Durgaram Prasad, Engineers and Contractors vs The Govt. of Andhra Pradesh

P. Venkatarama Reddi, J.—In these appeals filed u/s 38 of the Arbitration Act, the appellant-contractor is questioning the Judgment of the Additional Chief Judge, City Civil Court in O.S. Nos. 133 and 140 of 1979. O.S. No. 133/1979 was filed by the appellant-firm Under Sections 14 and 17 of the Arbitration Act to make the award dated 31-3-1979 passed by the arbitrator a rule of the Court and to pass a decree in terms thereof. O.S.No. 140/1979 was filed by the Government of A.P., the respondent herein, objecting to the award passed by the arbitrator Under Sections 30 and 33 of the Arbitration Act and seeking the relief to set aside the Award. The 2nd defendant in the suit is a retired Chief Engineer appointed by the Court on a Section 20 petition to act as an arbitrator in order to decide the disputes between the parties arising out of a contract for construction of Arts & Science College building at Siddipet, Medak District.

The Tender of the appellant was accepted in May, 1965 and the agreement was entered into on 22-5-1965. The value of the contract work awarded to the appellant was Rs. 11.82 lakhs. The stipulated period for completion of the construction work was 15 months from the date of handing over the site. The site was handed over on 3-9-1965. The contract work prolonged upto February, 1971. The contract was finally determined by the Department under Clause 60 (c) of the A.P. Detailed Standard Specifications (herein after referred to as ''APDSS'') which formed part of the agreement. The contractor threw the blame on the departmental officials for non-completion of the work within time and it is his case that the respondent committed breach of its obligations by delaying the furnishing of details, drawings, and other information, giving mark-outs etc., necessary for the execution of work, non-supply of materials within time and not providing the promised funds within time.

The arbitrator entered on reference on 19-1-1978 and passed the award for a sum of Rs. 5.68 lakhs. The appellant preferred as many as 18 claims, out of which 12 claims were allowed. He also awarded a sum of Rs. 1,07,500/- for compensation on account of loss sustained due to non-payment of money under various claims allowed. In all, a sum of Rs. 5,68,036/- was awarded with interest at 12% per annum from the date of reference i.e., 13-9-1977 till the date of decree or date of payment, as the case may be. At the out set, the arbitrator held that the termination of the contract under Clause 60 (a) was invalid and all the amounts forfeited consequent on such termination shall be paid back to the claimant. The award was filed into Court on 16-2-1979. By Judgment dated 22-4-1980, the contractor''s suit was decreed and the suit filed by the Government was dismissed on the ground that objections were filed beyond time. This Court by its order dated 8-4-1983 in C.M.A. No. 113/1980 and C.R.P. No. 29/1981, set aside the decree of the lower court and directed the Court to dispose of the matter a fresh. Thereafter, the impugned judgment was rendered by the learned Additional Chief Judge partly decreeing O.S.No. 133/1979 and partly allowing the objections filed in O.S.No.140/1979. The suit was decreed to the extent of Rs. 2,40,536/-. The amount awarded under Claim No. 5 (Rs. 1,64,000/-), Claim No. 6 (Rs. 56,000/) and the compensation awarded under the Head ''B'' (Rs. 1,07,500/-) were set aside.

Assailing the correctness of the Judgment of the Court below insofar as it set aside the award in relation to the aforementioned claims, the present appeals are filed by the contractor. We will now proceed to deal with the disputed claims.

