This objection, however, does not require a detailed v. Thi Stat• ef Bilw

Appeal under Article 132 re.ad with Article 147 and Article 133 (I) ( c) of the Constitution of India from judgment and order dated July 17, 1952, of the Punjab High Court in First Appeal from Order No. Y of 1949 against the judgment and decree of the Sub-f udgc 1st 1957 Union of India v. Chaman Lal Loona S. Jr. Das J. S.C.R. SUPREME.COURT REPORTS 1041 Class, Fcrozepur dated February 9, 1949, in Civil Suit No. 134 of 1949. Porus A. Mehta, R. Gopalakrishnan and R. H. Dhebar, for the appellant. Hardayal Hardy, for the respondents. 1957. April 30. The Judgment of the Court was delivered by I S. K. DAs J.-This is an appeal on the strength of a certificate granted by the High Court of Punjab at Simla. The appellant is the Union of India and respondent Messrs. Chaman Lal Loona and Company, the district of military contractors at Muktsar Ferozepur, now in the Indian State of Punjab. through The relevant facts are these. In the Court . of the senior Subordinate Judge at Ferozepur, in August, the respondent Company made an application, 1948, purporting to be an application under s. 8(2) and s. 20 of the Arbitration Act, 10 of 1940, wherein the respond ent alleged that in 1945 the respondent had entered the supply of "bhoosa" (fodder) into a contract for to the military department of then undivided India the Manager, Military Farms, Lahore Cantonment. The contract. it was alleged, was signed by the Assistant Director. Military Farms, on behalf of the then Government of India. The agreement . between the parties was that the said Manager would also supply, on payment of price, wire coiis in connection with the purpose of tying supply of blwosa presumably for the bundles of fodder. and on the supply being made and on return of the wire coils, the military department would give credit for the price of the coils already paid In November, 1945, the respondent by the respondent. returned 152 bundles of wire supplied coik The Manager, Military Farms, Lahore, informed the resoondent. however. that out of 152 bundles of wire c~ils. said to have . been sent, 24 bundles had not though no note of such non-delivery been received, was made at the time the consignment was received. The respondent had also deposited Rs. 11,026 by way of security with the military department connection contract. The fodder and agreement contained 1957 Union of India v. Chaman Lal Loona S. K. Das]. 1042 SUPREME COURT REPORTS [19571 it should be decided by arbitration clause to the effect that if a dispute arose between · the parties, ·the arbitrator named therein, viz., the District Commander concerned. The respondent so.id that he had a claim agai;ist the appellant for Rs. 720, the price of 24 bundles of wire coils at Rs. 30 per bundle, and for refund of Rs. 11,026, .and prayed in terms of s. 20 of the Arbitration 1\ct that the appel!ant be directed reievarrt documents, and file the agreement and other that the Court do refer the dispute to the arbitrator named for the purpose of filing an award. India As required by sub-s. (2) of s. 20 of the Arbitration Act, the application was registered as a suit, and a notice was issued to the appellant to show cause. The appellant showed cause by a written statement filed on November 4, 1948, in which the two substantial pleas taken were-( 1) that by reason of the provisions of Liabilities) Order, 1947, hereinafter referred to as the Independence Order, 1947, the Dominion of India, and later the Union of India, had no liability in respect of the contract in question, the purposes of which contract as from August 15, 1947, were purposes exclusively for the Dominion of Pakistan; and (2) the Court at Ferw,e porc had no jurisdiction to trv the suit. as the cause of action did not arise within its territorial jurisdiction. Independence Property (Rights, tried by The two issues which were jurisdiction. On jurisdiction, he found learned the aforesaid issues of liability Subordinate Judge were in favour of the respondent, on the ground that the respondent was a 'displaced person' living in Muktsar which is in Ferozepore and therefore the· Court at Ferozepore had jurisdiction to try the suit. The High· Court affirmed this finding, and as nothing now turns upon this issue, we are not called upon to make any pronouncement thereon. The issue as to the liability of the appellant the basis of the contract in question is, however, learned Subodinatc Judge very much a live issue. The found in favour of the appellant on issue, and reversed dismissed that finding, and allowed the appeal. In reversing the High finning of the application. The High Court learned Subordinate Judge, S.C.R. SUPREME COURT REPORTS 1043 Court relied on the provisions of the Joint Defence Cou.ncil Order, 