KERALA STATE ELECTRICITY BOARD AND ANR versus KURIEN E. KALATHIL AND ANR.

[2018] 11 S.C.R. 511

KERALA STATE ELECTRICITY BOARD AND ANR.

KURIEN E. KALATHIL AND ANR.

(Civil Appeal Nos. 3164-3165 of 2017)

MARCH 09, 2018

[RANJAN GOGOI AND R. BANUMATHI, JJ.]

Contract – Contract between appellant and respondent forconstruction of dam – Notification issued escalating minimum wagespayable to workers – Writ petition filed by respondent claiminglabour escalation charges with interest as per Ex.P-20 – While thepetition was pending, appellant terminated the contract – Writpetition filed by respondent challenging the same and seekingpayment of works done as per Ex.P59, allowed directing theappellant 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 Courtdeclined to interfere – Appellant paid an amount of Rs.12,82,96,320/-– However, three years thereafter, respondent filed I.A.No.6 of 2006before Supreme Court on which it was granted liberty to move HighCourt for recovery of the disputed amount – Writ petition filed byrespondent before High Court, allowed – Issue as to mode ofappropriation of payments made by the appellant and claim forsubsequent interest – Held: By respondent’s own statement, he hadadjusted all payments received from the appellant firstly towardsthe labour escalation due i.e. the principal amount – But, whenrespondent filed I.A.No.6 of 2006, the entire method of calculationwas changed by showing adjustment of payments firstly towardsinterest and then towards principal, only to claim that in spite ofpayment of Rs.12,82,96,320/- by the appellant, amounts were stilldue and payable to him – This important aspect of change in themethod 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.P20to the respondent, set aside – Further, direction of High Court topay 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.

ACode of Civil Procedure, 1908 – s.34(2) – Interest – Paymentof – Contract between appellant and respondent for constructionof dam – Notification issued escalating minimum wages payable toworkers – Writ petitions filed by respondent claiming labourescalation charges with interest as per Ex.P-20 and for payment ofworks done as per Ex.P59, allowed – Challenged by appellant inBC.A.No.4092 of 2000 – Supreme Court declined to interfere –Another writ petition filed by respondent inter alia claiming intereston amounts payable u/Ex.P20 and Ex.P59, allowed – Held: Undersub-s.(2) of s.34, where decree is silent as to payment of furtherinterest on the principal sum, it shall be deemed to have been refusedC– In the present case, since there was no direction for future interesteither 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 – Directionof High Court to pay subsequent interest u/Ex.P20 and u/Ex.P59 isset aside.

DCode of Civil Procedure, 1908 – s.89 – Reference to arbitration– Agreement between appellant and respondent-contractor forconstruction of dam – Dispute between parties inter alia regardingclaims of additional work u/Ex.P59 – High Court with the oralconsent of the counsel for the parties without written instructionfrom the party, referred the parties to arbitration – Held: SinceEreferring the parties to arbitration has serious consequences oftaking them away from the stream of civil courts and subject themto the rigour of arbitration proceedings, in the absence of arbitrationagreement, the court can refer them to arbitration only with writtenconsent of parties either by way of joint memo or joint applicationF– There was no arbitration agreement between the parties – HighCourt ought not to have referred the parties to arbitration –Arbitration and Conciliation Act, 1996 – s.7.

Constitution of India– Art.136 – Jurisdiction under, ofSupreme Court– Held: In exercise of jurisdiction u/Art.136, SupremeGCourt does not normally re-appreciate the evidence and findings offact; but where the findings of High Court are perverse or thefindings are likely to result in excessive hardship, Supreme Courtwould not decline to interfere merely on the ground that findings inquestion are findings of fact.

Allowing the appeals, the Court

HELD: 1.1 Ex. P20-MODE OF APPROPRIATION OFPAYMENT MADE: In computation of his claims in Ex.P20, therespondent-contractor himself adjusted all payments receivedfrom the appellant-Board, only towards the principal and nottowards interest. The respondent-contractor has separatelycalculated 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 theappellant would pay no interest to the respondent-contractor fordelayed payment. Even as per respondent’s own letter dated25.11.1994, the respondent-contractor has deducted the advancespaid only towards the principal and claimed interest. Thus, by hisown calculation and as per his own letter dated 25.11.1994, therespondent-contractor has adjusted all payments received fromthe Board firstly towards the principal. But when the respondentfiled I.A.No.6 of 2006, the entire method of calculation waschanged by showing adjustment of payments firstly towardsinterest and then towards principal, only to claim that in spite ofpayment of Rs.12,82,96,320/- by the Board, amounts are still dueand payable to him. In the calculation sheet filed alongwith I.A.No.6 of 2006 while making adjustments of payment of rupeesfour crores (payment made to the respondent-contractor duringthe pendency of the earlier round of writ petition), the same wasadjusted firstly against the interest and then against the principalamount. [Paras 11, 12] [526-E-G; 527-B-D]

1.3 Pursuant to the directions of the High Court and afterdisposal of C.A.No.4092 of 2000, the appellant-Board made atotal payment of Rs.12,82,96,320/-. Since the respondent-contractor changed the method of adjustment i.e. by adjustingthe payment firstly towards interest and then towards principal,even after payment of Rs.12,82,96,320/-, according to himRs.3,38,57,618/- was still due to him. This manner of appropriation,firstly towards the interest was in clear violation of the directions

CDE

Agiven by Supreme Court to make payment under Ex.P20 and themethod of adjustment which the respondent-contractor himselfadopted in Ex.P20. In the original Ex.P20, when respondent-contractor himself has expressly adjusted all payments made bythe appellant towards principal and not towards interest, therespondent-contractor cannot turn round and change the methodBof calculation by showing the adjustment of payments made firstagainst the interest and then towards the principal. This importantaspect of change in the method of adjustment/appropriation waslost sight by the High Court and the direction of the High Courtto make further payment of Rs.4,12,58,224/- under Ex.P20 is notCsustainable. [Para 13] [528-A-B, E-G]1.4 IN THE FACTS OF THE PRESENT CASE WHETHERTHE RESPONDENT - CONTRACTOR IS JUSTIFIED INAPPROPRIATION OF PAYMENT FIRSTLY TOWARDSINTEREST: If there is direction in the decree as to the modeDof appropriation of payment, then appropriation of any paymentmade by the judgment-debtor has to be strictly in accordancewith the direction contained in the decree. If there is no suchdirection in the decree, then the general principle is that where ajudgment-debtor makes payment without making any indicationEas to how the payment is to be adjusted, it is the option of thecreditor to make adjustment firstly towards the interest and thentowards the principal. But if the judgment-debtor has indicatedthe manner in which the appropriation is to be made, then thecreditor has no choice to apply the payment in different manner.The general principle of mode of appropriation firstly in paymentFof interest and thereafter in payment of principal amount is subjectto the exception i.e. the parties may agree to the adjustment ofthe 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 tobe made strictly as stated in Ex.P20. The respondent-contractorGcannot turn round and say that the amount received by him willbe adjusted towards the interest first and then towards theprincipal. [Paras 14, 18 and 19][528-G-H; 531-C-G]

1.5 An ‘Appropriation of money’ is the indication of anintention that money should be applied in particular way. In thepresent case, the statement of respondent-contractor himself andother circumstances clearly indicate that payment ought to beadjusted only towards the principal amount. In respondent’s ownletter to the appellant-Board dated 25.11.1994, the respondent-contractor himself stated that he had deducted the advances fromthe principal amount claimed under “Labour Escalation Charges”and “interest” are shown separately. By his own statement, therespondent-contractor had firstly appropriated the advancestowards the labour escalation due i.e. the principal amount. Therespondent-contractor is not justified in changing the method ofcalculation and claim appropriation of the payments firstly towardsthe interest and then towards the principal amount. The claim ofthe respondent-contractor for further sum of Rs.2,29,34,559/-with interest under Ex.P20 cannot be sustained and the directionof the High Court to pay the same is liable to be set aside. [Paras20, 21] [531-G-H; 532-A-D]

