DEVIDAS VI111ALDAS Ii: CO.

C.I.T., BOMBAY CITY

Janµnry 28, 1972

[S. M. S!KRI, C.J., J, M. SHELAT, H. R. KHANNA AND G. K. MIT'.l'ER, JJ .]

Jm:ome-tax-Capital or Re.en"" ex1mtdltuoodwill-D•ed of dissolution of partnership reciting "sale" of goodwUI In conslUratlon of share in the profits--Payment not related to any lumINum fixed as purcluue price-Duration of payment Indefinite and amount indt!(inite- Payment made by vendee If admissible deduction a.J revenue expendi~.

P and A carried on business as Chartered accountants in the . name of D.V. & Co.. On P retiring from plrtnership a deed 6f dissOlution was executed which provided that the business would be carried on by A.

By clause 2 of the deed, P, who owned the rights and in!emt in the goodwill, "agreed to sell" the goodwill to A and "as consideration for and in full satisfaction of the purchase price of the goodwill" A was to y eight annas in the rupee in the net profits of the businoos payable . dunng the life time of P and after him during, the life time 'of his wife and then to their son during his life time. Clause 6 provided that in the event of A entering into pal'tnership or transferring or assigning his busV aell so long as the business was carried . on in the name of D.V. & Co.; the p:irtnership, the assignee or the transferee was to pay the share in the profits in the manner provided in cl. (2). A enla'ed into part:nttship with C, the deed of partnership reciting that the goodwill of the busineoa beloilged solely to P which A had "bought" in oonsideration of his agree.

ins to pay a share of eight annas in lhe rupee ond that the parties thereto pay fh1' annas four pies share in the profits, by way of purchase price of the goodwill "" agreed by P. The firm paid to P's wife, after the death of P, various amounts during the years 1955-59. It clsimed that those amounts should be deducted in its assessmenl9 for . those years.

Tho Income-tax Officer and the Appellate Assistant Commi'8loner rejected the claim holding that the payments were capital and not revenue payments and the tnulsaction evidenced by the deed of dissolution was one . ot outright sale. On appe9l, the Tribunal held that the payments constituted only fee oi' rent for the use of the goodwill so long a.s it was used and accordingly they were in the nature of revenue expenditure.

On reference the High Court answered in favour of the Revenue.

Allowing th~ appeal,

HELD : (Sikri CJ. Dissenting) On the facts of the ca.so the tranaaotion was a licence and not a sale of the goodwill; the disbursements in question, therefore, were in the nature of royalty and must be treated as admissible deduction. [232 BJ

(i) There is no single test of universal application for deciding the question whether an agreement is for payment of price in stlpufated instalments or folr making annual payment in the nature of income and, therefore, the Court has to look not only into the .document relating to the transaction, but also !he surrounding circumstances to decide its true nature, the nme which the parties give to it being of little C'Onsequence.

SUPKEME COURT REPORTS

( 1972] 3 S.C.R.

This does not mean that the legal character of the transaction which is A 1he !\()urce of the receipt in question can be ignored and substituted by what the taxing authority considers the substanc~ of the matter. [224 Bl

Travancore Sugars a11d C/Jemicc./s Ltd. vs. C.l.T., (1966) 62 J.T.R. 566, referred to.

(ii) One of the tests courts have applied in distinguishing between capital and revenue expenditure is whether the expenditure in question was for bringing into .existence an asset or an advantage of uan enduring nature'!, and is made "once and for all".

It may be payable not necess.arily '311 at once but even by instalments as against a recurrent expendi- Jure in the nature of operational expenses. The question in such cases

would be; is the expenditure the assessee's \\'orking expenditure laid out 3S part of the process of profit earning or a capital outlay necessary for the acquisition of a property dr rights of permanent character the posse!Sion of which is a condition of carrying on the trade. But the expressions "enduring benefit'\ and rights of a permanent character are only descriptive_ and not definitive and are. relative in meaning, not synonymous

with 'perpetual' ct 'ever1'3.Sting'. The expression "enduring benefit" is thus a relative term not enduring in the sense of its being permanent, but is •ufticiently durable depending upon the nature of the tenns upon which it can be acquired.

So also the the expression "once and for all" which does not mean payment at one time of the whole amount but includes payment of a luml""wn, as distinct from recurrent, distributed in periodic instalments. [22 F]

Atherton v. British Insulated and Helsby Cables Ltd., 10 T.C. 155; Auam Bengal Cement Co, Ltd. v. CI..T. 27 I.T.R. 34, 46; Robert Addle and Sons' Collieries Ltd. v. Commissioner of Inland Revenue, 8 T.C. 671;

Commissio11er of Taxes v. Nchanga Consolidated Copper Mines Ltd.,

(1965) 58 J.T.R. 241; C.l.T. West Bengal v. Coal Shipment (P) Ltd., Civil Appeals Nos. 1494 to 1498 of 1971, decided on Octobel- 14, 1971; C.l.T. v. Finlay Mills, (1951) 20 I.T.R. 475; Henriksen v. Grafton Hotel Ltd.; 24 T.C. 453 and Strick v. Regent Oil Co. Ltd., 43 T.C. I, 38 referred 10.

The other test sometimes '3.pplied, is payment when it is refeli:able 'o fixed capita] or capital assets as against payment eferrable to circulating capital or stock-in-trade. This test also is not capable of being treated as of unifonn application. [226 Fl

Assam Bengal Cement Co. Ltd. v. C.I.T., 27 J.T.R., 34, 46, referred to.

(iii) Acquisition of the goodwill of a business is, without doubt acqui~

ition of a capital asset, and therefore, its purcP:Jse price v•ould be capital expenditure.

It \J.'ould not make any difference whether it is paid in a !ump-sum at one time or in instalments distributed over a specific period.

Where, however, the transaction is n"t one for acquisition of the goodwill but, for the right to use it. the expenditure \vould be a revenue expenditure. [226 HJ

Jn Re Ramjidas Jai11i & Co., (1945) J.T.R. 430; Kuppwwami Y.

I C.l.T. (1954) 25 I.T.R. 349; .Ogde11 v. Medway Cinemas Ltd., 18 T.C. 691;

The Secretary of State for India v. Scoble, [1903], A.C. 299; Jones v. Com- 1nissioner of Inland Reienue, 7 T.C. 310; Conzmissioner of Inland. Revenue

v. Ramsay, 20 T.C. 79; Vithaldas Thake.rdas and Co. v. C.1.T., (1946] l.T.R. 822 an<! Trava11core Sugars and Chemicals Ltd. v. C.l.T., (1966)

~2 l.T.R. 566, referred to.

DEVIDAS & CO. I', C.I.T. 217

(iv) In the present case even though Cl. (2) of the deed of dissolu tion uses expressions such "lS "agreed to sell" and ''the purchase price of the goodwill," these expressions are not determinative of the exact nature oi the transaction or the relationship between the parties arising therefrom.

Clause (2), no doubt, prescribes the mode and the quantum of payment.

But, the duration of payment is indefinite and secondly the amount is indefinite depending upon the rise nd fall in the profits of the business. The payment is not related to any lumpsum fixed as the purchase price. But on the contrary it is direqly related to and dependent upon whether at all and \\'hat profits are made.

Further, the document is totally silent as to what is to hppen to the goodwill if A, or his partners, if he were to enter into a partnership, cease to carry on the business in the name of D.V. & Co.

The transaction thus contains all the grounds given in the case of 'f'ravancore Sugars and Chentir11ls Ltd., upon which this Court concluded' that such p'1yments could not be treated as capital disbursement, namely, an indefinite period, absence of any expressed lumpsum and payment relating to profits and not being tied up with any fixed sum agree<l to as the purchase price_ of the capital mets, [230 F-H; 232 Bl

Trava11<ore Sugars and C/lemirnls Ltd. v. C.I.T. (1966) 62 J. T. R. 566 applied.

(v) Quite ·part, Cl (6) itself contains indication of the transaction n_O! being an outright purchase of the goodwill. If the transaction was an outright purchase of goodwill there was no neces.sity of Ct (6) provid ing for the partnership which A would enter into or his assignee or transferee having to pay the share. so Jong as he or they continued to carry on business in that name. (231 BJ

Per Sikri, C.J. dissenting.

(i) Clause (2) of the dissolution deed says what it meant to cbnvey, that is, there is an agreement to sell and sale of the goodwill of the p*1nership.

The words "as. consideration for and in full satisfaction of the purchase price of the goodwill" cannot be tered down by any of 1he subsequent clauses.

Furhcr, the deed executed by A and C also recited that A had "bought" 'the goodwill in consideration of his agreeing 10 pay a share of the profits.

It is difficult to go against the express F wording of the deed when there j.., no clear clause overriding these wdrdS. , f216EJ ·

(ii) A mo<lc of payment of purch-:isc price of any capital asset cannot convert a c'apit:il payment into a revenue payment in the hands of the vendec, It may be 1hat the mode of payment may affect the character of the receipt in the hands of the vendor. [218 H]

(iii) The grounds adopted by this Court in Travancore Sugars c.-nd Chen1icals Ltd. cannot be ri:gardc<l a'i conclusive in a case \.\'here there can he no doubt that the capital asset ha< been sold. [219 BC]

The abcncc of a clause providing what is to hppen if the vendee of too .soodwrll , ceases to carry on the h•sincss further reinforces the con clus1on hat 1t was -an out and out sale.

Thi'i clause was not inserted

~c; ausc 1t would be out of place in a case of sale. [219 DJ

(v) C!ausc f6) does not have any bearing on the question under consrdcrat1on.

Thrs clause has been inserted in order to safeguard the rnter_est of the vendor who was keen to see that he would get ns much "' possible for the sale of the goodwill. [219 Fl

Therefore, on the facts, the goodwill was an asset of an endW'ing A nature. The fact that payment was to be made over a number ot yO'.U'S and the nature of a chartered accountant's business lead to this condusion. [219 FJ

CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 1452 to 1455 of 1968. ·

Appeals from the judgment and order dated February 25, 1967 of the Bombay High Court in Income Tax Reference No. 49 of 1962.