Claim No. 5: Under this head, the appellant claimed a sum of Rs. 2.54 lakhs towards reimbursement of extra expenditure incurred by him in respect of the work done beyond the contractual period. The claim was laid on the basis that there was escalation in material cost and wages and the claimant was compelled to incur this extra expenditure for no fault of his. As already mentioned, it is the case of the contractor that the Department committed defaults and delays in fulfilling its obligations under the contract. Of course, the Department denied its responsibility and tried to highlight the defaults and inactions on the part of the contractor himself. The respondent denied that there was any laches, delays or obstructions on the part of the departmental officials. The allegation that the contractor was forced to incur extra expenditure was also denied and the contractor was called upon to establish that there was escalation in the rates of materials and labour. The trial Court entered into a discussion on the question whether adequate budget provision was made for the release of the amounts and held that if the appellant-contractor felt that he could not execute the work on account of inadequate budget provision, he could have given notice and terminated the contract or entered into a fresh agreement providing for higher rates. The Court also observed that there was no assurance from the Government at any time that compensation will be paid for the work executed beyond the agreement period. The trial Court held that there was budget provision of Rs. 10 lakhs allocated for the work in the years 1967 to 1969, but the contractor failed to complete the work even till January, 1971. The trial Court also referred to Clause 59 of APDSS which provides that no claim for compensation on account of delays or hindrances to the work shall lie except in the circumstances mentioned therein and that reasonable extension of time will be granted. The trial Court relied on the Judgments of the Court wherein Clause 59 was considered and applied, viz., Laxmi Chand & Bal Chand v. State of A.P., A.A.O. No. 677/1981 and CRP No. 385/1982, dated 19-4-1982, Chief Engineer, P.R. Deptt. v. B. Balaiah (1985) 1 APLJ 224, and State of Andhra Pradesh Vs. M/s. Associated Engineering Enterprises, Hyderabad, . The trial Court then held that the arbitrator proceeded beyond the terms of the contract in awarding the amount under Claim No. 5 etc. and thereby committed an error of law apparent on the face of the award.

We are unable to endorse the reasoning of the lower Court. The learned trial Judge succinctly laying down the limited scope of interference with a non-speaking award fell into an error in going into the merits of the rival contentions and expressing the view about the availability or otherwise of budget provision or the delay on the part of the contractor in executing the work. It is to be seen from the award that no reasons have been assigned by the arbitrator for partly allowing the claim in question and no documents or any other evidence was referred to. The arbitrator came to a conclusion that the termination of contract was illegal and no amount was liable to be forfeited. By necessary implication, it means that the arbitrator came to the conclusion that the fault did not lie with the contractor and the very fact that the appellant''s claim was accepted implies and indicates that the case of the contractor that the work was unduly prolonged on account of various defaults and omissions committed by the Department was accepted by the arbitrator.

In a non-speaking award, it is not open to the Court to speculate the reasons which may have weighed with the arbitrator or to probe into the mental process by which the arbitrator reached the conclusion. It is not open to the Court to go behind the award to demonstrate an error in the award. The error of law should be apparent on the face of the award. Even in a case of speaking award, it is not possible for the Court to reappreciate the evidence or to correct an erroneous finding of fact that might have been reached by the arbitrator. These principles are laid down by a catena of decisions of Supreme Court. Suffice it to refer to a recent Judgment of the Supreme Court in Trustees of The Port of Madras Vs. Engineering Constructions Corporation Limited, , in which it was observed:

"The above decisions make it clear that the error apparent on the face of the award contemplated by Section 16(1) (c) as well as Section 30(c) of the Arbitration Act is an error of law apparent on the fact of the award and not an error of fact. It is equally dear that an error of law on the face of the award means an error of law which can be discovered from the award itself or from a document actually incorporated therein. A note of clarification may be appended viz., where the parties choose to refer a question of law as a separate and distinct matter, then the Court cannot interfere with the award even if the award lays down a wrong proposition of law or decides the question of law referred to it in an erroneous fashion. Otherwise, the well-settled position is that an arbitrator ''cannot ignore the law or misapply it in order to do what he thinks is just and reasonable.'' (see Seth Thawardas Pherumal Vs. The Union of India (UOI), "

Viewed from this angle, the approach of the trial Court cannot but be faulted. The Court virtually took the role of an appellate Court going into the merits of rival contentions atleast briefly.

