A.P.State Co.Op.Marketing ... vs The Secty.To Govt.Ministry Of ...
2022 Latest Caselaw 446 Tel

            HON'BLE SRI JUSTICE P.NAVEEN RAO
                           AND
            HON'BLE SMT. JUSTICE P.SREE SUDHA

     CITY CIVIL COURT APPEAL NOs.147 & 200 OF 2002

                       Date: 04.02.2022


CCCA No.147 of 2002:

Between:

Dokwal Refinery, Light Industrial Area,
Rampur Road, Adilabad, rep.by its Partner
Mahender Kumar Dokwar, s/o. L.Dinesh
Kumar, Aged about 44 years, r/o.H.No.6-5-85,
Cinema Road, Adilabad.

                                                 .... Appellant
     And

A.P.State Co-operative Marketing Federation
Limited, having its Office at 7th Floor,
Parishrama Bhavan, No.5-9-58/B,
Basheerbagh, Hyderabad, rep.by its
General Manager and two others.

                                               .... Respondents

This Court made the following:

PNR,J & PSS,J CCCA Nos.147 & 200 of 2002

HON'BLE SRI JUSTICE P.NAVEEN RAO AND HON'BLE SMT. JUSTICE P.SREE SUDHA

CITY CIVIL COURT APPEAL NOs.147 & 200 OF 2002

COMMON JUDGMENT: (per Justice P.Sree Sudha)

1. Learned VII Additional Chief Judge, City Civil Court,

Hyderabad, passed common judgment dated 12.04.2002 in

O.S.No.294 of 2000 and O.S.No.140 of 1998. Aggrieved by the said

common judgment these appeals are preferred. CCCA No.147 of

2002 is preferred by M/s.Dokwal Refinery and CCCA No.200 of

2002 is preferred by MARKFED. Parties are referred to as arrayed

in O.S.No.294 of 2000.

2. Heard learned Advocate General for 'MARKFED', learned

Assistant Solicitor General for Central Government and learned

counsel Sri S. Balchand for plaintiff.

3. M/s.Dokwal Refinery filed O.S.No.294 of 2000 for recovery of

sum of 24.24,395/- with interest at the rate of 24% per annum

against A.P. State Cooperative Marketing Federation Limited

(Defendant No.1) (for brevity, 'MARKFED'), Union of India

(Defendant No.2) and the Chief Director of Purchase, Army

Purchase Organisation, New Delhi (Defendant No.3). Though the

plaintiff filed the suit against all the defendants, it claimed the

amount against the first defendant only and the second and third

defendants were set ex parte.

4. The averments in the plaint in O.S.No.294 of 2000 disclose

the facts, to the extent relevant, as under:

PNR,J & PSS,J CCCA Nos.147 & 200 of 2002

The plaintiff is a partnership firm registered under the

Partnership Act with the Registrar of Firms with Registration

No.01284 of 1990. The first defendant entered into an agreement

with the plaintiff on 07.10.1994 for purchase of 500 metric tonnes

of cotton seed refined oil to be supplied to the third defendant from

November, 1994 to January, 1995 at the rate of Rs.36,430/- per

metric tonne. The plaintiff complied the terms of contract. The

total value of 500 metric tonnes of cotton seed refined oil was

1,82,18,351.56 Ps. Out of this, the first defendant paid an

amount of 1,65,94,009.85 Ps. After excluding 54,419/-

towards short supply, the balance amount of 16,76,082.83 Ps.,

is due from the first defendant. Though repeatedly demand was

made to clear the dues, dues were not paid. The first defendant

took shelter under Clause 7 of the agreement, which, in effect

requires first defendant to pay the amounts to plaintiff only when it

receives the amount from the defence authorities and that the

army authorities have not released the balance payment to the first

defendant.

5. There was yet another contract between the first defendant

and the army authorities with regard to supply of channa daal. The

plaintiff is not aware of such transaction between them. There is

no dispute regarding supply of cotton seed refined oil as per the

contract. As such, the first defendant is not entitled to withhold

the amount payable by it. All the previous payments were released

by army authorities in favour of the first defendant and the first

defendant in turn, after deducting one percent commission, paid

the amounts to the plaintiff and withholding amount of PNR,J & PSS,J CCCA Nos.147 & 200 of 2002

16,76,082.83 Ps. by the first defendant is unreasonable and

unjust.

