Court-Cum-Principal District ... vs G.C
2023 Latest Caselaw 2905 AP

      HIGH COURT OF ANDHRA PRADESH: AMARAVATI

        HON'BLE MR. JUSTICE D.V.S.S. SOMAYAJULU

                                AND

              HON'BLE MR.JUSTICE V.SRINIVAS


            Commercial Court Appeal.No.7 of 2018




JUDGMENT: (per D.V.S.S.Somayajulu, J)



     This appeal is filed questioning the judgment and decree

dated 08.12.2017 passed in O.S.No.83 of 2017 by the Commercial

Court-cum-Principal District Judge, Kurnool.

2.   Sri B.Adinarayana Rao, learned senior counsel appeared for

the appellant, whereas Sri N.Subba Rao, learned senior counsel

appeared for the respondents.

3. Learned senior counsel for the appellant essentially argued

that the judgment of the lower Court is against the settled

principles of law. He points out that in the contract between the

appellant and the 1st respondent, there is no condition for

payment of escalation charges. In the parent contract between

the appellant and the State, there is an escalation clause which is

not, however, included in the agreement between the plaintiff and

defendant No.1. It is also pointed out that the pleading about the

escalation in the suit is absolutely lacking and that the trial Judge

committed an error in awarding escalation. It is, according to him,

a matter of contract and the Court cannot award escalation on the

grounds of equity or otherwise. He also points out that the claim

made is essentially for alleged balance due, whereas escalation

was awarded. He also argues that the documents filed do not

amount to evidence in the eye of law and merely on the basis of

some consolidated and typed statements, huge sums of money

were awarded without considering the fact whether these

documents actually constitute evidence or not. He also points out

that in the ultimate conclusion, learned Judge did not discuss the

quantum of the claim or about the manner in which it was proved.

Merely on the ground that the main parent agreement contained

an escalation clause and the appellant received the escalation

from the State Government, the trial Judge awarded the amounts.

He submits that this is totally contrary to law.

4. He also points out that the conclusions are at page 51 and

52 of the impugned judgment are clearly erroneous. Prior to that

he states there is a discussion on the various issues without

leading to a legal conclusion. He also points out that although the

issues were framed, the same are not answered. He points out

that initially clear and cogent issues were framed and thereafter

additional issues were also framed. Learned counsel points out

that as per law, each of these issues must be answered properly

and clearly, since they have a bearing on the final decision. In the

end, these issues were not answered. This is a fatal flaw as per

him. As far as interest is concerned, he contends that the issue

No.5 is with regard to interest, but there is no discussion

whatsoever about the "delay" or the quantum of interest. He

submits that the pleading and proof about interest is not there.

Merely on the basis of a tabular statement interest was awarded.

5. Learned counsel therefore submits that the impugned

judgment is not in accordance with law and should be set aside.

He also files a compendium of case law, which is referred to later

in the judgment.

6. In reply to this, Sri N.Subba Rao, learned senior counsel

argues that the issues were all considered and thereafter only the

order was passed. He points out that the learned Judge discussed

the oral and documentary evidence before coming to the

conclusions. He draws the attention of this Court to the various

pages in the judgment where evidence of the witnesses and

documents were also discussed and therefore, he submits that the

impugned judgment cannot be commented upon only because all

the issues were not separately answered. He submits that since

issues 1 to 5 are interlinked, they were rightly clubbed together

and a final order was passed. He also points out that admittedly

from a reading of the evidence, there is a delay and therefore, he

submits that it is within the competence of the Court to award

interest. Learned counsel points out that almost five (5) witnesses

were examined and 32 documents were marked for the plaintiff

and another 17 documents were marked to the defendants. All of

these were considered before the final order was passed. He

points out that interest is essentially a discretionary remedy which

can be awarded in case the delay is clearly visible.

7. In the case on hand, he points out that the trial Court came

to the conclusion that men, material and machinery were supplied

by the plaintiff. In view of the escalation charges paid under the

parent contract, the plaintiff was entitled to receive the same for

the men, material and machinery that he had in fact supplied for

the execution of the work. Therefore, the payment of the principal

sum is said to be justified. As far as the interest is concerned, the

claim of interest at 24% is made and notices were issued

demanding the interest. Therefore, learned counsel argues that

the impugned order pertaining to interest is correct and is

justified. In the brief written note submitted, it is submitted that

the provisions of the Commercial Courts Act are applicable and

that therefore interest is payable as the said Act prevails over the

C.P.C. etc.

8. COURT :- This Court notices that the first defendant was

awarded a work namely Earth work excavation/lining of canal and

construction of structures on Sanjanamala sub-branch canal,

majors, minors and sub-minors in Block No.X of Srisailam Right

Branch Canal. Out of this, two sub contract agreements and two

letters of intent for work of value of Rs.623 lakhs was given to the

plaintiff. (Para 2 g of the judgment). Claiming certain amounts

with interest the present suit was filed. The 1st defendant denied

the claims.