1.6 WHETHER RESPONDENT-CONTRACTOR ISENTITLED TO SUBSEQUENT INTEREST ON THE AMOUNTCLAIMED IN EX.P20: Ex.P20 relates to “Labour EscalationCharges” and “Interest” thereon claimed separately. In the earlierround of litigation (O.P. No.283 of 1995), there was no prayer forfuture interest; also, there was no direction by the High Courtfor payment of subsequent interest. In the appeal before SupremeCourt in C.A. No.4092 of 2000, the appellant Board was directedonly to pay the amount shown in Ex.P20 with reduced interest at9% p.a.. There was no direction by Supreme Court to paysubsequent interest on Ex.P20. [Paras 22, 23] [532-E-G;533-C-D]

1.7 Under Sub-section (2) of Section 34 CPC, where adecree is silent as to payment of further interest on the principalsum, it shall be deemed to have been refused. In the presentcase, since there was no direction for future interest, in view ofsub-section (2) of Section 34 CPC, it must be deemed that thecourt refused such interest. The respondent-contractor cannotclaim further interest on the amount payable under Ex.P20 beyond

Athe date of judgment of the High Court (02.04.1998) and in anyevent not beyond the date of judgment of Supreme Court(19.07.2000). The respondent-contractor himself had understoodthe order of Supreme Court in CA No.4092 of 2000 that therewas no direction for payment of further interest on the amountpayable under Ex.P20. In I.A. No.6 of 2006, the respondent-Bcontractor specifically prayed for payment of further interestforthwith [prayer (i) in I.A. No. 6 of 2006] which was not grantedby Supreme Court in its order dated 24.09.2000 while disposingof I.A. No.6 of 2006. The appellant-Board has paid total amountof Rs.12,82,96,320/- and according to the Board, it has overpaidCthe respondent-contractor an excess amount of Rs.1,74,75,247/-.In the absence of any direction in the underlying order of theHigh Court and order of Supreme Court in C.A. No.4092 of 2000to pay subsequent interest, the respondent-contractor is notentitled to claim subsequent interest on the amount payable underEx.P20. The direction of the High Court to pay subsequentDinterest of Rs.1,83,23,665/- under Ex.P20, is not sustainable. Theimpugned 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)] underEx.P20, is set aside. [Paras 24, 25 and 26] [533-D-H; 533-A-D]

E1.8 CLAIM UNDER EX.P59 FOR THE ADDITIONALWORK AND SUBSEQUENT INTEREST: In Ex.P20, therespondent-contractor himself calculated labour escalation onmonthly basis and has not followed his own prior example. TheHigh Court did not keep in view the respondent’s own method ofFcalculation of labour escalation on monthly basis and erred inallowing labour escalation and material escalation at single uniformrate of 173.60% and 98% respectively and the direction of theHigh Court to pay Rs.5,81,53,892/- is not sustainable. Sinceappellant has admitted the amount of Rs.1,55,65,817/- as payableunder Ex.P59, the same is payable with labour escalation andGmaterial escalation calculated on monthly basis. The High Courthas directed the appellant to pay subsequent interest ofRs.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 SupremeCourt to pay future interest qua Ex.P20. In the earlier round ofH

litigation, the High Court only directed the appellant to pay theamount as ordered in Ex.P20. In view of the express provision ofsub-section (2) of Section 34 CPC, no future interest is payableunder Ex.P59. The direction of the High Court to pay futureinterest of Rs.2,98,17,262/- on the claims made under Ex.P59 isnot sustainable and is liable to be set aside. [Paras 32, 33][534-D; 536-A; 537-A-D]

1.9 REFERENCE TO ARBITRATION: Arbitrator/ Tribunalis creature of the contract between the parties. There was noarbitration agreement between the parties. Jurisdictional pre-condition for reference to arbitration under Section 7 of theArbitration and Conciliation Act, 1996 is that the parties shouldseek reference or submission to arbitration. So far as referenceof dispute to arbitration under Section 89, CPC, the same canbe done only when parties agree for settlement of their disputethrough arbitration in contradistinction to other methods ofalternative dispute resolution mechanism stipulated in Section89, CPC. Insofar reference of the parties to arbitration isconcerned, oral consent given by the counsel without writtenmemo of instructions does not fulfill the requirement underSection 89, CPC. Since referring the parties to arbitration hasserious consequences of taking them away from the stream ofcivil courts and subject them to the rigour of arbitrationproceedings, in the absence of arbitration agreement, the courtcan refer them to arbitration only with written consent of partieseither by way of joint memo or joint application; more so, whengovernment 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 toarbitration could be made only when the parties agree forsettlement of the dispute through arbitration by joint applicationor joint affidavit before the court. Referring the parties toarbitration has serious civil consequences. Once the parties arereferred to arbitration, the proceedings will be in accordance withthe provisions of Arbitration and Conciliation Act, 1996 and thematter will go outside the stream of the civil court. Under Section19 of Arbitration and Conciliation Act, the arbitral tribunal shall

Anot be bound by the Code of Civil Procedure and the IndianEvidence Act. Once the award is passed, the award shall be setaside only under limited grounds. Hence, referring the parties toarbitration has serious civil consequences procedurally andsubstantively. When there was no arbitration agreement between

the parties, without joint memo or joint application of theBparties, the High Court ought not to have referred the parties toarbitration. The impugned order referring the parties toarbitration, in any event cannot be sustained on other groundsalso. The Arbitrator had passed the award for Rs.19,98,05,805.72

with interest @ 9% p.a. which was subsequently corrected onC29.10.2012 as Rs.21,55,34,430.55 with interest @ 9% p.a. Theappeal preferred by the appellant under Section 34 of the 1996Act was dismissed by the District Judge. The appeal preferredby the appellant under Section 37 of the 1996 Act (ArbitrationAppeal No.Z-47 of 2013) was transferred to Supreme Court.While directing the appellant-Board to pay rupees five crores toDthe respondent-contractor on furnishing undertaking vide orderdated 20.02.2017, Supreme Court directed Arbitration AppealNo.Z-47 of 2013 to be sent back to the High Court. Since theimpugned judgment of the High Court is set aside, the awardpassed by the Arbitrator is liable to be set aside and consequentlyEthe Arbitration Appeal No.Z-47 of 2013 pending before the KeralaHigh 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 INDIA-WHETHER THIS COURT CAN INTERFERE: In exercise ofFjurisdiction under Article 136 of the Constitution of India, SupremeCourt does not normally re-appreciate the evidence and findingsof fact; but where the findings of the High Court are perverse orthe findings are likely to result in excessive hardship, the SupremeCourt would not decline to interfere merely on the ground thatGfindings in question are findings of fact. In the present case, for acontract of Rs.7.76 crores under original PAC amount and revisedPAC amount of Rs.10.40 crores, the appellant-Board has so farpaid Rs.56.58 crores and additionally rupees five crores by orderof Supreme Court dated 20.02.2017. The findings of the HighHCourt are perverse causing loss to the statutory body like the

appellant-Board, Supreme Court would not decline to interferemerely on the ground that the findings in question are findings offact. If the judgment of the High Court is to be sustained, theBoard would have to make total payment of about Rs.100 crores,causing huge loss to the appellant which would ultimately bepassed on to the consumers. The impugned judgment is liable tobe set aside. [Paras 43, 44 and 45][542-A, C-D; 543-C-E]

1.13 Under Ex.P20, the appellant-Board has made excesspayment of Rs.1,74,75,247/-. By order dated 20.02.2017,Supreme Court directed the appellant to pay sum of rupeesfive crores subject to furnishing of undertaking by respondent-contractor. As per Ex.P59, the respondent-contractor claimedRs.5,55,62,597/- for the work done; material escalation and labourescalation charges claimed additionally. The admitted amountunder Ex.P59 was only Rs.1,55,65,817/-. The amount claimedunder Ex.P59 also will not carry subsequent interest. Materialescalation and labour escalation charges additionally claimed areto be calculated only on monthly basis. Since an amount ofRs.6,74,75,247/- (Rs.1,74,75,247/-plus Rs.5,00,00,000/-) has beenpaid to the respondent-contractor, it is directed that the same betreated as full quit of all the claims under Ex.P59 including tenderexcess, material and labour escalation charges. [Para 46] [543-F-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 andCompany (2013) 1 SCC 243 : [2012] 10 SCR 701;Afcons Infrastructure Ltd. and Anr. v. Cherian VarkeyConstruction Co. (P) Ltd. and Ors. (2010) 8 SCC 24 :[2010] 8 SCR 1053; Shailesh Dhairyawan v. MohanBalkrishna Lulla, (2016) 3 SCC 619 : [2015]12 SCR 70; Mahesh Dattatray Thirthkar v. State ofMaharashtra (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

