JUDGMENT
P. Venkatarama Reddi, J.
1. These appeals and revision petition arise out of an award dated 9-3-1989 made by the arbitrator as modified by the IV Additional Judge, City Civil Court, by his Judgment dated 25-6-1990. The State of Andhra Pradesh represented by the Superintending Engineer, I and CAD (Godavary Valley Circle) filed O.P. No. 395/1989 Under Sections 30 and 33 of the Arbitration Act to set aside the award to the extent the claims were allowed. The O.P. was partly allowed by the IV Additional Judge, City Civil Court. Against that, C.M.A.No. 357/1991 was filed by the respondent in the O.P. (hereinafter referred to as the ‘contractor’ or ‘claimant’). The claimant filed O.P. No. 175/1989 Under Sections 30 and 33 to set aside the award in so far as it went against him. That O.P. was dismissed. Against the Judgment in O.P.No. 175/1989, the contractor filed C.M.A. No. 640/1991 and the State of A.P. has filed C.M.A.N0. 236/1991. The contractor also filed O.S. No. 546/1989 Under Section 14 to 17 of the Arbitrator Act for filing of the Award passed by the arbitrator (D-3 in the suit) and to make it a rule of the Court and to pass a decree in terms thereof. The suit was partly decreed modifying the award. The learned Additional Judge directed D-l and D-2 (State of A.P.) a sum of Rs. 3,84,196/- to be paid to the plaintiff in respect of the claims made by him as against a sum of Rs. 3,96,196/- awarded by the arbitrator. The Court also reduced the rate of interest from 18% to 9%. Both sides have questioned this decree. The contractor filed C.M.A.294/1991 and the State of A.P. filed C.R.P. No. 547/1991. O.S.No. 546/1989, O.P. No. 175/1989 and O.P.No. 395/1989 were disposed of by .a common Judgment.
2. The relevant facts are these. A contract was awarded to the appellant in CM. A. No. 357/1991 for doing ‘Cement Concrete Lining Work’ of Saraswathi Canal, Sriramsagar Project from 8.00 K.M. to 9.00 K.M. The agreement was entered into on 28-2-1983. The value of the contract is Rs. 4,61,663/-. It was to be completed within a period of six months from the date of handing over of the site. The site was handed over on 2-4-1983. The actual work started on 16-6-1983 and it could be completed only on 20-7-1985. The contractor invoked the arbitration clause in the agreement and filed a claim petition before the designated panel of arbitrators. The panel of arbitrators did not make the award within the time stipulated and therefore they become functus ojficio. The claimant, therefore, filed O.P.No. 76/1988 in the Court of the IV Addl. Judge, City Civil Court for the appointment of sole arbitrator for settlement of disputes arose in connection with the aforementioned contract. The Court allowed the petition by an order dated 17-8-1988 and appointed Sri K. Govinda Rao, retired District Judge as sole arbitrator in the place of panel of arbitrators for the adjudication of the disputes. The arbitrator entered on reference on 25-9-1988 on which date claim statement was filed by the contractor. The award was made on 9-3-1989. The arbitrator inter alia held that on account of release of water into the canal on 4 occasions i.e., 13-7-1983,26-2-1984,1-7-1984 and 25-3-1985, the contractor could not execute the work within the time schedule. The prolongation of the work was held to be on account of breach of contract and defaults on the part of the employer.
3. We shall now proceed to discuss the claims dealt with in the Award in seriatim and record our conclusions as to whether the impugned Judgment of the Civil Court confirming or modifying the award is sustainable.
4. The relevant details relating to Claim No.1 are as follows:-
________________________________________________________________________________________
Nature of the claim. Amount Amount allowed Civil Court's
claimed. by Arbitrator. Decision
________________________________________________________________________________________
Rs. Rs.
(a) Return of EMD; 12,000/- 12,000/- Award confirmed.
(b) Return of Bank
Guarantee. 9,000/- 9,000/- -do-
(c) Return of FSD 33,064/- 33,064/- -do-
(d) Work done but
not paid 25,000/- 6,528/- -do-
(e) Bills payable on
the basis of S.S.R.
Rates in force
for the work done
during 1983-84
and 1984-85. 1,83,293/- 1,70,945/- -do-
________________________________________________________________________________________
Regarding items (a) to (d), there is no dispute. As observed by the learned Arbitrator, the Earnest Money Deposit etc., was not forfeited on the ground of the contractor committing breach of contract. On the other hand, the finding is that the breach was on the part of the Department. Hence, on the completion of the work, the Department was liable to refund these amounts.
5. The dispute centres around item (e) of Claim No. 1, in respect of which, the arbitrator awarded a sum of Rs. 1,70,945/-. The award on this item has been challenged by the Government on the ground that the Agreement does not provide for extra rates and Clause 59 of A.P. Detailed Standard Specifications (APDSS) is a specific bar against payment of any extra amount for the work done during the prolonged period of contract. It is the finding of the arbitrator that the prolongation of the work much beyond the contractual period was for reasons beyond the control of the claimant and it was solely attributable to the periodical release of water into the canal, which amounted to a breach of fundamental contractual obligation. Admittedly, the water was released in four spells, i.e., on 13-7-1983 to 18-1-84; 26-2-1984 to 11-4-1984; 1-7-1984 to 15-1-1985; and 25-3-1985 to 16-4-1985. The work was ultimately completed on 20-7-1985. It is not the case of the Department that the contractor despite this uncontemplated contingency, could have completed the work earlier. The Department only contended that between 2-4-1983 when the site was handed over and 16-6-1983 when the actual work was started, the contractor could have made more progress. But, here again, the finding of the arbitrator while discussing claims 3 and 4, is that the commencement of the work by the claimant was delayed by reason of defaults on the part of the Department, viz., non-installation of pipeline for curing and non-completion of earth work by another contractor. As far as the prolongation of the work beyond the originally stipulated period of contract, the arbitrator categorically found that the Department committed breach of contract by frequently releasing water into the canal. This finding has not been assailed nor can it be assailed on any valid ground. On this finding, the learned arbitrator proceeded to hold that “the agreement rates are workable during the agreement period only, due to escalation of prices, for the work done after the agreement period, the claimant had to spend more on labour, machinery and material. The claimant had to spend this extra expenditure due to the default of the Department.” The learned arbitrator also observed that the documents marked for the claimant showed that the Departmental authorities gave an assurance to the claimant that he would be paid for the work done beyond the contract period at the current Standard Schedule of Rates (S.S.Rs.) + the tender percentage. The arbitrator referred to Exs. A-14, A-22, A-23 and A-25 in this connection. He also observed that the demand for payment was not in the nature of a claim for compensation which is prohibited by Clause 59 of APDSS. The learned arbitrator relied upon the decision of this Court in State of A.P. v. Shivraj Reddy, (1988)2 APLJ 465 in support of his conclusion that the claim for payment at the prevailing Standard Schedule of Rates for the work done during the extended period of contract does not fall within the mischief of Clause 59 which bars a claim for compensation on account of delays or hindrances to the work from any cause whatsoever.