9. After the pleadings were completed, the following issues were

framed:

1.Whether the first defendant has calculated the payments due to the plaintiff for the work done in terms of the sub-contract agreement/completion certificate? If so, what is the gross amount payable to the plaintiff by the first defendant?

2. Whether the plaintiff is entitled to receive escalation charges as per the work agreement?

3. Whether the defendants committed default in making payments to the plaintiff periodically in accordance with the work agreement?

4. Whether the plaintiff proves the balance of payment due under the contract as at Rs.1,54,82,507/-?

5. Whether the plaintiff is entitled to receive interest against payments withheld by defendants?

6. Whether the plaintiff is entitled for a decree and judgment, as prayed for? If so, to what relief?

ADDITIONAL ISSUES:

1. Whether the first defendant completed the work allotted to him or not?

2. Whether the final bill of the entire work of the first defendant is passed or not?

3. If so, whether the first defendant is entitled for the final bill amount of Rs.31,44,569/- or not?

4.To what relief?

10. Issues 1 to 5 were discussed together by the learned single

Judge. Ultimately, in para 25, she came to the conclusion that

there is no dispute with regard to the payments made by the first

defendant except the escalation charges and interest. Similarly, in

the concluding portion of para 25, at internal page 47, the

following is mentioned by the learned Judge:

„As the entire dispute is revolving with respect to the escalation charges, it is very important to discuss clauses in Ex.A.3 agreement‟.

11. In the opinion of this Court Issues 1, 2 and 4 should be

decided to award claim No.1. Issue 2 will have to be decided first

and then 1 and 4 should have been dealt with in that order. The

right to claim escalation and balance due should be decided first

but this was not done.

12. This Court is the first appellate Court which can examine

questions of fact. It is clear that despite the mandate of law

including Order 20 Rule 5 and Order 14 Rule 2, the trial Court did

not pronounce judgment on all the issues and answer them in

seriatim. The issues in this case are not of such a type that the

entire suit could be decided on one issue alone.

13. Considering the provisions of Order 41 Rules 23, 23-A and

24 as the evidence available is enough to decide the case, this

Court is proceeding to decide the case by itself on the basis of the

available evidence instead of remanding the matter. Neither party

sought remand also.

14. This Court will have to decide the following points in the

course of this appeal as these arise for decision.

(1) Whether the plaintiff is entitled to receive escalation charges and /or balance due as claimed (2) Whether the amount claimed is proved?

(3) Whether the plaintiff is entitled to receive interest as claimed.

15. The important documents to be considered are: (1) Sub-

contract agreements dated 25.01.2000 (Ex.A.3), (2) second sub-

contract agreement dated 05.01.2001 (Ex.A.4), (3) the letters of

intent dated 01.02.2000 (Ex.A.5) and (4) the second letter dated

10.02.2001 (Ex.A.6). These are the four works which are awarded

to the plaintiff by the first defendant (appellant).

16. Clauses 2, 7,8,9 and 10 of the sub-contract agreement are

as follows:

2. The work shall be completed as per the specifications and terms stated in the tender agreements, and orders issued by the Department from time to time.

7. Payments to the Sub-contractor will be made from the bills received from time to time by the Principal Contractor from the Department. All deductions made from the gross bill amount concerning the work on 4R and sub-minors thereof will be deducted from the amount due to the Sub-contractor. (emphasis supplied)

8. All the machinery and material required for the work shall be entirely procured by the Sub-contractor. If any material or machinery is supplied to the Sub-contractor by the Principal Contractor the cost of the materials and the hire charges of machinery as due on that date will be recovered from the amount due to the Sub-contractor.

9. Further an amount at 1.1% towards T.D.S. and 7% towards commission to the Principal Contractor will be deducted from the gross amount due to the Sub-Contractor.

10. The work shall be completed to the milestones prescribed by the Department. Any penalties imposed by the Departmental authorities as per the agreement in respect of any defaults or defects in construction and execution of works etc., shall be borne by the Sub-contractor only and shall be deducted from the amount due to the Sub-contractor.

17. The clauses are identical in both the subcontract

agreements. In the two letters of intent, Exs.A.5 and A.6, the

terms and conditions are linked to Exs.A.3 and A.4. No separate

terms are entered into.