6. Earlier, the plaintiff filed W.P.No.2144 of 1996 against the

first defendant, which was allowed on 26.03.1996 directing the

Government of India to release the payment in favour of the first

defendant and the first defendant in turn directed to pay the same

to the plaintiff. Aggrieved by the said direction, the Government of

India, Ministry of Defence, carried the matter W.A.No.624 of 1996

before the Division Bench. The Division Bench allowed the appeal

and dismissed the writ petition by decision dated 19.06.1996 on

the ground that it is a civil dispute and there is no performance of

public duty. Dissatisfied with the said observation of the Division

Bench, the plaintiff preferred SLP No.16564 of 1996, but it was

dismissed on 02.09.1996.

7. The plaintiff contended that its rights cannot be effected

because of the breach of terms and conditions committed by the

first defendant in another contract with army authorities. There is

no dispute regarding the supply of cotton seed refined oil by the

plaintiff to the first defendant and in turn the first defendant to

second and third defendants. There is no privity of contract

between the plaintiff and the second and third defendants directly

and thus the plaintiff is not claiming any decree against the second

and third defendants. Therefore, the plaintiff issued notice under

Section 80 CPC on 19.06.1997 to the first defendant and the

second defendant and that the second and third defendants are

pro forma parties, and as such the plaintiff is entitled to

16,76,082.83 Ps along with interest at the rate of 24% per PNR,J & PSS,J CCCA Nos.147 & 200 of 2002

annum from 21.09.1995 to 31.07.1997 to an extent of

7,48,312.17 Ps and thus for a total amount of 24,24,395/-.

The plaintiff also states that the transaction between them is a

commercial transaction and that there is trade usage and custom

for charging interest at the rate of 24% per annum. As the first

defendant illegally withheld the amount due to the plaintiff, the

plaintiff also entitled for interest at the rate of 24% per annum.

8. As per Clause 12 of the agreement dated 07.10.1994, the

plaintiff addressed a letter dated 07.03.1997 to the first defendant

to appoint an Arbitrator, for which the first defendant sent reply

dated 19.04.1997 stating that there is no dispute between the

parties and there is no necessity for appointing an Arbitrator. As

the first defendant is not ready and willing to refer the matter to

the Arbitrator, the plaintiff filed the suit for recovery of the amount

along with interest.

9. The first defendant filed written statement contending that

they are dealing with procurement and supply of various food

grains and it had filed tender with the third defendant for supply of

cotton seed refined oil from November, 1994 to January, 1995 and

had allotted 500 metric tonnes of cotton seed refined oil to be

supplied at the rate of 36,430/- per metric tonne. As per the

terms of the tender schedule, if oil plant is not owned by the

tenderer, the plant may be taken on lease and as such the plaintiff

approached the first defendant and he agreed to give on lease their

Unit and accordingly, both the parties entered into a separate lease

agreement. The plaintiff in a letter dated 06.10.1994 had agreed to

supply cotton seed refined oil to the defence authorities on behalf of PNR,J & PSS,J CCCA Nos.147 & 200 of 2002

the first defendant and also furnished bank guarantee to the third

defendant for an amount of 18,39,800/- towards security

deposit. The first defendant further contended that as per Clause 7

of the agreement dated 07.10.1994, the amount if any due and

payable to the plaintiff for supply of cotton seed refined oil can be

made only when the payments are made by the second and third

defendants to the first defendant. The second and third defendants

had already preferred a claim in ARC No.4F/96 pertaining to the

channa dall contract before the Arbitrator and it was dismissed

and thereby the second and third defendants still continue to

withhold the due amounts payable to the first defendant, and as

such the first defendant filed O.S.No.140 of 1998 seeking recovery

of the said amount and that the alleged claim of interest by the

plaintiff is untenable and it is not entitled for any interest since it

was not specified in the agreement dated 07.10.1994.