1947, to be referred to hereinafter as the Defence Order, 1947. The precise ground on which the High Court proceeded may best be put in the words of Khosla J. who gave the leading judgment. Khosla J. said: 1957 U11ion of India v. C!iaman Lal loona S. K. Dar J. the exclusive control of "In the present case the Lahore Military farm situated at Lahore and whether the fodder was supplied in 1945 or after the 15th of August 1947, the purpose will be deemed to be a purpose of the Dominion of Pakistan on account of territorial situation of in the present case, the fodder was to be Lahore. But supplied to a Military Farm and the fodder, therefore, constituted Military Stores. Military Stores were kept joint and under Joint Defence Council who had the power of allocating these stores among the two Dominions and for transferring them from one place fodder lying in the Military Farm, Lahore, was not, on 15th August 1947, the exclusive property of the Dominion of Pakistan but was under the exclusive control of the Joint Defence Council. This fodder could be ferred to a farm in India and thus could become the property of the Dominion of India. the circum stances, it cannot be said that the contract for supply of fodder to the Military Farm, Lahore, was a contract exclusively for the purposes of the Dominion of Pakistan if the contract were viewed on the 15th of August 1947, and,· that .. being so, it must be held that the c~ntract was not a contract exclusively for Dominion -of Pakistan. The decision. of the learned trial Judge on this point must, therefore, be set as1de." to another. Therefore, the purposes of In The principal question in this appeal is wl:ether the High Court is right in its view as to the true scope and effect of the relevant provisions of the Independence the Defence Order, 1947. Learned Order, 1947, and counsel for the appellant has challenged the correctness of that view, and has submitted-(1) that on a true construction of Art. 8 of the Independence Order, 1947, . the contract under consideration in this case was as from the· appointed day (i.e., August 15, 1947), a con uact exclusively for the purposes of the Dominion of 1957 Union of India v. Chaman Lal Loono S. K. Das]. 1044 SUPREME COURT REPORTS (1957] Pakistan and si)all be deemed to have been made on behalf of that Dominion, and all rights aiid liabilities which have accrued or may accrue under such contract shall be .the rights and liabilities of the Dominion of Pakistan; (2) that the Defence Order, 1947, which set up a Joint Defence Council and provides for the exer cise of certain powers of control by the said Council under Art. 8 of that Order did not in any way affect the rights and liabilities arising out of the contract, which rights and relevant provisions of the Independence Order, 1947; and (3) that, in any view, the claim in the present case did not relate to military stores as the High Court wrongly assumed, and the Defence Order, 1947, had no application at .all to the facts of this case. liabilities were governed • On behalf of the respondent, the correctness of each the above submissions has been seriously contested, respondent has strongly and learned . counsel for contended that the view of the High Court as to relevant articles of the Independence Order, 1947, and the' Defence Order, 1947, is correct. Learned counsel also raised a preliminary point of objection to the effect that on an application imder s. 20. Arbitration Act, the only point for decision was if there was an arbitra tion agreement ar.d the question of liability w_as one for the arbitrator and not for · the Court to decide. Ordinarily, so. When, however, we pointed out to learned counsel tha.t the Union of India .as such was admittedly not a party to the arbitration agreement and could not be dragged, to an arbitration proceeding on the strength of an agreement to which it was not a party unless by operation of law learned it was deemed to be a party to the agreement, counsel gave up his preliminary objection and conceded in this that the question of liability must be decided case with reference to the provisions of the Independ ence Order. 