Andhra HC (Pre-Telangana)
K. Venkateswara Rao vs T. Seshachalapathi And Ors. on 19 February, 1998
Equivalent citations: 1998(2)ALD632, 1998(2)ALT392
Author: V. Bhaskar Rao
Bench: V. Bhaskar Rao
ORDER Motilal B. Naik, J.
1. All these three matters arise out of a common order passed by the HI Additional Judge, City Civil Court, Secunderabad in O.S.No.122 of 1992 and O.P.No.85 of 1992 dated 23-7-1993.
2. O.S. No. 122 of 1992 is filed by the joint Arbitrators for making the award passed by them on 24-2-1992 as rule of the Court and also to award costs of the suit. The first defendant in the said suit is the Union of India, represented by the General Manager (Works), South Central Railway, Secunderabad and the second defendant is Sri K. Venkateshwara Rao, the contractor.
3. O.P.No.85 of 1992 is filed by the Union of India seeking to set aside the Award dated 24-2-1992 passed by the Arbitrators. The first respondent in the said O.P. is K.Venkateskwar Rao, the Contractor and respondents 1 and 2 are the Joint Arbitrators. The Court below by a common order dated 23-7-1993 decreed the suit O.S.No.122 of 1992 with costs making the award passed by the Arbitrators dated 24-2-1992 as rule of the Court and dismissed the O.P.No.85 of 1992. The Court below also held that the Contractor is entitled for interest at the rate of 12% per annum from the date of pending of the award before the Arbitrators till the realisation of the award amount.
4. Assailing the reduction of the rate of interest by the trial Court from 15% to 12% per annum, the Contractor filed C.M.A. No.1560 of l993. Aggrieved by the decision of the Court below in making the award dated 24-2-1992 passed by the Arbitrators as rule of the Court, the Union of India has filed C.M.A.No.1345 of 1995. C.R.P.No.4194 of 1993 is also filed by the Union of India - Railways, aggrieved against the dismissal of O.P. No. 85 of 1992.
5. For the purpose of convenience, the parties are referred to as Railways, Contractor and Arbitrators.
6. Few facts are necessary in order to appreciate the gist of the contentions raised by the parties.
7. The contractor entered into a contract vide agreement dated 23-11-1988 with the railways for construction of 24 units Type-II (MS) quarters i.e., multi-storeyed quarters, one block of 16 units in ground floor, first, second and third floor each and also construction of block of 8 units - 4 units in second floor and 4 units in third floor at Loco Colony. As per the acceptance letter, the Contractor had to commence the work within 10 days from the date of issuance of the acceptance letter. The total value of the contract is Rs.14,55,449/-. The railways through letter dated 23-1-1989 informed the Contractor that the work of second and third floor of the existing block to be commenced immediately. The contractor through his letter dated 25-1-1989 addressed the railways stating that another Contractor was working at the site leaving no place for stocking any material for his work and as such he would commence his work as soon as the site is cleared by the other contractor. He addressed another letter on 30-8-89 to the Railways to the effect that the Railways has not taken any action to handover the site to him for commencing the work. He also pointed out that the work has to be started at two points and in the absence of the site being handed over to him, he is unable to commence the work. He further pointed out that dismantlement of Sub-Inspectors quarters was not completed and unless the site is given to him, he would not be in a position to proceed with the work. He further complained that as a result of severe cyclone in the coastal area in the year 1988, the cost of material, sand, metal, brick, wood has increased from 40 to 50% and the cost of the labour has also increased. The railways issued seven-day notice on 1 -9-1989 and 48-hours notice on 8-9-1989 to the Contractor. The railways rescinded the Contract holding that the Contractor has abandoned the contract. The contractor by letter dated 15-9-1989 complained to the Divisional Engineer that the site was not handed over to him and therefore, he cannot be found fault with. He also intimated that he has paid advances to the tune of Rs.1,70,000/- to the labour after the acceptance of agreement. By another letter dated 9-2-1990, the Contractor intimated the Railways that consequent upon the termination of the contract, he suffered huge financial loss to the extent of Rs.4,31,000/- and requested the railways to pay the entire amount since the loss was caused to him due to the default of the railways. However, as the Railways did not agree for the claims put forth by the contractor, the matter was referred to the Joint Arbitrators and thus Sri Seshachalapati, Chief Personal Officer, South Central Railways, Secunderabad and Ch. Balakrishna, Deputy Financial Advisor and Chief Accounts Officer, South Central Railways, Secunderabad, were appointed as Joint Arbitrators. The Contractor had put in the following claims and also claimed interest at 24% per annum on the total amount.
