Andhra HC (Pre-Telangana)
Government Of Andhra Pradesh And Ors. vs G. Kondala Pal on 14 July, 1995
Equivalent citations: 1995(3)ALT591, 1996(1)ARBLR129(AP)
Author: P. Venkataraman Reddi
Bench: P. Venkatarama Reddi
JUDGMENT P. Venkataraman Reddi, J.
1. C.M.A. No. 241 of 1991 and C.R.P. 593/91 are preferred against the common judgment in O.S. No. 374 of 1987 and O.P. No. 95 of 1988 (on the file of the I Addl. Subordinate Judge, Visakhapatnam). The appeal arises out of O.P. No. 95 of 1988 filed by the State under Sections 30 and 33 of the Arbitration Act to set aside the award dated 27.7.1987 passed by a panel of Arbitrators consisting of three departmental officials-(1) Chief Engineer, (2) Deputy Secretary to Government, and (3) Director of Accounts, in respect of disputes concerning the contract agreement No. 23/81-82. The Revision Petition filed by the State arises out of the suit filed under Section 14(2) with a prayer to confirm the award passed by the panel of Arbitrators and to make it a Rule of Court and to pass a decree for Rs. 15,00,085/- with interest.
2. The contractor G. Kondala Rao who was the plaintiff in the suit and respondent in the O.P. died during the pendency of the proceedings in the lower court. Hence his legal representatives are brought on record.
3. The work which is the subject-matter of the agreement dated 26-9-1981 was one of excavation of water supply canal from K.Ms. 12.260 to 12.880 (including lining 10th reach) within the jurisdiction of Y.R.P. Circle, Visakhapatnam. The value of the contract was Rs. 25,81,574/- and the work had to be completed within 12 months from the date of handing over the site. The site was handed over on 8.10.1981. After a number of extensions, the work was ultimately completed in July, 1986.
4. The dispute is in regard to Claim No. III which is divisible into two parts :
(1) The differential rates repayable on account of classification of soils.
(2) Escalation of rates for the work done beyond the agreement period.
Under Claim No. III, the contractor claimed Rs. 21,97,000/-. Though Claim No. III includes another item, it is no longer in dispute.
5. The Arbitrators though accepted the claim of the contractor on these two items forming part of Claim No. III, they did not award any specific amount. Regarding classification of soils, the Arbitrators directed payment to be made to the contract as per classification made jointly by the EE and EE (Quality Control). With regard to the claim for escalation of rates, the Arbitrators directed that the contractor shall be paid current SSR (Standing Schedule of Rules) of 1983-84 plus his tender premium of 23.84% for the work done by him after September, 1983.
6. The learned Subordinate Judge overruled the objections of the Government, confirmed the award by making it a Rule of the court and further decreed the suit for a sum of Rs. 15,00,850/-, with interest at 10% per annum from the date of award till realisation.
7. It is the contention of the learned Government Pleader that the court below wholly misdirected itself by passing a money decree when the amount was not quantified in the award. He submits that the Subordinate Judge ignored the mandatory requirement of Section 17 that the judgment must be in terms of the award. He submits that the calculations filed before the court below in purported compliance with the award are incorrect and should not have formed the basis for passing a decree for Rs. 15 lakhs and odd. The only course that was open to the court was to remit the matter to the Arbitrators. It is also submitted that the second part of the claim for payment of escalation charges over and above the Agreement rates was not admissible under the terms of the contract. We also pointed out that the contractor himself undertook to execute the work beyond the agreement period without claiming any compensation and the Arbitrators exceeded their jurisdiction in accepting the claim of the contractor on the ground that delay was caused on account of the department's failure to fulfill its obligations. An objection has also been raised to the suo motu extension of time for passing the award without the consent of appellants.
8. Mr. Bhimsen, Counsel appearing for the respondents sought to repel these contentions by contending that the judgment under appeal was in conformity with the award, that the respondents filed calculation statements as per the definite criteria laid down in the award and as the said figures have not been disputed at any time, it is not open to the appellants-petitioners to contest the decree. He further submits that the Arbitrators were fully justified in awarding extra rate for the work done by the contractor during the year 1983 in as much as there was a flagrant breach of obligation under the contract by the appellants leading to prolongation of the work. He submitted that the amount awarded is just and reasonable and the award does not call for interference as there is no error of law apparent on the face of the award and the lower Court applied the correct legal principles. Regarding suo motu extension of time, it is stated that the objection is raised for the first time. He has also submitted that the Court can extend the time even now.
