Andhra HC (Pre-Telangana)
State Of A.P. And Another vs Kapa Babu Rao on 22 December, 1999
Equivalent citations: 2000(2)ALD80, 2000(5)ALT674
JUDGMENT
1. The appeal and the revision petition arise out of an award dated 6-9-1993 passed by the arbitrator and confirmed by the Principal Subordinate Judge, Vijayawada by his common judgment and decree dated 4-11-1994. CRP No. 1786 of 1995 arises out of the judgment and decree in OP No.305 of 1993 on the file of the Principal Subordinate Judge, Vijayawada making the award dated 6-9-1993 as 'Rule of the Court'. CMA No.707 of 1995 is filed against the judgment and decree of the Principal Subordinate Judge, Vijayawada dismissing the suit filed by the appellant-petitioner.
2. The facts leading to the filing of the revision and the appeal are as set out hereunder:
The respondent has entered into an agreement No.59 of 1987-88 dated 27-7-1987 for execution of widening and strengthening the carriage from KM. 0.00 to KM. 1.20 of Jaggayyapeta-Muktyala Road. The time for completion of the work is nine months from the date of handing over of the site. The site was handed over on 26-8-1987 and the work is to be completed by 25-5-1988 as per the terms and conditions of the agreement.
3. The respondent-contractor signed the agreement on 27-7-1987 and it is the contention of the appellant that time is the essence of the contract as envisaged in clause (4) of the agreement. The period of execution of the work is nine months from the date of handing over the site. The site was handed over on 26-8-1987 and the work has to be completed before 25-5-1998. The respondent-contractor has executed 15.32% of work as on 4-12-1987, stopped the work and sought for extension of time upto 30-9-1988 by his letter dated 13-5-1988. By a letter dated 20-6-1988 time was extended upto 30-9-1988. Since the respondent-contractor failed to complete the work within the extended period the contract was unilaterally terminated on 37-10-1988. The respondent-contractor by his letter dated 30-11-1988 has demanded compensation for the loss caused and claimed a sum of Rs.1.72 lakhs. By a letter dated 19-12-1988 the Executive Engineer rejected the claim.
4. The respondent filed OP No.48 of 1989 on the file of the Principal Subordinate Judge, Vijayawada under Section 8 of the Arbitration Act, 1940 for appointment of an arbitrator to resolve the dispute under agreement No.58 of 1987-88 dated 27-7-1987. By order dated 21-9-1992 sole arbitrator was appointed by the Principal Subordinate Judge, Vijayawada under Section 8 of the Arbitration Act, 1940 to resolve the dispute under the agreement.
5. The respondent in his claim statement filed before the abitrator alleged that due to breach of agreement on the part of the Department, he could not execute the work and thus sustained the loss. It is his contention that the contract was closed unilaterally and abruptly without intimating the reasons to the respondent. The respondent further contended that the appellant-petitioner has orally instructed him to stop the work since they are short of funds. The respondent contended that the appellant-petitioner failed to get the required funds from Jaggaiahpet Municipality even during the execution of the work and placed strong reliance on the internal correspondence between the Municipality and the appellant-petitioner for establishing that the required funds were not available for executing the work entrusted to the respondent. The respondent-contractor claimed Rs.1,72,000-00 under the following heads:
(i) 20% Profit on the remaining work for which arbitrary, unilateral and illegal cancellation is made Rs. 1,12,000-00
(ii) Advances made to the quarry Rs. 25,000-00
(iii) Advances made to lorry owners Rs. 25,000-00
(iv) Advances made to labour Rs. 10,000-00 Total Rs.1,72,000-00
6. The respondent also claimed interest @ 24% per annum commencing from 30-11-1988.
7. The Arbitrator based on claim statement and the rebuttal statement and relying on documentary evidence Exs.A to P, has granted an award as hereunder:
Amount Claimed Award Claim No. 1 Loss due to unrecoverable advances Rs. 60,000 Allowed. Awarded Rs.60,000.