1. Advance paid for metal Rs.50,000
2. Loss of advances paid to brick suppliers Rs.50,000
3. Loss of advance paid to timber Rs.25,000
4. Advances paid to general labour Rs.25,000
5. Loss of advance paid to skilled labour Rs.20,000
6. Advances paid for equipments like concrete mixtures, vibrators etc. Rs.20,000
7. Advances paid to transport Rs.20,000
8. Loss of equipments, materials etc. Rs.15,000
9. Site office accommodation building upon organization at site, rent for site etc. Rs.25,000
10. Lease for land for storing materials like timber, cement etc. Rs.15,000
11. Payment of office staff and establishments Rs. 16,000
12. Loss of profit at 10% of the value of contract Rs. 1,50,000 _____________ Total Rs.4,31,000/-
_____________ For the above claims, the Railways made a counter claim for the value of risk and costs tentatively fixed at Rs. 1,19,625/-.
8. On the basis of the claim and counter claim, the Joint Arbitrators, on a consideration of the material placed before them, held that the railways are responsible for the delay in not handing over the site at either locations i.e., one for the multistorey block of sixteen units and the other for the 8 units, 4 in the first floor and 4 in second floor and the Contractor had to wait for long lime to commence work thereby incurred losses. With regard to one block of 16 units in ground floor, first, second and third floors, the Joint Arbitrators have further opined that the site in which a multistoreyed quarter to be constructed is situated where there was a railway quarter No.59/BZA was located and it was in occupation of the Sub-Inspector, Railway Police. The Sub-Inspector, Railway Police did not vacate the quarters and the dismantling of the quarter could not be completed. With regard to the construction of 8 units on the existing block, 4 units in the second floor and 4 units in the third floor, the Joint Arbitrators found that the first floor work which was given to other contractor was not completed and therefore, the Contractor could not proceed with the construction work of second and third floor. The Arbitrators at page-7 of their report have further opined that there was breach of contract on the part of the Railways in not handing over the site. As against the claim of the Contractor indicated above, the Joint Arbitrators have awarded an amount of Rs.2,69,500/- and disallowed certain claims. The Arbitrators have found that the termination of contract by the Railways is before handing over the site to the contractor. They further found fault with the railways as to the manner in which the contract was awarded in piecemeal basis. At page-20 of their report, the Joint Arbitrators have observed thus:
"We have inspected the site and are convinced that the sites are not ready to be handed over to the claimant for starting the work before the termination of the contract."
The Joint Arbitrators further observed thus:
"We therefore, hold that the respondent is responsible for not having carried out the Board's instructions in the matter and also hold that the termination at the risk and costs of the claimant is illegal and we reject all the counter claims of the respondent."
9. Thus, the Joint Arbitrators by their award dated 24-2-1992 have awarded a total amount of Rs.2,69,500/- to the contractor and directed the railways to pay the said amount within 30 days from the date of publication of the award failing which to pay simple interest at the rate of 15% per annum till the award is made rule of the Court.
