Andhra HC (Pre-Telangana)
The Superintending Engineer, P.W.D. (R ... vs Patibandla Radhkrishna Murthy And Ors. on 6 March, 1996
Equivalent citations: 1996(3)ALT1137
Author: P. Venkatarama Reddi
Bench: P. Venkatarama Reddi
JUDGMENT P. Venkatarama Reddi, J.
1. C.M.A.No. 425/1993 filed Under Section 39 of the Arbitration Act and C.R.P.No. 1246/1993 arise out of a common judgment in O.P.No. 56/1991 and O.S.No. 82/1991 on the file of Subordinate Judge, Bhimavaram.
2. O.P.NO. 56/1991 was filed by the Superintending Engineer, P.W.D.(R&B), Eluru and another Under Sections 14 (2) and 30 of the Arbitration Act raising objections to the award dated 33-7-1991 passed by the arbitrators and seeking relief to set aside that award. O.S.No. 82/1991 was filed by the respondent-contractor to direct the arbitrators to file the award into Court and to grant a decree in terms of the Award. The O.P. filed by the Government was dismissed and the suit filed by the Contractor was decreed. In other words, the award was upheld by the learned Subordinate Judge and it was made a rule of the Court. Aggrieved by the said Judgment, the State has filed this appeal and the revision.
3. Pursuant to a tender notification issued by the Superintending Engineer, Kakinada Circle calling for tenders for undertaking the work of forming approaches to railway over-bridge at level crossing No. 118 on Bhimavaram-Palakol Road, the respondent submitted the tender and the same was accepted on 16-8-1986. The total value of the contract was Rs. 125.93 lakhs. An Agreement was entered into between the contractor and the Government on 24-10-1986. The stipulated time for completion of the work was 24 months from the date of handing over the site.
4. On 4-12-1986, the site was: handed over, though not the entire site. The progress of work to be maintained for every four months has been specified in the agreement. The contractor, executed the work some time up to December, 1987. By that time, the respondent did the work of the value of Rs. 26.59 lakhs which works out to 423% of the value of work to be done over a period of one year.
5. The contract was terminated on 23-7-1988, invoking Clause 61 of Preliminary Specification to A.P. Detailed Standard Specifications (hereinafter referred to as 'APDSS') forming part of the Agreement. This was preceded by a notice issued to the contractor to resume the work and show the requisite progress. The contractor pleaded his inability to proceed with the work in view of the non-availability of the entire site and obstructions on the existing site. He also placed the blame on the Department in not adhering to the commitments expected to be fulfilled under the Agreement. O.S.No. 149 of 1988 was filed by the respondent invoking the arbitration clause in the Agreement and seeking appointment of arbitrators. On 2-7-1990, the Subordinate Judge, Bhimavaram, appointed three retired Chief Engineers as joint arbitrators to adjudicate the disputes between the parties arising out of the contract in question.
6. The arbitrators have passed the impugned award on 23-7-1991. Out of the total sum of Rs. 33,01,586/- claimed by the respondent, the arbitrators have awarded Rs. 1937,494/-. The following three claims were partly allowed by the arbitrators.
__________________________________________________________________________________________ Sl. Description Amount Amount allowed No. of the Claims. claimed. by the Arbitrators.
(in Rupees) __________________________________________________________________________________________
1. Towards loss of productivity 8,97,000/- 2,91.000/-
3. Towards loss of profit on the balance work that could not be executed. 19,86360/- 14,90,000/-
5. Towards refund of withheld amounts viz., EMD, FSD and bank guarantee encashed. 1,88,754/- 1,56,494/-
__________________________________________________________________________________________ In addition thereto, the arbitrators awarded compensation under head 'B' in respect of each of the claims mentioned above, as follows:-
Rs.
