Whether court can refer dispute to arbitration on oral consent of Advocate?

 REFERENCE TO ARBITRATION: After pointing out the disputed
claims of additional work (Ex.P59) and on the oral consent of the
counsel for the appellant, the High Court has referred the parties to
arbitration appointing Justice K.A. Nayar as the arbitrator. Arbitrator/
Tribunal is a creature of the contract between the parties. There was no
arbitration agreement between the parties. The question falling for
consideration is whether the High Court was right in referring the parties
to arbitration on the oral consent given by the counsel without written
instruction from the party.
35. Jurisdictional pre-condition for reference to arbitration under
Section 7 of the Arbitration and Conciliation Act is that the parties should
seek a reference or submission to arbitration. So far as reference of a
dispute to arbitration under Section 89 CPC, the same can be done only
when parties agree for settlement of their dispute through arbitration in
contradistinction to other methods of alternative dispute resolution
mechanism stipulated in Section 89 CPC. Insofar reference of the
parties to arbitration, oral consent given by the counsel without a written
memo of instructions does not fulfill the requirement under Section 89
CPC. Since referring the parties to arbitration has serious
consequences of taking them away from the stream of civil courts and
subject them to the rigour of arbitration proceedings, in the absence of
arbitration agreement, the court can refer them to arbitration only with
written consent of parties either by way of joint memo or joint
application; more so, when government or statutory body like the
appellant-Board is involved.
36. Emphasizing that under Section 89 CPC, referring the parties to
arbitration could be made only when the parties agree for settlement of
the dispute through arbitration by a joint application or a joint affidavit
before the court, in Afcons Infrastructure Ltd. and Anr. v. Cherian
Varkey Construction Co. (P) Ltd. and Ors. (2010) 8 SCC 24, this Court
held as under:-
"33. Even if there was no pre-existing arbitration agreement, the
parties to the suit can agree for arbitration when the choice of
ADR processes is offered to them by the court under Section 89 of
the Code. Such agreement can be by means of a joint memo
or joint application or a joint affidavit before the court, or by
record of the agreement by the court in the order-sheet
signed by the parties. Once there is such an agreement in
writing signed by parties, the matter can be referred to
arbitration under Section 89 of the Code; and on such
reference, the provisions of the AC Act will apply to the arbitration,
27and as noticed in Salem Bar Bar Association, T.N. v. Union of
India (I) (2003) 1 SCC 49, the case will go outside the stream of
the court permanently and will not come back to the court."
[Underlining added]
The same view was reiterated in Shailesh Dhairyawan v. Mohan
Balkrishna Lulla, (2016) 3 SCC 619 which is as under:-
"28. It has been noticed by this Court in some earlier judgments†
that Section 89 CPC is not very happily worded. Be that as it may,
Section 89 provides for alternate methods of dispute resolution i.e.
those methods which are alternate to the court and are outside
the adjudicatory function of the court. One of them with which we
are concerned is the settlement of dispute through arbitration.
Insofar as reference of dispute to arbitration is concerned, it has
been interpreted by this Court that resort to arbitration in a
pending suit by the orders of the court would be only when parties
agree for settlement of their dispute through arbitration, in
contradistinction to the Alternate Dispute Resolution mechanism
(for short “ADR”) through the process of mediation where the
Judge has the discretion to send the parties for mediation, without
even obtaining the consent of the parties. Thus, reference to
arbitration is by means of agreement between the parties. It is
not in dispute that there was an agreement between the parties
for reference of dispute to the arbitration and it was so referred."
[Underlining added]

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS.3164-3165 OF 2017
KERALA STATE ELECTRICITY BOARD AND ANR.
V
KURIEN E. KALATHIL AND ANR. 
Dated:March 09, 2018.

