be final and binding on the
parties to this agreement. It is a term of this agreement that in the event of such Arbitrator to whom the matter is originally referred being
transferred or vacating his office or being unable to act for any reason, such Secretary of administrative head as aforesaid at the time of such
transfer vacation of office or inability to act, shall appoint another person to act as Arbitrator in accordance with terms of this agreement. Such
person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor. It is also a term of this agreement that
no person other than a person appointed by the Secretary of a Administrative head of the Ministry as aforesaid should not as Arbitrator and a for
any reason that is not possible the matter is not to be referred to Arbitration at all. Provided further that any demand for arbitration in respect of
any claim(s) of the contractor, under the contract, shall be in writing and made within one year of the date of termination or completion (expiry of
the period) of the contract and where this provision is not complied with the claims of the contractor shall be deemed to have been waived and
absolutely barred and the Government shall be discharged and released of liabilities under the contract.
It is further provided that the Arbitrator may, from some to time with the consent of the parties, enlarge the time for making and publishing the
award.
Subject as aforesaid, the Arbitration Act, 1940 shall apply to the Arbitration proceedings under the clause.
The Learned Counsel for the appellants contends that if the respondents fell dissatisfied with the payments, they should have made a demand in
writing for arbitration within one year of the date of the completion of the contract. Which, in this case, was on 11-6-1967 and, having failed to do
so, the respondents must be deemed to have forfeited all their rights to ask for further amounts from the appellants. The learned single Judge has
held that admittedly, the respondents have not made a demand for a reference to arbitration. The contention of Mr. P. Narasimhan is that the effect
of Exhibits B.56 and B.57 will be outside the terms of the agreement. The Learned Counsel further contends that having made a revised offer to
accept lesser rates, the respondents can ask for payment only at those rates and not on contract rates. We are not able to accept the contention of
Mr. P. Narasimhan, the Learned Counsel for the appellants, since we hold that the revised rates were to hold the Held only for a limited time and
when the concession offered by them was not availed of by the respondents, the revised rates went out of the picture and therefore they have to be
paid their bill amounts in full. Moreover, it is for the appellants to appoint an arbitrator and that having failed to make a reference or appoint an
arbitrator, the appellants cannot now be heard to say that the respondents have not asked for the appointment of an arbitrator within the stipulated
time and therefore their entire claim stands forfeited. The learned single Judge has rightly referred to paragraph 894 at page 409 of Chitty on
contracts (Twenty- fourth Edition volume 1) which is to the following effect:
However, it is possible that a party who commits a fundamental breach may be unable to rely on a clause barring the other party''s claims if
arbitration is not begun within a specified time...
It is also well settled that if the appellants have not filed an application under S. 34 of the Arbitration Act to stay the suit having taken steps in the
Proceedings, then they cannot contend that the suit is barred. (see: Govindji Jevat and Co. v. Cannanore Spinning and Weaving Mills Ltd AIR
1968 Kerala 310. It is not disputed that no application for the stay of the suit has been filed by the appellants. Considering the scope of S. 34 of
the Arbitration Act, 1940, the Supreme Court in Food Corporation of India v. Yadav Engineer and Contractor AIR 1982 S.C. 1302 the Supreme
Court has held as follow:
S. 34 prescribes a method by which the other party to the arbitration agreement by satisfying the conditions prescribed in S. 34 can enforce the
arbitration agreement by obtaining an order of stay of the suit. It is crystal clear that once the suit is stayed the party who in breach of the
arbitration agreement approaches the court for relief will be forced to go to arbitration and thus the court by this negative attitude of declining to
proceed further with the proceedings brought before it would enforce the arbitration agreement. In order, therefore, to satisfy the Courts that the
other party to the arbitration agreement who would be defendant in the suit is ready and willing to abide by the arbitration agreement and ready to
take all steps necessary for the proper conduct of the arbitration, it must show that its not waiving or abandoning its right under the arbitration
agreement or submitting to the jurisdiction of the Court thereby accepting the forum selected by the plaintiff for resolution of dispute and
acquiescing in it. In order to steer clear of this charge the provision is made in S. 34 for an application by the party who is brought to the court by
the opposite party in breach of the arbitration agreement to apply for stay before filing the written statement or before taking any other steps in the
proceedings. This explains the purpose and object underlying the provision contained in S. 34
The Supreme Court has further held as follows: (at P. 1307)
The legislature by making it mandatory on the party seeking benefit of the arbitration agreement to apply for stay of the proceedings before filing
the written statement or before taking any other steps in the proceedings unmistakably pointed out that filing of the written statement discloses such
conduct on the part of the party as would unquestionably show that the party has abandoned its rights under the arbitration agreement and has
disclosed an unequivocal intention to accept the forum of the court for resolution of the dispute by waiving its right to get the dispute resolved by a
forum contemplated by the arbitration agreement. When the party files written statement to the suit it discloses its defence, enters into a contest and
invites the Court to adjudicate upon the dispute. Once the Court is invited to adjudicate upon the dispute there is no question of then enforcing an
arbitration agreement by forcing the parties to resort to the forum of their chance as set out in the arbitration agreement. This flows from the well
settled principle that the Court would normally hold the parties to the bargain...