9. We will first deal with the claim relating to escalation of rates. The escalation is sought for in respect of the work done during the extended period of contract. The respondent claimed 127% over the agreement rates.
10. The case of the contractor is that on account of enormous delay in shifting the electrical poles from the work-site, the progress of the work was impeded. The contractor had therefore no option but to resort to controlled blasting. Moreover, in view of the limited space that could be utilized in the area around the electrical poles, the execution of work could not progress much.
11. On the other hand, the department's case is that in the alignment covered by electrical poles, the quantity of work that had to be executed was comparatively meagre. The contractor had ample opportunity to execute the work along the alignment which was free from obstructions. It was pointed out by the appellants that the contractor, at no point of time, adhered to the scheduled progress of work and in order to cover up his lapses, he wanted to throw the blame on the appellants for not being able to shift the electrical poles.
12. The Arbitrators dealt with this claim as follows :
"The site was handed over to the petitioner on 8.10.1981. But the A.E. in his notice No. 123 M/dated 4.11.1981 has instructed the petitioner not to excavate for 20 meters around electrical poles and not to resort to blasting till the electrical poles and wires were shifted. The same instructions were repeated in Executive Engineer's letter No. DB/D2/W2/897M dated 6.5.1982.
As per agreement, the work should have been completed by 7.10.1982. As per E.E.'s letter DB/D2/W2/1537M dated 14.9.1982, the petitioner has executed 95,990 cum against agreed quantity of 1,51,890 cum by 8.9.1982 about 63.19%. This progress has to be considered fair and reasonable in view of the restricted working space and non-shifting of the electrical poles during this period of the Department. The electrical poles were shifted only by 9/83, nearly 11 months after the expiry of the original agreement period. It is evidently against the principles of natural justice, to demand from the petitioner to execute work after shifting of the electrical poles, at the agreed rates. The petitioner cannot be made to suffer, on account of the defaults of the respondents in shifting the electrical poles. The letter of extension given by the petitioners that he will not claim any compensation is evidently under duress, to receive payment from the respondents.
We therefore award that the petitioner be paid current S.S.R. of 1983-84 plus his tender premium of 23.88 for the work done by him after 9/83."
13. It is common ground that there is no provision in the Agreement for escalation of rates in case of delay or otherwise. On the other hand, there is a prohibition under Clause 59 of APDSS (to forming part of the Agreement) against the admissibility of claim for compensation on account of delays or other hindrances. On a conspectus of the case law on the subject, we have taken the view in C.M.A. No. 1156/89 that in the absence of an escalation clause in the contract, such escalation cannot be read into a written contract as an implied term and such a claim does not fall within the ambit of an arbitrable dispute as held by a Division Bench of this Court in Chief Engineer, Panchayat Raj v. B. Balaiah (1985 (1) ALT 34 (NRC) = 1985 (1) APLJ 224). The latest judgment of the Supreme Court in Ch. Ramalinga Reddy v. Superintending Engineer (1994 (5) SCALE 67), has also been relied upon by us in that case to negative the claim for payment of extra rates for the work done beyond the agreement period. The Supreme Court held that by virtue of Clause 59 coupled with the letter of the Superintending Engineer notifying while granting extension, that no compensation will be allowed, the Arbitrators exceeded their jurisdiction in granting the claim.
14. However, in the present case, there is one distinguishing feature. The finding of the Arbitrators is that the appellants committed default in shifting the electrical poles and that the defauls occasioned loss to the contractor. It is to compensate that loss caused on account of breach of contractual obligation on the part of the Government that the award was passed allowing extra rate for the work done beyond September 1983 i.e., after the electrical poles were shifted. In such circumstances, it could be contended with some force that a claim to award compensation for the consequences of breach was incidental to the contract and fail within the domain of the Arbitrators to decide. The decision in P. M. Paul v. Union of India , the Division Bench Judgment of this court in State of A.P. v. S. Shivaraj Reddy (1988 (2) APLJ 465), and the observations made by another Division Bench of his court in Govt. of A.P. v. P. V. Subbanaidu (1990 (1) ALT 54), could have been pressed into service to sustain such claim. In the last case it was pointed out by Jeevan Reddy, J.