18. The main contract agreement between the appellant and the

State is marked as Ex.B.1. Clause 47 of this agreement states as

follows:

47. Price Adjustment.

47.1 Contract price shall be adjusted for increase or decrease in rates and price, labour, materials, fuels and lubricants in accordance with the following principles procedures and as per formula given in the contract data:

(a) The price adjustment shall apply for the work done from the start date given in the contract data upto end of the initial intended completion date or extensions granted by the Engineer and shall not apply to the work carried out beyond the stipulated time, reasons attributable to the contractor.

(b) The price adjustment shall be determined during each quarter from the formula given in the contract data.

(c) Following expressions and meanings are assigned to the work done during each quarter.

R = Total value of work done during the quarter it would include the value of materials on which secured advance has been granted, if any, during the quarter less the value of materials in respect of which the secured advance has been recovers any during the quarter. It will exclude value for works executed under variations for which price adjustments will be worked separately based on terms mutually agreed.

47.2 To the extent that full compensation for any rise or fall costs to the contractor is not covered by the provisions of this or other clauses in the contract, the unit rates and prices included in the contract shall be deemed to include amounts to cover the contingency of such other rise or fall in costs.

19. Similarly, a formula is also given in clause 4.7 and 8 for

calculating escalation for labour component, cement component,

fuel and lubricant components. For labour, the consumer price

index is taken. For the cost of cement, the wholesale price index

for cement as published by the Government of India, New Delhi is

taken. For adjustment of petrol, oil and lubricants, the average

official prices at IOC petrol pump at Banaganapalli is taken. These

indexes and prices are pertaining to certain dates and detailed

formula for this provided. The labour component of the entire

contract is taken as 35%, cement as 19%, POL as 31% and other

materials at 15%. Therefore, it is clear that for the calculation of

the price adjustment, there is a detailed formula based upon

certain price indexes etc.

20. It is also very clear that this term of price variation has not

been included in two agreements or in the two work orders

entered into between the parties. The written statement filed by

the defendant clearly stated that there is no agreement between

the plaintiff and the defendant for payment of escalation charges.

The first witness for the plaintiff also agreed (in the course of his

cross-examination on 27.03.2011) that there is no specific clause

in Exs.A.3 and A.4 for escalation charges. Issue No.2 is specifically

to this effect -whether the plaintiff is entitled to receive escalation

charges as per the agreement?.

21. In the absence of a clause in all the agreements between the

appellant and the plaintiff, a question that arises at the outset for

consideration is, whether the price variation clause in the parent

agreement between the appellant and the State of Andhra Pradesh

is incorporated in the four (4) agreements between the parties

Exs.A.3 to A.6.

22. The law on the subject is sufficiently clear.

23. In Bank of India and another v. K.Mohandas and

others1, the following was held:

28. The true construction of a contract must depend upon the import of the words used and not upon what the parties choose to say afterwards. Nor does subsequent

(2009) 5 SCC 313

conduct of the parties in the performance of the contract affect the true effect of the clear and unambiguous words used in the contract. The intention of the parties must be ascertained from the language they have used, considered in the light of the surrounding circumstances and the object of the contract. The nature and purpose of the contract is an important guide in ascertaining the intention of the parties.

24. In M.R.Engineers and Contractors Private Limited v.

Som Datt Builders Limited2, the Hon‟ble Supreme Court

discussed specifically about the incorporation of a clause from one

contract to another. Paras 16 to 18 of this judgment are as

follows:

16. There is a difference between reference to another document in a contract and incorporation of another document in a contract, by reference. In the first case, the parties intend to adopt only specific portions or part of the referred document for the purposes of the contract. In the second case, the parties intend to incorporate the referred document in entirety, into the contract. Therefore when there is a reference to a document in a contract, the court has to consider whether the reference to the document is with the intention of incorporating the contents of that document in entirety into the contract, or with the intention of adopting or

(2009) 7 SCC 696

borrowing specific portions of the said document for application to the contract.

17. We will give a few instances of incorporation and mere reference to explain the position (illustrative and not exhaustive). If a contract refers to a document and provides that the said document shall form part and parcel of the contract, or that all terms and conditions of the said document shall be read or treated as a part of the contract, or that the contract will be governed by the provisions of the said document, or that the terms and conditions of the said document shall be incorporated into the contract, the terms and conditions of the document in entirety will get bodily lifted and incorporated into the contract. When there is such incorporation of the terms and conditions of a document, every term of such document (except to the extent it is inconsistent with any specific provision in the contract) will apply to the contract. If the document so incorporated contains a provision for settlement of disputes by arbitration, the said arbitration clause also will apply to the contract.

18. On the other hand, where there is only a reference to a document in a contract in a particular context, the document will not get incorporated in entirety into the contract. For example, if a contract provides that the specifications of the supplies will be as provided in an earlier contract or another purchase order, then it will be necessary to look to that document only for the limited purpose of ascertainment of specifications of the goods to be supplied. The referred document cannot be looked into for any other purpose, say price or payment of price. Similarly, if a contract

between X and Y provides that the terms of payment to Y will be as in the contract between X and Z, then only the terms of payment from the contract between X and Z, will be read as part of the contract between X and Y. The other terms, say relating to quantity or delivery cannot be looked into.

