REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS.3164-3165 OF 2017

KERALA STATE  ELECTRICITY BOARD AND ANR.      …Appellants

Versus

KURIEN E. KALATHIL AND ANR.                                 ...Respondents

J U D G M E N T

R. BANUMATHI, J.

These appeals have been filed against  the impugned judgment

dated  28.01.2009  in  W.P.(C)  No.31108  of  2007  and  order  dated

23.06.2009 in R.P.No.542 of 2009, passed by the High Court of Kerala

at Ernakulum in and by which the High Court directed the appellant-

Kerala  State  Electricity  Board  (KSEB)  to  pay  an  amount  of

Rs.12,92,29,378/- with simple interest at the rate of 9% per annum in

the dispute arising out of a contract between the appellant-Board and

the respondent-Contractor.

2. The  dispute  between  the  appellant-Board  and  the  respondent-

contractor had a chequered history.   Brief  facts which led to filing of

these appeals are as follows:- Appellant-Kerala State Electricity Board

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(KSEB)  entered  into  an  agreement  on  16.09.1981  with  respondent-

contractor for construction of a composite dam across Karamanthodu at

Padinjarethara in connection with Banasura Sagar Scheme (Kuttiyadi

Augmentation Scheme).  After commencement of work, Government of

Kerala issued a notification dated 30.03.1983, by which minimum wages

payable to certain categories of workers employed in works mentioned

in notification was revised with effect from 01.04.1983. The respondent-

contractor  claimed  labour  escalation  charges  from  01.04.1983  to

December, 1984. The Government of Kerala referred the matter to the

industrial tribunal for adjudication of the dispute with regard to the claim

of workmen employed for the construction of dam for the wage rates

and other benefits fixed in the Minimum Wages Notification issued by

the State Government. The industrial tribunal passed the award dated

14.10.1993 holding that the notification of Government of Kerala was

applicable to workmen employed by the respondent-contractor.   

3. Respondent-contractor  filed  O.P.No.283  of  1995  claiming  an

amount of Rs.6,32,84,050/- towards labour escalation charges and an

amount of Rs.7,66,35,927/- being interest at the rate of 18% per annum

payable  under  Ex.P20  in  respect  of  various  bills  issued  by  the

respondent-contractor for the period 15.01.1985 to 31.10.1994. When

the said writ was pending, the appellant-Board terminated the contract

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with respondent-contractor, which again came to be challenged before

the High Court  by filing O.P.No.10759 of  1997 against  termination of

contract and for the payment of works done (Ex.P59) by respondent-

contractor.  The High Court disposed of both the petitions by a common

judgment dated 02.04.1998 holding that the termination of contract was

arbitrary and directed the appellant-Board to pay the amount claimed by

the  respondent-contractor  for  payment  of  labour  escalation  as  per

Ex.P20 with interest at the rate of 18% per annum which the contractor

claimed separately.  The High Court also directed the appellant-Board to

pay  the  amount  claimed by  the  respondent-contractor  under  Ex.P59

towards additional work done by the respondent-contractor.

4. Being aggrieved, KSEB approached this Court by way of appeal

in C.A.No.4092 of 2000 reported in Kerala State Electricity Board and

Another v. Kurien E. Kalathil and Others, (2000) 6 SCC 293. In para

(11) of the judgment, this Court observed that the contract between the

parties is in the realm of private law and not a statutory contract and the

matter  could  not  have  been  agitated  in  the  writ  petition.   However,

having regard to the fact that the contract was of the year 1981 and that

the  notification  for  minimum wages  was  issued  in  1983  and  in  the

peculiar facts and circumstances, this Court did not interfere with the

order  of  the  High  Court  directing  the  payment  of  amount  to  the

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respondent-contractor as per Ex.P20; but reduced the rate of interest

claimed under Ex.P20 from 18% per annum to 9% per annum.  So far

as Ex.P59 is concerned, there was no direction by this Court. Review

petition filed by the appellant-Board came to be dismissed by this Court

vide  order  dated  07.12.2000.  Appellant-Board  has  so  far  paid  an

amount of Rs.12,82,96,320/- under Ex.P20 which was accepted by the

respondent-contractor without any demur.

5. Three  years  after  the  payment  under  Ex.P20,  respondent-

contractor filed I.A.No.6 of 2006 seeking direction of the court to make

payments due under judgment of this Court,  with further interest to be

paid forthwith.  In I.A. No.6 of 2006, this Court has passed the following

order:

"By virtue of the impugned judgment of the High Court, the Kerala State  Electricity  Board  is  liable  to  pay  certain  amount  to  the Petitioner-Contractor.  There is a dispute regarding the quantum of the amount payable.  This Court, vide Judgment dated 19.7.2000, had  confirmed  the  finding  of  the  High  Court.   The  Petitioner- Contractor would be at liberty to move the High Court  of  Kerala seeking further steps for the recovery of the amount and if there is any dispute  between the  petitioner-Contractor  and the Electricity Board,  the  High  Court  would  consider  the  same  and  issue appropriate directions within a reasonable time...."

6. Respondent-contractor filed W.P.(C) No.31108 of 2007 before the

High Court seeking for a direction to the appellant-Board to release the

amount as directed by the High Court and affirmed by this Court.  By the

impugned judgment dated 28.01.2009, the High Court allowed the writ

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petition directing the Board to pay: (i)  Rs.4,12,58,224/- under Ex.P20

[Rs.2,29,34,559/-(principal)  plus  Rs.1,83,23,665/-(Interest)];  and  (ii)

Rs.8,79,71,154/-  [Rs.5,81,53,892/-  (principal)  plus  Rs.2,98,17,262/-

(interest)]  towards the amount payable for additional work done after

adding labour escalation charges and material  escalation charges as

per Ex.P59. The High Court held that the total amount payable under

Ex.P20 and Ex.P59 as on 31.12.2008 was Rs.12,92,29,378/- which is to

be  paid  by  the  appellant-Board  within  three months  with  9% simple

interest from 01.01.2009 till date of payment.  So far as the claim as to

the additional work done, the High Court directed the parties to mutually

discuss among themselves on disputed items in appeal.   Further with

the consent of the counsel for the parties, the High Court referred the

matter  to the sole arbitrator  Justice K.A.  Nayar,  former Judge of  the

High Court of Kerala to resolve the dispute relating to items which they

could not amicably resolve.  The appellant-Board filed review bearing

R.P. No.542 of 2009, which came to be dismissed on 23.06.2009. Being

aggrieved, the appellant-Board is before us.   

7. We have heard the learned counsel for the parties at length and

perused  the  impugned judgment  and  also  judgment  of  this  Court  in

C.A.No.4092  of  2000  and I.A.  No.6  of  2006  and  other  materials  on

record. In the facts and circumstances of the present case and since

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public money is involved, we deem it a fit case for reappreciating the

facts and the materials on record or otherwise the findings of the High

Court are likely to result in excessive hardship to the appellant-Board

and consequently passed on to the consumers.  