Interest from the date of advance 25-11-1987 to date of award 6-9-1993 @ 24% per annum Rs. 1,12,000 Partly allowed Interest @ 15% from 25-11-1987 to 6-9-1993 awarded on Rs. 60,000 i.e. Rs. 51,928.
Claim No. ll Loss of Profits
(a) 20% on the remaining work (i.e. Rs. 5,58,961-00) Partly allowed. Awarded damages of Rs. 67,075/- @ 12% P.A. on Rs. 5,58,961/-from 17-10-1988 to 7-9-1992.
(b) lnterest @ 24% p.a. on Rs. 5,58,961 Partly allowed.
Awarded Rs. 49,038 (Awarded 15% p.a. on Rs. 67.075/-)
8. The respondent-contractor filed OP No.305 of 1993 on the file of the Principal Subordinate Judge, Vijayawada to make the award dated 6-9-1993 as 'Rule of the Court'. On the other hand the appellant-petitioner filed OS No.854 of 1993 in the same Court under Section 33 of the Arbitration Act to set aside the award. By a common judgment and decree dated 4-11-1994 the learned Subordinate Judge allowed OP No.305 of 1993 making the award as 'Rule of the Court' and dismissed the suit OS No.854 of 1993. The civil Court has held that the Arbitrator has given a reasoned award after considering all the material available on record and further held that the arbitrator gave ample opportunity to both the parties. Aggrieved by the judgment and decree of the learned Principal Subordinate Judge, Vijayawada, the appellant-petitioner herein has filed CRPNo.1786 of 1995 against OP No.305 of 1993 and CMA No.707 of 1995 against OS No. 854 of 1993.
9. The learned Government Pleader for Arbitration has contended that the claims are outside the scope of agreement and there is no provision in the agreement for granting damages and for payment of interest. Strong reliance was placed on clauses (59) and (69) of the APDSS. The learned Government Pleader further submitted that the respondent-contractor is entitled only to seek extension of time for completing the work and is not entitled for compensation. He also contended that any instruction to stop the work cannot be oral and it is always by written instruction.
10. Sri G. Adisesha Reddy, the learned Counsel appearing for Sri N. Mohana Krishna has contended that the nature of the claim and cause of action assumes importance in the present case for the purpose of applying clauses (59) and (69) of APDSS. He submitted that there were oral instructions to stop the work and the respondent-contractor was prevented from executing the work. He placed reliance on Ex.E and Ex.1 for the purpose of establishing that there were oral instructions to stop the work. He contended that clauses (59) and (69) have no application to a case where the contract was unilaterally terminated without assigning any reasons and contended that there was no plea raised relating to clause (59) before the Arbitrator which amounts to waiver.
11. Before adverting to the rival contentions raised in the appeal and the revision, it would be convenient and necessary to examine the scope of Section 30 of the Arbitration Act (Act 10 of 1940) which lays down conditions for setting aside the award. Section 30 reads as follows:
"Section 30. Grounds for setting aside Award :--An award shall not be set aside except on one or more of the following grounds, namely:
(a) that an arbitrator or umpire has misconducted himself or the proceedings;
(b) That an award has been made after the issue of an order by the Court superseding the arbitration or after arbitration proceedings have become invalid under Section 45;
(c) that an award has been improperly procured or is otherwise invalid."
12. From a reading of the aforementioned provision, it is clear that arbitrator is made the final arbiter of the dispute between the parties. This Court does not sit as an appellate authority over the award passed by the arbitrator and confirmed by the civil Court making it a 'Rule of the Court'. The Supreme Court while interpreting the scope of Section 30 has held in Hindustan Tea v. Shashi Kant, , as follows:
"Under the law, the arbitrator is made the final arbiter of the dispute between the parties. The award 1 not open to challenge on the ground that the arbitrator has reached a wrong conclusion or failed to appreciate facts."