25. If the facts of the present case are examined against this

legal backdrop, it is clear that the plaintiff and defendant No.1

were entering into agreements/orders starting from 25.01.2000 till

10.02.2001. None of these agreements/orders makes a reference

of the escalation clause or the price variation clause either directly

or indirectly. The said clause is not incorporated in Exs.A.3 to

A.6. In fact, price variation is also distinct from escalation. Price

variation could include both positive and negative components,

whereas the escalation includes only a positive component only.

Nothing is mentioned about escalation or about incorporation of

the price variation clause. In Ex.A.3 dated 25.01.2000, the work

was to be completed at the end of June, 2000 and in Ex.A.4 dated

05.01.2001, the work was to be completed by June, 2001. These

two end dates were also adopted for Exs.A.5 and A.6 and no

separate end date is fixed. Therefore, it is clear that the maximum

period in which the plaintiff in the suit was to execute the work

was about six (6) months only. They are short duration contracts.

In such short duration contracts, lack of escalation is the norm

since the work is of short tenure.

26. Even if it is held that escalation is payable due to conduct,

in the opinion of this Court, the calculation of escalation for the

part of work executed by the plaintiff in the overall work had to be

specified. As pointed out, at the outset, the total value of work

awarded to the appellant/defendant by the State was

Rs.24,73,00,848/- crores. Out of this, Rs.6.23 crores or Rs 623

lakhs is the value of the work awarded to the plaintiff by

defendant No.1. If the claim for escalation is to be justified, the

plaintiff would have to clearly and categorically prove the

components of the price escalation/variation in line with the

formula and also the extent of the price variation for the period in

which the work was executed for the Rs.623 lakhs of worth of

work i.e., plaintiff will have to prove the escalation due to them

within the works awarded to them only. This Court does not find

any pleading or proof to this effect. It is a fact that the defendants‟

witnesses accepted that they have received an escalation from the

Government. Since the work awarded to the respondent/plaintiff

was approximately 1/4th of the total work, a duty was cast upon

the plaintiff in the suit to prove the total quantum of escalation

received and also the plaintiff‟s share out of the same. The

manner in which the escalation was calculated and demanded is

also necessarily to be proved. Each component has a different

formula. Therefore, in the opinion of this Court, the petitioner was

under an active duty to prove the claim as required under the

price variation clause for the four works executed. This was

unfortunately not done. All of this is stated since there is no

admission of the sum due by the defendant No.1. There is in fact

an express denial.

27. The claim No.1 in the plaint and in the evidence affidavit of

P.W.1 is in the form of tabular statement claiming the net amount

of Rs.1,54,82,507/-. This is claimed as "balance payment due"

both in the plaint and in the evidence affidavit of PW.1.

28. Ex.A.18 is a document in which it is mentioned that the

escalation amount out of the works awarded to plaintiffs comes to

Rs.90,27,914/-. The trial Court relied upon this document for the

award of claim of escalation. This can be found in internal page

30 of the judgment when PW.3‟s evidence is discussed, para 21

and also in the concluding line of para 24 and at internal page 49

of the judgment where Ex.A.18 is discussed and it is held that the

price escalation is worked out to Rs.90,27,914/-.

29. Ex.A.18 is a consolidated list filed as a booklet and

interestingly it is prepared by a Deputy Executive Engineer of the

defendant Nos.2 and 3. Ex.A.18, which runs into 63 pages; is

prepared and signed on certain pages by the Deputy Executive

Engineer, who was examined as PW.3. It is not a copy of any

document maintained in the regular course of construction nor

does it appear to be based upon the records maintained by the

plaintiff or the 2nd defendant. No objection was taken for its

admissibility. No objection was taken on the issue of a defendant's

officer being examined as a plaintiff's witness. In fact he was

examined on commission as per the courts orders only. No

objection was taken that it is a computer printout also. In these

peculiar circumstances this Court has to examine the matter.

30. The first witness for the plaintiff himself said that it is a

booklet prepared by the second defendant in his chief-examination

itself. In his cross-examination on 23.07.2011, he states that

Ex.A.18 was prepared by I.Basha, the Deputy Engineer and that it

relates to the work done by the plaintiff. He also states further

that Ex.A.18 does not show that the plaintiff was referred to as the

sub-contractor. He further agrees that he does not know when

Ex.A.18 was prepared.