Claim 1-B 69,800/-
Claim 3-B 3,57,600/-
Claim 5-B 11,900/-
__________
Total 4,39,300/-
__________
Thus, a total sum of Rs. 23,76,794 /- was directed to be paid to the claimant with interest at 18% per annum from the date of award to the date of actual payment or date of decree, whichever is earlier. As already stated, this award was upheld by the Subordinate Judge, Bhimavaram and made the rule of the Court. The learned Subordinate Judge held that the award being a reasoned one and as there is no evidence of any legal misconduct on the part of the arbitrators is not liable to be interfered with as it is not open to the Court to reappraise the evidence and to come to its own conclusion.
7. We shall now consider the claims one by one. The first claim is for loss of productivity. According to the Jaimant-contractor, he could achieve only 50% of the targeted progress on account of non-availability of the site to the full extent and the prevalence of obstructions on the site already handed over. As already noticed, the value of the work done during the first year was about Rs. 26.50 lakhs which works out to 423% of the value of the work expected to be done in a period of one year. After one year, no further work was done. As per the contractor, site was available only for 25% of the viaduct portion and 33 1/3% of the remaining wall portion as on the date of commencement of the work. The contractor by his letter dated 4-3-1987 sent up within three months after the site was handed over represented about the delay in handing over the site and also the obstructions existing in the portions already handed over. In sum and substance, the case of the contractor was that for want of full site, he was compelled to stop the work after the first year. The basis on which the claim towards loss of productivity was laid was that he hired the lorries and equipment and employed labour and technical personnel on the footing that he would be able to achieve the progress to the extent of 62 lakhs in one year, as per the programme stipulated in the agreement. But, on account of the default on the part of the department in handing over the entire site free from obstructions, he could not achieve sufficient progress with the result that the men and material deployed by him remained unutilised to the full extent.
8. The stand of the Department was that 60% of the site was handed over on 4-12-1986 and the same was accepted by the contractor without raising any objections. The Department further contended that there was sufficient site available for the contractor to proceed with the work in full swing and achieve the target of progress and he was only trying to throw the blame on the Department unjustifiably for not handing over the full extent of the site.
9. We shall now advert to what the arbitrators have said after referring to the rival contentions. The Arbitrators noted that the entire site was not handed over even on the admission of the appellant that on the site handed over, there were obstructions which were noticed by the Advocate-Commissioner appointed in O.S.No. 8/1988 as late as in February, 1988, that the balance site together with structures were handed over to the Assistant Executive Engineer, R&B only on 7-5-1988 i.e., after the work was discontinued by the contractor and that the tenders should not have been called for without ensuring mat the entire site free from obstructions was available for executing the work right from the beginning. The Arbitrators observed thus:
"In the absence of any stipulation to the contrary, the claimant is entitled to take possession of the entire site at one time i.e., at the time of conclusion of the agreement to enable him to plan out his work for getting it completed within the agreed time."
"The argument advanced by the respondents mat for the delay in handing over the site, if any, the claimant is entitled to the extension of time is not convincing and not applicable to this case as the respondents themselves came into possession of the entire site by 7-5-1988 only i.e., nearly 18 months after the 'deemed' date of handing over of the site, while the entire work had to be completed within a period of 24 months."
Having held so, the Arbitrators arrived at the quantum of damages in the form of loss of productivity at Rs. 2,91,000/-.The said amount was calculated at 8% of the value of the work which the claimant was not able to carry out during the period of one year, whereas the contractor worked out the loss on the footing that he was disabled from executing 24.65% of the value of the work. The Arbitrators also awarded a further sum of Rs. 67,800/- as compensation for the delayed payment of the amount due towards loss of productivity.
