Andhra Pradesh High Court - Amravati

Y.V. Sesha Reddy vs The Chief Engineer on 1 May, 2023

Bench: D.V.S.S.Somayajulu, V Srinivas

      HIGH COURT OF ANDHRA PRADESH: AMARAVATI

          HON'BLE MR. JUSTICE D.V.S.S. SOMAYAJULU

                               AND

                HON'BLE MR.JUSTICE V.SRINIVAS


                 C.M.A.Nos.1022 & 1027 of 2012



COMMON JUDGMENT: (per D.V.S.S.Somayajulu, J)


     Both of these appeals arise out of the order passed by the

Principal District Judge, Nellore in dismissing A.O.P.No.541 of

2007 and in allowing A.O.P.No.762 of 2007.

2.   An award dated 30.04.2007 was passed, wherein Claims

Nos.1, 3 and 10 were allowed by the Arbitrator. Challenging the

same, A.O.P.No.762 of 2007 was filed by the State. A.O.P.No.541

of 2007 is filed by the contractor questioning that part of the

award which disallowed the claims.      Learned Principal District

Judge, Nellore heard the matter at length and dismissed

A.O.P.No.541 of 2007 by which the disallowed claims were

challenged.      The     Principal    District   Judge    allowed

A.O.P.No.762 of 2007 and set aside the award in so far as it
                                        2




relates to three claims. Questioning the same, C.M.A.No.1022 of

2012 is filed.

3.    Questioning        the   order        in   A.O.P.No.541        of    2007,

C.M.A.No.1027 of 2012 is filed.

4.    This Court has heard Sri M.V.S.Suresh Kumar, learned

senior counsel for the appellant and learned Government Pleader

for Arbitration.

5.    Sri Suresh Kumar argued the matter at length and

submitted that the award passed by the sole Arbitrator on

30.04.2007 is a reasoned award considering all the contentions

raised and also the legal and factual points that were raised. He

points out that only three claims were allowed. He contends that

clear reasons were also assigned for the three claims that were

passed. Therefore, he submits that the trial Court committed an

error in dismissing the A.O.P.             Relying    upon     the        leading

judgment    in     UHL    Power   Company            Limited   v.    State    of

Himachal Pradesh1, learned counsel argues that the scope for

interference in such cases is very limited and yet trial Court

ignored the same. He relies upon paras 16 to 22 of the judgment

1 (2022) 4 SCC 116
                                    3




to argue that there is no perversity in the findings and that the

Arbitrator has taken a clear and plausible view.        Therefore, he

submits that the award should not be set aside.

6.      In reply to this, learned Government Pleader argues the

matter at length and points out that the learned Arbitrator

committed an error in ignoring the signed documents.          It is his

contention that the forwarding slip enclosed to the agreement was

rightly relied upon by the learned trial Judge and that therefore,

the findings of the trial Court should not be upset. Coming to the

interest, he points out that learned Arbitrator overlooked the

specification 69 of the A.P.Detailed Standard Specifications and

awarded the amount towards interest. Therefore, he justifies the

impugned order.

7.COURT: The law on the subject is sufficiently well settled.

8.      In a recent judgment reported in Haryana Tourism Ltd. v.

Kandhari Beverages Ltd.,2 the Hon'ble Supreme Court was

dealing with sections 34 and 37 of the Arbitration Act.         It was

clearly held that the award can only be set aside if it is (a) contrary



2
    (2022) 3 SCC 237
                                       4




to the fundamental policy of Indian law; (b) interest of India; (c)

justice or morality; (d) if it is patently illegal.

9.    In UHL Power Company Limited (1 supra) relied on by the

learned senior counsel also, the Hon'ble Supreme Court clearly

held in paras 16 and 17 as follows:

               16. As it is, the jurisdiction conferred on courts
           under Section 34 of the Arbitration Act is fairly narrow,
           when it comes to the scope of an appeal under Section
           37 of the Arbitration Act, the jurisdiction of an appellate
           court in examining an order, setting aside or refusing to
           set aside an award, is all the more circumscribed.
           In MMTC Ltd. v. Vedanta Ltd. [MMTC Ltd. v. Vedanta
           Ltd., (2019) 4 SCC 163 : (2019) 2 SCC (Civ) 293] , the
           reasons for vesting such a limited jurisdiction on the
           High Court in exercise of powers under Section 34 of the
           Arbitration Act have been explained in the following
           words : (SCC pp. 166-67, para 11)
               "11. As far as Section 34 is concerned, the position is
           well-settled by now that the Court does not sit in appeal
           over the arbitral award and may interfere on merits on
           the limited ground provided under Section 34(2)(b)(ii) i.e.
           if the award is against the public policy of India. As per
           the legal position clarified through decisions of this
           Court prior to the amendments to the 1996 Act in 2015,
           a violation of Indian public policy, in turn, includes a
           violation of the fundamental policy of Indian law, a
           violation of the interest of India, conflict with justice or
           morality, and the existence of patent illegality in the
           arbitral award. Additionally, the concept of the
           "fundamental policy of Indian law" would cover
           compliance with statutes and judicial precedents,
           adopting a judicial approach, compliance with the
           principles           of           natural           justice,
           and Wednesbury [Associated Provincial Picture Houses
           Ltd. v. Wednesbury Corpn., (1948) 1 KB 223 (CA)]
                                       5