10. O.S.No.140 of 1998 is filed by A.P. State Cooperative

Marketing Federation Limited against the Secretary to

Government, Government of India, Chief Director of Purchase and

Dokwal Refinery for recovery of 38,49,477.16 Ps. The first

defendant averments in the plaint are almost identical to the

averments in the plaint in O.S.No.294 of 2000 with regard to

supply of cotton seed refined oil and contended that even after

dismissal of ARC No.4F/96 pertaining to the contract of channa

dall, the second and third defendants withheld the amount due

and payable to it and as such it is entitled for the said amount

along with interest from 04.11.1995 to 28.02.1998. The first

defendant issued statutory Notice No.159/12/96 dated PNR,J & PSS,J CCCA Nos.147 & 200 of 2002

24.12.1996. It also made the plaintiff as third defendant to the

suit to bring out the true facts relating to the suit transaction.

11. The second and third defendants filed written statement

denying all the averments of the plaint. They further stated that

the amount of 2,47,06,250/- is due from first defendant in

connection with risk purchase loss to procure 3375 metric tonnes

of channa daal for defence services from the MARKFED. The

Arbitrator passed award in favour of the Union of India on

26.03.1997. They have not given any reply to the statutory notice

as the matter is pending before the Arbitrator. A separate suit was

filed by third defendant (Plaintiff) against MARKFED for recovery of

24,24,395/- in O.S.No.1423 of 1997 on the file of the learned

Additional Judge, City Civil Court, Hyderabad, but the outcome of

the suit is not known to them. As per para 22 of the general terms

and conditions of contract, there is an arbitration clause for

deciding any dispute and the venue of the arbitration proceedings

would be in the premises of the Government of India, Ministry of

Defence, New Delhi. Hence, the suit is not maintainable on the

ground of jurisdiction and the matter be referred to the Arbitrator.

12. The plaintiff as third defendant filed separate written

statement contending that the suit is bad for mis-joinder of the

parties as it is neither necessary nor proper party to the suit. The

plaintiff further stated that it is not aware of the internal

arrangement between the first defendant, and the second and third

defendants. It completed its part of supplies and entitled for

balance amount and it is nothing to do with the transactions

between the first defendant and the second and third defendants.

PNR,J & PSS,J CCCA Nos.147 & 200 of 2002

There is no dispute regarding the quantum of amount payable to

it.

13. O.S.No.294 of 2000 was transferred to try along with

O.S.No.140 of 1998, and thus, both the suits were clubbed and

tried together and a common judgment was passed.

14. The trial Court framed the following issues:

In O.S.No.294 of 2000:

"1. Whether the plaintiff is entitled for the relief of recovery of suit amount as prayed for ?

2. To what relief ?

In O.S.No.140 of 1998:

1. Whether the plaintiff is entitled to recover the suit amount as prayed for?

2. Whether this Court has no jurisdiction to entertain the suit as pleaded ?

3. Whether defendant-3 is not a necessary and proper party to the suit as claimed ?

4. To what relief ?"

15. The trial Court on appreciation of entire evidence dismissed

both the suits. With regard to the first issue in O.S.No.294 of 2000,

the trial Court held that as per Clause 7 of the agreement entered

into between the plaintiff and the first defendant unless the first

defendant received amounts from the second and third defendants,

it is not liable to pay the same to the plaintiff. So also in the first

issue in O.S.No.140 of 1998. As per Clause 18 of Ex.B12 the first

and second defendants are having lien over the amounts due to the

plaintiff in channadaal contract and thus the plaintiff is not entitled

to recover the amount. In the second issue it was held that there is PNR,J & PSS,J CCCA Nos.147 & 200 of 2002

no jurisdiction for the Courts in Hyderabad and in the third issue

it was held that the third defendant (plaintiff) is a proper and

necessary party.

16. Learned counsel for plaintiff contended that suit contract

was completely performed by it and there is no dispute regarding

the quantum of amount due to them. The defence department has

not withheld payment under suit contract for non-fulfilment of any

of the terms and conditions of the supply agreement, but they

withheld the amount due from MARKFED in another contract. He

would submit that it was illegal for defendants 2 and 3 to withhold

the amount due to supply cotton seed refined oil causing hardship to

plaintiff for no fault of him. He would further submit that the trial

Court erred in interpreting Clause-7 in the agreement relating to

payment. Back to Back payment in the agreement does not mean

that unless the first defendant receives amount from the second

and third defendants, there was no liability and obligation on the

first defendant to make payment to the plaintiff. He therefore

submitted that his appeal deserves to be allowed by setting aside

the common judgment dated 12.04.2002.

