Karnataka High Court
M/S Nischal Constructions vs The Vice Chancellor on 26 July, 2024
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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 26TH DAY OF JULY, 2024
PRESENT
THE HON'BLE MR JUSTICE V KAMESWAR RAO
AND
THE HON'BLE MR JUSTICE C M JOSHI
RFA NO. 108 OF 2019(MON)
BETWEEN:
M/S. NISCHAL CONSTUCTIONS,
A PROPRIETARY CONCERN,
REPRESENTED BY ITS PROPRIETOR,
SRI.G.C.RAMACHANDRA,
S/O. SRI.CHENNIGARAYAPPA,
R/O. NO.111, 16TH CROSS ROAD,
11TH MAIN ROAD,
NEAR LAKSHMIKANTHA KALYANA MANTAPA,
PADMANABHANAGAR,
BANGALORE - 560 070.
...APPELLANT
(BY SRI. AMITH L.M, ADVOCATE FOR
SRI. L.M. CHIDANANDAYYA, ADVOCATE)
AND:
1. THE VICE CHANCELLOR,
TUMKUR UNIVERSITY,
VISHWAVIDAYALAKARYALAYA,
B.H.ROAD,
TUMAKURU.
2. TUMKUR UNIVERSITY,
REPRESENTED BY ITS
REGISTRAR,
VISHWAVIDAYALAKARYALAYA,
B.H.ROAD,
TUMAKURU.
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3. THE REGISTRAR,
TUMKUR UNIVERSITY,
VISHWAVIDAYALAKARYALAYA,
B.H.ROAD,
TUMAKURU.
4. EXECUTIVE ENGINEER,
TUMKUR UNIVERSITY,
VISHWAVIDAYALAKARYALAYA,
B.H.ROAD,
TUMAKURU.
5. FINANCE OFFICER,
TUMKUR UNIVERSITY,
VISHWAVIDAYALAKARYALAYA,
B.H.ROAD,
TUMAKURU.
...RESPONDENTS
(BY SRI. PALLAVA R., ADVOCATE FOR R1 TO R3,
R4 AND R5 SERVED, BUT UNREPRESENTED)
THIS APPEAL IS FILED UNDER SECTION 96 OF THE
CODE OF CIVIL PROCEDURE AGAINST THE JUDGMENT AND
DECREE DATED 27.08.2018 PASSED IN OS 81/2016 ON THE
FILE OF THE III ADDITTIONAL SENIOR CIVIL JUDGE AND
JMFC., TUMKUR PARTLY DECREEING THE SUIT FOR
RECOVERY OF MONEY.
THIS APPEAL HAVING BEEN HEARD AND RESERVED ON
14.06.2024, COMING ON FOR PRONOUNCEMENT OF
JUDGMENT THIS DAY, THE COURT DELIVERED THE
FOLLOWING:
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CORAM: THE HON'BLE MR JUSTICE V KAMESWAR RAO
AND
THE HON'BLE MR JUSTICE C M JOSHI
CAV JUDGMENT
(PER: THE HON'BLE MR JUSTICE V KAMESWAR RAO)
This Regular First Appeal ('RFA' in short) has been
filed by the appellant herein assailing the judgment of the
Court of III Additional Senior Civil Judge and JMFC,
Tumakuru in OS No.81/2016, whereby the learned Trial
Court had decreed the suit partially with cost.
2. The appeal has been filed to the extent of
Judgment & Decree denying the interest on Rs.2,67,217/-
at 18% p.a. and also interest of Rs.20,09,275/- being 18%
on the paid amount and the loss of profit and the legal
expenses claimed by the appellant in the aforesaid suit.
3. Some of the facts to be noted in this judgment
are, Respondent No.1 is the University established by the
Government of Karnataka under the Karnataka State
Universities Act. The other respondents are the
functionaries of Respondent No.1. The respondents invited
E-Bids in order to undertake the repair works of
underground drainage, water supply and electricity
connection to the Faculty Guest House at Tumakuru
University.
4. The case of the appellant-M/s. Nischal
Constructions ('Company' for short) before the Trial Court
was that, it had obtained the Tender Form and submitted
its Tender through Techno-Commercial Bid and the price
bid on 22.03.2013 to the respondents. The appellant was
the sole bidder to the said work of the respondents.