"In P. M. Paul the Government was held responsible because it was found by the Arbitrator as a fact (it was a reasoned award in that case) that the Government was responsible for the delay. In the absence of such an allegation and a finding, whether express or implied, it cannot be said that the claim for escalation charges is incidential to the contract, or that the Arbitrator had jurisdiction to pronounce upon the same."
Again at paragraph 29 it was observed :
"The true position, however, is unless the Government is held responsible for the delay in execution of the contract, there can be no basis for the contractor's claim and even here such a claim may be liable to be rejected in view of Clause 59 of the APDASS (See C.M.A. No. 684/85 dated 24.3.1989)."
In the same tender cases involving prolongation of contract as a direct result of default or breach on the part of the Government were place on a somewhat different footing in C.M.A. No. 988/84 dated 19.8.1989.
15. We need not dilate further on this aspect and express our final opinion focussing attention to the impact of Clause 59 in such situations. We proceed on the basis that there was a breach of the contractual obligation on the part of the Department in their failure to shift the electrical poles within a reasonable time. We will further proceed on the premise that the contractor was within his rights to demand a reasonable extra payment for the work that had to be done far beyond the stipulated period. But there is still a hurdle coming in the way of the Arbitrators to accept such claim and this hurdle, in our view, cannot be successfully crossed. The letter referred to in the award itself knocks at the bottom of the contractor's claim for escalation of rates. According to that letter, the contractor while seeking extension of the period of contract, undertook not to claim any compensation. This fact is recited in the award itself. Admittedly, it was on the basis of such letter that extensions of time were granted. The effect of this letter was sought to be got over by the Arbitrator by holding that it was 'evidently obtained under duress'. We do not subscribe to this view-point, even taking a most liberal view in favour of the contractor.
16. It is obvious that the finding of the Arbitrators that the letter was given under duress was based on a surmise rather than any material placed on record. It was not pleaded any where-either in the claim-statement or in the rejoinder statement that the contractor had to give that letter not out of free-will but as a result of coercion or undue influence. It was not even pleaded by the contractor that any pressure was exorted on him to furnish the undertaking which he gave in the letter. When there was no plea, no occasion could have possibly arisen to let in any evidence on this aspect. The question whether there was coercion or undue influences is essentially a question of fact. There must be foundation in the pleadings. The tenor of the finding would itself disclose that the Arbitrators gave the finding not on the basis of the evidence placed before them but on a presumption. This introduces a serious infirmity in the award. An award, based on findings or observations not backed up by any evidence but by a mere surmise or presumption could be said to be vitiated by a legal error apparent on the face of it. This apparent error is discernible from a mere look at the award and the pleadings of the parties which are referred to in the award. A brief reference to the pleadings is made in the award at many places. It is therefore permissible to look at the pleadings atleast apart from the award itself so as to see whether there is apparent error of law on the face of the award. We are fortified in our approach by the observations in a recent decision of the Supreme Court in State of Rajasthan v. Puri Construction Co. Ltd. . The Bench consisting of Venkatachalaiah, C.J. and G. N. Ray, J. while emphasising the proposition that the Court does not sit in appeal over the award and review the reasons, observed at page 501 :
"The court can set aside the award only if it is apparent from the award that there is no evidence to support the conclusions or if the award is based upon any legal proposition which is erroneous."
At page 503, the following observations are made :
"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. Similarly, if an award is based by applying a principle of law which is patently errorneous, and but for such erroneous application of legal principle, the award could not have been made, such award is liable to be set aside by holding that there has been a legal misconduct on the part of the Arbitrator. In ultimate analysis, it is a question of delicate balancing between the permissible limit of error of law and fact and patently erroneous finding easily demonstrable from the materials on record and application of principle of law forming the basis of the award which is patently erroneous. It may be indicated here that however objectively the problem may be viewed, the subjective element inherent in the Judge deciding the problem, is bound to creep in the influence the decision."
In the succeeding para, it was concluded :
"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."