8. EX.P20-CLAIM  FOR  LABOUR  ESCALATION  AND  INTEREST

THEREON-WHETHER  ANY  AMOUNT  IS  PAYABLE  TO  THE

RESPONDENT:  Ex.P20  pertains  to  the  bills  from  CC.14  to  CC.78

towards  the  work  done,  labour  escalation  charges  and  the  interest

thereon.  Under the impugned judgment, the High Court has directed

the  appellant-Board  to  pay  Rs.4,12,58,224/-  under  Ex.P20

[Rs.2,29,34,559/-  (principal)  plus  Rs.1,83,23,665/-  (interest)].  The

respondent-contractor  claimed  that  even  after  payment  of

Rs.12,82,96,320/-, an amount of Rs.3,38,57,618/- is still due to be paid

to him under Ex.P20 i.e.  principal  (Rs.2,29,34,559/-)  and subsequent

interest (Rs.1,09,23,059/-).  According to KSEB by 10.02.2003, it  has

paid  a  total  amount  of  Rs.12,82,96,320/-  under  Ex.P20 and  actually

made excess payment of Rs.1,74,75,247/-.  Direction of the High Court

to  pay  the  amount  of  Rs.4,12,58,224/-  under   Ex.P20  has  two

components:- (i) claim of the respondent-contractor payable as principal

under  Ex.P20-Rs.2,29,34,559/-;  and  (ii)  subsequent  interest  thereon.

Dispute in the amount payable under Ex.P20 is twofold:-  (i)  Mode of

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appropriation  of  payments  made  by  the  Board;  and  (ii)  claim  for

subsequent interest.           

9. Ex.P20-MODE  OF  APPROPRIATION  OF  PAYMENT  MADE: While

claiming  the  charges  for  labour  escalation,  in  column  no.(3),  the

respondent-contractor has shown the value of work done under each bill

and separately shown "Labour Escalation Due" on each bill by showing

the method of  calculation/appropriation.   For proper appreciation,  we

may usefully refer to the claims made under the bills  from CC.14 to

CC.18 and then from CC.68 to CC.75 (Ex.P20), which read as under:-

CC  No.

Month  to which  relates

Value of  work  done (R)

Minimum  wage  for the  base  period  in the  Agt.

Present wage for the corresponding month Difference Formulae Labour  Escalation due

Advance received

Remarks

Consu- mer  price  Index  number of  Meppa- di

Index  number  after  deduct-ing 100 points  as in Govt. Notifica- tion

D.A. at 0.06 ps

per point

Basic wage of ordinary labourer

Hill allowance

15%

total

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 CC.14 12/84 2651230.00 13.00 316 216 12.96 12.90 3.74 28.70 15.70 3.08 x 15.70 x 2651230

                    100 1282029.00 -

CC.15 1/85 &  2/85

3885356.00 13.00 316 (Ave.)

216 12.96 12.00 3.74 28.70 15.70 3.08 x15.70 x 3885356                       100

1878803.00

CC.16 3/85 2520496.00 13.00 314 214 12.84 12.00 3.73 28.57 15.57 3.08 x 15.57x 2520496                       100

1208719.00

CC.17 4/85 1591848.00 13.00 316 216 12.96 12.00 3.74 28.70 15.70 3.08 x 15.70 x 1591848                      100

769754.00

CC.18 5/85 3782665.00 13.00 318 218 13.08 12.00 3.76 28.76 15.76 3.08 x 15.76 x 3782665                        100

1836136.00

...................

CC.68 12/91 2039002.00 13.00 545 445 26.7 0

12.00 5.81 44.51 31.51 3.08 x 31.51 x  2039002                              100

1978868.00

Ways and Means advance received on 15.1.92 3000000.00 CC.69 1/92 2221294.00 13.00 552 452 27.12 12.00 5.81 44.99 31.99 3.08 X 31.99 X 2221294

                     100 2188623.00

CC.70 2/92 2502304.00 13.00 553 453 27.18 12.00 5.88 45.06 32.06 3.08 X 32.06 X 2502304                         100

2470895.00

Ways and Means Advance received on 13.3.92 3000000.00 CC.71 3/92 2248500.00 13.00 552 452 27.12 12.00 5.87 44.99 31.99 3.08 X 31.99 X 2248500

                       100 2215429.00

CC.72 4/92 1312431.00 13.00 553 453 27.18 12.00 5.88 45.06 32.06 3.08 X 32.06 X 1312431                         100

1295957.00

CC.73 5/92 2608465.00 13.00 558 458 27.48 12.00 5.92 45.40 32.40 3.08 X 32.40 X 2608465                           100

2603039.00

CC.74 6/92 3573468.00 13.00 562 462 27.72 12.00 5.96 45.68 32.68 3.08 X 32.68 X 3573468                         100

3596853.00

Ways and means advance received on 30.10.92 3000000.00 Adhoc Advance received on  14.1.93 2500000.00

CC.75 1/93 2088949.00 13.00 593 493 29.58 12.00 6.24 47.82 34.82 3.08 X 34.82 X 2088949                         100

2240306.00

6,32,84,050.00

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In  the  same manner,  for  all  the  bills,  the  respondent-contractor  has

calculated the "Value of work done", "difference in wages" and "Labour

Escalation Charges" on monthly basis.  After so calculating the claim

under all the bills, the respondent-contractor had shown the dates on

which advances received in column no.(14) and deducted the advance

received towards the principal  and finally  shown Rs.6,32,84,050/-  as

total  amount due towards labour escalation. As seen from the above

tabular column, in computation of his claims in Ex.P20, the respondent-

contractor  himself  thus  adjusted  all  payments  received  from  the

appellant-Board, only towards the principal and not towards interest.   

10. The respondent-contractor has separately calculated the interest

payable on "Labour Escalation Due" claimed under each bill at the rate

of 18% i.e. Rs.7,66,35,927/-.  For proper appreciation, we may usefully

refer to bills from CC.14 to CC.18 and from CC.68 to CC.75 as to how

the interest was calculated and claimed separately which read as under:

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CC  No.

Labour  Escalation  due

Less advance  received

Accumulated  Balance

Date from  which due

Period No. of  days

Rate of  interest  

Interest  Due

Remarks

From To

1 2 3 4 5 6 7 8 9 10 11 CC.14 12,82,029.00 - 12,82,029.00 15.1.85 15.1.85 14.3.85 59 18% 37,302.00 CC.15 18,78,803.00 31,60,832.00 15.3.85 15.3.85 14.4.85 31 18% 48,322.00 CC.16 12,08,719.00 - 43,69,551.00 15.4.85 15.4.85 14.5.85 30 18% 64,645.00 CC.17 7,69,754.00 - 51,39,305.00 15.5.85 15.5.85 14.6.85 31 18% 78,568.00 CC.18 18,36,136.00 - - - - - - - ........... CC.68 19,78,868.00 605,22,166.00 15.1.92 15.1.92 14.2.92 31 18% 9,25,243.00 Ways and Means  Advance

30,00,000.00

CC.69 21,88,623.00 597,10,789.00 15.2.92 15.2.92 14.3.92 29 18% 8,53,946.00 CC.70 24,70,895.00 621,81,684.00 15.3.92 15.3.92 14.4.92 31 18% 9,50,613.00 Ways and Means  Advance

30,00,000.00

CC.71 22,15,429.00          - 613,97,113.00 15.4.92 15.4.92 14.5.92 30 18% 9,08,341.00 CC.72 12,95,957.00          - 626,93,070.00 15.5.92 15.5.92 14.6.92 31 18% 9,58,431.00 CC.73 26,03,039.00          - 652,96,109.00 15.6.92 15.6.92 14.7.92 30 18% 9,66,025.00 CC.74 35,96,853.00          - 688,92,962.00 15.7.92 15.7.92 14.2.93 215 18% 73,04,541.00 Ways and Means  Advance

30,00,000.00

Adhoc Advance 25,00,000.00 CC.75 22,40,306.00         - 656,33,268.00 15.2.93 15.2.93 14.3.93 28 18 9,06,279.00 ................

