THE HONOURABLE SRI JUSTICE A.GOPAL REDDY and THE HONOURABLE SRI JUSTICE B.CHANDRA KUMAR C.M.A.No.3055 of 2003 & C.R.P.No.1024 of 2002 Date of Judgment: 04-06-2010 CT in CMA No.3055 of 2003 1. State of A.P. rep. by the Principal Secretary to Govt., R&B Department, Secretariat, Hyderabad and others. ..Appellants and 1. P.Lakshmamma (died per L.Rs.) and others. ..Respondents The Court made the following common Judgment: THE HONOURABLE SRI JUSTICE A.GOPAL REDDY and THE HONOURABLE SRI JUSTICE B.CHANDRA KUMAR C.M.A.No.3055 of 2003 & C.R.P.No.1024 of 2002 Common Judgment: (Per Honourable Sri Justice A.Gopal Reddy) This appeal and revision arise out of the common order of the Senior Civil Judge, Nellore dated 16-04-2001 made in O.P.No.101 of 1994 filed to set aside the award of the arbitrator under Section 30 and 33 of the Arbitration Act, 1940 (for short “the Act”) and O.P.No.32 of 1993 filed to make the award as rule of Court are taken up together for hearing and disposed of by this common judgment. The relevant facts give rise to this appeal and revision are thus: The appellants/revision petitioners (hereinafter called “Employer”) invited tenders for “formation of Approaches to Bridge across Swarnmuki and Manidi Kalva from KM 103.524 to KM 118.865 (M 65/0 to 75/0) of Madras—Calcutta Road NH5 Sub-work” and for “formation and metaling approaches from KM 111.216 to 111.964 and KM 112.116 to 112.900 of Madras— Calcutta Road including CD works. On accepting the tender of late Narapu Naidu (hereinafter called “Contractor”) an agreement dated 27- 03-1983 was entered into fixing the time limit for completion of work as 18 months from the date of handing over of the site. Value of the work under the agreement is Rs.44.10 lakhs. The site was handed over on 09-09-1983. As the contractor could not complete the work within the stipulated time of 18 months, 12 extensions were granted and contract work was completed more than 4½ years after the agreed date i.e. in July, 1989. As certain disputes arose between the parties under the agreement, the Contractor sought for a reference of the matter to the arbitrator for resolution of the claim and filed O.P.No.15 of 1990 before the Subordinate Judge, Nellore for appointment of sole arbitrator, who by order dated 18-04-1991 appointed late Sri Justice Challa Kondaiah, former Chief Justice of A.P. High Court, as sole arbitrator. On Employer filing revision—C.R.P.No.2337 or 1991, the High Court by order dated 04-12-1991 appointed late Sri Justice C.Sriramulu, a retired Judge of this Court as arbitrator. Before whom the contractor filed claim statement for different claims numbering 15 and interest on 11 claims. The arbitrator by the impugned award dated 30-04-1993 allowed claim No. 1(A) for Rs.4,92,054/- towards cyclone damages as against claim of Rs.10,23,500/-; claim No.2(A) for Rs.17,97,000/- towards increased cost of execution work done beyond agreement period; claim No.4(A) for Rs.30,000/- towards refund of fines and penalties wrongfully, unjustly and illegally levied and recovered. In all, a sum of Rs.23,19,054/- was awarded, but rejected the remaining claims except claim No.15(A), which pertains to interest on the awarded amount from the date of award till the date of decree or realisation at 16% per annum. On passing the award, the appellants filed O.P.No.101 of 1994 under Sections 30 and 33 of the Act for setting aside the award, whereas the legal heirs of the Contractor, who died during the pendency of the award proceedings, filed O.P.No.32 of 1993 seeking to make the award as rule of Court in respect of claims awarded i.e. claim Nos. 1(A), 2(A) and 4(A) with interest at 24% per annum from the date of award till payment and for remitting the award to the arbitrator to decide interest on the principal amounts awarded, as claimed under claim Nos.1(B), 2(B) and 4(B) of the claim statement. The learned Senior Civil Judge, Nellore by the impugned common order dated 16-04-2001 dismissed O.P.No.101 of 1994 and allowed O.P.No.32 of 1993 passing a decree for the awarded amount of Rs.23,19,054/- with costs and future interest at 12% per annum from the date of award till 15-04-2001 and at 9% per annum on the said sum from the date of decree till realisation and remaining claim of the Contractor for remitting the award has been rejected. Questioning the same present appeal and revision by the Employer, whereas the legal representatives of the Contractor filed revision—C.R.P.No.3819 of 2001 aggrieved by the rejection of interest, which was dismissed for default by this Court on 12-09-2006 and no steps have been taken to restore the same. Submissions: P.Chankdrasekhar, learned Government Pleader for Arbitration, representing the learned Advocate General, contends that under Clause 50 of Preliminary Specification to Andhra Pradesh Detailed Standard Specifications, the Contractor is not entitled to any damages for the acts of God (Vis Major). Further, the arbitrator has not noticed that an amount of Rs.4,84,964/- was paid by the department/Employer