520SUPREME COURT REPORTS

AOthers (1969) 2 SCC 274 : [1970] 1 SCR 523;Industrial Credit and Development Syndicate now calledI.C.D.S. Ltd. v. Smithaben H. Patel (Smt.) and Others(1999) 3 SCC 80 : [1999] 1 SCR 555; Mathunni Mathaiv. Hindustan Organic Chemicals Ltd. and Ors. (1995)4 SCC 26 : [1995] 3 SCR 765; Premnath Kapur andBAnr. v. National Fertilizers Corporation of India Ltd.and Others (1996) 2 SCC 71 : [1995] 5 Suppl. SCR790; Byram Pestonji Gariwala v. Union Bank of Indiaand Ors., (1992) 1 SCC 31 : [1991] 1 Suppl. SCR 187;Banwari Lal v. Chando Devi (Smt) (Through LRs.) andCAnr. (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.

DCase Law Reference

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 3164-3165 of 2017

From the Judgment and Order dated 28.01.2009 in W. P. (C) No.31108 of 2007 (C) and Order dated 23.06.2009 in R. P. No. 542 of2009(C) of the High Court of Kerala at Ernakulam.

Krishnan Venugopal, Sr. Adv., Kaushik Mishra, Shivendra Singh,Ms. Deepanshi Ishar, A. Raghunath, Advs. for the Appellants.

Dhruv Mehta, Sr. Adv., E. M. S. Anam, Dileep Pillai, G. Prakash,Jishnu M. L., Mrs. Priyanka Prakash, Mrs. Beena Prakash, Vijay ShankarV. L., Advs. for Respondents.

The Judgment of the Court was delivered by

R. BANUMATHI, J. 1. These appeals have been filed againstthe impugned judgment dated 28.01.2009 in W.P.(C) No.31108 of 2007and order dated 23.06.2009 in R.P.No.542 of 2009, passed by the HighCourt of Kerala at Ernakulum in and by which the High Court directedthe appellant-Kerala State Electricity Board (KSEB) to pay an amountof Rs.12,92,29,378/- with simple interest at the rate of 9% per annum inthe dispute arising out of contract between the appellant-Board andthe respondent-Contractor.

2. The dispute between the appellant-Board and the respondent-contractor had chequered history. Brief facts which led to filing ofthese appeals are as follows:- Appellant-Kerala State Electricity Board(KSEB) entered into an agreement on 16.09.1981with respondent-contractor for construction of composite dam across Karamanthoduat Padinjarethara in connection with Banasura Sagar Scheme (KuttiyadiAugmentation Scheme). After commencement of work, Governmentof Kerala issued notification dated 30.03.1983, by which minimumwages payable to certain categories of workers employed in worksmentioned in notification was revised with effect from 01.04.1983. Therespondent-contractor claimed labour escalation charges from 01.04.1983

Ato December, 1984. The Government of Kerala referred the matter tothe industrial tribunal for adjudication of the dispute with regard to theclaim of workmen employed for the construction of dam for the wagerates and other benefits fixed in the Minimum Wages Notification issuedby the State Government.The industrial tribunal passed the award dated14.10.1993holding that the notification of Government of Kerala wasBapplicable to workmen employed by the respondent-contractor.

3. Respondent-contractor filed O.P.No.283 of 1995 claiming anamount of Rs.6,32,84,050/- towards labour escalation charges and anamount of Rs.7,66,35,927/- being interest at the rate of 18% per annumpayable under Ex.P20 in respect of various bills issued by the respondent-Ccontractor for the period 15.01.1985 to 31.10.1994. When the said writwas pending, the appellant-Board terminated the contract withrespondent-contractor, which again came to be challenged before theHigh Court by filing O.P.No.10759 of 1997 against termination of contractand for the payment of works done (Ex.P59) by respondent-contractor.DThe High Court disposed of both the petitions by common judgmentdated 02.04.1998 holding that the termination of contract was arbitraryand directed the appellant-Board to pay the amount claimed by therespondent-contractor for payment of labour escalation as per Ex.P20with interest at the rate of 18% per annum which the contractor claimedseparately. The High Court also directed the appellant-Board to pay theEamount claimed by the respondent-contractor under Ex.P59 towardsadditional work done by the respondent-contractor.4. Being aggrieved, KSEB approached this Court by way of appealin C.A.No.4092 of 2000 reported in Kerala State Electricity Boardand Another v. Kurien E. Kalathil and Others, (2000) 6 SCC 293.InFpara (11) of the judgment, this Court observed that the contract betweenthe parties is in the realm of private law and not statutory contract andthe 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 thatthe notification for minimum wages was issued in 1983 and in the peculiarGfacts and circumstances, this Court did not interfere with the order ofthe High Court directing the payment of amount to the respondent-contractor as per Ex.P20; but reduced the rate of interest claimed underEx.P20 from 18% per annum to 9% per annum. So far as Ex.P59 isconcerned, there was no direction by this Court. Review petition filed by

the appellant-Board came to be dismissed by this Court vide order dated07.12.2000. Appellant-Board has so far paid an amount ofRs.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 makepayments due under judgment of this Court, with further interest to bepaid forthwith. In I.A. No.6 of 2006, this Court has passed the followingorder:

“By virtue of the impugned judgment of the High Court, the KeralaState Electricity Board is liable to pay certain amount to thePetitioner-Contractor. There is dispute regarding the quantumof 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 Keralaseeking further steps for the recovery of the amount and if thereis any dispute between the petitioner-Contractor and the ElectricityBoard, the High Court would consider the same and issueappropriate directions within reasonable time....”

6. Respondent-contractor filed W.P.(C) No.31108 of 2007 beforethe High Court seeking for direction to the appellant-Board to releasethe amount as directed by the High Court and affirmed by this Court.By the impugned judgment dated 28.01.2009, the High Court allowedthe writ petition directing the Board to pay: (i) Rs.4,12,58,224/- underEx.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 afteradding labour escalation charges and material escalation charges as perEx.P59.The High Court held that the total amount payable under Ex.P20and Ex.P59 as on 31.12.2008 was Rs.12,92,29,378/-which is to be paidby the appellant-Board within three months with 9% simple interest from01.01.2009 till date of payment. So far as the claim as to the additionalwork done, the High Court directed the parties to mutually discuss amongthemselves on disputed items in appeal. Furtherwith the consent of thecounsel for the parties, the High Court referred the matter to the solearbitrator Justice K.A. Nayar, former Judge of the High Court of Kerala

Ato resolve the dispute relating to items which they could not amicablyresolve. The appellant-Board filed review bearing R.P.No.542 of2009,which came to be dismissed on 23.06.2009. Being aggrieved, theappellant-Board is before us.

7. We have heard the learned counsel for the parties at length andBperused the impugned judgment and also judgment of this Court inC.A.No.4092 of 2000 and I.A. No.6 of 2006 and other materials onrecord. In the facts and circumstances of the present case and sincepublic money is involved,we deem it fit case for reappreciating thefacts and the materials on record or otherwise the findings of the HighCourt are likely to result inexcessive hardship to the appellant-BoardCand consequently passed onto the consumers.