Total interest claimed ................. 7,66,35,927

11. Parties are governed by the terms of the contract.  Clause E1.079

of  the  agreement  dated  16.09.1981  expressly  provided  that  the

appellant would pay no interest to the respondent-contractor for delayed

payment.  Clause E1.079 of the agreement reads as under:-

"E1.079 No claim for delayed payment due to dispute etc. No claim for interest or damages will be entertained by the Board with respect to any money or balance which may be lying with the Board  owing  to  any  dispute,  difference  or  misunderstanding between the Engineer on the one hand and the contractor on the other hand or with respect to any delay on the part of the Engineer- in-charge  in  making  periodical  or  final  payment  or  any  respect whatsoever,  and the Board shall  not be liable for any interest or damages or loss to the contractor."   

Even as per respondent's own letter No.D.W/94/090 dated 25.11.1994,

the  respondent-contractor  has  deducted  the  advances  paid  only

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towards the principal  and claimed interest.   The said letter  reads as

under:-

"I am herewith submitting a comprehensive Statement (Claim bill), giving the details of  labour escalation payable against each C.C Bill,  deducting  the  advances  paid  to  me  which  are  adjustable against the dues.  The net labour escalation amount payable as on 31.10.1994 works out  to  Rs.6,32,84,050.00,  after  thus deducting the  advances  received.   The  interest  amount  payable  has  also been  worked  out  and  included  in  the  enclosed  bill,  separately, which comes to  Rs.7,66,35,927.00.  The total  amount  due as on 31.10.1994 is Rs.13,99,19,1977.00. This amount may be paid to me without further delay."

Thus by his own calculation and as per his own letter dated 25.11.1994,

the respondent-contractor has adjusted all payments received from the

Board firstly towards the principal.    

12. But when the respondent filed I.A.No.6 of 2006, the entire method

of calculation was changed by showing adjustment of payments firstly

towards interest and then towards principal, only to claim that in spite of

payment of Rs.12,82,96,320/- by the Board, amounts are still due and

payable to him. In the calculation sheet filed alongwith I.A. No.6 of 2006

while making adjustments of payment of rupees four crores (payment

made to the respondent-contractor during the pendency of the earlier

round of writ petition), the same was adjusted firstly against the interest

and then against the principal amount. The calculation sheet filed by the

respondent-contractor in I.A.No.6 of 2006 is as under:-

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Principal (in Rupees) Interest @ 9% (in Rupees) Remarks Balance DR CR Date Particulars DR CR Balance

63284050 Principal amount of Labour  Escalation upto CC 78 as per  Ext. P20

Amount received from Kerala State  Electricity Board is firstly adjusted  against interest and then principal  amount

Interest upto CC 78 for the period upto 20.6.95

40218107

20.06.95 Amount Received Rs. 1 crore 10000000 30218107 Interest from 21.6.95 to 13.2.96 3713820 33931927

13.02.96 Amount Received Rs.1crore 10000000 23931927 Interest from 14.2.96 to 23.2.96 156043 24087970

23.02.96 Amount Received Rs.2 crores 20000000 4087970 Interest 24.2.96 to 20.3.01 28867930 32955900

56239950 7044100 20.03.01 Amount received (4 crores) 32955900 0 Out of Rs.4 crores received the interest as on this date Rs.32955900/- is wiped off and balance Rs.7044100 adjusted  against principal amount

Interest 21.3.01 to 5.9.01 2343588 48583538 7656412 05.09.01 Amount received (1 crore) 2343588 0 Out of Rs.1 crore received, the interest

as on this date Rs.2343588/- is wiped  off and balance Rs.7656412 adjusted  against principal amount

Interest from 6.9.01 to 12.10.01 443242 29026780 19556758 12.10.01 Amount received (2 crores) 443242 0 Out of Rs.2 crore received the interest  

as on this date Rs.443242/- is wiped  off and balance Rs.19556758 adjusted  against principal amount

Interest 13.2.01 to 1.6.02 1660491 23955276 5071504 01.06.02 Amount received (6731995) 1660491 0 Out of Rs.67,31,995/- received the  

interest as on this date Rs.1660491/- is wiped off and balance Rs.5071504/-  adjusted against principal amount

Interest 2.6.02 to 17.8.02 454822 22734120 1221156 17.08.02 Amount received (1675978) 454822 0 Out of Rs.16,75,978/- received the  

interest as on this date Rs.454822/- is  wiped off and balance Rs.1221156/-  adjusted against principal amount

Interest 18.8.02 to 10.2.2003 992204 13837977 8896143 10.02.03 Amount received (9888347) 992204 0 Out of Rs.98,88,347/- received, the  

interest as on this date Rs.992204/- is  wiped off and balance Rs.8896143/-  adjusted against principal amount

Interest from 11.2.03 to 31.5.05 2866168 2866168                                                                                                                                      81716415

13. Pursuant to the directions of the High Court and after disposal of

C.A.No.4092  of  2000,  the  appellant-Board  made  a  total  payment  of

Rs.12,82,96,320/-.  Since  the  respondent-contractor  changed  the

method  of  adjustment  i.e.  by  adjusting  the  payment  firstly  towards

interest  and  then  towards  principal,  even  after  payment  of

Rs.12,82,96,320/-,  according to him Rs.3,38,57,618/-  was still  due to

him. The said calculation shown in I.A.No.6 of 2006, reads as under:-

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Ext.P20 (LABOUR ESCALATION) Labour escalation claimed in CC Bill 14 to  78

(Ref.Ext.P20) ................ 63284050

Labour escalation claimed in CC Bill 79 to  85

(Schedule 3)  ................ 9096582

Total ................ 72380632 Total interest upto 31.05.2005 @ 9% (81716415 + 8056891)

(Schedule 2 & 3) 89773306

Total Amount due as on 31.5.2005 ................ 162153938 Less: Amounts received from K.S.E. Board  on various dates (adjusted firstly against  interest and then principal amount)

(Schedule 6)   ................ 128296320

Balance amount due as on 31.5.2005 (Schedule 5) ................ 33857618

Principal amount ................ 22934559 Interest ................ 10923059

................ 33857618

This  manner  of  appropriation,  firstly  towards  the  interest  is  in  clear

violation of the directions given by this Court to make payment under

Ex.P20 and the method of adjustment which the respondent-contractor

himself  adopted in Ex.P20. In the original  Ex.P20, when respondent-

contractor  himself  has expressly adjusted all  payments made by the

appellant  towards principal  and not towards interest,  the respondent-

contractor cannot turn round and change the method of calculation by

showing the adjustment of payments made first against the interest and

then  towards  the  principal.  This  important  aspect  of  change  in  the

method of  adjustment/appropriation was lost  sight  by the High Court

and  the  direction  of  the  High  Court  to  make  further  payment  of

Rs.4,12,58,224/- under Ex.P20 is not sustainable.  

