1. ' By the award dated 20th March 1979 Messrs Munir Ahmed and Shaikh Mahmood Ahmed appointed as arbitrators by the Karachi Cotton Association Limited in a dispute between Messrs Gul Ahmed Textile Mills Limited and Haji Omar Baig & Sons Cotton Ginners, Sethi Cotton Ginning & Pressing Factory, Jhole, District Sanghar, the arbitrators have awarded a sum of Rs, 1,31,100 as damages to the plaintiffs for breach of the contract dated 4th October, 1978, whereby the defendants sold 500 bales of cotton NTSG1978-1979 Crop., Jhole.
2. ' The defendants have filed objections to the award under sections 30 and 33 of the Arbitration Act, 1940.
3. ' Mr. Arif Hussain, Advocate for the defendants has raised only one objection to the award. The objection is that an award of damages is illegal inasmuch as the damages have been assessed contrary to the price control.
4. ' I, therefore, find it necessary to state briefly the facts relevant to the consideration of this objection.
5. These are the defendants by a contract dated 4th October 1978, agreed to sell to the plaintiffs 500 bales of cotton of the above-mentioned quality at a price of Rs, 378 per maund, ex-Factory, Jhole, which appears to be control price, plus Rs, 11 per maund quality premium and the plaintiffs agreed to by the same. The cotton was to be delivered from 15th October, 1978 to 30th October 1978. But, on the failure of the defendants to deliver the cotton the plaintiffs by a contract dated 31st October 1978, purchased the same from Sattar Cotton Ginning Factory Limited, Sakrand through Messrs Muhammad Amin Rajabali Broker vide the contract dated 31st October, 1978, at the rate of Rs, 435 net ex-factory, as would appear from documents 1, 2 and 3 filed along with the award. Accordingly, the plaintiffs claimed from the defendant a sum of Rs, 1,31,108 as damages on the basis of difference between the contracted price and the re-purchased price which according to the plaintiffs was prevailing market rate on 31st October, 1978, as mentioned in paragraph 4 of the statement of claim available in the document filed along with the award.
6. ' It is pointed out by Mr. Arif Hussain that the Joint Controller-General, Prices and Supplies by the Notification S.R.O. 1098 (1)/78 dated 3rd September 1978, in exercise of the powers conferred by section 6 of the Price Control and Prevention of Profiteering and Hoarding Act, 1977 (Act XXIX of 1977)) (hereinafter called the Act). Fixed the price of cotton of the quality in question at Rs, 378 per maund and the cotton ginners were obliged to sell the cotton at the price mentioned in the notification to the textile mills and the Cotton Export Corporation. The prices of varieties of cotton fixed were subject to premium and discount according to the Standard shown in the annexure to the notification. It will be useful to reproduce below the notification in extenso: "S. R.
0. 1098(1)178.-In supersession of S. R.
0. No, 928(1)/77 dated 4th October, 1977 and in exercise of the powers conferred by section 6 of the Price Control and Prevention of Profiteering and Hoarding Act, 1977 (Act No, XXIX of 1977), I, S. Shoukat Kazmi, Joint Controller-General Prices and Supplies, hereby fix the maximum selling prices of cotton (lint) as follows :- {{TABLE}}
(i) Desi Roller-ginned Rs, 345 per maund.
(ii) AC-134, BS-1 and NT Rs, 378 per maund.
(iii) B-557 and 149-F (KB-149 ... Rs, 411 per maund.
(iv) Sarmast, Qallandari, Deltapine MS-39 and MS-40 ... Rs, 444 per maund. {{TABLE}} ' The above prices are subject to the following conditions: The prices at (ii) to (iv) above are for saw ginned cotton (lint) will be lower by Rs, 15 per maund. The Ginners will sell cotton at the above prices to the textile mills and the Cotton Export Corporation.
7. The prices of cotton (lint) at serial Nos. (i) to (iv) will be subject to premier and discount, according to standards shown in Annexure."
8. ' It is submitted by Mr. Arif Hussain that when the contract was entered into by the parties this notification occupied the field. It is also submitted that this notification was again in the field when the breach of the contract was committed. This is conceded by Mr. Khurshed Anwer Shaikh. It is therefore argued by Mr. Arif Hussain that the control price of the cotton had remained the same throughout the material period and therefore, by breach of the contract the plaintiffs did not suffer any damages and accordingly the award of damages on the basis of so-called market rate is illegal and in disregard of the notification and the provisions of section 6(2) of the Act which prohibits the sale or reselling of essential commodities at a price higher than the maximum price fixed under the Act. It is, therefore, clear that damages have been assessed and awarded by the arbitrators on the basis of difference between the contracted price and the prices mentioned in the contract of the A plaintiffs with Sattar Cotton Ginning Factory Limited although the control price of the cotton had remained the same during the material period. I may mention that Mr. Arif Hussain referred to the case of Devkinandan & Co. Of Bindki v. Union of India (1). In this case it was held that where the prices fixed for the goods by an agreement between the parties were superseded by a notification issued by the Central Government fixing a ceiling price lower {{FOOT NOTE}}
(1) AIR 1961 Pb. 136 {{FOOT NOTE}} ' than the contract price before the goods were retendered and accepted after initial rejection, the control rate would govern the price of the goods supplied and it would be a misconduct on the part of the arbitrator to award damages at the contract rate to the party supplying goods. In this case reliance is placed on Bagrandlal Laduram v. Ganesh Commercial Co. Ltd. (1), Bejoy Singh v.