31. P.W.3 is Syed Illiaz Basha. He is an Officer of the

defendant-State who was examined on commission. Initially, he

stated that Ex.A.18 is the general abstract of work done by the

plaintiff as prepared by him at the request of both the parties. It

comprises items of work done by the plaintiff including the works

falling outside the jurisdiction. He also agrees that it is an

arithmetical job based upon the measurements recorded in the M-

book. All of these are stated by the witness in his chief-

examination. In his cross-examination, he agrees that he does not

know which sub-contractor executed the work held by defendant

No.1 and whatever he said is as per the version supplied by the

sub-contractor only. He also further admits that Ex.A.18 does not

contain the date on which the abstract was prepared. It was

typed outside the Office, where typewriting is present and he did

not type the same. He further admits that the particulars may

have been typed in the computer center, but he cannot say the

person by whom these particulars were typed. He also admits in

the subsequent cross-examination that he did not sign from pages

7 to 14, 16 to 22, 23 to 29, 31, 32, 34, 36 to 41 and other pages.

He further agrees that he signed at the end of these pages because

they are a concluding page. In the concluding part of his cross-

examination, he states that he did not obtain any permission to

prepare the abstract of the quantity of work from the Office

records. He also states that as an official, he is not entitled to

issue any extracts of the Office records to third parties, but he

prepared the abstract at the oral request of both the parties.

Ultimately, in the further cross-examination, after the re-

examination, he agrees that Ex.A.18 is requested to be given at

the instance of the plaintiff and plaintiff alone filed the same into

Court.

32. This Court notices that except this document, which is a

typed extract prepared outside the Office and typed by a person

whom the witness does not know, there is no other document filed

to prove the claim of Rs.90,27,914/- towards the escalation

charges. The original data/record on which this was based is not

a part of the record. Plaintiff never summoned/exhibited the

original measurements for the work done. Ex.A.18 is not

supported by an official measurement. In the opinion of this

Court, the submission made by the learned senior counsel for the

plaintiff that there is no ground to award this claim because of a

lack of pleading and evidence is eminently justified. The plaintiff

did not prove that he had actually incurred these expenses by

paying the changed/higher rates for labour, material etc., etc. or

that the calculation is in accordance with the formula indicated in

the main agreement. The lower Court in the opinion of this Court

was under an active duty to consider this evidence in its proper

perspective and in line with Issue No.1 before awarding the same.

Unfortunately, the Court believed the typed loose sheets which

were filed as „evidence‟ and awarded a huge claim of

Rs.90,27,914/-. The intrinsic worth of this document; whether it

amounts to „evidence‟ etc., is not examined by the trial Judge.

33. The trial Court was apparently swayed by the idea that the

appellant/defendant received some escalation charges from the

State and awarded this amount, but the Court overlooked the fact

that there is no evidence to prove that this figure of

Rs.90,27,914/- is a part of the escalation received by the

appellant/defendant from the State Government. If the State

Government had paid escalation for the portion or the quantum of

work executed by the plaintiff, then the plaintiff could have argued

that this exact amount must be refunded to him, but the same

was not done. The work executed by the 1st defendant is far far

larger than the components given to the plaintiff. In fact, in the

concluding portion of the judgment, the learned trial Judge

notices that DW.1 admitted that he received the price escalation

for the work done by him including the works executed by the

plaintiff. The proportion or the percentage of the same that is

payable in turn is, however, not spelt out anywhere. Yet the trial

Judge awarded this huge claim.

34. One other aspect that has come up during the course of the

submission made by the defendants is that at one stage they had

paid one particular amount for escalation In the written

statement, it is, however, stated that this was done as a special

case. Learned senior counsel for appellant has cited the judgment

reported in Sharma and Associates Contractors Private

Limited v. Progressive Constructions Limited3. In this case

also, the question of contracts, sub-contracts, incorporation of

(2017) 5 SCC 743

terms etc. was discussed. Ultimately, in para 15, the following was

held:

15. We are conscious of the fact that though the respondent has been able to get the benefit of enhanced rate in respect of Items 1 and 6 and is able to retain the same thereby depriving the appellant to get this benefit. However, in a matter of contract where the parties have to stick to be governed by the provisions of the contract entered into between them, equity has no role to play. Insofar as the contract between the appellant and the respondent is concerned, the appellant was satisfied with "escalation" clause. The respondent, while entering into contract with HSCL ensured that enhancement of rates by the principal employer i.e. NHPC in favour of HSCL will enure to the benefit of the respondent PCL as well. The appellant, however, could not successfully negotiate this aspect with the respondent in the absence of any such clause/arrangement in the contract entered into between the appellant and the respondent. As the contract between the appellant and the respondent deals only with escalation, the appellant has to be satisfied with the same.