17. Learned Advocate General appearing for the AP MARKFED

(now Telangana MARKFED) contended that the second and third

defendants in purported exercise of their right of lien in connection

with risk purchase loss in another contract for supply of channa

daal erroneously did not release the amount due to it for supply of

cotton seed refined oil. As there is no difference or dispute regarding

supply and the amount receivable by the plaintiff, the second

defendant could not have withheld the amount. He would submit PNR,J & PSS,J CCCA Nos.147 & 200 of 2002

that as per Clause-7 of agreement, Ex.A2, MARKFED is not

required to pay to plaintiff unless the amount is paid by the 2nd

and 3rd defendants. Admittedly, the amount claimed by the

plaintiff is not paid by them. Therefore, the 1st defendant has not

defaulted in payment.

17.1. He further contended that Ex.B12 is a compilation of

conditions of contract covering contracts placed by the Central

Purchase Organisation of Government of India and the Department

of Supply, which is part of Ministry of Commerce. But the present

contract is under the Ministry of Defence and has no connection

with Ministry of Commerce and as such the terms and conditions

of such contract are not applicable to the present contract. There

is no clause regarding right of lien in the agreement relating to the

present suit.

17.2. He further contended that as per Para 22 of the Arbitration

Clause, they gave notice under Section 80 of CPC to the first and

second defendants, for which they did not respond and as such the

present suit is filed. In the written statement the defendants have

not taken the plea of arbitration, and therefore, it should be

construed that the second and third defendants have waived their

right to refer the matter to the arbitration. He therefore, earnestly

appealed to this Court to set aside the common judgment by

allowing the appeal.

18. He would submit that the defendants 2 and 3 have not

invoked the clause of right of set of, no additional Court fee was

paid and therefore they are not entitled to claim such adjustment.

Merely because award is passed in another contract holding that PNR,J & PSS,J CCCA Nos.147 & 200 of 2002

claim of 2,47,06,250/- as amount payable to defendants 2 and 3

towards risk purchase loss is no ground to withhold the amount

due under this Contract. Such withholding is not permissible

without availing the right of set of.

19. Learned Assistant Solicitor General submitted that the suit

is not maintainable in view of agreement to resolve the dispute by

arbitration as incorporated in Clause-12 of the Contract. He

further submitted that defendants 2 and 3 are entitled to withhold

the amount in view of Clauses-18 and 18A of the standard terms of

contract. As per the award of Arbitrator, the 1st defendant is due

to defendants 2 and 3 to a tune of 2,47,06,250/- and as the said

award amount is not paid, any amount payable by them can be

withheld. Thus, withholding the balance amount in contract to

supply cotton seed refined oil is valid.

ISSUE NO.1 IN O.S.NO.294 OF 2000 AND ISSUE NO.1 IN O.S.NO.140 OF 1998:

20. To appreciate respective submissions, relevant clauses to be

noticed are Clause-7 of Agreement (Ex.A2) and Clauses-21(a) and

(b) of Ex. B11 (identical to clauses 18 and 18-A of Ex.B12).

20.1. Clause-7 of Agreement-Ex.A2 reads as under:

'That the mode of payment of such supplies of stock by the SECOND PARTY to the FIRST PARTY would be in the manner of back to back arrangement that is to say as soon as the FIRST PARTY receive cheques in their favour from the aforesaid organisations the FIRST PARTY shall arrange the payment immediately on receipt of amounts from the Defence and issue their own cheques in favour of the SECOND PARTY for the identical amount as may be received by the FIRST PARTY by cheques from the said organisation minus 1% of value of the stocks supplied, towards their own commission. The SECOND PARTY will not have any right to payment till first party receives the same from Army Purchase Organisation, Ministry of Defence, New Delhi.' PNR,J & PSS,J CCCA Nos.147 & 200 of 2002

20.2. Clause 21(a) and (b) of Ex.B.11 reads as under:

" WITHHOLDING AND LIEN IN RESPECT OF SUMS CLAIMS.