In view of the above dicta laid down to by the Supreme Court, it is not possible to accept the contention of Mr. P. Narasimhan, the Learned
Counsel for the appellants that the suit has to be thrown out on the ground that the suit is not maintainable on the ground of law of arbitration. We
are of the view that the appellants have not obtained stay of the suit under S. 34 of the Arbitration Act and that it has to be taken that the
appellants have waived their right and as such they cannot take the plea of arbitration as a defence. We are of the opinion that Exhibits D.56 and
D.57 do not create a new contract or alter the conditions of agreement, since we are of the opinion that it is only for 30 days. Exs. D. 56 and D.57
are stated as follows:
Jai Bharat & Co, Steamer Agents, Clearing, Forwarding Agents & Govt. Contractors. Shipping Department. Head Office: Madras, 185,
Angappa Naick Street, Post Box. 1253, Madras-1.
Ref: GFTS/G/5/4673
Dated 22-4-1968.
The Regional Director(Food)
Southern Region.
Madras.
Dear sir,
Ref: Your letter M.(19)/65 contracts dated 16.4.1968
We enclose herewith a letter addressed to the President of India as desired by you, on the following understanding.
The rates quoted are for the services of wagon loading inside the harbour as well as the outstations for the bills accepted by us, under protest so
far and bills pending:
Category Rate per parcel
100 to 400 lbs. 75 paise(Seventy five paise)
50 to 100 lbs. 37-1/2 paise (Thirty seven & and half paise)
Below 50 lbs. 30 paise (Thirty paise)
The above offer is on the understanding that our accounts will be settled within thirty days time. The enclosed offer will not be in force after thirty
days and we will be entitled to revert to our original claim as per contract.
Ex. d.57 states thus: No. 1/7/65/-.PDIII Vol.II Government of India, Ministry of Food and Agriculture, Community Development and Co-
operation (Department of food). New Delhi-1 the 2nd may, 1968.
From
Shri. Chaddha
Secretary to the Government of India
To
The Pay and Accounts Officer,
Ministry of Food and Agriculture,
Madras.
Sir,
Sub: Contracts-Gifts-Madras Port-Appointment of M/s. Jai Bharat and Co., Madras as contractors for clearing and forwarding gift
parcels/consignments and relief supplies for Tibetan Refugees arriving under the Indo-U.S. Agreement on 9-7-1951 for two years from 12-7-
1965 to 11-7-1967 rates for despatch of parcels at city rail heads by wagon loads.
In continuation of this Department letter No. PDIII-1(7)/65-III-65 dated 20-10-1965, on the above subject, I am directed to convey the sanction
of the president to the payments being made to M/s. Jai Bharat & Co., ex-contractors for clearing and forwarding the gift parcels/consignments
and relief supplies for Tibetan Refugees etc. Arriving at Madras port during the period from 12- 7-1965 to 11-7-1967, for despatch of parcels by
wagons loads from Madras City railheads at the following rates:
Service Weight of Parcels and rate per parcels
For removing the gift parcels from the port Transit sheds or Govt. of India ware-houses (a) Rs. 0.30 Rupees nil and paise thirty only) per
repacking them, wherever necessary labelling, and loading them into trucks/carts and parcel each weighing upto50lbs or 22.68 kgs.
transporting them to the various city railway stations and despatching them as wagon loads
to proper destinations, collecting the railway receipts and sending them immediately to the (b) Rs. Nil and paise 37� only (paise thirty seven
consignees under intimation to the Regional Director(Food) Madras or any officer acting on and half only) per parcel each weighing above 50bs
his behalf. or 22.68 kgs to 100 lbs or 45.36 kgs
(c) Rs. 0.75 (Rupees nil and paise seventy five only)
per parcel each weighing above 100 lbs or 45.36 kgs.
to 400 lbs. or 181.44 kgs.
The above service was not provided in the contract entered into with the above party and rates have been finalised by negotiations...
A reading of Exhibits D.56 and d.57 clearly shows that they do not alter the contract already entered into between the parties. As we have already
indicated, as the appellants having filed the written statement and contested the suit, have not taken any steps to stay the suit, we are of the opinion
that the appellants should not be allowed to raise this plea after a period of ten years.
Equally, we are not convinced with argument put forth by Mr. P. Narasimhan, the Learned Counsel for appellants on the ground the limitation.
The last payment made in this case is 30-8-1968 and the suit has been filed on 14.9.1970, such, in our view, the suit is well within the period of
limitation. It is seen that the contract has been entered into between the parties in the year 1966 and the last payment is made on 30.8.1968.
Thereafter also, several payments had been during the month of September, 1968. ''As such, we are of the opinion that when the suit has been
filed on 14.9.197 it should have been held that the suit is filed within time. It is pertinent to note that when the appellants have not raised the
question of limitation, or complained of about the contract it must be construed that the suit was filed within time. As such, the contention raised by
Mr. P. Narasimhan, the Learned Counsel for the appellants, with regard to limitation also fails.
We are not able to appreciate the principles of accord and satisfaction. It is very clear from the facts of this case, that though the respondents by
their letters Exhibits D.56 and D.57 have offered lower rates but it was not acted upon by the appellants. A mere reading of Ex. D.56, as
extracted above, will show that the offer is only for a certain period. We are of the opinion that the respondents received the amounts only under
protest and they were claiming the balance of the amount now. Since we have come to the conclusion that the claim is made under the original
contract itself, entered into between the parties, on the facts and circumstances and considering the evidence in this case, we are not inclined to
accept the argument of Mr. P. Narasimhan, that the principles of accord and satisfaction will come into play in this case. We are of the view that
there are no merits in the appeal and accordingly it is dismissed. However, there will be no order as to costs.