35. The Hon‟ble Supreme Court clearly held that in such cases

„equity‟ had no role to play and it is the terms of the contract alone

that will prevail. Therefore, even if there is one payment towards

escalation, the same will not justify the award of the entire claim.

It is also not pleaded and proved that escalation was paid in part

in various other bills submitted by the plaintiff and that by their

conduct the defendants are estopped from denying escalation now.

36. In that view of the matter, this Court has to hold that there

is absolutely no pleading or acceptable evidence to prove the claim

of Rs.90,27,914/-, which is so simply awarded by the learned trial

Judge.

37. The balance amount of the claim after „escalation‟ is

Rs.6454593 lakhs since the claim No.1 is for Rs.1,54,82,507/-.

The difference between these two figures is also not borne out by

the record. Other than the consolidated sheets, there is no

material available to prove this part of the claim. There is no

admission in the evidence either for this claim of Rs.64,54,593/-

to be awarded. Even otherwise, PW.2 in the course of his cross-

examination on 08.12.2012 admitted that the sum due according

to them is Rs.1,43,64,477/- and not Rs. 1,54,82,507/-. This was

also overlooked by the trial Court.

38. The basis/proof of this claim as can be seen from the plaint

and the evidence of PW.1 is a tabular statement. Supporting data

for the work done and the balance due is not proven by evidence

as was necessary to come to a conclusion that the claim is

justified. Neither the oral evidence nor the documentary evidence

is enough to show that the amount of Rs.64,54,593/- is due and

payable. The nomenclature of the claim as „payment due for work

done‟ and as „escalation‟ also was overlooked. Issues 1 and 4

should have been answered by the Court by looking into the

pleadings and evidence. This was not done. The probative value

of Ex.A.18 was not at all considered properly by the trial Court.

Nobody paid any attention to the fact if Ex.A.18 is primary

evidence or is secondary evidence and consequently to its mode of

proof etc. It is a computer printout also. It was however received

in evidence without any objection. These points are therefore

merely mentioned.

39. This Court has to conclude against the respondent for both

points 1 and 2 and hold that the amount claimed is not proved

and the plaintiff is not entitled to the same claim. The entire

finding of the trial Court is totally erroneous and it is set aside.

40. INTEREST:- The other important issue the learned senior

counsel for the appellant raised is about interest awarded. It is

pointed out that the claim for interest is Rs.1,91,0,097/- and this

was included in the total claim amount which came to

Rs.2,73,92,605/-.

41. Learned senior counsel points out that despite the lack of

evidence and pleadings, claim for interest was simply awarded by

accepting the petitioner‟s figures. He points out that till para 27 of

the impugned judgment, the discussion is about the first claim

only. Issue No.5 is about interest. The same was not answered in

the entire judgment. Despite the issue being framed, learned

counsel points out that there is discussion or finding on the rate,

period or the entitlement. He points out that as per the agreement

payment to plaintiff is to be made after defendant No.1 receives

payment from the department. Even the witness for the

respondent admitted that as per the terms of the agreement, the

defendant has to make payment to the plaintiff only after receiving

the payment from defendant No.2. He refers to the cross-

examination on 06.10.2012 which is as follows:

Question: How many bill payments are promptly made? Answer: I cannot answer as to when D.2(Govt.) made payments to D.1 and what amount of delay intervened between payment by D.2 to D.1 and payment by D.1 to our firm.

It is true that on receiving payments by D.1 from D.2, D.1 has to make our payment in terms of the agreement.

Question: How do you state that the payment was made with delay?

Answer: I state because we furnished the bill for payment on the work done by us to D.1 asking for payment. After receiving our bill for payment, D.1 delayed by 15 days, one month etc. Question: Whether D.1 is under obligation to make payment on receiving your demand for bill payment?

Answer: It is true D.1 is not under obligation to make the payment under our bill for money on our demand as the same is not stipulated in the terms of agreement. It is true that D has to make payment to us for our bills only on receiving the same from D.2.

It is not true to say that there was no delay in making payments to our firm by D.1 as per the terms of the agreement.

It is true that D.1 made final payment for the work done by us of Rs.30,00,373/- by 13.06.2005 through D.1 not received final payment from D.2.

It is true that our firm did not file any documentary proof as to borrowing finance at exorbitant rate of interest between 24% to 36%.

It is not true to say we have not borrowed any amounts as there was no delay in making payments by D.1 to us.

42. He also refers to the cross-examination on 08.12.2012 as

follows:

It is also not true that the firm is not entitled to receive interest of Rs.1,19,10,097/- as detailed at the rate of 18%.

It is not true to say that the claims made in the suit either towards balance payment on the work done by us or towards the interest are not sustainable in view of the entire payments made through 18 bills for the quantity of work done by us and the same received by us soon after the completion of the said works.