10. The learned Government pleader appearing for the appellant has contended that the contractor is not entitled for any compensation even if there was delay in handing over the balance site or clearing the obstructions over the site and he was only entitled to ask for extension of time as contemplated by Clauses 58 and 59 of the APDSS. It is also contended that in view of what is provided by Section 55 of the Contract Act, the respondent can claim no compensation as he unconditionally proceeded with the work without reserving the right to claim compensation. On the other hand, it is strenuously contended by the learned counsel for the respondent Mr. D.V. Reddy that neither Clauses 58 and 59 of the Agreement nor Section 55 of the contract Act bars the respondent's claim for compensation in the form of loss of productivity. It is pointed out that full site was not handed over to him by the date of determination of the contract and in view of premature termination of the contract, there was no opportunity to seek extension or claim compensation. It is submitted by the learned counsel that it was perfectly open to the respondent to wait till the expiry of the period of contract and to seek for extension without prejudice to the right to claim compensation. It is also pointed out that the appellant did not put forward the plea based on Clauses 58 and 59 of the Agreement or Section 55 of the Contract Act, either before the arbitrators or before the Court below and, therefore, such plea cannot be allowed to be raised at the appellate stage. We are inclined to accept the contention of the learned Government Pleader and held that the claim for compensation in the form of loss of productivity is barred under the express terms of the Agreement, namely, Clause 59 of APDSS as well as Under Section 55 of the Contract Act. We draw support from the Division Bench decisions of this Court in coming to this conclusion.
11. In the first instance, we must reject the contention of the respondent's counsel that the aforementioned plea was never raised and, therefore, it cannot be entertained at this stage. A perusal of the award itself makes it clear that an argument was advanced by the Department that the claimant was only entitled to seek extension of time on account of the delay in handing over the site. That argument was rejected by the learned arbitrators in the following terms:
"The argument..................is not convincing and not applicable to this case as the respondents themselves came into possession of the entire site by 7-5-1988 only, i.e., nearly 18 months after the deemed date of handing over of the site, while the entire work had to be completed within a period of 24 months. Even as on 7-5-1988, the site was not entirely free of obstructions, such as telephone poles, electrical poles, transformers and municipal mains."
Though the particular clause in the agreement has not been cited, it is obvious that the Department sought protection under Clauses 58 and 59 which speak of extension of time in cases of delays or causes beyond the control of the contractor. It cannot be assumed that the arbitrators who are all retired Chief Engineers of P.W. Department were unware of those crucial exclusionary clauses and that the above plea was considered ;.and decided de hors the contractual provisions referred to supra. We cannot, therefore, proceed on the basis that the arguments based on the aforementioned clauses of the Agreement were not put forward by the appellants in the arbitration proceedings. It is well settled that the arbitrator is bound by the contract between the parties and to decide the claims referred to him in the light of the contractual provisions. If the award is found to be contrary to the I plain terms of the contract, it is liable to be set aside, vide Ch. Ramalinga Reddy v. Superintending Engineer, 1995 (3) SCALE 67. Rejecting the argument that the Court should be circumspect in interfering with an award reached by an arbitrator, it was observed in the same case:
"we agree, but circumspection does not mean that the Court will not intervene when the arbitrator has made an award in respect of a claim which is, by the terms of contract between the parties, plainly barred." It is a different matter if there is some doubt about the construction or interpretation of a clause in the Agreement and the arbitrator chooses to take one of the possible views - whether it be right or wrong, vide M/s. Hind Builders v. Union of India, Food Corporation of India v. Joginder Paul, etc. But that is not the situation here. A crucial term of the contract which bars the claim for compensation in like circumstances had been totally disregarded by the learned arbitrators and the award passed in respect of claim No. 1 flies in the face of the prohibition contained in Clause 59. Clause 59 of APDSS enjoins that no claim for compensation on account of delays or hindrances to the work from any cause whatever shall lie. The only remedy in case of such delays as per Clause 59 is to ask for reasonable extension of time. The relevant portion of Clause 59 reads as follows:- "59. Delays and extension of time: No claim for compensation on account of delays or hindrances to the work from any cause whatever shall lie, except, as hereinafter defined. Reasonable extension of time will be allowed by the Executive Engineer or by the officer competent to sanction the extension, for unavoidable delays, such as may result from causes, which, in the opinion of the Executive Engineer are undoubtedly beyond the control of the contractor. The Executive Engineer shall assess the period of delay or hindrance caused by any written instructions issued by him, at twenty five per cent in excess of the actual working period so lost."
