1995 Supreme(AP) 932

Andhra Pradesh High Court
Judges : D.H.NASIR, VENKATARAMA REDDY
Government Of A.P. - Appellant
Versus
V.Satyam Rao - Respondent
Decided On : 12-08-95

Headnote:

ARBITRATION - AWARD - SETTING ASIDE - JURISDICTION OF ARBITRATOR - CONTRACT - INTERPRETATION - ESCALATION CLAUSE - LOSS OF PROFIT - DAMAGES - REMOTE DAMAGES - INTEREST - RATE OF INTEREST.

Fact of the Case:

The respondent-contractor was awarded a contract to execute the work-- Lining to Kakatiya Canal from KM 215 to 218, K. S. R. J. Project. The value of the work as per the contract was Rs. 35,55 lakhs which is less than the estimated value by 18%. The respondent entered into an agreement with the Superintending Engineer, I. and P. O. Construction Circle, Huzurabad, on 23-11-1981. A supplemental agreement was also entered into in March, 1982. The time for completion of the work was 12 months from the date of handing over the site. The site was handed over on 1-1-1982. The performance of contract got prolonged much beyond the stipulated period, mainly because the flow of water was not stopped by the Department. The respondent-contractor sent a letter on 26-12-1986 intimating the fact that he was closing the contract. This was followed by another letter dated 14-10-1987 (Ex. C-30) treating the contract as null and void and demanding settlement of his accounts, including compensation payable for the breach of contract. The Department itself sent a communication to the petitioner on 29-1-1990 that the contract was being closed without levy of penalties. In the meanwhile, the disputes were referred to a panel of arbitrators. Later on the respondent filed O. P. No. 58/1988 wherein he prayed for the appointment of sole arbitrator. The Court by its order dated 20-8-1990, appointed Sri R. L. Raju, retired Chief Engineer, P. W. D. , as sole arbitrator in the place of the panel of arbitrators. The learned arbitrator entered on the reference on 1-12-1990 and passed the award on 8-8-1991. An amount of Rupees 13,89,343/- was awarded towards various claims with interest thereon at 24% p. a. from the date of award to the date of realisation. A sum of Rs. 50,000. 00 was awarded towards costs. The particular of claims and the amounts awarded are as follows:

Finding of the Court:

The Court held that the arbitrator committed an error of jurisdiction in awarding extra rate based on Standing Schedule of Rates in force during the relevant year i. e. , 1985-86, as the claim was impermissible in view of Clause 59 of the A. P. Standing Specifications. However, the Court upheld the award of damages for loss of profit, holding that the respondent was entitled to damages by way of loss of profit as the breach of contract by the appellant was unjustified and the plaintiff-contractor had executed a part of the works contract. The Court also upheld the award of compensation for the loss suffered by the contractor on account of non-release of deposits, withheld amounts, final bill amounts and the amounts due for the actual work done by him as per the Agreement. However, the Court set aside the award to the extent that it awarded compensation for cost of metal and sand collected at site, loss of advances to labour and loss on idle establishment and idle machinery, holding that the arbitrator misconducted himself within the meaning of Section 30 of the Arbitration Act and committed a legal misconduct.

Issues: 1. Whether the arbitrator had jurisdiction to award extra rate based on Standing Schedule of Rates in force during the relevant year i. e. , 1985-86? 2. Whether the respondent was entitled to damages for loss of profit? 3. Whether the respondent was entitled to compensation for the loss suffered by him on account of non-release of deposits, withheld amounts, final bill amounts and the amounts due for the actual work done by him as per the Agreement? 4. Whether the arbitrator misconducted himself within the meaning of Section 30 of the Arbitration Act and committed a legal misconduct in awarding compensation for cost of metal and sand collected at site, loss of advances to labour and loss on idle establishment and idle machinery?

Ratio Decidendi: 1. The arbitrator committed an error of jurisdiction in awarding extra rate based on Standing Schedule of Rates in force during the relevant year i. e. , 1985-86, as the claim was impermissible in view of Clause 59 of the A. P. Standing Specifications. 2. The respondent was entitled to damages for loss of profit as the breach of contract by the appellant was unjustified and the plaintiff-contractor had executed a part of the works contract. 3. The respondent was entitled to compensation for the loss suffered by him on account of non-release of deposits, withheld amounts, final bill amounts and the amounts due for the actual work done by him as per the Agreement. 4. The arbitrator misconducted himself within the meaning of Section 30 of the Arbitration Act and committed a legal misconduct in awarding compensation for cost of metal and sand collected at site, loss of advances to labour and loss on idle establishment and idle machinery.

Final Decision: The C. M. A. and C. R. P. are partly allowed and the award and the judgment of the learned Subordinate Judge, Karimnagar confirming the award are hereby set aside to the extent indicated above. It follows that there shall be a decree for a sum of Rs. 7,35,113. 00 (Rupees seven lakhs thirty five thousand one hundred and thirteen only) with interest from the date of decree as stipulated by the Court below. We make no order as to costs.