Contract – Contract between appellant and respondent for construction of dam – Notification issued escalating minimum wages payable to workers – Writ petition filed by respondent claiming labour escalation charges with interest as per Ex.P-20 – While the petition was pending, appellant terminated the contract – Writ petition filed by respondent challenging the same and seeking payment of works done as per Ex.P59, allowed directing the appellant to pay the amounts as claimed u/Ex.P-20 and Ex.P-59 – Challenged by appellant in C.A.No.4092 of 2000, but Supreme Court declined to interfere – Appellant paid an amount of Rs.12,82,96,320/– However, three years thereafter, respondent filed I.A.No.6 of 2006 before Supreme Court on which it was granted liberty to move High Court for recovery of the disputed amount – Writ petition filed by respondent before High Court, allowed – Issue as to mode of appropriation of payments made by the appellant and claim for subsequent interest – Held: By respondent’s own statement, he had adjusted all payments received from the appellant firstly towards the labour escalation due i.e. the principal amount – But, when 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 appellant, amounts were still due and payable to him – This important aspect of change in the method of adjustment/appropriation was lost sight by High Court – Respondent not justified in changing the method of calculation – High Court’s direction to the appellant to make payment u/Ex.P20 to the respondent, set aside – Further, direction of High Court to pay future interest on the claims made u/Ex.P59, also set aside – Judgment of High Court set aside – Code of Civil Procedure, 1908 – Or. XXI, r.1.
Code of Civil Procedure, 1908 – s.34(2) – Interest – Payment of – Contract between appellant and respondent for construction of dam – Notification issued escalating minimum wages payable to workers – Writ petitions filed by respondent claiming labour escalation charges with interest as per Ex.P-20 and for payment of works done as per Ex.P59, allowed – Challenged by appellant in C.A.No.4092 of 2000 – Supreme Court declined to interfere – Another writ petition filed by respondent inter alia claiming interest on amounts payable u/Ex.P20 and Ex.P59, allowed – Held: Under sub-s.(2) of s.34, where a decree is silent as to payment of further interest on the principal sum, it shall be deemed to have been refused – In the present case, since there was no direction for future interest either by High Court or Supreme Court, in view of sub-s.(2) of s.34, it must be deemed that the court had refused such interest – Direction of High Court to pay subsequent interest u/Ex.P20 and u/Ex.P59 is set aside.
Code of Civil Procedure, 1908 – s.89 – Reference to arbitration – Agreement between appellant and respondent-contractor for construction of dam – Dispute between parties inter alia regarding claims of additional work u/Ex.P59 – High Court with the oral consent of the counsel for the parties without written instruction from the party, referred the parties to arbitration – Held: 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 – There was no arbitration agreement between the parties – High Court ought not to have referred the parties to arbitration – Arbitration and Conciliation Act, 1996 – s.7. Constitution of India– Art.136 – Jurisdiction under, of Supreme Court– Held: In exercise of jurisdiction u/Art.136, Supreme Court does not normally re-appreciate the evidence and findings of fact; but where the findings of High Court are perverse or the findings are likely to result in excessive hardship, Supreme Court would not decline to interfere merely on the ground that findings in question are findings of fact.
Allowing the appeals, the Court
HELD: 1.1 Ex. P20-MODE OF APPROPRIATION OF
PAYMENT MADE: In computation of his claims in Ex.P20, the respondent-contractor himself adjusted all payments received from the appellant-Board, only towards the principal and not towards interest. 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/[Paras 9, 10] [524-G; 525-F-G]
1.2 Parties are governed by the terms of the contract. Clause E1.079 of the agreement expressly provided that the appellant would pay no interest to the respondent-contractor for delayed payment. Even as per respondent’s own letter dated 25.11.1994, the respondent-contractor has deducted the advances paid only towards the principal and claimed interest. 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. 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. [Paras 11, 12] [526-E-G; 527-B-D]
1.3 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 respondentcontractor 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. This manner of appropriation, firstly towards the interest was in clear violation of the directions given by Supreme 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 respondentcontractor 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. [Para 13] [528-A-B, E-G]
1.4 IN THE FACTS OF THE PRESENT CASE WHETHER
THE RESPONDENT - CONTRACTOR IS JUSTIFIED IN
APPROPRIATION OF PAYMENT FIRSTLY TOWARDS
INTEREST: 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. In C.A.No. 4092 of 2000, Supreme Court directed payment as per Ex.P20. and therefore, the appropriation/adjustment of payment has to be made strictly as stated in 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. [Paras 14, 18 and 19][528-G-H; 531-C-G]
1.5 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. In respondent’s own letter to the appellant-Board dated 25.11.1994, the respondentcontractor himself stated that he had deducted the advances from the principal amount claimed under “Labour Escalation Charges” and “interest” are shown separately. By his own statement, the respondent-contractor had 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. [Paras 20, 21] [531-G-H; 532-A-D]
