*THE HON’BLE SRI JUSTICE G. BHAVANI PRASAD AND THE HON’BLE SRI JUSTICE K.G. SHANKAR + C.M.A. No.3514 of 2003 and C.R.P.No. 4880 of 2003 % 21.04.2011 Between: # The Superintending Engineer, NSRC, O&M Circle, Lingamguntla, Via-Narasaraopet, Guntur District and another … Appellants/ Plaintiffis AND $D. Ranganayakulu, and another … Respondents/ Defendants CRP No.4880 of 2003: #The State of A.P., Rep.by the Superintending Engineer NSRC, O & M Circle, Lingamguntla, Narsaraopet, Narasaraopet, MMC and another .. Petitioners/ Defendants 1 & 2 AND $D. Ranganayakulu and another .. Respondents ! Counsel for the appellant: Y. Chandra Sekhar, Spl. G.P. Counsel for the Respondents: S. Ravi, senior counsel G. Rama Sarma <Gist: >Head Note: ? Cases referred: 1. 2001 (10) SCC 30 2. 1989 (2) ALT 372 (D.B.) 3. 1996 (3) ALT 53 4. 1988 (2) APLJ 465 5. 1988 (1) ALT 461 6. (2007) 2 SCC 453 7. 2008 (5) ALT 699 (D.B.) 8. 2010 (1) ALT 721 (D.B.) 9. 1999 (1) ALT 122 (D.B.) 10. 2010 (1) ALT 676 (D.B.) 11. 2010 (1) ALT 383 (D.B.) 12. 1994-DLT-53-521 13. 1994-DLT-53-709 14. 2006-DLT-130-675 15. 2007 (4) SCJ 948 16. AIR 1992 Calcutta 12 17. AIR 1995 SC 498 18. AIR 1992 SC 521 19. AIR 1967 SC 412 20. AIR 2001 SC 3095 21. AIR 1979 SC 852 THE HON’BLE SRI JUSTICE G. BHAVANI PRASAD AND THE HON’BLE SRI JUSTICE K.G. SHANKAR C.M.A. No.3514 of 2003 and C.R.P.No. 4880 of 2003 Date: 21.04.2011 CMA No.3514 of 2003: Between: The Superintending Engineer, NSRC, O&M Circle, Lingamguntla, Via-Narasaraopet, Guntur District and another … Appellants/ Plaintiffis AND D. Ranganayakulu, and another … Respondents/ Defendants CRP No.4880 of 2003: The State of A.P., Rep.by the Superintending Engineer NSRC, O & M Circle, Lingamguntla, Narsaraopet, Narasaraopet, MMC and another .. Petitioners/ Defendants 1 & 2 AND D. Ranganayakulu and another .. Respondents THE HON’BLE SRI JUSTICE G. BHAVANI PRASAD AND THE HON’BLE SRI JUSTICE K.G. SHANKAR C.M.A. No.3514 of 2003 and C.R.P.No.4880 of 2003 COMMON ORDER (Per Hon’ble Sri Justice K.G. Shankar): This common order disposes of the appeal as well as the revision. The Superintending Engineer and Executive Engineer of the Nagarjuna Sagar Right Canal are appellants 1 and 2. In the revision, the State is the first petitioner represented by the Superintending Engineer of the Nagarjuna Sagar Right Canal. The second petitioner in the revision is the second appellant in the appeal. The two respondents in the appeal and the revision are identical. The second respondent is the Hon’ble Arbitrator who is merely a proforma party. The parties shall be referred to as the SE, the EE (Superintending Engineer, Executive Engineer), the Contractor and the Hon’ble Arbitrator for convenience. 2. The SE and the EE challenge the common judgment and decrees in O.S.No.108 of 1996 and O.S.No.110 of 1996 on the file of the Additional Senior Civil Judge, Narsaraopet. Through this judgment, the learned Additional Senior Civil Judge, Narsaraopet made the award passed by the Hon’ble Arbitrator on 02.03.1995 under the Arbitration Act, 1940, the Rule of the Court. Aggrieved by the judgment in O.S.No.110 of 1996, the SE and the EE laid the appeal. Aggrieved by the judgment in O.S.No.108 of 1996, they laid the revision. However, it is a common judgment with common reasoning by the trial Court. 3. This appeal and revision were earlier disposed of by a Division Bench through a common order dated 01.11.2004. The claim of the first respondent before the Hon’ble Arbitrator was Rs.35,29,535/- . Relying upon State of A.P. v. Obulureddy[1], the Division Bench of this Court held that the dispute was not arbitrable, as the dispute was for over Rs.50,000/- and accordingly set aside the judgments in O.S.Nos.108 of 1996 and 110 of 1996 on the file of the Additional Senior Civil Judge, Narsaraopet. 4. The first respondent herein preferred SLP Nos.5721 of 2005 and 5722 of 2005 from the judgments in the appeal and the revision herein. The Supreme Court granted leave and ultimately allowed the two cases as Civil Appeal Nos.1087 of 2008 and 1088 of 2008 through a common judgment dated 07.02.2008 holding that the appellants herein waived their rights to file objection to the award. A clarification thereafter was sought by the first respondent through I.A.Nos.1 and 2 of 2009 in the two appeals. The Supreme Court clarified through orders dated 10.08.2009 that the common judgment of the High Court in the appeal and the revision stood set aside through the common judgment of the Supreme Court dated 07.02.2008 and that the appeal and the revision shall be disposed of afresh by the High Court expeditiously. Thus, the appeal and the revision came up before us for our consideration. 