8. EX.P20-CLAIM FOR LABOUR ESCALATION AND

INTEREST THEREON-WHETHER ANY AMOUNT ISPAYABLE TO THE RESPONDENT:Ex.P20 pertains to the billsfrom CC.14 to CC.78 towards the work done, labour escalation chargesDand the interest thereon. Under the impugned judgment, the High Courthas 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)]. Therespondent-contractor claimed that even after payment ofRs.12,82,96,320/-, an amount of Rs.3,38,57,618/- is still due to be paid toEhim 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 atotal amount of Rs.12,82,96,320/- under Ex.P20 and actually made excesspayment of Rs.1,74,75,247/-. Direction of the High Court to pay theamount of Rs.4,12,58,224/- under Ex.P20 has two components:- (i) claimof the respondent-contractor payable as principal under Ex.P20-FRs.2,29,34,559/-; and (ii) subsequent interest thereon. Dispute in theamount payable under Ex.P20 is twofold:-(i) Mode of appropriation ofpayments made by the Board; and (ii) claim for subsequent interest.

9. Ex.P20-MODE OF APPROPRIATION OF PAYMENTMADE:While claiming the charges for labour escalation, in columnGno.(3), the respondent-contractor has shown the value of work doneunder each bill and separately shown “Labour Escalation Due” oneach bill by showing the method of calculation/appropriation. For properappreciation, we may usefully refer to the claims made under the billsfrom CC.14 to CC.18 and then from CC.68 to CC.75 (Ex.P20), whichread as under:-H

CC No. Month to which Value of work Minimum wage Consu-Present waIndex gD.A. at for the corresBasic pondinHill monthtotal DifferenceFormulaeLabour Escalation AdvancereceivedRemarksArelates done (R) for the mer number 0.06 ps wage of allowance due base price after per ordinary 15% period Index deduct-ing point labourerin the number 100 pointsAgt. of as in Govt.Meppa-Notifica-di tion 123456789101112131415CC.1412/84 2651230.0013.0031621612.9612.903.7428.7015.703.08 x 15.70 x 26512301282029.00- 100 CC.151/853885356.0013.0031621612.9612.003.7428.7015.703.08 x15.70 x 38853561878803.00&2/85(Ave.) 100 BCC.163/85 2520496.0013.0031421412.8412.003.7328.5715.573.08 x 15.57x 25204961208719.00100 CC.174/85 1591848.0013.0031621612.9612.003.7428.7015.703.08 x 15.70 x 1591848769754.00 100 CC.185/85 3782665.0013.0031821813.0812.003.7628.7615.763.08 x 15.76 x 37826651836136.00 100 ...................CC.6812/912039002.0013.0054544526.12.005.8144.5131.513.08 x 31.51 x 20390021978868.0070 100 Ways and Means advance received on 15.1.923000000.00CCC.691/92 2221294.0013.00 552 452 27.1212.00 5.81 44.9931.99 3.08 X 31.99 X 22212942188623.00100 CC.702/92 2502304.0013.00 553 453 27.1812.00 5.88 45.0632.06 3.08 X 32.06 X 25023042470895.00100 Ways and Means Advance received on 13.3.92 3000000.00CC.713/922248500.0013.0055245227.1212.005.8744.9931.993.08 X31.99 X 22485002215429.00 100 CC.724/921312431.0013.0055345327.1812.005.8845.0632.063.08 X32.06 X 13124311295957.00 100 CC.735/922608465.0013.0055845827.4812.005.9245.4032.403.08 X 32.40 X 2608465 100 2603039.00DCC.746/923573468.0013.0056246227.7212.005.9645.6832.683.08 X 32.68 X 35734683596853.00 100 Ways and means advance received on 30.10.923000000.00Adhoc Advance received on 14.1.93 2500000.00CC.751/932088949.0013.0059349329.5812.006.2447.8234.823.08 X 34.82 X 20889492240306.00 100 6,32,84,050.00

In the same manner, for all the bills, the respondent-contractor hascalculated the “Value of work done”, “difference in wages” and“Labour Escalation Charges” on monthly basis. After so calculatingthe claim under all the bills, the respondent-contractor had shown thedates on which advances received in column no.(14) and deducted theadvance received towards the principal and finally shown Rs.6,32,84,050/-as total amount due towards labour escalation. As seen from the abovetabular 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 theinterest payable on “Labour Escalation Due” claimed under each billat the rate of 18% i.e. Rs.7,66,35,927/-. For proper appreciation, wemay usefully refer to bills from CC.14 to CC.18 and from CC.68 toCC.75 as to how the interest was calculated and claimed separatelywhich read as under:

ACC Labour Less Accumulated Date from PeriodNo. Rate of Interest RemarksNo. Escalation advance Balance which due of interest Due From To due received days1234567891011CC.1412,82,029.00-12,82,029.0015.1.8515.1.8514.3.855918%37,302.00CC.1518,78,803.0031,60,832.0015.3.8515.3.8514.4.853118%48,322.00CC.1612,08,719.00-43,69,551.0015.4.8515.4.8514.5.853018%64,645.00CC.177,69,754.00-51,39,305.0015.5.8515.5.8514.6.853118%78,568.00BCC.1818,36,136.00------...........CC.6819,78,868.00 605,22,166.0015.1.92 15.1.92 14.2.9231 18% 9,25,243.00Ways and Means 30,00,000.00Advance CC.6921,88,623.00597,10,789.0015.2.9215.2.9214.3.922918% 8,53,946.00CC.7024,70,895.00 621,81,684.0015.3.92 15.3.92 14.4.9231 18% 9,50,613.00CWays and Means 30,00,000.00Advance CC.7122,15,429.00-613,97,113.0015.4.9215.4.9214.5.923018% 9,08,341.00CC.7212,95,957.00-626,93,070.0015.5.9215.5.9214.6.923118% 9,58,431.00CC.7326,03,039.00-652,96,109.0015.6.9215.6.9214.7.923018% 9,66,025.00CC.7435,96,853.00 - 688,92,962.0015.7.92 15.7.92 14.2.93215 18% 73,04,541.00Ways and Means 30,00,000.00AdvanceDAdhoc Advance25,00,000.00CC.7522,40,306.00-656,33,268.0015.2.9315.2.9314.3.932818 9,06,279.00................Total interest claimed ................. 7,66,35,927

11. Parties are governed by the terms of the contract. Clause E1.079of the agreement dated 16.09.1981 expressly provided that the appellantEwould 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 Boardwith respect to any money or balance which may be lying with theFBoard owing to any dispute, difference or misunderstanding betweenthe Engineer on the one hand and the contractor on the other handor with respect to any delay on the part of the Engineer-in-charge inmaking periodical or final payment or any respect whatsoever, andthe Board shall not be liable for any interest or damages or loss tothe contractor.”GEven as per respondent’s own letter No.D.W/94/090 dated 25.11.1994,the respondent-contractor has deducted the advances paid only towardsthe principal and claimed interest. The said letter reads as under:-

“I am herewith submitting comprehensive Statement (Claim bill),giving the details of labour escalation payable against each C.C Bill,Hdeducting the advances paid to me which are adjustable against the

dues. The net labour escalation amount payable as on 31.10.1994works out to Rs.6,32,84,050.00, after thus deducting the advancesreceived. The interest amount payable has also been worked outand included in the enclosed bill, separately, which comes toRs.7,66,35,927.00. The total amount due as on 31.10.1994 isRs.13,99,19,1977.00. This amount may be paid to me withoutfurther 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 theBoard firstly towards the principal.

