THE HON’BLE SRI JUSTICE V.V.S. RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA CIVIL MISCELLANEOUS APPEAL No.307 of 2006 25.1.2010 Between: M/s.Satyanarayana Construction Company, represented by its Proprietor, P.Satyanarayana Yadav … Appellant AND Union of India, represented by General Manager, (Construction) Works, South Central Railway, Secunderabad And others … Respondents THE HON’BLE SRI JUSTICE V.V.S. RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA CIVIL MISCELLANEOUS APPEAL No.307 of 2006 JUDGMENT: (Per Hon’ble Sri Justice V.V.S.Rao) This appeal is filed against the order dated 26.9.2005 in O.P.No.5 of 2001 passed by the Court of III Senior Civil Judge, City Civil Court, Secunderabad, whereby and whereunder the appellant’s O.P. to set aside the arbitral award dated 01.7.2001 was dismissed. The appellant is a contractor. Railways invited tenders for two items of work, namely, (i) supply of 1370 M3 50mm gauge stone ballast and stacking the same alongside the track, and (ii) supply of 5490 M3 50mm gauge stone ballast on railway formation. These two works are in relation to doubling of track between Gullaguda and Vikarabad in South Central Railway. An amount of Rs.112/- per M3 was agreed to be paid. The appellant became successful bidder. An agreement was entered into on 02.1.1989, which incorporates General Conditions of Contract (GCC). The payment of rates for extra items of works is regulated by clause 39(1) of GCC, which reads as under. 39. (1) Rates for extra items of works:- Any item of work carried out by the Contractor on the instructions of the Engineer which is not included in the accepted schedules of rates shall be executed at the rates setforth in the “schedule of Rates … … … … … Railway” modified by the tender percentage and such items are not contained in the latter, at the rate agreed upon between the Engineer and the Contractor before the execution of such items of work and the contractors shall be bound to notify the engineer atleast seven days before the necessity arises for the execution of such items of works that the accepted schedule of rates does not include rate or rates for the extra work involved. The rates payable for such items shall be decided at the meeting to be held between the Engineer and contractor, in as short a period as possible after the need for the special item has come to the notice. In case the Contractor fails to attend the meeting after being notified to do so or in the event of no settlement being arrived at, the Railway shall be entitled to execute the extra works by other means and the contractor shall have no claim for loss or damage that may result from such procedure. Under the contract, it is competent for the employer to enlarge or extend, diminish or reduce works or make any alternations. If such variation is upto 25%, extra rates are not payable. But if the variation is more than 25%, Railways are obliged to pay extra rates. This is taken care of by clause 42 of GCC, which reads as under. 42. (1) Powers of modification to contract:- The Engineer on behalf of the Railway shall be entitled by order in writing to enlarge or extend, diminish or reduce the works or make any alterations in their design, character position, site, quantities, dimensions or in the method of their execution or in the combination and use of materials for the execution thereof or to order any additional work to be done or any works not to be done and the contractor will not be entitled to any compensation for any increase/reduction in the quantities of work but will be paid only for the actual amount of work done and for approved materials supplied against a specific order. (2) (i) Unless otherwise specified in the special conditions of the contract, the accepted variation in quantity of each individual item of the contract would be upto 25% of the quantity originally contracted, except in case of foundation work. The contractor shall be bound to carry out the work at the agreed rates and shall not be entitled to any claim or any compensation whatsoever upto the limit of 25% variation in quantity of individual item of works. (ii) In case of earthwork, the variation limit of 25% shall apply to the gross quantity of earth work and variation in the quantities of individual classifications of soil shall not be subject to this limit. (iii) In case of foundation work, no variation limit shall apply and the work shall be carried out by the contractor on agreed rates irrespective of any variation. (3) Valuation of variations:- The enlargements, extensions, diminution, reduction, alterations or additions referred to in