5. The facts leading to the filing of the appeal and the revision may briefly be stated at this stage. The facts are: a) The first respondent is a contractor. He laid a tender for “lining the bed and sides of Nagarjuna Sagar Right Main Canal from Kilometer 23.13 to Kilometer 23.41”. The estimated value of the work was Rs.12.41 lakhs. The bid of the contractor was accepted. The agreement between the SE and the SE and the contractor concluded on 18.04.1986 for a sum of Rs.11.22 lakhs. The contract is required to be completed during the periods of the closure of the canal in 1986 and 1987. The contractor, claiming that he executed the works entrusted to him, requested for the settlement of the claims. He also issued a notice on 02.04.1991 to the SE to settle his claim. b) Disputes arose between the SE and the EE on the one side and the contractor on the other side regarding the work conducted by the Contractor. The work indeed could not be completed in 1987 as contemplated by the agreement as the canal could be closed by 31.03.1988 only. The contractor claimed that he suffered losses in the execution of the works. c) The contractor consequently invoked the arbitration clause and filed O.P.No.167 of 1991 on the file of the Principal Senior Civil Judge, Narsaraopet. The Court appointed the Hon’ble Arbitrator as the sole arbitrator. d) The Hon’ble Arbitrator awarded Rs.15,21,600/- in favour of the Contractor together with interest at 24% per annum from 05.01.1994 on which date the reference was entered into by the Hon’ble Arbitrator till 02.03.1995 on which date the award was passed. The interest awarded by the Hon’ble Arbitrator worked out to Rs.4,23,000/-. The Contractor consequently was declared to be entitled to Rs.19,54,600/- from the SE and the EE. e) The Hon’ble Arbitrator also awarded compensation to the first respondent under items 1 to 13 of the claim of the Contractor at Rs.16,12,400/- together with simple interest at 24% per annum. The total value of the amount for which the award was passed by the Hon’ble Arbitrator was Rs.35,72,000/-. f) The EE contended that the award was vitiated by misconduct of the Hon’ble Arbitrator and that the Hon’ble Arbitrator ignored Clause (10) of the Schedule-C of the Special Conditions of Agreement. The claim of the Contractor was thus resisted by the appellants completely. g) In their turn, the SE and the EE filed O.S.No.110 of 1996 to set aside the award of the Hon’ble Arbitrator. The learned trial Judge did not record any evidence. After hearing both sides, the learned trial Judge considered that the award was just and proper. He consequently allowed O.S.No.108 of 1996 and dismissed O.S.No.110 of 1996. He made the award the Rule of Court. As already pointed out, impugning the judgment, the appellants laid the appeal against the judgment in O.S.No.110 of 1996 and laid the revision against the judgment in O.S.No.108 of 1996. 6. The learned Government Pleader for Arbitration advanced his submissions on behalf of the SE and the EE. Sri S. Ravi, learned senior counsel countered the claim of the appellants while arguing on behalf of the Contractor. 7. The learned Government Pleader contended that the Supreme Court has already resolved the question relating to interest holding that the contractor would not be entitled to interest on the delayed payments if there was an agreement to that effect. He drew our attention to the award of interest at 24% per annum by the Hon’ble Arbitrator and by referring to Clause 59 of the Preliminary Specifications of the Andhra Pradesh Detailed Standing Specifications (‘PS to APDSS’ for short), he submitted that the contractor is not entitled to compensation on account of delays or hindrances to the work. He placed reliance upon Clause 69 of PS to APDSS prohibiting payment of interest on money due to the contractor. He further contended that the claim under Clause 12 (A) by the contract towards damages for delay in payment of bills to a tune of Rs.74,880/- cannot be claimed by the contractor, in view of Clause 59 of PS to APDSS. 8. The learned Government Pleader pointed out that the contract awarded in favour of the contractor was a lump sum contract as opposed to piecemeal or item wise contract and that notwithstanding various defaults urged by the contractor, the contractor would not be entitled to interest, vide prohibition through Clause 69 of the PS to APDSS. He further urged that as Clause 59 of the APDSS was found to be intra vires, the contractor is not entitled to compensation over by the delayed execution of the works. 