9. Bilasroy & Co. (2), Hanutmull Boid v. Fateh Chand Murlidhar (3).
10. ' In the first-named case it was held by Harries, C. J., sitting in Division Bench in paragraph 45 of the judgment as follows :- "The Bench consisting of Chatterjee, J. And myself held that the assessment of damages based upon black market prices would amount to legal misconduct and would vitiate the award. It appears to me that the present case cannot be dissented from the case of Chhoomal Rawatnal v.
11. Sankalchand G. Shah 53 C W N 828 and the case of Khusiram Baparshilal v. Girdharilal Dharamchand (A. F.
0. 0. No, 80 of 1948) and that being so it must be held that the arbitrators in making the awards which they made in this case were guilty of misconduct and therefore the awards should be set aside."
12. ' Mr. Arif Hussain also referred to Bengal Oil Mills Ltd. v. Dada Sons (4). In this case after entering into the contract, the prices of cotton seeds were fixed under the Martial Law Regulation No, 42 which were lower than the contracted prices. Seller did not deliver the contracted goods at the control price and claimed damages on the basis of difference of the contracted prices and the control prices. It was held that the seller could not claim damages where the buyer was bound under the law to pay less than the contracted price. It clearly emerges from this case that where prices are fixed and controlled under the law and those become the prices which have to be taken into consideration for the purposes of performance of the contract as well as for the purposes of assessm ent of damages in case of breach of the contract.
13. ' However, it is submitted by Mr. Khurshid Anwar Shaikh learned counsel for the plaintiffs that the contract under which the cotton was sold was legal and valid and the contract under which the cotton was repurchased from Sattar Cotton Ginning Factory Limited, Sakrand is not illegal so far as the plaintiffs are concerned for the reasons that under the proviso to section 8 of the Act a person who purchases an essential commodity for his personal consumption and use and not for sale is not to be deemed to have abetted the contravention of an order controlling the price at which the essential commodity might be sold. No doubt in view of the provisions of this proviso the plaintiffs would not incur any liability, for contravention of the provisions of the Act or the notification hereunder but the contract by which Sattar Cotton Ginning Factory Limited, Sakrand to sell 500 bales of cotton through their brokers to the plaintiffs at Rs, 435 per maund, is on the face of it, illegal being in clear contravention of the notification. Since the control price of the cotton during the material period had remained the same therefore the damages could not be claimed on the basis of this contract. It is further submitted by Mr. Shaikh that the price of Rs, 435 per maund was the market price. In this connection he referred to the newspaper 'Business Recorder' of 1-11-1978, which shows the market price on 31-10-1978 was Rs, 440 per maund, auld of 2-11-1978 which shows the price on 1-11-1978 was Rs, 442 {{FOOT NOTE}}
(1) AIR 1951 Cai. 78 (2) AIR 1951 Cal. 529
(3) AIR 1954 Cal. 1 (4) PLD 1964 Kar. 18 {{FOOT NOTE}} ' and Rs, 445 per maund. But, from these Newspapers, it is not clear whether these transactions had taken place between the Cotton Ginners and the Textile Mills as what was controlled was the price in transactions between the Cotton Ginners and the Textile Mills. If these transactions were between the Cotton Ginners and the Textile Mills then they were in contravention of the notification and the Act and no damages could be assessed on the basis of such illegal transactions. I have already stated that the transaction between Sattar Cotton Ginning Factory Limited, Sakrand and the plaintiff was in contravention of notification dated 31.9-1978 therefore, illegal and no damages could be claimed or assessed on the basis of difference in price between the original contract and the illegal contract.
14. ' Mr. Shaikh relied on Mahadeodas and others v. Gherulal Parakh and others (1). In this case there was an agreement to carry on business of forward contract in partnership which was held not to be illegal and the other contracts were wagering contract which were held to be illegal. I have already stated that in the present case the original contract was legal but the damages have been awarded on the basis of a contract entered into between the plaintiffs and Sattar Cotton Ginning Factory Limited, Sakrand which was illegal. Therefore, this case is distinguishable.
15. ' While I was dictating the judgment Mr. Shaikh also referred to Erroll Mackay v. Maharaja Dhiraj Kameshwar Singh and another (2). According to Mr. Shaikh he referred this case for the proposition that the damages are to be assessed on the basis of the market price but in the present case the market price on the date of breach was the price as fixed by the notification dated 31-9-1978 and any other price would be illegal. When the price is controlled then such price becomes the market price. There is no doubt the principle laid down in this case has been followed in this country.
16. ' I am therefore, of the view that the award of damages by the arbitrator on the basis of difference in the contracted and the so-called market rate which was not the controlled rate was illegal. I therefore, accept the objections and set aside the award, leaving the parties to bear their own costs, in the circumstances of the case. . {{FOOT NOTE}}
(1) AIR 1958 Cal. 703 (2) AIR 1932 P C 196 {{FOOT NOTE}}