R. BANUMATHI, J.
These appeals have been filed against the impugned judgment
dated 28.01.2009 in W.P.(C) No.31108 of 2007 and order dated
23.06.2009 in R.P.No.542 of 2009, passed by the High Court of Kerala
at Ernakulum in and by which the High Court directed the appellantKerala
State Electricity Board (KSEB) to pay an amount of
Rs.12,92,29,378/- with simple interest at the rate of 9% per annum in
the dispute arising out of a contract between the appellant-Board and
the respondent-Contractor.
2. The dispute between the appellant-Board and the respondentcontractor
had a chequered history. Brief facts which led to filing of
these appeals are as follows:- Appellant-Kerala State Electricity Board
1(KSEB) entered into an agreement on 16.09.1981 with respondentcontractor
for construction of a composite dam across Karamanthodu at
Padinjarethara in connection with Banasura Sagar Scheme (Kuttiyadi
Augmentation Scheme). After commencement of work, Government of
Kerala issued a notification dated 30.03.1983, by which minimum wages
payable to certain categories of workers employed in works mentioned
in notification was revised with effect from 01.04.1983. The respondentcontractor
claimed labour escalation charges from 01.04.1983 to
December, 1984. The Government of Kerala referred the matter to the
industrial tribunal for adjudication of the dispute with regard to the claim
of workmen employed for the construction of dam for the wage rates
and other benefits fixed in the Minimum Wages Notification issued by
the State Government. The industrial tribunal passed the award dated
14.10.1993 holding that the notification of Government of Kerala was
applicable to workmen employed by the respondent-contractor.
3. Respondent-contractor filed O.P.No.283 of 1995 claiming an
amount of Rs.6,32,84,050/- towards labour escalation charges and an
amount of Rs.7,66,35,927/- being interest at the rate of 18% per annum
payable under Ex.P20 in respect of various bills issued by the
respondent-contractor for the period 15.01.1985 to 31.10.1994. When
the said writ was pending, the appellant-Board terminated the contract
2with respondent-contractor, which again came to be challenged before
the High Court by filing O.P.No.10759 of 1997 against termination of
contract and for the payment of works done (Ex.P59) by respondentcontractor.
The High Court disposed of both the petitions by a common
judgment dated 02.04.1998 holding that the termination of contract was
arbitrary and directed the appellant-Board to pay the amount claimed by
the respondent-contractor for payment of labour escalation as per
Ex.P20 with interest at the rate of 18% per annum which the contractor
claimed separately. The High Court also directed the appellant-Board to
pay the amount claimed by the respondent-contractor under Ex.P59
towards additional work done by the respondent-contractor.
4. Being aggrieved, KSEB approached this Court by way of appeal
in C.A.No.4092 of 2000 reported in Kerala State Electricity Board and
Another v. Kurien E. Kalathil and Others, (2000) 6 SCC 293. In para
(11) of the judgment, this Court observed that the contract between the
parties is in the realm of private law and not a statutory contract and the
matter could not have been agitated in the writ petition. However,
having regard to the fact that the contract was of the year 1981 and that
the notification for minimum wages was issued in 1983 and in the
peculiar facts and circumstances, this Court did not interfere with the
order of the High Court directing the payment of amount to the
3respondent-contractor as per Ex.P20; but reduced the rate of interest
claimed under Ex.P20 from 18% per annum to 9% per annum. So far
as Ex.P59 is concerned, there was no direction by this Court. Review
petition filed by the appellant-Board came to be dismissed by this Court
vide order dated 07.12.2000. Appellant-Board has so far paid an
amount of Rs.12,82,96,320/- under Ex.P20 which was accepted by the
respondent-contractor without any demur.
5. Three years after the payment under Ex.P20, respondentcontractor
filed I.A.No.6 of 2006 seeking direction of the court to make
payments due under judgment of this Court, with further interest to be
paid forthwith. In I.A. No.6 of 2006, this Court has passed the following
order:
"By virtue of the impugned judgment of the High Court, the Kerala
State Electricity Board is liable to pay certain amount to the
Petitioner-Contractor. There is a dispute regarding the quantum of
the amount payable. This Court, vide Judgment dated 19.7.2000,
had confirmed the finding of the High Court. The PetitionerContractor
would be at liberty to move the High Court of Kerala
seeking further steps for the recovery of the amount and if there is
any dispute between the petitioner-Contractor and the Electricity
Board, the High Court would consider the same and issue
appropriate directions within a reasonable time...."