sub-clause (2) of this clause shall in no degree affect the validity of the contract but shall be performed by the Contractor as provided therein and be subject to the same conditions, stipulations and obligations as if they had been originally and expressively included and provided for in the specifications and drawings and the amount to be paid therefore shall be calculated in accordance with the accepted schedule of rates. Any extra items/ quantities of work falling outside the purview of the provisions of sub-clause (2) above shall be paid for at the rates determined under clause 39 of these conditions. The appellant completed item No.1 of the work of supplying of 1370 M3 50mm gauge stone ballast and stacking the same alongside the track. Item No.2 of the work could not be taken up because the other agency which was entrusted with the work of formation of the railway track did not complete the work. Therefore, admittedly item No.2 of the contract was abandoned. Nevertheless, on 28.8.1990, parties entered into subsidiary agreement for extension of time limit. It was also agreed under variation statement to allow the contractor to supply 6860 M3 of 50mm ballast under item No.1 of the work duly increasing the quantity. The extra quantity was agreed to be paid at Rs.157/- for M3. After completing the work, appellant was paid enhanced rate of Rs.157/- per M3 for 1635 M3. He disputed this. He filed W.P.No.13291 of 1992 seeking direction to Railways to refer the matter to arbitration. This Court allowed the same. The matter was referred to arbitrator, who passed award dated 22.5.1995 rejecting the claim. He then filed O.P. No.42 of 1995 on the file of the Court of III Senior Civil Judge, Secunderabad, to set aside the award. The same was allowed on 13.12.2000 and a retired Hon’ble Judge of this Court was appointed as arbitrator. Before the arbitrator, appellant raised four claims contending that as both the items of work is different and distinct, they cannot be clubbed and that he is entitled to the rate of Rs.157/- per M3 for the extra quantity of 8575.76 M3. He also claimed loss of business turnover at 10% per annum, overhead and establishment charges and cost of arbitration. The claims were opposed by the Railways. On considering the evidence on record, learned arbitrator passed a reasoned award dismissing the claims. Learned Counsel for the contractor submits that item No.1 and item No.2 of the contract works are distinct and different. Therefore while reckoning the percentage of increased item of work, both cannot be clubbed and must be treated independently. According to him, appellant supplied 10210 M3 of ballast towards item No.1 of the contract work and, therefore, excluding 1370 M3 (agreed quantity) M3 towards 25% variation at agreed rates, the appellant is entitled to the rate of Rs.157/- per M3 for 8575 M3 under item No.1 of the work. Per contra, learned Standing Counsel for Railways relying on G.Ramachandra Reddy & Co., v Union of India[1], submits that under final variation statement item No.2 of the work was abandoned as site formation was not ready and the quantity of ballast to be supplied under item No.2 was agreed to be the enhanced quantity of ballast under item No.1. Thus according to him the total agreed quantity under item No.1 is 6860 M3 (1370 + 5490). 25% of the same being 1715 M3, after considering the same as 25% variation, the contractor was paid higher rate of Rs.157/- per M3 for 1635 M3 (10210 – 8775). In G.Ramachandra Reddy (supra), after making reference to various decisions, it was held by the Supreme Court as below. 18. We may, at the outset, notice the legal principles governing the dispute between the parties. Interpretation of a contract may fall within the realm of the Arbitrator. The Court while dealing with an award would not reappreciate the evidence. An award containing reasons also may not be interfered with unless they are found to be perverse or based on a wrong proposition of law. If two views are possible, it is trite, the Court will refrain itself from interfering. (See State of U.P. v Allied Constructions, (2003) 7 SCC 396). In Pure Helium India (P) Ltd. v Oil and Natural Gas Commission, AIR2003SC4519, this Court, upon referring to the decisions in Allied Constructions (supra); K.R. Raveendranathan v State of Kerala, (1998) 9 SCC 410; H.P. Seb v R.J.Shah & Co., [1999] 2 SCR 643; Rajasthan State Mines & Minerals Ltd. v Eastern Engg. Enterprises, AIR 1999 SC 3627; Food Corporation of India v Surender, Devenra & Mahendra Transport Co., [2003] 1 SCR 839 and Shyama Charan Agarwala & Sons v Union of India, [2002] SUPP 1 SCR 148, opined as under: 41. The principles of law laid down in the aforementioned decisions leave no manner of doubt that the jurisdiction of the court in interfering with a non-speaking award is limited. 