6. The contention of the learned Government Pleader is that the claim for payment at the prevailing S.S.Rs. + tender percentage is nothing but a claim to award compensation for the loss suffered by the contractor on account of escalation in costs and, therefore, Clause 59 squarely applies. He relies upon the Division Bench decision of this Court in State of A.P. v. Associated Engineering Enterprises, ; and Prasad and Co., Hyderabad v. Superintending Engineer, Irrigation Circle, Chittoor, to which one of us (Venkatarama Reddi, J.) was a party. He has also referred to the recent decision of the Supreme Court in Ch. Ramalinga Reddy v. Superintending Engineer, 1994 (5) SCALE 67 wherein a claim for escalation in rates was negatived, basing on Clause 59. It is also contended that there was no assurance to pay extra rates as observed by the learned arbitrator.
7. On the other hand, it is contended by the learned counsel for the contractor Mr. Prabhakar Sripada that the legitimate claim of the contractor cannot be denied from the stand point of Clause 59 and there are circumstances in the instant case to indicate that the Department itself waived its right to invoke Clause 59 or a clause of like nature. He also invited our attention to the observation of the arbitrator that the contractor did not at any time give an undertaking not to prefer any claim for extra rates during the extended period of the contract nor did the Department prescribe any such condition and therefore the cases cited by the Government Pleader have no application.
8. Clause 59 was considered and applied by this Court in more than one case. In State of A.P. v. Associated Engineering Enterprises, Hyderabad, it was observed at paragraph 26:
“Applying the principle of the above decision to the fact 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.”
It may be noticed that in the above case, claim No. 1 which was turned down on the basis of Clause 59 was for compensation pertaining to the Original period of contract as noted at paragraph 31 of the Judgment. Referring to the earlier Division Bench Judgment rendered by Jeevan Reddy, J., (as he than was) and Bhaskar Rao, J, the learned Judges posed the question and answered as follows:-
“The question is whether any claim for compensation is permissible for the original period of contract ? It was held by a Bench of this Court of which one of us (Jeevan Reddy, J.) was a member – in A.A.O. No. 786 of 1986 dated 1-12-1988, that such a claim is not permissible by virtue of Clause 59 of the APDSS.”
In Prasad and Company’s case (3 supra), the Division Bench, of which one of us (Venkatarama Reddi, J.) was a member, held that escalation over and above the agreed rates during the currency of the agreement period was clearly barred by P.S.59 of APDSS. In Ramalinga Reddy’s case (4 supra), the Supreme Court had gone a step further and held that the claim for the payment of extra rate even for the work done beyond the agreement period was unsustainable in the light of the specific prohibition contained in Clause 59. However, it is not discernible from the Judgment whether the prolongation of the contract was for reasons attributable to the contractor or on account of breach of contractual obligations by the employer as in the instant case. Be that as it may, even assuming that Clause 59 would have in the normal course come in the way of the petitioner claiming escalation in rates for the work done beyond the contractual period, the special facts and circumstances of this case stand apart and do not attract the bar of Clause 59. We agree with the learned counsel for the contractor that the immunity conferred by the exclusionary Clause 59 must be deemed to have been waived and the Department is estopped from taking shelter under it.
