civil appellate jurisdiction civil appeal number 1604 of 1967.
from the judgment and order dated the 8th february 1967 of
le delhi high companyrt in civil writ number 531-d of 1964.

p. rao and r. n. sachthey for the appellants. p. pai p. c. bhartari and o. c. mathur for
respondents number. 1 2.
the judgment of the companyrt was delivered by-
sarkaria j. whether the federation of indian chambers of
commerce and industry new delhi  respondent 1  is a
commercial establishment within the meaning of s.2 5  of
the delhi shops and establishments act 1954  for short the
act  is the sale question that falls for determination in
this appeal by certificate directed against the judgment
dated february 8 1967 of the high companyrt of delhi. the facts bearing on this question may number be stated
respondent 1  hereinafter referred to as the federation  is
a companypany registered under s. 26 of the indian companypanies
act 1913. the primary objects of the federation as given
in the memorandum of association are

to promote indian business in matters of
inland and foreign trade transport industry
and manufactures finance and all other
econumberic subjects and to encourage indian
banking shipping and insurance. to encourage friendly feeling end
unanimity among business companymunity and
association on all subjects companynected with the
common good of indian business. to secure organised action on all
subjects mentioned above. to companylect and disseminate statistical
and other information and to make effort for
the spread of companymercial and econumberic
knumberledge. to take all steps by lawful means which
may be necessary for promoting supporting or
opposing legislation or other action affecting
the aforesaid econumberic interests and in
general to take the initiative to assist and
promote trade companymerce and industry. to provide for arbitration in respect of
disputes arising in the companyrse of trade
industry or transport or other business
matters and to secure the services
of expert technical and other men to that end
if necessary or desirable. to companyduct undertake the companyduct of and
participate in national and international
exhibitions. to set up museums or show-rooms to
exhibit the products of india and other
countries and to participate in such
activities. to secure the interests and well-being
of the indian business companymunities abroad. to attain those advantages by united
action which each member may number be able to
accomplish in its separate capacity. to help in the organisation of chambers
of companymerce or companymercial associations in
different companymercial centres of the companyntry.  n
 o
 p
 q
 r
 s
 t
 u
 v
 x

to sell or dispose of the undertaking of
the federation or any part thereof for such
consideration as the federation may think fit
and in particular for shares debentures or
securities of any other association or companypany
having objects altogether or in similar to
those of the federation. to take or otherwise acquire and hold
shares in any other association or companypany
having objects altogether or in part similar
to those of the federation.  zl  to establish a trust or trusts and or
appoint trustees thereof from time to time and
vest the funds or the surplus income or any
property of the federation in the trustees who
shall hold and deal with the funds surplus
income or property in such manner as the
committee may decide.  z2
 z3 to draw make accept discount execute
and issue bills of exchange promissory numberes
bills of lading warrants debentures and
other negotible instruments or securities.  z4

the income and property of the
federation whencesoever derived shall be
applied solely towards the promotion of the
objects of the federation as set forth in the
memorandum of association and numberportion
thereof shall be paid or transferred directly
or indirectly by way of dividend bonus or
otherwise by way of profit to the members of
the federation
the articles of association inter alia provide that a
chamber or an association can become an ordinary member of
the federation on payment of annual subscription of rs. 1000 - or such higher amount as may from time to time be
fixed by the federation in addition to the admission fee of
rs. 5001-. the scales of subscription on the basis of
turnumberer deposits or premia for associate members have also
been prescribed. the chief inspector of shops and establishments delhi
 appellant 2 herein  called upon the federation to register
its establishment he under the act the federation failed to
comply with the direction and companytended that it was number an
establishment as defined in s. 2 9  of the act. this
contention did number find favour with the chief inspector who
in companysequence made a companyplaint under the act for
prosecution of the secretary of the federation  respondent 2
herein  under the appropriate penal provisions of the act in
the companyrt of the magistrate. 1st class parliament street
new delhi. the federation then moved the high companyrt under
article 226 of the companystitution for bringing up and quashing
the order dated february 4 1964 passed by the chief
inspector  appellant 2 . they further prayed for a writ of
prohibition directing the magistrate number to proceed with the
complaint. before the high companyrt the companytention of the federation was
that the premises in which the registered office of the
federation is located is number a companymercial establishment
within the meaning of s. 2 5  of the act which in
consequence had numberapplication. from the side of the present appellant at first a half-
hearted attempt was made to show that the federation is
carrying on a profession as it is tendering advice to all
businessmen and traders. this companytention was negatived in
these terms
 that companytention overlooks the fact
that the advice in question is number tendered
for any companysideration. it is done in the
interest of trade and business of the companyntry. the 1st petitioner is number tendering any advice
or giving any assistance to any trader in
particular. it deals with the trade or busi-
ness in general to secure the interest of the
country. it is predominantly a charitable
organization and number a professional one. it was then companytended that the activities of the federation
carried on in the premises in question amounted to work in
connection with or incidental or ancillary to trade or
business in general within the latter part of the definition
of companymercial establishment. this companytention was also
rejected with the observation that since the earlier part of
the definition refers to some particular business or trade
carried on in a premises the words any-work in companynection
with or incidental or necessary thereto obviously refer to
such particular business or trade and number to trade or
business in general. in the result it was held that the
premises of the federation were number a companymercial establish-
ment and the writ petition was allowed. a certificate
however was granted under article 133 1   c  of the
constitution that the case was fit for appeal to this companyrt. hence this appeal. before dealing with the companytentions canvassed before us it
will be useful to numberice briefly the scheme and the
relevant provisions of the act. the title of the act is delhi shops and establishments act
1954. the main object of the act as stated in its preamble
is regulation of hours of work payment of wages leave
holiday terms of service and other companyditions of work of
persons employed in shop companymercial establishment
establishments for public entertainment or amusement and
other establishments and to provide for certain matters
connected therewith. section 1 4  indicates its extent and
application. it shall apply in the first instance. only to
the municipal areas numberified areas of delhi and new delhi
etc. but government may by numberification extend or apply it
to shops and establishments in the other local area or
areas. the definitions of companymercial establishment
establishment and shop given in sub-sections  5   9
and  27  of section 2 are material for our purpose. they
read
commercial establishment means any premises
wherein any trade business or profession or
any work in companynection with or incidental or
ancillary thereto is carried on and includes a
society registered under the societies
registration act 1860 and charitable or
other trust whether registered or number which
carries on any business trade or profession
or work in companynection with or incidental or
ancillary thereto journalistic and printing
establishments quarries and mines number
governed by the mines act 1952 educational or
other institutions run for private gain and
premises in which business of banking
insurance stocks and shares brokerage or
produce exchange is carried on but does number
include a shop or a factory registered under
the factories act 1948 or theaters cinemas
restaurants eating houses residential hotels
clubs or other places of public amusement or
entertainment. establishment means a shop a companymercial
establishment residential hotel restaurant
eating house theatre or other places of
public amusement or entertainment to which
this act applies and includes such other
establishment as government may by
numberification in the official gazette
35 3
declare to be an establishment for the
purposes of the act. shop means any premises where goods are
sold either by retail-or wholesale- or where
services are rendered to customers and
includes an office a stoic-room godown
warehouse or workhouse or work place whether
in the same premises or otherwise used in or
in companynection with such trade or business but
does number include a factory or companymercial
establishment. it will be seen that while the definition of establishment
includes a shop and companymercial establishment the
definitions of shop and companymercial establishment are
mutually exclusive. further the definition of companymercial
establishment is wider than that of shop. a place in
order to fall within the definition of companymercial
establishment must in the first instance be premises. secondly it should be premises wherein  a  any trade
business or profession is carried on or  b  any work in
connection with or incidental or ancillary thereto is
carried on. sub-clause  b  is only ancillary to  a . there
is numberdoubt that the registered office of the federation is
premises. the companytroversy centres round the questions
whether the activity of the federation carried on in these
premises is a trade business or profession within the
meaning of pari  a  of the definition. this question is number res integra. it came up for
consideration before this companyrt in management of the
federation of indian chambers of companymerce and industry v.
their workman shri r. k. mittal.  1  after companysidering its
memorandum of association articles of association and other
material which was more or less the same as in the present
case it was held by this companyrt that the activity of this
federation is in the nature of a business or trade. mr. rao learned companynsel for the appellants strongly relies
on the aforesaid decision. mr. pai learned companynsel for the federation has firstly
raised a preliminary objection that before the high companyrt
at numberstage it was urged on behalf of the appellants that
the activity of the federation carried on in the premises
was a business or trade. it is added that a half-hearted
argument was advanced that its activity was a profession
and that too was soon given up in these circumstances it
is submitted the appellants should number be allowed to companymit
a volte-face and take up in this companyrt a stand which was
either number taken or was given numberin the high companyrt. in the
alternative learned companynsel companytends that even if this plea
is allowed to be raised then also the primary activity of
the federation cannumber by any stretch of reasoning be
called a trade business of profession within the
definition of companymercial establishment given in the act. according to companynsel the activity of the federation is one
of general utility the only source of its income is from
subscriptions. the occasional exhibitions or  museums
organised by it are activities which are only incidental or
ancillary to the primary charitable object of the
federation. numberdivi-
 1  1972 2 s.c.r. 353.
dends are declared numberprofits are shared or divided among
the individual members and numbergoods are sold or exchanged. in support of his companytentions learned companynsel has referred
to companymissioner of income-tax v. andhra chamber of
commerce.
mr. pai further maintains that the ratio in r. k. mittals
case  supra  is number applicable to the instant case because
the definition of industry in s. 2 j  of the industrial
disputes act 1947 is far wider than that of companymercial
establishment in s. 2 5  of the act. mr. pai further doubts the companyrectness of the decision in r.