10. The Arbitrators filed O.S. No. 122 of 1992 before the Court below to make the award as rule of the Court. Whereas the Railways filed O.P.No.85 of 1992 before the, Court below seeking to set aside the award dated 24-2-1992 passed by the Arbitrators. Before the Court below the matter was contested by the contractor and Railways. The Lower Court on a consideration of the material placed before it, decreed the suit O.S.No. 122 of 1992 and made the Award as rule of the Court. The Lower Court dismissed the O.P.No.85 of 1992 filed by the railways. However, the lower Court reduced the interest granted by the Arbitrators from 15% to 12% and held that Ihe contractor is entitled to receive the interest at 12% from the period of pendency of the Arbitration proceedings before the Arbitrators till the date of realisation.
11. As indicated, the Contractor has filed C.M.A. No.1560 of 1993 aggrieved by the decision of the Court below in reducing the rate of interest from 15% to 12%. Whereas the Railways have filed C.M.A. No. 1345 of 1995 aggrieved by the dismissal of O.S.No. 122 of 1992. The Railways also filed C.R.P.No.4194 of 1993 aggrieved against the dismissal of O.P. No.85 of 1992.
12. On behalf of the Railways, Sri R. S. Murthy, learned Standing Counsel for Railways contended that the entire award proceedings are vitiated in view of the protection available to the Railways under Clause 62(2)(a) of the General Conditions of Contract. According to the learned Counsel, the claims made by the Contractor cannot be the subject matter of adjudication before the Arbitrators. He contended that the Arbitrators as well as the lower Court have failed to appreciate the contentions raised by the Railways and therefore, the Award has to be set aside. According to the learned Counsel, though the Contractor was to commence the work within ten days from the date of award of the contract, he failed to discharge his obligation on one pretext or the other and as such the Contractor is the defaulter and he cannot claim any monies from the railways. Counsel contended that the contractor should have commenced the work of 8 units on the existing block immediately after the acceptance of tender and also the new blocks of 16 units thereafter, but the contractor did not do so. Counsel further stated that though the Sub-Inspector, Railway Police, Vijayawada has vacated the Railway quarters on 8-2-1989, and the site was available for the claimant/ contractor to start work, he did not do so and as such, he has committed breach of the contract. Counsel submitted that though the railway administration has shown a number of ways where the contractor can start work like compound walls and tanks etc., which are independent in nature, yet, the contractor did not evince any interest and therefore, the claims made by the contractors in the circumstances, are impermissible. Counsel further submitted that the interest awarded by the trial Court at the rate of 12% per annum from the date of pending proceedings before the Arbitrators is impermissible as under Section 29 of the Arbitration Act, the trial Court is only competent to award interest from the date of the decree till the date of realization.
13. On behalf of the Contractor, Sri Prabhakar, learned Counsel representing Sri G. V. L. N. Murthy, advocate submitted that the finding of fact by the Arbitrators as well as the lower Court is not a ground for fresh adjudication before this Court. Learned Counsel contended that the Arbitrators who are the senior employees of the railways have found fault with the railways. The Arbitrators have given cogent reasons for allowing the claims of the Contractor and therefore, the well-founded reasonings given by the Arbitrators and lower Court cannot be interfered with. Learned counsel further contended that the Civil Court is competent to award interest from the date of pendency proceedings before the Arbitrators till the date of realisation and as such the well-considered award and the order of the lower Court require no interference. It is also submitted that the Arbitrators have considered the counter filed by the railways and also the claim made by the railways. It is submitted that the Arbitrators have not ignored the terms of the General Conditions of Contract. Though the Contractor made a claim for Rs.4,31,000/-, the Joint Arbitrators have only granted an amount of Rs.2,69,500/-. It is further contended that though the claimant claimed interest at 24% per annum, the Arbitrators have only awarded interest at 15%. However, the trial Court has further brought it down to 12%. Learned Counsel made efforts to convince this Court that reduction of the rate of interest by the Civil Court is impermissible.
