THE HON'BLE SMT. JUSTICE T.MEENA KUMARI and THE HON'BLE SRI JUSTICE G.V. SEETHAPATHY Civil Miscellaneous Appeal No :3632 of 2002 Date: 11.8.2009 BETWEEN: The Chief Engineer, Construction, South Central Railway, Secunderabad & another. ….. Appellant and Sri M.V.V. Satyanarayana and another. …. Respondents Counsel for the appellants: Sri Rajeev Reddy for C.V. Vineetha Reddy Counsel for the 1st respondent: Sri . V. Prasada Rao, Caveator THE HON'BLE SMT. JUSTICE T.MEENA KUMARI AND THE HON'BLE SRI JUSTICE G.V. SEETHAPATHY CIVIL MISCELLANEOUS APPEAL No.3632 of 2002 JUDGMENT: (per Hon’ble Smt. Justice T. Meena Kumari) This appeal is directed against the decree and order dated 28.06.2002 in O.P. No. 550 of 2001 on the file of the Motor Vehicle Accident Claims Tribunal-cum-Additional Special Judge for SPE & ACB cases-cum-V Additional Chief Judge, City Civil Court, Hyderabad. The appellants are the petitioners in the O.P., whereas the 1st respondent is the contractor and the 2nd respondent is the arbitrator. The appellants filed the aforementioned O.P. before the lower Court under Section 34 of the Arbitration and Conciliation Act, 1996, seeking to set aside the Award passed by the 2nd respondent-arbitrator. The brief facts of the case that led to the filing of the present appeal, as projected in the O.P. are as follows: The 1st respondent entered into an agreement with the appellants on 19.2.1990 for doubling of track between Thangadi-Chegunta Stations by earth work in formation, construction/extension of major/minor bridges and execution of miscellaneous works from Ch. 33170 M to Ch. 39000 M, Reach VII for a sum of Rs. 42,48,585/-, which was enhanced to Rs.56,99,128/- by way of additional works. The work was required to be completed by 31.10.1990, but actually it was completed on 27.09.1992. On 26.08.1991, the 1st respondent requested for extension of time without penalty owing to some difficulties faced by him and the same was extended till 31.12.1990. On 01.10.1991, the 1st respondent made another representation stating that he was facing certain hurdles such as resistance of owners of the land due to standing crops, delay in removal of P&T poles and wires, increase in cost of fuel due to gulf crisis and general inflation and requested that a pre-arbitration committee should be appointed to consider his claim for enhancement of the rates. Subsequently, the Chief Engineer appointed a pre-arbitration committee to examine the claims of several contractors for enhancement of rates owing to the unprecedented developments. The Committee having considered the matter, recommended for enhancement of the rates at 25%. However, the Committee rejected the claim of the 1st respondent in respect of idling charges for machinery for the period from 09.06.1990 to 31.07.1991 and 15.10.1990 to 15.03.1991. So far as the claim in respect of overhead charges for prolongation of the contract is concerned, the Committee recommended for compensation at 2% per annum for 20 months on the contract value. Accordingly, a supplementary agreement was entered on 05.03.1993 and the 1st respondent was granted extension without penalty to complete the work. It is stated that on completion of the work on 27.09.1992, the work was measured on 31.08.1993 and the final bill was made ready on 28.03.1994 and the payment was made on 31.03.1994. The FDRs, which were given as security, were released only on 29.11.1994. However, on 25.06.1996, the 1st respondent has pointed out to the authorities that certain subsisting claims were not settled in the final bill and while listing out five items out of the same, requested that the matter may be referred for arbitration. As no action was taken, the appellant filed an arbitration application before this Court seeking appointment of an arbitrator and this Court by a common order passed in A.A. Nos. 8 and 11 of 1998, appointed the 2nd respondent herein as Arbitrator to decide the disputes arising out of agreement No. 8/CAO/C/SC/90, dated 19.02.1990. Accordingly, parties appeared before the Arbitrator and participated in the proceedings. Through order dated 10.08.1999, the Arbitrator passed an Award in respect of certain claims totalling to Rs.7,90,000/-, payable within three months from the date of passing of the said award, failing which, it will carry interest at 18% per annum, compounded quarterly from the date of the Award. Challenging the said Award, the appellants filed the aforementioned O.P. before the Court below. The learned Chief Judge, through the impugned order, dismissed the O.P. while confirming the Award of the Arbitrator. Hence, the appellants filed the present appeal. Before the lower Court, it was the contention of the appellants that appointment of arbitrator is contrary