14. IN  THE  FACTS  OF  THE  PRESENT  CASE  WHETHER  THE

RESPONDENT-CONTRACTOR  IS  JUSTIFIED  IN  APPROPRIATION  OF

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PAYMENT  FIRSTLY  TOWARDS  INTEREST: Learned  counsel  for  the

respondent-contractor  submitted  that  in  the  case of  a  debt  due with

interest, the normal rule is that any payment made by the debtor, in the

first instance, to be adjusted towards satisfaction of interest and only

thereafter to the principal.  In support of his contention, learned counsel

placed reliance upon  Meghraj and Others v. Mst. Bayabai and Others

(1969) 2 SCC 274 and  Industrial  Credit  and Development  Syndicate

now called I.C.D.S. Ltd. v. Smithaben H. Patel (Smt.) and Others (1999) 3

SCC 80.  

15. In  I.C.D.S.'s case, while considering how the payments made by

the judgment-debtor  are to be adjusted,  in para (14),  it  was held as

under:

14. In view of what has been noticed hereinabove, we hold that the general  rule  of  appropriation  of  payments  towards  a  decretal amount is that such an amount is to be adjusted firstly, strictly in accordance with the directions contained in the decree and in the absence of such direction, adjustments be made firstly in payment of  interest  and  costs  and  thereafter  in  payment  of  the  principal amount. Such a principle is, however, subject to one exception, i.e., that the parties may agree to the adjustment of the payment in any other manner despite the decree. As and when such an agreement is pleaded, the onus of proving is always upon the person pleading the  agreement  contrary  to  the  general  rule  or  the  terms  of  the decree  schedule. The  provisions  of  Sections  59  to  61  of  the Contract Act are applicable in cases where a debtor owes several distinct debts to one person and do not deal with cases in which the principal  and  interest  are  due  on  a  single  debt."  [Underlining added]

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16. In Mathunni Mathai v. Hindustan Organic Chemicals Ltd. and Ors.,

(1995)  4  SCC 26,  it  has  been  held  that  Order  XXI  Rule  1  CPC as

amended in 1976 is applicable in executing the award made under the

Land Acquisition Act. In Mathunni Mathai's case, it was indicated that if

the decretal amount is deposited by the judgment-debtor pursuant to the

order of the Court and the judgment-debtor has not given notice of such

deposit to the decree holder and also does not specify the manner in

which the amount should be appropriated, then the decree holder will be

entitled  to  appropriate  the amount  deposited  by  the judgment-debtor

firstly towards interest and other expenses and the decree holder is not

bound to adjust the same towards the principal.  In  Prem Nath Kapur

and Anr.  v.  National  Fertilizers  Corporation  of  India  Ltd.  and Others,

(1996)  2  SCC 71;  the decision in  Mathunni  Mathai's  case has been

expressly overruled by a three Judges Bench of the Supreme Court on

the  finding  that  Order  XXI  Rule  1  CPC cannot  be  extended  to  the

execution  of  an  award made under  the  Land  Acquisition  Act  on  the

score of its inconsistency with the provisions of Land Acquisition Act.  

17. The view taken in  Prem Nath Kapur's case was approved as a

correct  view in  Gurpreet  Singh v.  Union of  India (2006) 8 SCC 457.

Though the question  posed for  consideration  before  the  Constitution

Bench in  Gurpreet Singh's case was whether the view taken in  Prem

14

Nath Kapur's case is correct and whether the rule of "different stages of

appropriation" set  out  in  Prem Nath Kapur's case was required to be

restated on the scheme of  the Land Acquisition Act,  the Constitution

Bench specifically dealt with Order XXI Rules 1, 2, 4 and 5 CPC and

clarified  the  position.   After  referring  to  the  relevant  portion  of  the

decision in  Gurpreet Singh's case, in Bharat Heavy Electricals Ltd. v.

R.S.  Avtar  Singh  and  Company (2013)  1  SCC  243,  this  Court

summarized the principles emerging as under:

"31. From what has been stated in the said decision, the following principles emerge: 31.1. The general rule of appropriation towards a decretal amount was that such an amount was to be adjusted strictly in accordance with the directions contained in the decree and in the absence of such directions  adjustments  be  made firstly  towards payment  of interest and costs and thereafter towards payment of the principal amount subject, of course, to any agreement between the parties. 31.2. The legislative intent in enacting sub-rules (4) and (5) is a clear pointer that interest should cease to run on the deposit made by the judgment-debtor and notice given or on the amount being tendered outside the court in the manner provided in Order 21 Rule 1(1)(b). 31.3. If the payment made by the judgment-debtor falls short of the decreed  amount,  the  decree-holder  will  be  entitled  to  apply  the general rule of appropriation by appropriating the amount deposited towards the  interest,  then towards costs  and finally  towards the principal amount due under the decree. 31.4. Thereafter,  no  further  interest  would  run  on  the  sum appropriated towards the principal. In other words if a part of the principal amount has been paid along with interest due thereon as on the date of issuance of notice of deposit interest on that part of the principal sum will cease to run thereafter. 31.5. In cases where there is a shortfall in deposit of the principal amount, the decree-holder would be entitled to adjust interest and costs first and the balance towards the principal and beyond that the decree-holder cannot seek to reopen the entire transaction and

15

proceed to  recalculate the interest  on the whole of  the principal amount and seek for reappropriation." [Underlining added]

18. As held in Constitution Bench judgment in Gurpreet Singh's case

followed in  BHEL's case, if there is a direction in the decree as to the

mode of appropriation of payment, then appropriation of any payment

made by the judgment-debtor has to be strictly in accordance with the

direction contained in the decree.  If there is no such direction in the

decree,  then  the  general  principle  is  that  where  a  judgment-debtor

makes payment without making any indication as to how the payment is

to be adjusted, it is the option of the creditor to make adjustment firstly

towards the interest and then towards the principal. But if the judgment-

debtor  has indicated the manner  in  which the appropriation is  to  be

made,  then  the  creditor  has  no  choice  to  apply  the  payment  in  a

different manner.  The general principle of mode of appropriation firstly

in payment of interest and thereafter in payment of principal amount is

subject to the exception i.e. the parties may agree to the adjustment of

the payment in any other manner despite the decree.   

19. In  C.A.No.4092  of  2000,  this  Court  directed  payment  as  per

Ex.P20.  As  held  in  Gurpreet  Singh's  case, the  payment  is  to  be

appropriated strictly in accordance with the directions contained in the

decree. In C.A.No.4092 of 2000, since this Court directed the payment

16

as per Ex.P20 and therefore, the appropriation/adjustment of payment

has to be made strictly as stated in Ex.P20.  When the direction of the

court  is  to  make  payment  as  per  Ex.P20,  the  respondent-contractor

cannot  turn  round and say that  the amount  received by him will  be

adjusted towards the interest first and then towards the principal.  

20. An 'Appropriation of money'  is the indication of an intention that

money should be applied in a particular way.  In the present case, the

statement  of  respondent-contractor  himself  and  other  circumstances

clearly  indicate  that  payment  ought  to  be adjusted  only  towards  the

principal  amount.  As  discussed  earlier,  in  Ex.P20  the  respondent-

contractor  himself  has  shown the  labour  escalation  due  as  principal

amount and interest thereon separately and has given the credit of the

advances made by the Board firstly towards the principal and claimed

the balanced amount of the principal. At this juncture, we may usefully

recapitulate  respondent's  own  letter  to  the  appellant-Board  dated

25.11.1994  extracted  in  para  (11)  above  where  the  respondent-

contractor himself has stated that he has deducted the advances from

the principal amount claimed under "Labour Escalation Charges" and

"interest" are shown separately.  

