CPC = mode of appropriation of payments = 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. ; 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 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; (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 appellantBoard 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.

 

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 appellantKerala

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 respondentcontractor

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

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

1

(KSEB) entered into an agreement on 16.09.1981 with respondentcontractor

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 respondentcontractor

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

2

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 respondentcontractor.

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

3

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, respondentcontractor

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 PetitionerContractor

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

4

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

5

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

6

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

Consumer

price

Index

number

of

Meppadi

Index

number

after

deduct-ing

100 points

as in Govt.

Notification

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

7

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 respondentcontractor

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:

8

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 Engineerin-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

9

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:-

10

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:-

11

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 respondentcontractor

himself has expressly adjusted all payments made by the

appellant towards principal and not towards interest, the respondentcontractor

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

12

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]

13

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 principalIn 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 judgmentdebtor

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 respondentcontractor

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 respondentcontractor

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 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.

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 respondentcontractor

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 respondentcontractor

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 subsection

(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

29

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.

30

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 appellantBoard

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.

31

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

32

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

33

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 appellantBoard

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.

34

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 appellantBoard

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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