Adopting the above approach, if we look at the finding of the Arbitrators that the letter was given under duress, the only possible view that could be taken is that the finding was without any basis and patently erroneous. The plea of undue influence or lack of free-Will was never pleaded by the contractor and it is nobody's case that any evidence has been let in on that aspect. Thus, as already observed, the finding was reached or to say more appropriately, an observation was made without reference to the materials on record, and such finding or opinion falls within the mischief of the Rule laid down by the Supreme Court in the aforementioned case. Without a process of "close scrutiny", it could be demonstrated that the finding has no foundation in the pleadings or evidence and therefore it is a perverse finding. The observations in Allen Berry & Co. v. Union of India , also indicate that it is permissible for the court to see whether the Arbitrator had acted without evidence or gave findings on conjectures and surmises in order to judge whether the award is vitiated by an obvious error of law (vide paragraph 23).
17. On the basis of a similar letter addressed by the contractors while seeking extension of time, a Division Bench of this court consisting of Jeevan Reddy, J. (as he then was) and Bhaskar Rao, J. in C.M.A. No. 786/86 dated 1.12.1988, rejected the claim for escalation. It was observed :
"Unless the Arbitrator came to the opinion that these letters were obtained by coercion or under duress, as contended by the contractor, he had no jurisdiction to award any amount on this account, even assuming that on the ground of equity or otherwise, he had power to award such amount. And there was no evidence upon which he could have arrived at such opinion."
Therefore, if the letter stands-as it ought to, what is the effect ? The contractor who was perhaps within his rights to claim compensation in the form of escalated rates by reason of breach committed by the other party refrained from exercising that right. Instead, he sought for extension with a categorical assurance that he would not claim compensation or extra payment. The appellants acted upon it and granted extension as desired by the contractor. The contractor should therefore be estopped from resiling from his undertaking and take a contrary stand in the arbitration proceedings.
18. The matter can be viewed from another angle as it was viewed by a Division Bench of this court in State of A.P. v. M/s. Associated Engineering Enterprises, Hyderabad , Jeevan Reddy J. (as he then was) speaking for the Bench negatived a similar claim relying upon third clause of Section 55 of the Contract Act. At paragraph 21, it was pointed out :
"According to this section, it was open to the respondent to avoid the contract on account of the Government's breach of promises to deliver the site 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 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 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 particular specified situation is not present in this case, the claim for compensation is barred. It is well settled than 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 the Constitution Bench in Secretary, Irrigation Department, Government of India v. G. C. Roy . In the present case, the contractor far from notifying his intention to claim compensation, waived that right by addressing a letter that he would not claim compensation.
19. There is yet another infirmity in the award. We find, on a reading of the award that there is a contradiction in the figures relating to progress of work set out in paragraphs 5 and 18 of the award. At paragraph 15 it was observed "during the hearing it was brought out that the value of the work done by the petitioner during the original agreement period was about 38% ......." However, at para 18, progress of work was taken as 63%. It is with the fundamental assumption that 63% of the work was completed before the stipulated period that the Arbitrators approached the issue under dispute. A conclusion reached on the basis of such material discrepancy cannot but be treated as an error of law apparent on the face of the award. In K. P. Poulose v. State of Kerala , the Supreme Court pointed out that "if the Arbitrator, on the face of the award, arrives at an inconsistent conclusion even on his own findings, it amounts to legal misconduct".
20. For the reasons stated above, we are of the view that the second part of Claim No. III i.e. for escalation of rates, is not sustainable in law and the award vis-a-vis that claim cannot be upheld.
21. We will now deal with the first part of Claim No. III. The contractor claimed differential payment on account of classification of soils. His case was that as per the terms of the agreement, two Executive Engineers classified the soil on 28.12.1982. Long afterwards, the Superintending Engineer, without any authority revised the classification and made him sign a supplemental agreement. He recorded his protest immediately. The Arbitrators accepted the contention of the contractor observing that the level sheets prepared after inspection by the Superintending Engineer were not accepted by the contractor and he was all the while questioning the reclassification. After referring to the revial contentions, the Arbitrators held "We therefore conclude that the classification made by the Superintending Engineer is arbitrary and direct that payment be made to the petitioner as per the classification made jointly by the E.E. and E.E. (Quality Control)".
