Sunday, 29 July 2018

When appropriation of payment first towards interest and then towards principal amount is not permissible?

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 Co. MANU/SC/0837/2012 : (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 proceed to recalculate the interest on the whole of the principal amount and seek for reappropriation.

18. As held in Constitution Bench judgment in Gurpreet Singh's case followed in BHEL's case, if there is a direction in the decree as to the mode of appropriation of payment, then appropriation of any payment made by the judgment-debtor has to be strictly in accordance with the direction contained in the decree. If there is no such direction in the decree, then the general principle is that where a judgment-debtor makes payment without making any indication as to how the payment is to be adjusted, it is the option of the creditor to make adjustment firstly towards the interest and then towards the principal. But if the judgment-debtor has indicated the manner in which the appropriation is to be made, then the creditor has no choice to apply the payment in a different manner. The general principle of mode of appropriation firstly in payment of interest and thereafter in payment of principal amount is subject to the exception i.e. the parties may agree to the adjustment of the payment in any other manner despite the decree.

IN THE SUPREME COURT OF INDIA

Civil Appeal Nos. 3164-3165 of 2017

Decided On: 09.03.2018

 Kerala State Electricity Board and Ors. Vs. Kurien E. Kalathil and Ors.

Hon'ble Judges/Coram:
Ranjan Gogoi and R. Banumathi, JJ.

Citation: (2018) 4 SCC 793

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

2. The dispute between the Appellant-Board and the Respondent-contractor had a chequered history. Brief facts which led to filing of these appeals are as follows: Appellant-Kerala State Electricity Board (KSEB) entered into an agreement on 16.09.1981 with Respondent-contractor for construction of a composite dam across Karamanthodu at Padinjarethara in connection with Banasura Sagar Scheme (Kuttiyadi Augmentation Scheme). After commencement of work, Government of Kerala issued a notification dated 30.03.1983, by which minimum wages payable to certain categories of workers employed in works mentioned in notification was revised with effect from 01.04.1983. The Respondent-contractor claimed labour escalation charges from 01.04.1983 to December, 1984. The Government of Kerala referred the matter to the industrial tribunal for adjudication of the dispute with regard to the claim of workmen employed for the construction of dam for the wage rates and other benefits fixed in the Minimum Wages Notification issued by the State Government. The industrial tribunal passed the award dated 14.10.1993 holding that the notification of Government of Kerala was applicable to workmen employed by the Respondent-contractor.

3. Respondent-contractor filed O.P. No. 283 of 1995 claiming an amount of Rs. 6,32,84,050/- towards labour escalation charges and an amount of Rs. 7,66,35,927/- being interest at the rate of 18% per annum payable under Ex. P20 in respect of various bills issued by the Respondent-contractor for the period 15.01.1985 to 31.10.1994. When the said writ was pending, the Appellant-Board terminated the contract with Respondent-contractor, which again came to be challenged before the High Court by filing O.P. No. 10759 of 1997 against termination of contract and for the payment of works done (Ex. P59) by Respondent-contractor. The High Court disposed of both the petitions by a common judgment dated 02.04.1998 holding that the termination of contract was arbitrary and directed the Appellant-Board to pay the amount claimed by the Respondent-contractor for payment of labour escalation as per Ex. P20 with interest at the rate of 18% per annum which the contractor claimed separately. The High Court also directed the Appellant-Board to pay the amount claimed by the Respondent-contractor under Ex. P59 towards additional work done by the Respondent-contractor.

4. Being aggrieved, KSEB approached this Court by way of appeal in C.A. No. 4092 of 2000 reported in Kerala State Electricity Board and Anr. v. Kurien E. Kalathil and Ors. MANU/SC/0435/2000 : (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 Respondent-contractor as per Ex. P20; but reduced the rate of interest claimed under Ex. P20 from 18% per annum to 9% per annum. So far as Ex. P59 is concerned, there was no direction by this Court. Review petition filed by the Appellant-Board came to be dismissed by this Court vide order dated 07.12.2000. Appellant-Board has so far paid an amount of Rs. 12,82,96,320/- under Ex. P20 which was accepted by the Respondent-contractor without any demur.