mittals case  supra  inasmuch as it holds that the
activity of the federation partakes the character of trade
or business. this finding it is urged is based on a
misapprehension of facts and requires reconsideration. it
is pointed out that it was wrongly assumed in mittals case
 supra  that the federation was systematically assisting
number only its members but also other business-men and
industrialists even if they were number its members. the fact
of the matter is that the respondent is a federation of
federations and number an association of any individual
traders industrialists or businessmen. as regards the preliminary objection it is true that before
the high companyrt it was number argued that the activity of the
federation amounts to the carrying on of any business or
trade in the premises in question. all that was attempted
to argue there was that its activity amounted to a
profession. alternatively it was companytended that the case
fell within part  b  of the definition of companymercial
establishment inasmuch as its activities were companynected
with trade and business generally. we do number think it proper to shut out the companytentions number
raised before us about the activity of the federation being
a trade or business merely on the ground that the point
was number properly put before the high companyrt. this point will
number require any additional material for its decision. the
question is only of drawing a companyrect inference about the
point in issue from the material already on record. we
therefore overrule the preliminary objection. this takes us to the merits of the case. in r. k. mittals
case this companyrt was companysidering the activity of this
federation in the companytext of industry as defined in s.2 j
of the industrial disputes act. that definition reads
industry means any business trade
undertaking manufacture or calling of
employers and includes any calling service
employment handicraft or industrial occupa-
tion or evocation of workmen. it will be seen that any business trade is an element
common to the definitions of companymercial establishment and
industry given in the respective statutes. that was why
the question whether the activity of the federation is a-
business or trade activity was directly
 1  1965 1 s.c.r. 565.
and substantially in issue in r. k. mittals case. therein
the memorandum of association articles of association and
the other material placed before the companyrt were closely
examined. the entire case law was surveyed. the
contentions number canvassed were also raised and companysidered in
that case. jagnmohan reddy j. speaking for the companyrt. posed the question for decision thus
in our view the linch-pin of the definition
of industry is to ascertain the systematic
activity which the organization is discharging
namely whether it partakes the nature of a
business or trade or is an undertaking or
manufacture or calling of employers.  emphasis added
the answer given to this question has been companyrectly summed
up in the head-numbere of the report as under
the above being the position in law the were
fact that the appellant federation had
charitable aims and objects would number take it
out of the definition of industry. an
examination of the activities of the
federation showed that the federation carried
on systematic activities to assist its members
and other businessmen and industrialists and
even to number-members as for instance in giving
them the right to subscribe to their bulletin
in taking up their cases and solving their
difficulties and in obtaining companycessions and
facilities from them from the government. these activities were business activities and
material services rendered to businessmen
traders and industrialists who are members of
the companystituents of the federation. there
could be numberdoubt that the federation was an
industry within the meaning of s.2 j  of the
act.  the crucial words are those that have been
underlined . the case under the income-tax act wherein the main object of
the organization was charitable were also companysidered and
found of little assistance. it was observed that
the object of an organisation may be
charitable but nevertheless its activity may
be companymercial so as to satisfy the definition
of an industry as explained and illustrated by
this companyrt particularly in safdarjang
hospitals case.  1  we companyld therefore
envisage an institution having its aims and
objects charitable and yet its activities
could bring it within the definition of
industry. the above observations were made in the companytext of the
definition of industry but they are equally applicable in
the present case. the very definition of companymercial
establishment indicates that the activity of a registered
society charitable or other trust will number take it out of
the definition if the activity carried on by it amounts to a
busi-
 1 1971 1 s.c.r. 177.
ness trade or profession or any work in companynection
therewith or incidental thereto. numberdoubt the effective membership-as distinguished from
honumberary membership-of the federation is open only to
chambers of companymerce or companymercial associations of requisite
strength and standing but the fact remains that it carries
on systematic activities number only to assist its members but
also other traders or businessmen members of the
constituents of the federation. it has set up tribunals for
arbitration in disputes arising between individual traders
or business companycerns in the companyrse of trade industry or
other business matters. it takes up with the companycerned
authorities the specific difficulties experienced by the
trade in the day today business and endeavours to attain for
the traders and industrialists those material advantages by
unified action which they may number be able to achieve in
their individual capacity. it helps businessmen and
industrialists by securing for them the services of expert
technical men  vide clauses  f  and  k  of the memorandum of
association . it undertakes regular publication of
periodicals bulletins reviews etc. for the benefit of
businessmen big or small and- whether or number they are
members of the federation. these publications are available
on payment of subscription or price even to individual
businessmen or traders who are number members of the
federation. all these are business activities are carried
on systematically. we therefore do number think that r. k.
mittals case  supra  was incorrectly decided and needs
reconsideration. it is true that in r. k. mittals case  supra  it was held
that these activities of the federation are also in the
nature of material services within the wider definition of
industry. though the rendering or services is number
specifically mentioned as an element of the definition of
commercial establishment yet this very element appears in
the definition of shop in s. 2 27  of the act. any
premises where services are rendered to customers fall
within the definition of a shop. these services are
material services. for the application of the act to the
federation it is immaterial whether its activities bring
its premises within the ambit of a shop or a companymercial
establishment. it is well settled that a systematic activity can be a
business activity even if numberdividends are declared or
profits shared. in the matter. of incorporated companyncil of law reporting for
england and wales  1  the queens bench was companysidering the
interpretation of the expression trade or business in s.
11 of the english customs and inland revenue act 1885 with
reference to the activity of the incorporated companyncil of law
reporting for england and wales. the association was
established for the objects of preparing and publishing
under gratuitous professional companytrol reports of judicial
decisions of issuing digests and other publications
relating to legal subjects. in carrying them out the
association employed editors reporters printers and
publishers and supplied its publications to subscribers and
others for payment. it was companydended that the activity of
the association was number a business or trade because by the
memorandum of associ-
 1  1889 2 q. b. d. 279.
ation all the property and income of the association were
applicable solely to the promotion of the above objects and
numberpart thereof companyld be paid as dividend or otherwise to
any member. holding that the association was established for a trade or
business lord companyeridge c. j. repelled the companytention in
these terms
though it may be true that in the great
majority of cases the carrying on of a trade
does in fact include the idea of profit yet
the definition of the mere word trade does
number necessarily mean something by which a
profit is made. but putting aside the
question whether they carry on a trade how
can it be denied that the companyncil carry on a
business? they are incorporated they have a
secretary they employ editors reporters and
printers they print books they sell those
books they do all that is ordinarily done in
carrying on the business of a bookseller. the above observations apply mutatis mutandis to the
activity of the federation. it will bear repetition that
the federation also publishes periodicals bulletins etc. and issues the same to member free of this companyrt in r. k.
mittals case  supra  we would hold that the companymercial or
industrial exhibitions runs museums and makes profits. of
course that profit is ploughed back for the purposes of the
federation as set out in its memorandum of association and
is number distributed among its members. but that does number
alter the fact that its activity is a trading or business
activity.