to the terms and conditions of the agreement, and it is opposed to public policy. It was further contended that as the contractor failed to return the empty cement bags to the appellants, the department was justified in recovering an amount of Rs.30,000/-. He further contended that the 1st respondent used granite stone in the execution of work instead of cement concrete with graded hard stone aggregate and if there are any variations in the rates of granite stone used by the 1st respondent for execution of the contract work, he is bound to comply with the statutory conditions of contract and clauses of general conditions of contract, which he has not done and hence the claim for variation in the rate ought to have been rejected by the arbitrator. The appellants further contended that as per Clauses 16 and 17 of the General Conditions of the Contract and other conditions of the agreement, arbitrator cannot allow any of the claims of the 1st respondent which were not referred for arbitration and since the arbitrator allowed some of the claims of the 1st respondent, he has travelled beyond the jurisdiction. Lastly, it was contended that as per Clause 16(2), no interest would be payable upon Earnest Money or Security Deposit or on the amounts payable to the contractor, but Government securities deposited in terms of sub-clause (1) of this Clause will be repayable with interest accrued thereon and in the instant case the arbitrator has erroneously awarded an amount of Rs.40,000/- towards interest on delayed payments and the arbitrator ought to have rejected the said claim as barred by limitation. While reiterating the very same contentions, Sri Rajeev Reddy, learned counsel appearing on behalf of Smt. C.V. Vineetha Reddy, learned Standing Counsel for the appellants has submitted that the claim statement filed by the 1st respondent before the High Court is completely different from that of the claim statement filed before the Arbitrator and the Arbitrator is only empowered to adjudicate upon the claims referred to him for arbitration by the High Court and not on any other claim and all other claims made by the contractor. He further contended that the arbitrator cannot enlarge the scope of reference and cannot adjudicate on the claims which were not referred by the High Court for arbitration. In support of this contention, he relied upon the judgment of the Apex Court in RAJINDER KRISHAN KHANNA & OTHERS vs. UNION OF INDIA ([1]). While relying on paras 10 and 11 of yet another judgment of the Apex Court in ORISSA MINING CORPORATION LTD., vs. M/s. PRANNAH VISHWANATH RAWLEY & OTHERS([2]), learned counsel sought to contend that the arbitrator cannot enlarge the scope of reference and adjudicate upon the claims which were not referred by the High Court for arbitration, which read thus: “10. On a reading of the plaint, we are satisfied that the claim for transporting the iron ore for the extra distance is limited to Rs.68,582/- and the whole claim after including the claim for construction of the road is confined only to Rs. 93,582/-. The arbitrator having disallowed Rs.25,000/- being the claim for construction of the road should have confined his award only to Rs.68,582/-. The claim of additional Rs. Rs.68,582/-before the arbitrator was clearly beyond the order of reference which incorporated the reliefs prayed for in the plaint by the respondent herein. It would have been different if the entire claim relating to the transport of the iron ore for the extra distance was made without specifying the amount of claim. When the amount has been specified in the plaint and when the reference is confined to the claim made in the plaint, the arbitrator would have to restrict his award only to the claim. We are satisfied that in this case the arbitrator has exceeded his jurisdiction in embarking on the claim that was for the first time put forward before him by the respondent. There is therefore an error apparent on the face of the award. 11. Section 20(1) of the Arbitration Act, 10 of 1940, provides that where a difference has arisen and where any persons have entered into an arbitration agreement they may apply to the court having jurisdiction in the matter to which the agreement relates; that the agreement be filed in court. Sub-section (4) to S.20 provides that the court shall order the agreement to be filed, and shall make an order of reference to the arbitrator appointed by the parties. When an agreement is filed in Court and order of reference is made then the claim as a result of the order of reference is limited to a particular relief and the arbitrator cannot enlarge the scope of reference and entertain fresh claims without a further order of reference from the Court. On a construction of S.20 of