6. Respondent-contractor filed W.P.(C) No.31108 of 2007 before the
High Court seeking for a direction to the appellant-Board to release the
amount as directed by the High Court and affirmed by this Court. By the
impugned judgment dated 28.01.2009, the High Court allowed the writ
4petition directing the Board to pay: (i) Rs.4,12,58,224/- under Ex.P20
[Rs.2,29,34,559/-(principal) plus Rs.1,83,23,665/-(Interest)]; and (ii)
Rs.8,79,71,154/- [Rs.5,81,53,892/- (principal) plus Rs.2,98,17,262/-
(interest)] towards the amount payable for additional work done after
adding labour escalation charges and material escalation charges as
per Ex.P59. The High Court held that the total amount payable under
Ex.P20 and Ex.P59 as on 31.12.2008 was Rs.12,92,29,378/- which is to
be paid by the appellant-Board within three months with 9% simple
interest from 01.01.2009 till date of payment. So far as the claim as to
the additional work done, the High Court directed the parties to mutually
discuss among themselves on disputed items in appeal. Further with
the consent of the counsel for the parties, the High Court referred the
matter to the sole arbitrator Justice K.A. Nayar, former Judge of the
High Court of Kerala to resolve the dispute relating to items which they
could not amicably resolve. The appellant-Board filed review bearing
R.P. No.542 of 2009, which came to be dismissed on 23.06.2009. Being
aggrieved, the appellant-Board is before us.
7. We have heard the learned counsel for the parties at length and
perused the impugned judgment and also judgment of this Court in
C.A.No.4092 of 2000 and I.A. No.6 of 2006 and other materials on
record. In the facts and circumstances of the present case and since
5public money is involved, we deem it a fit case for reappreciating the
facts and the materials on record or otherwise the findings of the High
Court are likely to result in excessive hardship to the appellant-Board
and consequently passed on to the consumers.
8. EX.P20-CLAIM FOR LABOUR ESCALATION AND INTEREST
THEREON-WHETHER ANY AMOUNT IS PAYABLE TO THE
RESPONDENT: Ex.P20 pertains to the bills from CC.14 to CC.78
towards the work done, labour escalation charges and the interest
thereon. Under the impugned judgment, the High Court has directed
the appellant-Board to pay Rs.4,12,58,224/- under Ex.P20
[Rs.2,29,34,559/- (principal) plus Rs.1,83,23,665/- (interest)]. The
respondent-contractor claimed that even after payment of
Rs.12,82,96,320/-, an amount of Rs.3,38,57,618/- is still due to be paid
to him under Ex.P20 i.e. principal (Rs.2,29,34,559/-) and subsequent
interest (Rs.1,09,23,059/-). According to KSEB by 10.02.2003, it has
paid a total amount of Rs.12,82,96,320/- under Ex.P20 and actually
made excess payment of Rs.1,74,75,247/-. Direction of the High Court
to pay the amount of Rs.4,12,58,224/- under Ex.P20 has two
components:- (i) claim of the respondent-contractor payable as principal
under Ex.P20-Rs.2,29,34,559/-; and (ii) subsequent interest thereon.
Dispute in the amount payable under Ex.P20 is twofold:- (i) Mode of
6appropriation of payments made by the Board; and (ii) claim for
subsequent interest.
9. Ex.P20-MODE OF APPROPRIATION OF PAYMENT MADE: While
claiming the charges for labour escalation, in column no.(3), the
respondent-contractor has shown the value of work done under each bill
and separately shown "Labour Escalation Due" on each bill by showing
the method of calculation/appropriation. For proper appreciation, we
may usefully refer to the claims made under the bills from CC.14 to
CC.18 and then from CC.68 to CC.75 (Ex.P20), which read as under:-
CC
 No.