            reasonableness. Furthermore, "patent illegality" itself
            has been held to mean contravention of the substantive
            law of India, contravention of the 1996 Act, and
            contravention of the terms of the contract."
               17. A similar view, as stated above, has been taken
            by this Court in K. Sugumar v. Hindustan Petroleum
            Corpn. Ltd. [K. Sugumar v. Hindustan Petroleum Corpn.
            Ltd., (2020) 12 SCC 539] , wherein it has been observed
            as follows : (SCC p. 540, para 2)
               "2. The contours of the power of the Court under
            Section 34 of the Act are too well established to require
            any reiteration. Even a bare reading of Section 34 of the
            Act indicates the highly constricted power of the civil
            court to interfere with an arbitral award. The reason for
            this is obvious. When parties have chosen to avail an
            alternate mechanism for dispute resolution, they must
            be left to reconcile themselves to the wisdom of the
            decision of the arbitrator and the role of the court
            should be restricted to the bare minimum. Interference
            will be justified only in cases of commission of
            misconduct by the arbitrator which can find
            manifestation in different forms including exercise of
            legal perversity by the arbitrator."


10.    This Court is therefore analysing the award and the findings

of the Arbitrator vis-à-vis the settled case law.

11.    Issue No.1/claim No.1 is the subject matter of dispute. This

dispute is stated as follows in the Award:

            'The only dispute is whether the claimant is entitled to
      payments for the deviated items at the rate of 19.71% less
      than the estimated cost for all the deviated items at the rate of
      17% over and above estimated cost on these items. It is an
      admitted fact that the respondents have paid to the claimant

at the rate of 19.71% less than the 'estimated cost' whereas the claimant claims at the rate of 17% over and above the estimated cost.'

12. The controversy for the payment centers round the

estimated cost or the estimated value of the contract. According

to the claimant, the estimated value of the contract is Rs.292.88

lakhs and the quoted rate is Rs.426.71 lakhs. This is the issue

which had to be decided by the Arbitrator. After setting out the

pleadings and the controversies, he proceeded to decide the matter

and give his reasons and conclusions from para 36 to 57 of the

award. There is no dispute strictly about the quantum of the

claim or the quantum of the work. The applicable rate is the

issue.

13. The learned Arbitrator rightly noticed that in the tender

notice itself, the estimated cost of the work was indicated as

Rs.292.88 lakhs. This is a figure which was relied upon by all the

contractors. It is a fact that the contractors do not have absolute

access to the site, nor do they have complete access to the

drawings etc. Therefore, in filing their tender, they would rely

upon the estimate that is furnished by the department. These

estimates were also not prepared by anybody's whims and fancies.

They are the result of a study and evaluation by the departmental

Officers. Based on the departments estimates permission is taken

for the tender etc. Therefore, in the opinion of this Court, the

Arbitrator rightly noticed that a tender notice is issued after

working out the value based upon the standard schedule of rates.

