Not Mere Extra Work But Work Beyond the Agreement — High Court Upholds Arbitrator’s Power to Award Higher Compensation for Unforeseen Site Realities

"Arbitrator's Award Based on Additional Work Beyond Contract Scope Cannot Be Interfered With", Andhra Pradesh High Court comprising Justice R. Raghunandan Rao and Justice Sumathi Jagadam, in a judgment rendered after a remand from the Hon’ble Supreme Court, dismissed both Civil Revision Petition No. 4055 of 1993 and Civil Miscellaneous Appeal No. 1251 of 1993, thereby upholding an arbitral award which granted enhanced compensation to the contractor for performing additional work beyond the original agreement.

Rejecting the employer’s contention that the arbitrator exceeded his mandate by granting higher rates than the contract allowed, the Court observed:

“The Arbitrator took the view that it was not extra material which was excavated or transported, but material being transported beyond the distance fixed under the agreement… Once this Court holds that a view of the Arbitrator is a reasonable view which does not violate the terms of the agreement, it would not be permissible for the Court to interfere with any part of this award.” [Para 20]

Dispute Over Compensation for Work Arising From Changed Site Conditions

The case arose from a 1987 construction contract between the Public Health Department, Nellore (Employer) and a contractor for building a 2287 million litre Summer Storage Tank. Although most of the work was completed by July 1989, disputes emerged regarding additional claims made by the contractor for various heads, such as longer lead distances, use of heavier machinery, and idling of equipment due to employer’s delay in clearing worksite obstructions.

After failing to resolve the issue with the employer, the contractor sought arbitration, and an Award dated 08.06.1992 was passed allowing four claims (Nos. 2, 3, 4, and 9), while rejecting others. The award was made Rule of Court by the Trial Court, and the employer’s petition to set it aside was dismissed.

Challenging this, the employer filed a Civil Miscellaneous Appeal and Civil Revision Petition, which were initially allowed by the erstwhile High Court, but reversed by the Hon’ble Supreme Court, which held that the arbitrator was validly appointed. On remand, the High Court reconsidered the substantive challenges to the award.

Arbitrator Had Authority to Grant Enhanced Rates for Work Beyond Agreement

On Claim No.2 – Garbage Soil Conveyance Beyond Scope

The contractor was originally to be paid ₹8.62/m³ under a supplemental agreement. However, the arbitrator allowed ₹24.50/m³, finding that actual conveyance went significantly beyond the agreed location.

The Court agreed, noting:

“The additional movement from the outer slope to the place where the garbage soil was deposited would fall outside the supplemental agreement and an equitable rate would have to be given.” [Para 7]

On Claim No.3 – Use of Power Roller for Soil Consolidation

Though the contract mentioned only 2-ton hand rollers, the contractor used a 10-ton power roller, and was awarded an additional ₹3/m³. The employer argued this was not sanctioned. However, the Court upheld the arbitrator’s technical assessment:

“The consolidation required by the employer would not be possible with a two ton roller… the arbitrator is himself an experienced Engineer… he appears to have passed an award only after satisfying himself.” [Paras 8–10]

On Claim No.4 – Leads and Lifts for Soil Conveyance

The agreement contemplated only 12 leads and 3 lifts on an average, but the actual range extended to 42 leads. The arbitrator allowed ₹33/m³. The Court found the deviation sufficient to warrant enhanced compensation:

“Soil had to be moved far greater length… over and above the lengths contemplated under the agreement.” [Para 12]

On Claim No.9 – Idle Men and Machinery Due to Employer's Delay

Due to delay in removal of electrical towers, the contractor’s equipment and labour remained idle. The arbitrator granted ₹28 lakhs against a claim of ₹61 lakhs. The Court agreed:

“The contractor could not take up work… on account of non-removal of electric poles… contractor was entitled for the period for which his men and machinery had been kept idle.” [Para 13]

Binding Nature of Arbitrator’s Technical Judgment: Arbitrator Not Confined to Rigid Contractual Rates When Work Exceeds Scope

The High Court firmly rejected the employer’s contention that the arbitrator had gone beyond the terms of the contract:

“The Arbitrator took the view that the work done by the contractor was not additional work, but work done beyond the agreement.” [Para 20]

Citing several Supreme Court precedents, including NTPC Ltd. v. Deconar Services, Atlanta Ltd. v. Union of India, and Puri Constructions v. State of Rajasthan, the Court reiterated that interference with an arbitral award is permissible only when the award is patently illegal, perverse, or beyond the arbitrator’s jurisdiction.

Here, the arbitrator’s findings were:

“A reasonable view of the facts and law… [which] does not violate the terms of the agreement.” [Para 20]

Arbitrator’s Award Based on Site Realities and Equitable Consideration Stands Judicial Scrutiny

The Court concluded that: “Once this Court holds that a view of the arbitrator is a reasonable view… it would not be permissible for the Court to interfere.” [Para 20]

Accordingly, both the Civil Revision Petition and Civil Miscellaneous Appeal filed by the employer were dismissed, and the arbitral award was upheld in full.

Date of Decision: 2 July 2025