 M. C. Chagla, Bhuva11t'Sh Kumari, J. B. Dadachanji, 0. C.

Mathur and Ravinder Narain, for the appellant (in all the appeals).

N. D. Karkhanis, R. N. Sachthey and B. D. Sharma, for the respondent (in all the appeals).

 SIKRI C.J. delivered a dissenting opinion. The Judgment of SHELAT, KHANNA and MITTER~ JJ.-was delivered by SHELAT, J.

Sikri, C.J., I have read the draft of the judgment prepared D by Shelat J ., but I regret I am unable to agree with his conclusions.

He has set out all the relevant facts and the relevant documents .and it is not necessary for me to burden my judgment with them.

It seems to me that there is 110 dif)iculty in interpreting clause 2 of the dissolution deed. It says what it meant to convey, that is, E there is an agreement to sell and sale of the goodwill of the partnership which belonged to Padamsi alone to Amratlal. It is dillicult to water down the words "As consideration for and fn full sat.isfaction of the purchase price of the goodwill" by any of the subsequent clauses.

Reliance is placed on the deed dated October 18,

1955, F executed by Amratlal ancf1 one Chandrakant V. Parikh. This deed also recited that "the goodwill of the said business belonged solely to the said Padamsi which he, the said Amratlal, had 'bought' in consideration of his agreeing to pay a share of eight annas in the rupee to Padamsi".

I find it again difficult to go against the express wording of the deed when there is no clear G clause overriding those words.

I am not averse to discovering the substance of a transaction but there is a limit to the extent I can disregard the language in a commercial document. Reliance is placed on clause 5 of this deed. I am unable to say that this clause has the effect of converting a sale into a licence.

It is argued that the mode of payment of the purchase price shows that it was not a purchase. I am unable to see how a mode of H payment of purchase price of any capital asset can convert a capital payment into a revenue payment in the hands of the vendee.

DEV!DAS & CO. v. C.l.T. (She/at, J,). '!j; ~/'.

It may be that the mode of payment may affect the character of the receipt in the hands of the vendor but as far as the vendee is concerned, I am unable to agree that the mode of payment can convert what is obviously a capital payment or expenditure into a revenue payment or expenditure.

Reliance was placed on the three grounds adopted by this Court in Travancore Sugars &: Chemicals Ltd. v. C.I.T.( 1) viz., indefinite period, absence of any expressed Jump sum, and payment relating to profits and not being tied up witli any fixed sum agreed to as the purchase price of a capital asset. I am unable to regard these grounds as coaclusive in a case where there can be no doubt that the capital asset has been sold. If A sells his house to a company for its office and stipulates that in full satisfaction of the purchase price he will. receive annual payments relating to profits without stipulating for a fixed sum, 1 doubt if anybody will argue that the company can peduct the annual payments as revenue expenditure.

The fact that it is a sale of a capital asset like goodwill does not make any diffc:rence.

It was urged that it is not really an out and out sale of goodwill because there is no clause providing what is to happen if the vendee of the goodwill ceases to carry on the business.

To my mind. the absence of such a clause further reinforces the conclu- . sion ihat it was an out and out sale. This clause was not inserted because it would be out of place in a case of sale,

Reliance was hlso placed on clause 6 which has been set out in detail in the judgment of Shelat J. In my view, this does not have any bearing on the question under consideration. It seems to me that this clause has been inserted in the deed in order to safeguard the interest of the vendor, who was keen to see that he would get as much as possible for the sale of the goodwill. On the facts I am also of the opinion that the goodwill was an asset of an enduring nature.

The very fact that payment was to be made over a number of years and. the nature.. of a chartered accountant's business lead to this conclusion.

In my view, it is a very ingenious attempt to avoid payment of tax by making it appear somehow that the payment of purchase money may be treated as payment of a royalty. In the view I take of the deed it is not necessary to discuss the numerous cases referred to by Shelat J.

In my opinion, the High Court came to the correct conclusion and the appeals should be dismissed with costs.

Sltelat, J.

Prior to November 1948, one Padamsi Haridas carried on his profession as a chartered accountant in the name

(I) [1966] 62 1.T.R. 566.

SUPREME COURT RF.PORTS

[1972) 3 S.C.R.

of Devidas Vithaldas and C.o.

By a deed of. partnership, dated November 30, 1948, he took one Amratlal Parikh as a partner, reserving, however, to himself ail the rights and interests in the goodwill of that business.

On January 2, 1951, he retired from the said partnership.

Cl. ( 1) of the Deed of Dissolution executed on that occasion provided that the said partnership shall be deemed to have been dissolved as from December 31, 1950, but .the business shall, as from that date, be carried on in the said name by the said Amratlal alone.

Cl. (2) of the said deed ran as follows :

"2. The goodwill of the late partnership belonged to the said Padarnsi alone. He has agreed to sell the same to the said Arnratlal.

As consideration for and in full satisfaction of the purchase price of the goodwill. of the said late partnership the said Amratlal shall-

( a) pay to the said Padamsi for -and during the terms of his natural life a share of eight annas in the rupee in the net profits of the said business or profession which the said Amratlal shall hereafter carry on in the said name of Devida~ Vithaldas & Co.,

(b) on and after the death of the said Padarnsi, pay t~

Bai Premlata, the wife of the said Padamsi, (if she be then surviving), for ; md during the term of her natural life a share of eight annas in the rupee in the :net profits of the said business or profess10n which the said Amratlal shall hereafter carry on in the name of Devidas VithaJdas & Co., and

( c) on and after the death of the said Padamsi as well as his said wife Bai Prem!ata, pay to Subhas the son of the said Padamsi for and during the term of his natural life a share of eight an:nas in the rupee in the net profits of the said business or profession which the said Amratlal shall hereafter carry on in the name of Devidas Vithaldas & Co." Q. ( 3) provided that nothing contained in the deed shall constitute or be deemed to constitute any future partnership between the parties to the deed or. between the said Amratlal and the said Bai Prem!ata, or the said Subhas in respect of the business to be carried on by Amratlal in the name of Devidas Vithaldas & Co.

Cl. ( 4) declared that accounts had been made up between the pa.'1ies, and 'that neither party had any claim against the other except as provided in said clause (2). By cl. (5) it was made clear that the said Amratlal shall henceforth remain liable for all

B \,

DEV!DAS & CO. v. C.I.T. (She/at, /.) 221

the obligations a:nd liabilities. which might be incurred in rest of the said business to be carried on in the name of Devidas Vithaldas & Co., and he shall accordingly indemnify the said Padamsi against all actions, claims, demands, costs, charges and expenses whatsoever in respect of the same or in any other manner relating to the premises.

Lastly, cl. ( 6) provided that in the event of Amratlal transferring or assigning his said business to

any person or persons, or carrying on the said business in partnership with some other person or persons, or remaining otherwise interested or concerned directly or indirectly in the business or profession of chartered accountants by whomsoever carried on in the name of Devidas Vithaldas & Co., or any other name resembling or similar thereto, or in the event of any of the heirs or legal representatives or nominees of Amratlal carrying on the said business or profession in the name of Devidas Vithaldas & Co., then in any such, events they and "so long as any such business be carried on in the name style and firm of Devidas Vithaldas & Co. or any other name resembling or similar thereto, the assignees of the said Amratlal and/or the said Amratlal and/or any such other person or persons as aforesaid carrying on such business under the. :name style and firm of Devidas Vithaldas & Co. shaJl as aforesaid pay to the said Padamsi or his said wife Bai Premlata or his said son Subhas for and during the terms of their respec" tive lives the said eight annas share in the rupee in the net profits

of any such business as is hereinbefore directed to be paid by the said Amratlal under clause 2 hereof--". The clause next provided that "the said Amratlal shaJl not assign or transfer or otherwise dispose of the said business or the goodwill thereof or bequeat]j the same to any person whomsoever nor enter into any partnership or other arrangement with any other person or persons for carrying on the said business in the said name-except with a condition that the provisions of this Agreement shall be accepted by such person or persons or his legatees or successors or legal representatives, and with a further condition that any such person or persons or successors or legatees or legal representatives shall forthwith after being interested in any such business and whenever required by the said Padamsi or by his wife Bai Prcmlata or his said son Subhas, as the case may be, enter into an agreement with any of the last three named persons, as the case may be, similar to this agreement".

By his letter dated October 13, 1955, Padamsi agreed to reduce the said share of eight annas in a rupee to five annas four pies.

H Amratlal carried on the said business in the name of Devidas Vithaldas & Co. as the sole pr0prictor thereof till October 17,

1955. Payments made by him during this period under els. (2) and ( 6) of the said deed of dissolution were added back in his

assessments as capital payments. On October 18, 1955, he entered into partnership with one Chandrakant V. Parikh. The deed of partnership executed then by him and the said Chandrakant Parikh recited that the said Amratlal till then was carrying on the business in the name of Devidas Vithaldas & Co., that the goodwill of the said business belonged solely to the said Padam!i which he, the said Amratlal, had "bought" in consideration of his ; igreeing to pay a share of eight annas in the rupee to Padamsi, and after him his wife and then his son as aforesaid.

Cl. ( 5) of the deed then provided :

"The parties hereto shall pay 0/5/4 share in profits in a rupee as and by way of purchase price of goodwill of the said firm to the said Shri Padamsi Haridas or to his wife or to his son as stated in detail hereinbefore, instead of Re. 0/810 share in a rupee as agreed by the party of the First Part and Shri Padamsi Haridas. The said Shri Padamsi Haridas has agreed to this reduction in his share mutually with Shri Amratlal Kashandas Parikh and Shri Chandrakant V.

Parikh. After the said sh ate of 0/ 5 / 4 in a rupee is paid up as stated above the balance of the profit and loss of the firm shall be divided in two equal proportions between the parties of the First and the Second Part."

The firin constituted under this deed paid to Bai Prcmlata on ;1nd after the death of Padmsi various amounts during the years 1955-1959 under the said covenants.

The firm claimed that those amounts should be deducted in its assessments for those years on the ground that its income to the extent of those payments had been diverted as a result of the overriding title created by cl. ( 5) of the said ded of partnership.