9. On the other hand, Sri S. Ravi, learned senior counsel contended that in respect of the claims under items 1A, 2A, 3A and 11A, Clause 59 of the PS to APDSS would not operate as a defence. He claimed that the contractor would be entitled to interest at least at 15% per annum keeping the interest rates of Reserve Bank of India in view. Award of interest at 9% per annum uniformly by Courts without reference to the rates of interest was considered by the learned Senior Counsel to be unjust and that the rate of interest, therefore, was prayed to be granted at 15% per annum at least. 10. In the light of the rival contentions, the point for consideration is whether the award passed by the Hon’ble Arbitrator deserves to be confirmed and if so, to what extent. 11. The exact value of the work entrusted to the first respondent was Rs.11,21,682/-. The time stipulated for the completion of the work was three months in 1986 and three months in 1987 during the period of the closure of the canal. When the Contractor sought for the extension of the time, the SE extended the time till 16.06.1989 to complete the works by invoking Clause 59 of the Preliminary Specifications to Andhra Pradesh Detailed Standard Specifications (‘PS to APDSS’ for short). 12. However, the work could not be completed even by 16.06.1989. Curiously, the Contractor did not seek for further extension of time, albeit the EE desired that the Contractor should apply for further extension of time. The Contractor, on the other hand, addressed a letter on 13.12.1990 requesting for the settlement of the claim. The Contractor further intimated the SE and the EE that he would apply for the extension of time if the periods of closing and opening of the canal are adhere to a fixed time schedule. 13. There are as many as 16 claims by the contractor in 29 items. In respect of claims 1 to 13, each of the claims is two-fold. The first of these claims is the claim proper. The second of each of these claims is the claim relating to the interest over the main claim. So far as claims 14, 15 and 16 are concerned, there is no added demand for interest over the claim component. The demand for interest component over the main claim is covered by Clause 69 of PS to APDSS. They deserve to be considered while examining the implications of Clause 69 of PS to APDSS. The claims proper, which are the impugned claims, deserve to be examined at the out set. 14. As already pointed out, the main claims are claim Nos.1 to 13 numbered as claim 1A, claim 2A, claim 3A so on and so forth till claim 13A. The learned senior counsel representing the contractor contended that claim 1A, 2A and 3A as well as 11A are not hit by Clause 59 of PS to APDSS. Clause 59 of PS to APDSS may be recapitulated as a bar of claim for compensation on account of delay or hindrance to the work from any cause whatsoever. The preliminary specification, however, envisaged that such compensation is payable to the extent permitted by preliminary specification No.59 of APDSS only. 15. There was judicial controversy regarding the constitutional validity of Class 59 of PS to APDSS. The Division Bench of this Court in the State of A.P. Vs. M/s. Associated Engineering Enterprises, Hyderabad[2] more or less upheld the vires of Clause 59. In M. Gangareddy v. State of A.P.[3], the Division Bench considered that Clause 59 of PS to APDSS does not automatically apply to every case and that the escalation clause beyond the contractual period would indeed operate as an exception to clause 59. The Division Bench of this Court ignored the prohibition under clause 59 while considering the case of a contract in the State of A.P. v. S.S.Reddy[4]. In V. Raghunadha Rao v. State of A.P.[5], a single judge of this Court held that certain phrases of Clause 59 are arbitrary and unjust. However, the Supreme Court put a quietus to the controversy upholding the vires of Clause 59 of PS to APDSS. 16. In Ramnath International Construction (P) Ltd., v. Union of India[6], the terms of the contract provided that in case of any delay in the execution of the works either on account of shortfall on the part of the contractor or mistake of the employer or both, the contractor would not be entitled to claim any compensation on the ground of such delay if the contractor sought for and obtained extension of time. This is exactly what clause 59 envisages. The Supreme Court indeed was dealing with clause 11 of the General Conditions of Contract (‘GCC’ for short). The learned Government Pleader contended that Clause 11 (c) of the GCC is para meteria of clause 59 and that where the Supreme Court approved clause 11 (c) of the GCC, the ratio would equally apply to clause 59 of PS to APDSS. 