12. But when the respondent filed I.A.No.6 of 2006, the entiremethod of calculation was changed by showing adjustment of paymentsfirstly towards interest and then towards principal, only to claim that inspiteof payment of Rs.12,82,96,320/- by the Board, amounts are still due andpayable to him. In the calculation sheet filed alongwith I.A. No.6 of 2006while making adjustments of payment of rupees four crores (paymentmade to the respondent-contractor during the pendency of the earlier roundof writ petition), the same was adjusted firstly against the interest and thenagainst the principal amount. The calculation sheet filed by the respondent-contractor in I.A.No.6 of 2006 is as under:-

Principal (i n Rupees)Interest @ 9% (in R upees)RemarksBalanceDR CR Date Particu lars DR CR Balance63284050Principal amount of Labour Amount received from Ker ala StateEscalation upto CC 78 as per Electricity Board is fir stly adjusted againstExt. P20 interest and then principal amount Inter est upto CC 78 or the 40218107period upto 20.6.95 20.06.95Amount Received Rs. 1 cr ore 10000000 30218107Interest from 21.6.95 to 13.2.96 37138203393192713.02.96Amount Received Rs.1cr ore10000000 23931927Inter est from 14.2.96 to 23.2.961560432408797023.02.96Amount Received Rs.2 cr ores 20000000 4087970Interest 24.2.96 to 20.3.01 288679303295590056239950704410020.03.01Amount received (4 crores)329559000Out of Rs.4 crores received the interestas on this date Rs.32955900/- is wiped offand balance Rs.7044100 adjustedagainst principal amount Inter est 21.3.01 to 5.9.01234358848583538 7656412 05.09.01Amount received (1 crore) 23435880 Out of Rs.1 crore received, the interest ason this date Rs.2343588/- is wiped offand balance Rs.7656412 adjustedagainst principal amount Inter est from 6.9.01 to 12.10.014432422902678019556758 12.10.01Amount received (2 crores)4432420Out of Rs.2 cr ore received the interest ason this date Rs.443242/- is wiped off andbalance Rs.19556758 adjusted againstprincipal amount Inter est 13.2.01 to 1.6.02 166049123955276507150401.06.02Amount received (6731995)16604910Out of Rs.67,31,995/-received theinterest as on this date Rs.1660491/- iswiped off and balance Rs.5071504/-adjusted against principal amount Inter est 2.6.02 to 17.8.02 454822 22734120 1221156 17.08.02Amount received (1675978) 454822 0 Out of Rs.16,75,978/- received theinterest as on this date Rs.454822/- iswiped off and balance Rs.1221156/-adjusted against principal amount Inter est 18.8.02 to 10.2.200399220413837977889614310.02.03Amount received (9888347)9922040Out of Rs.98,88,347/-received, theinterest as on this date Rs.992204/- iswiped off and balance Rs.8896143/-adjusted against principal amount Inter est from 11.2.03 to 31.5.0528661682866168 81716415

A13. Pursuant to the directions of the High Court and after disposalof C.A.No.4092 of 2000, the appellant-Board made total payment ofRs.12,82,96,320/-. Since the respondent-contractor changed the methodof adjustment i.e. by adjusting the payment firstly towards interest andthen towards principal, even after payment of Rs.12,82,96,320/-, accordingto him Rs.3,38,57,618/- was still due to him. The said calculation shownBin I.A.No.6 of 2006, reads as under:-

EThis manner of appropriation, firstly towards the interest is in clearviolation of the directions given by this Court to make payment underEx.P20 and the method of adjustment which the respondent-contractorhimself adopted in Ex.P20. In the original Ex.P20, when respondent-contractor himself has expressly adjusted all payments made by theappellant towards principal and not towards interest, the respondent-Fcontractor cannot turn round and change the method of calculation byshowing the adjustment of payments made first against the interest andthen towards the principal. This important aspect of change in the methodof adjustment/appropriation was lost sight by the High Court and thedirection of the High Court to make further payment of Rs.4,12,58,224/-under Ex.P20 is not sustainable.G

14. IN THE FACTS OF THE PRESENT CASE WHETHERTHE RESPONDENT-CONTRACTOR IS JUSTIFIED INAPPROPRIATION OF PAYMENT FIRSTLY TOWARDSINTEREST:Learned counsel for the respondent-contractor submittedthat in the case of debt due with interest, the normal rule is that anyH

payment made by the debtor, in the first instance, to be adjusted towardssatisfaction of interest and only thereafter to the principal. In support ofhis contention, learned counsel placed reliance upon Meghraj and Othersv. Mst. Bayabai and Others (1969) 2 SCC 274 and Industrial Creditand Development Syndicate now called I.C.D.S. Ltd. v. SmithabenH. Patel (Smt.) and Others (1999) 3 SCC 80.

15. In I.C.D.S.’s case,while considering how the payments madeby the judgment-debtor areto be adjusted, in para (14), it was held asunder:

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

16. In Mathunni Mathai v. Hindustan Organic Chemicals Ltd.and Ors.,(1995) 4 SCC 26, it has been held that Order XXI Rule 1 CPCas amended in 1976 is applicable in executing the award made under theLand Acquisition Act. In Mathunni Mathai’s case, it was indicatedthat if the decretal amount is deposited by the judgment-debtor pursuantto the order of the Court and the judgment-debtor has not given notice ofsuch deposit to the decree holder and also does not specify the mannerin which the amount should be appropriated, then the decree holder willbe entitled to appropriate the amount deposited by the judgment-debtorfirstly towards interest and other expenses and the decree holder is notbound to adjust the same towards the principal. In Prem Nath Kapurand Anr. v. National Fertilizers Corporation of India Ltd. and Others,(1996) 2 SCC 71; the decision in Mathunni Mathai’s case has been

Aexpressly overruled by three Judges Bench of the Supreme Court onthe finding that Order XXI Rule 1 CPC cannot be extended to theexecution of an award made under the Land Acquisition Act on thescore of its inconsistency with the provisions of Land Acquisition Act.

17. The view taken in Prem Nath Kapur’s case was approvedBas correct view in Gurpreet Singh v. Union of India(2006) 8 SCC457. Though the question posed for consideration before the ConstitutionBench in Gurpreet Singh’s case was whether the view taken in PremNath Kapur’s case is correct and whether the rule of “different stagesof appropriation” set out in Prem Nath Kapur’s case was requiredto be restated on the scheme of the Land Acquisition Act, the ConstitutionCBench specifically dealt with Order XXI Rules 1, 2, 4 and 5 CPC andclarified the position. After referring to the relevant portion of the decisionin Gurpreet Singh’s case,in Bharat Heavy Electricals Ltd. v. R.S.Avtar Singh and Company (2013) 1 SCC 243, this Court summarizedthe principles emerging as under:

D“31. From what has been stated in the said decision, the followingprinciples emerge:

31.1.The general rule of appropriation towards decretal amountwas that such an amount was to be adjusted strictly in accordancewith the directions contained in the decree and in the absence ofEsuch directions adjustments be made firstly towards payment ofinterest and costs and thereafter towards payment of the principalamount subject, of course, to any agreement between the parties.

31.2. The legislative intent in enacting sub-rules (4) and (5) is aclear pointer that interest should cease to run on the deposit madeFby the judgment-debtor and notice given or on the amount beingtendered outside the court in the manner provided in Order 21Rule 1(1)(b).

31.3. If the payment made by the judgment-debtor falls short ofthe decreed amount, the decree-holder will be entitled to applyGthe general rule of appropriation by appropriating the amountdeposited towards the interest, then towards costs and finallytowards the principal amount due under the decree.

31.4. Thereafter, no further interest would run on the sumappropriated towards the principal. In other words if part of the

principal amount has been paid along with interest due thereon ason the date of issuance of notice of deposit interest on that part ofthe principal sum will cease to run thereafter.

31.5. In cases where there is shortfall in deposit of the principalamount, the decree-holder would be entitled to adjust interest andcosts first and the balance towards the principal and beyond thatthe decree-holder cannot seek to reopen the entire transactionand proceed to recalculate the interest on the whole of the principalamount and seek for reappropriation.” [Underlining added]

18. As held in Constitution Bench judgment in Gurpreet Singh’scase followed in BHEL’s case,if there is direction in the decree as tothe mode of appropriation of payment, then appropriation of any paymentmade by the judgment-debtor has to be strictly in accordance with thedirection contained in the decree. If there is no such direction in thedecree, then the general principle is that where judgment-debtor makespayment without making any indication as to how the payment is to beadjusted, it is the option of the creditor to make adjustment firstly towardsthe interest and then towards the principal. But if the judgment-debtorhas indicated the manner in which the appropriation is to be made, thenthe creditor has no choice to apply the payment in different manner.The general principle of mode of appropriation firstly in payment ofinterest and thereafter in payment of principal amount is subject to theexception i.e. the parties may agree to the adjustment of the payment inany other manner despite the decree.19. In C.A.No.4092 of 2000, this Court directed payment as perEx.P20. As held in Gurpreet Singh’s case, the payment is to beappropriated strictly in accordance with the directions contained in thedecree. In C.A.No.4092 of 2000, since this Court directed the paymentas per Ex.P20 and therefore, the appropriation/adjustment of paymenthas to be made strictly as stated in Ex.P20. When the direction of thecourt is to make payment as per Ex.P20, the respondent-contractor cannotturn round and say that the amount received by him will be adjustedtowards the interest first and then towards the principal.