(a) Whenever any claim or claims for payment of sum of money arises out of or under the contract against contractor, the purchaser shall be entitled to withhold and also have lien to retain such sum or sums in whole or in part from the security, if any, deposited by the contractor and for the purpose aforesaid, the purchaser shall be entitled to withhold the said cash security deposit or the security, if any, furnished as the case may be and also have a lien over the same pending finalisation adjudication of any such claim. In the event of the security being insufficient to cover the claimed amount or amounts or if security has been taken from the contractor, the purchaser shall be entitled to withhold and have a lien to retain to the extent of such claimed amount or amounts referred to supra, from any sum or sums found payable or which at any time thereafter may become payable to the contractor under the same contract or any person contracting through the Secretary pending finalisation or adjudication of any such claim.

It is an agreed term of the contract that the sum or money or monies so withheld or retained under the lien referred to above by the purchaser will be kept withheld or retained as such by the purchaser till the claim arising out of or under the contract is determined by the Arbitrator and the award is not objected by either competent partly in the court (if the contract is governed by the arbitration clause) or by the competent court as prescribed under clause 20 of DGS&D-68 (Revised) as the case may be, and that contractor will have no claim for interest or damages whatsoever on any account in respect of such withholding or retention under the lien referred to supra and duly notified as such to the contractor. For the purpose of this clause, where the contractor is a partnership firm or a limited company the purchaser shall be entitled to withhold and also have a lien to retain towards such claimed amount or amounts in whole or in part from any sum found payable to any partner or limited company as the case may be whether is his individual capacity or otherwise.

(b) LIEN IN RESPECT OF CLAIMS IN OTHER CONTRACTS:

Any sum of money due and payable to the contractor (including the security deposit returnable to him) under the contract may be withheld or retained by way of lien by the purchaser or Government or any other person or persons contracting through the Secretary against any claim of the purchaser or Government or such other person or persons in respect of payment of a sum of money arising out of or under any other contract made by the contractor with the purchaser or Government or with such other person or persons.

PNR,J & PSS,J CCCA Nos.147 & 200 of 2002

It is an agreed term of the contract that the sum of money so withheld or retained under this clause by the purchaser or Government will be kept withheld or retained as such by the purchaser or Government or till his claim arising out of in the same contract or any other contract is either mutually settled or determined by the Arbitrator and the award is not objected by either party in the competent court under clause 20 of DGS&D (Revised) as the case may be, and that the contractor shall have no claim for interest or damages whatsoever on this account or on any other ground in respect of any sum of money withheld or retained under this clause and duly notified as such to the contractor.

Other contract with the purchaser or the Government or any person."

21. MARKFED is an organisation dealing with procurement and

supply of food grains. It entered into two contracts with third

defendant to supply cotton seed refined oil and channa daal. They

are independent contracts and not connected to each other. Ex.A2-

agreement was entered between the first defendant-First Party and

plaintiff - M/s.Dokwal Refinery-Second Party. As per the said

agreement, M/s.Dokwal Refinery supplied 500 metric tonnes of

cotton seed refined oil to MARKFED for an amount of

1,82,18,351.56 Ps. This is pursuant to its contract with third

defendant to supply the oil. When once the contract is executed,

the plaintiff is entitled for the amount due to it. There is no

dispute regarding the quantum of amount to be paid by the first

defendant to the plaintiff. In fact, the first defendant also claimed

the said amount with interest from the second and third

defendants in O.S.No.140 of 1998. The first defendant also paid

an amount of 1,65,94.009.85 Ps. The dispute is only in respect

of payment of balance amount of 16,76,082.83 Ps. with interest.

22. The first defendant takes shelter under Clause 7 of Ex.A2

for not paying the balance amount. According to 1st defendant as PNR,J & PSS,J CCCA Nos.147 & 200 of 2002

the Ministry of Defence has not made the balance payment, it is

not under any obligation to release the balance amount. According

to 1st defendant Clause-7 is clear. M/s.Dokwal Refinery will not

have any right to payment till they receive the same from Army

Purchase Organization, Ministry of Defence, New Delhi. In the said

Clause, it is argued, also mentioned with regard to mode of

payment as, back to back arrangement i.e. if the first defendant

receives cheques in its favour, then it shall arrange the payment

immediately on receipt of amounts from the defence and issue

their own cheques in favour of M/s.Dokwal Refinery after

deducting one percent of the value towards their commission.