5. Three years after the payment under Ex. P20, Respondent-contractor filed I.A. No. 6 of 2006 seeking direction of the court to make payments due under judgment of this Court, with further interest to be paid forthwith. In I.A. No. 6 of 2006, this Court has passed the following order:

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

6. Respondent-contractor filed W.P.(C) No. 31108 of 2007 before the High Court seeking for a direction to the Appellant-Board to release the amount as directed by the High Court and affirmed by this Court. By the impugned judgment dated 28.01.2009, the High Court allowed the writ 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 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 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:


In the same manner, for all the bills, the Respondent-contractor has calculated the "Value of work done", "difference in wages" and "Labour Escalation Charges" on monthly basis. After so calculating the claim under all the bills, the Respondent-contractor had shown the dates on which advances received in column No. (14) and deducted the advance received towards the principal and finally shown Rs. 6,32,84,050/- as total amount due towards labour escalation. As seen from the above tabular column, in computation of his claims in Ex. P20, the Respondent-contractor himself thus adjusted all payments received from the Appellant-Board, only towards the principal and not towards interest.

10. The Respondent-contractor has separately calculated the interest payable on "Labour Escalation Due" claimed under each bill at the rate of 18% i.e. Rs. 7,66,35,927/-. For proper appreciation, we may usefully refer to bills from CC. 14 to CC. 18 and from CC. 68 to CC. 75 as to how the interest was calculated and claimed separately which read as under:


11. Parties are governed by the terms of the contract. Clause E1.079 of the agreement dated 16.09.1981 expressly provided that the Appellant would pay no interest to the Respondent-contractor for delayed payment. Clause E1.079 of the agreement reads as under:

E1.079

No claim for delayed payment due to dispute etc.

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

Even as per Respondent's own letter No. D.W./94/090 dated 25.11.1994, the Respondent-contractor has deducted the advances paid only 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:


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:


This manner of appropriation, firstly towards the interest is in clear violation of the directions given by this Court to make payment under Ex. P20 and the method of adjustment which the Respondent-contractor himself adopted in Ex. P20. In the original Ex. P20, when Respondent-contractor himself has expressly adjusted all payments made by the Appellant towards principal and not towards interest, the Respondent-contractor cannot turn round and change the method of calculation by showing the adjustment of payments made first against the interest and then towards the principal. This important aspect of change in the method of adjustment/appropriation was lost sight by the High Court and the direction of the High Court to make further payment of Rs. 4,12,58,224/- under Ex. P20 is not sustainable.

14. IN THE FACTS OF THE PRESENT CASE WHETHER THE Respondent-CONTRACTOR IS JUSTIFIED IN APPROPRIATION OF 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 Ors. v. Mst. Bayabai and Ors. MANU/SC/0368/1969 : (1969) 2 SCC 274 and Industrial Credit and Development Syndicate now called I.C.D.S. Ltd. v. Smithaben H. Patel (Smt.) and Ors. MANU/SC/0092/1999 : (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.

16. In Mathunni Mathai v. Hindustan Organic Chemicals Ltd. and Ors., MANU/SC/0298/1995 : (1995) 4 SCC 26, it has been held that Order XXI Rule 1 Code of Civil Procedure as amended in 1976 is applicable in executing the award made under the Land Acquisition Act. In Mathunni Mathai's case, it was indicated that if the decretal amount is deposited by the judgment-debtor pursuant to the order of the Court and the judgment-debtor has not given notice of such deposit to the decree holder and also does not specify the manner in which the amount should be appropriated, then the decree holder will be entitled to appropriate the amount deposited by the judgment-debtor firstly towards interest and other expenses and the decree holder is not bound to adjust the same towards the principal. In Prem Nath Kapur and Anr. v. National Fertilizers Corporation of India Ltd. and Ors. MANU/SC/1097/1996 : (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 Code of Civil Procedure 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 MANU/SC/4736/2006 : (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 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 Code of Civil Procedure 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 Co. MANU/SC/0837/2012 : (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 proceed to recalculate the interest on the whole of the principal amount and seek for reappropriation.

18. As held in Constitution Bench judgment in Gurpreet Singh's case followed in BHEL's case, if there is a direction in the decree as to the mode of appropriation of payment, then appropriation of any payment made by the judgment-debtor has to be strictly in accordance with the direction contained in the decree. If there is no such direction in the decree, then the general principle is that where a judgment-debtor makes payment without making any indication as to how the payment is to be adjusted, it is the option of the creditor to make adjustment firstly towards the interest and then towards the principal. But if the judgment-debtor has indicated the manner in which the appropriation is to be made, then the creditor has no choice to apply the payment in a different manner. The general principle of mode of appropriation firstly in payment of interest and thereafter in payment of principal amount is subject to the exception i.e. the parties may agree to the adjustment of the payment in any other manner despite the decree.