9. In Ex. A-14 dated 21-10-1984, the Superintending Engineer in continuation of his letter dated 1-8-1984, directed the Executive Engineer to submit the balance work estimates with current S.S.Rs. of 1983-84 and 1984-85 + tender percentage together with the details of financial implications. A copy of it was marked to the contractor. In his letter dated 25-1-1985. (Ex. A-17), the Superintending Engineer while mentioning the fact that the canal was closed from 15-1-1985, requested the contractor to resume the balance work before 31-1-1985 and to complete the same by middle of April, 1985. The letter further states, “you are requested to come up with a revised month wise programme to complete the work by middle of 4/1985 and apply for extension of time. Your request for the payment of balance work at the rates of 1983-84 is under consideration and will be recommended after scrutiny in this office.” In reply to the letters from the Superintending Engineer, the Executive Engineer sent up detailed factual reports and an estimate of financial implications, vide his letter dated 30-7-1985 (Ex. A-22), and reported that the claim of the contractor for extra rates was genuine and for 27% of the work executed by him, the SSRs., of 1983-84 have to be allowed and for 60% of work, the SSRs of 1984-85 + tender percentage should be allowed. He arrived at the total amount as Rs. 1,70,945/- which is the same that was awarded by the arbitrator. He mentioned in the above letter dated 30-7-1985 that “with great difficulty and enthusiasm, the contractor has completed the entire work of lining by 30-7-1985 as per the programme.” In Ex. A-25 dated 19-12-1986, the Executive Engineer in his letter addressed to the Superintending Engineer stated, “on the assurance given by the departmental officers upto Superintending Engineer’s level that his claim will be considered on merits, he has completed the work without entering into litigations and we could create irrigation potential as programmed.” The Superintending Engineer who is the officer that signed the agreement with the contractor, in his letters dated 8-7-1987 and 4-6-1987 (Exs. A-26 and A-27) reiterated what was reported by the Executive Engineer and sought the approval of the Chief Engineer for payment of revised rates. Specific reference was made in the award to Exs. A-14, A-20 and A-23. Apart from that, it was observed by the learned arbitrator that the “documents marked for the claimant show that the departmental Engineers gave an assurance to the climate that he would be paid for the work done beyond the contract period at the current SSR Rates +tender percentage prevailing for the years 1983-84 and 1984-85.” Hence, we are referring to these letters which were marked before the Arbitrator. The assurances/recommendations made by the departmental officers came in the wake of persistent requests made by the contractor to pay escalated rates, vide Ex. A-9 dated 21-12-1983; Ex.A-10 dated 9-4-1984; Ex. A-12 dated 1-7-1984 and Ex. A-19 dated 15-4-1985 while asking for extension of time. Whenever he sought for extension of time, he was consistently making a request for allowing payment at current S.S.Rs. plus or minus tender premium. This fact is not disputed. As seen from Ex. A-17 etc., the Department itself persuaded the contractor to seek extension of time all the while assuring him that his request for payment of balance work at the extra rates was under active consideration and will be recommended after due scrutiny. Follow up action was taken by calling for reports from the Executive Engineer who in turn submitted proposals for payment on the basis of S.S.Rs. prevailing in 1983-84 and 1984-85. In this state of affairs, the contractor proceeded to do the work whenever it was possible to do. At no point of time, the Superintend ing Engineer or any other departmental official tried to shut out the claim of the contractor on the basis of Clause 59. On the other hand, the correspondence makes it crystal clear that the concerned officials including the Superintending Engineer who signed the agreement being fully conscious of the inability of the Department to keep up to the contractual obligations, lulled the contractor into the belief that his case for extra rates would be favourably considered and made him proceed with the work in larger public interest.
10. It is well settled that a waiver of right may be oral or written or inferred from conduct. Waiver can also arise from a promise of forbearance to enforce a term of the contract. The proposition is succinctly stated in Chitty on Contracts (Volume-1,……25th Edition) at para 1495 as follows:
“Waiver may also be held to have occurred if, without any request, one party represents to the other that he will forbear to enforce or rely on a term of the contract to be performed or observed by the other party, and the other party acts in reliance on that representation.”
Again at para 1497, it is stated that:
“The party who forbears will be bound by the waiver and cannot set up the original terms of the agreement. If, by words or conduct, he has agreed to led the other party to believe that he will accept performance at a later date than or in a different manner from that provided in the contract, he will not be able to refuse that performance when tendered.”
What is said at para 1498 is also apposite:
“Where one party has induced the other party to accede to his request, the party seeking the forbearance will not be permitted to repudiated the waiver and to rely on the letter of the agreement.”
This is exactly the situation here as apparent from the documents referred to or forming part of the award. Though there must be a promise or representation to attract the principle of waiver as pointed out in the Law of Contract by Treitel (8th Edition at page 102), the promise need not be express and direct.
“There must be a promise (or an assurance or representation in the nature of a promise) which is intended to affect the legal relationship between the parties and which indicates that the promisor will not insist on his strict legal rights, arising out of that relationship, against the promisee. Here, as elsewhere, the law applies an objective test. It is enough if the promise induces the promisee reasonably to believe that the other party will not insist on his strict legal rights.” However, “to bring the equitable doctrine into operation, the promise or representation must be ‘clear’ or ‘unequivocal’, or precise and unambiguous.”
On the facts of the case, it can be reasonably said that there was waiver of the right to enforce Clause 59. Alternatively, we hold that the arbitrator’s finding that there was an assurance to pay the extra rates cannot be said to be perverse or vitiated by an error of law apparent on the face of the award. The assurance may not be direct or express but it is possible to take the view that there was an implied promise to pay the extra rates for the work done beyond the agreement period notwithstanding Clause 59. The promise had emanated from a competent officer who signed the agreement itself. If the view taken by the arbitrator is reasonably possible or plausible, we cannot interfere with the award on the ground of error apparent on the face of the award. We, therefore, uphold the award in regard to Claim No. 1 (e) and the learned Additional Judge, City Civil Court was justified in confirming the award to this item. Claim No. 2 (Loss of Advances to Labour):-
11. A sum of Rs. 5.16 lakhs was claimed by the contractor to compensate the loss alleged to have been incurred by him on account of advances to labour. The arbitrator rejected the claim and the award was confirmed by the Civil Court in this regard. The arbitrator has given cogent reasons for rejecting this claim. The learned counsel for the contractor could not assail the finding of the arbitrator on any ground germane to Section 30 of the Arbitration Act. Hence, no interference is called for.
