K. Venkateswara Rao vs T. Seshachalapathi and Others

Motilal B. Naik, J.—All these three matters arise out of a common order passed by the III Additional Judge, City Civil Court, Secunderabad in O.S.No.121 of 1992 and O.P.No.84 of 1992 dated 23-7-1993,

O.S.No.121 of 1992 is filed by the joint Arbitrators for making the award passed by them on 19-2-1992 as rule of the Court and also to award costs of the suit. The first defendant in the said suit is the Union of India, represented by its Chief Engineer, South Central Railways, Secunderabad. The second defendant is Sri K. Venkateswara Rao, the contractor.

O.P.No.84 of 1992 is filed by the Union of India seeking to set aside the Award dated 19-2-1992 passed by the Arbitrators. The first respondent in the said O.P. is K. Venkatteswar Rao, the Contractor and the Respondents 1 and 2 are the joint Arbitrators. The Court below by a common order dated 23-7-1993 decreed the suit O.S.No.121 of 1992 with costs making the award passed by the Arbitrators dated 19-2-1992 as rule of the Court and dismissed the O.P.No.84 of 1992. The Court below also held that the Contractor is entitled for interest at the rate of 12 per cent per annum from the date of pending of the award before the Arbitrators till the realisation of the award amount.

Assailing the reduction of the rate of interest by the trial Court from 15 per cent per annum to 12% per annum, the Contractor filed C.M.A.No.1561 of 1993. Aggrieved by the decision of the Court below in making the Award passed by the Arbitrators as rule of the Court, the Union of India has filed C.M.A.No.1254 of 1995. C.R.P.No.4195 of 1993 is also filed by the Union of India -railways aggrieved against the dismissal of O.P.No.84 of 1992.

For the purpose of convenience, the parties are referred to as Railways, Contractor and Arbitrators.

Few facts are necessary in order to appreciate the gist of contentions raised by the parties.

The Contractor entered into an agreement with the Railways for supply of 50 mm gauge stone ballast and to stock the same at Dosapadu Railway Depot and to load the same into ballast train. The value of the contract as per the agreement is Rs. 10,30,561/-. The work is to be completed within 12 months from the date of acceptance letter excluding the monsoon period from July, 1988 to October, 1988. The work was targetted to be completed by 30-7-1989. As per the conditions of the contract, the Contractor was to commence within 10 days from the date of award of the Contract i.e., from 10-4-1988. The total quantity of ballast to be supplied by the Contractor is 5,570 cubic metres. As the railways was not able to provide sufficient place to the Contractor for stocking the ballast, the Contractor though was ready and willing to perform his part of the contractual obligation, could only supply 574 cu. mtrs of ballast. The Contractor even sought determination of contract by intimating to the railways through letter dated 18-8-1988 expressing his inability to cany out the work as the railways failed to provide suitable place for him to stock the ballast but the officials of the railways persuaded him. Through another letter dated 27-7-1989 the Contractor expressed his anguish about the manner in which the railways was not able to provide any suitable place to stock the ballast and therefore, sought extension of time to complete the contractual work upto 31-3-1990. On 16-2-1990, the Contractor again wrote a letter to the Railways seeking extension of time for fulfilling his contractual obligation upto July, 1990. However, according to the Contractor, the railways did not give any reply to his letters. Ultimately, by letters dated 24-11-1989, 26-1-1990 and 5-2-1990, the officials of the Railways blamed the Contractor and terminated the Contract by letter dated 14-3-1990. As the termination of Contract has resulted in financial loss, the Contractor approached the authorities for settlement. Ultimately, the Contractor filed a writ petition before this Court seeking to refer the dispute to the Arbitrators and thus one Sri Seshachalapati, Chief Personal Officer, South Central Railways, Secundcrabad and Ch. Balakrishna, Deputy Financial Advisor and Chief Accounts Officer, South Central Railways, Secunderabad were appointed as Joint Arbitrators. The Contractor had put in the following nine claims and also claimed interest at 24% per annum on the total amount.