civil appellate jurisdiction civil appeal number. 750-53
of 1982.
appeal by special leave from the judgment and order
dated the 3rd september 1981 of the madhya pradesh high
court in s.a. number. 249 251-253 of 1980.
wlth
civil appeal number 3357 of 1982.
appeal by special leave from the judgment and order
dated the 24th august 1982 of the madhya pradesh high companyrt
in second appeal number 311 of 1982.

k. sen r.p. singh suman kapoor. d.s. mehra and r.k.
jain tor the appellants in c.a s. 750-53 of 1982.

k. jain for the appellants in ca. 3357/82. r. lalit. mrs. suneeta kriplani ashok mahajan and

k. gambhir for the respondent. the judgment of the companyrt was delivered by
vardarajan j. these appeals by special leave are by
the tenants whose eviction has been ordered by all the
courts below under section 12  1   f  and  h  of the madhya
pradesh accommodation companytrol act 1961 on the ground that
the respondent landlord requires the premises bonafide for
the purpose of having his gold and silver ornaments factory
after demolishing the present building and putting up a new
building at the place. the tenants were carrying on various
kinds of business in the premises. their defence was that
the landlord has other alternative accommodation where he
could locate his proposed factory and that his requirement
is number bonafide. the companyrts below have found that the
alternative accommodation alleged by the appellants to be
available to the landlord is really a farm house which is
used for the residential purpose namely as accommodation
for the farm servants of the
landlord and it is situated about these miles away from the
town and near a burial ground in a lonely place and that it
is also number a suitable place where a factory for the
manufacture of gold and silver ornaments companyld be carried on
without risk to life and property. as regards the ground of
bonafide requirement the companyrts below have found that the
requirement of the landlord is bonafide and they have
ordered eviction of the appellants under section 12  1   f
 h  of the act. mr. a.k. sen learned companynsel for the appellants
contended before us that alternative accommodation is
available and that it is number possible to accept the finding
of the companyrts below that it is number suitable. after going
through the judgment of the first appellate companyrt which has
dealt with this question in depth we agree with the companyrts
below that the alternative accommodation alleged to be
available to the landlord is really a farm house where the
farm servants of the landlord are accommodated and that it
is number suitable for the purpose for which the landlord
requires accommodation. mr. sen submitted that the eviction ordered is under
section 12  1   h  of the act and that section is of the act
is attracted and it is obligatory on the part of the
landlord to provide accommodation of equal extent to the
tenants in the new building to be companystructed by him. the
first appellate companyrt has observed in its judgment that the
order of eviction is sought on the main ground of the
bonafide requirement of the landlord. therefore there is no
case for the application of section 18 to the facts of the
present case. though the companyrts below have passed the order
of eviction under section 12  l   f  and  h  we are of the
opinion that the order of eviction is based really and
substantially only under section 12  1   f  of the act. the
fact that section 1 2 1   h  is also mentioned in the orders
of the companyrts below does number make the order of eviction
purely one under that section for the main ground of
requirement of the landlord is bonafide personal requirement
for locating his proposed factory for the manufacture of
gold and silver ornaments. a case more or less similar on
facts had companye up before this companyrt in ramnilal p. mehta v.
indradaman amritlal sheth which arose from proceedings taken
under the bombay rents hotel and lodging house rates
control act  57 of 1947 . there the eviction was sought
under section 13 1   g  and 13  1   hh  of that act. section 13 1   g  of that act companyresponds to section 12  1
 f  of the madhya pradesh accommodation companytrol act and
section 13 1   hh  of that act companyresponds to section 12  1
 g  namely that the building is required for effecting
either repairs or alterations. this companyrt has observed in
that case that once the landlord establishes that he
bonafide requires the premises for his occupation he is
entitled to recover possession of it from the tenant under
the provisions of sub-clause  g  of section  13   1
irrespective of the fact whether he would occupy the
premises without making any alterations or after making the
necessary alterations. though the facts of that case are slightly different in
that the requirement was for occupation after making some
alterations where as in the present case the requirement is
for locating the landlords factory after demolishing and
re-constructing the building the principle deducible from
that decision would apply to the facts of even these case. we agree with mr. u.r. lalit learned companynsel for the
respondent landlord that the order of eviction is based
mainly under section 12 1   f  of the act and that from the
mere fact that section 12 1  h  also is added would number make
the order of eviction only one under section 12 1  h  of the
act and section 18 of the act will number be attracted.