14. He also noticed the fact that in the formal agreement,

executed between the parties, the estimate of the work is show as

Rs.292.88 lakhs. The Superintendent Engineer also addressed a

letter to the Executive Engineer stating that the contract has been

approved. The estimated value and contractual value is also

correlated to the learned Arbitrator to the EMD which is payable

at 1.5 %. The Arbitrator, therefore, came to the conclusion that

1.5% of the EMD claim to Rs.4.39 lakhs was paid by the

contractor. The details of the two pay orders are mentioned in the

document. 1.5 % of Rs.292.88 lakhs is Rs.4.39 lakhs. If the

estimated value of the contract was to be treated as

Rs.4,26,71,192.00/- as claimed by the respondent, the Contractor

should have deposited a sum of Rs.6 lakhs and odd and not

Rs.4.39 lakhs. This is the factor which has been relied upon by

the learned Arbitrator. He also noticed in para 45 that in the

revised tenders that were floated, the estimated value of the

contract remained at Rs.292.88 lakhs only. Only in the

forwarding slip, the estimated amount is mentioned as Rs.292.88

lakhs and the contract value is as mentioned as

Rs.4,26,71,192.00/-; that the tendered contract was 19.71 % less

than the estimated value. The contention of the learned counsel

for the respondent is that this forwarding slip is also signed by the

tender. However, the fact remains that the tender/contract has

given an explanation which is accepted by the Arbitrator in paras

27 to 49. In the opinion of this Court, the estimated value is also

typed in the agreement and it is shown as Rs.292.88 lakhs. The

view taken by the learned Arbitrator, in the opinion of this Court,

is neither perverse nor illogical nor does it shock the conscience of

this Court. The approximate value in the tender was clearly

mentioned as Rs.292.88 lakhs. In the letter from the Chief

Engineer to the Contractor, the price was accepted as

Rs.3,42,575/-. Performance security was also demanded along

with the balance EMD and this was also submitted. The

estimated cost is also mentioned in the articles of agreement.

Merely because in the forwarding slip a different figure is

mentioned, it does not lead to inescapable conclusion that this is

a figure agreed upon by the contractor. The learned Arbitrator

sifted through all the documents before coming to this conclusion.

15. In view of the case law cited above, this Court is of the

opinion that the trial Court committed an error in setting aside the

award in so far as it relates to this claim. The contractor relied

upon the representations of the department as contained in their

tender notification itself. On the basis of this estimated value of

the work only, any prudent or reasonable contractor would quote

his rates. The approximate value of the civil work was clearly

indicated as Rs.292.88 lakhs. It is not a case of tender being

floated by the State wherein the figure is mentioned as

approximately Rs.200 to Rs.300 lakhs. The fact that a figure of

Rs.292.88 lakhs was quoted, clearly indicates that some amount

of work has gone into the preparation of an estimate. It is this

figure which will form the basis of any contractor's

valuation/quotation. Thereafter, the said figure was also

mentioned in the typed agreement which is entered into between

the parties. Based on this figure, the contractor quoted price of

Rs.3,42,575/-.

16. In this view of the matter, this Court is of the clear opinion

that the Principal District Judge committed a clear error in

disallowing the claim. The learned Arbitrator, in the opinion of

this Court, considered all the documents in sequence and not

merely the forwarding slip in coming to a conclusion that he did.

The case law relied upon on Ramanath International

Constructions Pvt. Ltd., v. Union of India (2007 (2) ALT 59),

wherein a further judgment of Rajasthan State Mines was

considered, is not really applicable. In the opinion of this Court,

the core issue in this case was the estimated value of the contract

and the rate quoted by the contractor which led to the concluded

agreement. Once these two issues are decided, the rest of the

claim falls into the place.

17. In the opinion of this Court, the view taken by the learned

Arbitrator is a clear view and is more than a plausible view. It is

neither erroneous, perverse nor shocking.

18. As far as claim No.3 is concerned, it is a claim for storage

centage charges. It is no doubt true that the agreement states

that the contractor shall be bound to supply the materials and

also engage watch and ward. The learned Arbitrator did not in the

opinion of this Court award a fancy figure or a figure devoid of

merits. He relied upon the case schedule volume which is marked

as Ex.P.65. The findings based upon this are found in para 71 of

the award. Although a larger amount is claimed, still by relying

upon the cost schedule, the learned Arbitrator worked down the

claim and awarded a sum of Rs.10,24,000/- only. This action is

neither perverse nor arbitrary. It is a plausible view that can also

be taken.

19. Last claim is towards interest. Learned Government Pleader

relied upon preliminary specification 69 of APDSS. However, this

Court notices that the learned Arbitrator relied upon case law

including cases of considering P.S.69 to come to the conclusion

that the Arbitrator can award interest. In the opinion of this

Court, PS.No.69 does not apply to an Arbitrator. The clause is 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.

20. It is the Arbitrator who is awarding the amounts basing on

the power conferred upon him by section 31 of the Arbitration Act,

96. There is no clause in the contract barring the award of

interest. Therefore, this Court is of the opinion that the Arbitrator

did not commit any error in awarding interest as he did at 10%

per annum; from 31.12.2001 when the defect liability claim come

to an end.

21. Therefore, after considering all the above aspects, this Court

is of the opinion that the lower Court committed an error in

allowing the A.O.P.No.762 of 2007.

22. Therefore, the order of the District Judge dated 23.02.2012

in so far as it relates to setting aside the award and allowing