In Laxmichand & Balchand v. State of A.P., A.A.O.No. 667/1981, dated 19-4-1982, a Division Bench of this Court considered Clause 59 and expressed the view that the words 'from any cause whatever' occurring in Clause 59 are wide enough to take in delays and hindrances of all types caused by the Department or arising from other reasons, as the case may be. It was observed therein:
"Thus, by virtue of Clause 59, the contractor is precluded from claiming any compensation on account of delays or hindrances arising from any cause whatever, including those arising on account of the acts or omissions of the Departmental authorities."
This view was reiterated by the Division Bench consisting of Jeevan Reddy, J., as he then was and Neeladri Rao, J. in State of A.P. v. Associated Engineering Enterprises, . In that case, the effect of Clause 59 was again considered and it was observed:
"Applying the principle of the above decision to the facts of the case before us, it must be held that Clause 59 bars a clim for compensation on account of any delays or hindrances caused by the department. In such a case, the contractor is entitled only to extension of the period of contract. Indeed, such an extension was asked for, and granted on more than one occasion. (The penalty levied for completing the work beyond the extended period of contract has been waived in this case). The contract was not avoided by the contractor, but he chose to complete the work within the extended time. In such a case, the claim for compensation is clearly barred by Clause 59 of the APDSS which is admittedly, a term of the agreement between the parties."
At paragraph 28, the learned Judges expressed the view that in awarding compensation despite the prohibition contained in Clause 59 of the Agreement, the jurisdiction - a view which finds support from M/s. Sudarshan Trading Co. v. The Govt. of Kerala, ; Associated Engineering Company v. Govt. of A.P., and Ramalinga Reddy v. Superintending Engineer (1 supra).
12. As regards the claim for compensation pertaining to the original period of contract, the learned Judges referred to another Division Bench Judgment in Superintending Engineer, Somasila Project v. Badala Balaiah, A.A.O.No. 786/1986, dated 1-12-1988, in which Jeevan Reddy and Y. Bhaskar Rao, J., held that a claim for compensation arising out of delays or defaults on the part of the Department during the original period of contract was not permissible by virtue of Clause 59. In a recent case in Prasad & Company v. Superintending Engineer, , a Division Bench of this Court, to which one of us (Venkatarama Reddi, J.) was a party referred to the case law in extenso and held that the claim for escalation in rates pertaining to the Agreement period was barred by P.S. 59 of APDSS notwithstanding the delay in handing over the site. Applying Clause 59, as expounded in various pronouncements of this Court, we must hold that the arbitrators exceeded their jurisdiction and committed legal misconduct in awarding the sum under claim No. 1 for the alleged loss of productivity, which is nothing but a claim for compensation attributed to non-utilisation of men arid equipment to the maximum extent.
13. The reason given by the learned arbitrators while negativing the appellant's plea that extension of time was only remedy available to the contractor (which plea, as already stated, is founded on Clause 59) is, in our view, irrelevant. We have already extracted the relevant portion of the award bearing on this aspect. The question whether the contractor is entitled to claim compensation or merely eligible for extension of time cannot be answered in the light of the fact that the Department came into possession of the remaining site a few months before the stipulated period of contract. The factum of the balance site having been taken over by the Department on 7-5-1988 could only establish the delay in handing over the site. But what is the consequence of such delay and whether it entitles the contractor to claim compensation in the face of Clause 59? These questions have not been answered by the arbitrators though the question they posed for consideration called for an answer to these questions. It amounts to non-application of mind to the crucial question involved and the irrelevant reason assigned by the arbitrators introduces an apparent legal infirmity in the award.
14. There is yet another ground on which the award vis-a-vis claim No. 1 is liable to be struck down. The concluding part of Section 55 of the Contract Act says:
"If, in a case of a contract voidable on account of the promisor's failure to perform his promise at the time agreed, the promisee accepts performance of such promise at any time other than that agreed, the promisee cannot claim compensation for any loss occasioned by the non-performance of the promise at the time agreed, unless, at the time of such acceptance, he gives notice to the promisor of his intention to do so."