42. The upshot of the above decisions is that if the claim of the claimant is not arbitrable having regard to the bar/prohibition created under the contract, the court can set aside the award but unless such a prohibition/bar is found out, the court cannot exercise its jurisdiction under Section 30 of the Act. The High Court, therefore, misdirected itself in law in posing a wrong question. It is true that where such prohibition exists, the court will not hesitate to set aside the award. In Sudarshan Trading Company v Government of Kerala, [1989] 1 SCR 665, the law was laid down in the following terms: 28. It was submitted before us that the High Court had exceeded its jurisdiction in acting in the manner it did on these aforesaid aspects. The first question, therefore, that arises for consideration in this case is, whether the award in question was a speaking award or not. In our opinion, the award was not a speaking award. An award can also be set aside if the arbitrator had misconducted himself or the proceedings or had proceeded beyond his jurisdiction. These are separate and distinct grounds for challenging an award. Where there are errors apparent on the face of the award it can only be set aside if in the award there is any proposition of law which is apparent on the face of the award, namely, in the award itself or any document incorporated in the award. It was furthermore observed: 29. The next question on this aspect, which requires consideration is that only in a speaking award the court, can look into the reasoning of the award. It is not open to the court to probe the mental process of the arbitrator and speculate, where no reasons are given by the arbitrator, as to what impelled the arbitrator to arrive at his conclusion. In view of the settled legal position, the only question is whether the contractor is entitled to the rate of Rs.157/- per M3 for 8575 M3 or for 1635 M3. We have been taken through final variation statement, Ex.R8. This would belie the submission that item No.1 and item No.2 were clubbed and clause 42(1) of GCC was applied. As per Ex.R8, item No.2 of the work was abandoned because the other agency, which was entrusted with the work of formation of the railway track, did not complete the work. It is the case of Railways that on the request of the contractor he was allowed and the supply of additional 6860 M3 of ballast towards item No.1 of the work was accepted. In accordance with clause 42 of GCC, additional rates were paid for 1635 M3. In this regard, we may notice the following observations of the arbitral tribunal on the question whether the contractor himself requested and offered to supply the stack quantity of item No.2. 22. It is true that the various letters addressed under Ex.C2, C4, C11 etc., referred supra clearly establish that the claimant himself offered and agreed to supply the quantity of the Balance Stone covered under item-2 on the ground instead of double formation. The claimant also agreed enhanced rate of Rs.157.00 per Cu.Mtr for supply of excess quantity of 1635 Cu.Mtr and entered into subsidiary agreement and received the payment therefore. Sri R.Jayaramamn, Deputy Chief Engineer addressed a letter Ex.C9 on 6.12.1991 rejecting all the claims of the claimant put forward in the letter dated 22.7.1991 and 27.9.1991 giving reasons. But still chosen to send a proposal on 04.6.1992 under the original of the letter Ex.C18 requesting for payment of balance quantity of 6862.5 Cu.Mts at the enhanced rate of Rs.157.00 per Cu.Mtr for the reasons best known to him. It is also not known how the claimant is able to get copies of the internal correspondence of the Department. Therefore when the same officer denied the claims of the claimant on 09.12.1991 giving the reasons, no credence can be given for subsequent proposal for payment at the enhanced rate for the alleged excess quantity of 6862.5 Cu.Mtrs, in view of the clinching material available on the record and in the light of the foregoing discussions. The Court below also referred to the above finding of fact recorded by learned arbitral tribunal and was not inclined to set aside the award. We do not find any error warranting exercise of appellate jurisdiction under Section 39 of Arbitration Act 1940. The appeal is therefore dismissed with costs. _______________ (V.V.S.RAO,J) ______________________ (B.N.RAO NALLA,J) January 25, 2010 YS [1] AIR 2009 SC 2629