Accordingly, it qualified for the said work for a sum of
Rs.56,40,125/- which was the lowest one. Thereafter, the
respondents have placed the quotation of the appellant
before the Syndicate of the University and passed a
resolution accepting the Bid of the appellant for a sum of
Rs.56,40,125/-. Thereafter, on 29.03.2013, Respondent
No.1 on behalf of University, had issued Letter of
Acceptance and called upon the appellant to sign the
agreement in terms of Para No.24.4 of invitation Bid.
5. It was the case of appellant, as per the terms of
agreement, the period of completion of the project was
fixed as three months from the date of agreement. But,
the respondents instructed the appellant to complete the
work within 30 days due to urgency and accordingly, the
appellant has mobilized the huge resources for the purpose
of executing the project work within 30 days.
6. It was the case of the appellant that, it had
completed the entire work on 28.04.2013 in less than 30
days from the date of entrustment of the project work. It
was also the case of the appellant that, the respondents
issued Work Completion Certificate intimating that, the
appellant has completed the entire work at Rs.56,40,125/-.
7. It was also the case of the appellant that, the
project work was for a higher consideration and there was
no denial of payment to the said work. Therefore, there
was a contractual obligation on the part of the respondents
to pay bill amount without any delay.
8. The stand taken by the appellant was that, as
per the terms and conditions of the contract, the bill shall
be paid within 60 days from the date of submission of the
Bill. It after completing the entire project work, had
submitted the first and final bill on 28.04.2013 to the
Executive Engineer as per the terms and conditions of the
agreement.
9. Thereafter, the Executive Engineer cross-checked
the said bill with reference to the bills of quantity in the
tender and certified the bill for payment of
Rs.56,39,678.81. However, the Vice Chancellor, without
any basis, had on 13.01.2015, placed the Bill before the
Syndicate of University. The Syndicate passed a resolution
for payment of Rs.56,25,322.50 to the appellant.
10. It was the case of the appellant that there was no
authority to the Vice Chancellor to deduct a sum of
Rs.2,67,217/- from the running account bill submitted by
the appellant. It was stated that the Vice Chancellor
without any authority, passed an order on 05.05.2015
directing to deduct Rs.2,67,217/- by falsely stating that the
plaintiff has not executed the work to the tune of
Rs.2,67,217/-. Accordingly, payment of Rs.53,58,107-50
was made on 08.03.2015.
11. The appellant addressed a letter to the
respondents dated 01.06.2015 for payment of the balance
amount together with interest. However, the respondents
had not taken any steps in spite of receiving said letter.
12. It was the case of the appellant that the
respondents have illegally delayed payment of its final bill
amount and illegally withheld the balance amount of
Rs.2,67,217/- without any proper reason.
13. The appellant got issued a legal notice calling the
respondents to make payment of the balance amount of
Rs.2,67,217/- with interest at 18% p.a. Further, the
interest at the rate of 18% p.a., on the delayed payment of
Rs.53,58,107-50 to the tune of Rs.20,09,275/- was
claimed apart from loss of profit on account of blockade of
funds to the tune of Rs.25,00,000/- and legal expenses of
Rs.5,00,000/-.
14. The non-payment of the aforesaid amount has
resulted in filing of the suit, wherein the impugned
judgment and decree has been passed.
15. The case of the respondents before the trial
Court was that the, Tender Notification dated 19.02.2013
was issued. The said tender was allotted to the appellant
for contract price of Rs.56,40,125/-. They have also issued
the Letter of Acceptance to the appellant dated 29.03.2013.
On the aspect of deduction of Rs.2,67,217/- is concerned,
their case was that the appellant has not done the project
work properly and as such, they have held-up the said
amount as per the opinion of the Senior Engineer and paid
the entire amount to the appellant by obtaining permission
from the committee and there was no balance amount due
for payment to the appellant.
16. Based on the pleadings of the parties, the Trial
Court had framed eight issues in the following manner:-
i) Whether plaintiff proves that it has
completed the tender work as per the tender
contract?
ii) Whether plaintiff proves that it has submitted
first and final bill within time?
iii) Whether plaintiff proves that the defendants are
due to pay bill amount of Rs.2,67,217/- to him?
iv) Whether plaintiff proves that the defendants are
liable to pay interest of 18% p.a. to the plaintiff
on dues as claimed?
v) Whether plaintiff proves that the defendants are
liable to pay interest on delayed payment, loss
of profit on account of blockade of funds and
legal expenses as claimed?
vi) Whether defendants prove that the plaintiff has
not executed the tender work as per agreed
quality and quantity?
vii) Whether the plaintiff is entitled for the reliefs as
prayed?
viii) What order or decree?