The claim for compensation was negatived by this Court in State of A.P. v. Associated Engineering Enterprises (5 supra), relying upon the concluding clause of Section 55 of the Contract Act. At paragraph 21, it was observed:
"According to this section, it was open to the respondent to avoid the contract on account of the Government's breach of promise to deliver the sites at a particular time, but, he did not choose to do so, and accepted the delivery of sites at a time other than what was agreed upon between them earlier. If so, he is precluded from claiming compensation for any loss occasioned by such delay, unless, of course, at the time of such delayed acceptance of the sites, he had given notice to the Government of his intention to claim compensation on that account. It must be remembered that this provision of law was specifically referred to, and relied upon in the counter filed by the Government to the respondent's claim before the arbitrator. But, it is not brought to our notice that the contractor had given such a notice (contemplated by the last sentence in Section 55). We must make it clear that we are not entering into the merits of the decision of the arbitrator. What we are saying is that such a claim for compensation is barred by law, except in a particular specified situation- and inasmuch as such a particular specified situation is not present in this case, the claim for compensation is barred. It is well settled that an arbitrator, while making his award, has to act in accordance with law of the land, except in a case where a specific question of law is referred for his decision."
The proposition that the arbitrator is bound to give effect to the general law of land is also laid down by Constitution Bench in Secretary, Irrigation Department v. G.C. Roy, and also in a recent case of Trustees of Port Trust v. ECC Ltd., 1995 (4) SCALE 742". It is not the case of the contractor that at any point of time, he reserved the right to claim compensation. On the other hand, it is his case that such claim need not be laid even before the expiry of the agreed period of the contract. It is the specific case of the Department that the claimant did not raise any objection at the time of executing the agreement or even at the time of starting the work (vide para 16, page 7 of the award). It is an undisputed case that the respondent-contractor did not at any time, till the conclusion of the contract signify his intention to claim compensation or to proceed with the work despite lack of adequate site without prejudice to his claim to compensation. Therefore, Section 55 of the Contract Act is squarely attracted as held by this Court in the aforementioned case. Though there is no specific reference to Section 55 of the Contract Act in the pleadings or in the grounds of objection, the relevant facts giving rise to the application of Section 55 have been stated and noticed by the arbitrators. It is the bounden duty of the arbitrators to pass the award in accordance with law, i.e., the statutory provision contained in Section 55 of the Contract Act. For this reason also, it must be held that arbitrators have committed a legal misconduct in accepting claim No. 1 though partly.
15. The next item of dispute is claim No. 3 under which a sum of Rs. 14.90 lakhs was awarded by the Arbitrators as against a sum of Rs. 19.86 lakhs claimed by the contractor. The basis for the claim is almost the same as Claim No. 1 which we have just now considered. It is the case of the contractor that although he had deployed the required men, machinery and equipment so as to complete the work within the agreement period, he was prevented from continuing the work and completing the same for no fault of his. The main reason for the inability to carry out the work is -attributed to the Department' s inability to hand over the site in full free of obstructions and the unilateral determination of the contract under Clause 61. The respondent asked for compensation towards loss of profit @ 20% on Rs. 99.32 lakhs which is the estimated value of the work he was allegedly prevented from carrying out. In other words, a sum of Rs. 19.86 lakhs claimed by him is the notional profit he could have made had he executed the balance work. The appellants, in answer to the claim, contended that the claimant did not possess the adequate infrastructure and machinery and did not carry out the work even in places where the site was handed over and could not complete the piers etc., the construction of which has already been started. The appellant also relied upon some of the consent statements obtained from the occupants/owners of the buildings agreeing for removal of the structures.
16. The arbitrators while discussing this claim, referred to the fact that the entire site was not handed over at the time of execution of the agreement and concluded as follows:
"It is now a well established maxim that when a breach of contract is committed, the claimant would be entitled to claim damages for loss of profit, which he would have otherwise expected to earn by taking up and completing the work. We, therefore, consider that the claimant having been prevented from proceeding with and completing the work because of certain breaches of contract by the respondent, he is entitled to payment of 15% on the value of the work he had been prevented from carrying out, towards loss of profit."