Assessments for the relevant years showed that the amounts paid to Bai Premlata were assessed as income in her assessments. so that, if he deductions claimed by the firm were not admitted the same amounts would be assessed twice over, first in the hm:ids of Bai Premlata and then in the assessments of the firm.

The Income Tax Officer, and in appeal the A.A.C., re_jected 1hc claim for deduction.< holding that the said payments were capital and not revenue payments, and that the transaction evidenced bv the said deed of dissolution was one of outright sale of the goodwill and the payments made thereunder were part of the purchase price.

On an appeal to the Tribunal, the Tribunal rejected the contention of the Revenue that the transaction was a sale of the goodwill in terms following :

"ft is no doubt true that clause 2 of the agreement refers to sale of goodwill and the agreed payments as

DEVIDAS & CO. v. C.I.T. (She/at, J,) 223

constituting full satisfaction of the purchase consideration. If the payments are stopped, it is not stated that there will be any right of action for any definite quantified and liquidated amount. It would mean that with the stoppage of payments the assessee will only lose the right to its contact with the clientele and opportunity to earn profits thereafter.

These considerations only go to show that in the peculiar circumstances of the case the agreement is virtually a licence granted for user of the goodwill upon payment of one-third of the net profits derived for such user -·-." c In this view the Tribunal held that the payments constituted only a fee or rent for the use of the goodwill so long as it was used and accordingly they were in the nature of revenue expenditure.

On a reference to the High Court, the High Court held that :

"On the face of the document, therefore, we cannot accept the contention that it was a document merely granting a licence to use the goodwill or a mere transfer of the right of user thereof.

It was an outright sale of an asset of Devidas Vitha!das & Co. namely the goodwill which till then belonged to Padamsi and in which he had reserved his exclusive right at the time when he enteRd into partnership with Amratlal."

In this view, the High Court answered the questions referred to it in fa'f'Olll' of the"Revenue.

It was true, the High Court observed, that.the Revenue had in the assessments of Bai Pren!lata taken the \'iew tht "Padamsi had not sold his right, title and i.nterest_in

the J!O(ld1rill and merely allowed the use of it for a number of years F and siiice the payment was for the user of the goodwill, lt could clMY be a revenue receipt in the hands of the assessee". But it added that '!this was an incorrect view to take upon the faotsl!nd circumstallces that have been placed before us in the present case and upllll clhe terms of the document dated 2nd January 1951.

TM ordei clearly shows that the document dated 2nd January,

1951 was misconstrued". It is against this view that these appeals G have been filed.

The question upon which they must tum is as to whether the payments in question made in pursuance of the transaction iru:orporated in the deed, dated January 2, 1951, were in the nature of ttvenue or capital expenditure.

If they are of the fom1er type, tblly woull obviously be admissible deductions under s. 10(2) of H the Income Tax Act, 1922.

That question, in its tum, depends upon the true nature of the transaction as embodied in the said deed, that is, whether it was a sale of goodwill or a licence in 2-LS87SuJICJ/12

consideration of Amratlal and/ or his assignees or transferees paying the aforesaid share until he or they used the said name.

As has been observed in a number of decisions, it is not always easy to distinguish whether an agreement is for the pay ment of price in stipulated instalments or for making annual pay ments in the nature of income, that there is no single test of universal application for a solution of the question, and that therefore, the Court has to look not only into the document relating to the transaction, but also the surrounding circumstances to decide its true nature, the name which the parties give to it being of little consequence.

This, of-course, does not mean that the legal character of the transaction which is the source of the re ceipt in question can be ignored and substituted by what the Taxing Authority considers the substance of the matter. The assessing authority is undoubtedly entitled and is, indeed, bound to determine the true legal relationship resulting from a transaction.

If the parties have chosen to conceal, by a device, the true legal relation, it is open to it to unravel such device and to ascertain the true nature of the relationship. If the transaction is embodied in a document, the liability to tax depends upon the meaning and content of the language used in it in accordance with the ordinary rules of construction. (1)

In distinguishing between capital and revenue expenditure, the courts have applied in different cases different tests.

Nonetheless, it i[ recognised that none of them by itself is conclusive, and the determination one way or the other has to be made on the facts and circumstances of each case.

One of the tests so applied is whether the expenditure in question was for bringing into existence. an asset or an advantage of "an enduring nature". (2 ) and is made "once and for all", meaning thereby an expenditure made once and for all for procuring an enduring benefit. It may be payable not necessarily all at once but even bv instalments as a11.ainst a recurren! expenditure in the nature of nnerational exoenses. (See A •.vam Ben11a/ Cement Co. Ltd. v. ClT( 8 ). The question in such cases would be, is the expenditure the assessee's workin11: exoenses laid out as oart

of the process of profit earnin2 or a caoital outlav nece•sarv for the acauisition of a nrooerty or of rfoh•s of a oermanent character, the possession of which is a condition of carrvine on the trade.(') But the expressions, 'enduring: benefi!'. and 'rihts of a permanent

(1) C.l. T. v. Kharwar, [1969] 721.T.R. 603 (2) Arherlion v l?riti.rh Tnsufated Nnd Helsby Cables Ltd, 10 TC 155

(3)27TTR 34, 46

(4) Robert Addle and Sons, Coll/ieres Ltd., v. Con1missioners of Tnland Revenue, 8 TC 671.

DEVIDAS & co. v. C.J.T. (Shelat, J.) 225

llll:ture', are ouly descriotive aud not definitive and are relative iu meaning, not synonymous with perpetual or everlasting.

For instance, an expenditure incurred in common with other com pauies producing copper to bring down production so as to prevent a steep fall in the prices was construed to mean for one of them to be out of production for J 2 months only and not for good.

On such construction, it was held that to call such an expenditure a capital expenditure would be contradiction in terms, for, it was not and was not intended to one for acquiring a right of an enduring benefit or as an accretion to the capital or income earni1u1; structure of 1h.~· business.(') CJ.T., West Bengal v. Coal Shipment (P) Ltd.,(') an agreement was arrived at between two companies exporting coal to Burma.

The assessee company agreed thereunder to pay, in considera!ion of the other company prebearing f om exportin~ and procuring coal for its export by the asses5ee company, five annas per ton (subsequently raised to Rs. 1-5-0 per ton).

The amounts so paid to the other company were taxed in the hands of that company.

The respondent-company claimed them as admissible business expenditure for the assessment years in question.

The Revenue, on the other hand, claimed that the payments were for acquiring monopoly and were therefore not allowable as revenue expenditure.

This Court upheld !he assessee's contention that the expenditures were not for acquiring the monopoly, but were made to make the business more facile and profitable, that they were made as a temporacy measure and not for deriving an advance of an endurinr, character.

Observing that the agreement between the two companies was not for any fixed term and could be terminated at any time at the volition of any of the parties, it was held that

although an enduring benefit need not be of an everlasting character, it should not at the same time be transitory or ephemeral. w that it can be terminated at any time at the volitior of either of 'lhe parties. . Payments to ward off competition would constitute capital expenditure, provided the objection is to derive an advanta2e by eliminatin11 the comoetition over some length of time but such a result would not follow if there is no certainty of duration [or such an advantage and the same could be put an end to at any time.

Thus, what the extent of durability or permanence should be depends on the facts of each case.

Payments maqe by a lessee of a limestone quarry to thr. Government, who were 'the lessors, in con•ideration of a covenant which eliminated competition in the lessee's field of operations for twenty years, which was the lease period. were held to be capital expenditure for acquiring an enduring benefit to the

(I) Com1nl.uim1ers : of Taxe.1 v, Ncha11g" Co,,.tolldated Cop11tr 1'.fi11c.1' Ltd .. [19651 ~8 l.T.R. 241.

(2) Civil Appeals Nr.s. 149410 1498 10 1971, dccrt.•n Ociobcr. 14. 1971..

226 SUPllEME COURT REPORTS

[ 1972) 3 S.C.R.

lessee. ( 1) On the other hand, registration of trade-!lllib under the Trade Marks Act, 1940, valid for a period of - years only, on the expiry of which it had to be renewed 9y paying. fresh fees, was held not to bring any enduring benefit, and therefore, the fees paid for registration were not capital but reven11e

expenditure.(') Registration is only a mode of ellSllTin& the exclusive right in a trademark, and not the acquisition of the trade-mark itself, which would be an acquisition of a capital asset. Such a distinction was made in a case where expenditure was for the renewal of a licence, which was held to be a payment made as purchase price of a monopoly for the duration of the licence, which was only for twelve months.

The 1thing that was paid for, it was said, was a permanent quality, that is, the monopoly, although its permanence being conditioned by the renewal of the terms under which the licence was granted was shortlivcd.

Such an expenditure was treated as of that class to which a preriiium on the grant of a lease belong which admittedly is not deductible,

(see Henriksen v. Grafton Hotel Ltd.(8 ) In Strick v. Regent Oil Co. Ltd. (') Lord Reid, however, limited the decision in Henriksen' s C41'e (') to its own special facts and expressed his disagreemem with it if it was to be held to have laid down any general proposition.

The expression 'enduring advantage' is, thus a relative term, not endurin11: in the sense of its being permanent, but is sufficiently durable depending upon the nature of the terms

upon which it can be acquired. So also the expression •once and for all', which does not mean 'payment at one time of the whole am011Dt, but includes payment of a lump swn, as distict from recurrent, distributed in periodic instalments.

The other test sometimes applied is payment when it is referable to fixed c_apital or capital assets as against paymen! referab1e to circulating capital or stock-in-trade.

But this test also is not capable ol. being treated as of uniform application. Price pald for the acquisition of a capital asset may take sometimes the form of payments of a revenue character. The slmpliest example is interest paid on the unpaid purchase price of capital asset. Though in relation to and referable to acquisition of a capital asset, it is nonetheless a revenue disbursement. On the other band, in Assam Bengal Cement Co. v. C.l.T.( 1) where the paynwnt in question was for elimina!ing competition, the test of the expenditure having been incurred for and referable to a capital uaet was aJJPlicd.

Acquisition of the goodwill. of the business is, without doubt, acquisition of a capital asset, and therefore, its purchase price H

(I) 27 I.T.R. 34, 46.