17. The Issue Nos. 1, 2, 3, 4, 5 & 7 have been
decided partially in the affirmative. Issue No.6 was
decided in the negative. Issue No.8 was decided as per
the final order.
18. Suffice to state, the Trial Court has granted an
amount of Rs.2,67,217/- to the appellant with interest at
the rate of Rs.6% p.a., from the date of suit till realization.
The Trial Court has also granted an amount of
Rs.2,00,000/- towards loss of profit on account of delay in
payment of bill amount, the legal expenses and other
charges to the plaintiff. While granting interest of 6% p.a.,
instead of 18% p.a., as was claimed by the appellant, the
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conclusion of the Trial Court was that, there is no
conclusive proof that the respondents have agreed for
payment of the amount with interest at the rate of 18%
pa., in the event of default.
19. In so far as claim for Rs.20,09,275-00 (which is
a claim of interest at the rate of 18% p.a. on Rs.53,58,107-
50) as interest, on the ground that there is delay of 25
months in payment of the said amount is concerned, the
Trial Court has granted an amount of Rs.2,00,000/- under
the head 'Loss of Profit' on account of delay in payment of
bill amount/legal expenses and other charges.
20. The submission of the learned counsel for the
appellant is primarily is that the denial of 18% interest on
the amount of Rs.2,67,217/- and also denial of claim of
Rs.20,09,275/- which claim is on the basis of entitlement of
interest at the rate of 18% p.a., from 28.04.2013 to
08.05.2015 for 25 months is completely illegal and without
authority of law and contrary to the material evidence
produced by the appellant before the Trial Court.
21. He qualifies his submission by stating that, the
Trial Court has failed to consider that it having given a
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finding that the deduction of Rs.2,67,217/- is illegal, it
ought to have granted interest at the rate of 18% p.a.,
from the date of submission of the bill till payment.
According to him, the Trial Court failed to consider that,
under Clause (33) of GCC, there is a contractual obligation
on the part of the respondents to make payment of bill
within 60 days from the date of submission of the bill. The
amount of Rs.2,67,217/- was not paid even on the receipt
of the legal notice as on the date of the suit.
22. Therefore, the appellant is entitled to interest at
the rate of 18% p.a.. He submitted that the appellant had
made huge investments for completing the project work.
Therefore, the appellant's entitlement of interest from the
date of submission of bill is genuine and could not have
been denied by the Trial Court. According to him, the
appellant produced the documents to show that the
appellant had suffered on account of breach committed by
the respondents. That apart, there is no justifiable reason
to delay the payment of the final bill for a period of 25
months.
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23. In fact, he stated, it is because of the processes
undertaken by the University, (i) by appointing Sri. H.C.
Shivakumar, the Retired Executive Engineer as One Man
Commission, who had verified and found that the appellant
had completed the work and recommended payment of
Rs.56,39,678.81, and (ii) the Vice Chancellor placed the
matter before the Syndicate of University, which also
carried out inspection of the work to assess the quality
though not contemplated in the contract and if such a
process has been undertaken, i.e., at the risk of the
respondents, it could not have caused prejudice to the
appellant resulting in the delay of payment for 25 months.
24. In fact, he heavily relied on the fact that, even
when the Syndicate has recommended the release of the
bill for an amount of Rs.56,39,678-81, the Vice Chancellor
could not have deducted the amount of Rs.2,67,217/-.
25. According to him, the appellant is entitled to the
interest at the rate of 18% p.a. on Rs.2,67,217/- and on
Rs.53,58,107.50 (for 25 months), which has been denied to
the appellant by the Trial Court, by granting 6% interest
and an amount of Rs.2,00,000/- under different heads,
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which according to the counsel is a perverse finding over-
looking the stipulation in the GCC, more particularly, which
contemplates release of the bill within 60 days of its
receipt.
26. In support of his submissions, learned counsel has
relied upon two Judgments of the Supreme Court in the
case of State of Haryana and Others Vs. S.L. Arora and
Company reported in (2010) 3 SCC 690 and also in
Executive Engineer Dhenkanal Minor Irrigation
Division, Orissa and others reported in (2001) 2 SCC
721. He also relied upon the judgment in the case of
Secretary, Irrigation Department, Government of
Orissa and others Vs. G.C. Roy and connected appeal,
reported in (1992) 1 SCC 508, in support of his
submissions.