1947, and the Defence Order, 1947. that would be therefore, It is c~nvenient at this stage to set out the relevant provisions of the two Orders. ..The Defence Order, 1947, was made in exercise of the powers. conferred by sub-s. (1) of s. 9 and in pursuance ofsub-s. (1) of s. 11 of the Indian Independence Act, 1947, and was published S.C.R. SUPREME COURT REPORTS 1045 Indian Independence Act, 1947, on August 11, 1947. The Independence Order, 1947, was made in exercise of the powers conrerred bv s. 9 and' was published on August 14, 1947. Both came into force at once. Article 3 of the Defence Order, 1947, states : "(l) As from the 15th day of August, 1947, there shall be set up a Council to be known as the Joint Defence Council for India and Pakistan. (2) The said Council, hereinafter referred to as the Joint Defence Council, shall consist of- 1957 Union of India v. C!iaman Lat LooTIJJ S. K. Das]. ( i) the Governor-General . of Defence Minister of India, (iii) the Defence Minister of Pakistan, and (iv) the Supreme Commander of His Majesty's (hereinafter India and Pakistan referred to as the Supreme Commander)." Article 8, so far as it is relevant, is' in these terms : India, forces (ii) "The Joint Defence Council shall be in exclusive control of- ( a) the division of Indian forces between the Dominions and their reconstitutions as two separate Dominion forces; (b) the allocation, ( c) the allocation, transfer and movement officers and men belonging to the purposes of such re-constitution : transfer and movement of the Indian forces . the purposes of such reconstitution of plant, machinery equipment and stores held by the Governor-General in Council immediately before the 15th' day of August, 1947, for the purposes of the Indian forces; etc." · The · Independence Order, 1947. states in Art. 2 that ,'\ugust, 1947. Artide 3 so far as it is relevant for our purpose, States : day' means 'appointed fifteenth · rights, property and " ( 1) The provisions of this Order relate to initial distribution of liabilities consequential on the setting up of the Dominions of India and Pakistan, and shall have effect subject any agreement between two Dominions or Provinces concerned and to any award that may be made by the Arbitral Tribunal. · (2) Nothing in this Order affects the powers of plant, machinery, equipment control over military 1957 Union of India v. Chaman Lal Loona S. K. Das]. 1046 SUPREME COURT REPORTS [1957] and stores conferred on the Joint Defence Council by the Joint Defence Council Order, 1947. . . . . . . . . . . . . . . . . . . . . .. Article 8(1), which is very important for our purpose, is in these terms : " ( l) Any contract made on behal.f of the Gover nor-General in Council before the appointed day shall, as from that day,- . (a) if the contract for purposes which as from that day are exclusively purposes of the Dominion of Pakistan, be deemed to have been made on behalf of the Dominion of Pakistan instead of the Governor General in Council; and (b) in any other case, be deemed to have been made on behalf of the Dominion of India instead of the Governor-General in Council; and all rights and liabilities which have accrued or may accrue under any such contract shall, extent to which they would have been rights or liabilities of the Governor-General in Council, be rights or liabili ties of the Dominion of Pakistan or the Dominion of India, as the case may be." to what The first question is, what is the true scope and the Independence Order, 1947? effect of Art. 8(1) of Does it apply to the contract in question, and; if so, does the contract fall within the purview of cl. (a) or cl. (b) ? At one stage of the argument, learned counsel for the respondent contended that Art. 8 ( l) did not is sometimes described as executed contracts; this point was also urged before the Kapur J. of the Punjab High Court (as he then was) and one of the reasons given by him for a reference of the case to a larger bench was contract in question which has been performed and executed respondent was concerned, attracted the operation of cl. (a) 0£ Art. 8(1). It is necessJTy to appreciate clearly the distinction between two classes of contracts where the consideration is either executed or executory. "An executed consideration consists of an act for a the consideration promise. the act ...... No contract is formed unless and until long before August 15, 1947, so far as the act which forms the difficulty he It is 1957 Union •f lttdia v. Ckaman Lal Laona S. K. Dru]. S.C.R. SUPREME COURT REPORTS 1047 In liability executory consideration In mercantile oontracts the-payment for a railway is outstanding on both sides. ticket, is performed, e.g., but the act stipulated for exha~sts the consideration, subsequent promise, without further that any is merely a nudum pactum . ....... In an consideration, executed consideration is outstanding on one side only ; it is " present as opposed to a future consideration. It is in fact a liability promise for a promie ; one promise is brought by the other .......... The contract is concluded as soon_ as the promises are exchange<l. In other words, a is by far the most common variety. the exchange of valid contract becomes binding on promises, one being the consideration for the other. It is clear, therefore, that there is nothing to prevent one the parties from carrying out his promise at once, i.e., performing his part of the contract ; whereas the other party who provides