12. Claim Nos. 3 and 4 (Charges incurred on idle Labour and Machinery):-The contractor claimed Rs. 2.94 lakhs. The learned arbitrator divided the claim into 4 parts period-wise. In respect of the 3rd claim, he awarded Rs. 12,000/- for the 1st period i.e., between 2-4-1983 and 16-6-1983; Rs. 19,800/- for the 3rd period between 10-2-1984 to 11-4-1984 and Rs. 37,500/- for the 4th period i.e., between 25-3-1985 and 16-4-1985. Altogether, he awarded Rs. 69,300/- under claim No. 3. As regards the 4th claim, the arbitrator awarded Rs. 19,025 /- for the 1st period; Rs. 15,951/- for the 3rd period and Rs. 9,380/- for the 4th period. Altogether, a sum of Rs. 44,358/- was awarded under claim No. 4. In regard to the 2nd period, i.e.,from 22-6-1983 to 29-6-1983, the arbitrator rejected the claims. The award pertaining to claims 3 and 4 was upheld by the Civil Court. The learned arbitrator found, as already noticed, that the work could not be started by the contractor till 16-6-1983 on account of non-supply of pipelines for curing and non-completion of the earth work by the earth work contractor and during this period, the labour and machinery had to remain idle for nearly 40 days by reason of default on the part of the Department. We are of the view that having regard to Clause 59 of the contract, the arbitrator exceeded his jurisdiction in awarding compensation for the 1st period which falls within the stipulated period of contract. Evidently, the Arbitrator acted in disregard of the aforementioned provision. The decision of this Court cited supra squarely apply to the fact situation obtaining in the present case insofar as it relates to the 1st and 2nd periods. As far as the 3rd and 4th periods are concerned, the position is different. The 3rd and 4th periods fall beyond the agreed period of performance of contract. As already seen the finding of the arbitrator is that the Department let in water into the canal for its own reasons and the cross-bunds which were laid to prevent leakage of water from the regulator were breached by the ryots of the locality. The claimant could not, therefore, take up any work and the result was that the labour and machinery remained idle for 30 days during the 3rd period and for 20 days during the 4th period, the learned Arbitrator relied upon the reports of the departmental authorities themselves in support of his conclusion and estimated the quantum of loss accordingly. We have already discussed while dealing with claim 1 (e) about the applicability of of Clause 59 and we reached the conclusion that the Department cannot take shelter under Clause 59 for the work done by the claimant beyond the stipulated period on the principle of ‘waiver’ and ‘estoppel”. For the same reason, we are of the view that the award in regard to 3rd 4th periods ought not to be disturbed. Therefore, as far as claim No. 3 is concerned, the award should have been upheld to the extent of Rs. 57,300/- (by deducting Rs. 12,000/-awarded for the 1st period) and as regards claim No. 4, it should have been confirmed to the extent of Rs. 25,333/- only (by deducting Rs. 19,025/- awarded for the 1st period). We allow the appeal (C.M.A. No. 236/1991) and the revision (C.R.P. No. 547/1991) filed by the State Government to this extent.
13. The learnea counsel tor the contractor challenged the correctness of the quantum of amounts awarded under claim No. 4. It is commented that the supposition of the arbitrator that the “idle days for both labour and machinery will always be identical.” is not correct. We do not think that this proposition even if it does not appeal to the Court introduces a palpable error of law which is a sine qua non for setting aside the award. We, therefore, reject the contention of the learned counsel.
14. Claim No. 5 (Claim for payment towards de-silting and de-watering):-The contractor claimed Rs. 1,05,000/-. The arbitrator awarded Rs. 30,000/-. The learned Additional Judge reduced the amount to Rs. 18,000/-. This reduction has been challenged by the learned counsel for the contractor on the ground that on the basis of the very findings of the arbitrator which in turn were based on the record of the Department, de-silting and de- watering operations had to be done on 4 occasions but not 3 occasions as held by the Court. In modifying the award, the learned Additional Judge pointed out that the record shows that the water was released into the canal in breach of the contract only three times. The learned counsel for the contractor has invited our attention to the letters and reports of the Executive Engineer as well as the facts admitted in the rebuttal statement itself which disclose that there was unexpected release of water on 4 occasions after the work was started or resumed. We see force in this contention. The learned Additional Judge observed that the removal of silt on 22-6-1983 and also on 16-4-1985 was part of the awarded work. We are unable to understand on what basis this observation has been made. In any case, it amounts to entering into the merits of the controversy which is not permissible while dealing with the objections to the award. The fact, however, remains that there is an error apparent on the face of the award insofar as the arbitrator assumed that the work was interrupted on account of the release of water on 5 occasions instead of 4 occasions. Hence, we modify the award by reducing a sum of Rs. 6,000/- instead of Rs. 12,000/- and hold that the arbitrator ought to have awarded a sum of Rs. 24,000/- under claim No. 5.
15. Claim No. 6:- For the additional earth work claimed to have been done by the contractor during the years 1983-84 for the trimming, sloping, levelling and maintaining pit levels, he claimed Rs. one lakh. The arbitrator rejected the claim holding that there was no evidence on record to show that the claimant had done additional earthwork worth Rs. one lakh. The arbitrator referred to the letters addressed by the contractor himself to negative the plea of the contractor. He also commented that the contractor filed to submit his accounts, vouchers or the statements furnished to the Income-tax Department to prove his case under this claim. The arbitrator drew an adverse inference for not producing the relevant records. The learned counsel for the contractor argued that the arbitrator ought to have called upon the Department to produce the records relating to the earth work done by the earth work contractor and it would have revealed the correct position. We do not think that we should test the validity of the award on the basis of an argument of this nature. The arbitrator arrived at the conclusion purely on an appreciation of the evidence and the adverse inference drawn by him cannot be said to be arbitrary or extraneous to law. So, we find no legal error in the award in rejecting this claim.
16. Claim No. 7:- The contractor claimed Rs. 66,000/- towards overhead charges incurred by him during the extended period of the contract. The arbitrator awarded a sum of Rs. 30,000/- on acceptance of this claim. The overhead charges consist of expenses incurred towards salaries for the staff and office expenses. We are of the view that this claim should have been totally rejected when the claim for extra rates (claim No. 1 (e) was accepted by the arbitrator and a sum of Rs. 1,70,945/- was allowed under that claim. The extra rate was allowed only to recompense the contractor for the extra expenditure that would have been incurred by him on account of prolongation of the contract by reason of breach of contractual obligations by the employer. Naturally/ that would take care of establishment expenditure also. We, therefore, find that claim No. 7 is nothing but a duplication of the claim and by accepting this claim, the arbitrator has awarded damages twice over which is not permissible in law. The award is, therefore, vitiated by error of law apparent on the face of it, and is thus liable to be set aside . The lower Court erred in upholding the award on this item of claim.