1.6 WHETHER RESPONDENT-CONTRACTOR IS
ENTITLED TO SUBSEQUENT INTEREST ON THE AMOUNT CLAIMED IN EX.P20: Ex.P20 relates to “Labour Escalation Charges” and “Interest” thereon claimed separately. In the earlier round of litigation (O.P. No.283 of 1995), there was no prayer for future interest; also, there was no direction by the High Court for payment of subsequent interest. In the appeal before Supreme Court in C.A. No.4092 of 2000, the appellant Board was directed only to pay the amount shown in Ex.P20 with reduced interest at 9% p.a.. There was no direction by Supreme Court to pay subsequent interest on Ex.P20. [Paras 22, 23] [532-E-G; 533-C-D]
1.7 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. In the present case, since there was no direction for future interest, in view of sub-section (2) of Section 34 CPC, it must be deemed that the court 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 Supreme Court (19.07.2000). The respondent-contractor himself had understood the order of Supreme 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 respondentcontractor specifically prayed for payment of further interest forthwith [prayer (i) in I.A. No. 6 of 2006] which was not granted by Supreme 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 Supreme Court in C.A. No.4092 of 2000 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. The impugned judgment of the High Court directing the appellantBoard 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. [Paras 24, 25 and 26] [533-D-H; 533-A-D]
1.8 CLAIM UNDER EX.P59 FOR THE ADDITIONAL
WORK AND SUBSEQUENT INTEREST: 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. 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. There was no direction either by the High Court or by Supreme Court to pay future interest qua Ex.P20. In the earlier 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. [Paras 32, 33] [534-D; 536-A; 537-A-D]
1.9 REFERENCE TO ARBITRATION: Arbitrator/ Tribunal is a creature of the contract between the parties. There was no arbitration agreement between the parties. Jurisdictional precondition for reference to arbitration under Section 7 of the Arbitration and Conciliation Act, 1996 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 mechanism stipulated in Section 89, CPC. Insofar reference of the parties to arbitration is concerned, 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. [Paras 34, 35] [537-E-H; 538-A-B]
1.10 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. 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, 1996 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. The impugned order referring the parties to arbitration, in any event cannot be sustained on other grounds also. The Arbitrator had passed the award 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 1996 Act was dismissed by the District Judge. The appeal preferred by the appellant under Section 37 of the 1996 Act (Arbitration Appeal No.Z-47 of 2013) was transferred to Supreme Court. While directing the appellant-Board to pay rupees five crores to the respondent-contractor on furnishing undertaking vide order dated 20.02.2017, Supreme 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. [Paras 39, 40 and 42] [538-B-C; 540-F-H; 541-A-B, E-H]
1.12 IN EXERCISE OF JURISDICTION UNDER
ARTICLE 136 OF THE CONSTITUTION OF INDIAWHETHER THIS COURT CAN INTERFERE: In exercise of jurisdiction under Article 136 of the Constitution of India, Supreme Court does not normally re-appreciate 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. 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 Supreme Court dated 20.02.2017. The findings of the High Court are perverse causing loss to the statutory body like the appellant-Board, Supreme 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. The impugned judgment is liable to be set aside. [Paras 43, 44 and 45][542-A, C-D; 543-C-E]
1.13 Under Ex.P20, the appellant-Board has made excess payment of Rs.1,74,75,247/-. By order dated 20.02.2017, Supreme Court directed the appellant to pay a sum of rupees five crores subject to furnishing of undertaking by respondentcontractor. 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/-. 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. [Para 46] [543F-G; 544-A]
Gurpreet Singh v. Union of India (2006) 8 SCC 457 : [2006] 7 Suppl. SCR 422 – followed.
Bharat Heavy Electricals Ltd. v. R.S. Avtar Singh and Company (2013) 1 SCC 243 : [2012] 10 SCR 701; Afcons Infrastructure Ltd. and Anr. v. Cherian Varkey Construction Co. (P) Ltd. and Ors. (2010) 8 SCC 24 : [2010] 8 SCR 1053; Shailesh Dhairyawan v. Mohan Balkrishna Lulla, (2016) 3 SCC 619 : [2015]
12 SCR 70; Mahesh Dattatray Thirthkar v. State of Maharashtra (2009) 11 SCC 141 : [2009] 3 SCR 1122 – relied on.
Kerala State Electricity Board and Another v. Kurien E. Kalathil and Others (2000) 6 SCC 293 : [2000] 1 Suppl. SCR 581; Meghraj and Others v. Mst Bayabai and Others (1969) 2 SCC 274 : [1970] 1 SCR 523;
Industrial Credit and Development Syndicate now called I.C.D.S. Ltd. v. Smithaben H. Patel (Smt.) and Others (1999) 3 SCC 80 : [1999] 1 SCR 555; Mathunni Mathai v. Hindustan Organic Chemicals Ltd. and Ors. (1995)
4 SCC 26 : [1995] 3 SCR 765; Premnath Kapur and Anr. v. National Fertilizers Corporation of India Ltd. and Others (1996) 2 SCC 71 : [1995] 5 Suppl. SCR 790; Byram Pestonji Gariwala v. Union Bank of India and Ors., (1992) 1 SCC 31 : [1991] 1 Suppl. SCR 187; Banwari Lal v. Chando Devi (Smt) (Through LRs.) and Anr. (1993) 1 SCC 581 : [1992] 3 Suppl. SCR 524; Gurpreet Singh v. Chatur Bhuj Goel (1988) 1 SCC 270 : [1988] 2 SCR 401; Taherakhatoon (D) by LRs. v. Salambin Mohammad (1999) 2 SCC 635 : [1999]
1 SCR 901 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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