19. In C.A. No. 4092 of 2000, this Court directed payment as per Ex. P20. As held in Gurpreet Singh's case, the payment is to be appropriated strictly in accordance with the directions contained in the decree. In C.A. No. 4092 of 2000, since this Court directed the payment as per Ex. P20 and therefore, the appropriation/adjustment of payment has to be made strictly as stated in Ex. P20. When the direction of the court is to make payment as per Ex. P20, the Respondent-contractor cannot turn round and say that the amount received by him will be adjusted towards the interest first and then towards the principal.

20. An 'Appropriation of money' is the indication of an intention that money should be applied in a particular way. In the present case, the statement of Respondent-contractor himself and other circumstances clearly indicate that payment ought to be adjusted only towards the principal amount. As discussed earlier, in Ex. P20 the Respondent-contractor himself has shown the labour escalation due as principal amount and interest thereon separately and has given the credit of the advances made by the Board firstly towards the principal and claimed the balanced amount of the principal. At this juncture, we may usefully recapitulate Respondent's own letter to the Appellant-Board dated 25.11.1994 extracted in para (11) above where the Respondent-contractor himself has stated that he has deducted the advances from the principal amount claimed under "Labour Escalation Charges" and "interest" are shown separately.

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 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 Code of Civil Procedure, 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) Code of Civil Procedure reads as under:

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 Code of Civil Procedure, 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 to pay subsequent interest, the Respondent-contractor is not entitled to claim subsequent interest on the amount payable under Ex. P20. The direction of the High Court to pay subsequent interest of Rs. 1,83,23,665/- under Ex. P20, is not sustainable.

26. The impugned judgment of the High Court directing the Appellant-Board to pay Rs. 4,12,58,224/- in Ex. P20 [Rs. 2,29,34,559/- (principal) plus Rs. 1,83,23,665/- (subsequent interest)] under Ex. P20, is set aside.

IN THE SUPREME COURT OF INDIA

Civil Appeal Nos. 3164-3165 of 2017

Decided On: 09.03.2018

Appellants: Kerala State Electricity Board and Ors.
Vs.
Respondent: Kurien E. Kalathil and Ors.

Hon'ble Judges/Coram:
Ranjan Gogoi and R. Banumathi, JJ.

Counsels: 
For Appellant/Petitioner/Plaintiff: Krishnan Venugopal, Sr. Adv., Kaushik Mishra, Shivendra Singh, Deepanshi Ishar and A. Raghunath, Advs.

For Respondents/Defendant: Dhruv Mehta, Sr. Adv., E.M.S. Anam, Dileep Pillai, G. Prakash, Jishnu M.L., Priyanka Prakash, Beena Prakash and Vijay Shankar V.L., Advs.

Subject: Commercial

Subject: Civil

Catch Words

Mentioned IN

Acts/Rules/Orders: 
Land Acquisition Act; Contract Act - Section 59, Contract Act - Section 60, Contract Act - Section 61; Arbitration and Conciliation Act - Section 7, Arbitration and Conciliation Act - Section 19, Arbitration and Conciliation Act - Section 34, Arbitration and Conciliation Act - Section 37; Indian Evidence Act; Code of Civil Procedure (CPC) - Section 34(2), Code of Civil Procedure (CPC) - Section 89, Code of Civil Procedure (CPC) - Order 21 Rule 1, Code of Civil Procedure (CPC) - Order 21 Rule 1(1), Code of Civil Procedure (CPC) - Order 21 Rule 1(4), Code of Civil Procedure (CPC) - Order 21 Rule 1(5), Code of Civil Procedure (CPC) - Order 21 Rule 2, Code of Civil Procedure (CPC) - Order 21 Rule 3, Code of Civil Procedure (CPC) - Order 21 Rule 3, Code of Civil Procedure (CPC) - Order 21 Rule 4, Code of Civil Procedure (CPC) - Order 21 Rule 5, Code of Civil Procedure (CPC) - Order 23 Rule 3; Constitution of India - Article 136, Constitution of India - Article 226