for the work done by the Contractor. So, the Contractor is not entitled to damages to the extent of amount paid. Clause 59 of Preliminary Specification to Andhra Pradesh Detailed standard Specifications prohibits awarding escalation during the extension period, except extension of time. Once 12 extensions were granted at the request of Contractor by invoking Clause 59, further payment towards increased cost of execution work beyond the agreement period does not arise. The arbitrator misconducted himself and travelled beyond the agreed terms and conditions, so the award is liable to be set aside. Sri N.Subba Rao, learned counsel for the respondents (legal heirs of deceased contractor) contends that there is 7 months delay (in replacing the transmission lines) in handovering the site and designs after the original period of contract. When the breach is on the part of department, the Contractor cannot be liable for the delay. Claim No. 1(A) comes under Clause 50. The arbitrator has assigned sufficient reasons for the delay, change of design work increased and increase of initial contract work from 44 lakhs to 54 lakhs. Since the department requested the Contractor to seek extension of time, fault cannot be attributed to the Contractor in seeking extension. Therefore, penalty imposed at 41% on the extension period is only nominal due to increase of the quantity more than 37% of the quantity, the Contractor is entitled to extra rate. For the said proposition reliance is placed on the judgment of the Supreme Court in K.N.SATHYAPALAN (DEAD) BY L.rs. v. STATE OF KERALA[1]. He further contends that when the department failed to substantiate that the Contractor entered into Supplemental Agreement, Clause 59 has no application, as no notice was given in the said clause. Learned counsel also placed reliance on the following judgments: 1. GOVT. OF ANDHRA PRADESH v. SATYAM RAO[2] 2. GOVT. OF A.P. v. E.C.TECHNO INDUSTRIES[3] 3. APSRTC, MUSHEERABAD, HYD. v. SEW CONSTRUCTIONS LTD., HYD. [4] 4. SUPERINTENDING ENGINEER v. PROGRESSIVE ENGINEERING CO.[5] Before we proceed to advert the rival submissions, it has to be seen whether Clause 50 of Preliminary Specification to Andhra Pradesh Detailed Standard Specifications prohibits award of cyclone damages or not? Clause 50 of Preliminary Specification to Andhra Pradesh Detailed Standard Specifications reads thus: “50.Contrator’s risk and insurance: The work executed by the contractor under the contract shall be maintained at the contractor’s risk until the work is taken over by the Executive Engineer. The Contractor shall accordingly arrange his own insurance against fire and other usual risks during such period unless otherwise specified. Provided however that the contractor shall not be liable for all or any loss or damage occasioned by or arising out of acts of God, and in particular unprecedented flood, volcanic eruption, earthquake or other convulsion of nature, invasion, the act of foreign enemies’ hostilities or warlike operations (before or after declaration of war) rebellion, military or usurped power.” As the entire controversy centers round claim Nos. 1(A) and 2(A) under which the arbitrator awarded Rs.4.92,054/- towards cyclone damages and Rs.17,97,000/- towards increased cost of execution work done beyond the agreement period the following points arise for consideration in this appeal and revision. 1. Whether Claim No.1 (A) is prohibited under Clause 50 of Preliminary Specification to Andhra Pradesh Detailed Standard Specifications. 2. Whether awarding amount towards increased cost of execution work done beyond the agreement period is contrary to Clause 59 of Preliminary Specification to Andhra Pradesh Detailed Standard Specifications if so, arbitrator committed misconduct in awarding the amount under the above head.” Point No.1: Under claim No.1 (A) the contractor claimed that there was unprecedented rains during the period from 11-11-1984 to 16-11-1984 resulting huge loss which upsetted the progress of the work. The claimant (contractor) by his letter dated 16-11-1984 brought to the notice of the employer that due to unexpected flood in Mamidikalva due to rains during the period 12-11- 1984 to 15-11-1984 damages occurred amounting to Rs.7,87,200/- and sought compensation under two heads contending that 28000 M3 earth work was washed away apart from advances for labour amounting to Rs.1,60,000/- + 40,000/- = Rs.2,00,000/- were lost and huts for labour and camp shed worth Rs.30,000/- were damaged. The Executive Engineer, (R&B N.H. Division, Naidupet, marked as R11 before the arbitrator, wrote to the Superintending Engineer (R&B), N.H.Circle, Nellore stating himself and Deputy Executive Engineer inspected the work after cyclone which occurred on 12-11-1984 to 16-11-1984 and a fair assessment of the losses caused was made as per the statement enclosed and the case may be considered in the light of Clause 50 of Preliminary Specification to Andhra Pradesh Standard Specifications as this is an act of God and the loss is beyond