M/s. Alopi Parshad & Sons Ltd. v. Union of India, AIR 1960 SC 588

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INTRODUCTION

The case was heard by The Supreme Court of India. Appeal from the judgment and order dated the 25th May, 1956 of the Punjab High Court in F.A.C. No. 89/D of 55. N. C. Chatterjee, S. K. Kapur, N. H. Hingorani and Ganpat Rai, for the appellants. H. J. Umrigar and T. M. Sen, for the respondent. 1960. January 20. The Judgment of the Court was delivered by SHAH J.-On May 3, 1937, M/s. Alopi Parshad and Sons Ltd. M/s. Alopi Parshad & Sons Ltd. v. Union of India, AIR 1960 SC 588 is a landmark case in Indian contract law that established the principle that an arbitrator has no power to vary the terms of the contract and that an award can be set aside on the ground clear legal error on the face of the award.

FACTS OF THE CASE

The case involved a dispute between M/s. Alopi Parshad & Sons, Ltd. (hereinafter referred to as the “Agents”) and the Union of India. The Agents were appointed by the Governor-General for India in Council as agents for purchasing ghee required for the use of the Army personnel. After the outbreak of World War II, there was an enormous increase in the demand for ghee by the Government, and the agreement was revised by mutual consent on June 20, 1942, and the original rates of payment were scaled down. On December 6, 1943, the Agents made a representation to the Government for enhancing the rates as conditions had become abnormal. According to the Agents, they were given assurances that their claims would be favorably considered by the Government and relying on these assurances they continued to supply ghee in quantities demanded by the government due to huge additional expenditure. The Government did not increase the rates and the matter was referred to arbitration under the 1937 agreement. Before the arbitrators, the Agents contended that the agreement of 1942 was not binding upon them and claimed payment on the basis of the agreement of 1937; and in the alternative claimed payment on the basis of increased rates of mandi charges, additional buying remuneration, and contingency charges. These claims were contested by the government and it was denied that any assurances had been given by the government to raise rates. The arbitrators incorporated the points of contest in the form of issues. By an award dated May 2, 1954, the arbitrators rejected the primary claim of the Agents holding that the agreement of 1942 was binding. On the alternative claim, they awarded a sum of money for loss suffered by the Agents on account of establishment and contingencies, and another sum for mandi and financing charges. The award was filled and this judgment was filed in the court of the Commercial Sub-Judge, Delhi and the Government applied to set it aside.

ISSUES RAISED

• Whether the arbitrator had the power to vary the terms of the contract?
• Whether the award was liable to be set aside on the ground of an error of law apparent on the face of the award?
• Whether the Agents were entitled to claim payment on the basis of mandi charges, additional buying remuneration, and contingency charges?
• Whether the Agents were entitled to claim payment on the basis of quantum meruit?

JUDGEMENT

The Supreme Court held that the arbitrator had no power to vary the terms of the contract and that the award was liable to be set aside on the ground clear legal error on the face of the award. The Court also held that the arbitrator did not have any authority to award payments on a quantum meruit basis.

In the case of M/s Alopi Prasad & Sons Ltd. vs. UOI, 1960, the court held that when an agreement is mutually exclusive (S.62) the commitments under its original/original contract become void for both the parties.

In the case of Alopi Prasad vs UOI, the effect of mutual variation in the original contract regarding the price of goods was that the Government now had to pay the agreed reduced price and not the price that was previously stipulated in the original contract.

Although the plaintiffs suffered losses, they received compensation as stipulated in the various settlements; Therefore, any action of additional payment is not considered valid.

Furthermore, the plaintiff’s argument regarding assurances given by the Government, barring later recourse to it, could not be held valid for vague assurances, the contract could not be varied nor for No action could be taken regarding the promised stoppage. It was never intended to be legally binding. S.56 (Impossibility to perform): If a consideration of the terms of the contract, regarding the situations in which it was clarified that parties never agreed to be bound in a distinct scenario now unexpectedly aroused, the contract operates not because it is just and reasonable to fulfill the terms but because on its genuine construction; it does not hold applicable in that situation.

There is nothing in the Indian Law which justifies that variation in circumstances ‘wholly outside the contemplation of the parties’ from the time of drafting the contract will justify a Court to acquit a party from express terms thereof.

A contract is not irritating just because of varying situations. Hence, instead of ‘intention of the parties, as rational men’, focusing on ‘correct interpretation of the contract.

CONCLUSION

 In conclusion, the case of M/s. Alopi Parshad & Sons Ltd. v. Union of India, AIR 1960 SC 588, is a landmark case in Indian contract law that established the principle that an arbitrator has no power to vary the terms of the contract and that an award can be set aside on the ground of an error of law apparent on the face of the award. The case is significant as it provides guidance on the powers of an arbitrator and the grounds on which an award can be set aside.

Reference 

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BY, ADNAN PARWEZ, LLOYD SCHOOL OF LAW

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