Cases Referred: 
Kerala State Electricity Board and Anr. v. Kurien E. Kalathil and Ors. MANU/SC/0435/2000 : (2000) 6 SCC 293; Meghraj and Ors. v. Mst. Bayabai and Ors. MANU/SC/0368/1969 : (1969) 2 SCC 274; I.C.D.S. Ltd. v. Smithaben H. Patel (Smt.) and Ors. MANU/SC/0092/1999 : (1999) 3 SCC 80; Mathunni Mathai v. Hindustan Organic Chemicals Ltd. and Ors. MANU/SC/0298/1995 : (1995) 4 SCC 26; Prem Nath Kapur and Anr. v. National Fertilizers Corporation of India Ltd. and Ors. MANU/SC/1097/1996 : (1996) 2 SCC 71; Gurpreet Singh v. Union of India MANU/SC/4736/2006 : (2006) 8 SCC 457; Bharat Heavy Electricals Ltd. v. R.S. Avtar Singh and Co. MANU/SC/0837/2012 : (2013) 1 SCC 243; Afcons Infrastructure Ltd. and Anr. v. Cherian Varkey Construction Co. (P) Ltd. and Ors. MANU/SC/0525/2010 : (2010) 8 SCC 24; Salem Bar Bar Association, T.N. v. Union of India (I) MANU/SC/0912/2002 : (2003) 1 SCC 49; Shailesh Dhairyawan v. Mohan Balkrishna Lulla MANU/SC/1206/2015 : (2016) 3 SCC 619; Byram Pestonji Gariwala v. Union Bank of India and Ors. MANU/SC/0485/1991 : (1992) 1 SCC 31; Banwari Lal v. Chando Devi (Smt.) (Through L.Rs.) and Anr. MANU/SC/0152/1993 : (1993) 1 SCC 581; Gurpreet Singh v. Chatur Bhuj Goel MANU/SC/0032/1987 : (1988) 1 SCC 270 : (1988) 1 SC 207; Taherakhatoon (D) by L.Rs. v. Salambin Mohammad MANU/SC/0139/1999 : (1999) 2 SCC 635; Mahesh Dattatray Thirthkar v. State of Maharashtra MANU/SC/0484/2009 : (2009) 11 SCC 141

Prior History: 
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 of 2009(C) of the High Court of Kerala at Ernakulam

Subject Category:
MATTERS RELATING TO LEASES, GOVT. CONTRACTS AND CONTRACTS BY LOCAL BODIES - TENDERS INVITED OR CONTRACTS AWARDED/LEASES GRANTED OR DETERMINED BY STATE GOVERNMENTS/UNION TERERITORIES

Citing Reference: 



Affirmed 
 1

Discussed 
 10

Mentioned 
 4

Case Note:
Power and Energy - Appropriation of Payment - Present appeal filed against order wherein High Court directed Appellant to pay amount to Respondent - Whether amount of claim payable to Respondent - Whether Respondent justified in appropriation of payment towards interest - Whether Respondent entitled to subsequent interest on amount claimed 

Facts:

The Appellant entered into an agreement with Respondent for construction of a dam. After the commencement of work, Government issued a notification by which minimum wages payable to certain categories of workers employed in works was revised. The Respondent claimed labor escalation charges. The matter was adjudicated and after various rounds of litigation the High Court directed the Appellants to pay the amount to the Respondents. The Appellant paid certain amount. After sometime, the Respondent filed an application seeking directions to Appellant to make further due payments with interest. The High Court referred the matter to arbitration to resolve the dispute but the same could not amicably resolve. A review petition was filed by the Appellant but was dismissed by the High Court. Hence, present appeal was filed. 

Held, while allowing appeal:

(i) The High Court had directed the Appellant to pay the Respondent. Even after payment an amount was still due to be paid i.e. principal and subsequent interest. While claiming the charges for labor escalation, the Respondent had shown the value of work done under each bill and separately shown "Labor Escalation Due" on each bill by showing the method of calculation/appropriation. The Respondent had deducted the advances paid only towards the principal and claimed interest. The entire method of calculation was changed by showing adjustment of payments firstly towards interest and then towards principal. This 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 was not sustainable. [8],[9],[12] and[13] 

(ii) The labor escalation notification for minimum wages was issued way back; this Court directed the amount to be paid to the Respondent with interest at the rate reduced. Since, there was no direction for future interest; it must be deemed that the Court had refused such interest. The Respondent-contractor could not claim further interest on the amount payable. [23] and[24]

Disposition: 
Appeal Allowed

Industry: Power and Energy

JUDGMENT

R. Banumathi, J.

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

2. The dispute between the Appellant-Board and the Respondent-contractor had a chequered history. Brief facts which led to filing of these appeals are as follows: Appellant-Kerala State Electricity Board (KSEB) entered into an agreement on 16.09.1981 with Respondent-contractor for construction of a composite dam across Karamanthodu at Padinjarethara in connection with Banasura Sagar Scheme (Kuttiyadi Augmentation Scheme). After commencement of work, Government of Kerala issued a notification dated 30.03.1983, by which minimum wages payable to certain categories of workers employed in works mentioned in notification was revised with effect from 01.04.1983. The Respondent-contractor claimed labour escalation charges from 01.04.1983 to December, 1984. The Government of Kerala referred the matter to the industrial tribunal for adjudication of the dispute with regard to the claim of workmen employed for the construction of dam for the wage rates and other benefits fixed in the Minimum Wages Notification issued by the State Government. The industrial tribunal passed the award dated 14.10.1993 holding that the notification of Government of Kerala was applicable to workmen employed by the Respondent-contractor.