43. In reply to this, learned senior counsel for the respondent

justifies the award of interest and points out that no specific

ground is raised in the grounds of appeal about the award of

interest and arguments are advanced. It is also pointed out that

interest is a discretionary remedy and as delay has occurred, the

payment of interest is justified. He also relies on the Commercial

Courts Act to justify the claim for interest.

44. As per law, pre-suit interest can only be awarded as per the

contract (express or implied) or some statutory provision or

mercantile usage. It is not awarded as a matter of course

(Central Coop. Bank Ltd. V. Kamalaveni Sundaram 4) The

clauses in the deed of sub-contract agreement clearly state that

payments to the sub-contractor will be made for the bills received

from time to time by the principal contractor from the department

(clause 7). There is no clause for payment of interest. Clause 7

does not prescribe or fix the period for the payment by the

defendant No.1 to the plaintiff. Hence the payment has to be made

in a "reasonable" period. A reading of the plaint shows that the

pleading about interest is at page 9 of the plaint and a tabular

form is included in para 18. This is denied in the written

statement in para 19. Both the figures and the delay in making

payment are denied. The following passage from the decision of

Secretary, Irrigation Department, Govt. of Orissa vs. G.C.

Roy5 is apposite for deciding this:

43. The question still remains whether arbitrator has the power to award interest pendente lite, and if so on what principle. We must reiterate that we are dealing with the situation where the agreement does not provide for grant of such interest nor does it prohibit such grant. In other words, we are dealing with a case where the agreement is silent as to

(2011) 1 SCC 790

1992 (1) SCC 508

award of interest. On a conspectus of aforementioned decisions, the following principles emerge:

(i) A person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name. It may be called interest, compensation or damages. This basic consideration is as valid for the period the dispute is pending before the arbitrator as it is for the period prior to the arbitrator entering upon the reference. This is the principle of Section 34, Civil Procedure Code and there is no reason or principle to hold otherwise in the case of arbitrator.

45. Although it is a decision with reference to arbitration, it is a

decision of a Constitution Bench dealing with the important

question of interest on payment due etc.

46. In these circumstances, this Court is of the opinion that the

trial Court had a duty to examine whether there was „delay‟ or

„deprivation‟ in the actual payment and then proceed further. To

decide on delay and/or deprivation, the Court had to decide as to

what was a reasonable period in this case to pay the amount due

and then decide if delay occurred. In addition, the Court had to

see on what basis the claim was made (as per contract/as per

statute or on usage).

47. The cross-examination of P.W.2 on 22.09.2012 assumes

importance here. For example, with regard to the second bill

pertaining to L.S.5, the witness deposed as follows:

The 2nd bill pertaining to LS5 and part dated 13.01.2000 was for the gross amounts of Rs.23,23,244/- paid by D.2 to D.1 on 09.02.2000 and out of the gross we were paid Rs.16,29,218/- on 10.02.2000 by way of cheque bearing No.915521. The said amount was paid after due recoveries to a tune of Rs.6,94,026/-. The said cheque was also encashed and fruits enjoyed by us.

48. With regard to the 3rd bill, he deposed as follows:

The 3rd bill pertaining to LS.6 and pat dated 09-03-2000 for the gross amount of Rs.40,63,292/- was paid by D.2 to D.1 on three different dates viz, 10-09-2000, 16-3-2000, 25-5- 2000 & 25-5-2000 out of which out of Rs. 29,19,021/- was paid to us on three different dates viz., 13-03-2000, 23-03- 2000, 27-05-2000 and 27-05-2000. Out of which the 1st two payments were through two cheques Nos.915558 and 915595 for Rs.9,00,000/- and Rs.7,00,000/- respectively. The 3rd payment on 27-05-2000 was through D.D. No. 248709 for Rs.9,00,000/-. The 4th payment through D.D.No.248710 for Rs.4,19,021/-. So, the net payment paid to us after due recoveries of Rs.11,44,271/-. All this amount credited to our account and enjoyed by us.

49. With regard to 4 to 8 bills he deposed as follows:

The 4th bill for LS and part dated 24-5-2000 for gross amount of Rs. 10,35,670/- paid by D.2 to D.1 on 25-05-2000 and 22-06-2000. Out of which D.1 Paid to us Rs.7,39,354/- after due deductions of Rs.2,96,316/- as per the terms of the sub-contract. The said amount of Rs.7,39,354/- was paid to us by two D.D.Nos.242715 and 248731 for Rs.2,50,000/- and Rs.4,89,354/- very well on 29-05-2000 and 26-06-2000 respectively. The 5th bill pertaining LS 10 and part dated 26- 09-2000 for gross amount of Rs.10,86,034/-paid by D.2 to D.1 on 03.10.2000. Out of which an amount of Rs.6,52,953/- was paid to us on 04-10-2000 after making deductions as per the terms of sub-contract agreement. The 6th bill pertaining to LS 11 and part dated 10.01.2001 for the gross amount of Rs.1,01,559/- paid by D.2 to D.I 2001on 15.01.2001. Out of which a net amount of Rs.73,782/- was paid to us by way of D.D.No.775078 dated 22.01.2001. The same was credited in our account and enjoyed by us.