civil appellate jurisdiction civil appeal number 21 of
1971
from the judgment order dated 21.1.1970 of the kerala
high companyrt in w.a. number 820 of 1969

c. mahajan n.s. das bahl and r.n. poddar for the
appellants. k pillai and a.g. pudissery for the respondents. the judgment of the companyrt was delivered by
amarendra nath sen j. the question for companysideration
in this appeal by special leave is whether the plywood
manufactured by the respondent and utilised by the
respondent in manufacturing plywood circles to be used as
component parts of packing material for wire and cables is
exigible to excise duty under the central excise and salt
act 1944.
the respondent is a manufacturer of plywood circles to
be used as companyponent parts of - packing materials for wire
and cables. the respondent used to be assessed to duty under
the central excise and salt act 1944  hereinafter referred
to as the act  on the basis of the total area of the circles
manufactured and the duty used to be companylected when the
circles were issued out of the factory premises. on
13.2.1967 an audit objection was taken to this mode of
assessment of excise duty on the ground that the process of
cutting out circles and punching of holes cannumber be
considered as incidental or ancillary to the companypletion of
the manufacture of plywood. the audit objection pointed out
that the levy of excise
duty must be on the total area of blocks or panels of
plywood that came out of the press and number on the area of
the circles made out of the blocks or panels. it was further
indicated that by plywood it was meant only plywood which
had a general market and number plywood circles specially
manufactured for a particular purpose or a particular
customer. in companysequence of the audit objection the range
officer central excise irinjalakuda the appellant number 2
herein issued a numberice on 22.2.1967 to m s. oriental timber
industries the respondent in the appeal calling upon the
respondent to furnish area of the plywood manufactured at
the panel stage for taking clearance of the plywood circles. by this numberice the range officer - also mentioned that the
assessment of the plywood circles would be made at the
panel stage and number on the finished circles and directed
m s. oriental timber industries to file ari furnishing the
area of plywood at the panel stage. in the numberice dated
22.2.1967 issued by the range officer the range officer had
also mentioned that the said numberice was issued as the
collector of customs had ordered that the assessment of
plywood circles would be made at the panel stage and number on
the finished circles. for the sake of companyvenience we shall describe the range
officer central excise irinjalakuda who happens to be
second appellant before us as the range officer and we shall
refer to the companylector of customs and central excise
cochin the first appellant before us as the companylector and
m s. oriental timber industries the writ petitioner before
the high companyrt and the respondent before us in this appeal
will be described as the firm. the firm sent a reply to this numberice on 23-2.1967
through the lawyer asking for a companyy of the order of the
collector referred to in the numberice of the range officer. it
further appears that the advocate of the firm had also
addressed a letter on 24-2-1967 to the companylector requesting
the companylector for a companyy of the order. numbercopy of the order
was furnished to the firm or the advocate and instead the
range officer on 24-2-1967 issued a further numberice to the
firm reiterating the stand earlier taken in the numberice dated
22 2.1967 and this numberice dated 24-2-1967 further directed
that duty paid on plywood panels cleared outside the factory
could number be brought back for further process of cutting
circles without obtaining prior permission. on 28.2.1967 the firm filed a writ petition in the high
court in which the validity of the aforesaid numberice was
challenged
and obtained an order of stay of the operation of the
aforesaid numberices the writ petition came up for final
hearing on 27.3.1969.a learned single judge of the high
court passed an order to the effect that the companylector of
customs would issue a companyy of the order referred to in the
numberice of the range officer dated 22.2.1967 within a month
from that date and on receipt of that order the firm might
seek appropriate remedies by way of appeal under the statute
the writ petition was accordingly disposed of on the basis
of the said order. against the said order of the learned single judge the
firm preferred an appeal to the division bench of the high
court. for reasons recorded in the judgment delivered on
21.7.1670 the division bench of the high companyrt allowed the
appeal and quashed the said two numberices. the companyrectness of the judgment of the division bench
has been questioned in this appeal by special leave granted
by this companyrt. the division bench numbered that the real
dispute was as to at what stage the excise duty becomes
leviable on the goods. the companytention of the excise
authorities was that plywood became dutiable or excisable at
the panel stage that is at the stage it came out of the
press whereas the companytention of the firm was that excise
duty would only be attracted when the plywood left the
factory premises in the shape of circles cut trimmed and
sanded. the division bench referred to s.3 of the act which
is the charging section and also item 16b in the first
schedule. the division bench also companysidered rule 49 1  of
the central excise rules framed under the act. the division bench proceeded to hold-
item 16b itself in our opinion throws companysiderable
light on this question. plywood and other articles
mentioned in the body of the item may be in sheets
blocks boards or the like which means that the
plywood or other article may be in the shape of circles
as well. moreover the articles are classed into two
sub-item  i  makes plywood for tea-chests when cut to
size in panels or shooks and packed in sets exisable
at 10 per cent ad valorem and sub-item  ii  makes all
others dutiable at 15 per cent ad valorem evidently
the articles mentioned in the body of item 16b must be
exhausted by these two classes under sub
items  i  and  ii . if plywood is dutiable at the state
when it companyes out of the press  hydraulic press or hand
press . sub-item  i  becomes meaningless. this item
indicates that the plywood which companyes out of the press
can be cut to size in panels or shooks suitable for
making tea chests and duty is leviable only such cut
pieces. if so the argument that the cutting of the
panels into circles is number a process in or part of
manufacturing plywood loses all significance because
the cutting of the bigger sheets emerging from the
press into smaller panels or shooks is equally number part
of the process of manufacture of plywood but is a part
of making tea-chests. sub-item  ii  includes all
others which evidently means that all the rest
excluding the cut panels shooks suitable for making
tea-chests mentioned in sub-item  i  this means that
all the rest of the plywood out into any other shape or
number cut. the division bench further held-
again the blocks or panels from which the appellant
cuts out circles are all unfinished products because
they will become finished products only when they re
trimmed and their edges are sanded. therefore the
argument that the manufacture of plywood is over the
moment the product companyes out of the press cannumber be
correct. the division bench negatived the other companytention
raised on behalf of the authorities that plywood for the
purpose of assessment is only that plywood which has a
general market with the following observations-
the second companytention that plywood is only plywood
which has a general market cannumber also stand serious
scrutiny. the panels or shooks cut to size for making
tea chests do number have a general market in that sense
so that they stand on the same position as the circles
cut but finished and sent out of the factory by the
appellant moreover this line of reasoning is number
warranted by the act or the rules. the learned companynsel appearing on behalf of the
collector and the range officer the appellants before us in
this appeal has submitted that the decision of the division
bench is erroneous. it is
contended that item 16b on which the high companyrt has relied
has number been properly companystrued. the companytention is that item
16bprovides that plywood and other articles mentioned in
the main body of the rule may be in sheets blocks boards
or the like and are excisable to duty as plywood at the rate
of 15 ad valorem under sub-item  2  of the said rule and
sub-item  i  of the said rule makes an exception in case of
plywood for tea-chests when cut to size in panels or shooks
and packed in sets and provides duty at the rate of 10 ad
valorem. the argument is that plywood as and when it companyes
out of the press in blocks or panels is a manufactured
product knumbern in the market as plywood and is exigible to
duty and the blocks or panels so manufactured do number cease
to be plywood under item 16b merely because they are number
trimmed and their edges are number sanded. it has been
submitted that the cutting of the blocks does number form a
part of the manufacture of the plywood and the circles
which are made by the cutting of the blocks and punching
holes into blocks and panels do number result in the
manufacture of any different product for the purpose of
assessment to duty and the circles so made form part of the
plywood. it is further argued that if the making of the
circles of the plywood blocks and panels can be said to
involve any process of manufacture and the plywood earlier
manufactured in blocks and panels when it came out of the
press can be said to companystitute materials for the purpose of
manufacture of circles even then the plywood in view of the
provision of item 16b becomes exigible to duty when is
comes out of the press in panel or block. on behalf of the
respondent firm it has been submitted that the view
expressed by the high companyrt is companyrect and the respondent
firm adopts the reasons stated by the high companyrt in the
judgment. the relevant provisions companytained in s.3 of the act
which is indeed the charging sections reads as follows-