the consideration for the act of or detriment to the first may not carry out his part the bargain simultaneously with the first party." (Chitty on Contracts, Vol. I, 21st Edn. pp. 43-44). On a plain reading of Art. 8(1) of the Independence Order, 1947, it is clear that it applies to both classes of cases ; it says, that "all rights and liabilities which have accrued or may accrue under any such contract, shall. ....... be rights or liabilities of the Dominion of Pakistan or the Dominion of India, as the If the contract has been fully and case may be." completely performed on both sides, no question of any further rights and liabilities under the contract likclv to arise. is one is. ~xecuted on one side, there will be a right on one side and ·an outstanding liability If the consideration is cxecutory on both on the other. sides, there will be outstanding rights and liabilities on both sides. liabilities which have accrued or may accrue" under the contract the Article clearly contemplates both classes of cases. On this question, we approve of the view taken in Elahi Bu.-.: v. Union of India (1) and Krishna Ranian v. talking of "all rights and in its concluding part, the consideration the contract If. however, In (l)A.I.R. 1952 Cal. 471. 7~1 S. C. India/59 1957 Union nf lndfr1. Y• Clzaman Lr,! loo11a 1048 SUPREME COURT REPORTS Jl957J Union of India by Roxburgh J. in Union of India v. Loke Nath (2 ) and disapprove of the view expressed ). ( 1 It is further clear that the first part of Art. 8(1) creates a legal fiction. The contract is actually made before August 15, 1947, (the appointed day) ; but as from that date, the contract shall be deemed to have been made on behalf of the Dominion of Pakistan, the contract is for purposes which as from that day are exclusively purposes of the Dominion of Pakistan, and in anv other case it shall be decme<l to have been made on behalf of proper meaning of the expression "a contract for the exclusive purposes of the Dominion of Pakistan" ? We assent .'3id the Union of India v. Chi nu Bhai feshingbhai (' ). learned Chief Justice- the Dominion of India. What expressed by Chagla C.J. the view /1ypothesi is clearly "lt is clear from the language in art. 8 that the test to be applied with regard to this contract is not whether the contract was for the purposes of the Dominion of Pakistan at the date when it was made. Er inapplicable. All contracts contemplated by art. 8 must be contracts which when made were made by undivided India by the Governor-General in Council. The test that must test may be be applied if the contract had been entered into on August either 15, 1947, whether it would have been a contract for the purposes of the Dominion of Pakistan, or if the Dominion of Pakistan had been in existence when the contract was entered into, whether it would have been a contract for the purposes of Pakistan." is an artificial test and This, we think, is the correct test to apply for deter mining the true scope and effect of Art. 8(1) of the Independence .Order, 1947, and applying this test, there is no doubt that the contract in question comes under cl. (a) of the said Article. The purpose of the contract was to supply fodder to the Manager, Military Farms, Lahore Cantonment, which farms were in Pakistan on therefore The contract was, appointed {lay. (II A.l.R. 1954 (;al. 623. (2) A.J.R. 1952 Cal. 140. 13) l.L.R. 1953 Born. 117, 130. 1957 Union of India v. Chaman Lal Loona S.K. Das]. S.C.R. SUPREME COURT REPORTS 1049 . exclusively for the purposes of the Dominion of Pakis tan as from the appointed day. The second question is-do the provisions of the Defence Order, 1947, make any difference in the legal position ? The High Court thought, erroneously in our It is true that cl. (2) of Art. 3 opinion, that they did. of the Independence Order, 1947, says that nothing in that Order affects the powers of control over military plant, ma<Zhinery, equipment and stores conferred on the Joint Defence Council by the Defence Order, 1947. Clause (3) of Art. 3 of the Independence Order, 1947, states that the powers of .control over property confer re_d upon each Dominion by the Order shall include all powers of use, consumption, management etc. This, however, is subject to such powers of control as are given to the Joint Defence Council. Those powers of control are laid down in Art. 8 of the Defence Order, 1947, cl. ( c) of which relates to "the allocation, transfer and movement for the purposes of such reconstitution of plant, machinery, equipment and stores held by the GovernorcGeneral 15th day of August, 1947, the purposes of the Indian forces." The point which is to be emphasised that what is saved by cl. (2) of Art. 3 of the . is Independence order, 1947, 'powers of control' of the to certain essential Joint Defence Council with regard military equipment etc. is no provision in the Defence Order. 