However, that part of the reasoning of the learned trial Judge based on Clause 59 of APDSS deserves closer scrutiny, as it is settled by the Supreme Court in Ch. Ramalinga Reddy v. Superintending Engineer 1994 (5) SCALE 67 that the contractor is not entitled for any compensation for the work done beyond the stipulated period on account of escalation of costs or otherwise. It was also held in that very decision that if the arbitrator gives his award ignoring or acting plainly contrary to a contractual provision, he will be exceeding his jurisdiction and the award Is liable to be set aside on that ground. It is settled by the decisions of the Supreme Court in Sudarsan Trading Co. Vs. Government of Kerala and Another, and State of A.P. v. Associated Engineering Enterprises, Hyderabad (3 supra) that if the arbitrator ignores the plain terms of the contract and gives an award which flies in the face of the contract, he will be committing an error of jurisdiction and that will be an independent ground of attack of an award, whether it be a speaking or non-speaking award. However, it is not necessary for us to go into the larger question whether Clause 59 defeats the claim of the appellant and whether on a true construction of Clause 59, the award can be said to be without jurisdiction. The reason is that at no point of time, the respondent relied on Clause 59 except perhaps at the stage of arguments before the lower Court. In the counter to the claim statement, we find no reference at all to Clause 59. Even in the plaint or the written statement, no reference to Clause 59 or the principle akin to Clause 59 was pleaded. Omission to make specific reference to Clause 59 apart, the Government did not choose to raise a plea that under the contractual provisions, they are not liable for any compensation for the alleged delays and defaults. The plea taken by the respondent-Government was that the contractor himself is to be blamed for the delay in the execution of the work, that there was no breach of contract on their part and in fact there was no proof of extra expenditure having been incurred by the contractor. Clause 59 was not pressed into service even indirectly or by implication. Clause 59 being a drastic provision excluding liability even in the case of delays or hindrances caused by the employer who awarded the work cannot be legitimately brought into the picture before the civil Court at the stage of arguments. The respondent never wanted to bank on Clause 59 for reasons of its own. At any rate, when such a plea was not taken before the arbitrator, it is futile to contend that the arbitrator had committed an error of law apparent on the face of the award by not giving effect to Clause 59.

Assuming that the arbitrator himself should have suo motu referred to Clause 59 and further assuming that overlooking or disregarding this material term of the contract affects the jurisdiction of the arbitrator, even then, we do not think that the award is vitiated on that ground. Passing ah award overlooking or contrary to one of the terms of the contract may be a case of latent lack of jurisdiction. It will not be a case of patent absence of jurisdiction. In Tarapore and Co. Vs. State of M.P., , the Supreme Court had to deal with the argument that as per the clauses in the tender notice which formed part of the agreement, the contractor had no claim on the Irrigation Department for extra payment made to the labourers on account of rise of minimum wages. Hansaria, J., speaking for the Division Bench of the Supreme Court observed thus:

"Before we express our views on this all important question, it deserves to be stated that if an authority would lack jurisdiction in the sense that the subject-matter is not amenable at all to its decision, i.e. the case be of patent lack of jurisdiction, acquiescence of the parties would not be material inasmuch as it is settled law that by agreement, jurisdiction cannot be conferred. The present is, however, not such a case inasmuch as the arbitration clause, 4-3-29, reading as below:

... ... ... ... ... would show that any dispute relating to or arising out of or in any way connected with the contract has to be referred to arbitration. The present was definitely a dispute arising out of or connected with the contract. The subject-matter of the dispute is thus squarely covered by the arbitration clause and therefore we do not read patent lack of jurisdiction on the part of arbitrators in having gone into the question of reimbursement. The best that could be said is that the terms of the agreement being what they are, the arbitrators had no jurisdiction to entertain the claim, and so, the present was a case of latent lack of jurisdiction. In such a case, acquiescence of the parties may be relevant."

If an issue as regards the effect of Clause 59 has been raised before the arbitrator, the arbitrator could have very well considered whether the case falls within the defined exceptions referred to in Clause 59. Obviously, Clause 59 was not pressed into service by the respondent as the respondent would have felt that the contractor''s claim cannot be shut out on the basis of Clause 59. The respondents must be deemed to have waived the right or immunity available to them under Clause 59 and thought it fit to contest the claim on different grounds. In this fact situation, the observations made by their Lordships in Tarapore & Co. v. State of M.P. (7 supra) assume relevance. We, therefore, held that the award vis-a-vis Claim No. 5 ought not to have been interfered with by the learned trial Judge either on the ground of error apparent on the face of the award or on the ground of want of jurisdiction.