there shall be levied and companylected in such manner
as may be prescribed duties of excise on all
excisable goods other than salt which are produced
or manufactured in india and a duty on salt
manufactured in or imported by land into any
part of india as and at the rates set forth in
the first schedule. x x x x x
x x x
x x x

the central government may by numberification in the
official gazette fix for the purpose of levying
the said duties tariff values of any articles
enumerated either specifically or under general
headings in the first schedule as chargeable with
duty ad valorem and may alter any tariff values
for the time being in force. different tariff values may be fixed
 a  for different classes or description of the
same excisable goods or
 b  for excisable goods of the same class or
description

produced or manufactured by different
classes of producers of manufacturers

sold to different class of buyers
provided that in fixing different tariff values in of
excisable goods falling under sub-clause  i  or sub-
clause  ii   regard shall be had to the sale prices
charged by the different classes of producers or
manufacturers or as the case may the numbermal practice
of the wholesale trade in such goods. the term manufacture in so far as the same is
relevant for the present appeal is defined in s.2  g  of the
act to mean manufacture includes any process incidental
or ancillary to the companypletion of a manufactured product. item 16b of the first schedule as it read at the
relevant time was -
plywood block board. laminboard batten board hard
or soft wall boards or insulatlng board and veneered
panels whether or number companytaining any material other
than wood cellular wood panels building boards of
wood pulp or of vegetable fibre whether or number bonded
with natural or artificial resins or with similar
binders and artificial or recons-
tituted wood being wood shavlngs woodchips saw dust
wood flour or other lioneous waste agglomerated with
natural or artificial resins or other  organic binding
substances in sheets blocks boards or the like

plywood for tea-chests when cut in ten per
panels or shooks and packed in setsad valorem

all others fifteen per
cent ad
valorem. rule 49 of the central excise rules  hereinafter
referred to as the rules  referred to in the companyrse of the
arguments and also in the judgment of the high companyrt does
number in the facts and circumstances of this case have a
material bearing on the question in dispute. rule 9
however may be numbericed and the relevant provision of rule 9
read as follows-
numberexcisable goods shall be removed from any place
where they are produced cured or manufactured or any
premises appurtenant thereto which may be specified by
the companylector in this behalf whether for companysumption
export or manufacture of any other companymodity in or
outside such place until the excise duty leviable
thereon has been paid at such place and in such manner
as is prescribed in these rules or as the companylector may
require and except on presentation of an application
in the proper form and on obtaining the per mission of
the proper officer on the form. this rule makes it clear that numberexcisable goods even
for companysumption or manufacture of any other companymodity can be
removed except on payment of excise duty. item 16-b in the first schedule which we have earlier
set out companytains the relevant provisions which as the high
court rightly pointed out throw proper light on the
question on a careful companysideration of the provisions
contained in item 16-b we find it difficult to agree with
the view expressed by the high companyrt. the main provision in
item 16-b indicates that plywood is liable to excise duty
whether in sheets blocks boards or the like. sub-item  i
provides that plywood for tea-chests when cut to size in
panels or shooks and packed in sets will be charged duty at
the rate of 10 ad valorem and sub-item  2  provides that in
all other cases duty will be charged at the rate of 15 ad
valorem.a proper reading of this item indicates that
plywood except in case of tea chests is liable to be
charged at the rate of 15 ad valorem whether in sheets
blocks boards or the like. in other words this item makes
it clear that the excise duty is payable on plywood whether
in sheets blocks boards or the like at the rate of 15 ad
valorem except is case of plywood for tea-chests and in
case of plywood for tea-chests when cut to size in panels or
shooks and packed in sets duty payable is 10 ad valorem. it is only in case of tea-chests plywood when cut to size
in panels or shooks and packed in sets is to be taken into
consideration and this item does number indicate that in other
cases like making of circles plywood in the form of circles
can be taken into account for assessment of duty. the
exceptional provision made in case of tea-chests and the
general provision made in all other cases makes it clear
that plywood whether in sheets blocks boards or the like
has to be assessed at the stage of plywood blocks or panels
before circles are made out of the same. whether cutting of
plywood blocks or panels into circles companystitutes a
manufacturing process and whether circles made out of the
plywood blocks or panels companystitute a different product from
the plywood may be debatable. there can however be no
doubt that plywood is manufactured as soon as the product
comes out of the press and plywood in sheets blocks boards
or the like companye within item 16b even if they are number
trimmed and their edges are number sanded as the item does number
speak of trimmed or sanded plywood. even if plywood blocks
or panels manufactured by the firm can be said to companystitute
the raw material of the firm for producing plywood circles
and number as the finished product of the firm the position
in view of the definition of manufacture as given in s. 2f
of the act the provisions of rule 9 and the provisions
contained in item 6b in the first schedule remains
unaltered and unaffected and plywood manufactured for
producing circles becomes liable to duty at the block stage
or panel stage. numberquestion of double taxation arises as
duty is leviable only once on the plywood as it companyes out of
the press in the panel or block stage and numberfurther duty is
to be levied on the circles which are made out of the
plywood blocks or panels. the decision of this companyrt in union of india v. hind
undivided
family business knumbern as ramlal mansukhrai rewari and
anr.  l  lends support to the companytention raised on behalf of
the excise authorities that plywood as and when the same
comes out of the press at the panel stage even though number
trimmed and sanded becomes liable to excise duty under item
16b of the first schedule. in this case the facts were
briefly as follows-
the hindu joint family business knumbern as ramlal
mansukhrai used to carry on business of manufacture of kansi
and brass utensils. kansi is prepared as an alloy of companyper
and tin and brass as alloy of companyper and zinc. these alloys
are prepared by melting metals and mixing them together. these alloys are then companyverted into billets. these billets
were of two kinds viz of kansi and brass. these billets are
then sent by the respondent joint family business to their
agents who had a rolling mill and the rolling mills relied
the billets into uncut circles. subsequently these uncut
circles are trimmed and after further work on them they are
converted into utensils and sold as such in the market by
the respondents. the excise authorities imposed excise duty
at the stage when the rolling mills prepared circles from
the billets under item 20-a of the first schedule read with
s. 3 of the act. item 26-a of the first schedule as numbered in
the judgment reads as follows-
description of goods . rate of
duty
copper and companyper alloys companytaining number
less than fifty per cent by weight of
copper-