the control of the contractor on sympathetic grounds alone. The loss so estimated is Rs.4,92,054/- out of which a sum of Rs.4,48,964/- towards cost of formation of embankment i.e. about 22,561 cu.m. of carted earth which was washed away. The arbitrator after taking into consideration the entire loss accepted the loss estimated by the department and awarded Rs.4,92,054/- under claim No.1(A) as against claim of Rs.10,23,500/- claimed by the contractor, which has been made rule of court by the trial court. The learned Government Pleader for Arbitration contends that under Clause 50 of Preliminary Specification to Andhra Pradesh Detailed Standard Specifications that the entire work executed has to be maintained by the contractor on his own risk until the work is taken over by the Executive Engineer and he shall accordingly arrange his own insurance against fire and other usual risks during such period unless otherwise specified. Therefore, the department cannot be suffered with the loss when the contractor failed to insure the work specified under Clause 50 of Preliminary Specification to Andhra Pradesh Detailed Standard Specifications. We do not see any force in the contention of the learned Government Pleader because, proviso to Clause 50 of Preliminary Specification to Andhra Pradesh Detailed Standard Specifications makes it abundantly clear that the contractor shall not be liable for all or any loss or damage occasioned by or arising out of acts of God and in particular unprecedented flood. It is not disputed that the said floods occurred during the agreement period; the site itself was handed over on 09-09-1983 and the contract work has to be completed within 18 months from the said date i.e. 08-03-1985. Thus, the contractor is entitled to claim damages, as referred above. Further, the department itself knowing fully well rightly understood Clause 50 of Preliminary Specification to Andhra Pradesh Detailed Standard Specifications referred the matter to Superintending Engineer for consideration of the claim. It was contended that an amount of Rs.4,84,964/- was already paid by the department for the work done by the Contractor. Therefore, he is not entitled to damages to the extent of amount so paid. There is no dispute with regard to payment of amount initially by the department to the Contractor for execution of the work. After the same is washed away in the floods occurred in November, 1984, if the Contractor has again executed the said work, he is entitled to reimburse the said loss. No such plea was taken by the department before the arbitrator. We make it clear if the said amount is paid twice, the department is entitled to deduct the same or in the alternative, if the Contractor has not executed the work after embankment washed away in the floods, he is not entitled to the same. Point No.1 is accordingly answered. Point No.2: Under Ex.C3 letter dated 21-09-1985 written by the Contractor to the Superintending Engineer he categorically admitted that the contract is lumpsum contract, according to the intrinsic nature of which the work has to be completed within certain and specified time shown in the agreement as described in Schedule-A and as shown in plans. Any delay in giving uninterrupted possession of complete site or supply of plans or details or decisions etc. constitute partial preventions and contract is entitled under law to maintain action against the department for compensation for all losses/damages he may suffer in consequence thereof. The department by its letter dated 31-07-1985 addressed to the Executive Engineer extended time asked by the contractor upto 30-09-1985, as recommended by the Executive Engineer under Ex.R44, with penalty of Rs.1,000/- informing that progress of work was severally hampered by three successive cyclones in the part. The Contractor by letter dated 28-09-1985—Ex.R45 sought extension of time. As the Contractor has furnished a signed programme to complete the work by 30-06-1986, extension of time under the agreement was granted upto 30-06-1986 with a penalty of Rs.1,000/-. Similar extensions were granted under Ex.R52 dated 16-08-1986 upto 31-03-1987 by imposing penalty of Rs.1,000/-. The Contractor in his letter Ex.C7 addressed to the Executive Engineer requested to waive the penalty imposed on him and also requested for separate rates with an undertaking that he will complete the work as per the agreement by 31-03-1987 and expressed difficulty faced by him in execution of work due to excess quantity of 30% over and above original quantity. By further letter dated 31-03-1987 the Contractor requested extension of time upto 31-03-1988 under Exs.C9 and C10. The Executive Engineer addressed a letter dated 30-03-1988 to the Superintending Engineer for extension of time upto 31-08-1988 by imposing penalty of Rs.1,000/-. The above correspondence clearly goes to show that the Contractor agreed for execution of work as per Clause 59 of Preliminary Specification to Andhra Pradesh Detailed Standard Specifications in which he is