IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD WEDNESDAY, THE 19TH DAY OF AUGUST TWO THOUSAND AND NINE PRESENT HON’BLE SMT. JUSTICE T.MEENA KUMARI AND HON’BLE SRI JUSTICE G.V.SEETHAPATHY C.M.A.No.2989 OF 2003 & C.R.P.No.420 OF 2003 CMA.No.2989 of 2003: Between: APSRTC rep. by its Managing Director, Mushirabad, Hyderabad and two others …Appellants/Petitioners A n d M/s Ganesh Roling Shutters and Engineering Works, 1-3-1024, Lower Tank Bund Road, Secunderabad and two others …Respondents C.R.P.No.420 OF 2003 Andhra Pradesh State Road Transport Corporation, rep. by its Chief Civil Engineer (I), Mushirabad, Hyderabad and another …Petitioners A n d M/s Ganesh Roling Shutters and Engineering Works, 1-3-1024, Lower Tank Bund Road, Secunderabad and two others …Respondents HON’BLE SMT. JUSTICE T.MEENA KUMARI AND HON’BLE SRI JUSTICE G.V.SEETHAPATHY C.M.A.No.2989 OF 2003 & C.R.P.No.420 OF 2003 COMMON ORDER: (Per Hon’ble Sri Justice G.V.Seethapathy) C.M.A.No.2989 of 2003 is directed against the order and decree dated 25-04-2002 in O.P.No.120 of 1998, on the file of the III Additional District Judge, City Civil Court, Hyderabad and C.R.P.No.420 of 2003 is directed against the judgment dated 25-04-2002 in O.S.No.243 of 1998, on the file of the III Additional District Judge, City Civil Court, Hyderabad. 2. As both the matters arise out of the same set of facts, they are heard together and are being disposed of by this common order. 3. Heard the learned counsel for the petitioners/appellants and the learned counsel for the respondents. Perused the records. 4. It is not disputed that the appellant/RTC had entered into an agreement with the first respondent regarding construction of bus station complex at Chittoor and disputes arose between the appellant and the first respondent regarding the said work and the matter was referred to arbitrators i.e., respondents 2 and 3 herein. The second respondent was nominated by the first respondent and the third respondent was nominated by the appellant and by mutual agreement they appointed one J.V.Prasad, a retired Engineer, as umpire. 5. It is also not disputed that the arbitrators, after giving opportunity to both parties to file their statements and also to adduce evidence, passed an award dated 01- 12-1997, wherein claim No.2, relating to extra expenditure incurred on the work done beyond the agreement period, was allowed-in-part to the extent of Rs.17,38,576/- as against the amount of Rs.28.68 lakhs and claim No.3, relating to compensation towards losses suffered due to delayed payments, was allowed to the extent of Rs.19,804/- as against the claim of the same amount and claim No.8, relating to damages for delay in settlement and payment, was allowed to an extent of Rs,2,84,424/- as against the claim of Rs.6,68,095/-. Thus, the total claims allowed came to Rs.20,42,804/- and the arbitrators awarded interest thereon at 18% p.a., from the date of reference to the date of actual payment. The arbitrators have rejected claim No.1, relating to reimbursement of loss sustained on account of cyclone and work site remaining under water, in a sum of Rs.8,18,000/-, claim No.4, relating to extra overhead charges, in a sum of Rs.18.74 lakhs, claim No.5, relating to loss of proft, in a sum of Rs.27.95 lakhs, claim No.6, relating to wrongful recoveries made in the final bill, in a sum of Rs.3,24,088/- and claim No.7, relating to reimbursement of extra expenditure incurred in procurement of 20 mm machine, in a sum of Rs.42,750/-. 6. The appellant/RTC herein filed O.P.No.120 of 1998 for setting aside the award dated 01-12-1997. The first respondent herein filed O.S.No.243 of 1998 to make the award dated 01-12-1997 as rule of Court. The learned III-Additional Chief Judge, City Civil Court, Hyderabad, dismissed O.P.No.120 of 1998 and decreed the suit O.S.No.243 of 1998 in part and directed that the award be made the rule of Court but, however, reduced the interest to 6% p.a. Aggrieved by the same, the RTC filed C.R.P.No.420 of 2003 against the decree and judgment in O.S.No.243 of 1998 and also filed C.M.A.No.2989 of 2003 against the decree and order in O.P.No.120 of 1998. 