(2) CIT v Finlay Mil/1, [19, J] 20 I, T, R, 47'.

(3) 24 TC 453

(4) 43 TC I, 38

DEVIDAS & CO. v. C, I.T. (Shet, J.) 227

would be capital expenditure. It would not make any difference whether it is paid in a Jump sum at one time or in instalments distributed over a definite period. (see In Re Ramjidas Jain & Co.(') and Kuppuswami v. C.I.T.( 2 ) . Where, however, the transaction is not for acquisition of the goodwill, but for the right to use it, the expenditure would be revenue expenditure.

IIIustra!ive of such cases is the one in Ogden v. Medway Cinemas Ltd.,(8 ) where the respondent-company acquired by assignment the rights of the assignor under an underlease, by which he became the lessee of the cinema hall, together with the fixtures, fittings and furniture, at a yearly rent.

There was also a supplemental deed by which he was granted the goodwill of the cinema business on payment of £ 5001per annum.

The supplemental deed was to run concurrently with the underlease, that is for 13 years, and was to cease if the underlease was terminated. The deed also contained an option for the purchase of the head lease and the goodwill for £. 3,500/. The payment of

£ 500/ • per annum under the supplemental deed was held to be admiWble deduction.

At page 695 of the report, Finlay, ]., pointed out that though the deed used the expression 'grant of 1'; oodwill for a period' there was no sum mentioned as being the

payment for that, followed by dis!ribution of that sum in instal ments, "but the thing is eXJ>ressed to be for a payment of £ 500 per annum" without reference to any lump sum followed by a splitting up into annual payments. "The substance of the matter here seems to me to be this-and I think it is supported by the actual language used, in particular by the expression provision contained later for the purchase in certaiq circumstances of the goodwill-that this is a revenue payment for the use during .a certain period of certain valuable things and rights." As Lord Halsbury put it in a case where a lump sum was expressly provided for but was payable by instalments, there is an aRteceqent debt and the instalments are paid in liquidation of that debt. (see The Secretary of State for India v. Scoble.(')

' ' Another _case, illustrative of such a test, is in Jones v. Commissioner of Inland Revenue,(') where there was a sale of property for a lump sum of £, 750, £. 300 out of which were payable by three equal instalments, and the balance of £. 450 payable by a .royalty. The whole of £. 750 was treated as a capital sum, but there was a fur!her clause "to pay by way of additio.nal consideration a further clause of 10% upon the invoice price of all machines constructed under 'the said inventions and sold during the period of ten years." In respect ol this latter

(I) [194SJ!TR 430,

(2) [1954)25ITR349

(3) 18 TC 691.

(4) [1903] AC 299.

(S) 7 TC 310.

228 SUPRB1>¥! COURT RllPO&TS

(1912] 3 S.C.L

sllll!, it was .held that since it wa's dependent on the volume of

_busmes~, which rose and fell with the chances of' the business, It was mcome and not capital, although it was actually referable to the purchase price.

In Commissioners of Inland Revenue v.

Rmsay,(') the assessee purchased a dental practice for a primary

P.nce of £. 15,000. That was to be satisfie<j firstby an immediate payment of £. 5,000 and as to the 'Wtlance of £. 10,000

by payment each year, for ten years, of a silni equivalent ro 25% of the net profits of the practice for each year: Such annual payment obviously mie:ht vaiy from time !o time depending u11oi1 the quantum of business and the profits, Nerthelcss Ille price

of £. 15,000 was not otiose, nor me balarice of £. 10,000 after the initial payment of £. 5,000. The only thing that was stipulated by the parties was that the vendor was satisfied with receiY C }ng 25% of the net profits"Mth year forthe'periooof :rears, evert If the actual payment tiltned out on the whole to be more :or

less than £ 15,000.

A~ Looi. Wright' id, the "1igure. of £. 15,000 "pennea)es"ihe whole of lthe contract lind> upon• which the wh\, le colrtract clepel)ds. 'That being 'so, , I think'tha! lhe

£'. 886 iri queS'!ion (one of the sums e'quivalent to'?5%ll'lf • .ttie net profits) 'l'.'as a 'Sum in the nature 'of capi:lll, and' therete, it

wit~ not competent for the Responde11t' t<> deduct it in returning.

hill', ttit~J income". That the-sunt<of £!'15;-000 ·"'35 'the lamp.

suni .Piirchase prici.l was also, made'dear by Ldtd 'Greeile when He said iliat a payment !es~ than thatnmount could be made on~ if clause t 4) of that agreement came into operation, :that is;· if thil' asse9See c0ntinued his practice for the whole cl the 'J>Criod. of ten years: If he were to cease to practise, say af!er seven years. be would b& liable tel pay the whole of the balance of £,, 15,000 then' remaining due. . The transaction was t!Jus viewed as a purchase of the business tor a fixed amount, payable in ten years by iUlnual instalments, which bly the mode of payment, agreed to between the parties, might at the end tum out to be more. or less than the agreed purchase price of £. 15,000. Unlike Ramsay's case,(!) .in Vithaldas Thakordas' and Co. v.

C.l.T.,(1) there was no fixed lump sum, nor a definite period during which payments were to be made.

One Vithaldas Thakordas, who durinl? his life-time carried on bullion business in the name of Vithaldas Thakordas & Co., died in 1930 .leavin11: him surviving

his widow Bai Tarabai. Under an arranment made by the

said Tarabai, first with five and later on with four persons, the name of .Vithaldas Thakordas & Co. was used by those p1rsons carrvlnl!: on their own business in partnership. The partnerihip deed provided that 'in consideration of . Bai Tarabai "h•ving agreed to 8.llow the 1'ftr!nership to use the name of Vilbllldas.

Thakordas & Co. for the purposes of partnership", the. pa$er- • ship would pay out of the net profits an amount equivalent to .

(I) 20 TC 79

(2) [1946] !TR 822.

DEV.IDAS & co. v. c.1.T. (She/at; J.) 2 29

two aimas in the rupee of the net profits.

It also provided 1that after payment of the said ainount out of the net profits, the balance of neit profits would be divided ainongst the partners according to their respective shares.

No term was fixed for the duration of the use of the goodwill.

Evidently, the right to use the naine would cease when the partnership ceased to pay the

ainount of t.wo annas in the rupee in the partnership's net profits.

On a question whether the payment was an admissible deductim:, the High Court of Bombay, relying on Ogden v. Medway Cinemas

Ltd.(') helg that the payment was a revenue expenditure, the transaction between the partnership and the said Bai Tarabai being not a purchase of the capital asset. It is true that the words used in the document were such as one would find in a document of a licence.

But, as already stated, it is not form but the substance of the transaction that matters.

Besides, he decision did not rest on those words but on what truly the nature of the transaction was am;! the analogy it bore with that in Ogden v.

Medway Cinem'as Ltd. (1)

A case of a similar nature is also to be found in Trarancore Sugars and Chemicals Ltd. v.

C.l.T.(2 ). There the assesseecompany was floated to tilke over the assets of three undertakings run by Travancore Government, a sugar manufacturing concern, a distillery and a tincture factory.

The first was to be purchased for Rs. 3.25 Jacs, the second on a joint valuation of Jlllrties, and the third on the book value of the assets Cl. (7) of the agreement provided that apart from the cash consideration the Government would be entitled to 20% of the annual net profits subject to a maximum of Rs. 40,000 after providing for depreciation and

the remunenition payable to the company's treasurers and secretaries.

The question was whether a sum of Rs. 42,480 pald in the previous year in question was a capital or a revenue expenditure. Reversing the High Court's judgment, which held it to be a capital disbursement, this Court held that it was a revenue expenditure and gave for its decision three reasons, namely, (a) that the payment was for an indefinite period, (b) that it , was related to annual profits which flowed from the trading activities and had no relation to the capital value of tho~ assets, and ( c) that the payment was not related to, nor tied in any way to any fixed sum agreed between the t>arties as part of the purchase price of the three undertakings.

These were also the three considerations applied bv Lord Greene, M. R. in Commissioners of I11la11d Revenue v. 36/49 Holdings Ltd.(8) The ques!ion whether the disbursements in question µarfake the character of one or the other mainly deoends upon the construction of ithe document of January 2, 1951 and the true nature

(1)18TC 691

(2) (1966) 62 IT R 566,

(3) 25 TC 173, 183

of the transaction embodied tllerein.

Cl. (2) of the document, no doubt, uses expressions, such as "agreed to sell" and "the purchase price of the goodwill". These expressions, however, are, as repel!_tedly stated in a number of cases, not determinative of the exact na!ure of the transaction or the relationship between the parties arising therefrom.

Though cl. ( 2) uses expressions which on a superficial view might appear to indicate a sale of the goodwill, neither that nor any other clause mentions what its purchase price was.

The document is not one of those where the price is expressed at a lump sum, and is made payable by specific instalments within a specified period.

In some cases, it may even be possible that parties might agree to a Jump sum as the price and yet, as in Ramsay's case, ( 1) agree that such sum should be payable out of the profits at a certain percentage, where the purchaser is not in a position to pay ilie price at a time or even by instalments, except at a particular rate from out of the profits of the business taken over by him.

Bu! in such a case the payment, even if out of the profits, is tied up with a lump sum, that is, with the purchase price agreed to between the parties and which assumes the character of a fixed debt. Cl. ( 2) clearly does

not fix such a price nor mention a Jump sum in respect of which annual payments as provided therein are to be made.

The cla!!se, no doubt, prescribes ilie mode and the quantum of the payment, that is, a share of five annas four pies in the rupee in the net profits of the business, payable during the life time of Padamsi and after him during the. lifetime of his wife Bai Premla!a if she were to survive him, and then to their son during his lifetime.

Two things, however, may at. once be ob served, firstly, that ithe duration of payment is indefinite, unlike Ramsay's case (') and secondly the amount is indefinite, depending as it does upon the rise and fall in ilie profits of the business.

Obviously, the payment is not related ito any Jump sum fixed as the purchase price. On die contrary, it is directly related to and dependent upon whether at all and what profits are made.