27. On the other hand, learned counsel for the
respondents would contest the appeal filed by the appellant
by stating that, there is no illegality in the judgment and
decree passed by the Trial Court. He stated the plea of the
learned counsel for the appellant on the provision of GCC to
contend that, the time stipulated for payment of final bill
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was within 60 days of its presentation is a misconceived
plea as no such stipulation is provided in the agreement.
According to him, the GCC on which reliance has been
placed by the learned counsel for the appellant, has been
issued by CPWD for its own works. The said GCC was not
the part of the contract between the parties.
28. It is his submission that, the grant of interest is a
discretion that lies with the Trial Court, more so when
interest has not been prescribed in the
contract/agreement/statutory provision.
29. He submitted in the background of aforesaid
facts, it has to be seen whether the Trial Court was justified
in granting interest at 6% pa., on the amount of
Rs.2,67,217/-. According to him, the discretion exercised
by the Trial Court is not illegal as there is some basis for
grant of the same.
30. That part, it is his submission that, when there is
no stipulation in the contract, for release of the payment
as per the bill within 60 days, if the respondents after
following the due process ensuring that the appellant has
completed the work as per the tender documents by
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appointing One Man Committee and also through the
process of Syndicate of University which concluded that
there was a defective work, resulted in withholding of an
amount of Rs.,2,67,217/-, the action of the respondents
cannot be contested. He do concede to the fact that the
respondents have not filed any appeal against the
judgment and decree. In any case, it is his submission that
the judgment and decree of the Trial Court is justified and
should not be interfered with. In support of his
submissions, he has relied upon the Judgment of the
Supreme Court in the case of Continental India Private
Limited Vs. General Manager, Northern Railway
reported in 2022 SCC OnLine SC 922.
ANALYSIS
31. Having heard the learned counsel for the parties
and perused the record, the question which arises for
consideration is, whether the Trial Court is justified in
awarding interest on Rs.2,67,217/- at the rate of 6% p.a.,
and also awarding Rs.2,00,000/- towards loss of profit on
account of delay in payment of bill amount, legal expenses
and other charges, instead of the claim of the appellant for
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interest at the rate of 18% p.a., on Rs.2,67,217/- and also
for interest at the rate of 18% on the delayed payment of
Rs.53,58,107.50 quantified as Rs.20,09,275/- and for loss
of profit on account of blockade of funds of Rs.25,00,000/-
and legal expenses of Rs.5,00,000/-.
32. The plea of the learned counsel for the appellant
is, primarily as the claim of the appellant was on the basis
of a commercial contract and as per Clause 33 of the GCC,
the final bill dated 28.04.2013 having not been paid within
60 days from the date of submission, the Trial Court erred
in not granting interest at the rate of 18% in the manner
claimed.
33. The plea is also that the Trial Court has failed to
consider that, under Clause 33 of the GCC, the
respondent/University had to make payment of bill within
60 days from the date of submission of the bill. So his
submission is that, Rs.2,67,217/- which is with-held
amount having not been paid within 60 days with effect
from 28.04.2013 and also the amount of Rs.53,58,107.50,
having been paid after 60 days, the appellant is entitled to
the interest at the rate of 18% p.a.
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34. On the other hand, the learned counsel for the
respondents has disputed the applicability of the GCC to
contend, the same is a part of tender issued by CPWD. In
that sense, clause 33 is not part of the tender documents in
respect of the work in question and hence, it has no
applicability.
35. We agree that the submission of the learned
counsel for the respondents for the reason, it has not been
shown that GCC was made part of the contract. In fact, the
appellant in its written submissions before the Trial Court
has stated that the respondents have not denied Clause-33
in their written statement. Suffice to state an existence of a
clause in contract has to be established from the document
itself and not on the basis of pleadings. It follows the
conclusion of the Trial Court (at Page No.61 of the appeal)
on payment of interest is justified.
36. Having said so, the issue which now has to be
decided is even if interest at the rate of 18% is not an
obligation under the contract, whether the Trial Court has
erred in exercising its discretion to grant interest at the
rate of 6% p.a., and not 18% p.a.?