Refund of security depos it Rs. 10,100 2. Loading charges of Ballast into Ballast Train Rs. 6,000 3. Advances paid to salem Rs.2,00,000 labour 4. Advances paid to lorries and wastage Rs.1,50,000 5. Turnover loss Rs.3,00,000 6. Establishment charges of staff etc. Rs.1,20,000 7. Loss of 150 cu. ballat due to uneven depot site Rs. 28,000 8. Loss of profit from the work of Rs. 10,00,000 Rs.1,00,000 9. Loss of tools and plant Rs. 19,000 ------------ Total Rs.9,33,100 ------------

For the above claims, the Railways made a counter claim for the value of risk and costs tentatively fixed at Rs.2,48,951.20 ps.

Before the Joint Arbitrators, it was argued on behalf of the railways that the work was not commenced by the Contractor as stipulated, though the Assistant Engineer, Bheemavaram directed the Contractor to commence the work immediately, through his letter dated 28-6-1988. On the contrary, the Contractor submitted before the Arbitrators that the work could not be commenced as the railways could not provide enough stocking area. The ground condition near stocking area was not fit for permitting any movement of loaded lorries. Through his letter dated 24-6-1988 the Contractor pointed out that the ground where the ballast was to be stocked being repaired by another contractor, the surface was not yet levelled. The Contractor further submitted before the Arbitrators that when he went to the site with loaded lorries ten days prior to 24-6-1988, the lorries could not enter the stocking ground due to earth work not being consolidated. The Contractor further stated that as a result of the failure of the railways to hand over the stocking ground fit for operating lorries, he sustained huge monetary loss. He further brought to the notice of the Arbitrators that besides the evasive attitude of the railways, the monsoon was rigorous during the months of August to October, 1988 and no work could be carried out. The special labour brought from Salem who were paid advances had left for Salem as a result of which he sustained financial loss.

On the basis of the claim and counter claim, the Joint Arbitrators, on a consideration of the material placed before them, held that the railways was guilty of inaction leading to huge loss to the Contractor. The Joint Arbitrators while considering each claim, have awarded a total amount of Rs.5,32,959/- to the Contractor by directing the railways to pay the said amount within 30 days from the date of publication of the award, failing which simple interest at 15% per annum is to be paid till the award is made rule of the Court. The Joint Arbitrators rejected the claim put forth by the Railways.

The Joint Arbitrators filed O.S. No.121 of 1992 for making their Award dated 19-2-1992 as rule of the Court. O.P.No.84 of 1992 is filed by the Railways to set aside the Award passed by the Arbitrators. The lower Court, on a consideration of the claims and counter claims and in the light of the observations made by the Arbitrators in the Award, allowed O.S.No.121 of 1992 by making the Award as rule of the Court and dismissed the O.P.No.84 of 1992. The lower Court awarded interest at 12% per annum from the date of pending of award proceedings before the Arbitrators till realising the award amount.

On behalf of the Railways, Sri R.S. Murthy, learned Standing Counsel for Railways contended that the entire award proceedings are vitiated in view of the protection available to the Railways under clause 62(2)(a) of the General Conditions of Contract. According to the learned Counsel, the claims made by the contractor cannot be the subject matter of adjudication before the Arbitrators. He contended that the Arbitrators as well as the lower Court have failed to appreciate the contentions raised by the Railways and therefore, the Award has to be set aside. It is also contended that though the Contractor was to commence the work within ten days from the date of award of the contract, he failed to discharge his obligation on one pretext or the other and as such the Contractor is the defaulter and he cannot claim any monies from the railways. Counsel further contended that the railways have intimated the Contractor on 24-11-1989 to complete his work and also reminded him again on 25-1-90 and 5-2-1990, but the Contractor did not do so. Counsel pointed out that though there was space upto the capacity of 600 cu. metrs for stocking the ballast was available, the Contractor did not supply the quantity. Counsel further submitted that the Contractor was informed through letter dated 2-5-89 that the depot is ready for stocking the ballasts by September, 1988, yet the Contractor did not evince any interest and therefore, the claims made by the Contractor, in the circumstances, are impermissible. Counsel further submitted that the interest awarded by the trial Court at the rate of 12% per annum from the date of pending proceedings before the Arbitrators is impermissible as u/s 29 of the Arbitration Act, the trial Court is only competent to award interest from the date of the decree till the date of realisation.