The loss of profit was calculated, as already noticed, at 15% of the balance value of the work, i.e., Rs. 99.34 lakhs and thus an amount of Rs. 14.90 lakhs was awarded. In view of the Judgment of the Supreme Court in Brij Paul Singh v. State of Gujarat, AIR 1984 SC 1707, it cannot be doubted that compensation in the form of loss of profit could be legitimately awarded if as a result of breach of contractual obligation, the other party is disabled from carrying out the work fully and the damages on account of loss of profit cannot be considered to be too remote.
17. The next question is whether the arbitrators erred in holding that the loss of profit should be worked out with reference to the entire value of the balance work not executed on the assumption that the non-execution of balance work was wholly and solely on account of default of the appellant in handing over the site. In this context, it is relevant to refer to the averments in the rebuttal statement (counter) filed by the Department:
"The claimant did not possess sufficient men, machinery and he did not carry out the work in the places where the site was already handed over to him. In fact, no hindrance was caused to claimant to carry out the work on the site that was handed over to him. The claimant took possession of the site and started the work. He has completed only foundations of piers from B3 to B14 on 1Z . Bhimavaram side approach and laid the columns concrete about 2.40 M. over sill level for the piers and stopped raising them to full height and for taking up further works such as laying bed blocks, bracing and deck slabs which are less profitable items and require more initial investments for procuring & centering materials and skilled labour which reveals his intentions and inefficiency. On Palakol side, though site was handed over to the claimant in full to tackle eleven piers P-2 to P-12 he laid foundations only to 3 piers P-10 to P-12 and left over them at ground level. Balance 8 locations were left over without doing even foundations work."
In fact, the learned Arbitrators took note of this plea in their award while dealing with claim Nos. 1 and 3 though the details in support of the plea were not adverted to. Prima facie, there is no apparent reason why the contractor could not achieve any progress in respect of the piers which he has already taken up. We cannot, however, delve deep into this aspect. But there are certain questions which needed an answer, which remained unanswered by the Arbitrators. These questions are: What was the reason for not proceeding beyond foundations for the piers on Bhimavaram and Palakol side and just leaving them at ground level? What was the reason for not raising columns beyond 2.40 metres over sill level? What was the reason for not taking up even foundation work in 8 locations though, according to the Department, site was handed over in full to tackle 11 piers on Palakol side? Could all this be attributed to the failure to hand over the site in full or the obstructions existing on the site already handed over ? These are the questions to which the learned arbitrators have not applied their mind nor gave specific findings. The learned counsel for the respondent-contractor contends that in view of the obstructions caused by electric and telephone poles, the work which had already commenced could not be proceeded with vertically. He has drawn our attention to the Advocate-Commissioner's report referred to in the award under claim No. 1. We do not think that the facts noted in the Commissioner's report would in any way support the contractor's case. The objections referred to in the report are in relation to piers other than those referred to in the counter of the Department, excepting perhaps one or two. With regard to telephone and electrical lines, it is not mentioned whether and to what extent they came in the way of execution of work relating to piers and columns as regards which the work had already been commenced. It may quite well be that certain telephone and electric poles were coming in the way of achieving further progress in raising the level of piers and columns but there is no finding of the arbitrators to that effect. As already observed, the arbitrators failed to advert to and apply their mind to the crucial factors which arose for their consideration on the pleadings of the parties. If the arbitrators had considered this crucial aspect and found as a matter of fact that the lack of site free from obstructions affected even the progress of the piers which were already laid upto the ground level also, we would not have been in a position to interfere with that award. But here, there was total non-application of mind and it was assumed without any basis that but for the non-availability of site free from obstructions, the entire work would have been executed by the contractor. On the pleadings and on the facts apparent from the award itself, it is not possible to draw a reasonable conclusion