13. The Supreme Court while discussing the scope of the Court to interfere with the award, has held in Delhi Municipal Corporation v. Jagan Nath Ashok Kumar, , as follows:
"The reasonableness of the reasons given by an arbitrator in making his award cannot be challenged in a special leave petition. In the instant case, there was no evidence of violation of any principle of natural justice. The arbitrator is the sole Judge of the quality as well as quantity of evidence and it will not be for the Supreme Court to take upon itself the task of being a Judge of the evidence before the arbitrator. It may be possible that on the same evidence the Court might have arrived at a different conclusion than the one arrived at by the arbitrator but that by itself is no ground for setting aside the award of an arbitrator."
14. The scope and ambit of the power of interference by the Courts with an award made by the arbitrator have been explained by the aforementioned decision of the Supreme Court and the High Courts from time to time. Now it is well settled that the Court while exercising its power under Section 30 of the Act cannot function like an appellate Court. It cannot re-appreciate all the material on record and substitute its opinion for the arbitrator for coming to conclusion as to whether the award has been correctly made. The error, if any, must be one of law and not fact.
15. Keeping in view the aforementioned legal principles, I shall address myself to the issue whether clause (59) of APDSS bars the arbitrator from awarding compensation. It is the contention of the Government Pleader for Arbitration that in view of clause (59) of APDSS the claim for compensation cannot be entertained and that the arbitrator has no jurisdiction to award the same. The Government Pleader relied on the judgment reported in Rajasthan State Mines and Minerals Ltd. v. Eastern Engineering Enterprises, 1999 AIR SCW 3644, wherein it was held as follows:
"In a case of non-speaking award, the jurisdiction of the Court is limited. The award can be set aside if the arbitrator acts beyond his jurisdiction. It is not open to the Court to speculate, where no reasons are given by the arbitrator, as to what impelled arbitrator to arrive at his conclusion. It is not open to the Court to admit to probe the material process by which the arbitrator has reached his conclusion where it is not disclosed by the terms of the award. If the arbitrator has committed a mere error of fact or law in reaching his conclusion on the disputed question submitted for his adjudication then the Court cannot interfere. If no specific question of law is referred, the decision of the arbitrator on that question is not final, however, much it may be within his jurisdiction and indeed essential for him to decide the question incidentally.
In a case where specific question of law touching upon the jurisdiction of the arbitrator was referred for the decision of the arbitrator by the parties then the decision of the arbitrator on the said question between the parties may be binding."
16. Reliance was placed on V.C. Brahmanna v. State of Andhra Pradesh, , for the proposition that clause (59) ex facie bars any claim of compensation on account of the delay in execution of the work. In the present case the appellant-petitioner terminated the contract unilaterally on 17-10-1988. The compensation claimed is not based on delay in execution of the work. In the case relied upon by the appellant, the claim of the contractor is based on account of delay supposed to have been occasioned by the Department. On a perusal of the award it cannot be said that it is a non-speaking award and that the arbitrator has acted beyond his jurisdiction. On a scrutiny of the records, the appellant-petitioner being fully conscious of the protective clause embodied in clause (59) of APDSS did not think ft fit to invoke the clause before the arbitrator for whatever reason it be. It would appear to be a case of inaction or sleeping over their rights. If the said clause had been invoked and pleaded as a defence the arbitrator could have gone into the question of applicability of the clause. The arbitrator could have decided whether the claim for compensation is maintainable having regard to the facts and circumstances of the case. The Arbitrator could have gone into the question whether having regard to the factual scenario terminating the contract on the part of the appellants the protective umbrella of clause (59) will still be available to the State Government. A consideration of these questions would not merely involve interpretation of the clause but also took into consideration certain factual aspects especially in order to see whether the case falls within the exception envisaged by the clause. Hence it must be held that failure on the part of the appellant to invoke clause (59) and to plead immunity on that basis is fatal to the case. That clause cannot be invoked for the first time in the proceedings before the Court. In an identical case reported in Superintending Engineer v. Progressive Engineering Co., (DB), a Division Bench of this Court dealing with clause (59) of APDSS held as follows:
"When clause (59) or an analogous term in the contract was never put in issue before the arbitrator, it cannot be said that the award is vitiated by an error of law apparent on the face of it or that the arbitrators committed a legal misconduct in not considering the same.