Month
to which
relates
Value of
work
done (R)
Minimum
wage
for the
base
period
in the
Agt.
Present wage for the corresponding month Difference Formulae Labour
Escalation due
Advance
received
Remarks
Consumer

price
Index
number
of
Meppadi
Index
number
after
deduct-ing
100 points
as in Govt.
Notification
D.A. at
0.06 ps
per
point
Basic
wage of
ordinary
labourer
Hill
allowance
15%
total
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
CC.14 12/84 2651230.00 13.00 316 216 12.96 12.90 3.74 28.70 15.70 3.08 x 15.70 x 2651230
 100
1282029.00 -
CC.15 1/85
& 2/85
3885356.00 13.00 316
(Ave.)
216 12.96 12.00 3.74 28.70 15.70 3.08 x15.70 x 3885356
 100
1878803.00
CC.16 3/85 2520496.00 13.00 314 214 12.84 12.00 3.73 28.57 15.57 3.08 x 15.57x 2520496
 100
1208719.00
CC.17 4/85 1591848.00 13.00 316 216 12.96 12.00 3.74 28.70 15.70 3.08 x 15.70 x 1591848
 100
769754.00
CC.18 5/85 3782665.00 13.00 318 218 13.08 12.00 3.76 28.76 15.76 3.08 x 15.76 x 3782665
 100
1836136.00
...................
CC.68 12/91 2039002.00 13.00 545 445 26.7
0
12.00 5.81 44.51 31.51 3.08 x 31.51 x 2039002
 100
1978868.00
Ways and Means advance received on 15.1.92 3000000.00
CC.69 1/92 2221294.00 13.00 552 452 27.12 12.00 5.81 44.99 31.99 3.08 X 31.99 X 2221294
 100
2188623.00
CC.70 2/92 2502304.00 13.00 553 453 27.18 12.00 5.88 45.06 32.06 3.08 X 32.06 X 2502304
 100
2470895.00
Ways and Means Advance received on 13.3.92 3000000.00
CC.71 3/92 2248500.00 13.00 552 452 27.12 12.00 5.87 44.99 31.99 3.08 X 31.99 X 2248500
 100
2215429.00
CC.72 4/92 1312431.00 13.00 553 453 27.18 12.00 5.88 45.06 32.06 3.08 X 32.06 X 1312431
 100
1295957.00
CC.73 5/92 2608465.00 13.00 558 458 27.48 12.00 5.92 45.40 32.40 3.08 X 32.40 X 2608465
 100
2603039.00
CC.74 6/92 3573468.00 13.00 562 462 27.72 12.00 5.96 45.68 32.68 3.08 X 32.68 X 3573468
 100
3596853.00
Ways and means advance received on 30.10.92 3000000.00
Adhoc Advance received on 14.1.93 2500000.00
CC.75 1/93 2088949.00 13.00 593 493 29.58 12.00 6.24 47.82 34.82 3.08 X 34.82 X 2088949
 100
2240306.00
6,32,84,050.00
7In the same manner, for all the bills, the respondent-contractor has
calculated the "Value of work done", "difference in wages" and "Labour
Escalation Charges" on monthly basis. After so calculating the claim
under all the bills, the respondent-contractor had shown the dates on
which advances received in column no.(14) and deducted the advance
received towards the principal and finally shown Rs.6,32,84,050/- as
total amount due towards labour escalation. As seen from the above
tabular column, in computation of his claims in Ex.P20, the respondentcontractor
himself thus adjusted all payments received from the
appellant-Board, only towards the principal and not towards interest.
10. The respondent-contractor has separately calculated the interest
payable on "Labour Escalation Due" claimed under each bill at the rate
of 18% i.e. Rs.7,66,35,927/-. For proper appreciation, we may usefully
refer to bills from CC.14 to CC.18 and from CC.68 to CC.75 as to how
the interest was calculated and claimed separately which read as under:
8CC
No.