17

21. By  his  own  statement,  the  respondent-contractor  has  firstly

appropriated the advances towards the labour escalation due i.e. the

principal amount. The respondent-contractor is not justified in changing

the method of calculation and claim appropriation of the payments firstly

towards the interest and then towards the principal amount. The claim of

the  respondent-contractor  for  a  further  sum of  Rs.2,29,34,559/-  with

interest under Ex.P20 cannot be sustained and the direction of the High

Court to pay the same is liable to be set aside.   

22. WHETHER  RESPONDENT-CONTRACTOR  IS  ENTITLED  TO

SUBSEQUENT INTEREST ON THE AMOUNT CLAIMED IN EX.P20: Insofar

as Ex.P20, in O.P. No.283 of 1995, the High Court granted the following

relief:-

"...We, therefore, grant prayer (b) as prayed for and issue a writ of mandamus directing the second respondent to pay the petitioner interest at 18% on the amount shown in the statement, Ext.P20...."

In O.P. No.283 of 1995, the respondent-contractor in prayer (b), prayed

for issuance of writ of mandamus directing the appellant-Board to pay

the  amount  shown  in  the  statement  Ex.P20  together  with  interest

thereon  within  a  time  to  be  fixed  by  this  Court.  Ex.P20  relates  to

"Labour Escalation Charges" and "Interest" thereon claimed separately.

As seen from prayer (b) in O.P. No.283 of 1995, there was no prayer for

18

future  interest;  also,  there  was  no  direction  by  the  High  Court  for

payment of subsequent interest.

23. In the appeal before this Court in C.A. No.4092 of 2000, this Court

observed that disputes among such contractual or commercial activities

of  a  statutory  body should  not  have been agitated in  the  writ  court.

However,  since the labour escalation notification for  minimum wages

was issued way back in 1983, this Court directed the amount as shown

in Ex.P20 to be paid to the respondent-contractor with interest at the

rate reduced from 18% to 9% p.a.  This Court held as under:  

"15. The High Court has directed the Board to pay to the contractor the amounts shown in the statement Ext. P-20 along with interest @ 18% per annum. Having considered the totality of the circumstances, we feel that it would be just and proper to award interest @ 9% per annum instead of 18%. In the statement Ext. P-20, the contractor has calculated interest @ 18% per annum. The interest amount would now be calculated at 9% instead of 18% per annum. The impugned judgment of the High Court is modified accordingly."

The above order of this Court directs payment by the appellant Board

only of the amount shown in Ex.P20 with reduced interest at 9% p.a.

There  is  no  direction  by  this  Court  to  pay  subsequent  interest  on

Ex.P20.   

24. Under sub-section (2) of Section 34 CPC, where a decree is silent

as  to  payment  of  further  interest  on  the  principal  sum,  it  shall  be

deemed to have been refused.  Section 34(2) CPC reads as under:-

19

34. Interest. (1) .....

(2) Where such a decree is silent with respect to the payment of further interest on such aggregate sum as aforesaid from the date of the decree to the date of payment or other earlier date, the Court shall be deemed to have refused such interest, and a separate suit therefore shall not lie.

In the present case, since there is no direction for future interest, in view

of sub-section (2) of Section 34 CPC, it must be deemed that the court

has  refused  such  interest.  The  respondent-contractor  cannot  claim

further interest on the amount payable under Ex.P20 beyond the date of

judgment of the High Court (02.04.1998) and in any event not beyond

the date of judgment of this Court (19.07.2000).

25. The respondent-contractor  himself  has understood the order  of

this  Court  in  CA No.4092  of  2000  that  there  was  no  direction  for

payment of further interest on the amount payable under Ex.P20.  In I.A.

No.6 of 2006, the respondent-contractor specifically prayed for payment

of further interest to the appellant forthwith [prayer (i) in I.A. No. 6 of

2006] which was not granted by this Court in its order dated 24.09.2000

while disposing of I.A. No.6 of 2006.  The appellant-Board has paid a

total  amount of  Rs.12,82,96,320/- and according to the Board,  it  has

overpaid  the  respondent-contractor  an  excess  amount  of

Rs.1,74,75,247/-.   In  the  absence  of  any  direction  in  the  underlying

order of the High Court and order of this Court in C.A. No.4092 of 2000

20

to pay subsequent interest, the respondent-contractor is not entitled to

claim subsequent interest on the amount payable under Ex.P20.  The

direction  of  the  High  Court  to  pay  subsequent  interest  of

Rs.1,83,23,665/- under Ex.P20, is not sustainable.    

26. The impugned judgment of the High Court directing the appellant-

Board to pay Rs.4,12,58,224/-  in Ex.P20 [Rs.2,29,34,559/-  (principal)

plus Rs.1,83,23,665/- (subsequent interest)] under Ex.P20, is set aside.

27. Claim  under  Ex.P59  for  the  additional  work  and  subsequent

interest:  So far as Ex.P59 is concerned, it  is towards additional work

done - material escalation and labour escalation.   So far as Ex.P59 is

concerned, in the earlier round of litigation in O.P.No.283 of 1995, in

para (26) of its judgment, the High Court held as under:

"26. The Board shall also pay to the petitioner the bills raised by him for the work done till date including labour escalation payment etc. etc. as ordered in O.P. No.283 of 1995....."

28. Contention of the respondent-contractor is that in C.A. No.4092 of

2000,  since  this  Court  did  not  make  any  observation  regarding

respondent's  claim made under Ex.P59,  the order  of  the High Court

directing  payment  under  Ex.P59  has  become  final  and  the  amount

claimed thereon in Ex.P59 has to be paid to the respondent-contractor.

While disposing of the appeal in C.A. No.4092 of 2000, this Court, of

course,  did  not  make  any  observation  regarding  Ex.P59.  But

21

respondent's  claim under Ex.P59 for  additional  work done has to be

examined in the context of this Court's observation that "....The disputes

relating to interpretation of the terms and conditions of such a contract

could  not  have  been  agitated  in  a  petition  under  Article  226  of  the

Constitution of India..."  and ".....Whether any amount is due and if so,

how much and refusal of the appellant to pay it is justified or not, are not

the  matters  which  could  have  been  agitated  and  decided  in  a  writ

petition.....". Having said so, this Court proceeded to direct the appellant

to pay the amount as claimed under Ex.P20.

29. Be that as it may, so far as Ex.P59 is concerned, the contractor

has made a claim of Rs.5,55,62,597/- towards additional work including

departmental materials and the Board has disputed the claim made by

the respondent-contractor in I.A.No.6 of 2006 and pleaded that the total

work done by the contractor was only for Rs.1,55,65,817/- including cost

of departmental materials.  The relevant portion of the counter affidavit

filed by the Board in I.A.No.6 of 2006 reads as under:-

"56. As per Ext.P59, the contractor had demanded an amount of Rs.5,55,62,597/-  including  departmental  materials  and  excluding tender excess, material escalation and labour escalation.  Out of this, 23 items were wrongly claimed in Ext.P59 by the contractor and the same was withdrawn by the contractor in his next bill. ie CC 86 bill submitted to the Board.  The amount for the above 23 items wrongly claimed would come to Rs.49,40,251/-.  So the net amount claimed  by  the  contractor  would  come  to  Rs.5,06,22,346/-. Whereas,  the  total  work  done  by  the  contractor  was Rs.1,55,65,817/-  including  cost  of  departmental  materials  and

22

excluding tender excess, Material escalation and labour escalation. A detailed statement on each items claimed by the contractor in Exhibit P59 and the claim admitted by the Board and their remarks is appended."