17. In para 12 of this decision, the Supreme Court observed that the contract provided that if there was any delay attributable either to the contractor or to the employer or to both and the contractor sought and obtained extension of time for the execution on that count, the contractor would not be entitled to claim compensation of any nature on the ground of such delay in view of the bar under clause 11(c) of the GCC. It is the contention of the learned Government Pleader that in view of this decision of the Supreme Court, the Contractor is debarred from questioning the virusness of Clause 59 of PS to APDSS and that in turn, in view of Clause 59, the contractor is not entitled to claim additional amounts on account of delayed execution of the works. 18. He has also placed reliance upon K. Marappan v. Superintending Engineer, TBPHLC Circle, Anantapur[7], where one of us (Sri Justice G. Bhavani Prasad) was a member of the Division Bench. In that case, a contractor failed to complete the works contract within the stipulated period. The contractor sought for the extension of time. The contractor, however, subsequently made a claim for compensation of delay due to increase in the rates more than the rates fixed at the time of the commission. The Division Bench of this Court observed that such a delay could not constitute a ground to tag the government or the employer without any additional liability. The Division Bench has taken through the march of law in paras 18 and 19 of its erudite judgment. Indeed, the virusness of clause 59 has not been the direct question in that case. Clause 59, however, was upheld in that case. The learned Government Pleader contended that in view of this decision of this very Court, clause 59 of PS to APDSS holds sway so much so the contractor would not be entitled to claim any compensation on account of delayed execution of the works. 19. In Dhirubai D. & Company, Engineers & Contractors v. Nizam Sugar Factory Limited[8], the arbitral award was passed under the provisions of the Arbitration Act, 1940. The Division Bench of this Court placed reliance upon Ramnath International Construction (P) Ltd., v. Union of India (supra) in approving clause 48 of the GCC. On the strength of these decisions, the learned Government Pleader asserted that clause 59 of PS to APDSS is intra vires. In all fairness, Sri S. Ravi, senior counsel for the contractor did not urge that clause 59 of PS to APDSS is ultra vires and that the claims of the contractor should not be judged on the strength of clause 59. On the other hand, his contention is that claims under 1A, 2A, 3A and 11A are patently beyond the purview of clause 59 and that the defence of the prohibition under clause 59 does not operate so far as these claims are concerned. 20. Claim 1A consists of 13 sub-claims. Claim 1A relates to the execution of the works and the non-payment of amounts for works executed by the contractor. But, the alleged works, in respect of which payments were not made, are 13 in number, which are sub-items 1 to 13 of claim 1A. 21. The total amount covered by claim No.1A is Rs.9,88,800/-. The second respondent-Hon’ble Arbitrator awarded Rs.6,43,300/- under claim 1A. It is the case of the contractor that he executed as many as 13 items in sub-items 1 to 13 not originally contemplated under the agreement and that the Contractor is entitled to these amounts as value of additional works executed by the Contractor. It may be noticed that the amount covered by claim 1A is not by way of additional amount for the delayed execution of the works. It is a claim towards the value of the additional works executed by the Contractor. We may at once hold that Clause 59 does not operate as a bar for such a claim. The contention of the learned counsel for the Contractor that Clause 59 of PS to APDSS has no relevance in this context is justified. Therefore, whether the claim of the Contractor for the additional amounts is justified or not falls for consideration as question of fact. 22. We are afraid that when the Hon’be Arbitrator examined the issue and concluded that the Contractor is entitled to additional amounts at Rs.6,43,300/- as against the claim of Rs.9,88,800/-, it would be improper in going into the question of fact and examine whether the Hon’ble Arbitrator correctly judged the facts of the case or otherwise. 23. At any rate, we may examine the claim of the Contractor, the resistance from the Government, the evidence and the conclusion of the Hon’ble Arbitrator on each of these sub-items 1 to 13. 