that the non-availability of obstruction-free site affected the vertical progress of the work already undertaken by the respondent. It is significant to note that in the rejoinder filed by the contractor, he tried to explain away the failure on his part by contending that the Department did not make available the required steel and failed to supply the designs in time. Thus, the non availability of site was not the ground on which the contractor resisted (sic. rested) the plea aforementioned. The failure of the Department to provide steel and designs is not the ground on which the award was passed. In these circumstances, it must be said that the arbitrators committed a legal misconduct either by reason of non-application of mind or by an unwarranted assumption in coming to the conclusion that but for the failure of the Department to hand over the entire site free of obstructions on the date of execution of the agreement itself, the entire balance of work could have been completed by the contractor within the stipulated time. The award which does not consider the crux of the issue or an award bordering on perversity is liable to be struck down Under Section 30 read with Section 31 of the Arbitration Act. In such circumstances, it falls within the legitimate domain of the Court to set aside the award as suffering from an error of law apparent from the award and we are fortified in our view by the observations made in State of Rajasthan v. Puri Construction Co. Ltd., . It was observed at page 503 by G.N. Ray, J., speaking for the Supreme Court:
"Where the error of finding of facts having a bearing on the award is patent and is easily demonstrable without the necessity of carefully weighing the various possible view points, the interference with award based on erroneous finding of fact is permissible."
In that case, the Supreme Court declined to interfere with the award but the observations at page 504 indicates the line of approach in this regard:
"It does not appear to us that the findings made by the arbitrators are without any basis whatsoever and are not referable to documents relied upon and such findings are so patently unjust or perverse that no reasonable man could have arrived at such findings."
Another recent Judgment of the Supreme Court in U.O.I. v. Jain Associates, 1994 (2) SCALE 604 is an authority for the proposition that non-application of mind to the crucial questions is an instance of legal misconduct and the award is liable to be set aside on that ground.
18. The result of the above discussion is that the arbitrators erred in law in awarding a sum of Rs. 14.90 lakhs towards loss of profit, calculating the percentage of loss on the entire value of the balance work left unexecuted. The question then is whether we should set aside the award on this item and remit it back to the arbitrators for fresh determination of the damages admissible under the head loss of profit' or whether we should ourselves modify the award. Normally, we should have adopted the former course but it is stated by both the learned counsel that the arbitrators who passed the award may not be available now or willing to take up this task and it would be better that this Court itself fixes a reasonable amount in order to shorten the litigation. Having agreed to this suggestion and having considered the relevant material including the facts noted in the award itself, we have come to the conclusion that 50% of the sum awarded by the arbitrators would be reasonable and the award needs to be modified accordingly. That means, instead of Rs. 14.90 lakhs awarded by the arbitrators, the respondent claimant shall be entitled for a sum of Rs. 7.45 lakhs towards damages in the form of loss of profit.
19. The next point is whether the award of compensation under head 'B' on the amount awarded towards loss of profit is in accordance with law. We are of the view that the arbitrators committed a patent error of law in awarding a further amount under claim No. 3B as compensation for the 'delay in payment of claimed amounts'. The relevant portion of the award on this disputed item reads as follows: "Claim 3 The amount admitted under claim 3 is Rs. 14,90,000/-. Payment of compensation is allowed on this amount @ 12% per annum for 2 years i.e., from 4.1.89-4.1.91. This works out to Rs. 14,90,000 x 12/100 x 2 = Rs. 3,57,600/-. We direct that the respondents shall pay the claimant Rs. 3,57,600/- under this claim." In our view, by awarding the said amount, the arbitrators have either allowed damages on damages which is not permissible in law or allowed interest by way of damages which is equally impermissible.
20. That the award of interest by way of damages is not recognised in law is a proposition well established by a series of judgments, viz., Bengal Nagpur Rly. Company Limited v. Ruttanj Ramji, AIR 1938 P.C. 67; Union of India v. Rallia Ram, AIR 1963 SC 1771; Union of India v. Watkins Mayor & Company, and Union of India v. S.S.H. Syndicate, Poona, .