7. It is not disputed that the first respondent- contractor has not filed any appeal or revision in respect of the claims that are rejected by the arbitrators. He has also not challenged the order of the learned III-Additional Chief Judge, City Civil Court, Hyderabad, reducing the interest to 6% p.a. 8. The main contention of the learned counsel for the appellant/RTC is with regard to the claims that are allowed by the arbitrators and upheld by the learned III-Additional Chief Judge, City Civil Court, Hyderabad. The question of payment of amount towards extra expenditure incurred on the work done beyond the agreement period pertaining to claim No.2 does not simply arise in view of Clauses 51 and 52 of the agreement. The learned arbitrators have dealt with the said contention and following the decisions of the Apex Court, more p a rtic u la rly ASSOCIATED ENGINEERING CO. V. GOVERNMENT OF ANDHRA PRADESH AND ANOTHER (1991) 4 SCC 93), held that Clauses 51 and 52 of the agreement are applicable to the contract period only and not to the work done beyond the contract period on account of its prolongation due to defaults and breaches on the part of the RTC. They further held that in the absence of any specific provision prohibiting payment of escalation during the extended period of the contract, these two clauses cannot be applied for the work done beyond the agreement period. 9. In FOOD CORPORATION OF INDIA V. M/S A.M.AHMED AND CO., AND ANR[1], it was held as follows: “Escalation, in our view, is normal and routine incident arising out of gap of time in this inflationary age in performing any contract of any type. In this case, the arbitrator has found that there was escalation by way of statutory wage revision and, therefore, he came to the conclusion that it was reasonable to allow escalation under the claim. Once it was found that the arbitrator had jurisdiction to fine that there was delay in execution of the contract due to the conduct of the FCI, the Corporation was liable for the consequences of the delay, namely, increase in statutory wages. Therefore, the arbitrator, in our opinion, had jurisdiction to go into this question. He has gone into that question and has awarded as he did. The Arbitrator by awarding wage revision has not mis-conducted himself. The award was, therefore, made rule of the High Court, rightly so in our opinion.” 10. Clauses 51 and 52 of the agreement read as follows: Clause 51: Price adjustments:- Price adjustments is not admissible for increase or decrease of contractor supplied materials of the agreement. Clause 52: Labour Escalation:- No labour escalation will be paid for increase in labour wages amenities and benefits during the period of construction. 11. The learned arbitrators have properly interpreted Clauses 51 and 52 of the agreement and the finding recorded by them that the above clauses relate only to the contract period, but not to the work done beyond the contract period, does not call for any interference. The material on record clearly shows that the period for completion of the work was unilaterally extended by the RTC even without the first respondent- contractor asking for any such extension as the site proposed for construction of bus complex was liable for inundation and, in fact, it got inundated under water and, therefore, not ready for commencement of work by the first respondent-contractor and the site that was chosen by the RTC for construction of bus complex was, thus, not ready to be handed over for commencement of the work. The first respondent-contractor cannot be held responsible for the delay that has resulted in completion of the work. Under those circumstances, realizing that the work could not be commenced in time on account of the site not being ready for such commencement, the RTC itself has extended the period for completion of the work from time to time on a number of occasions. It is, therefore, clear that the first respondent-contractor was not at fault and the delay was occasioned only on account of the breach on the part of the RTC in not handing over the site in proper condition in time to enable the first respondent to commence the construction of the bus complex. The arbitrators have, on proper assessment of the expenditure incurred by the first respondent-contractor towards the work done beyond the agreement period, have awarded an amount of only Rs.17,38,576/- as against the claim of Rs.28.68 lakhs and same does not, therefore, call for any interference. 