17. The next and last item of dispute is about interest – – pendente lite and for the pre-reference period. The learned arbitrator awarded interest at 18% per annum on a sum of Rs. 45,064/- representing EMD and FSD form the date of deposit till 25-9-1988 i.e.. the date on which the arbitrator entered reference. For the remaining amounts, the arbitrator awarded interest at 18% per annum from 20-7-1985 i.e., the date of completion of works till 25-9-1988 i.e., the date of entering on reference. Pendente lite interest was denied by the Arbitrator following certain decisions of this Court and of the Supreme Court. The civil Court reduced the interest to 9% per annum. The Court also allowed interest on the amount of Rs. 3,84,196/- from 9-3-1989 i.e., the date of decree till the date of actual payment.
18. It is the case of the contractor mat pendente lite interest should have been allowed by the arbitrator and moreover the civil Court had no power to reduce the rate of interest which was within the discretion of the arbitrator. On the other hand, the learned Government Pleader found fault with the award insofar as the interest for the pre-reference period was allowed and justified the disallowance of pendente lite interest relying upon the two Division Bench decisions to which one of us (PVR, J.) was a party, (i.e., State of A.P. v. P.L. Raju and Co, ; Prasad and Company v. Superintending Engineer (I.C), Chittoor (3 supra) and also the Judgment of the Supreme Court in Durga Ram Prasad v. Govt. of A.P., followed by the Division Bench in the aforementioned cases. In those two cases, the Division Bench felt that the law laid down by the Constitution Bench in Secretary, Irrigation Dept. v. C.C. Roy, cannot be applied in view of the specific contractual provision prohibiting payment of interest.
19. Firstly, we will consider the legal position as regards the power of the arbitrator to award interest pendente lite. In Secretary, Irrigation Department v. G.C. Roy, a Constitution Bench of the Supreme Court which was called upon to consider the correctness of the decision in Executive Engineer, Irrigation, Balimela v. Abhaduta Jena, reviewed the entire law on the subject and enunciated the following propositions:
” (i) A person deprived of the use of money to which he is legitimately untitied 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…….. All the same, the agreement must be in conformity with law. The arbitrator 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………..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.”
Their Lordships concluded:
“Where the agreement between the parties does not prohibit grant of interest and where a party claims interest and that dispute (along with the claim for principal amount or independently) is referred to the arbitrator, he shall have the power to award interest pendente lite. This is for the reason that in such a case it must be presumed that interest was an implied term of the agreement between the parties…….,…………This does not mean that in every case, the arbitrator should necessarily award intetest pendente lite. It is a matter within is discretion to be exercised in the light of all the facts and circumstances of the case, keeping the ends of justice in view.”
20. The legal position has thus been settled by the constitution Bench in G.C. Roy’s case (7 supra). Following the path set by the Constitution Bench in G.C. Roy’s case (7 supra), the award of interest pendente lite was upheld in a number of cases, vide Jugal Kishore v. Vijayendra, State of Orissa v. B.N. Agarwala, and by this Court in State of A.P. v. N. Siva Reddy, .
21. Even if the award was made prior to the commencement of the Interest Act, the power to award pendente lite interest cannot be doubted, as clarified by the Supreme Court in State of Orissa v. B.N. Agarwala, . No distinction was made in this regard between the reference in a pending suit or a reference made otherwise.
22. The learned Arbitrator did not have the benefit of the exposition of law laid down in that decision as the award was passed much earlier to that decision. The learned Arbitrator, therefore, referred to certain other decisions of the Supreme Court including Jena’s case (8 supra) which was overruled by the Constitution Bench on the point of pendente lite interest and also a decision of this Court which also stands impliedly overruled by Roy’s case (7 supra).
23. As regards the interest for the pre-reference period, the law laid down in Jena’s case (8 supra) has not been distrubed by the Constitution Bench in C.C. Roy’s case (7 supra) as clarified by the Supreme Court in Jugal Kishore v. Vijayendra (9 supra) and State ofOrissa v. B.N. Agarwala (10 supra). In Jena’s case (8 supra), the Supreme Court categorically held that the award of interest prior to the proceeding is not open to question, the reason being that the expression ‘Court’ is defined to mean an arbitrator as well. However, if the award was made prior to the coming into force of the Interest Act, interest for the pre-reference period cannot be awarded. On a conspectus of these cases. Dr. Anand, J. Speaking for the Supreme Court in Sudhir Brothers v. Delhi Development Authority, succinctly summarised the legal position as follows:
“Thus, the law is now well settled that the arbitrator has the power and jurisdiction to grant pre-reference interest in references made after the coming into force of the Interest Act, 1978. The Division Bench of the High Court was thus dearly in error in holding that the arbitrator had no jurisdiction to award interest from 1-4-1984 till 8-2-1985. (pre-reference period) in the post-Interest Act, 1978 era.”
24. If the matter rests there, there would be no difficulty at all and we need not proceed further to consider whether interest-pendente lite or pre-reference-should be awarded. The decision of the Supreme Court in Durgaram Prasad v. Govt. of A.P. (6 supra) is another milestone implanted in the controversial arena pertaining to the arbitrator’s power to award interest. Following this Judgment, a view was taken by two Division Benches of this Court (to which one of us, namely, Venkatarama Reddi, J. was a party) that the law laid down by the Constitution Bench in G.C.Roy’s case (7 supra) cannot be applied in view of the specific contractual provision prohibiting payment of interest. The Division Bench understood Clause 69 as creating an embargo against the payment of interest and thus attracting one of the exceptions laid down in G.C. Roy’s case (7 supra). In Prasad and Co. case (3 supra), the Division Bench after referring to G. C. Roy’s case (7 supra) as well as Durgaram Prasad’s case (8 supra), observed at page 555 as follows:
“It may be noticed that the Supreme Court in G.C.Roy’s case (7 supra) made it clear that they were dealing with a situation where the agreement was silent as to the award of interest. But, in the face of the prohibition contained in Clause 69, which was referred to and relied on by the Supreme Court in Durgaram Prasad’s case (6 supra), the ratio of the dicision in G.C.Roy’s case (7 supra) cannot be applied and even pendente lite interest cannot be awarded, not to speak of interest for pre-reference period. This, in effect, is the ratio of the latest decision in Durgaram Prasad’s case (6 supra).”