21. Duplication of the cla for compensation Under Section 73 was disapproved by the Supreme Court in U.O.I. v. Jain Associates (14 supra) and that was one of the grounds for setting aside the award. The. Supreme Court observed:
"Claim No. 11 is founded upon the allegations of delay, laches, negligence and default on the part of the appellant, said to have resulted in loss of profits to the contractor in a sum of Rs. 4,93,696/- and the umpire awarded Rs. 4,11/400/-. Claim No. 12 is again founded upon the self same alleged laches and negligence of the appellant for the damages suffered by the contractor in a sum of Rs. 12,00,000/- and the umpire awarded Rs. 6,00,000/-. The High Court found in its judgment that 'there is much substance in the submission of the learned counsel for the petitioner that the umpire has given damages twice over against the same claim though shown as two claims, namely, claim Nos. 11 & 12 and the claimant is not entitled to both the claims due to damages.'.............................
Section 73 of the Contract Act provides that when a contract has been broken, the party who suffers by such breach is entitled to receive from the party who has broken the contract, compensation for any loss or damages caused to him thereby which naturally arose in the usual course of things from such breach. A perusal of both the claims would show that claim No. 11 is founded on loss of profits and claim No. 11 is founded for damages, based upon delay, laches and negligence alleged against the appellant, resulting in breach of the contract. In other words, the contractor claimed compensation for breach of contract arising Under Section 73 of the Contract Act. The respondent, it is held by the Division Bench, is given same type of damages twice over and that holding is not challenged by respondent."
At paragraph 11, it was held that:
"It is clear from the above facts and legal position that the arbitrator committed misconduct in non-application of the mind in deciding claim Nos. 11 and 12...............Therefore, the award in respect of claim Nos. 11 and 12 is set aside."
The above observations apply with equal force to claim 3-B in respect of which the arbitrators awarded a sum of Rs. 3,57,600/-. We hold that the lower court ought to have set aside the award on this item.
22. As regards claim No. 5A, the arbitrators allowed Rs. 1,56,494/- on the finding that withholding the refund of EMD and FSD and encashment of Bank Guarantee was illegal. A compensation of Rs. 11,900/- was also awarded under claim 5B for the illegal detention of the said amounts. We find no illegality in the award as far as these claims are concerned and no arguments worth mentioning have been advanced to challenge the award in this respect.
23. The respondent- contractor has filed Cross-objections claiming interest from the date of decree. The arbitrators awarded interest at 18% on the amounts admitted against each claim from the date of award to the date of actual payment or date of decree, whichever is earlier. The trial Court confirmed the award but it did not direct payment of interest from the date of decree till the date of actual payment As per the award, interest is payable only till the date of decree but not beyond that date. It cannot be doubted that the Court has power to award interest Under Section 29 of the Act. Section 29 lays down that insofar as the award is for the payment of money, the Court may, in the decree, order interest from the date of the decree at such rate as it deems reasonable to be paid on the principal sum adjudged by the award and confirmed by the decree. No particular reason was given as to why interest should be disallowed to the claimant from the date of decree till the date of payment. Obviously, the Court was misled by the impression that the arbitrator himself awarded interest and therefore by confirming the award no further direction need be given for payment of interest. But as already noticed, the award puts an outer limit for the payment of interest and that outer limit is the date of passing of the decree. Beyond that date, the Court should have provided for interest. We, therefore, allow the cross-objections filed by the respondent and direct payment of interest at 15% per annum from the date of decree till the date of payment.
24. In the result, the appeal and the C.R.P. filed by the Government of A.P. and the cross-objections filed by the contractor are partly allowed and the award and decree shall stand modified by directing the appellants-petitioners to pay a sum of Rs. 9,12,394/- with interest thereon from the date of award till the date of decree at 18% per annum (as awarded by the arbitrators) and 15% per annum from the date of decree till the date of payment. We make no order as to costs.