3. Respondent-contractor filed O.P. No. 283 of 1995 claiming an amount of Rs. 6,32,84,050/- towards labour escalation charges and an amount of Rs. 7,66,35,927/- being interest at the rate of 18% per annum payable under Ex. P20 in respect of various bills issued by the Respondent-contractor for the period 15.01.1985 to 31.10.1994. When the said writ was pending, the Appellant-Board terminated the contract with Respondent-contractor, which again came to be challenged before the High Court by filing O.P. No. 10759 of 1997 against termination of contract and for the payment of works done (Ex. P59) by Respondent-contractor. The High Court disposed of both the petitions by a common judgment dated 02.04.1998 holding that the termination of contract was arbitrary and directed the Appellant-Board to pay the amount claimed by the Respondent-contractor for payment of labour escalation as per Ex. P20 with interest at the rate of 18% per annum which the contractor claimed separately. The High Court also directed the Appellant-Board to pay the amount claimed by the Respondent-contractor under Ex. P59 towards additional work done by the Respondent-contractor.

4. Being aggrieved, KSEB approached this Court by way of appeal in C.A. No. 4092 of 2000 reported in Kerala State Electricity Board and Anr. v. Kurien E. Kalathil and Ors. MANU/SC/0435/2000 : (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 Respondent-contractor as per Ex. P20; but reduced the rate of interest claimed under Ex. P20 from 18% per annum to 9% per annum. So far as Ex. P59 is concerned, there was no direction by this Court. Review petition filed by the Appellant-Board came to be dismissed by this Court vide order dated 07.12.2000. Appellant-Board has so far paid an amount of Rs. 12,82,96,320/- under Ex. P20 which was accepted by the Respondent-contractor without any demur.

5. Three years after the payment under Ex. P20, Respondent-contractor filed I.A. No. 6 of 2006 seeking direction of the court to make payments due under judgment of this Court, with further interest to be paid forthwith. In I.A. No. 6 of 2006, this Court has passed the following order:

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

6. Respondent-contractor filed W.P.(C) No. 31108 of 2007 before the High Court seeking for a direction to the Appellant-Board to release the amount as directed by the High Court and affirmed by this Court. By the impugned judgment dated 28.01.2009, the High Court allowed the writ 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 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 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:


In the same manner, for all the bills, the Respondent-contractor has calculated the "Value of work done", "difference in wages" and "Labour Escalation Charges" on monthly basis. After so calculating the claim under all the bills, the Respondent-contractor had shown the dates on which advances received in column No. (14) and deducted the advance received towards the principal and finally shown Rs. 6,32,84,050/- as total amount due towards labour escalation. As seen from the above tabular column, in computation of his claims in Ex. P20, the Respondent-contractor himself thus adjusted all payments received from the Appellant-Board, only towards the principal and not towards interest.

10. The Respondent-contractor has separately calculated the interest payable on "Labour Escalation Due" claimed under each bill at the rate of 18% i.e. Rs. 7,66,35,927/-. For proper appreciation, we may usefully refer to bills from CC. 14 to CC. 18 and from CC. 68 to CC. 75 as to how the interest was calculated and claimed separately which read as under:


11. Parties are governed by the terms of the contract. Clause E1.079 of the agreement dated 16.09.1981 expressly provided that the Appellant would pay no interest to the Respondent-contractor for delayed payment. Clause E1.079 of the agreement reads as under:

E1.079

No claim for delayed payment due to dispute etc.

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

Even as per Respondent's own letter No. D.W./94/090 dated 25.11.1994, the Respondent-contractor has deducted the advances paid only 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:


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:


This manner of appropriation, firstly towards the interest is in clear violation of the directions given by this Court to make payment under Ex. P20 and the method of adjustment which the Respondent-contractor himself adopted in Ex. P20. In the original Ex. P20, when Respondent-contractor himself has expressly adjusted all payments made by the Appellant towards principal and not towards interest, the Respondent-contractor cannot turn round and change the method of calculation by showing the adjustment of payments made first against the interest and then towards the principal. This important aspect of change in the method of adjustment/appropriation was lost sight by the High Court and the direction of the High Court to make further payment of Rs. 4,12,58,224/- under Ex. P20 is not sustainable.