Labour
Escalation
due
Less advance
received
Accumulated
Balance
Date from
which due
Period No. of
days
Rate of
interest
Interest
Due
Remarks
From To
1 2 3 4 5 6 7 8 9 10 11
CC.14 12,82,029.00 - 12,82,029.00 15.1.85 15.1.85 14.3.85 59 18% 37,302.00
CC.15 18,78,803.00 31,60,832.00 15.3.85 15.3.85 14.4.85 31 18% 48,322.00
CC.16 12,08,719.00 - 43,69,551.00 15.4.85 15.4.85 14.5.85 30 18% 64,645.00
CC.17 7,69,754.00 - 51,39,305.00 15.5.85 15.5.85 14.6.85 31 18% 78,568.00
CC.18 18,36,136.00 - - - - - - -
...........
CC.68 19,78,868.00 605,22,166.00 15.1.92 15.1.92 14.2.92 31 18% 9,25,243.00
Ways and Means
Advance
30,00,000.00
CC.69 21,88,623.00 597,10,789.00 15.2.92 15.2.92 14.3.92 29 18% 8,53,946.00
CC.70 24,70,895.00 621,81,684.00 15.3.92 15.3.92 14.4.92 31 18% 9,50,613.00
Ways and Means
Advance
30,00,000.00
CC.71 22,15,429.00 - 613,97,113.00 15.4.92 15.4.92 14.5.92 30 18% 9,08,341.00
CC.72 12,95,957.00 - 626,93,070.00 15.5.92 15.5.92 14.6.92 31 18% 9,58,431.00
CC.73 26,03,039.00 - 652,96,109.00 15.6.92 15.6.92 14.7.92 30 18% 9,66,025.00
CC.74 35,96,853.00 - 688,92,962.00 15.7.92 15.7.92 14.2.93 215 18% 73,04,541.00
Ways and Means
Advance
30,00,000.00
Adhoc Advance 25,00,000.00
CC.75 22,40,306.00 - 656,33,268.00 15.2.93 15.2.93 14.3.93 28 18 9,06,279.00
................
Total interest claimed ................. 7,66,35,927
11. Parties are governed by the terms of the contract. Clause E1.079
of the agreement dated 16.09.1981 expressly provided that the
appellant would pay no interest to the respondent-contractor for delayed
payment. Clause E1.079 of the agreement reads as under:-
"E1.079
No claim for delayed payment due to dispute etc.
No claim for interest or damages will be entertained by the Board
with respect to any money or balance which may be lying with the
Board owing to any dispute, difference or misunderstanding
between the Engineer on the one hand and the contractor on the
other hand or with respect to any delay on the part of the Engineerin-charge
in making periodical or final payment or any respect
whatsoever, and the Board shall not be liable for any interest or
damages or loss to the contractor."
Even as per respondent's own letter No.D.W/94/090 dated 25.11.1994,
the respondent-contractor has deducted the advances paid only
9towards the principal and claimed interest. The said letter reads as
under:-
"I am herewith submitting a comprehensive Statement (Claim bill),
giving the details of labour escalation payable against each C.C
Bill, deducting the advances paid to me which are adjustable
against the dues. The net labour escalation amount payable as on
31.10.1994 works out to Rs.6,32,84,050.00, after thus deducting
the advances received. The interest amount payable has also
been worked out and included in the enclosed bill, separately,
which comes to Rs.7,66,35,927.00. The total amount due as on
31.10.1994 is Rs.13,99,19,1977.00. This amount may be paid to
me without further delay."
Thus by his own calculation and as per his own letter dated 25.11.1994,
the respondent-contractor has adjusted all payments received from the
Board firstly towards the principal.