the Arbitration Act the plea on behalf of the appellant will have to be accepted. In the circumstances of the case, we do not think that the award should be set aside as the learned counsel for the appellant has also no objection in accepting the award in so far as it relates to Rs.68,582/-. We feel that the award to the extent of Rs. 68,582/- and interest at the rate of 6 per cent per annum from the date of the award be confirmed. Regarding the direction as to return of security deposit, and earnest money, as it is not the case of the appellant that the respondent is not entitled to the amount, we do not feel called upon to interfere with the order directing the appellant to pay the amount to the respondent with interest at 6% per annum from the date of the award i.e. May 31,1975”. While relying upon a judgment of this Court( rendered by one of us, namely, Smt. Justice T. Meena Kumari) in HINDUSTAN SHIPYARD LTD., vs. M/s. ESSAR OIL LIMITED ([3]), learned counsel would contend that the arbitrator has no jurisdiction to go beyond the terms of reference. It is necessary to extract the relevant portion, which reads thus: “68. It is well settled law that the Arbitrator has no jurisdiction to go beyond the terms of reference, which is limited to the agreement as he could decide the disputes only arising out of or in connection with the agreement and could not adjudicate upon and decide the matter which falls outside the agreement.” Learned counsel further contended that in respect of Claim No.1B, the contractor has claimed variation in the rates for the granite stone used by him for execution of work instead of cement concrete with graded hard stone aggregate. Even though the contractor has failed to furnish the details as to the quantity of the granite used in execution of the work, the date of purchase of the granite and the vouchers, the arbitrator while taking into account the rate of 159 per cum of another contractor, M/s. Ramakrishna Constructions and also the rate analysis of the 1st respondent at 155 per cum as against 95 per cum for hard stone, awarded an amount of Rs. 2,00,000/- towards differential rate under the said Claim. Lastly, he would contend that Clauses 16(2) of the general Conditions of Contract prohibits grant of interest and the learned Arbitrator without taking this Clause into consideration has granted interest, which ought to have been rejected by the learned Chief Judge. He, therefore, pleaded that the appeal be allowed and the Award of the Arbitrator as confirmed by the learned Chief Judge be set aside. On the other hand, Sri P.Vasudeva Rao, learned counsel appearing on behalf of the 1st respondent had filed written arguments in the matter. Now what is to be seen is whether the Award of the Arbitrator as confirmed by the learned Chief Judge is valid and legal and is in accordance with law ? There is no dispute about the fact that the 1st respondent has entered into an agreement with the appellants on 19.2.1990 for doubling of track between Thangadi-Chegunta stations by earth work, in formation, construction/extension of major minor bridges and miscellaneous works and the work was required to be completed within 12 months from the date of issuance of acceptance letter dated 31.10.1990. There is equally no dispute about the fact that when the 1st respondent failed to execute the work within time, the same was extended without imposing any penalty. CLAIM No.1A: Interest for delay in final payment: According to the 1st respondent, he has completed the work on 20.4.1993. Though, the final measurement was taken on 31.8.1993, the final payment was made to him only on 30.3.1994 and since there is a delay of nearly 18 months in making payment of the final bill, he needs to be compensated for the delay in payment. On a perusal of Circular dated 8.5.1968 of the appellants, which deals with the elimination of delays, it is seen that final bill should be prepared within 30 days of measurement. The said circular also provides that a further time of four days should be given for checking and the final bill should be passed within four days thereafter. In the instant case, the contractor has completed the work on 27.9.1992. The final measurement was taken on 31.8.1993 and the final bill was paid to him only on 30.3.1994, i.e., nearly after a period of eighteen months. Since there is delay in making final payment of the bills, the Arbitrator was justified in awarding a sum of Rs.40,000/- under the said claim. Hence, we do not find any reason to interfere with the same. CLAIM No. 1-B: Difference of rates for use of granite instead of hard stone as stipulated: In so far as this claim is concerned, as per Clause 6.2.1 of the Special Conditions of Contract, the contractor was required