On behalf of the Contractor, Sri Prabhakar, learned Counsel representing Sri G.V.L.N. Murthy, advocate, submitted that the finding of fact by the Arbitrators as well as the lower Court is not a ground for fresh adjudication before this Court. Learned Counsel contended that the Arbitrators who are the senior employees of the railways have found fault with the railways. The Arbitrators have given cogent reasons for allowing the claims of the Contractor and therefore, the well-founded reasonings given by the Arbitrators and the lower Court cannot be interfered with. Learned Counsel further contended that the Civil Court is competent to award interest from the date of the pendency proceedings before the Arbitrators till the date of realisation and as such the well-considered award and the order of the lower Court cannot be interfered with. It is also submitted that the Arbitrators have considered the counter filed by the railways and also the claim made by the railways. It is submitted that the Arbitrators have not ignored the terms of the General Conditions of Contract. Though the Contractor made a claim for more than Rs.9,33,000/-, the Joint Arbitrators have only granted an amount of Rs.5,32,959/-. It is further contended that though the claimant claimed interest at 24 per cent per annum, the Arbitrators have only awarded interest at 15%. However, the trial Court has further brought it down to 12%. Learned Counsel made efforts to convince this Court that reduction of the rate of interest by the Civil Court is impermissible.

We have given our anxious consideration to the varied submissions made by the learned Counsel appearing on behalf of the parties. We are conscious of the fact that as long as the action of the Arbitrators does not suffer from misconduct and the Arbitrators do not over-step their jurisdiction, their findings of fact cannot be interfered with. The series of decisions of the Supreme Court makes it very clear that unless the Arbitrators have either misconducted or over-stepped in their jurisdiction, their findings cannot be interfered with.

In this case, interestingly, the two Joint Arbitrators are the senior officials of the railways. A reading of the award gives us an impression that the Arbitrators have taken serious exception to the attitude of the railways for not providing the stocking place enabling the contractor to stock ballasts. In their report at page 7, the Joint Arbitrators observed that when they visited the site at Dosapadu on 25-10-1991 for inspection, they found a patch of ground measuring about 500 sq.mtrs. which was said to have been given for repair work to another contractor. However, only spreading of soling stones was completed and the conditions indicated that the balance work of moorum blanketting and rolling was not carried out as there were gaps between the soling stones which were lying at different levels. The risk Contractor for ballast. Collection who was available at the site was also not making use of this patch of land and was collecting elsewhere making his own path ways using certain amount of his own ballast for approach of his lorries. Taking these aspects into consideration, the Joint Arbitrators have concluded that there is a breach of contract on the part of the respondent-railways and therefore, the respondent has to make good the loss sustained by the claimant. In view of the categorical finding of the Arbitrators which is a finding of fact basing on the inspection of the site, we do not think that the claim of the railways that the site was available for stocking ballasts could be accepted.

The Arbitrators while considering the 9 claims put forth by the Contractor, have allowed certain claims and rejected some other claims. We are convinced that the well considered findings and award of the Arbitrators requires no interference by this Court as there is no substantial material before us to take a different view.

Learned Counsel appearing on behalf of the railways has forcefully submitted that in terms of clause 62(2)(a) of the General Conditions of Contract, the claims made by the Contractor should not have been adjudicated by the Arbitrators. We find this submission to be innocuous. Clause 62(2)(a) of the General Conditions of Contract reads as under :

"The Contractor shall have no claim to compensation for any loss sustained by him by reason of his having purchased or procured any materials or entered into any commitments or made any advances on account of or with or view to the execution of the works or the performance of the contract and the Contractor shall not be entitled to recover or be paid any sum for any work thereto for actually performed under the contract, unless and until the Engineer shall have certified the performance of such work and the value payable in respect thereof and the Contractor shall only be entitled to be paid the value so certified.''''