14. We have given our anxious consideration to the varied submissions made by the learned Counsel appearing on behalf of the parties. We are conscious of the fact that as long as the action of the Arbitrators does not suffer from misconduct and the Arbitrators do not over-step their jurisdiction, their findings of fact cannot be interfered with. The series of decisions of the Supreme Court make it very clear that unless the Arbitrators have either misconducted or over-stepped in their jurisdiction, their findings cannot be interfered with.
15. In this case, interestingly, the two Joint Arbitrators are the senior officials of the railways. A reading of the award passed by them gives us an impression that the arbitrators have taken serious exception to the attitude of the railways for not handing over the site to the contractor for commencing the work. At page 20 of their report the Joint Arbitrators observed that when they inspected the site, they were convinced that the site was not ready to be handed over the contractor for starting the work before the termination of the contract.
16. Insofar as the contention of the Railways that the contractor should have commenced the work within 10 days from the date of issuing the acceptance letter, the Joint Arbitrators have held at page-5 of their report that when they visited the place of construction on 25-10-1991, the area available for placing materials is very small and the other contractor was doing the work from 12-1-1990 and as such the site for construction of 16 units was not ready till 12-1-1990. Therefore, the Arbitrators held that there is no breach committed by the contractor.
17. Insofar as the construction of 8 units of quarters, viz., 4 units in first floor and 4 units in second floor, it is to be noticed that the work of the ground floor has been entrusted to one V. Gangadhara Rao, another contractor as admitted by the Railways. Therefore, unless the other contractor who was entrusted with the construction of the ground floor completes the same, it is neither possible nor practicable for the Contractor to commence the construction of 4 units in first floor and 4 units in second floor. In this view of the matter, the Joint Arbitrators held that as the Railways failed to hand over the site to the contractor, there is no breach of contract by the contractor in not commencing the work as stipulated in the acceptance letter. Taking all these aspects into consideration, the Joint Arbitrators have concluded that there is breach of contract on the part of the Railways in not handing over the site at two locations, one for the multistorey block of sixteen units and the other for 8 units - four in first floor and 4 in second floor and the contractor had to wait for longer period to commence his work and in this process incurred heavy losses.
18. In view of the categorical finding of the Arbitrators, which is a finding of fact basing on the inspection of the sites, we do not think that the claim of the railways that the contractor has committed breach of the contract, could be accepted.
19. It is seen that the Railway's have awarded the contract to the Contractor for raising constructions in first floor, and second floor. Whereas it is seen that the construction of ground floor is awarded to another contractor. As long as the ground floor work is not completed by the other Contractor, the first and second floor constructions cannot be made. The Joint Arbitrators in their observations have voiced their concern and have disapproved the method of awarding the contract in piece-meal basis. The railways, being the national property, we also disapprove the method in which the contract is awarded in piece-meal basis.
20. The Arbitrators while considering the 12 claims put forth by the contractor, have allowed certain claims and rejected some other claims. We are convinced that the well-considered findings and award of the Arbitrators require no interference by this Court as there is no substantial material before us to take a different view.
21. Learned Counsel appearing on behalf of the railways has forcefully submitted that in terms of clause 62(2)(a) of the General Conditions of Contract, the claims made by the Contractor should not have been adjudicated by the Arbitrators. We find the submission to be innocuous. Clause 62(2)(a) of the General Conditions of Contract reads as under:
"The contractor shall have no claim to compensation for any loss sustained by him by reason of his having purchased or procured any materials or entered into any commitments or made any advances on account of or with a view to the execution of the works or the performance of the contract and the contractor shall not be entitled to recover or be paid any sum for any work thereto for actually performed under the contract, unless and until the Engineer shall have certified the performance of such work and the value payable in respect there of and the Contractor shall only be entitled to be paid the value so certified."