The next item in dispute is claim No. 6. The contractor claimed a sum of Rs. 89,300/- being damages for the extra expenditure incurred by him towards overhead expenses. 50% extra in each year commencing from 1-1-1967 upto 30-6-1971 towards establishment, travelling, telephone, electricity, stationery, partners'' allowances etc., was claimed under this head. The arbitrator awarded a sum of Rs. 56,000/-. this claim is again based on the allegation that the Department was responsible for the prolongation of the contract and the respondent had to bear unnecessary expenditure towards establishment and overheads. The trial Court rejected the claim on two grounds: firstly, that Claim Nos. 5 and 6 overlap and secondly, the Agreement does not provide for allowing extra expenditure on overheads for work done beyond the agreement period. Clause 59 of the Agreement was also relied upon in this connection. We are unable to agree with the learned trial Judge that Claim No. 5 covers this claim as well. Claim No. 5 relates to escalation in cost of material and labour whereas Claim No. 6 is in respect of extra expenditure incurred from year to year towards overheads and for maintenance of establishment. The mere fact that the agreement does not specifically provide for such claim does not mean that the arbitrator had no jurisdiction to accept such claim when once the conclusion is reached that there was breach of contractual obligation by the employer. At already observed, such finding is necessarily implicit in the impugned award. In Tarapore & Co. v. State of M.P. (7 supra), it was pointed out at paragraph 25 that "it cannot be held that the arbitrators had no jurisdiction to make the award because of lack of specific provision permitting the claim at hand." In P.M. Paul Vs. Union of India (UOI), it was observed thus:

"Once it was found that the arbitrator had jurisdiction to find that there was delay in execution of the contract due to the conduct of the respondent, the respondent was liable for the consequences of the delay, namely, increase in price. Therefore, the arbitrator had jurisdiction to go into this question."

It was further pointed that such a claim was not outside the purview of the contract but it arises as an incident of the contract. Thus, the second reason given by the trial Court is not sustainable in law. As far as Clause 59 is concerned, we have made the position clear while discussing Claim No. 5. For the same reasons, we hold that the lower Court committed an illegality in striking-out the award, by invoking Clause 59 though it was never relied upon by the respondent.

We shall now turn to the claim for compensation or damages under Head ''B'' for the loss sustained by reason of delay in the realisation of the various sums claimed under Head ''A'' of each claim. For instance, Claim No. 2-A relates to balance amount payable for the stone masonry work done but not measured. Under claim No. B, the contractor claimed compensation for the loss sustained by him due to abnormal delay in paying the amount claimed under 2-A. So also, as already noticed, Claim No. 5 is for compensation for the extra expenditure incurred due to increase in market rates for material and labour. Under Claim 5-B, the contractor claimed compensation for the alleged loss sustained by him on account of the delay in realisation of the sum claimed under 5-A upto the date of reference. The arbitrator awarded a total sum of Rs. 1,07,500/-under Head ''B'' in a lump sum covering all the claims allowed by him. The Court set aside the award in relation to this claim on the ground that it is covered by Claim No. 5. That is to say, the trial Court gave the same reason for disallowing the claim as in the case of Claim No. 6, which we have just now discussed. An amount of Rs. 15.60 lakhs was claimed by the contractor under Head ''B'', for all the claims put together and the arbitrator awarded Rs. 1,07,500/-. It cannot be said that the compensation awarded by the arbitrator relates to Claim No. 5 only. It extends over various claims. Thus, the finding of overlapping is only partially correct. In so far as the said compensation amount is relatable to Claims 5 and 6 in respect of which we have upheld the award, there is undoubtedly a duplication of the claim for compensation. In a recent case, a Division Bench of this Court of which one of us (Venkatarama Reddi, J.) was a party held in Government of A.P. v. V. Satyam Rao 1996 (1) ALT 279 as follows:-

"However, as far as Claim No. 6 is concerned, we find no justification for awarding Rs. 84,000/- under Head ''B''. The amount awarded under Claim No. 6-A is itself in the nature of compensation. For the probable loss that was incurred by the contractor for executing the work beyond 1984-85 season, award of further compensation on the compensation amount arrived at by the arbitrator is, in bur view unwarranted."