The railways department has indicated on the right side of the clause as to the right of the railway after rescission of contract owing to default of contractor. A plain reading of this clause makes it clear that in a case when the Contractor commits default as a result of which the contract is terminated and claims compensation for any work, such amount cannot be paid unless the Engineer certifies in that regard.

In this case, the facts are otherwise. The Contractor claims that it is the railways which has committed default and breach of the contract resulting in huge loss to him. The findings of the Arbitrators who arc none else than the officials of the Railways would go to show that the railways have committed default and committed the breach of the contract which has resulted in financial loss to the Contractor. Therefore, in our considered view, the implication of clause 62(2)(a) of the General Conditions of Contract has no effect to the present set of circumstances and therefore, we reject the submission of the Counsel for the railways in this behalf.

Coming to the submission that u/s 29 of the Arbitration Act, the Civil Court is competent to award interest from the date of decree only and not otherwise, we are afraid, we cannot accept the submission of the Counsel for the Railways. The Supreme Court in State of Orissa Vs. B.N. Agarwalla, etc., has reviewed the earlier position as to the competency of the Arbitrator to award interest for pre-arbitration period, period relating to the pendency of the arbitration proceedings and the post arbitration period upto the date of realisation or upto the date of passing the decree and held that the Arbitrators are competent to award interest for all the above three periods after the advent of the Interest Act, 1978. At para 38, the Supreme Court has clarified that u/s 29 of the Arbitration Act, the Court even though the Arbitrators have awarded interest from the date of award till the date of payment, disallow interest from the date of decree or determine a different rate at which the interest is to be paid or confirm the grant of interest as awarded in the Award. Thus, it is clear that the Court is competent to either modify the interest awarded by the Arbitrator or confirm the interest part. Learned Counsel appearing on behalf of the railways has not placed any decision before us which permits the Civil Court to reduce the interest awarded by the Arbitrators. On the contrary, learned Counsel appearing on behalf of the Contractor has placed before us a decision of the Division Bench of this Court in V.C. Brahmanna v. State of A. P. Rep. by the Superintending Engineer (R&B), Visakhapatnam, 1996 (5) ALT 951 (DB) wherein it has been held that where the interest has been awarded as part of the award, it is not available to be changed or modified by the Court. The Division Bench has further held that in view of the law laid down by the Supreme Court and High Courts, it is not permissible to the Civil Judge to reduce the interest awarded by the Arbitrators. We are in entire agreement with the decision of the Division Bench of this Court V. C. Brahmanna''s case (supra), on this aspect.

It is not within the competence of the Civil Court to reduce the rate of interest awarded by the Arbitrators. In this case, though the Joint Arbitrators directed payment of simple interest at the rate of 15% per annum till the award is made the rule of the Court in the event the railways failing to pay the award amount within 30 days from the date of its publication. However, the Civil Court has reduced the interest to 12% per annum. Though the Contractor has claimed interest at 24% per annum, we are inclined to grant interest, in the light of the decision V.C. Brahmanna''s case cited (supra), at the rate of 15% per annum to the Contractor from the date of pending the award before the Arbitrators till the date of realisation.

Insofar as the counter-claim of the Railways is concerned, the Arbitrators have referred to the rule position in Railway Board''s letter No.89/CE-I/CT/74, dated 6-6-1990 wherein it was stated that Railway cannot seek arbitration without the consent of the claimant. The General Conditions of the Contract does not provide any clause for reference of Railway''s claims to Arbitration. The Arbitrators held that inasmuch as the claimant has not given his consent for reference of the Railway''s claims to Arbitration, the claims of the Railways therefore, have no legal backing and they were rejected. In the light of the categorical finding of the Joint Arbitrators on the counter-claims made by the railways, we are not inclined to interfere with the said finding.

In the result, C.M.A.No.1254 of 1995 and C.R.P.No.4195 of 1993 are dismissed. C.M.A.No. 1561 of 1993 is allowed enhancing the rate of interest from 12% as granted by the Court below to 15% per annum to the Contractor from the date of reference and during the pendency of the award before the Arbitrators till the date of realisation. No costs.