Further, the document is totally silent as to what is to hppen to the goodwill if Amratlal Parikh or his partners, if he were to enter into a partnership, cease to carry on the business in the name of Devidas Vithaldas & Co. or at all. I! is silent as to wheilier the

goowill would remain with him and/ or his partners, or whether it would revert to Padamsi or his heirs. The iransaction thus contains all the grounds given in the case of Travancore Sugars and Chemicals Ltd.(') upon which ithis Court concluded there that such payments could not be treated as capital disbursements, namely, an indefinite period, absence of any expressed lump sum, and payment relating to profits and not being tied up with any fixed sum agreed to as the purchase price of a capital asset.

(I) 20 TC 79.

(2) 62!. T.R. S66.

DEVIDAS & CO. V. C.I.T. (She/at, /,) 231

A Quite apart from these considerations, cl. (6) itself containll indications of the transaction not being an outright purchase of the goodwill. It will be recalled that that clause provides that in the event of Amratlal transferring or assigning his business to any one else or entering into partnership or otherwise remaining interested in the said business, by whomsoever carried on in the name of Devidas Vi'lhaldas & Co., then in any such events and "so long as any such business be carried on in the name, style and fum of Devidas Vithaldas & Co. or any other name resembling or

similar thereto", the assignees of Amratlal and/ or any such otherperson or persons as aforesaid, carrying on the business in the said

c name, shall pay the said share in the profits to Padamsi, fter him to his widow and after her to his son. The clause thus indicates that the payment is to be made so long as the business is carried

on in the name of Devidas Vithaldas & Co. and not otherwise. The clause further provides that the said Amratlal shall not assign or transfer or otherwise dispose of the said business or the goodwill thereof (meaning thereby the business carried on in the said name) excei11 upon a condition that such an assignee or transferee shall enter into a similar agreement with Padamsi or his wife or his said son, as the case may be, whensoever required to do so. When Amratlal took Chandrakant Parikh as his partner, it was -1n pursuance of this covenant that the deed of partnership between

them expressly provided for the payment of Of SI 4 in a rupee in the net profits and further provided that . it would be aftei such E payment was made .that the partners could divide the balance left as their shares of the profits.

If the transaction embodied in the deed, dated 1 antiary 2, 1951 was an outright purchase of goodwill, there was no necessity of cl. ( 6) in that deed providj.ng for the partnership which Amratlal would enter into in the future or his assignee or transferee F having to pay the said share so Jong as he or they continued to carry on business in the said name. It is also inconceiveable that if Padamsi was selling the goodwill, he would ell'ler into an agree.. ment which provided no fixed purchase price, no specific period during which the purchaser would be liable to pay it except an indefinite period, i.e., until the business was carried on in the G said name, leaving to the volition of the other party to use the said name or not or to cease to do so at any time. If the trallSIU:· _ tion was intended to be an outright sale of a capital asset, 'the deed incorPoratin11; it would have contained a fixed purchase price and even if such a fixed purchase price were to be payable not at once but by instalments, such payments would be relatable to and tied H up with such a Jump sum. Even if such instalments were to be payable out of !he profits of the business, such instalments would be relatable to the price, and for a period until it was satisfied and not to the profits which would fluctuate from year to year. In

sµch a case, even if the purchase price is payable by instalments and out of profits, ithe document would contain both a fixed purchase price and a definite period during which such price would have to be liquidated.

On the facts. of the case, the conclusions is inescapable, even apart from the ratio in the Travancore Sugars and Chemicals' case ( 1) being applicable, that 1the transaction was, as held by the Tribunal, a licence and not a sale of the goodwill. The disbursements in question, therefore, were in the nature of royalty and mus! be treated as admissible deductions. In this view, it does not become necessary to go into the question whether cl. ( 6) in the deed, dared January 2, 1951 and cl. (5) in the deed, dated October 18, 19 51 contained overriding provisions by reason of which P.avments in question could not form part of !he assessable profits of the firm.

The ppeals are, in this view, allowed with costs, both here and in the High Court. The costs. however, will be only one set <if costs.

ORDER

In .view of the decision of . the majority, the appeals are allowed with costs in this Court and in the High Court. One set clcoots. · .

(I) 621 TR 566.

DEVIDAS VI111ALDAS Ii

T., BOMBAY CITY

M. SHELAT

H. R. KHANNA

clause 2

Clause 6

Octobel- 14, 1971

f'ravancore Sugars and Chentir11ls Ltd.

Per Sikri

Travancore Sugars c.-nd Chen1icals Ltd.

M. C. Chagla

B. Dadachanji

C.

Mathur

Ravinder Narain

N. D. Karkhanis

R. N. Sachthey

B. D. Sharma

SIKRI

SHELAT

KHANNA

MITTER~

Sikri

Shelat

clause 2

Padamsi

Amratlal

October 18,

1955

Chandrakant V. Parikh

clause 5

clause 6

Sltelat

Padamsi Haridas

Devidas Vithaldas

Amratlal Parikh

January 2, 1951

Padarnsi

Arnratlal

Bai Premlata

Bai Prem!ata

Subhas

Devidas Vithaldas & Co

clause 2

Bai Prcmlata

October 13, 1955

H Amratlal

17,

1955

October 18, 1955

Chandrakant Parikh

Amratlal Kashandas Parikh

Chandrakant V.

Parikh

Padmsi

clause 2

Devidas Vitha!das & Co.

Bai Pren!lata

2nd January 1951

2nd January,

1951

s. 10(2)

Income Tax Act, 1922

Burma

s. 149410

Trade Marks Act, 1940

Reid

Henriksen

Finlay

Halsbury

Ramsay

Vithaldas Thakordas

Vithaldas Thakordas & Co.

Bai Tarabai

.Vithaldas Thakordas & Co.

Vilbllldas.

Thakordas & Co.

High Court of Bombay

Travancore Government

Greene

Bai Premla!a

Travancore Sugars and Chemicals Ltd.

DEVIDAS

Devidas Vi'lhaldas & Co.

1 antiary 2, 1951

Travancore Sugars and Chemicals

October 18, 19


STATE OF MADHYA PRADESH

M/S. SAITH & SKELTON (P) LTD.

lan, uary 28, 1972

[C. A. VAIDIALINGAM, I. D. DUA AND G. K. MITTER, JJ.]

.Arbitration Act (10 of 1940), ss. 2(c) and 14(2)-Power of r.rbitrator to file •ward suo motu--Court in which award should be filed-Power of arbitrator to 'awapd interest prior to date of reference or aWard.

Disputes having arisen between the ppellant and the respondent with reference to the pe'rformance of a contract which provided for arbitration, steps were taken to appoint arbitrators .and an umpire.

The appellant filed a petition . ip the District Judge's Court, having jurisdiction over the matter, fOr settin(g aside the nominations.

When the matter came up to this Court in appeal, this Court appointed a sole arbitrator v, ith consent of the panie•. Thereafter in the presence of counsel for both panics

this Court gave .directions in the ppeal. that the arbitration records be sent to the sole arbitrator, and .later extended the time for making the award, and gave directions regarding the venue. The arbitrator gave his aWard, directing the payment of a certain sum by the appellant to the respondent with simple interest at 9% &-om a date anterior to the, reference, .41Dd file~. the award in this Court the next day.

The respondent filed a petition for p-:tsSing a decree in terms of the a1,1.ard but the appellant opposed the petition.

On the queslions: (1) Whether the arbitrator had no pov-,.cr suo n1oru to file his award; (2) Whether the awrd should not have been filed in this Court as it is not the Court contemplated by ss. 2(q) and 14(2) of the Arbitration Act, 1940; and (3) Whother the arbitrator had no juris diction to '3Ward the interest from a date anterior to the date of a"rafd or reference,

HELD: (I) There is nothing in s. 14(2) of the Act which precludes the arbitrator from filing the award suo 1110.qu and it is not cottect to •ay that the award should be filed only if the parties make a request to the arbitrator to file it, or make an applition to the Court for that purpose. The arbitrator having filed the award the next day after making it, no question of limitation arises. 1239 G-H]

Narayan Bhawu v. Dewaiibhawu, A.I.R. 1945 Nag. 117, approved.

(2) The expresion 'Court' occurring in s. 14(2) of the Act will have to be understood in the context in which it occurs, beqause, the definition of the word in s. 2(c) applies only when there is nothing repugnant in the subject or context. The word 'Court' would include 'an appellate court' and the wdrd 'suit' would include 'appellate proceedings'.

Merely because the order of this Court appointing the sole arbitrator stated 'the 'lppeal is allowed' it is not as if this Court had lost 'all jurisdiction regard ing the arbitration proceedings.

The various directions given by this Court indicate that this Coun retaine~ full control over the arbitration prQCeedings. Therefore this Court is the Court under s. 14(2) where the arbitration award should be validly filed. [240 EH; 241 BDl

SUPREME COURT REPORTS [1972] 3 S.C.Jt

Ct. A. Ct. Nachiappa Chettiar & Ors. v. Ct. A. Ct. Subramaniam Chettiar, [.1960] 2 S.C.R. 209, referred to.

(3) In the present case, all the disputes including the claim for the rayment of interest had been referred to the arbit, rator. The contract does not provide that no interest w-:is payable on the amount that may be found due.

Therefore the respondent was entitled, under s. 61 (2) of the Sale of Goods Act, 1930, to claim inte'rest from the date on which the price became due and payable. The arbitrator had found that the price had become payable from a date anterior to the date of the aw~. Theroiore, the award of interest from the anterior date was justified. The award of interest at 9% is also not exorbitant because the parties them selves claimed interest at 12%. [245 At-OJ

Union of India v. A. L. Rallia Ram, [1964} 3 S.C.R. 164 and Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills Ltd. Indore, [1967} 1 S.C.R. 105, followed.

ClvIL APPELLATE JURISDICTION: C. A. No. 136 Of 1971.

Appeal by special leave from lhe judgment and order dated August 6, 1970 o( the Madhya Pradesh High Court, Indore Bench in Civil Revision No, 415 of 196.9-

1. N. Shroff, for the appellant.

S. V. Gupte, S. K. Mehta and K. L. Mehta, for respondent No. 1.

The Judgment of the Court was delivere.d by.