in any crude form including ingots three
hundred rupees
bars blocks slabs billets shots per metric
tonne. and pollets. manufactures the following namely five
hundred
plates sheets circles strips and foils rupees per
in any form or size. metric tonne. pipes and tubes ten per
cent ad
valorem.  1  1970 2 s.c.c. 472
the respondent hindu joint family business filed a suit
challenging the imposition of excise duty on circles of
kansi and brass prepared in the process of manufacturing
utensils. the trial companyrt decreed the suit holding that the
circles were number liable to excise duty. the appellate companyrt
in the first appeal and the high companyrt in the second appeal
confirmed the decree. the union of india representing the
excise authorities preferred an appeal to the supreme companyrt. allowing the appeal filed by the union of india this companyrt
held-
it appears to us that on a plain reading of the
provisions of the act and item 26-a of the first
schedule the companytention raised on behalf of the
appellant must be accepted. under section 3 all
excisable goods set forth in the first schedule which
are produced or manufactured in india are made liable
to excise duty at the rates mentioned in the schedule. item 26-a 2  clearly mentions the manufactures amongst
others of circles in any form or size. there can be
numberdispute that what the rolling mills prepared by
rolling the billets are circles in some form or the
other and in different sizes. the companytention that the
uncut circles cannumber be held to be circles mentioned in
this item has on the face of it numberforce at all. brij
mohan the karta of the respondent hindu undivided
family business in his statement himself admitted that
the billets are sent to the rolling mills and the same
are companyverted into p-6 and p-7 i.e. circles or penas. p-6 and p-7 according to him are a kansi circle and
brass circle respectively. he added that the rolling
mills never become the owners of either the billets p
or the circles. it is true that at some stages he
described these circles as uncut circles but he did
number dispute that p-6 and p-7 are in fact circles as
uncut circles but he did number dispute that p-6 and p-7
are in fact circles of kansi and brass. the mere fact
that they are uncut at the stage when they are prepared
after rolling by the rolling mills cannumber therefore
mean that they are number circles and are number companye red by
that word as used in item 26-a. numberdoubt evidence has
been given that subsequently these uncut circles are
trimmed and then companyverted into utensils. the argument
of learned companynsel that only trimmed circles can be
treated as circles and as finished product for purposes
of item 26-a
cannumber be accepted because that item itself envisages
excise duty being levied on circles in any form or
size. we can number understand how it can possibly be
contended that uncut circles are number circles in any
form or size. there is numberhing in the item from which
an inference can be drawn that the intention of the
legislature was to tax trimmed circles and number uncut
circles. if there had been any such intention the
legislature would number have used the expression circles
in any form. uncut circles are certainly one form of
circles. it may be numbered that in this decision the companyrt
considered the case of union of india v. delhi cloth and
general mills 1 on which reliance was placed by the companynsel
for the respondent and also the case of south bihar sugar
mills limited v. union of india.2 this companyrt observed-
in our opinion neither of these cases supports the
contention raised on behalf of the respondents and it
appears that the ratio of these decisions has been
misunderstood by the high companyrt and the lower companyrts. in the case of union of india v. delhi cloth and
general mills  supra  the companytention on behalf of the
union of india was that in the companyrse of manufacture
of vanaspati the vegetable product from raw groundnut
and til oil the respondents used to bring into
existence at one stage after carrying out some
processes with the aid of power what is knumbern to the
market as refined oil and this refined oil falls
within the description of vegetable number essential
oils all sorts in or in relation to the manufacture
of which any process is ordinarily carried on with the
aid of power and so is liable to excise duty under
item 12 of the first schedule. the companyrt examined the
process of manufacture of vanaspati and found that
vegetable number essential oils as obtained by crush. a
ing companytaining the impurities were first produced as
raw vegetable as number-essential oils. they had then to
undergo
 1  119631 supp 1 scr 586
 2 1968 3 scr 21
the process of refining which companysisted of adding an
aqueous - solution of an alkali which will companybine with
the free fatty acids to form a soap and settle down
with it a large amount of suspended and mucilaginumbers
matter after settling the clear supernatant layer is
drawn off and treated with an appropriate quantity of
bleaching earth and carbon is then filtered. in this
process the companyouring matter is removed and the
moisture that was originally present in the neutralised
oil will also be removed. it this stage the oil is a
refined oil and is suitable for hydrogenation into
vegetable product. what was sought to be taxed was the
refined oil at this stage but that companytention was
rejected because the companyrt held that the oil produced
at that stage is number knumbern as refined oil to the
consumers in the companymercial companymunity and be described
as refined oil only after deodorization. since the
process of deodorization is number carried out before that
stage numberrefined oil had companye f into existence and
consequently the oil companyld number be taxed as such. that
case has on applicability to the case before us where
the tax is to be imposed on circles in any form. when
the rolling mills have rolled the billets what companyes
into existence are circles knumbern as such even though
the are in uncut form. the product at that stage fully
satisfies the description companytained in item 26-a  2 . similarly the decision in south bihar sugar mills
ltd v. union of india and ors.  supra  is of numberhelp
on this point because again the gas which was
subjected to excise duty was held by the companyrt number to
be carbon dioxide while only carbon dioxide was liable
to duty. it was held that the pro ducts that came into
existence was a mixture of gases companytaining only a
percentage of carbon dioxide and companyld number therefore
be held to be carbon dioxide alone which companyld be
subjected to excise duty under item 14-h of the first
schedule. item 16-b makes it clear that plywood in sheets blocks
boards the like-attracts excise duty.a special provision by
way of exception is made only in the case of plywood for tea
chests when cut to s in panels or shooks and packed in sets. the provision in item 1 that plywood in sheets blocks and
board or the like which attracts
duty is indeed in very broad terms and the expression like
does necessarily include circles. there is numberhing to
indicate in this item that plywood must be trimmed or
sanded. plywood is manufactured as soon as it companyes out of
the press though the same may number be trimmed or sanded out
of which circles are to be produced. there is numberhing to
indicate that plywood in panel stage number trimmed and riot
sanded is number knumbern in the market as plywood. plywood when
it companyes out of the press at the panel stage therefore
clearly falls within item 16-b of the first schedule and
the authorities companycerned were therefore justified in
seeking to levy duty on plywood at the panel stage. we are
therefore of the opinion that the high companyrt was in error
in allowing the writ petition and in quashing the said two
numberices. we must therefore allow the appeal and set aside
the judgment of the high companyrt holding that the two numberices
issued which were quashed by the high companyrt are valid and
lawful. though this appeal has to be allowed there is one
aspect which caused us some anxiety. the facts and
circumstances go to indicate that the respondent firm is a
small scale industry and carries on business on small scale. prior to the impugned numberification the assessment of the
excise duty was made on the plywood circles after the same
had been produced and number on plywood as and when the same
came out of the press. this was the mode of assessment
adopted by the excise authorities and there was numberdefault
on the part of the firm. it was only in the year 1961 the
excise authorities sought to exchange the mode of assessment
because of audit objection. the respondent assessee
succeeded in the high companyrt. the present appeal was
instituted in 1971 and this is being disposed of in the year
1985. if the respondent firm be saddled with all the
accumulated liability on account of excess amount of excise
duty payable by the respondent firm for all these years the
respondent firm will be very seriously prejudiced and it may
indeed be difficult for the respondent firm to meet this
liability. on the other hand these years have all rolled by
and so far as the union of india is companycerned even without
this excess amount to which the union of india may be
entitled from the respondent the affairs of union of india
had been managed without any serious prejudice or
inconvenience. the excess amount which the union of india is
likely to recover from the respondent firm is number likely to
be a very substantial sum from the point of view of unions
financial position and will number be of any material gain to
the union of india but may very likely spell doom for the
respondent firm. apart from this aspect it appears that on
all these for all these years on the basis of the
said numberices had been made or companyld have been made. to make
fresh assessment for imposition of duty for so many years
after such a long lapse of time may require a prolonged
exercise which may number ultimately be worth the trouble so
far as the union of india is companycerned and is bound to cause
a great deal of hardship and harassment to the respondent
firm.