1 2 . Regarding claim No.3, relating to compensation for the losses suffered due to delayed payments, the amount claimed was only Rs.19,804/- and the arbitrators have awarded the said amount. The contention of the appellant/RTC in this regard is that the agreement does not permit such payment. It is to be seen that clause 56 of the agreement reads as follows: “Payments will be made to the contractor once in a month under the certificate to be issued by the Executive Engineer within fourteen days of date of each certificate.. The contractor had presented the bills in time and the payments of which are said to have been made with a delay ranging from 5 to 21 days beyond the stipulated period of fifteen days as per the agreement and the interest thereon was calculated on each bill at 18% p.a., which came to Rs.19,804/-. According to the RTC, the payment was delayed only in respect of one bill and there is no delay in respect of other bills. The arbitrators have found that the first respondent-contractor was repeatedly pointing out about the delays and letters were addressed by him from time to time and the amount of Rs.2 lakhs was paid in two instalments of one lakh each on 23-01-1993 and 01-02-1993. The arbitrators found that as there was considerable delay in payment of the bills and in spite of letters addressed by the first respondent- contractor, the bills were not paid in time. It was found that the first respondent-contractor was justified in claiming damages for the delayed payments by way of interest. 13. Regarding claim No.8, relating to damages for delay in settlement and payment of claims 1, 2, 6 & 7, as against the sum of Rs.6,68,095/- claimed, the arbitrators allowed the claim in part only to an extent of Rs.2,84,424/-. According to the first respondent-contractor, the claims should have been settled and payment made to them along with the final bill and as this has not been done, they have claimed damages at 10% on the claim amounts from 21-11-1995, the date of payment of the final bill, to 14-01-1996, the date of entering reference. The respondent contended that as the claimants are not entitled for the amounts claimed under claim Nos.1, 2, 6 and 7, payment of interest does not arise. They would further contend that under Clause 69 of APDSS, the payment of interest does not arise. Clause 69 of PS to APDSS reads as follows:- “Nomination by the Executive Engineer or the SDO to pay the amount due upon certification shall vitiate or make void the contract nor the contractor shall be entitled to interest upon any guarantee fund or payment in final settlement of his account be found due to him.” The learned arbitrators have, on proper interpretation of the above clause with reference to the decisions of this Court, held that Clause 69 is not a bar on payments arising out of default or breach of contract. Clause 69 itself makes it clear that the said clause does not apply to payments due to a contractor on account of default or breach of contract. In the present case, it was found that the delay occasioned on account of default on the part of RTC in handing over the site in proper condition for commencement of the work and, therefore, when there is no default or breach on the part of the first respondent- contractor, Clause 69 does not apply and there is no bar for making the payment on account of such delay which has occasioned due to breach or default on the part of the RTC. The arbitrators have duly assessed the amount of damages in a sum of Rs.2,84,424/- for the period of 328 days from 21-11-1995 to 14-10-1996 by calculating the interest at 18% p.a. Thus, the claims allowed by the arbitrators in respect of claim Nos.2, 3 and 8 to the extent granted by them are based on proper appreciation of the evidence available on record and also on application of the legal principles governing the subject. 14. In a recent decision in UNION OF INDIA V. SARASWAT TRADING AGENCY AND OTHERS[2], the Apex Court referred a to a decision in BHAGAWATI OXYGEN LTD. v. HINDUSTAN COPPER LTD (2005(6) SC 462), wherein it was held as follows: “So far as interest for pre-reference period is concerned, in view of the conflicting decisions of this Court, the matter was referred to a larger Bench in Executive Engineer, Dhenkanal Minor Irrigation Division vs. N.C.Budharaj 2001(2) SCC 721. The court, by majority, held that an arbitrator has power to grant interest for pre-reference period provided there is no prohibition in the arbitration agreement excluding his jurisdiction to grant interest. The forum of arbitration is created by the consent of parties and is a substitute for conventional civil court. It, is, therefore, of unavoidable necessity that the parties be deemed to have agreed by implication that the arbitrator would have power to award interest in the same way and same manner as a court.” Regarding interest pendente lite also, there was cleavage of opinion. The question was, therefore, referred to a larger Bench in Secy., Irrigation