20. An ‘Appropriation of money’ is the indication of an intentionthat money should be applied in particular way. In the present case,the statement of respondent-contractor himself and other circumstancesclearly indicate that payment ought to be adjusted only towards the

Aprincipal amount. As discussed earlier, in Ex.P20 the respondent-contractor himself has shown the labour escalation due as principalamount and interest thereon separately and has given the credit of theadvances made by the Board firstly towards the principal and claimedthe balanced amount of the principal. At this juncture, we may usefullyrecapitulate respondent’s own letter to the appellant-Board datedB25.11.1994 extracted in para (11) above where the respondent-contractorhimself has stated that he has deducted the advances from the principalamount claimed under “Labour Escalation Charges” and “interest”are shown separately.

21. By his own statement, the respondent-contractor has firstlyCappropriated the advances towards the labour escalation due i.e. theprincipal amount. The respondent-contractor is not justified in changingthe method of calculation and claim appropriation of the payments firstlytowards the interest and then towards the principal amount. The claimof the respondent-contractor for further sum of Rs.2,29,34,559/-withDinterest under Ex.P20 cannot be sustained and the direction of the HighCourt to pay the same is liable to be set aside.

22. WHETHER RESPONDENT-CONTRACTOR IS

ENTITLED TO SUBSEQUENT INTEREST ON THE AMOUNTCLAIMED IN EX.P20:Insofar as Ex.P20, in O.P. No.283 of 1995,Ethe High Court granted the following relief:-

“...We, therefore, grant prayer (b) as prayed for and issue writof mandamus directing the second respondent to pay the petitionerinterest at 18% on the amount shown in the statement, Ext.P20....”

In O.P. No.283 of 1995, the respondent-contractor in prayer (b), prayedFfor issuance of writ of mandamus directing the appellant-Board to paythe amount shown in the statement Ex.P20 together with interest thereonwithin time to be fixed by this Court. Ex.P20 relates to “LabourEscalation Charges” and “Interest” thereon claimed separately. Asseen from prayer (b) in O.P. No.283 of 1995, there was no prayer forGfuture interest;also,there was no direction by the High Court for paymentof subsequent interest.

23. In the appeal before this Court in C.A. No.4092 of 2000, thisCourt observed that disputes among such contractual or commercialactivities of statutory body should not have been agitated in the writcourt. However, since the labour escalation notification for minimumH

wages was issued way back in 1983, this Court directed the amount asshown in Ex.P20 to be paid to the respondent-contractor with interest atthe rate reduced from 18% to 9% p.a. This Court held as under:

“15. The High Court has directed the Board to pay to thecontractor the amounts shown in the statement Ext. P-20 alongwith interest @ 18% per annum. Having considered the totalityof the circumstances, we feel that it would be just and proper toaward interest @ 9% per annum instead of 18%. In the statementExt. P-20, the contractor has calculated interest @ 18% perannum. The interest amount would now be calculated at 9% insteadof 18% per annum.The impugned judgment of the High Court ismodified accordingly.”

The above order of this Court directs payment by the appellant Boardonly 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 decree issilent as to payment of further interest on the principal sum, it shall bedeemed to have been refused. Section 34(2) CPC reads as under:-

34. Interest.

(1) .....

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

In the present case, since there is no direction for future interest, in viewof sub-section (2) of Section 34 CPC, it must be deemed that the courthas refused such interest. The respondent-contractor cannot claim furtherinterest on the amount payable under Ex.P20 beyond the date of judgmentof the High Court (02.04.1998) and in any event not beyond the date ofjudgment of this Court (19.07.2000).

25. The respondent-contractor himself has understood the orderof this Court in CA No.4092 of 2000 that there was no direction forpayment of further interest on the amount payable under Ex.P20. InI.A. No.6 of 2006, the respondent-contractor specifically prayed for

Apayment 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 dated24.09.2000 while disposing of I.A. No.6 of 2006. The appellant-Boardhas paid total amount of Rs.12,82,96,320/- and according to the Board,it has overpaid the respondent-contractoran excess amount ofRs.1,74,75,247/-. In the absence of any direction in the underlying orderBof the High Court and order of this Court in C.A. No.4092 of 2000 topay subsequent interest, the respondent-contractor is not entitled to claimsubsequent interest on the amount payable under Ex.P20. The directionof the High Court to pay subsequent interest of Rs.1,83,23,665/- underEx.P20, is not sustainable.

26. The impugned judgment of the High Court directing theappellant-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, isset aside.

27. Claim under Ex.P59 for the additional work andDsubsequent interest:So far as Ex.P59 is concerned, it is towardsadditional work done- material escalation and labour escalation. So faras Ex.P59 is concerned, in the earlier round of litigation in O.P.No.283of 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 byEhim for the work done till date including labour escalation paymentetc. etc. as ordered in O.P. No.283 of 1995.....”

28. Contention of the respondent-contractor is that in C.A. No.4092of 2000,since this Court did not make any observation regardingrespondent’s claim made under Ex.P59, the order of the High CourtFdirecting payment under Ex.P59 has become final and the amount claimedthereon in Ex.P59 has to be paid to the respondent-contractor. Whiledisposing of the appeal in C.A. No.4092 of 2000, this Court, of course,did not make any observation regarding Ex.P59. But respondent’s claimunder Ex.P59 for additional work done has to be examined in the contextGof this Court’s observation that “....The disputes relating tointerpretation of the terms and conditions of such contract couldnot have been agitated in petition under Article 226 of theConstitution of India...” and “.....Whether any amount is due and ifso, how much and refusal of the appellant to pay it is justified ornot, are not the matters which could have been agitated and decided

in writ petition.....”. Having said so, this Court proceeded to directthe appellant to pay the amount as claimed under Ex.P20.

29. Be that as it may, so far as Ex.P59 is concerned, the contractorhas made claim of Rs.5,55,62,597/- towards additional work includingdepartmental materials and the Board has disputed the claim made bythe respondent-contractor in I.A.No.6 of 2006 and pleaded that the totalwork done by the contractor was only forRs.1,55,65,817/- including costof departmental materials. The relevant portion of the counter affidavitfiled by the Board in I.A.No.6 of 2006 reads as under:-

“56. As per Ext.P59, the contractor had demanded an amount ofRs.5,55,62,597/- including departmental materials and excludingtender excess, material escalation and labour escalation. Out ofthis, 23 items were wrongly claimed in Ext.P59 by the contractorand the same was withdrawn by the contractor in his next bill. ieCC 86 bill submitted to the Board. The amount for the above 23items wrongly claimed would come to Rs.49,40,251/-. So the netamount claimed by the contractor would come to Rs.5,06,22,346/-.Whereas, the total work done by the contractor wasRs.1,55,65,817/- including cost of departmental materials andexcluding tender excess, Material escalation and labour escalation.A detailed statement on each items claimed by the contractor inExhibit P59 and the claim admitted by the Board and their remarksis 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-contractorsubmitted that the claim of the respondent-contractor in Ex.P59 on variousitems was not disputed by the appellant in its counter filed in WP(C)No.31108 of 2007. This contention does not merit acceptance. As pointedout above, the claim of the respondent-contractoron each one of theitems in Ex.P59, the appellant-Board has filed detailed reply in I.A.No.6of 2006 disputing the claim on each of the items claimed by therespondent-contractor. It is in this context, this Court has disposed ofI.A. No.6 of 2006 observing that there is dispute regarding the quantumof the amount payable and giving liberty to the respondent-contractor tomove to the High Court. It is seen from the impugned judgment that theHigh 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

CDEF

Aone of the items in Ex.P59 and also referred to the same in its order andthe same reads as under:

“9. .....If we accept the statement of the Board in paragraph 56of the counter filed before the Supreme Court, the net amountexclusive of the tender excess, material escalation and labourBescalation can only be Rs.5,06,22,346/-. .....The contention of theBoard that out of the above amount, only Rs.1,55,65,817/- ispayable cannot prima facie be accepted, as the measurement wastaken by the Board after ten years of the judgment (Ext.P1)....”