1947, which affects the rights and liabilities of any of the two Dominions aris ing out of a contract, and those rights and liabilities are dealt with by the Independence Order, 1947. The the Hi~h Court thought that the learned Judges of Defence Order, 1947, made a difference position in so far as the purpose of the contract was concerned. They realised and said that ordinarily the purpose of supplying fodder to the Military Farms at Lahore was a purpose exclusively for the Dominion of that on the assumption Pakistan ; but they the Joint Defence store, Council had powers of control over it and could send it to be sent ; therefore, they wherever they wanted thought 'bhoosa' was military including stores. There immediately before in Council 1957 Union of /Mia v. CAamon Lal lAona S. K. DIUJ. 1050 SUPREME COURT REPORTS (1957] said that the purpose of the contract was not a purpose exclusively for the Dominion of Pakistan. fodder We say this with great respect, but this line of reasoning appears to us to be due to a lack of proper appreciation of the distinction between the "purpose of the contract" and the 'ultimate disposal of the goods" supplied under the contract. The purpose of the con tract is not determined nor modified by the ultimate disposal of the goods supplied under the .contract, nor even by the powers of control exercised over the goods after the contract had been performed by the respond \Vherever the goods might be ultimately sent, the: ent. purpose of the contract remained what it was, that is, to supply the Manager, Military Farms, Lahore, which, on the test laid down by us, was clearly the Dominion of Pakistan. a purpose exclusively The Independence Order, 1947, determines the respec If, under the tive rights and liabilities under contracts. Defence Order, 1947, some goods the liability for the the Independence Order, 1947, price of which under to Pakistan, then the falls on, say, India, are allotted in accounts. Such allotment does not alter the rights or liabilities determined uooer the Independence Order, 1947. We are, the view that the High Court of Punjab was in error in inferring that on the strength of certain provisions of the Defence Order, 1947, the contract in question came within cl. (b) of Art. 8(1 ), and not cl. (a). We think that the learned Subordinate Judge correctly held that cl. (a) applied and the Union of India had no liability under the contract. thereof will have to be adjusted therefore, of Only a few words arc necessary to dispose of the third contention urged before us. The claim in the present case was a Claim for a refund of the price paid for 24 bundles of wire coils and of the security deposit. Such a claim <lid not relate to military stores, and the Defence Order, 1947, had no direct application to such a claim. It was only for examining the purpose of the contract the question of 'bhoosa' bcin.~ military store arose. The High Court assumed that 'bhoosa' was 'bhoosa' is military store. Without deciding whether military store or not, we have also proceeded on the S.C.R. SUPREME COURT REPORTS 1051 the Governor-General same assumption ; but even on that assumption, there is no difference in the legal position. The purpose of the contract was still a purpose which, as from appointed day, was a purpose exclusively It is worthy of note that cl. (c) Dominion of Pakistan. of Art. 8 of the Defence Order, 1947, relates inter alia to stores held by in Council immediately before August 15, 1947. for the purposes of the Indian forces. There was nothing in the record to show that the 'bhoosa' supplied by the respondent in 1945 was held bv the Governor-General . in Council immediately bef'Ord August 15'. 1947. so as to vest the in the Joint Defence Council and power of control thereby affect the purpose of the contract, assuming, though we do not so decide. that such power of control can affect the purpose of the contract. 1957 Union of India v. Cluunan Lal Loo11a . K. Das J. The original contract was not produced in this case, as it was not available in the appropriate office in India. The respondent did not even produce a copy thereof, but gave oral evidence as to the purpose of the contract. The Courts below proceeded on that oral evidence, and the appeal was argued before us on that footing. We have determined the contract as on August 15, 1947, on the basis of that evidence, without if oral evidence was deciding admissible in this case as to the purpose of the contract. For the reasons given above, we allow this appeal, set aside the judgment and decree of the High Court, and restore those of the learned Subordinate Judge. The appeallant will get costs throughout. the further question the purpose of Appeal allowed. -