12. But when the respondent filed I.A.No.6 of 2006, the entire method
of calculation was changed by showing adjustment of payments firstly
towards interest and then towards principal, only to claim that in spite of
payment of Rs.12,82,96,320/- by the Board, amounts are still due and
payable to him. In the calculation sheet filed alongwith I.A. No.6 of 2006
while making adjustments of payment of rupees four crores (payment
made to the respondent-contractor during the pendency of the earlier
round of writ petition), the same was adjusted firstly against the interest
and then against the principal amount. The calculation sheet filed by the
respondent-contractor in I.A.No.6 of 2006 is as under:-
10Principal (in Rupees) Interest @ 9% (in Rupees) Remarks
Balance DR CR Date Particulars DR CR Balance
63284050 Principal amount of Labour
Escalation upto CC 78 as per
Ext. P20
Amount received from Kerala State
Electricity Board is firstly adjusted
against interest and then principal
amount
Interest upto CC 78 for the period
upto 20.6.95
40218107
20.06.95 Amount Received Rs. 1 crore 10000000 30218107
Interest from 21.6.95 to 13.2.96 3713820 33931927
13.02.96 Amount Received Rs.1crore 10000000 23931927
Interest from 14.2.96 to 23.2.96 156043 24087970
23.02.96 Amount Received Rs.2 crores 20000000 4087970
Interest 24.2.96 to 20.3.01 28867930 32955900
56239950 7044100 20.03.01 Amount received (4 crores) 32955900 0 Out of Rs.4 crores received the interest
as on this date Rs.32955900/- is wiped
off and balance Rs.7044100 adjusted
against principal amount
Interest 21.3.01 to 5.9.01 2343588
48583538 7656412 05.09.01 Amount received (1 crore) 2343588 0 Out of Rs.1 crore received, the interest
as on this date Rs.2343588/- is wiped
off and balance Rs.7656412 adjusted
against principal amount
Interest from 6.9.01 to 12.10.01 443242
29026780 19556758 12.10.01 Amount received (2 crores) 443242 0 Out of Rs.2 crore received the interest
as on this date Rs.443242/- is wiped
off and balance Rs.19556758 adjusted
against principal amount
Interest 13.2.01 to 1.6.02 1660491
23955276 5071504 01.06.02 Amount received (6731995) 1660491 0 Out of Rs.67,31,995/- received the
interest as on this date Rs.1660491/- is
wiped off and balance Rs.5071504/-
adjusted against principal amount
Interest 2.6.02 to 17.8.02 454822
22734120 1221156 17.08.02 Amount received (1675978) 454822 0 Out of Rs.16,75,978/- received the
interest as on this date Rs.454822/- is
wiped off and balance Rs.1221156/-
adjusted against principal amount
Interest 18.8.02 to 10.2.2003 992204
13837977 8896143 10.02.03 Amount received (9888347) 992204 0 Out of Rs.98,88,347/- received, the
interest as on this date Rs.992204/- is
wiped off and balance Rs.8896143/-
adjusted against principal amount
Interest from 11.2.03 to 31.5.05 2866168 2866168
 81716415
13. Pursuant to the directions of the High Court and after disposal of
C.A.No.4092 of 2000, the appellant-Board made a total payment of
Rs.12,82,96,320/-. Since the respondent-contractor changed the
method of adjustment i.e. by adjusting the payment firstly towards
interest and then towards principal, even after payment of
Rs.12,82,96,320/-, according to him Rs.3,38,57,618/- was still due to
him. The said calculation shown in I.A.No.6 of 2006, reads as under:-
11Ext.P20 (LABOUR ESCALATION)
Labour escalation claimed in CC Bill 14 to
78
(Ref.Ext.P20) ................ 63284050
Labour escalation claimed in CC Bill 79 to
85
(Schedule 3) ................ 9096582
Total ................ 72380632
Total interest upto 31.05.2005 @ 9%
(81716415 + 8056891)
(Schedule 2 & 3)
89773306
Total Amount due as on 31.5.2005 ................ 162153938
Less: Amounts received from K.S.E. Board
on various dates (adjusted firstly against
interest and then principal amount)
(Schedule 6) ................ 128296320
Balance amount due as on 31.5.2005 (Schedule 5) ................ 33857618
Principal amount ................ 22934559
Interest ................ 10923059
................ 33857618
This manner of appropriation, firstly towards the interest is in clear
violation of the directions given by this Court to make payment under
Ex.P20 and the method of adjustment which the respondent-contractor
himself adopted in Ex.P20. In the original Ex.P20, when respondentcontractor
himself has expressly adjusted all payments made by the
appellant towards principal and not towards interest, the respondentcontractor
cannot turn round and change the method of calculation by
showing the adjustment of payments made first against the interest and
then towards the principal. This important aspect of change in the
method of adjustment/appropriation was lost sight by the High Court
and the direction of the High Court to make further payment of
Rs.4,12,58,224/- under Ex.P20 is not sustainable.