30. Taking us through the counter filed by the appellant  in W.P.(C)

No.31108 of 2007, learned senior counsel for the respondent-contractor

submitted  that  the  claim  of  the  respondent-contractor  in  Ex.P59  on

various items was not disputed by the appellant in its counter filed in

WP(C) No.31108 of 2007. This contention does not merit acceptance.

As pointed out above, the claim of the respondent-contractor on each

one of  the items in  Ex.P59,  the appellant-Board has filed a detailed

reply  in  I.A.No.6  of  2006  disputing  the  claim  on  each  of  the  items

claimed by the respondent-contractor.  It is in this context, this Court has

disposed of I.A. No.6 of 2006 observing that there is dispute regarding

the quantum of the amount payable and giving liberty to the respondent-

contractor  to  move to  the High Court.  It  is  seen from the impugned

judgment that the High Court has also taken note of the counter filed by

the appellant-Board in I.A.No.6 of  2006 in which the appellant-Board

disputed each one of the items in Ex.P59 and also referred to the same

in its order and the same reads as under:

"9. .....If we accept the statement of the Board  in paragraph 56 of the  counter  filed  before  the  Supreme  Court,  the  net  amount exclusive  of  the  tender  excess,  material  escalation  and  labour escalation can only be Rs.5,06,22,346/-. .....The contention of the Board  that  out  of  the  above  amount,  only  Rs.1,55,65,817/-  is

23

payable cannot prima facie be accepted, as the measurement was taken by the Board after ten years of the judgment (Ext.P1)...."

31. The High Court proceeded to observe that the contention of the

appellant  that  only  Rs.1,55,65,817/-  is  payable  under  Ex.P59 cannot

prima facie  be accepted as the measurement was taken by the Board

after ten years of the judgment (Ex.P1); whereas the contractor's claims

were made then and there by the contractor on actual measurement.

After  so referring to the dispute between the parties,  the High Court

observed that there is dispute with regard to the actual measurements

of certain additional works as well as the contractual rates, the same

has to be factually verified and calculations are to be made and that the

matter has to be discussed with the parties. The High Court directed the

appellant-Board  to  pay  Rs.8,79,71,154/-[Rs.5,81,53,892/-  (principal)

plus Rs.2,98,17,262/- (interest)]. The split-up figure of principal amount

of Rs.5,81,53,892/- is as under:-  

Claim in Ex.P59 admitted by the Board   ................ .

1,55,65,817

Material Escalation 98% of Ex.P59          ................ .

1,52,54,501

Labour Escalation at 173.60% of Ex.P59 ................ .

2,70,22,258

Tender Excess at 2% of Ex.P59             ................ .

3,11,316

................ .

5,81,53,892

24

32. The High Court ordered single uniform rate for labour escalation

at 173.60% and material escalation at 98% of Ex.P59.  The contention

of the appellant-Board is that the direction of the High Court to pay at

uniform rate of 98% and 173.60%, is contradictory to the terms of the

agreement  and  as  per  own calculation  of  the  respondent-contractor.

According to the Board, material escalation and labour escalation are to

be  calculated  on  a  monthly  basis  as  claimed  by  the  respondent-

contractor in other bills.  In Ex.P20, the respondent-contractor himself

calculated labour escalation on monthly basis and has not followed his

own  prior  example.   The  High  Court  did  not  keep  in  view  the

respondent's own method of calculation of labour escalation on monthly

basis and erred in allowing labour escalation and material escalation at

single uniform rate of 173.60% and 98% respectively and the direction

of  the High Court  to pay Rs.5,81,53,892/-  is  not  sustainable.   Since

appellant  has  admitted  the  amount  of  Rs.1,55,65,817/-  as  payable

under Ex.P59, the same is payable with labour escalation and material

escalation calculated on monthly basis.  

33. The  High  Court  has  directed  the  appellant  to  pay  subsequent

interest  of  Rs.2,98,17,262/- on the amount directed to be paid under

Ex.P59.  As discussed earlier, there was no direction either by the High

Court or by this Court to pay future interest  qua Ex.P20. In the earlier

25

round of litigation, the High Court only directed the appellant to pay the

amount as ordered in Ex.P20. In view of the express provision of sub-

section  (2)  of  Section  34  CPC,  no  future  interest  is  payable  under

Ex.P59.  The  direction  of  the  High  Court  to  pay  future  interest  of

Rs.2,98,17,262/- on the claims made under Ex.P59 is not sustainable

and is liable to be set aside.

34. REFERENCE TO ARBITRATION: After  pointing  out  the  disputed

claims  of  additional  work  (Ex.P59)  and  on  the  oral  consent  of  the

counsel  for  the appellant,  the High Court  has referred the parties to

arbitration appointing Justice K.A. Nayar as the arbitrator.   Arbitrator/

Tribunal is a creature of the contract between the parties.  There was no

arbitration  agreement  between  the  parties.   The  question  falling  for

consideration is whether the High Court was right in referring the parties

to arbitration on the oral consent given by the counsel without written

instruction from the party.

35. Jurisdictional  pre-condition  for  reference  to  arbitration  under

Section 7 of the Arbitration and Conciliation Act is that the parties should

seek a reference or submission to arbitration.  So far as reference of a

dispute to arbitration under Section 89 CPC, the same can be done only

when parties agree for settlement of their dispute through arbitration in

contradistinction  to  other  methods  of  alternative  dispute  resolution

26

mechanism stipulated  in  Section  89  CPC.   Insofar  reference  of  the

parties to arbitration, oral consent given by the counsel without a written

memo of instructions does not fulfill the requirement under Section 89

CPC.  Since  referring  the  parties  to  arbitration  has  serious

consequences of taking them away from the stream of civil courts and

subject them to the rigour of arbitration proceedings, in the absence of

arbitration agreement, the court can refer them to arbitration only with

written  consent  of  parties  either  by  way  of  joint  memo  or  joint

application;  more  so,  when  government  or  statutory  body  like  the

appellant-Board is involved.

36. Emphasizing that under Section 89 CPC, referring the parties to

arbitration could be made only when the parties agree for settlement of

the dispute through arbitration by a joint application or a joint affidavit

before  the  court,  in  Afcons  Infrastructure  Ltd.  and  Anr.   v.  Cherian

Varkey Construction Co. (P) Ltd. and Ors. (2010) 8 SCC 24, this Court

held as under:-

"33. Even if there was no pre-existing arbitration agreement, the parties to the suit  can agree for arbitration when the choice of ADR processes is offered to them by the court under Section 89 of the Code. Such agreement can be by means of a joint memo or joint application or a joint affidavit before the court, or by record  of  the  agreement  by  the  court  in  the  order-sheet signed by the parties. Once there is such an agreement in writing  signed  by  parties,  the  matter  can  be  referred  to arbitration  under  Section  89  of  the  Code;  and  on  such reference, the provisions of the AC Act will apply to the arbitration,

27

and as noticed in  Salem Bar Bar Association, T.N. v.  Union of India (I)  (2003) 1 SCC 49, the case will go outside the stream of the  court  permanently  and  will  not  come  back  to  the  court." [Underlining added]