Vaidialingam, J.-Civil Miscellaneous Petition No. 5801 of 1971, is by the first respondent, is an application under ss. 17 and 29 of the Arbitration Act, 1940 {hereinafter to be referred as the Act) to pass a judgment and decree according to the Award of the arbitrator dated August 24, 1971 and to grant interest from the date of the decree, on he amount found payable by the appellant.

Civil Miscellaneous Petition No. 5802 of 1971, by the State of Madhya Pradesh, the appellant in the Civil Appeal, is an appli cation requesting this Court to decline to take the. Award dated August 24, 1971 on its file.

Without prejudice to the above prayer, there is a further request made to this Court to set aside or modify the Award in certain respects.

The relevant facts leading up to the filing of the two applica tions may be adverted to : The erstwhile State of Madhya Bharat had entered into a contract with M / s. Saidi & Skelton

(P.) Ltd., the first respondent, for the supply and erection of Pen• stocks for Gandhi Sagar Power Station, Chambal Hyde! workS.

The acceptance of the contract was by tender No. Project/SE/

M.P. STATE v. SAITH & SKELTON (P) LTD. (Vaidialingam, 1.) 235

2522-F/II/25 dated June 5, 1956. Under the said contract, the first respondent firm was required to supply material for the five penstocks of P.O.R. Jhalwar Road, Railway Station at ~· 1,5.70 per M. Ton within Ille time stipulated, the total quantity bemg 463.939 M. Tons.

The material was to be transported from Jhalwar Road Railway Station to the works site by the consignee, the Madhya Bharat Government, and the work of erection was to commence on the receipt at the work site of running length of 96 ft. for any of the pnstocks. Clause 21 of the contract provided for any question or dispute, arising under the conditions of the contract or in connection therewith, to be referred to the arbitrators, one to be nominated by the StaJe and the other by the fir, m.

The said clause also provided for the matter being referred to an Umpire to be appointed by the arbitrators in case of disagreement between them. That clause also referred to certain other matters relating to arbitration proceedings.

Disputes arose between the appellant and the respondent firm with reference to the performan, ce of the contract. The firm intimated the appellant on December 31, 1959 nominating one Shri T. R. Sharma, as an arbitrator under Cl. 21 of the contract and also called upon the appellant to nominate an arbitrator. The Directorate General of Supplies and Disoosals, who were acting as the agent of the Madhya Bharat Government, nominated one Shri G. S. Gaitonde, as an arbitrator on behalf of the appellant.

But the said arbitrator resigned his appointment and in conse" quence on April 26, 1960 one Shri R. R. Desai, was nominated as an arbitrator on behalf of the appellant. This nomination was also by the Direct/Orate General of Supplies and Disposals. On September 6, 1960, the two arbitrators appointed one Sri R. C.

Soni, as an Umpire. The two arbitrators disagreed in their views resulting in the matter being referred to the Umpire on October 20, 1961. According to t; he appellant, the appointment of Shri Gaitonde, in the first instance and of Shri R. R. Desai, lat", as an arbitrator, by the Directorate General of Supplies and Disposals was without any authority from the appellant. Later on, the Directorate General of Supplies and Disposals again reappointed Shri R. R. Desai as an arbitrator on behalf of the appellant on January 4, 1961.

According to the appellant the appointment of Shri R. C.

Sone, as Umpire on September 6, 1960 was not valid. Accordingly, the appellant filed in the Court of the Additional District Judge, Mandsaur, Civil Miscellaneous Case No. 16 of 1962 under s. S of the Act, for setting aside the nominations, as arbitrators of Shri T. R. Sharma and Shri R. R. Desai, as well as the appointment by them of Shri R. C. Soni, as the Umpire. By order dated October 19, 1963, the Addi. Distriell Judge, Mandsaur held that the appointments of Shri R. R. Desai, as an arbitrator and Shri

R. C. Soni, as Umpire, were both invalid and not binding on the A appellant.

The firm filed an appeal before the High Court of Madhya Pradesh againsv the order of the Add!. District Judge.

This appeal was later on treated as a Revision. and numbered as Civil Revision No. 415 of 1969. The High Court, by its order dated August 6, 1970 appointed Shri R. C. Soni as . the Sole Arbitrator under s. 12(2) of the Act and accordingly modified the B order of the Add!. District Judge, Mandsaur.

The appellant filed Special Leave Petition No. 23 70 of 1970 in this Court for grant of Special Leave to Appeal against the order of the High Court dated August 6, 1970. The firm entered caveat. On January 29, 1971, thi~ Court granted Special Leave; c and, by consent of parties, appointed an arbitrator, whose Award is sought to be made a decree of the Court by the respondent in its application C.M.P. No. 5801 of 1971 and is sought to be set aside by the appellant hy C.M.P. No. 5802 of 1971. As the terms of the order passed by this Cour~ are materfol, it is reprodnced below:

"Special Leave is granted.

The appeal is •allowed.

The appointment of Shri R. C. Soni as the sole arbitrator is set aside by .consent of the parties.

Mr. V. S. Desai, Senior Advocate, is appointed Arbitrator by consent of the parties liO go into all the questions in this matter and make his awar.

The remuneration for the arbitrator would be Rs. 5,000, which will be shared by both the parties equally.

The arbitrator will make his award within three months from today.

The parties will be at liberty to mention for extension of time for making the award.

Sd. G. K. Mitter J.

January 29, 1971.

Sd. A. N. Ray J."

On February 1, 1971 this Court gave directions in the appeal, in the presence of the counsel for both parties, that the records of the G arbitration be called for forthwith and sent to the sole arbitrator Mr. y. S. Des.ai, appoin•ed s per ord7r dated January 29, 1971.

Agam OD April 30, 1971, this Court, Ill the presence of the counsel for both the parties, extended the time for making the Award by four months and also permitted the arbitrator to hold the arbitration proceedini?s at Bombay.

The arbitrator gave his Award H on August 24, 19?1 and filed the same in this c; ourt, the next day.

He also gave notice to the parl!es of the making and signing of

I I

M.P. STATE v. SAITH & SKELTON (P) LTD. (Vaidialingarn; J.) 237

the Award. A signed copy of the Award was also sent to both

t_h~ parties. The operative part of the Award is as follows :

"(l) The opponents, the State of Madhya Pradesh will pay IQ the claimants a sum of Rs. 1,79,653.18 p. for the balance payable to them in respect of the price of supply and erection of the 5 penstocks. ·

(2) The State will also pay interest on the said amount at 9% per annum simple interest from 7th June, 1958 to the date of decree. The State will also refund to the claimants a sum of Rs. 15,414,19 p. which they have recovered from the claimants as excess railway freight.

Sd. V. S. Desai, Sole Arbitrator."

In C.M.P. No. 5801 of 1971, the firm prays for passing a judgment and decree, according to the Award and also prays for grant of interest from the date of decree at the rate of 9 % per annum. On the other hand, the appellant State, in its application C.M.P. No. 5802 of 1971 prays for an order declining to take

the Awd on its file or in any event to set aside or modify the

ward in respect of interest granted prior to August 24, 1971 as well as the direction regarding the refund by the appellant of the sum of Rs. 15,414.19 P. The Award is also sought to be modified on the ground that the award of interest at 9% is very excessive.

The question of pronouncing judgment according to the A l'iard, as provided under s. 17 of the Act and which is _the prayer in C.M.P. No. 5801 of 1971 will arise only if the prayer to set aside the Award made in C.M.P. No. 5802 of 1971, by the State, is rejected. Therefore, we wi.U proceed to consider the contentions raised by Mr. I. N. Shroff, learned counsel for the appellant, in rnpport of the application C.M.P. No. 5802 of 1971.

Mr. Shroff has raised the following four contentions : (1) The arbitrator had no power to suo molll file his Award, as he has done in this case, and as such no action can be taken on such -an Award;

(2) This Court is not the Court as contemplated by s. 14(2) read with s. 2(c) of the Ac~. Hence the filing of the Award in this Court is illegal and ineffective in law; (3) The arbitrator had no jurisdiction to award interest from a period anterior to the date of the award or reference; and (4) The Arbitrator has committed a manifest error in directing the refund of Rs. 15,414.19 P. when this amount has alre"dv been taken into account in arriving at the figure of Rs. 1,79,653.18 P.

We will now proceed to deal with these contentions scriatim.

With regard to the first contention, which relat, l:s to the vaEdity of the filing of the Award in this Court suo motu, riiance is placed by Mr. Shroff oil s. 14(2) of the Act. It is the contention of the counsel that under this section an arbitrator can cause an award to be filed iii court only under two circumstances : (a) whn a request to do so is made by any party to the arbitration agreement or any person cla(ming under such party; and (b) when the arbitrator is directed by the Court to file the award. In this c~>e. it is pointed out, that no such request was made by any of the parties to the arbitratiQn agreement or any person claiming under such party to e arbitrator to file the Award. It is pointed out that (here was no direction by this Court to the arbitrator to file the Award. Hence it is urged that the filing of the Award mo

motu is illegal, as being contrary to the terms of s. 14(2) of the Act.

Mr. S. V. Gupte, learned counsel for the respondent firm, re ferred us to s. 38 of the Act and pointed out that the scheme of the Act clearly shows that the Award has to be filed in the Court by the arbitrator either suo motu or on request made by the parties to the arbitration agreement or any person claiming under such party or on being directed by the Court. The counsel pointed out. there is no prohibition ins. 14(2) of the Act, against the arbitrator filing the Award in Court suo motu.

The question specifically arose before the Nagpur High Court in Narayan Bhawu. v. Dewa; ibhawu( 1). The High Court held that there is nothing in s. 14(2) of the Act, which precludes the arbitrator from filing the Award suo motu and it is not correct w say that the Award should be filed only if the parties make a request to the arbitrator to file the award or make an application to the Court .for that purpose. We are in agreement with this view of the law, especially when there is no prohibition in the Act, par~ ticular!y in s. 14(2) against the arbitrator filing suo motu hi; Award in Court.