14. IN THE FACTS OF THE PRESENT CASE WHETHER THE
RESPONDENT-CONTRACTOR IS JUSTIFIED IN APPROPRIATION OF
12PAYMENT FIRSTLY TOWARDS INTEREST: Learned counsel for the
respondent-contractor submitted that in the case of a debt due with
interest, the normal rule is that any payment made by the debtor, in the
first instance, to be adjusted towards satisfaction of interest and only
thereafter to the principal. In support of his contention, learned counsel
placed reliance upon Meghraj and Others v. Mst. Bayabai and Others
(1969) 2 SCC 274 and Industrial Credit and Development Syndicate
now called I.C.D.S. Ltd. v. Smithaben H. Patel (Smt.) and Others (1999) 3
SCC 80.
15. In I.C.D.S.'s case, while considering how the payments made by
the judgment-debtor are to be adjusted, in para (14), it was held as
under:
14. In view of what has been noticed hereinabove, we hold that the
general rule of appropriation of payments towards a decretal
amount is that such an amount is to be adjusted firstly, strictly in
accordance with the directions contained in the decree and in the
absence of such direction, adjustments be made firstly in payment
of interest and costs and thereafter in payment of the principal
amount. Such a principle is, however, subject to one exception, i.e.,
that the parties may agree to the adjustment of the payment in any
other manner despite the decree. As and when such an agreement
is pleaded, the onus of proving is always upon the person pleading
the agreement contrary to the general rule or the terms of the
decree schedule. The provisions of Sections 59 to 61 of the
Contract Act are applicable in cases where a debtor owes several
distinct debts to one person and do not deal with cases in which the
principal and interest are due on a single debt." [Underlining
added]
1316. In Mathunni Mathai v. Hindustan Organic Chemicals Ltd. and Ors.,
(1995) 4 SCC 26, it has been held that Order XXI Rule 1 CPC as
amended in 1976 is applicable in executing the award made under the
Land Acquisition Act. In Mathunni Mathai's case, it was indicated that if
the decretal amount is deposited by the judgment-debtor pursuant to the
order of the Court and the judgment-debtor has not given notice of such
deposit to the decree holder and also does not specify the manner in
which the amount should be appropriated, then the decree holder will be
entitled to appropriate the amount deposited by the judgment-debtor
firstly towards interest and other expenses and the decree holder is not
bound to adjust the same towards the principal. In Prem Nath Kapur
and Anr. v. National Fertilizers Corporation of India Ltd. and Others,
(1996) 2 SCC 71; the decision in Mathunni Mathai's case has been
expressly overruled by a three Judges Bench of the Supreme Court on
the finding that Order XXI Rule 1 CPC cannot be extended to the
execution of an award made under the Land Acquisition Act on the
score of its inconsistency with the provisions of Land Acquisition Act.
17. The view taken in Prem Nath Kapur's case was approved as a
correct view in Gurpreet Singh v. Union of India (2006) 8 SCC 457.