14. IN THE FACTS OF THE PRESENT CASE WHETHER THE Respondent-CONTRACTOR IS JUSTIFIED IN APPROPRIATION OF 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 Ors. v. Mst. Bayabai and Ors. MANU/SC/0368/1969 : (1969) 2 SCC 274 and Industrial Credit and Development Syndicate now called I.C.D.S. Ltd. v. Smithaben H. Patel (Smt.) and Ors. MANU/SC/0092/1999 : (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.

16. In Mathunni Mathai v. Hindustan Organic Chemicals Ltd. and Ors., MANU/SC/0298/1995 : (1995) 4 SCC 26, it has been held that Order XXI Rule 1 Code of Civil Procedure as amended in 1976 is applicable in executing the award made under the Land Acquisition Act. In Mathunni Mathai's case, it was indicated that if the decretal amount is deposited by the judgment-debtor pursuant to the order of the Court and the judgment-debtor has not given notice of such deposit to the decree holder and also does not specify the manner in which the amount should be appropriated, then the decree holder will be entitled to appropriate the amount deposited by the judgment-debtor firstly towards interest and other expenses and the decree holder is not bound to adjust the same towards the principal. In Prem Nath Kapur and Anr. v. National Fertilizers Corporation of India Ltd. and Ors. MANU/SC/1097/1996 : (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 Code of Civil Procedure 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 MANU/SC/4736/2006 : (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 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 Code of Civil Procedure 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 Co. MANU/SC/0837/2012 : (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 proceed to recalculate the interest on the whole of the principal amount and seek for reappropriation.

18. As held in Constitution Bench judgment in Gurpreet Singh's case followed in BHEL's case, if there is a direction in the decree as to the mode of appropriation of payment, then appropriation of any payment made by the judgment-debtor has to be strictly in accordance with the direction contained in the decree. If there is no such direction in the decree, then the general principle is that where a judgment-debtor makes payment without making any indication as to how the payment is to be adjusted, it is the option of the creditor to make adjustment firstly towards the interest and then towards the principal. But if the judgment-debtor has indicated the manner in which the appropriation is to be made, then the creditor has no choice to apply the payment in a different manner. The general principle of mode of appropriation firstly in payment of interest and thereafter in payment of principal amount is subject to the exception i.e. the parties may agree to the adjustment of the payment in any other manner despite the decree.

19. In C.A. No. 4092 of 2000, this Court directed payment as per Ex. P20. As held in Gurpreet Singh's case, the payment is to be appropriated strictly in accordance with the directions contained in the decree. In C.A. No. 4092 of 2000, since this Court directed the payment as per Ex. P20 and therefore, the appropriation/adjustment of payment has to be made strictly as stated in Ex. P20. When the direction of the court is to make payment as per Ex. P20, the Respondent-contractor cannot turn round and say that the amount received by him will be adjusted towards the interest first and then towards the principal.

20. An 'Appropriation of money' is the indication of an intention that money should be applied in a particular way. In the present case, the statement of Respondent-contractor himself and other circumstances clearly indicate that payment ought to be adjusted only towards the principal amount. As discussed earlier, in Ex. P20 the Respondent-contractor himself has shown the labour escalation due as principal amount and interest thereon separately and has given the credit of the advances made by the Board firstly towards the principal and claimed the balanced amount of the principal. At this juncture, we may usefully recapitulate Respondent's own letter to the Appellant-Board dated 25.11.1994 extracted in para (11) above where the Respondent-contractor himself has stated that he has deducted the advances from the principal amount claimed under "Labour Escalation Charges" and "interest" are shown separately.

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 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 Code of Civil Procedure, 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) Code of Civil Procedure reads as under:

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 Code of Civil Procedure, 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 to pay subsequent interest, the Respondent-contractor is not entitled to claim subsequent interest on the amount payable under Ex. P20. The direction of the High Court to pay subsequent interest of Rs. 1,83,23,665/- under Ex. P20, is not sustainable.

26. The impugned judgment of the High Court directing the Appellant-Board to pay Rs. 4,12,58,224/- in Ex. P20 [Rs. 2,29,34,559/- (principal) plus Rs. 1,83,23,665/- (subsequent interest)] under Ex. P20, is set aside.


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