Mr. Shroff referred us to the decision in Parasramka Commercial Company v. Union of India('). From the facts stated in the said decision, it is seen that the arbitrator made his Award and signed the same on April 26, 1950. The arbitrator without sending any notice of the making and signing of the Award, sent a copy of the signed Award to the paf(ies. The appellant therein acknowledged receipt of the said si.ened copy of the Award by his letters dated 5th and 16th May, 1950; but he filed an applicatlion on March 30, 1951 in the Subordinate Jud1te's Court for passing a decree in terms of the Award. An objection was raised by the (!)AIR l945Nag 117

(2) [1970] 2 SC R 136

' '

M.P'. STATB v. SAITH & SKELTON (P) LTD. (Vaidlalingam, J.)239

opponent that the application was out of time under Art. 178 of the Indian Limitation Act, 1908, as not having been filed within

90 days of the date of service of the notice of the making -of the Award. It is also seen that the arbitrator on July 3, 1951 filed the original Award before the Court suo motu. The Subordinate Judge rejected the application filed on March 30, 1951 as barred by time. That order was confirmed by t11e High Court. This Court, after a consideration of s. 14(1) of the Act held tha~ the serving, by the arbitrator on the appellant before this Court of a signed, copy of the Award amounted to giving him notice in writing of the making of the Award. This Court further upheld, as correct, the view of the Subordinate Judge and the High Coun that the application filed by the appellant, beyond tlie period prescribed under Art. 178 of tlie Indian Limitation Act, 1908, was barred.

This Courq did not express any view regarding tlie action taken by the arbitrator in filing suo motu the Award and left open the question as follows :

" ..... But we make it clear tliat the other part of tlie case, namely what is to happen to uhe award sent by the Arbitrator himself to the court has yet to be determined and what we say here will not affect t11e determination of that question. Obviously enough that matt.er arises under the second sub-section of s. 14 and will have to be considered quite apart from the application made by the company to have the award made into rule "f Court."

Again tlie question whetlier a plea of limitation can be raised witli respect to tlie suo motu filin12; of the award by the arbitrator was left open as follows :

" .... As to whether similar objections can be raised in answer to the award filed at the instance of the arbitrator is a question which we• cannot go into tlie present appeal and no expression of opinion must be attributed to us on that point."

Therefore, it is clear from what is stated above -that in ihe said G decision this Court had no occasion to consider whether an award can be filed uo motu by an arbitrator; nor the further question whetlier such filing should be witliin the period of limitation provided under the relevant provisions of tlie Limitation Act. In the case before us the period of limitation is dealt with under Entry 119 of the Schedule to the Limitation Act, 1963. As the arbi- H trator in this case made his Award on August 24, 1971 and filed the same the next day, the question of limitation, if any, does not at all arise.

We do not express any opinion whether the period of limitation will apply when the arbitrator files his award MW 3-L887Sap.C!/72

moiu. Ju the filin~ of the Award by !he Arbitrator suo motu is A legal, tho fim coirte11.tiou of Mr. Shroff has to be rejected.

The second canlal.tion of Mr. Shroff is that this Court is not the "Court" as defined under s. 2( c) of the Act, where the Award could be filed. Section 2(c) of the Act is as follows :

"2. In this Act, unless there is anything repugnant in the subject or context,-

(c) "Court" means a Civil Court having jurisdiction to decide the questions forming the subjec~ matter of the reference if the same had been the subject martter of a suit, but does not, except for the purpose of arbitration proceedings under section 21, include a Small Cause Court."

According to Mr. Shroff the Award should have been filed, not in this Court, but in the Court of the Addi. District Judge, Mandsaur, as that is the Court which will have jurisdiction to entertain the suit regarding the subject matter of the reference. We D are not inclined to accept this contenon of Mr. Shroff. It should be noted that the opening words of s. 2 are "In this Act, unless there is anything repugnant in the subject or context. Therefore the expression "Court'' will have to be understood as defined in s. 2(c) of the Act, only if there is nothing repugnant in the subject or context. It is in that light that the expression "Court" occurr- E ing in s. 14(2) of the Aca will have to be understood and interpreted. It was this Court that appointed Shri V. S. Desai on January 29, 1971, by consent of parties, on an arbitrator and to make his Award.

It will be seen that no further directions were given in the said order which will indicate that this Court had not divested itself of its jurisdiction to deal with the Award or matters arising F out of the Award. In fact the :indications are to the contrary. The direction in the order dated January 1!9, 1971 is that the arbitrator is "to make his Award". Surely the law contemplates further steps to be taken after the Award has been made, and quite naturally the forum for taking the further action is only this Court. There was also direction to the effect that the parties are at liberty to apply for extension of time for making the Award. In the absence G of anv other court havin11 been invested with such jurisdiction bv the order, the only concluonsion that is possible is that such a request must be made only to tho court which passed that order, namely, this Court. ·

That this Court retained complete control over the arbitration proceedings is made clear by its orders dated February 1, 1971 and April 30, 1971. On the former daie, after hearing counsel for th the parties, this Court gave direction that the record of

M.P. STATE v. SAITH a: SULTON (P) LTD. (Vaidialingam, I.) 241

the arbitration proceeding$ be called for and delivered to the Sole Arbitrator Mr. V. S. Desai. On the latter date, again, after hearing the couruel, this Court extended the time for making the Award by four month!J and further permitted the arbitrator to hold the arbitration proceedings at Bombay.

The nature of the order passed on January 29, 1971 and the subsequent proceedings, referred to above, clearly show that this Court retained full control over the arbitration proc~.

Mr. Shroff referred us to the fact that in the "rder dated January 29, 1971, iU is ~!early stated "The appeal is allowed". Ae;- cording to him, when the appeal has come to an end finally, this Court had lost all jurisdiction regarding the arbitration proceed' ings and therefore the filing of the Award should be only in the Court as defined in s. 2(c) of the Act. Here again, we are not inclined to accep~ the contention of .Mr. Shroff. That the appeal was allowed, is no doubt correct. B\'f.the appeal was allowed by setting aside the order of the High Court and this Court in turn appointed Mr. V. S. ai as the Sole Arbitrator. All other directions contained in the order dated January 29, 1971 and the further proceedings, as pointed out earlier, indicate the retention of full control by this Court over the arbitration gs.

In Ct. A. Ct. Nachiappa Chettiar and others v. Ct. A. Ct ..

Subramaniam Chettiar('), the question arose whether the trial

eourt had jurisdiction to refer the subject-matter of a suit to an arbitrator when the decree passed in 'the suit was pending appeal before the High Court. Based upon s. 21, it was .urged before this Court that the reference made by the trial court, when the appeal was pending, and the award made in consequence of such reference, were both invalid as the trial court was .not competent to 1118ke the order of reference. This Court rejected the said conaention and .11fter a reference to ss. 2 ( c) and 21 of the Act held that the CXPfCSSion "Court" occurring in s. 21 includes also the Appellate C<>.utt, proceedings before which arc a continuance of the sui<t. It was further held that the word "suit" in s. 21 includes also appellate proceedings. In our opinion, applying the analogy of the above decision, the expression "Court" occurring in s. 14

(2) of the Act will have to be understood in the context in which it occurs. So understood, it follows that this Court is the Court under s. 14(2) where the arbitration Award could be validly field.

The decision in Union of India v. Surjeet Singh Atwa/(1 ) relied on by Mr. Shroff, dealt with a different aspect and therefore, it is not necessary for !IS to refer to the same.

The above reasoning leads us to the conclusion that the filing of the Award in this Court by the arbitrator was valid. and legal. The second contention of Mr. Shroll.will stand rejected.

(I) [1960) 2 s.c.R. 209.

(2) (19691 2 S.C.R. 211.

The third contention of Mr. Shroff is that the arbitrator had no jurisdiction to award interest from a period anterior to the date of award or reference. Before we deal with this contention, it is necessary to refer to the findings of the arb!trator in his Award. Issues Nos. 6, 7 and 19 frame by the arbttrator and which are relevant on this aspect are as foilows:

"6 (a) Was the claimant entitled to the payment for supply as \veil as for erection on the total weight of 463.939 M. tons inclusive of electrodes ?

6 (b) If not, what are the weights on which the price of supply and the erection charges are to be cal- G culated.

7. What is due to the claimant from the respondent in respect of the supply and erection of the penstocks ?

19. Are any of the parties entitled to ill'lerest and/ or any other relief."

On iss~ No. 6 (a) the arbitrator found that the firm was entitled to the same weight both for the calculation of price as well as for the price for erection and the said weight was 463.939 M. Tons inclusive of electrodes. In view of the above finding on issue No. 6(a), the arbitrator held that issue No. 6(1:5) does not survive. On issue No. 7 he found that for the price of supply and erection of 463.939 M. Tons at the rate specified in contract, the total price due ¢0 the firm comes to Rs. 12,15,520.18P.

It was admitted before the arbitrator that the firm had been paid by the State of sum of Rs. 10,35,867/.

In view of this admission the arbitrator found that the balance payable to the firm towards the price for supply and erection is Rs. 1,79,653.18 P.

On issue No. 19, the arbitrator found that the firm is entitled to interest at 9% per annum on the balance of Rs. 1,79,653.18 P. from June 7, 1958, the date on which the final inspection of the penstock took place. The interest was to be paid till the date of the decree. It is on the basis of the above findings that the arbitrator made the Award, the operative part of which has already been extracted in the earlier part of the judgment. The direction regarding the payment of Rs. 1,79,653.18 P. is not challenged by the State. It is only the direction regarding the period fyom which interest is payable, that is under chailenge.

The arbitrator has made the interest payable from June 7,

M.P. STATE v. SAITH" SKELTON (!,') LTD. (Vaidialingam, 1.) 243

1958, on the ground that it was the date on which final inspection took place and when the amount become payable to the respondent.

Mr. Shroff referred us to a decision of the Judicial Committee and to certain decisions of this Court to the effect that s. 34 of the Code of Civil Procedure will not apply to the proceedings before an arbitrator, as he is not a Court and that interest cannot be awarded by way ol damages. He further referred to those decisions in support of his contention. that in the absence of any usage or contract, express or implied, or of any provision of law, to justify the award of interest on an . amount for a period before the institution of the suit, interest anterior to the date of the suit' cannot be allowed. The decisions referred to by Mr. Shroff are Bengal Nagpur Raliway Company Limited v.