.......................................
Clause (59) does not become a stumbling block to the contractor, the reason being that it was never pressed into service by the appellants before the arbitrator. It was only after the award was pronounced, the plea based on clause (59) was raised before the civil Court."
17. In view of the judgments of the Supreme Court and this Court and the facts and circumstances arising out of this case, it has to be held that the arbitrator has not exceeded his jurisdiction in the face of clause (59).
18. The next question that falls for consideration is whether the arbitrator is entitled to award interest. There are three categories of interest, i.e., (I) granting of interest for the pre-reference period, (2) awarding of interest pendente lite and (3) awarding of interest from the date of award till realisation. In the present case arbitrator has awarded interest for the pre-refercnce period and pendente lite. It is the contention of the learned Government Pleader for Arbitration that in view of clause (59) of APDSS the contractor is not entitled to claim interest. The clause reads as follows:
"69. Interest on money due to the contractor :--No omission by the Executive Engineer or the Sub-Divisional Officer to pay the amount due upon certificates shall vitiate or make void the contract, nor shall the contractor be entitled to interest upon any guarantee fund or payments in arrear, nor upon any balance which may, on the final settlement of his accounts, be found to be due to him,"
19. It would be desirable to consider the legal position as regards the power of the Arbitrator to award interest pendente lite. In Secretary, Irrigation Department, Government of India v. G.C. Roy, , a Constitution Bench of the Supreme Court had an occasion to consider the correctness of the decision reported in Executive Engineer, Balimala v. Abnadula Jena, and reviewed the entire law on the subject and enunciated the following propositions:
(i) A person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name. It may be called interest, compensation or damages. This basic consideration is as valid for the period the dispute is pending before the arbitrator as it is for the period prior to the arbitrator entering upon the reference. This is the principle of Section 34 CPC and there is no reason or principle to hold otherwise in the case of arbitrator.
(ii) An arbitrator is an alternative form for resolution of disputes arising between the parties. If so, he must have the power to decide all the disputes or differences arising between the parties. If the arbitrator has no power to award interest pendenie lite, the party claiming it would have to approach the Court for that purpose, even though he may have obtained satisfaction in respect of other claims from the arbitrator. This would lead to multiplicity of proceedings.
(iii) An arbitrator is the creature of an agreement. It is open to the parties to confer upon him such powers and prescribe such procedure for him to follow, as they think fit, so long as they are not opposed to law. (The proviso to Section 41 and Section 3 of Arbitration Act illustrate this point). All the same, the agreement must be in conformity with law. The arbitrator must also act and make his award in accordance with the general law of the land the agreement.
(iv) Over the years, the English and Indian Courts have acted on the assumption that where the agreement does not prohibit and a party to the reference makes a claim for interest, the arbitrator must have the power to award interest pendente lite..... Until Jena's case, , (cited supra) almost all the Courts in the country had upheld the power of the arbitrator to award interest pendente life. Continuity and certainty is a highly desirable feature of law.
(v) Interest pendente lite is not a matter of substantive law, like interest for the period anterior to reference (pre-reference period). For doing complete justice between the parties such power has always been inferred."
In conclusion the Supreme Court held as follows:
"Where the agreement between the parties does not prohibit grant of interest and where a party claims interest and that dispute (along with the claim for principal amount or independently) is referred to the arbitrator, he shall have the power to award interest pendente lite. This is for the reason that in such a case it must be presumed that interest was an implied term of the agreement between the parties and therefore when the parties refer all their disputes - or refer the dispute as to interest as such - to the arbitrator, he shall have the power to award interest. This does not mean that in every case the arbitrator should necessarily award interest pendente lite. it is a matter within his discretion to be exercised in the light of all the facts and circumstances of the case, keeping the ends of justice in view."