to execute the work in case of R.C.C. concrete work with granite aggregate; and other mass concrete works with either granite or hard stone aggregate. It is relevant to extract the said clause. “6.2.1: Lime stone, quartz stone and shalk are not acceptable for concrete or masonry works. The contractor will have to use granite for RCC items and for other concrete items either granite or hard stone aggregate and quote the rates accordingly.” Undisputably, as per the said Clause, the contractor can execute the concrete works either with granite or hard stone. However, in the instant case, the contractor has executed the mass concrete works by using granite aggregate, which is freely available and much cheaper instead of hard stone aggregate which is not locally available and is required to be transported from other place. Therefore, the contractor is not entitled to claim the variation in rate for the usage of granite. That apart, the contractor also failed to furnish the details as to the date of purchase of granite and other supporting vouchers to prove his claim that he has actually used granite aggregate in execution of concrete works, in the absence of which, the Arbitrator was not justified in granting an amount of Rs.2,00,000/- towards the said claim. Hence, the said claim is liable to be set aside and it is accordingly set aside. Claim No.1C: Value of additional formation of the embankment: It appears, that on 16.4.1990, the contractor has written a letter to the authorities stating that as he is not allowed to carry out the morrum blanketing of the completed formations, he cannot use the extra earth for further stretches and he will be sustaining loss. It was further contended that as the appellants did not allow him to remove the loose earth then and there, it amounted to appropriating one metre extra width without payment forcing the contractor to maintain the earthwork also for monsoon contrary to the terms of the contract, as earthwork is excluded from the maintenance condition. According to the contractor, the actual problem was scheduling of the work and the acceptance of the complete work in stretches and in support of this contention, he relied on a note in the Schedule which states that the quantity for this item will be arrived at based on the cross-section of the compacted bank as assessed. The said contention was opposed by the department before the Arbitrator stating that the contractor could not have made use of such a schedule as the railways could wait till the entire stretch is completed before taking it over and the contractor has to find extra earth without banking on surplus soil. However, on a perusal of the award of the arbitrator, it is seen that earthwork embankment was governed by Clause 5.1.3 XII of Special Conditions, which reads thus: “Extra width of 50 cm., shall be rolled on either side which after finishing the bank upto final height, shall be dressed by removing the loose earth on account of rollers not able to compact the soil at the edge of the formation width has to be done by the contractor.” The department has filed a counter affidavit before the Arbitrator stating that the contractor while taking into account the aforesaid fact has quoted the rates for earth work and hence, the contractor’s claim for removing the earth on the slopes and reusing at some other places is not practicable one, as the bank is one in 30 slope. It is further stated that under Clause No.5.1.3.XI of the agreement, very clear instructions were given that loose earth only should be removed and dressed properly. As the contractor’s claim is contrary to Clause 5.1.3.XI of the Special Conditions of the agreement, the claim of the contractor regarding earthwork is untenable. The award of the Arbitrator granting an amount of Rs. 1,00,000/- under the said claim is liable to be set aside and the same is accordingly set aside. Claim No. 1-D: Value of Empty cement bags: In the instant case, 21800 cement bags were supplied to the contractor and as those bags were not returned to the department, the department has deducted an amount of Rs. 32,700/- from the bill of the contractor. While relying on Clause 11.7 of the Special Conditions of the agreement, it was contended by the 1st respondent-contractor before the Arbitrator as well as before the lower Court that since the department supplied the cement in paper and polythene bags, the same are not reusable and are susceptible to wear and tare and the department was not justified in deducting an amount of Rs. 32,700/- under this head. Admittedly Clause 11.7 of the Special Conditions of the agreement very clearly states that “the empty cement bags for the supply of cement by the railways shall be the property of the contractor and