Deptt., Government of Orissa vs. G.C.Roy, 1992(1) SCC 508. The Court considered several cases and laid down the following principles: “The question still remains whether arbitrator has the power to award the interest pendente lite, and if so on what principle. We must reiterate that we are dealing with the situation where the agreement does not provide for grant of such interest nor does it prohibit such grant. In other words, we are dealing with a case where the agreement is silent as to award of interest. On a conspectus of aforementioned decisions, the following principles emerge: (i) a person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name. It may be called interest, compensation or damages. This basic consideration is as valid for the period the dispute is pending before the arbitrator as it is for the period prior to the arbitrator entering upon the reference. This is the principle of Section 34, Civil Procedure Code and there is no reason or principle to hold otherwise in the case of arbitrator. (ii) An arbitrator is an alternative forum for resolution of disputes arising between the parties. If so, he must have the power to decide all the disputes or differences arising between the parties. If the arbitrator has no power to award interest pendente lite, the party claiming it would have to approach the Court for that purpose, even though he may have obtained satisfaction in respect of other claims from the arbitrator. This would lead to multiplicity of proceedings. (iii) An arbitrator is the creature of an agreement. It is open to the parties to confer upon him such powers and prescribe such procedure for him to follow, as they think fit, so long as they are not opposed to law. (The proviso to Section 41 and Section 3 of the Arbitration Act illustrate this point). All the same, the agreement must be in conformity with law. The arbitrator must also act and make his award in accordance with the general law of the land and the agreement. (iv) Over the years, the English and Indian courts have acted on the assumption that where the agreement does not prohibit and a party to the reference makes a claim for interest, the arbitrator must have the power to award interest pendente lite. Thawardas has not been followed in the later decisions of this Court. It has been explained and distinguished on the basis that in that case there was no claim for interest but only a claim for unliquidated damages. It has been said repeatedly that observations in the said judgment were not intended to lay down any such absolute or universal rule as they appear to on first impression. Until Jena case almost all the courts in the country had upheld the power of the arbitrator to award interest pendente lite. Continuity and certainty is a highly desirable feature of law. (v) Interest pendente lite is not a matter of substantive law, like interest for the period anterior to reference (pre- reference period). For doing complete justice between the parties, such power has always been inferred”. As to post-award interest, the point is covered by the decision of this Court in Hindustan Construction Co. Ltd. vs. State of J & K, 1992(4) SCC 217. It was held there that an arbitrator is competent to award interest for the period from the date of the award to the date of decree or date of realization, whichever is earlier.” 15. Though the arbitrators have granted interest at 18% p.a., the learned III Additional Chief Judge, City Civil Court, Hyderabad had reduced the same to 6% p.a., and the first respondent-contractor had not chosen to challenge the same. Hence, the said interest awarded by the learned III Additional Chief Judge at 6% p.a., from the date of reference till the date of realization on the amounts awarded by the arbitrators in respect of claim Nos.2, 3, 8, remains unaltered. 16. In the circumstances and on perusal of the entire material on record, it is found that the award passed by the learned arbitrators or the impugned order of the learned III Additional Chief Judge, City Civil Court, Hyderabad, making the said award as rule of Court to the extent of allowing claim Nos.2, 3 and 8, do not call for any interference by this Court. There are no merits either in the appeal or in the revision filed by the RTC. 17. In the result, both the appeal and civil revision petition are dismissed. There shall be no order as to costs. ___________________ T.MEENA KUMARI, J 19th August, 2009. ____________________ G.V.SEETHAPATHY, J Lrkm. [1] (2007 STPL (E) 37969 SC) [2] 2009(1) Decisions Today SC 429