The railway department has indicated on the right side of the clause as to the right of the railway after rescission of contract owing to default of contractor. A plain reading of this clause makes it clear that in a case when the contractor commits default as a result of which the contract is terminated and claims compensation for any work, such amount cannot be paid unless the Engineer certifies in that regard. In this case, the facts are otherwise. The contractor claims that it is the railways which has committed default and breach of the contract resulting in huge loss to him. The findings of the Arbitrators who are none else than the officials of the Railways would go to show that the Railways have committed default and committed the breach of the contract which has resulted in financial loss to the contractor. Therefore, in our considered view, the implication of clause 62(2)(a) of the General Conditions of contract has no effect to the present set of circumstances and therefore, we reject the submission of the Counsel for the railways in this behalf.
22. Coming to the submission that under Section 29 of the Arbitration Act, the Civil Court is competent to award interest from the date of decree only and not otherwise, we are afraid, we cannot accept the submission of the Counsel for the Railways. The Supreme Court in State of Orissa v. B.N.Agarwalla, has reviewed the earlier position as to the competency of the Arbitrator to award interest for pre-arbitration period, period relating to the pendency of the arbitration proceedings and the post arbitration period upto the date of realisation or upto the date of passing the decree and held that the Arbitrators are competent to award interest for all the above three periods after the advent of the Interest Act, 1978. At para-38, the Supreme Court has clarified that under Section 29 of the Arbitration Act, the Court even though the Arbitrators have awarded interest from the date of award till the date of payment, disallow interest from the date of decree or determine a different rate at which the interest is to be paid or confirm the grant of interest as awarded in the Award. Thus, it is clear that the Court is competent either to modify the interest awarded by the Arbitrator or confirm the interest part. Learned Counsel appearing on behalf of the railways has not placed any decision before us which permits the Civil Court to reduce the interest awarded by the Arbitrators. On the contrary, learned Counsel appearing on behalf of the Contractor has placed before us a decision of the Division Bench of this Court in V. C. Brahmanna v. State of A.P. Rep. by The Superintending Engineer (R & B), Visakhapatnam, 1996 (5) ALT 951 (D.B.) wherein it has been held that where the interest has been awarded as part of the award, it is not available to be changed or modified by the Court, the Division Bench has further held that in view of the law laid down by the Supreme Court and High Courts, it is not permissible to the Civil Judge to reduce the interest awarded by the Arbitrators. We are in entire agreement with the decision of the Division Bench of this Court (2) supra, on this aspect.
23. It is not within the competence of the Civil Court to reduce the rate of interest awarded by the Arbitrators. In this case, though the Joint Arbitrators directed payment of simple interest at the rate of 15% per annum till the award is made the rule of the Court in the event the railways failing to pay the award amount within 30 days from the date of its publication. However, the Civil Court has reduced the interest to 12% per annum. Though the contractor has claimed interest at 24% per annum, we are inclined to grant interest, in the light of the decision (2) cited supra, at the rate of 15% per annum to the Contractor from the date of pending the award before the Arbitrators till the date of realisation .
24. Insofar as the counter-claim of the Railways is concerned, the Arbitrators have referred to the rule position in Railway Board's letter No,89/CE-I/CT/74, dated 6-6-1990 wherein it was stated that the Railways cannot seek arbitration without the consent of the claimant. The General Conditions of the contract does not provide any clause for reference of Railway's claims to Arbitration. The Arbitrators held that inasmuch-as the claimant has not given his consent for reference of the Railway's claims to Arbitration, the claim of the Railway, therefore, has no legal backing and they were rejected. In the light of the categorical finding of the Joint Arbitrators on the counter-claim made by the Railways, we are not inclined to interfere with the said finding.
25. In the result, C.M.A.No.1345 of 1995 and C.R.P. No.4194 of 1993 are dismissed. C.M.A No.1560 of l993 is allowed enhancing the rate of interest from 12% as granted by the Court below to 15% per annum to the contractor from the date of reference and during the pendency of the award before the Arbitrators till the date of realisation. No costs.