The  same  view  was  reiterated  in  Shailesh  Dhairyawan  v.  Mohan

Balkrishna Lulla, (2016) 3 SCC 619 which is as under:-

"28. It has been noticed by this Court in some earlier judgments† that Section 89 CPC is not very happily worded. Be that as it may, Section 89 provides for alternate methods of dispute resolution i.e. those methods which are alternate to the court and are outside the adjudicatory function of the court. One of them with which we are  concerned  is  the  settlement  of  dispute  through  arbitration. Insofar as reference of dispute to arbitration is concerned, it has been  interpreted  by  this  Court  that  resort  to  arbitration  in  a pending suit by the orders of the court would be only when parties agree  for  settlement  of  their  dispute  through  arbitration,  in contradistinction to the Alternate Dispute Resolution mechanism (for  short  “ADR”)  through  the  process  of  mediation  where  the Judge has the discretion to send the parties for mediation, without even obtaining the  consent  of  the parties. Thus,  reference to arbitration is by means of agreement between the parties. It is not in dispute that there was an agreement between the parties for reference of dispute to the arbitration and it was so referred." [Underlining added]

37. The  learned  senior  counsel  for  respondent-contractor  placed

reliance upon Byram Pestonji Gariwala v. Union Bank of India and Ors.,

(1992) 1 SCC 31 to contend that the counsel has the implied authority

to  consent  for  arbitration  on  behalf  of  a  party.   In  Byram  Pestonji

Gariwala case,  this Court made it clear that the counsel should not act

on  implied  authority  unless  there  is  exigency  of  circumstances

demanding immediate adjustment of suit by agreement or compromise

28

and the signature of the party cannot be obtained without undue delay.

In para (37) of Byram Pestonji Gariwala case, it was held as under:-

"37. We may, however, hasten to add that it will be prudent for  counsel  not  to  act  on  implied  authority  except  when warranted  by  the  exigency  of  circumstances  demanding immediate adjustment of suit by agreement or compromise and the signature of  the party cannot be obtained without undue  delay.  In  these  days  of  easier  and  quicker communication, such contingency may seldom arise. A wise and careful counsel will no doubt arm himself in advance with the necessary  authority  expressed  in  writing  to  meet  all  such contingencies  in  order  that  neither  his  authority  nor  integrity  is ever  doubted.  This  essential  precaution  will  safeguard  the personal reputation of counsel as well as uphold the prestige and dignity of the legal profession."

38. In  a  subsequent  decision  in  the  context  of  examining  the

compromise under Order XXIII Rule 3 CPC, in  Banwari Lal v. Chando

Devi (Smt) (Through LRs.) and Anr.  (1993) 1 SCC 581, this Court has

observed that the case of Byram Pestonji Gariwala had ignored the law

laid down in Gurpreet Singh v. Chatur Bhuj Goel (1988) 1 SCC 270 and

held that when parties enter into a compromise, the court must insist

upon the parties that the compromise be reduced into writing.  In para

(10) in Banwari Lal case, it was held as under:-

"10. ........ The order on face of it purported to dismiss the suit of the plaintiff  on  basis  of  the  terms  and  conditions  mentioned  in  the petition of compromise. As such, the validity of that order has to be judged treating it to be an order deemed to have been passed in purported exercise of the power conferred on the Court by Rule 3 of Order 23 of the Code.  The learned Subordinate Judge should not have accepted the said petition of compromise even if he had no knowledge of the fraud alleged to have been practised on  the  appellant  by  his  counsel,  because  admittedly  the

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petition  of  compromise  had  not  been  signed  either  by  the respondent  or  his  counsel. This  fact  should  have  been discovered by the Court. In the case of  Gurpreet Singh v.  Chatur Bhuj Goel (1988) 1 SC 207 it has been said: (SCC p. 276, para 10)

“Under Rule 3 as it now stands, when a claim in suit has  been  adjusted  wholly  or  in  part  by  any  lawful agreement or compromise, the compromise must be in writing and signed by the parties and there must be a completed agreement between them. To constitute an adjustment,  the agreement  or  compromise must itself  be  capable  of  being  embodied  in  a  decree. When the parties enter into a compromise during the hearing of a suit or appeal, there is no reason why the requirement that the compromise should be reduced in writing in the form of an instrument signed by the parties should be dispensed with. The court must therefore insist upon the parties to reduce the terms into writing.”

39. Referring the parties to arbitration has serious civil consequences.

Once the parties are referred to arbitration, the proceedings will be in

accordance with the provisions of Arbitration and Conciliation Act and

the matter will go outside the stream of the civil court.  Under Section 19

of Arbitration and Conciliation Act, the arbitral tribunal shall not be bound

by the Code of Civil Procedure and the Indian Evidence Act.  Once the

award  is  passed,  the  award  shall  be  set  aside  only  under  limited

grounds.  Hence,  referring  the  parties  to  arbitration  has  serious  civil

consequences  procedurally  and  substantively.  When  there  was  no

arbitration agreement between the parties, without a joint memo or a

joint application of the parties, the High Court ought not to have referred

the parties to arbitration.

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40. The  impugned  order  referring  the  parties  to  arbitration,  in  any

event,  inter  alia, cannot  be sustained on other  grounds also.   While

referring the parties  to  arbitration,  the impugned judgment  has,  inter

alia, made  many  observations  affecting  crucial  areas  of  disputes

namely:- (i) check measurements for the works done - "measurements

taken by the Board after  ten years of  judgment;  whereas the claims

made by  the  contractor  then and there  on actual  measurement";  (ii)

percentage of labour escalation ordered by the High Court @ 173.60%

is  contradictory  to  the  prior  method  of  calculation  adopted  by  the

respondent-contractor  in  the  labour  escalation;  and  (iii)  materials

escalation  @  98%.   These  observations  in  the  impugned  judgment

would seriously prejudice the rights of the appellant-Board in pursuing

the matter before the Arbitral Tribunal.

41. Contention  of  the  respondent-contractor  is  that  the  appellant-

Board  has  not  raised  the  issue of  absence of  arbitration  agreement

before the Tribunal and the jurisdiction of the Arbitral Tribunal.  Since the

appellant-Board has challenged the impugned order before this Court in

the  matter  pending  for  consideration,  the  appellant-Board  could  not

have raised the issue of lack of jurisdiction before the Arbitral Tribunal

and  the  contention  of  the  respondent-contractor  does  not  merit

acceptance.   

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42. The  arbitrator  has  passed  the  award  dated  30.09.2012  for

Rs.19,98,05,805.72 with interest  @ 9% p.a.  which was subsequently

corrected on 29.10.2012 as Rs.21,55,34,430.55 with interest @ 9% p.a.

The appeal preferred by the appellant under Section 34 of the Act was

dismissed by the District Judge, Thiruvananthapuram vide order dated

23.12.2015.  The appeal preferred by the appellant under Section 37 of

the Arbitration and Conciliation Act (Arbitration Appeal No.Z-47 of 2013)

was transferred to this Court.  While directing the appellant-Board to pay

rupees  five  crores  to  the  respondent-contractor  on  furnishing

undertaking vide order dated 20.02.2017, this Court directed Arbitration

Appeal No.Z-47 of 2013 to be sent back to the High Court.  Since the

impugned judgment of the High Court is set aside, the award passed by

the Arbitrator is liable to be set aside and consequently the Arbitration

Appeal  No.Z-47 of  2013 pending before the Kerala High Court  shall

stand allowed.