The award and the decree were, therefore, modified by directing interest to be paid only from the date of the award. The same view was reiterated in P.L. Raju’s case (5 supra) and it was observed that the binding effect of the decision in Durgaram Prasad’s case (6 supra) cannot be whittled down merely because the point which should have been raised (but not raised)did not come up for consideration before the Supreme Court
25. We have closely and carefully examined the observations made and the dicta laid down by their Lordships in Durgaram Prasad’s case (6 supra). The judgment of the High Court which was affirmed by the Supreme court is reported in 1975 ALT 370. The facts leading to the controversy are clearly discernible from the High Court’s judgment. The ‘factual scenario’, to put it in the words of the Supreme Court, which led to the conclusion reached by their Lordships unfolds the true ratio of the decision and the context in which some of the observations were made could be clearly understood in the background of the facts presenting themselves for consideration in that case. On a careful analysis of the decision, we are unable to share the view of the Division Bench in the two cases mentioned above that Clause 69 was so interpreted by the Supreme Court as placing a clog on the arbitrator’s power to grant interest for the pre-award period on any and every type of amount payable to the contractor under the award. This makes us necessary to refer to Clause 69, which reads as follows:-
“P.S. 69: Interest on money due to the, contractor: (a) No omission by the Executive Engineer or the sub-divisional officer to pay the amount due upon certificates shall vitiate or make void the contract, nor shall the contractor be entitled to interest upon any guarantee fund or payments in arrear, nor upon any balance which may, on the final settlement of his accounts, be found to be due to him.”
Their Lordships of the Supreme Court analysed the above clause and pointed out mat the contractor shall not be entitled to interest upon; (a) any guarantee fund; (b) payments in arrears and (c) upon any balance which may on final settlement of his account found to be due to him. The Supreme Court particularly referred to item (c) above with which it was concerned in that case and observed:
“Clause 69 of the MDSS would indicate that mere should be final settlement of the account and upon its settlement, if it is found to be due and payable to the contractor, on such payment also the contractor is not entitled to the payment of interest as contracted under Clause 69.”
The Supreme Court then posed the question in the following terms:
“When such is the position, whether the contractor is entitled to payment of interest on mere making a claim and reference made to the arbitrator and whether the arbitrator gets Jurisdiction to award interest on the amount due from the respective dates on which the payments were withheld by .the Engineer concerned.”
The Supreme Court then commented that the construction placed on Clause 69 by the High Court in APS RTC v. P. Ramana Reddi, is not correct. “However”, their Lordships observed, “on the facts in that case their does not appear to be any dispute as to the amount due. Therefore, the learned Judge had proceeded that since the contract provides for withholding the payment for a suspended period of six months, if the amount is withheld beyond that period, the contractor would be entitled to the payment of interest.” Then, the Supreme Court observed that the factual scenario in the case on hand was different. It was observed:
“The very dispute is whether the appellant is entitled to the payment of the amount pursuant to the contract The claim of the State appears to be that the appellant had not constructed the godown in accordance with the specifications and therefore they withheld the payment. Unless the dispute is resolved and the amount is found due, the contractor is not entitled to the payment of it. Thereon, interest in terms of Clause 69 of the MDSS is contracted out. When such be the position, then, mere reference does not the word ‘not’ is perhaps omitted in the report give jurisdiction to the arbitrator to award interest to the period prior to the reference.”
The Supreme Court then referred to Jena’s case (8 supra) and Roy’s case(7 supra) and concluded:
“Accordingly, we are of the view that the contractor is not entitled to payment of interest in terms of Clause 69 for the period anterior to the reference for arbitration until the final settlement of the amount due to the contractor of his account is determined.”
It was further held :
“Therefore, from the date of withholding till the date of award, the appellant is not entitled to the payment of interest. The arbitrator has no jurisdiction to arbitrate that dispute.”
A perusal of the Judgment of the High Court from which the appeal arose in the Supreme Court makes it clear that the ‘withheld amount’ referred to by their Lordships of the Supreme Court represents the recoveries from the running bills. Clause 68 of the APDSS (forming part of the agreement) provides for certain percentage to be withheld and retained as a security for the due fulfilment of the contract. Clause 68 further provides that on the completion of the entire work and on the basis of the certificate issued by the Executive Engineer, the contractor will receive the final payment of all the monies payable to him except the E.M.D. and a sum equal to 21/2% of the total value of the work done. The amount so withheld from the final bill will be paid to the contractor together with the E.M.D. after a period of six months so that during this period, the defects shall have been made good by the contractor. It is this money that falls under item (c) of Clause 69 as indicated by the Supreme Court. We get it from the decision of the Supreme Court itself that there was a dispute as to whether the contractor constructed the godown as per the specifications and, therefore, the Government withheld the payment. Their Lordships took the view that unless that dispute is resolved, the final settlement of the account cannot take place. The Supreme Court therefore held that till the dispute is resolved by the arbitrator by passing the award, accrual of interest thereon is by the express terms of the contract, namely, by Clause 69, specifically excluded. Therefore, the arbitrator has no jurisdiction to award any interest on the withheld amount, that is to say the amount deducted from the running bills or final bill under Clause 68.
26. The broad observation that unless the dispute is resolved and the amount is found due, the contractor is not entitled to the payment of it and the interest thereon is contractually excluded by Clause 69 should be understood in the light of the particular facts of that case and the context in which the dispute as to entitlement of interest arose. The decision in Durgaram Prasad’s case (6 supra) cannot be treated as an authority for the proposition that the payment of interest is prohibited in respect of any and every type of amount claimed by the contractor when once the dispute arises as to the right to receive payment for a particular item. For instance, let us take a case where the arbitrator finds that certain payments were due for the actual work done but the Department paid for lesser quantities or, let us take a case where the arbitrator finds that the payment should have been made to the contractor at an extra rate on account of prolongation of the contract by reason of breach on the part of the Government. In such cases, it would be unjust to deny interest upto the date of the award. Principle No. 1 laid down in G. C.Roy’s case (7 supra) squarely applies in such case. The prohibition contained in Clause 69 against the payment of interest does not apply to such fact situations. As pointed out by the Supreme Court in Board of Trustees, Port of Calcutta v. Engineers-De-Space-Age, a provision in the agreement excluding payment of interest shall be strictly construed and the prohibition cannot be extended to cover any and every type of situation. We are, therefore, of the view that Clause 69 is not in the nature of a blanket ban or an absolute ban on the entitlement of interest for the amounts due to be paid to the contractor. It depends on the nature and character of the amount claimed.