MARKFED contended that the amounts were not released by the

second and third defendants in their favour.

23. At the first blush said stand appears to be valid. However,

on a deeper consideration of evidence on record and on fair

assessment of relevant Clauses extracted above, the fortress built

around by the first defendant, thought as formidable, crumbles,

breaks the shutters and the truth bares open.

24. The basic facts are not in dispute. Supply of cotton seed

refined oil was a tripartite transaction. First defendant entered into

two separate contracts with defence authorities to supply cotton

seed refined oil and channa daal. The first defendant in turn entered

into contract with plaintiff to supply 500 metric tonnes of cotton

seed refined oil. As this agreement is in pursuance to the first

agreement with defence authorities, in clause-7 of the agreement

(Ex.A2), a default clause is incorporated leading to this long drawn

litigation. Though 500 metric tonnes of cotton seed refined oil was PNR,J & PSS,J CCCA Nos.147 & 200 of 2002

supplied and no concern is raised on quality and quantity of

supply, the first defendant has not released final payment of

16,76,082.83 to plaintiff on the ground that said amount is not

settled by defendants 2 and 3 by relying on clause-7. On the

contrary, Clause 21 of Ex.B11 vests discretion in the Ministry of

Defence to withhold/adjust money payable by it to MARKFED

under any contract if the Ministry is required to receive money

from MARKFED in any other contract. It is therefore necessary to

have a closer look at these two clauses. While clause-7 (Ex.A2)

disentitles plaintiff to compel the first defendant for payment,

question for consideration is can this restraint would continue to

apply when clause-21 of Ex.B11 is invoked by the Defence

Ministry.

25. As noticed herein above, first defendant failed to honour the

commitment to supply channa daal forcing the Ministry of Defence

to secure the commodity else where at a price higher than

mutually agreed. As the demand to pay the differential amount did

not yield proper response the defendants 2 and 3 invoked

arbitration clause; Arbitrator was appointed; Arbitrator passed

award for an amount of 2,47,06,250/-; this award has become

final. In terms thereof, the Defence Ministry is entitled to recover

the money from first defendant.

26. Coming to Clause-21 of Ex.B11, which is revised ABC

Specifications No.170A for Refined Mustard Oil, which is part of

invitation to tender bearing No.J-12031/1/94/Pur.IV, dated

12.09.1994 for supply of Edible Oil viz., Refined Mustard Oil/

Refined Cottonseed Oil (clauses-18 and 18A of standard form of PNR,J & PSS,J CCCA Nos.147 & 200 of 2002

contract) vests lien on the Defence Ministry to withhold/adjust

amount due to them from any other contract (channa daal) while

settling the amounts flowing out of a contract (cotton seed

refined oil). P.Ramanatha Aiyar's 'THE LAW LEXICON' defines

word lien as, "A lien, in a limited and technical sense, signifies the

right by which a person in possession of personal property holds

and retains it against the owner in satisfaction of a demand due to

the party retaining it; but in its more extensive meaning and common

acceptation it is understood and used to denote a legal claim or

charge on property, either real or personal, as security for the

payment of some debt or obligation; it is not strictly a right in or right

to the thing itself but more property constitutes a charge or security

thereon". Admittedly, amount of 2,47,06,250/- is due to Defence

Ministry from MARKFED due to its failure to supply channa daal. It

is the assertion of defendants 2 and 3 that they have exercised the

lien vested in their favour and withheld balance payment under

cotton seed refined oil supply contract in view of dues from

MARKFED.

27. Once a party to a contract exercises lien as per term of

contract and withholds/retains the amount payable to other party

by referring to liability of other party under different agreement, it

cannot be said any more that balance amount continues to be

treated as unpaid. Further, it is also fair to assume that the object

of Clause-7 in the agreement is only to restrain MARKFED from

delaying the payment to M/s.Dokwal Refinery even after receiving

the amounts from the first and second defendants. Thus, in the

facts of these cases, defence under Clause 7 is no more available to

1st defendant.