31. The High Court proceeded to observe that the contention ofCthe appellant that only Rs.1,55,65,817/- is payable under Ex.P59 cannotprima facie be accepted as the measurement was taken by the Boardafter ten years of the judgment (Ex.P1); whereas the contractor’s claimswere made then and there by the contractor on actual measurement.Afterso referring to the dispute between the parties, the High Court observedthat there is dispute with regard to the actual measurements of certainDadditional works as well as the contractual rates, the same has to befactually verified and calculations are to be made and that the matterhas to be discussed with the parties. The High Court directed theappellant-Board to pay Rs.8,79,71,154/-[Rs.5,81,53,892/-(principal) plusRs.2,98,17,262/-(interest)]. The split-up figure of principal amount ofERs.5,81,53,892/- is as under:-

32. The High Court ordered single uniform rate for labourescalation at 173.60% and material escalation at 98% of Ex.P59. Thecontention of the appellant-Board is that the direction of the High CourtGto pay at uniform rate of 98% and 173.60%, is contradictory to theterms of the agreement and as per own calculation of the respondent-contractor. According to the Board, material escalation and labourescalation are to be calculated on monthly basis as claimed by therespondent-contractor in other bills. In Ex.P20, the respondent-contractor

himself calculated labour escalation on monthly basis and has not followedhis own prior example. The High Court did not keep in view therespondent’s own method of calculation of labour escalation on monthlybasis and erred in allowing labour escalation and material escalation atsingle uniform rate of 173.60% and 98% respectively and the directionof the High Court to pay Rs.5,81,53,892/- is not sustainable. Sinceappellant has admitted the amount of Rs.1,55,65,817/- as payable underEx.P59, the same is payable with labour escalation and material escalationcalculated on monthly basis.

33. The High Court has directed the appellant to pay subsequentinterest of Rs.2,98,17,262/- on the amount directed to be paid underEx.P59. As discussed earlier, there was no direction either by the HighCourt or by this Court to pay future interest qua Ex.P20. In the earlierround of litigation, the High Court only directed the appellant to pay theamount 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 setaside.

34. REFERENCE TO ARBITRATION:After pointing out thedisputed claims of additional work (Ex.P59) and on the oral consent ofthe counsel for the appellant, the High Court has referred the parties toarbitration appointing Justice K.A. Nayar as the arbitrator. Arbitrator/Tribunal is creature of the contract between the parties. There wasno arbitration agreement between the parties. The question falling forconsideration is whether the High Court was right in referring the partiesto arbitration on the oral consent given by the counsel without writteninstruction from the party.35. Jurisdictional pre-condition for reference to arbitration underSection 7 of the Arbitration and Conciliation Act is that the parties shouldseek reference or submission to arbitration. So far as reference of adispute to arbitration under Section 89 CPC, the same can be done onlywhen parties agree for settlement of their dispute through arbitration incontradistinction to other methods of alternative dispute resolutionmechanism stipulated in Section 89 CPC. Insofar reference of the partiesto arbitration, oral consent given by the counsel without written memoof instructions does not fulfill the requirement under Section 89 CPC.Since

Areferring the parties to arbitration has serious consequences of takingthem away from the stream of civil courts and subject them to the rigourof arbitration proceedings, in the absence of arbitration agreement, thecourt can refer them to arbitration only with written consent of partieseither by way of joint memo or joint application; more so, whengovernment or statutory body like the appellant-Board is involved.B

36. Emphasizing that under Section 89 CPC,referring the partiesto arbitration could be made only when the parties agree for settlementof the dispute through arbitration by joint application or joint affidavitbefore the court, in Afcons Infrastructure Ltd. and Anr. v. CherianVarkey Construction Co. (P) Ltd. and Ors.(2010) 8 SCC 24, this CourtCheld as under:-

“33. Even if there was no pre-existing arbitration agreement, theparties to the suit can agree for arbitration when the choice ofADR processes is offered to them by the court under Section 89of the Code. Such agreement can be by means of jointDmemo or joint application or 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 agreementin writing signed by parties, the matter can be referred toarbitration under Section 89 of the Code; and on such reference,Ethe provisions of the AC Act will apply to the arbitration, and asnoticed in Salem Bar Bar Association, T.N. v. Union of India(I)(2003) 1 SCC 49, the case will go outside the stream of thecourt permanently and will not come back to the court.”[Underlining added]

FThe same view was reiterated in Shailesh Dhairyawan v. MohanBalkrishna 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 itmay, Section 89 provides for alternate methods of dispute resolutioni.e. those methods which are alternate to the court and are outsideGthe adjudicatory function of the court. One of them with whichwe are concerned is the settlement of dispute through arbitration.Insofar as reference of dispute to arbitration is concerned, it hasbeen interpreted by this Court that resort to arbitration in pendingsuit by the orders of the court would be only when parties agreeH

for settlement of their dispute through arbitration, incontradistinction to the Alternate Dispute Resolution mechanism(for short “ADR”) through the process of mediation where theJudge has the discretion to send the parties for mediation, withouteven obtaining the consent of the parties.Thus, reference toarbitration is by means of agreement between the parties. It isnot in dispute that there was an agreement between the partiesfor reference of dispute to the arbitration and it was so referred.”[Underlining added]37. The learned senior counsel for respondent-contractor placedreliance upon Byram Pestonji Gariwala v. Union Bank of India andOrs., (1992) 1 SCC 31 to contend that the counsel has the implied authorityto consent for arbitration on behalf of party. In Byram PestonjiGariwala case, this Court made it clear that the counsel should not acton implied authority unless there is exigency of circumstances demandingimmediate adjustment of suit by agreement or compromise and thesignature 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 prudentfor counsel not to act on implied authority except whenwarranted by the exigency of circumstances demandingimmediate adjustment of suit by agreement or compromiseand the signature of the party cannot be obtained withoutundue delay. In these days of easier and quickercommunication, such contingency may seldom arise. wiseand careful counsel will no doubt arm himself in advance with thenecessary authority expressed in writing to meet all suchcontingencies in order that neither his authority nor integrity isever doubted. This essential precaution will safeguard the personalreputation of counsel as well as uphold the prestige and dignity ofthe legal profession.”

38. In subsequent decision in the context of examining thecompromise under Order XXIII Rule 3 CPC, in Banwari Lal v. ChandoDevi (Smt) (Through LRs.) and Anr.(1993) 1 SCC 581, this Court hasobserved that the case of Byram Pestonji Gariwala had ignored thelaw laid down in Gurpreet Singh v. Chatur Bhuj Goel (1988) 1 SCC270 and held that when parties enter into compromise, the court must

Ainsist upon the parties that the compromise be reduced into writing. Inpara (10) in Banwari Lal case, it was held as under:-

“10......... The order on face of it purported to dismiss the suit ofthe plaintiff on basis of the terms and conditions mentioned in thepetition of compromise. As such, the validity of that order has toBbe judged treating it to be an order deemed to have been passedin purported exercise of the power conferred on the Court byRule 3 of Order 23 of the Code. The learned Subordinate Judgeshould not have accepted the said petition of compromise evenif he had no knowledge of the fraud alleged to have beenpractised on the appellant by his counsel, because admittedlyCthe petition of compromise had not been signed either by therespondent or his counsel. This fact should have been discoveredby the Court. In the case of Gurpreet Singh v. Chatur BhujGoel (1988) 1 SC 207 it has been said: (SCC p. 276, para 10)

“Under Rule 3 as it now stands, when claim in suit has beenDadjusted wholly or in part by any lawful agreement orcompromise, the compromise must be in writing and signed bythe parties and there must be completed agreement betweenthem. To constitute an adjustment, the agreement orcompromise must itself be capable of being embodied in aEdecree. When the parties enter into compromise duringthe hearing of suit or appeal, there is no reason why therequirement that the compromise should be reduced inwriting in the form of an instrument signed by the partiesshould be dispensed with. The court must therefore insistupon the parties to reduce the terms into writing.”F

39. Referring the parties to arbitration has serious civilconsequences. Once the parties are referred to arbitration, theproceedings will be in accordance with the provisions of Arbitration andConciliation Act and the matter will go outside the stream of the civilcourt. Under Section 19 of Arbitration and Conciliation Act, the arbitralGtribunal shall not be bound by the Code of Civil Procedure and the IndianEvidence Act. Once the award is passed, the award shall be set asideonly under limited grounds. Hence, referring the parties to arbitrationhas serious civil consequences procedurally and substantively. Whenthere was no arbitration agreement between the parties, without joint

memo or joint application of the parties, the High Court ought not tohave referred the parties to arbitration.