24. In respect of claim relating to Mastic Pad (claim under sub-item 1 of the item 1A), the Contractor claimed Rs.46,000/-. The Hon’ble Arbitrator verified the measurement books and the records in the presence of the EE and Assistant Engineer and worked out the value of the additional works conducted by the Contractor at Rs.6,812/- as available through memo dated 13.12.1994. Consequently, the Hon’ble Arbitrator considered it appropriate to award the claim in respect of the sub-item No.1 at Rs.6,812/- only. As rightly submitted by the learned Government Pleader, the Contractor could not establish through any cogent or fair evidence that the claim at Rs.46,000/- as made by him was justified. We, therefore, unhesitatingly accept the award of Rs.6,812/- as reasonable and justified. 25. Sub-item No.2 relates to additional value of cross section sheets. The Contractor claimed Rs.34,970/-under sub-item No.2. Holding that the amount covered by the additional expenditure under this head was already paid by the Department, the Hon’ble Arbitrator disallowed the claim. The learned Senior Counsel failed to explain that the rejection of claim 1A, sub-item 2 by the Hon’ble Arbitrator was not justified. On question of fact, the finding of the Hon’ble Arbitrator is therefore found to be correct and does not call for any interference. 26. Sub-item No.3 relates to Leads and Lifts. The Contractor asserted that Leads and Lifts were paid for the quantities of soil and rock excavated only and that the quantities lifted by the Contractor were much more than the excavated rocks and soil. Owing to swelling of the soil and rocks, he estimated the difference between the excavated soil and rocks and the actual lifted quantities as 25% of soil and 66 2/3rd% of rocks. 27. Clause 19 of the agreement between the Contractor and the Department contemplated payment on the basis of the quantity and not on the basis of the weight. The difference of amount towards Leads and Lifts claimed by the Contractor is at Rs.9,757/-. The Hon’ble Arbitrator considered it to reasonable and accepted the same. 28. Sub-item 4 is a claim for Rs.30,000/- towards the clearing of the forest by the Contractor. Holding that the claim was vague and without subsistence, the Hon’ble Arbitrator rejected the claim. 29. Sub-item No.5 is a claim for Rs.2,82,970/-. The SE and EE assessed the additional costs at Rs.56,500/- for the season of 1986 and at Rs.60,500/- for the season of 1987 through their memo dated 22.12.1994. The total value of the claim thus admitted by the SE and EE under sub-item 5 is Rs.1,17,000/-. 30. While so, the Contractor accepted to the extent of additional expenditure for the season of 1986 at Rs.56,500/-. He, however, asserted the additional expenditure at Rs.1,41,490/- for 1987 being half of the original claim Rs.2,82,980/-. The Hon’ble Arbitrator included the additional claim for 1987 and the claim of 1986 at Rs.1,41,490/- and Rs.56,500/- respectively and awarded an amount of Rs.1,97,990/- as additional expenditure in respect of sub-item No.5. The learned Government Pleader is not able to show how the additional expenditure for 1987 was only Rs.60,500/-, whereas the Contractor would appear to have explained the calculation of the additional expenditure for the year 1987 apart from the additional expenditure for the year 1986. The amount payable to the Contractor in sub-item No.5 at Rs.1,97,990/- as arrived by the Hon’ble Arbitrator consequently is justified. 31. The Contractor assessed the extra cost of dewatering during the currency of the agreement at Rs.30,000/-. It is the case of the Contractor that the depth of stagnated water was expected to be at two feet and that the actual depth of the stagnated water during the first season was at a depth of six feet and the depth was 10 feet during the second season. Contending that the dewatering process resulted in extra expenditure as against the projected expenditure, the Contractor claimed additional amount of Rs.30,000/- towards extra cost of dewatering. The Government authorities contested the claim on the ground that the Contractor was expected to investigate the conditions prevailing at the site before he laid the tender papers. The learned senior counsel for the Contractor pointed out that the Contractor was handicapped in assessing the depth of stagnated water as the canal was flowing when the tender notification was issued and when the tender papers were filed so much so the Contractor had no opportunity of making a study of the depth of the stagnated water. The Hon’ble Arbitrator calculated the overall expenditure towards the dewatering process and awarded Rs.16,900/- as against the claim of Rs.30,000/-. The Hon’ble Arbitrator has taken the memo of the department dated 22.12.1994 into consideration in arriving at the additional expenditure. 32. More or less, the entire claim of the Contractor in respect of sub-item No.7 was accepted through the award by the learned Arbitrator. While the Contractor claimed Rs.2,88,580/-,