20. It is clear that the legal position has been settled by the Constitution Bench in G.C. Roy's case (supra). Following the dictum laid down by the Constitution Bench of the Supreme Court in G.C. Roy's case (supra), the award of interest pendente Ute was upfield in a number of cases including Jugal Kishore v. Vijayendra, and State of Orissa v. B.N. Sagarawala, . The Supreme Court in the aforementioned decisions did not make any distinction between the reference in a pending proceeding or a reference made otherwise.
21. As regards the interest for the pre-reference period, the law laid down in Jena's case (supra), has not been set aside by the Constitution Bench of the Supreme Court G.C. Roy's case (supra), as clarified by the Supreme Court in Jugal Kishore v. Vijayendra, (supra) and State of Orissa v. B.N. Agarwala, (supra). In Jena's case (supra), the Supreine Court categorically held that the award of interest prior to the proceedings is not open to question, the reason being that the expression 'Court' is defined to include arbitrator. However, if the award was made prior to the coming into force of the Interest Act, 1978 interest for the pre-reference period cannot be awarded. On a synopsis of these cases the Supreme Court in Sudhir Brothers v. Delhi Development Authority, , has summarised the legal position as follows:
"Thus, the law is now well settled that the arbitrator has power and jurisdiction to grant pre-reference interest in references made after the coming into force of the Interest Act, 1978. The Division Bench of the High Court was thus clearly in error in holding that the arbitrator had no jurisdiction to award interest from 1-4-1984 till 8-2-1985 (pre-reference period) in the post-Interest Act, 1978 era."
22. The Supreme Court again struck a different note in Durgaram Prasad v. Government of A.P., , stating that the decision in the Constitution Bench of the Supreme Court cannot be applied where there is a specific contractual provision prohibiting payment of interest. In APSRTC v. P. Ramana Reddi, 1994 (5) Scale 67, the Supreme Court commented that the construction placed on clause (69) by the High Court is not correct. A Division Bench of A.P. High Court in M. Gangareddy v. State of A.P., (DB); has exhaustively reviewed the entire case law and legal position on the subject and held that the Arbitrator has power to grant pre-reference interest in references made prior to force of Interest Act 1978. The Division Bench in Gatiagram's case (supra), interpreting clause (69) of APDSS has held that prohibition of payment of interest under the aforementioned circumstances is not applicable in respect of every type of amount claimed by the contractor. The Supreme Court in Board of Trustees, Port of Calcutta v. Engineers-De-Space Age, , has reaffirmed the well settled principle that the Arbilrator had the jurisdiction to interpret the contract and if he commits an error in the process of interpretation, that does not vitiate the award. In Durgaram Prasad'$ case (supra), the dicta laid down is if there is no dispute with regard to the liability of the Government to pay the amount of the nature specified in second part of clause (59), the bar against payment of interest will not apply. I am, therefore, of the view that the grant of interest on the amounts awarded by the arbitrator for the pre-reference period is valid and is not relevant. In G.C. Roy's case (supra), the Supreme Court analysing the entire legal position on the concept of "Interest" has succinctly put it as hereunder:
"Certain English decisions including the decisions in Chandris (1951) 1 KB 240, were brought to the notice of the learned Judges apart from certain passages from Halsbury's Laws of England and Russell's Arbitration. The learned Judge, however, refrained from referring to them in view of the abundance of authoritative pronouncements by this Court. The correctness of the decision in Jena's case, (supra), is challenged by the respondent. We, therefore, departed from the normal rule and heard learned Counsel for the respondent Mr. Mi/on Benerji before hearing the appellant's Counsel Mr. Benerji appearing for the respondent made the following submissions:
(1) the power of an arbitrator to award interest is by virtue of an implied term in the arbitration agreement or reference i.e., by virtue of the arbitrator's implied authority to follow the ordinary rules of law.