The 7th bill pertaining to LS 12 and part dated 23-03- 2001 for gross amount of Rs.58,89,009/- was paid by D.2 to D.1 on 31.03.2001. Out of which a net amount of Rs.40,37,575/- was paid t us on 31.03.2001 by way of cheque No.822968 after due deductions in terms of sub-contract. The said cheque was credited to our account and we enjoyed the fruits.

The 8th bill pertaining to LS 14 and part dated 30.05.2001 for gross amount of Rs.64,33,917/- paid by D.2 to D.1 on 02.06.2001 and on 09.07.2001. out of which a net amount of Rs.42,64,868/- is paid to us on 02.06.2001 and 12.07.2001 by way of cheque Nos.5888 and 4933 after due

deductions in terms of the agreement. In fact an excess amount of Rs.57,024/- was paid to us.

50. These answers are reproduced to show that in certain cases

the payment was made immediately or soon thereafter. For

example, for the 2nd bill, Rs.23,23,244/- was paid to defendant

No.1 on 09.02.2000 and a sum of Rs.16,29,218/- was paid on

10.02.2000 after deducting the recoveries. In the 5th bill, it is

admitted that defendant No.2 paid the money to defendant No.1

on 03.10.2000 and the amount was paid to the plaintiff after

deduction on 04.10.2000. In the 8th bill, it is seen that payment

was received by defendant No.1 on 02.06.2001 and 09.07.2001.

The amount was paid to the plaintiff on 02.06.2001 and

12.07.2001. In the 13th bill, payment was received by defendant

No.1 on 06.09.2002 and on the same day, the amount was paid to

the plaintiff through cheque No.487453. All these figures are

visible from a cross-examination of P.W.1 on 22.09.2012. Similar

facts and circumstances are there with regard to other bills also.

51. In the light of this evidence, this Court is of the firm opinion

that the plaintiff had to prove and the trial Court had a duty to

analyze the details of payment of each of the bills to determine

whether there was any delay in payment. Since time was not fixed

for making the payment, the plaintiff had to prove and the Court

had also to decide/fix what was the "reasonable time" and then

examine if the said payments were not made within a reasonable

time. The Court deciding the case is a court of first instance and

it had to decide on the delay, the rate of interest and then award

the same. Case by case/bill by bill analysis should have been

done before awarding the interest. Liability to pay and eligibility

to receive interest must both be pleaded and proved. The learned

Judge simply awarded the entire amount due as interest and

thereafter awarded further interest on the said sum.

52. Rate of interest was also awarded at 18%. It is not clear on

what basis interest was awarded at 18%. Legally speaking,

interest can be awarded under a statutory provision like Interest

Act, 1978 or under the C.P.C. The C.P.C. deals with payment of

interest at the lending rate while the Interest Act deals with

payment of interest at the deposit rate. This is again a matter of

pleading and proof. Interest rates fluctuate and are not static.

Therefore, some evidence is necessary along with pleading.

53. In the case on hand, since there was no agreed term in the

contract, the plaintiff was under an active obligation to prove the

interest that is payable. Both the amount claimed and the legal

basis for interest have to be established. Despite the lack of

pleading and proof, a huge sum of Rs.1,91,0,097/- was awarded

and thereafter interest thereon was also awarded from the date of

the suit till the date of the decree.

54. In view of the law on the subject, this Court is of the opinion

that the trial Court committed a gross error in awarding interest

without any discussion, without considering the pleadings, the

evidence on the matter and the applicable law.

55. Hence point No.3 is also answered in favour of the appellant

and the finding of the trial Court on interest is reversed.

56. Consideration of the evidence as a whole does not

reasonably justify the conclusions reached by the trial Court. In

this Court‟s conclusion, even the plaintiff failed to properly plead

and prove the case. The trial Court awarded amounts without

proper appreciation of the pleadings/evidence and law. All the

findings of the trial Court are reversed/set aside.

57. Hence, the appeal is allowed and the judgment and decree

dated 08.12.2017 in O.S.No.83 of 2017 is set aside. No order as

to costs. As a sequel, the miscellaneous petitions if any shall

stand dismissed.

__________________________ D.V.S.S. SOMAYAJULU,J

_______________ V.SRINIVAS,J Date: 05.05.2023 Note: L.R.Copy be marked.

KLP