40. The impugned order referring the parties to arbitration, in anyevent,inter alia, cannot be sustained on other grounds also. Whilereferring 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 bythe Board after ten years of judgment; whereas the claims made bythe contractor then and there on actual measurement”; (ii) percentageof labour escalation ordered by the High Court @ 173.60% iscontradictory 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 prejudicethe rights of the appellant-Board in pursuing the matter before the ArbitralTribunal.

41. Contention of the respondent-contractor is that the appellant-Board has not raised the issue of absence of arbitration agreement beforethe Tribunal and the jurisdiction of the Arbitral Tribunal. Since theappellant-Board has challenged the impugned order before this Court inthe matter pending for consideration, the appellant-Board could not haveraised the issue of lack of jurisdiction before the Arbitral Tribunal andthe contention of the respondent-contractor does not merit acceptance.

42. The arbitrator has passed the award dated 30.09.2012 forRs.19,98,05,805.72 with interest @ 9% p.a. which was subsequentlycorrected 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 wasdismissed by the District Judge, Thiruvananthapuram vide order dated23.12.2015. The appeal preferred by the appellant under Section 37 ofthe Arbitration and Conciliation Act (Arbitration Appeal No.Z-47 of 2013)was transferred to this Court. While directing the appellant-Board topay rupees five crores to the respondent-contractor on furnishingundertaking vide order dated 20.02.2017, this Court directed ArbitrationAppeal No.Z-47 of 2013 to be sent back to the High Court. Since theimpugned judgment of the High Court is set aside, the award passed bythe Arbitrator is liable to be set aside and consequently the ArbitrationAppeal No.Z-47 of 2013 pending before the Kerala High Court shallstand allowed.

ABC

A43. IN EXERCISE OF JURISDICTION UNDER ARTICLE136 OF THE CONSTITUTION OF INDIA-WHETHER THISCOURT CAN INTERFERE:Learned senior counsel for therespondent-contractor urged that in exercise of jurisdiction under Article136 of the Constitution of India, the Supreme Court normally does notreappreciate the evidence and findings of fact unless there is miscarriageBof justice or manifest illegality. In support of his contention, learnedsenior 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 Constitutionof India, this Court does not normally reappreciate the evidence andCfindings of fact; but where the findings of the High Court are perverseor the findings are likely to result in excessive hardship, the SupremeCourt would not decline to interfere merely on the ground that findingsin question are findings of fact. After referring to various judgments onthe scope in exercise of power under Article 136 of the Constitution ofDIndia, in Mahesh Dattatray Thirthkar v. State of Maharashtra (2009)11 SCC 141, this Court in para (35) summarized the principles as under:-

“35. From close examination of the principles laid down by thisCourt in the aforesaid series of decisions as referred tohereinabove on the question of exercising power to interfere withEfindings 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 Constitutionof India are very wide.

• It is open to this Court to interfere with the findings of factFgiven by the High Court if the High Court has actedperversely or otherwise improperly.

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

• The appreciation of evidence and finding is vitiated by anyerror of law of procedure or found contrary to the principlesof natural justice, errors of record and misreading of theevidence, or where the conclusions of the High Court aremanifestly perverse and unsupportable from the evidenceHon record.

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

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

• When the High Court has redetermined fact in issue in acivil appeal, and erred in drawing inferences based onpresumptions.

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

45. In the present case, for contract of Rs.7.76 crores underoriginal PAC amount and revised PAC amount of Rs.10.40 crores, theappellant-Board has so far paid Rs.56.58 crores and additionally rupeesfive 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 statutorybody like the appellant-Board, this Court would not decline to interferemerely on the ground that the findings in question are findings of fact. Ifthe judgment of the High Court is to be sustained, the Board would haveto make total payment of about Rs.100 crores, causing huge loss to theappellant which would ultimately be passed on to the consumers and theimpugned judgment is liable to be set aside.

46. While we set aside the impugned judgment, what is the order/direction to be passed is the point falling for consideration. As discussedearlier, under Ex.P20, the appellant-Board has made excess payment ofRs.1,74,75,247/-. By order dated 20.02.2017, this Court directed theappellant to pay sum of rupees five crores subject to furnishing ofundertaking by respondent-contractor. As per Ex.P59, the respondent-contractor claimed Rs.5,55,62,597/- for the work done;material escalationand labour escalation charges claimed additionally. The admittedamount under Ex.P59 was only Rs.1,55,65,817/-. As discussed earlier,the amount claimed under x.P59 also will not carry subsequent interest.Material escalation and labour escalation charges additionally claimedare to be calculated only on monthly basis. Since an amount ofRs.6,74,75,247/- (Rs.1,74,75,247/- plus Rs.5,00,00,000/-) has been paidto the respondent-contractor, it is directed that the same be treated as

Afull quit of all the claims under Ex.P59 including tender excess, materialand labour escalation charges.

47.Conclusion:-In the result, the impugned judgment of the HighCourt is set aside and these appeals are allowed with the followingobservations and directions:-

(i) As held in Gurpreet Singh’s case, the payment is to beappropriated strictly in accordance with the directions containedin the decree. In C.A.No.4092 of 2000, this Court directed thepayment as per Ex.P20. In Ex.P20, the respondent-contractorhimself has shown the labour escalation due as the principalCamount and interest thereon separately and has given the creditof the advances made by the appellant-Board firstly towardsthe principal and claimed the balance amount. The respondent-contractor is not right in changing the method of calculation byappropriation of the payments firstly towards the interest andthen towards the principal amount. The direction of the HighDCourt to pay further sum of Rs.2,29,34,559/- under Ex.P20is set aside;

(ii) In the absence of direction in the underlying judgment of theHigh Court and judgment of this Court in C.A. No.4092 of2000 to pay subsequent interest, in view of sub-section (2) ofESection 34 CPC, the respondent-contractor is not entitled toclaim subsequent interest on the amount payable under Ex.P20.The direction of the High Court to pay subsequent interest ofRs.1,83,23,665/- under Ex.P20 is set aside;

(iii)The High Court’s direction to pay labour escalation and materialFescalation at single uniform rate of 173.60% and 98%respectively for the bills towards additional work and to payRs.5,81,53,892/- under Ex.P59 to the respondent is set aside.In view of the express provision of sub-section (2) of Section34 CPC, no future interest is payable under Ex.P59. TheGdirection of the High Court to pay future interest ofRs.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 joint memo or joint application of the parties, theHigh Court ought not to have referred the parties to

arbitration.Hence, the award dated 29.10.2012 passed by thearbitrator Justice K.A. Nayar is set aside and the ArbitrationAppeal No.Z-47 of 2013 filed by the appellant-Board pendingbefore the High Court of Kerala is allowed;

(v) The amount of Rs.1,74,75,247/- paid under Ex.P20 which is inexcess of the claim under Ex.P20 and the amount of rupeesBfive crores paid to the respondent-contractor vide order ofthis Court dated 20.02.2017 be treated as payment underEx.P59 for additional work including tender excess, materialescalation and labour escalation charges and in full quit of allclaims under Ex.P59;

(vi)Parties to bear their respective costs.

Divya Pandey

Appeals allowed.