the cost of the same shall be recovered at Rs.150/- for 100 empty cement bags. The said clause also specifies that railways reserves the right to take back empty cement bags which are in good condition. However, in that case, no recovery will be made for bags so taken while taking the serviceable empty cement bags”. The learned Arbitrator while taking into account the aforesaid clause, opined that the department supplied the cement in polythene bags instead of jute bags and as such bags are handled very badly during the supply itself, they lose their value. It was further observed that the accepted meaning of empty cement bags in the context of the agreement would only mean jute bags which are capable of reuse and not the plastic bags which disintegrate in handling. He, accordingly granted an amount of Rs.30,000/- under this head. Since the cement bags which are supplied to the contractor are polythene bags and not jute bags and since the same are not in good condition, the leaned Arbitrator was justified in awarding the said amount. Hence, we do not find any reason to disallow the claim. Claim No.2: Head office expenditure to realise the amount due: Under this particular head, the 1st respondent-contractor claimed compensation of Rs.21,664.39ps towards infructuous establishment charges at the head office to follow up the final bill. However, on a perusal of the Award, it is seen that the Arbitrator has rejected the claim of the contractor on the ground that the contractor was having a running business and the head office was being maintained for the business that was being transacted by him as a whole and there was no evidence placed before the Arbitrator to show that the office would be downsized on completion of a particular contract. It is also seen from the record that the contractor has not filed any appeal against rejection of such claim and hence, we do not find any reason to interfere with the same. Claim No.3: Interest on the amount awarded upto date of award: In so far as this claim is concerned, the contractor has contended before the Arbitrator stating that since the work was completed on 27.9.1992 and after giving the admissible period for measurement and passing of final bill, the amount should have been settled at least by 31.10.1992. Since there is a delay in payment of the amounts due, the contractor claimed simple interest at 10% per annum on the amounts due and thus claimed an amount of Rs. 4,13,985/- under the said claim. However, the learned Arbitrator has awarded an amount of Rs.3,00,000/- under the said claim from 1.12.1992 till 1.8.1999. Sri Rajeev Reddy, learned counsel has contended that since the Arbitrator had already granted an amount of Rs. 40,000/- towards interest on delayed payments under Claim 1A, the contractor was not entitled to claim further interest at 10% per annum on the due amount. In view of the fact that the learned Arbitrator has granted interest on delayed payments under Claim 1A, we are of the opinion that the Arbitrator was not justified in granting further interest at 10% per annum on the due amounts. Hence, the said claim is liable to be set aside and it is accordingly set aside. Claim No.4: Compensation for infructuous overheads due to delay: As far as this claim is concerned, the contractor has contended that he had to maintain a site office at Raichur by paying rent at Rs.1500/- per month and employ an engineer at Rs.5000/- per month and a supervisor at Rs.2,000/- p.m. besides travelling expenses awaiting the final measurement and making of final bill and claimed an amount of Rs. 9,93,564/- under this head. The said claim was opposed by the department stating that the contractor was not required to maintain a site office after the work was completed and he was maintaining the site office as he had been undertaking some other works in that area. However, the learned Arbitrator has awarded an amount of Rs.1,00,000/- under this head. Learned counsel for the appellant has contended that even though the said claim was already recommended by the Pre-Arbitration Committee in its report for payment, the Arbitrator has once again allowed the said claim. While relying on Clause 17(3)of the General Conditions of Contract, learned counsel would contend that the contractor is not entitled to claim any compensation/damages. In support of this contention, he relied upon the judgment of the Apex Court in INDERSINGH REKHI vs. DELHI DEVELOPMENT AUTHORITY& OTHERS([4]). In para-4 of the said judgment, the Apex Court observed thus: “4. Therefore, in order to be entitled to order of reference under S.20, it is necessary that there should be an arbitration agreement and secondly, difference must arise to which this agreement applied. In this case, there