Claim Nos. 5 and 6 are in substance claims for compensation for the loss sustained by the contractor by reason of prolongation of contract on account of breach by the other party. No further compensation can be awarded on the said amount by styling it as claim for loss sustained on account of non-realisation of the amount in time. However, there are many other claims in respect of which such compensation under Head ''B'' could be awarded. For instance, the arbitrator awarded certain amount for the actual works executed by the contractor but not recorded, towards the security deposit withheld, recoveries towards penalties etc. In Satyam Rao''s case (9 supra), this Court upheld the award of certain amounts under Head ''B'' to compensate the contractor for the losses suffered by him on account of non-realease of deposits, withheld amounts, final bill amount and the amount due for the actual work done by the contractor. The Division Bench rejected the argument that the loss suffered by the contractor by reason of withholding of the amounts due to him cannot be said to be remote or indirect. It was observed: "when once it was found that the claim was untenable and there was no justification for withholding the said amounts, the arbitrator could incidentally award reasonable compensation." The Division Bench distinguished the decision in Government of A.P. v. E.C. Techno Industries Ltd. 1989 (2) ALT 320 on the ground that the claims put forward in that case were not comparable to the claims for refund of specific amounts withheld by the Department. The same view was taken by this Court in State of Andhra Pradesh and Another Vs. P.L. Raju and Company, vide paragraph 12 of the Reports.

The other contention raised by the learned Government Pleader that the amount awarded under Head ''B'' is nothing but interest calculated from a particular date and it amounts to awarding interest by way of damages, is also liable to be rejected in view of the legal position clarified in the aforementioned two decisions. In Satyam Rao''s case, the Division Bench observed that if interest was added to the specific amounts due to the contractor, that was only a measure of ascertaining the compensation or loss sustained by the contractor and it does not necessarily amount to awarding interest by way of damages. The Division Bench observed thus:

"The distinction between the award of interest by way of damages and the calculation of interest as a measure of ascertaining the damages was highlighted by the Supreme Court in Union of India (UOI) Vs. The Steel Stock Holders Syndicate Poona, . Just as in the case, here also the specific amount due to the contractor for the work done by him or in the form of deposits and refundable amounts got blocked up with the Government and in order to assess the losses suffered by the contractor on this account, there is no objection in applying the yardstick of interest, even assuming such yardstick was applied by the arbitrator."

In the instant case also, though the contractor has calculated the compensation by applying a particular rate of interest on the amounts claimed by him, nothing is apparent from the award as to how the lump sum compensation of Rs. 1.07 lakhs was calculated or arrived at. We are, therefore, unable to find any legal error apparent on the face of the award in awarding compensation under Head B, except as regards Claims 5 and 6. We have already indicated as to why the award of compensation under Head ''B'', insofar as Claim Nos. 5 and 6 are concerned, is unwarranted. Even with regard to damages for loss of profit (Claim No. 15), quantified at Rs. 13,447/-, we are of the view that no further compensation is admissible.

The next question is, how far and to what extent the award is liable to be interfered with respect to the compensation of Rs. 1,07,500/- awarded under Head ''B''. There is no indication in the award that so much amount has been allowed in respect of any particular claim. Though a lump-sum amount is awarded under Head ''B'', the possibility of the arbitrator awarding compensation with reference to each claim accepted by him cannot be ruled out. A perusal of the award itself makes it fairly clear that an amount of Rs. 1,07,500/- was awarded to the contractor "for compensation due to losses sustained towards various claims made under category ''B''". With regard to quantum, the proportion between the amount awarded under Claims 5, 6 and 15 and the sums awarded for those claims works out roughly to 50:50. Rather than setting aside the award and remitting the matter to the arbitrator, we are inclined to segragate the compensation legitimately payable to the respondent in order to give a quietus to this litigation of two and halt decades. We, therefore, modify the award by directing a sum of Rs. 53,750/- to be paid towards compensation under Head ''B'' instead of Rs. 1,07,500/-.

In the result, the appeals are partly allowed and we direct that the award passed by the arbitrator is modified by reducing a sum of Rs. 53,750/-. That means, the decree will have to be passed for payment of a sum of Rs. 5,14,287/- with interest thereon as awarded by the trial Court and the decree shall stand modified accordingly.

We make no order as to costs.