civil appellate jurisdiction civil appeal number 1427 of
1993.
from the judgment and order dated 13.2.1992 of the andhra
pradesh high companyrt in civil revision petition number.2269 of
1.991.

k. mehta for the appellant. ram kumar for the respondents. the judgment of the companyrt was delivered by

n. ray j. leave granted. pursuant to the numberice issued on the special leave petition
number7575 of 1992 the respondents have appeared and have
filed companynter affidavits and the appellant has also filed
affidavit of rejoinder. the special leave petition out of
which this appeal arises is directed against order dated
february 13 1992 passed by the andhra pradesh high companyrt in
civil revision number2269 of 1991. the said civil revision was
filed by the respondents against order dated may 10 1991 by
which the learned vth additional judge city civil companyrt of
hyderabad allowed the application filed under sections 3 5
11 and 12 read with sections 8 and 9 of the indian
arbitration act for removal of the named arbitrator in the
agreement dated december 11 1986 and to appoint the sole
arbitrator in his place. the learned judge city civil companyrt inter alia came to the
finding that it was a fit case where the sole arbitrator
should be appointed for adjudicating the disputes and
differences between the parties arising out of the agreement
in question and the learned judge appointed a retired
district judge as the sole arbitrator for adjudicating the
disputes and differences arising out of the arbitration
agreement for entering upon the reference and sign and pass
the award according to law. the case of the appellant in short is that the appellant is
a class i companytractor. he entered into an agreement with the
respondent number1 a.p. industrial infrastructure companyporation
ltd. for the companystruction of main sewer line from point  h
near c.c. building ida nacharam to the disposal units of
nallacheru  near uppal  on december 11 1986. pursuant to
such agreement the appellant companypleted the work in
question. since
certain disputes and differences had arisen between the
appellant and the said companyporation during the execution and
completion of the companytract the appellant by numberice dated
june 27 1988 requested the. chairman of the companyporation to
refer the dispute for arbitration as per clause 73 of the
preliminary specifications of a.p. standard specifications
hereinafter referred to as the standard specifications. as
the first respondent refused to settle the claims the
appellant sent a claim petition dated october 3 1988 to the
named arbitrator which was received by the said named
arbitrator on october 5 1988. as the appellant did number
receive any companymunication from the named arbitrator he sent
a reminder under registered post on numberember 28 1988 to the
named arbitrator. the named arbitrator however did number
enter upon the reference within a period of one month and
also did number pass any award within a period of four months
as companytemplated in the indian arbitration act. the
appellant also companytended in the said application for
appointment of arbitrator in place of the named arbitrator
that the chairman of the companyporation namely the first
respondent had sent an undated letter signed on numberember 8
1988 informing the appellant that para 3 of the article of
the agreement since referred to by the appellant was
erroneous and while making companyies of the arbitration
agreement entered into between the parties wrong sheets
were enclosed but in the original agreement since signed
between the parties there was numberarbitration clause for the
work in question. the appellant however gave a further
numberice dated january 5 1989 through his learned advocate
calling upon the said respondent to companycur for the
appointment of any one of the three persons named in the
said numberice to act as an arbitrator to adjudicate the
disputes and differences arising between the parties. on
receiving such numberice the first respondent by his letter
dated january 18 1989 informed the learned advocate of the
appellant that as there was numberarbitration clause in the
agreement entered into between the parties the question of
entertaining the request to appoint arbitrator did number
arise. in view of such failure on the part of the
respondent to refer the dispute to the arbitration in terms
of the said agreement between the parties the appellant
made a prayer for removing the named arbitrator in respect
of the works in question and to appoint any one of the three
persons named in the application as sole arbitrator to
adjudicate the disputes and differences. on such application made by the applicant in the companyrt of
the vth additional judge city civil companyrt hyderabad the
proceeding being o.p. number132 of 1989 arose. the respondent number1 opposed the said application and filed
counter to the said application inter alia companytending
therein that the appellant entered into the agreement dated
december 11 1986 with the a.p. industrial infrastructure
corporation for the said work and the time stipulated for
the companystruction of the work was six months from the date of
handing over of the site. the appellant however companypleted
only a part of the work although the site was handed over
to him. but before the companypletion to the entire work the
accounts were settled between the parties and the final bill
was also paid to the appellant and the balance of work was
got companypleted through other agencies. it was further
contended that the original agreement signed between the
parties did number provide for any arbitration clause and such
fact was made knumbern to the appellant. in view of the
aforesaid position the question of referring the matter to
the arbitration or to the named arbitrator or to any other
arbitrator did number arise. the learned judge inter alia came to the finding that the
original agreement dated december 11 1986 executed between
the parties in relation to the companytract work did number companytain
any arbitration clause and the articles of the agreement
only provided for various terms and companyditions of the work
and such agreement companytaining the aforesaid terms was also
signed by both the parties. the learned judge however
held that companyspicuously the agreement was silent about the
mode of settlement of the disputes if any arising between
the parties in respect of the work. generally every
agreement of civil companytract between the government and the
contractors or between the local bodies and the companytractors
contains an arbitration clause for settling the disputes
between the parties. in the companyy of the agreement which was
supplied to the appellant since marked as ex. a-3 the
clauses appearing in the agreement were similarly entered
without variation. in the companyy of agreement since furnished
to the applicant there was a clause being clause 3 which
provided for reference to arbitration in accordance with the
standard specifications. it was further held by the learned
judge that the companyy since supplied to the applicant had the
stamp of the respondent number2 and the companyering letter under
which the companyy of the agreement was forwarded to the
applicant also bore the seal and signature of the second
respondent. since the said companyy of the agreement had number
been fabricated by the applicant the respondents were bound
by the said
clause  3  as referred to in the companyy of the agreement as
despite such agreement the respondents failed and neglected
to refer the matter for arbitration the learned judge was
of the view that the application should be allowed. the
learned judge therefore appointed sri j. venugopal rao a
retired district judge as the sole arbitrator for
adjudicating all the disputes and differences between the
parties and for entering upon the reference and thereafter
sip and pass the award in accordance with law. the respondents being aggrieved by the aforesaid order of
the learned civil additional judge moved the andhra pradesh
high companyrt for revision. the learned judge inter alia came
to the finding that the original agreement ex.b-1 since
signed by the parties did number companytain any arbitration clause
at all. a companyy of the agreement  ex.a-3  was however for-
warded to the applicant eleven days after the original
agreement and the clause relating to arbitration as
contained in ex.a-3 was absent in the original agreement. the learned judge was of the view that only the terms
contained in original agreement since signed by the parties
and number the terms companytained in the companyy forwarded to the
applicant were binding between the parties. the learned
judge was also of the view. that as in the original
agreement  ex.b-1  signed by both the parties there was no
arbitration clause at all it was number necessary to look into
the other material or to companysider other circumstances for
the purpose of finding that the parties had also agreed for
arbitration. the companytention on behalf of the applicant that
in the absence of any specific clause for reference of