entitled to extension of time but not for any damages. Learned counsel for the Contractor contends that in the absence of Contractor entering into Supplemental Agreement which the department fails to substantiate and notice has not given under Clause 59 o f Preliminary Specification to Andhra Pradesh Detailed Standard Specifications, the Contractor is entitled to increased cost for the work executed during the extension period. The arbitrator awarded Rs.17,97,000/- towards increased cost of execution work done beyond agreement period under claim No.2(A) which has been made rule of Court by the civil court. Therefore, the question that arises for consideration is, whether the contractor is precluded from claiming escalation rates contrary to the agreed terms and conditions of the contract and the arbitrator exceeded his jurisdiction by awarding the amount ignoring Clause 59 of Preliminary Specification to Andhra Pradesh Detailed Standard Specifications, if so the same is liable to be set aside or not. In Ch. RAMALINGA REDDY v. SUPERINTENDING ENGINEER[6], while considering the similar claim the Supreme Court observed as under: “Claim 8 was for "payment of extra rates for work done beyond agreement time at schedule of rate prevailing at the time of execution". The arbitrator awarded the sum of Rs.39,540. Clause 59 of the A. P. Standard Specifications, which applied to the contract between the parties, stated that no claim for compensation on account of delays or hindrances to the work from any cause would lie except as therein defined. The claim falls outside the defined exceptions. When extensions of time were granted to the appellant to complete the work, the respondents made it clear that no claim for compensation would lie. On both counts, therefore, Claim 8 was impermissible and the High Court was right in so holding.” This Court in STATE OF A.P. vs. ASSOCIATED ENGINEERING ENTERPRISES, HYDERABAD[7] held as under: “Applying the principle of the above decision to the facts of the case before us, it must be held that Clause 59 bars a claim for compensation on account of any delays or hindrances caused by the department. In such a case, the contractor is entitled only to extension of the period of contract. Indeed, such an extension was asked for, and granted on more than one occasion. (The penalty levied for completing the work beyond the extended period of contract has been waived in this case ). The contract was not avoided by the contractor, but he chose to complete the work within the extended time. In such a case, the claim for compensation is clearly barred by Clause 59 of the APDSS which is, admittedly, a term of the agreement between the parties. Following the same, the Supreme Court in ASSOCIATED ENGINEERING CO. vs. GOVERNMENT OF ANDHRA PRADESH[8] held that the said claims were not payable under the contract and that the contract does not postulate, in fact prohibits, payment of any escalation under those heads and affirmed the decision of the High Court. Referring to the above two decisions and also a decision in RAJASTHAN STATE MINES AND MINERALS LTD. vs. EASTERN ENGINERING ENTRPRISES AND ANR. [(1999) 9 SCC 283] the Supreme Court in RAMNATH INTERNATIONAL CONSTRUCTION PVT. LTD. vs. UNION OF INDIA[9] held that the arbitrator clearly misconducted himself in awarding compensation under claim No. 24 under Hangar Contract and claim Nos. 13 to 16 under the Road Contract. “Where agreement clause” prohibits claim of compensation/damages under whatsoever cause except extension of time for completion of work, the arbitrator exceeded his jurisdiction. By doing so, the arbitrator wandered far outside the designated area and the same is liable to be dismissed. Once the arbitrator misconducted himself in awarding compensation under the above claims the High Court has rightly set aside the same on the ground that the arbitrator has acted in excess of his jurisdiction. Holding so dismissed the appeal. In view of the same, it is not necessary for us to consider the various decisions cited by the Contractor. The award passed by the arbitrator under claim No.2 (A) towards increased cost of execution work done beyond the agreement period is prohibited by Clause 59 of Preliminary Specification to Andhra Pradesh Detailed Standard Specifications. The arbitrator passed the above award ignoring the prohibition contained in the above clause and travelled outside the contract in awarding those claims. Therefore, the award passed by the arbitrator under claim No.2 (A) and interest on it, which is made as rule of court, is liable to be set aside and we accordingly do so. In the result, appeal and revision are partly allowed, to the extent indicated above. There hall be no order as to costs. ________________ A.GOPAL REDDY, J. __________________ B.CHANDRA KUMAR,J. 04-06-2010 Murthy [1] 2006 AIR SCW 6222 [2] 1996 (2) ALD 549 (DB) [3] 1989 (2) ALT 320 [4] 2009 (6) ALD 510 (DB) [5] 1997 (2) ALT 701 (DB) [6] (1999) 9 SCC 610 [7] AIR 1990 AP 294 [8] (1991) 4 SCC 93 [9] 2006 Arb. L.R. 4 385