43. IN  EXERCISE OF JURISDICTION UNDER ARTICLE 136  OF THE

CONSTITUTION  OF  INDIA-WHETHER  THIS  COURT  CAN  INTERFERE:

Learned  senior  counsel  for  the  respondent-contractor  urged  that  in

exercise of jurisdiction under Article 136 of the Constitution of India, the

Supreme  Court  normally  does  not  reappreciate  the  evidence  and

findings  of  fact  unless  there  is  miscarriage  of  justice  or  manifest

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illegality.   In support of his contention, learned senior counsel placed

reliance upon Taherakhatoon (D) by LRs. v. Salambin Mohammad (1999)

2 SCC 635.  

44. In exercise of jurisdiction under Article 136 of the Constitution of

India,  this  Court  does  not  normally  reappreciate  the  evidence  and

findings of fact; but where the findings of the High Court are perverse or

the  findings  are  likely  to  result  in  excessive  hardship,  the  Supreme

Court would not decline to interfere merely on the ground that findings in

question are findings of fact.  After referring to various judgments on the

scope in exercise of power under Article 136 of the Constitution of India,

in  Mahesh Dattatray Thirthkar v. State of Maharashtra  (2009) 11 SCC

141, this Court in para (35) summarized the principles as under:-

"35. From a close examination of the principles laid down by this Court  in  the  aforesaid  series  of  decisions  as  referred  to hereinabove on the question of exercising power to interfere with findings of fact by this Court under Article 136 of the Constitution, the following principles, therefore, emerge:

• The  powers  of  this  Court  under  Article  136  of  the Constitution of India are very wide.

• It is open to this Court to interfere with the findings of fact given  by  the  High  Court  if  the  High  Court  has  acted perversely or otherwise improperly.

• When the evidence adduced by the parties in support of their  respective  cases  fell  short  of  reliability  and acceptability and as such it is highly unsafe and improper to act upon it.

• The appreciation of evidence and finding is  vitiated by any error of  law of procedure or found contrary to the principles  of  natural  justice,  errors  of  record  and misreading of the evidence, or   where the conclusions of

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the  High  Court  are  manifestly  perverse  and unsupportable from the evidence on record.  

• The  appreciation  of  evidence  and  finding  results  in serious miscarriage of justice or manifest illegality  .

• Where findings of  subordinate courts  are shown to  be perverse or based on no evidence or irrelevant evidence or  there  are  material  irregularities  affecting  the  said findings or where the court feels that justice has failed and the findings are likely to result in unduly excessive hardship.

• When the High Court has redetermined a fact in issue in a civil appeal, and erred in drawing inferences based on presumptions.

• The  judgment was not a  proper  judgment of  reversal." [Underlining added]

45. In the present case, for a contract of Rs.7.76 crores under original

PAC amount and revised PAC amount of Rs.10.40 crores, the appellant-

Board  has  so  far  paid  Rs.56.58  crores  and  additionally  rupees  five

crores by order of this Court dated 20.02.2017.  As discussed above,

the findings of the High Court are perverse causing loss to the statutory

body like the appellant-Board, this Court would not decline to interfere

merely on the ground that the findings in question are findings of fact.  If

the judgment of the High Court is to be sustained, the Board would have

to make a total payment of about Rs.100 crores, causing huge loss to

the appellant which would ultimately be passed on to the consumers

and the impugned judgment is liable to be set aside.   

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46. While  we  set  aside  the  impugned  judgment,  what  is  the

order/direction to be passed is the point falling for consideration.  As

discussed earlier, under Ex.P20, the appellant-Board has made excess

payment  of  Rs.1,74,75,247/-.   By order dated 20.02.2017,  this  Court

directed the appellant  to pay a sum of  rupees five crores subject  to

furnishing of undertaking by respondent-contractor.  As per Ex.P59, the

respondent-contractor  claimed  Rs.5,55,62,597/-  for  the  work  done;

material escalation and labour escalation charges claimed additionally.

The  admitted  amount  under  Ex.P59  was  only  Rs.1,55,65,817/-.  As

discussed earlier, the amount claimed under Ex.P59 also will not carry

subsequent interest.  Material escalation and labour escalation charges

additionally claimed are to be calculated only on monthly basis. Since

an amount of Rs.6,74,75,247/- (Rs.1,74,75,247/- plus Rs.5,00,00,000/-)

has been paid to the respondent-contractor, it is directed that the same

be treated as full quit of all the claims under Ex.P59 including tender

excess, material and labour escalation charges.  

47. Conclusion:- In the result,  the impugned judgment of the High

Court  is  set  aside and these appeals  are allowed with  the following

observations and directions:-

(i) As held  in  Gurpreet Singh's case,  the payment  is  to  be

appropriated  strictly  in  accordance  with  the  directions

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contained in the decree. In C.A.No.4092 of 2000, this Court

directed  the  payment  as  per  Ex.P20.  In  Ex.P20,  the

respondent-contractor  himself  has  shown  the  labour

escalation due as the principal amount and interest thereon

separately and has given the credit of the advances made by

the appellant-Board firstly towards the principal and claimed

the balance amount. The respondent-contractor is not right

in changing the method of calculation by appropriation of the

payments firstly towards the interest and then towards the

principal amount. The direction of the High Court to pay a

further sum of Rs.2,29,34,559/- under Ex.P20 is set aside;

(ii) In the absence of direction in the underlying judgment of the

High Court and judgment of this Court in C.A. No.4092 of

2000 to pay subsequent interest, in view of sub-section (2) of

Section 34 CPC, the respondent-contractor is not entitled to

claim  subsequent  interest  on  the  amount  payable  under

Ex.P20.  The direction of the High Court to pay subsequent

interest of Rs.1,83,23,665/- under Ex.P20 is set aside;   

(iii) The  High  Court's  direction  to  pay  labour  escalation  and

material  escalation at  single uniform rate of  173.60% and

98% respectively for the bills towards additional work and to

pay Rs.5,81,53,892/- under Ex.P59 to the respondent is set

aside. In view of the express provision of sub-section (2) of

Section 34 CPC, no future interest is payable under Ex.P59.

The  direction  of  the  High  Court  to  pay  future  interest  of

Rs.2,98,17,262/-  on the claims made under Ex.P59 is set

aside;  

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(iv) When  there  was  no  arbitration  agreement  between  the

parties,  without  a  joint  memo or  a joint  application of  the

parties, the High Court ought not to have referred the parties

to arbitration. Hence, the award dated 29.10.2012 passed by

the  arbitrator  Justice  K.A.  Nayar  is  set  aside  and  the

Arbitration Appeal  No.Z-47 of  2013 filed by the appellant-

Board pending before the High Court of Kerala is allowed;  

(v) The amount of Rs.1,74,75,247/- paid under Ex.P20 which is

in  excess  of  the  claim  under  Ex.P20  and  the  amount  of

rupees  five  crores  paid  to  the  respondent-contractor  vide

order of this Court dated 20.02.2017 be treated as payment

under  Ex.P59 for  additional  work  including tender excess,

material escalation and labour escalation charges and in full

quit of all claims under Ex.P59;  

(vi)  Parties to bear their respective costs.  

………………………..J.   [RANJAN GOGOI]

..……………………..J.     [R. BANUMATHI]

New Delhi; March 09, 2018

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