PNR,J & PSS,J CCCA Nos.147 & 200 of 2002

28. Though learned Advocate General for the appellant in CCCA

No.200 of 2002, by referring to Ex.B.12, sought to contend that the

rules are meant for Ministry of Commerce but not Ministry of

Defence and as such the Clauses-18 and 18A are not applicable to

the defence authorities. To support his contention, learned

Advocate General did not file any rules pertaining to Ministry of

Defence. Ex.B.12 is standard conditions of contract governing

contracts placed by the Central Purchase Organization of

Government of India (now under Department of Supply) and are

incorporated in Clause 21 of terms and conditions of Contract

(Ex.B.11). As per these Clauses, the defence authorities are

entitled to withhold or retain by way of lien any amount payable to

the contractor under any other contract made by the contractor.

Therefore the argument of the learned Advocate General for the

appellant in CCCA No.200 of 2002 cannot be appreciated.

29. There is no illegality in withholding the amounts by the

Ministry of Defence due to the first defendant. More over, the loss

sustained by the defence authorities is much more than the

amount withheld by them. This issue is decided against the first

defendant and in favour of the second and third defendants.

30. The trial Court misdirected itself in assessing the issue and

thus finding of the trial Court on the first issue in O.S.No.294 of

2000 is liable to be set aside and is accordingly set aside. The first

defendant is directed to pay an amount of 24,24,395/- to the

plaintiff.

PNR,J & PSS,J CCCA Nos.147 & 200 of 2002

31. The plaintiff sought interest at the rate of 24% per annum as

it is a commercial transaction, but the first defendant contended

that as there is no such clause in the agreement, it is not liable to

pay the interest. It is true that there is no clause with regard to

payment of interest in the agreement, but as per Clause 7 when it

receives the amount from the defence authorities, it has to

immediately pay the same to the plaintiff. But the first defendant

withheld the amount and failed to pay the legally due amount to

the plaintiff. Though, commodity was supplied by the plaintiff on

time, there was inordinate delay in releasing the amount due.

Delay in settlement of amount due in a commercial transaction

certainly has adverse consequences. Therefore, the plaintiff is

entitled for interest at the rate of 12% per annum from the date of

suit till the date of realization.

32. Accordingly, the first defendant is directed to deposit the

amount of 24,24,395/- with interest at the rate of 12% per

annum from the date of petition till realization within three months

from the date of this judgment and the plaintiff is permitted to

withdraw the same immediately.

ISSUE No.2 in O.S.No.140 of 1998: .

33. Learned counsel for the plaintiff would further contend that

when it issued notice under Section 80 CPC to the second and

third defendants, they failed to reply and as such it filed the suit

for recovery of amount. Defendants 2 and 3 though raised

objection with regard to jurisdiction of the Court on the ground of

arbitration clause, but have not insisted the Court to decide the

issue of jurisdiction as a preliminary issue and allowed the Court PNR,J & PSS,J CCCA Nos.147 & 200 of 2002

to dispose of the matter on merits. Therefore, the trial Court erred

in deciding the issue against first defendant.

ISSUE NO.3 in O.S.No.140 of 1998:

34. On this issue, we are in respectful agreement with the view

expressed by the trial Court and needs no interference.

35. On the above analysis, C.C.C.A.No.200 of 2002 filed against

judgment and decree dated 12.04.2002 passed in O.S.No.140 of

1998 is dismissed, and C.C.C.A.No.147 of 2002 filed against

judgment and decree dated 12.04.2002 passed in O.S.No.294 of

2000 is allowed. There shall be no order as to costs.

36. Pending miscellaneous petitions, if any, in these appeals

shall stand closed.

__________________________ JUSTICE P.NAVEEN RAO

_________________________ JUSTICE P.SREE SUDHA Date: 04.02.2022 Pgs/pt/kkm PNR,J & PSS,J CCCA Nos.147 & 200 of 2002

HON'BLE SRI JUSTICE P.NAVEEN RAO AND HON'BLE SMT. JUSTICE P.SREE SUDHA

CCCA Nos.147 AND 200 OF 2002

Date: 04.02.2022

Pgs/pt/kkm