27. No doubt, their lordships of the Supreme Court said in so many terms that the interpretation placed on Clause 69 by a learned single Judge of this Court in APS RTC v. Ramana Reddi is not correct but it does not mean that the Supreme Court viewed Clause 69 as placing a total prohibition against payment of interest in all cases in which disputes arise between the parties and such disputes are referred to arbitration. In saying that the interpretation placed by the learned single Judge in APRSTC v. Ramanareddi is wrong, their Lordships only disapproved of the view taken by this Court that Clause 69 operates as a bar against payment of interest for a limited period of six months from the date of completion of the work (which is known as observation period )and not beyond that. The view of the Supreme Court appears to be that the bar extends even beyond the period of six months provided, of course, the sum is of the nature referred to in the second part of Clause 69.
28. We hope, we have sufficiently explained the true ratio and implications of the Judgment of the Supreme court in Durgaram Prasad’s case (6 supra) at the cost of differing from the view expressed by one of us (PVR, J.) speaking for the Division Bench in the aforementioned cases, i.e., Prasad and Company case (3 supra) and P. L Raju’s case (5 supra). Although we have differed with the view expressed in the aforementioned cases] we do not consider it necessary to refer this case to a Full Bench inasmuch as the binding decision of the Constitution Bench in G.C. Roy’s case (7 supra) followed by various other subsequent decisions of the Supreme Court as well as the law laid down by three-Judge Bench in Jena’s case (8 supra) as regards pre-reference interest was not followed by the Division Bench on a misunderstanding of the ratio of the decision in Durgaram Prasad’s case (6 supra). The two Division Bench decisions referred to above must be taken to be decisions rendered PER INCURIAM as far as arbitrator’s power to award interest is concerned. However, we are still of the view that Durgaram Prasad’s case (6 supra) operates in a limited sphere and it must still be considered to be an authority for the proposition that the arbitrator has no jurisdiction to award interest in regard to matters enumerated in the second part of Clause 69 which were compendiously referred to as 2(a), (b) and (c) by the Supreme Court.
29. We would also like to further clarify that the limited applicability of the decision in Durgaram Prasad’s case (6 supra) to the situations referred to in second part of Clause 69 is further subject to another principle which has been succinctly laid down by their Lordships Ahmadi, C.J., and S.C. Sen, J., in a very recent case reported in Board of Trustees, Port of Calcutta v. Engineers De-Space-Age (13 supra). The Supreme Court was in the case concerned with a clause in the contract which prohibited the Commissioner from paying interest in the amounts due to the contractor. The Supreme Court while holding that the said clause did not fetter the power of the arbitrator to award interest pendente lite, which is within the discretion of the arbitrator, indicated another line of approach to the problem. The following crucial observations were made at paragraph 5:
” Looked at from another point, if there was a dispute as to whether under this term of the contract the arbitrator was prohibited from awarding interest pendente lite, that was a matter which fell within the jurisdiction of the arbitrator, as the arbitrator would have to interpret Sub-clause (g) of Clause 13 of the contract and decide whether that clause prohibits from awarding interest pendente lite. In that case it cannot be said that the arbitrator had wandered outside the contract to deny to him jurisdiction to decide the question regarding payment of interest pendente lite. Even if we were to accept the contention urged by the learned counsel for the appellant placing reliance on paragraphs 26 and 29 of the Associated Engineering Co. case (2 supra) we think that the arbitrator was well within his jurisdiction in awarding interest pendente lite. ”
This line of approach was indicated by the Division Bench at paragraph 34 in P.L. Raju’s case (5 supra), but it was not pursued as the Bench felt that the decision in Durgaram Prasad’s case (6 supra) was directly on the point and it did not permit any such approach to be adopted. But, the latest decision pavee the way for such approach. Even if the arbitrator construed a provision in the agreement which was susceptible of two interpretations and awarded interest on his own view of the true scope and effect of the relevant clause, it cannot be said that the arbitrator exceeds his jurisdiction. As pointed out by the Supreme Court in Jena’s case supra, even if there was slightest possibility of the entitlement to interest on one or other of the legally permissible grounds, it may not be open to the Court to go behind the award and decide whether the award of interest was justifiable.
30. In A.P.S.R.T.C. v. Ramanareddi, the learned single Judge of this Court (Kondanda Ramayya, J.) read Clauses 68 and 69 together and concluded as follows:-
“Thus, it is clear that this Clause 69 is intended to really prevent any claim for interest during the running period when final bill is not settled and also in respect of earnest money deposit or the sum equal to 2 1/2% of the total value of the work done till the expiry of the period of six months. This six months’ period is called ‘observation period’, so mat the Department can see whether the work was done satisfactorily or not. Clause 69 cannot be construed as a total prohibition, but it operates for a limited period of six months from the date of completion of the work.”
The learned Judge drew support from a decision of the Supreme Court in Hyderabad Municipal Corporation v. M. Krishnaswami, . The view projected by the learned Judge of this Court on the interpretation of Clause 69 is a possible view that could be taken though not the correct view. Yet another interpretation placed on a clause in the contract similar to Clause 69 is that the said clause applies only where the work was completed within the time Schedule fixed in the original contract, (vide Municipal Corporation of Hyderabad’s case .