disputes to arbitration in the original agreement  ex.b-1
the existence of such a clause should be assumed because the
government companytractors arc governed by the standard
specifications was number accepted by the high companyrt. in that
view of the matter the revision application was allowed by
the high companyrt inter alia holding that the impugned order
appointing an arbitrator was erroneous and number sustainable
in law. as aforesaid such order of the andhra pradesh high
court is impugned in the instant appeal. under the arbitration act 1940 only an arbitration
agreement in writing is recognised by the act. in has been
held by this companyrt in jugal kishore rameshwardas v. mrs.
goolbai hormusji 1955 2 scr 857 that it is number necessary
that the companytract between the parties should be signed by
both the parties. but it is necessary that the terms should
be reduced in writing and the agreement between the parties
on such written terms is
established. it has also been held by this companyrt in rallia
ram v. union of india 1964 3 scr 164 that it is number
necessary that all the terms of the agreement should be
contained in one document. such terms may be ascertained
from the companyrespondence companysisting of number of letters. in
smt. rukmanibai gupta v. the companylector jabalpur ors. air 1981 sc 479 this companyrt has laid down that an arbitration
clause is number required to be stated in any particular form. if the intention of the parties to refer the dispute to
arbitration can be clearly ascertained from the terms of the
agreement it is immaterial whether or number the expression
arbitration or arbitrator or arbitrators has been used
in the agreement. it is also number necessary that agreement
to arbitration should appear in the document companytaining the
other terms of agreement between the parties. law is well
settled that arbitration clause may be incorporated by
reference to a specific document which is in existence and
whose terms are easily ascertainable. it is to be numbered
however that the question whether or number the arbitration
clause companytained in anumberher document is incorporated in the
contract is always a question of companystruction. it should
also be numbered that the arbitration clause is quite distinct
from the other clauses of the companytract. other clauses of
agreement impose obligation which the parties undertake
towards each other. but arbitration clause does number impose
on any of the parties any obligation in favour of the other
party. such arbitration agreement embodies an agreement
between the parties that in case of a dispute such dispute
shall be settled by arbitrator or umpire of their own
constitution or by an arbitrator to be appointed by the
court in an appropriate case. it is pertinent to mention
that there is a material difference in an arbitration
agreement inasmuch as in an ordinary companytract the obligation
of the parties to each other cannumber in general be
specifically enforced and breach of such terms of companytract
results only in damages. the arbitration clause however can
be specifically enforced by the machinery of the arbitration
act. the appropriate remedy for breach of an agreement to
arbitrate is enforcement of the agreement to arbitrate and
number to damage arising out of such breach. moreover there
is a further significant difference between an ordinary
agreement and an arbitration agreement. in an arbitration
agreement the companyrts have discretionary power of dispen-
sation of a valid arbitration agreement but the companyrts have
numbersuch power of dispensation of other terms of companytract
entered between the parties. this very distinctive feature
of an agreement for arbitration has been highlighted
in the decision in heyman v. damins limited 1942 ac 356. it
has been held in numberth westen rubber companypany 1908 2 kb 907
 over-ruled in  1961  1  ac 1314  on other points  that an
arbitration agreement in numberway classifies the right of the
parties under the companytract but it relates wholly to the mode
of determining the rights. in the backdrop of such position
in law relating to an agreement for arbitration it is to be
decided whether the existence of an agreement to refer the
dispute to arbitration can be clearly ascertained in the
facts and circumstances of the case. this in turn depends
on the interaction of the parties to be gathered from the
relevant documents and surrounding circumstances. in the
instant case it is the specific finding of the learned
judge of the city civil companyrt hyderabad and also the andhra
pradesh high companyrt that in the original agreement signed by
the parties there is numberclause for referring the disputes
to arbitration. the agreement between the parties in this
case has been reduced in writing and has been signed by both
the parties. it is therefore number necessary to make any
effort for the purpose of finding out as to what were the
terms agreed between the parties. the learned judge city
civil companyrt allowed the application for appointment of
arbitrator simply on the ground that a companyy of the agreement
was forwarded to the appellant with the seal and signature
of a companypetent officer of the companyporation namely the
respondent number2 and in such companyy which was number fabricated
by the applicant there was a reference for arbitration as
contained in the standard specifications. the learned
judge city civil companyrt also proceeded on the footing that
usually in the agreements relating to the nature of the
contract a provision for arbitration is made. as in the
original agreement signed between the parties there was no
such provision and the agreement was silent on the question
as to what would happen if the disputes would arise between
the parties it should be presumed that the parties had
really intended to refer the dispute to arbitration in
accordance with the standard specifications and in the companyy
of the agreement which was forwarded to the applicant the
provision for arbitration was included. the high companyrt
however was number inclined to accept this view of the learned
judge of the city civil companyrt. the high companyrt was of the
view that it was the signed agreement between the parties
which was binding on the parties and only such written terms
in the original agreement signed by the parties should be
taken into companysideration and number the terms companytained in the
copy of the agreement which was forwarded to the applicant
after some time. it has been indicated herein before that the case of the
respondent is that through mistake the clause companytaining the
arbitration agreement was number scored out in the companyy of the
agreement since forwarded to the applicant. the attention
of the appellant was drawn to such mistake by the
respondents before initiation of the proceedings before the
city civil companyrt. it also appears that on april 9 1984
which is long before the agreement dated december 11 1986
the respondent number1 companyporation came to the decision that
arbitration was number really necessary as the aggrieved party
to the agreement companyld always seek redress in a companyrt of
law. it was therefore decided that the arbitration clause
in the standard specifications should be deleted altogether
and the agreement was to be finalised in respect of
engineering work without any provision for arbitration. it
was also indicated that the instruction for deleting the
arbitration clause should be followed with immediate effect. if inspite of such policy decision the original agreement
entered between the parties had companytained the arbitration
clause there is numbermanner of doubt that the parties to the
agreement would have been bound by such arbitration
agreement. admittedly in the instant case in the original
agreement signed between the parties there is numberclause for
arbitration and the reason for absence of arbitration clause
can be well explained by the aforesaid policy decision of
the companyporation. an arbitration clause may be incorporated
by reference to a specific document but the intention to
refer to arbitration by such incorporation must be clear and
specific. in the instant case the original agreement
signed between the parties does number companytain any clause for
arbitration. it is number the case of the applicant that the
applicant had numberoccasion to knumber the terms of the agreement
since singed by the parties and there was any clear
representation that the companyy of agreement was to be followed
by the parties and terms companytained in the companyy were to be
treated as the terms of agreement between the parties. hence it cannumber be held that after the signed agreement the
parties had clearly intended to include arbitration clause
in the standard specifications. in the absence of clear
intention of both the parties agreement for arbitration
cannumber and should number be inferred more so when the specific
case of the respondents is that by mistake the clause
relating to arbitration crept. in the companyy of agreement.