(2) It is an implied term in every arbitration agreement that the arbitrator will decide the dispute according to Indian Law. Though Section 34 of the Civil Procedure Code does not expressly apply to arbitrators, its principle applies, just as the principle of several other provisions (e.g., Section 3 of the Limitation Act) has been held applicable to the arbitrators. Inasmuch as the arbitrator is an alternative forum for resolution of disputes he must be deemed to possess all such powers as are necessary to do complete justice between the parties. The power to award interestpendente Site is a power which must necessarily be inferred to do complete justice between the parties. The principle is that a person who has been deprived of the use of money should be compensated in that behalf. In short, it is based upon the principle of compensation or restitution as it may be called.
(3) In every case where the arbitration agreement does not exclude the jurisdiction of the arbitrator to award interest pendente lite, such power must be inferred.
(4) The decision in Jena docs not take into account several earlier decisions of this Court where the power of the arbitrator to award interest pendente lite has been upheld. Many such decisions have been explained away as cases where reference to arbitration was in a pending suit, though as a matter of fact it is not so. Even on principle the said decision does not represent the correct view."
From the aforementioned submissions, the Supreme Court ultimately held that the arbitrator has the power to grant interest and the agreement does not exclude the jurisdiction of the arbitrator to award interest and such power must be inferred. Hence, it has to be held that the arbitration agreement does not exclude the jurisdiction of the arbitrator to entertain a claim of interest on the amount due under the contract. Hence the award of the arbitrator cannot be said to be invalid.
23. The Supreme Court further held that the arbitrator is an alternative forum for resolution of disputes. The idea is to avoid going to the Court. If so, the arbitrator must hold to possess all the powers necessary to do complete and full justice between the parties. If the arbitrator is held to have no powers to award interest the party claiming such interest would still be required to go to civil Court for the relief though they may have obtained satisfaction in respect of his other claims from the arbitrator. Such a course is neither consistent with the concept of Arbitration Act nor is conducive to the rule of avoidance of multiplicity of proceedings, Interest is another name for compensation for deprivation and is based on the principle of restitution. The Supreme Court has held that though a particular provision is not applicable in a particular situation, yet the principle of that provision relating to interest in general is held to be applicable.
24. In the instant case the claim of interest even for the pre-reference period had arisen after Interest Act, 1978 had come into force and therefore the arbitrator could award interest for all the three periods. The arbiirator having given a finding that the contractor is entitled to interest ought to have granted interest for the period i.e., from the date of the decree till the date of realisation. The respondent did not prefer any cross-objections on the non-grant of interest from the date of the award till the date of realisation. Mr. G. Adisesha Reddy, learned Counsel for the respondent submits that he filed CMP No.15455 of 1999 seeking for a decree from this Court for the interest from the date of the decree till the date of realisation which was not granted by the arbitrator. He relied on the judgment of the Supreme Court reported in M/s. Jagdish Rai and Brothers v. Union of India, 1999 (3) Supreme 22, for the proposition that the appellate Court can make appropriate correction of the decree when the application had been made before the High Court. The Supreme Court in the abovesaid cased held as follows:
"We are conscious of the fact that the appellant had not preferred any appeal against the order made by the Court of Sub-Judge which made the award the decree of the Court but did not grant any interest. Even so, the grant of interest being a matter of procedure and the appellant having made an application before the High Court in that regard, we do not think there is any impediment to grant the same by bringing decree of subordinate Court in conformity with law, namely by awarding appropriate interest."
In view of the aforementioned judgment the Supreme Court applicable in all force to the facts of the present case, I allow CMP No.15455 of 1999 and modify the decree of the Subordinate Judge, Vijayawada by including a direction for payment of interest at 12% per annum from the date when the award was made the 'Rule of the Court' by the Subordinate Judge till realisation.
25. Subject to the aforementioned modification with regard to interest, the appeal and the revision petition are dismissed. There will be no order as to costs.