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37. We must state that, the present proceedings
arises from the proceedings initiated before the Civil Court
and not from an award rendered by an Arbitrator. In that
sense, the provisions of Arbitration and Conciliation Act,
1996 in so far as grant of interest by an Arbitrator, are not
applicable.
38. The above has been stated by us because, the
learned counsel for the appellant has heavily relied on the
judgment of the Supreme Court in support of his
submission for grant of interest at the rate of 18% p.a.
The Supreme Court in State of Haryana Vs. S.L. Arora
and Company (supra) has inter alia held that the power of
the Arbitral Tribunal under the old act to award interest was
for post decree. The power of the Trial Court to award
interest is governed by the Interest Act, 1978 and the
Supreme Court in the aforesaid case has held in Paragraph-
22 that the principles relating to award of interest, in
general, are not different for the Courts and the Arbitral
Tribunals, except to the extent indicated in Section 31(7) of
the Act and the Civil Procedure Code.
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39. In the case on hand, we are concerned with the
discretion exercised by the Trial Court to award interest at
the rate of 6% p.a. Concedingly, there is no stipulation for
payment of interest in the contract at least nothing has
been shown to us in that regard. In that sense, it has to be
seen whether the discretion exercised by the Trial Court is
justified. The grant of interest at the rate of 18% p.a., as
sought by the appellant is not the normal rate of interest,
nor such an interest rate is prescribed in Section 34 of CPC.
Further, the appellant has not produced any document
showing the respondents have agreed to pay 18% interest
in the event of breach of contract.
40. We note, Courts have on facts granted interest at
6% P.A. In that sense, the grant of 6% of interest is
permissible on facts. In this case the Trial Court, while
granting 6% interest has not given any justification. Be that
as it may, we are of the view, since the respondent No.1 is
a University (educational institute), any grant of interest,
above 6% shall put financial burden on it more so when the
University functions survive on the grant-in-aid provided by
the Government. As such, the grant of 6% interest and
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denial of 18% interest by the Trial Court, cannot be faulted.
It follows the grant of interest at 6% p.a., on the amount of
Rs.2,67,217/- is justified. The question would be whether
the grant of Rs.2,00,000/- against loss of profit, on account
of blockade of funds, legal expenses etc., and not in the
manner claimed by the appellant is justified. The claim of
the appellant is also for interest on the amount of
Rs.53,58,107-50/-. Though the same has been claimed at
18% p.a., in view of our above conclusion, even if the
appellant is not entitled to 18%, still the appellant shall be
entitled to interest at 6% p.a., because of delay in making
payment of Rs.53,58,107-50/-. The amount Rs.2,00,000/-
granted by the Trial Court is under different heads. The
same includes loss of Profit because of blockade of funds,
legal expenses etc. We note, there is no justifiable reason
given by the respondents to pay the amount of
Rs.53,58,107-50/- after 25 months. The procedure
evolved by the respondents of constituting a one man
Committee and placing the matter before the Syndicate is
not a stipulated procedure under the agreement and the
same could not have resorted to, which delayed the release
of the payment of Rs.53,58,107-50. So, the delay having
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occurred in payment, the issue is whether the Trial Court is
justified in awarding Rs.2,00,000/- as a lump-sum amount
for loss of profit because of blockade of funds, legal
expenses etc. The answer has to be in the negative for the
reason, even if interest for 25 months of delay in releasing
Rs.53,58,107-50/- is calculated at 6% p.a., then also the
amount shall be approximately Rs.6,50,000/- which is
much higher than the amount granted by the Trial Court.
So, the grant of Rs.2,00,000/- for loss of profit, blockade of
funds, legal expenses cannot be countenanced. To that
extent the grant of Rs.2,00,000/- by the Trial Court is
unsustainable. The amount need to be increased to
Rs.6,00,000/- (as a cumulative amount) for loss of profit,
legal expenses etc. We limit the amount to Rs.6,00,000/-
keeping in view the fact that respondent No.1 is an
Educational Institution.
41. So, to that extent, the impugned judgment and
decree is modified. The appellant shall be entitled to an
amount of Rs.6,00,000/- and not Rs.2,00,000/-. The same
shall be paid within twelve weeks of the receipt of Certified
Copy of this order.
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42. Decree sheet be prepared accordingly.
43. No costs.
Sd/-
(V KAMESWAR RAO)
JUDGE
Sd/-
(C M JOSHI)
JUDGE
KGR*