Ruttanji Ramji and others('), Seth 'J:hawardas Pherumal v.

The Union of lndia(2), Mahabir Prashad Rungta v. Durga Datt('), Union of India v. A. L. Rallia Ram('), Vithal Das

v. Rupchand and others(') and Union of India v. Bungo Steel Furniture Pvt. Ltd. (6). It is no doubt true that for awardil)g interest under the Interest Act, 1939, or u.nder s. 34 of the Code of Civil Procedure, certain circumstances must exist.

But one of the principles laid down is that interest prior to the institution of a suit can be awarded if there is any provision of a suit can be awarded if there is any provision of law to justify the award

ol such interest. In the cases, referred to above, it is seen that there was neither any agreement pleaded for payment of interest; nor was any provision of law entitling the party to recover interest prior to the period of the suit or arbitration proceedings, referred to or relied upon. Under such circumstances it was held that the arbitrator or a court had no power to award interest prior to the date of the Award.

In Union of India v. Bungo Steel Furniture Pvt. Ltd.(") this Court recognised the power of an arbitrator to award interest on the amount of the award from the date of the award till the date ol the decree. According to Mr. Shroff, the power of the arblitrator to award interest is only from the date of the award and not for any period anterior to that date.

In Firm Madan/al Roshan/al Mahajan v. Hukamchand Mills Ltd. Indore('), the 'pOwer of the arbitrator, to whom the subject matter of a suit )lad l:J&en referred for arbitration, to award pendr ente lite intere5t 'was considered by this Court. It was held in

(I) L.R. 65 I.A. 66.

(2) [19l5] 2 S.C.R, 48.

(3) [1961] 3 S.C.R. 639.

(4) (1964} 3 s.c.11.. 164. (S) [1966] Supp, S.C.R. 164.

(6) [1967] I s.c.R. 324.

(7) [1967) I S.C.R. 105.

the said decision that all the disputes in the suit were referred to the arbitrator for his decision. One of the disputes, so referr7'1,. was whether the respondent therein was entitled to pendente lite mterest. It was held that though in terms, s. 34 C.P .C. does not apply to the arbitration, it was an implied term of the reference in: the suit that the arbitrator was to decide the dispute, according to law, to grant such relief with regard to pendente lite interest as the Court itself cowd give, if it decided the dispute.

It was further held that such a power of the arbitrator was not fettered either by arbitration agreement or by the Act. The decision in Seth Thawardas Pherumal v. The Union of India(') distinguished on the ground that the said decision is silent on the question whether an arbitrator can award interest during the pendency of the arbitration proceedings, if all the disputes in ili; e suit including the olaim for interCllt were referred for arbttion.

From the decision in Firm Madan/al Roshanlol Mahajan v.

Hukamchllnd Mills Ltd. Indore('), it is clear that if all the disputes are referred for arbitration, the arQitrator has power to award interest pendente lite, i.e. durini: the. pendency of the arbitration proceedings.

In the case before there is no controvery that all the disputes including a claim for payment of the amount with interest was referred to the arbitrator. The arbitrator, as pointed out earlier, found that the firm was entitled to the payment as price in the

um of Rs. 1,79,653.18 P. The arbitrator has further found that this amount became payable as balance price for the goods supplied by the firm on June 7, 1958, on which date the final inspection took place. If that is so, section 61 of the Sate of Goods Act, 1930 squarely applies and it saves the right of the seller (in this case the !inn) to recover interest, where by law interest is recoverable.

Sub-section (2) of s. 61, which is material is as follows:

"61 (2) In the absence of a contract to the contrary the Court may award interest at. such rate as it thinks fit on the amount of the price-

(a) to the seller in a suit by hinl for the amount of the price-from the date of the tender of the goods or from the date on which the price was payae.

(b) to the buyer in a suit by him for the .refund of .the price in a case of a breach .of. the contract on the Part. of the seller-from the date on which the payment was made." ·

(I) (1959] 2 S.C.R. 48.

(2) [1967] 1 s.c.R. JOS.

M.P. STATE v. SAITH & SKELTON (P) LTD. (Vaidialingam, 1.) 245

In the case before us, admittedly the contract does not provide that no interest is payable on the amount that may be found due to any one of them. If so, it follows that the seller, namely, the firm is entitled to claim interest from the date on which the price became due and payable. The finding of the arbitrator in this case is that the price became payable on June 7, 1958. As held by this Court in Union of India v . .A.. L. Rallia Ram(1), which related to an arbitration proceeding, under sub-section (2) of s. 61, in the aooence of a contract to the contrary, the seller is eligible to be awarded interest on the amount of the price for the goods sold.

On this principle it follows that the award of interest from June 7, 1958 is justified.

If the contention of Mr. Shroff that under no circumstances anarbitrator an (!Ward interest prior to the date of the Award, or prior to the date of reference, is accepted, then the _positioo will be very anomalous. As an illustration, we may pomt oUt that there may be cases where the only question that is referred to the arbitrator is whether any of the parties is entitled to claim interest on the amount due to him from a date which may be Jong anterio.r to the date of reference. When such a question is referred to the arbitrator, naturally he has to decide whether the claim for award of interest from the date referred to by the parties is acceptable or not. If the arbitrator accepts that claim, he will be awarding interest from the date which will be Jong prior even _ to the date of reference.

Therefore, the question ultimately will be whether the dispute referred to the arbJitrator included the claim for interest from any particular period or whether the party is entitled by contract or usage or by a provision of law for interest from a particular date.

Mr. Shroff further contended that the award of interest at 9% per annum is exorbitant.

The short answer for negativing this contention is that it is seen from the claim statement filed by both the appellant and .the respondent-firm that each of them claimed for payment of the amount, d11e to them with interest at 12% per annum under s. 61 of the Sale of Goods Act. Therefore, it follows tJ\at the rate of interest awarded is not excessive.

As we have already held that the arbitrator has got power in this case to award interest from June 7, 1958 at the rate specifiea by him, the third contention of Mr. Shroff will have to be rejected.

The last contention of Mr. Shroff relates to the direction regarding the refund of Rs. 15,414.19 P. The contention is that this amount has already been taken Into account by the arbitrator when he directed the payment of Rs. 1,79,653.18 P. Mr. Shroff

(I) (1964] 3 S.C.R. 164.

$UPREME COURT REPORTS

[1972] 3 S.C.R:.

was not able to satisfy us that the amount, directed to be paid ' as refund, has been already taken into account in the amount fixed as the balance price payable bfy the State. Therefore, this contention also will have to be rejected.

Now that we have rejected all the contentions of Mr. Shroff raised in C.M.P. No. 5802 of 1971, it follows that the prayer asked for therein cannot be granted.

Now coming to C.M.P. No. 5801 of 1971, filed by the firm, that application is accepted and a judgment and decree are passed on the basis of the Award as against the State is f11vour of the respondent-firm. The appellant State will pay to the respondent-firm a sum oi Rs. 1,79,653.18 P. with 9% per annum simple interest from June 7, 1958, till tl!e date of the decree and thereafter at 6% 1till the date of payment. The appellant State will also refund to the respondent-firm a sum of Rs. 15,414.19 P. which they have recovered from them as excess railway freight.

In the result, C.M.P. No. 5802'of 1971 will stand dismissed with costs. C.M.P. No. 5801 of 1971 is allowed wih costs. A decree as stated above will issue. ·

V.P.S.

STATE OF MADHYA PRADESH

M/S. SAITH & SKELTON (P) LTD

I. D. DUA

G. K. MITTER, JJ.

ss. 2(c) and 14(2)

ss. 2(q) and 14(2)

Arbitration Act, 1940

s. 14(2)

s. 14(2)

s. 2(c)

s. 14(2)

1960] 2 S.C.R. 209

s. 61

Sale of Goods Act, 1930

N. Shroff

S. V. Gupte

S. K. Mehta

K. L. Mehta

Vaidialingam

ss. 17 and 29

Arbitration Act, 1940

State of Madhya Pradesh

Madhya Bharat

Saidi & Skelton

(P.) Ltd.

June 5, 1956

Madhya Bharat Government

Clause 21

December 31, 1959

T. R. Sharma

Cl. 21

G. S. Gaitonde

April 26, 1960

R. R. Desai

September 6, 1960

R. C.

Soni

October 20, 1961

Gaitonde

R. R. Desai

January 4, 1961

R. C.

Sone

T. R. Sharma

R. C. Soni

October 19, 1963

Addi. Distriell Judge, Mandsaur

High Court of Madhya Pradesh

August 6, 1970

s. 12(2)

January 29, 1971

R. C. Soni

V. S. Desai

G. K. Mitter

N. Ray

y. S. Des.ai

Bombay

August 24, 19?1

Vaidialingarn

Madhya Pradesh

7th June, 1958

s. 17

I. N. Shroff

Shroff

s. 14(2)

s. 2(c)

s. 14(2)

s. 14(2)

S. V. Gupte

s. 38

Nagpur High Court

s. 14(2)

s. 14(2)

5th and 16th May, 1950

March 30, 1951

[1970] 2 SC R 136

Art. 178

Indian Limitation Act, 1908

July 3, 1951

s. 14(1)

Art. 178

Indian Limitation Act, 1908

s. 14

Limitation Act

Schedule to the Limitation Act, 1963

August 24, 1971

s. 2( c)

Section 2(c)

section 21

Addi. District Judge, Mandsaur

s. 2

s. 2(c)

s. 14(2)

January 1!9, 1971

February 1, 1971

April 30, 1971

s. 2(c)

V. S. ai

s. 21

ss. 2

s. 21

s. 21

s. 14

s. 14(2)

June 7, 1958

s. 34

the Code of Civil Procedure

Interest Act, 1939

s. 34

the Code of Civil Procedure

L.R. 65 I.A. 66

[1961] 3 S.C.R. 639

s. 34

section 61

Sate of Goods Act, 1930

s. 61

(1959] 2 S.C.R. 48

s. 61

s. 61

Sale of Goods Act

(1964] 3 S.C.R. 164

UPREME COURT REPORTS

[1972]