31. In the present case, it must be remembered that by the time the award was passed, the pronouncement of the Supreme Court in Durgaram Prasad’s case (6 supra) was not there. In such a situation, if the arbitrator had interpreted Clause 69 and took the view more or less similar to the view taken by this Court in APSRTC v. Ramanareddi or in Hyderabad Municipal Corporation case, the award would not be open to question either on the ground of error of law apparent on the face of it or on the ground of want of jurisdiction. This in effect isthe principle laid down in Calcutta Port Trust case (13 supra). In the said case the Supreme Court merely reaffirmed the well settled principle that the arbitrator had the jurisdiction to interpret the contract and if he commits an error in the process of interpretation, that does not vitiate the award. In other words, if the view taken by the arbitrator is conceivable or possible, the award ought to be upheld. This oft-repeated principle has been applied with particular reference to a clause in the agreement prohibiting the payment of interest under certain circumstances. That is why the Calcutta Port Trust case (13 supra) is of great relevance to the issue we are dealing with.
32. In the light of the above discussion, let us examine – – (1) whether the award of the arbitrator negativing pendente lite interest is vitiated in law; and (2) whether the interest awarded for the pre-reference period is legally sustainable. Excepting the Earnest Money Deposit and Security Deposit which fall under ‘guarantee fund, no other amount awarded by the arbitrator is of the nature contemplated by Clause 69 of the contract. With regard to Earnest Money and Security deposit, there is no dispute at all as to the entitlement of the contractor to receive the same. As pointed out by the arbitrator, it is not the case of the Department that the said deposits were forfeited on account of default or breach committed by the contractor or for any other good reason. On the other “hand, the finding of the arbitrator is that the breach was committed by the Department. The only stand taken by the Superintending Engineer before the arbitrator was that the Income-tax clearance certificate was not produced. No provision has been brought to our notice under which the deposits can be withheld for that reason despite the completion of the work by the contractor to the satisfaction of the Department. Even if we go by the dicta laid down in Durgaram Prasad’s case (6 supra), if there is no dispute with regard to the liability of the Government to pay the amounts of the nature specified in second part of Clause 69, the bar against payment of interest will not apply. That is how, the decision in APSRTC v. Ramana Reddi was distinguished by their Lordships of the Supreme Court. We are, therefore, of the view mat grant of interest on the amounts awarded by the arbitrator for the pre-reference period is valid and is not liable to be questioned on any relevant ground. However, whether the interest could be awarded from the date of deposit and whether the rate of interest granted by the arbitrator is liable to be interfered with-we shall deal with later.
33. As far aspendente /ifeinterest is concerned, the learned arbitrator rejected the same not on the ground that Clause 69 barred the claim for interest or on the ground that the facts and circumstances of the case did not warrant the award of interest during pendente lite. The arbitrator took into account the legal position obtaining prior to the decision of the Constitution Bench in G.C. Roy’s case (7 supra) and disallowed such interest on the ground that he was not invested with the power to award interest. But, in the light of the development of law in this behalf starting with G. C. Roy’s case (7 supra), the view taken by the arbitrator cannot be sustained. It must be held that he failed to exercise the power and jurisdiction vested in him on a misconception of the true legal position which came to light only after the decision in G. C. Roy’s case (7 supra) subsequently rendered. It is not as if the arbitrator construed Clause 69 and reached the conclusion that he had no power to award interest. It is also not a case where the arbitrator thought it fit and proper not to exercise his discretion to award interest pendente lite on account of any special circumstances of the case. On the other hand, a perusal of the award would show that the arbitrator would have awarded interest but for the erroneous assumption that he had no power to award interest in view of the fluid legal position prevailing before G. C.Roy’s case (7 supra). We, therefore, consider it a fit case to modify the award by allowing pendente lite interest instead of remitting the matter back to the arbitrator at this stage.
34. The next aspect to be considered is whether the arbitrator is justified in awarding interest from the date of deposit of the E.M.D. and F.S.D. Even taking a most liberal view on the interpretation of Clause 69 in favour of the contractor, we are inclined to think that in view of the express bar contained in Clause 69, the contractor shall not be entitled to any interest atleast till the completion of the contract, i.e., during the currency of the contract. Therefore, the interest is payable only from 20-7-1985 but not from the date of deposit. The arbitrator referred to Section 4 (2) (a) of the Interest Act, 1978 but the arbitrator being bound by the contractual provision cannot exercise his discretion in such a way as to stultify the terms of the contract.
35. The last question which remains to be considered is about the rate of interest. The learned counsel for the contractor is justified in saying mat normally it is not within the province of the Court to reduce or modify the rate of interest unless the law prohibits the grant of interest beyond a particular limit The reduction of interest from 18% to 9%, therefore, appears to be illegal. But we have to keep in the forefront of mind the peculiar situation in this case. -The arbitrator, as already noted, had declined to grant pendente lite interest on the ground that he had no jurisdiction to do so. He did not also provide for interest form the date of award for the same reason. If, on a correct view of the law, he had taken a decision to award interest pendente lite and post-award, in addition to the interest for the pre-reference period, it is not known whether he would have awarded interest at the high rate of 18%. In the normal course, we would have thought of remanding the matter to the arbitrator, but in view of the long lapse of time and the representation made by both the counsel, we are inclined to fix a reasonable rate of interest rather than leaving it to the arbitrator to do so at this distance of time. We consider it just and proper to allow interest at 12% per annum on the amounts awarded by the arbitrator both for the pre-reference period as well as for the pendente lite and post-award period, that is to say, from 20-7-1985 to 9-3-1989 and from the date of decree, at the rate fixed by the lower Court i.e., at 9% per annum.
36. In the result, the CM.As. and the C.R.P. are partly allowed. There shall be a decree against the State of A.P for payment of a sum of Rs. 3,60,196/- to the contractor who is the plaintiff in CS.No. 546/1989 with interest @ 12% per annum from20-7-1985 to 25-6-1990, i.e., the date of decree of the civil Court and with interest at 9% per annum from that date till the date of payment. In other words, the award shall stand modified to the extent indicated above and be made the rule of the Court subject to the above modification.
37. We make no order as to costs in any of these matters.