22. It is not in dispute that the controversy with regard to classification of soils is a matter that legitimately falls within the province of the Arbitrators to decide. Realising that it is a pure finding of fact which cannot be canvassed in an application filed under Sections 30 and 33 of the Arbitration Act, the learned Government Pleader has, however, raised a contention that the judgment of the court is not in terms of the award. It is submitted that the Arbitrators have not quantified any amount due under this claim but they merely passed a declaratory award which they had no authority to do. The learned Government Pleader therefore submits that the court should have remitted the matter to the Arbitrator instead of itself passing a money decree. We do not think that the contention of the learned Government Pleader, though plousible, merits acceptance. No doubt, under Section 17 of the Arbitration Act, the court is required to pronounce the judgment in accordance with the award. The heading of the section reads : "Judgment in terms of the award". In the present case, it could be said that the quantification of monetary benefit that flows as a necessary concomitant to the award is broadly in conformity with the award. The data complied by the two Executive Engineers being available on record, what was required to be done was only calculation. Still it is a matter of doubt whether the court itself can quantify that amount and pass a decree awarding a specific sum. If such quantification is done by the court, could it be said that the judgment is not in accordance with the award ? We could have examined this issue in more detail, but having regard to the circumstances of the case, it is not necessary to do so.
23. No objection was raised before the lower court that the award itself was unenforceable in the absence of quantification of the amount and that the court was not competent to pass a money decree based on the award. The conclusion of the Arbitrators in regard to the classification of soil is not vulnerable to any legal objection, as pointed out by us earlier. If at all, the only dispute could be with regard to calculations. If an objection had been raised before the lower court and the calculations submitted by the contractor were disputed, the court could have considered the necessity of remitting the matter to the Arbitrators. The dispute is more than a decade-old. Even if we take into account the calculations which are filed by the appellants for the first time during the pendency of appeal, the difference is quite meagre. As far as this item is concerned, the differential amount comes to Rs. 7,000/- approximately. It would therefore be not in the interests of justice to remit the matter to the Arbitrators for the purpose of arriving at a figure in accordance with the conclusions reached by them. Hence, we reject the contention of the appellants and direct payment of Rs. 4,57,720/- which is the amount worked out by the Respondents as per the award.
24. The learned Government Pleader lastly contended that the Arbitrators had no jurisdiction to suo motu extend the time for passing the award by four months. The time for passing the award could only be extended by mutual consent. The principle as stated by the learned Government Pleader does not admit of doubt. However, in the present case, no such objection was taken before the Trial Court. If such an objection was taken, there was every possibility of the other party moving the court under Section 28 of the Arbitration Act to extend the time because it is well-settled that even after an award is passed, the court retains the jurisdiction to extend the time, (vide State of Punjab v. Hardyal . Instead of remanding the matter at this state, we would prefer to follow the course that was adopted by the Supreme Court in atleast two decisions, viz., Hardyal's case (supra) and Hindustan Steel Works v. Rajasekhar Rao . In the first case, the Supreme Court observed :
"The Arbitrator therefore has to give the award within the time prescribed or such extended time as the court concerned may in its discretion extend and the court alone has been given the power to extend time for giving the award. As observed earlier, the court has got the power to extend time even after the award has been given or after the expiry of the period prescribed for the award. But the court has to exercise its discretion in a judicial manner. The High Court in our opinion was justified in taking the view that it did. This power, however, can be exercised even by the Appellate Court. The present appeal has remained pending in this court since 1970. No useful purpose will be served in remanding the case to the Trial Court for deciding whether the time should be enlarged in the circumstances of this case. In view of the policy of law that the arbitration proceedings should not be unduly prolonged and in view of the fact that the parties have been taking willing part in the proceedings before the Arbitrator without a demur, this will be a fit case, in our opinion, for the extension of time. We accordingly extend the time for giving the award and the award will be deemed to have been given in time".
25. We do not think but there are any circumstances in the case warranting refusal of extension of time. Even now, it is not stated that for any special reasons, the appellants could have raised an objection for extension of time if the Arbitrators expressed their inclination to do so. Hence, we consider it a fit case to extend the time for passing the award and we direct that the award must be deemed to have been made within time.
26. In the result, the C.M.A. and C.R.P. are partly allowed. The decree of the lower court shall be modified by substituting the figure of Rs. 4,57,720/- instead of Rs. 15,000,085/-. The said amount is payable by the appellants to the respondents with interest as directed by the court below. We make no order as to costs in both.
26. Appeal partly allowed.