Though the question posed for consideration before the Constitution
Bench in Gurpreet Singh's case was whether the view taken in Prem
14Nath Kapur's case is correct and whether the rule of "different stages of
appropriation" set out in Prem Nath Kapur's case was required to be
restated on the scheme of the Land Acquisition Act, the Constitution
Bench specifically dealt with Order XXI Rules 1, 2, 4 and 5 CPC and
clarified the position. After referring to the relevant portion of the
decision in Gurpreet Singh's case, in Bharat Heavy Electricals Ltd. v.
R.S. Avtar Singh and Company (2013) 1 SCC 243, this Court
summarized the principles emerging as under:
"31. From what has been stated in the said decision, the following
principles emerge:
31.1. The general rule of appropriation towards a decretal amount
was that such an amount was to be adjusted strictly in accordance
with the directions contained in the decree and in the absence of
such directions adjustments be made firstly towards payment of
interest and costs and thereafter towards payment of the principal
amount subject, of course, to any agreement between the parties.
31.2. The legislative intent in enacting sub-rules (4) and (5) is a
clear pointer that interest should cease to run on the deposit made
by the judgment-debtor and notice given or on the amount being
tendered outside the court in the manner provided in Order 21 Rule
1(1)(b).
31.3. If the payment made by the judgment-debtor falls short of the
decreed amount, the decree-holder will be entitled to apply the
general rule of appropriation by appropriating the amount deposited
towards the interest, then towards costs and finally towards the
principal amount due under the decree.
31.4. Thereafter, no further interest would run on the sum
appropriated towards the principal. In other words if a part of the
principal amount has been paid along with interest due thereon as
on the date of issuance of notice of deposit interest on that part of
the principal sum will cease to run thereafter.
31.5. In cases where there is a shortfall in deposit of the principal
amount, the decree-holder would be entitled to adjust interest and
costs first and the balance towards the principal and beyond that
the decree-holder cannot seek to reopen the entire transaction and
15proceed to recalculate the interest on the whole of the principal
amount and seek for reappropriation." [Underlining added]
18. As held in Constitution Bench judgment in Gurpreet Singh's case
followed in BHEL's case, if there is a direction in the decree as to the
mode of appropriation of payment, then appropriation of any payment
made by the judgment-debtor has to be strictly in accordance with the
direction contained in the decree. If there is no such direction in the
decree, then the general principle is that where a judgment-debtor
makes payment without making any indication as to how the payment is
to be adjusted, it is the option of the creditor to make adjustment firstly
towards the interest and then towards the principal. But if the judgmentdebtor
has indicated the manner in which the appropriation is to be
made, then the creditor has no choice to apply the payment in a
different manner. The general principle of mode of appropriation firstly
in payment of interest and thereafter in payment of principal amount is
subject to the exception i.e. the parties may agree to the adjustment of
the payment in any other manner despite the decree.
19. In C.A.No.4092 of 2000, this Court directed payment as per
Ex.P20. As held in Gurpreet Singh's case, the payment is to be
appropriated strictly in accordance with the directions contained in the
decree. In C.A.No.4092 of 2000, since this Court directed the payment
16as per Ex.P20 and therefore, the appropriation/adjustment of payment
has to be made strictly as stated in Ex.P20. When the direction of the
court is to make payment as per Ex.P20, the respondent-contractor
cannot turn round and say that the amount received by him will be
adjusted towards the interest first and then towards the principal.
20. An 'Appropriation of money' is the indication of an intention that
money should be applied in a particular way. In the present case, the
statement of respondent-contractor himself and other circumstances
clearly indicate that payment ought to be adjusted only towards the
principal amount. As discussed earlier, in Ex.P20 the respondentcontractor
himself has shown the labour escalation due as principal
amount and interest thereon separately and has given the credit of the
advances made by the Board firstly towards the principal and claimed
the balanced amount of the principal. At this juncture, we may usefully
recapitulate respondent's own letter to the appellant-Board dated
25.11.1994 extracted in para (11) above where the respondentcontractor
himself has stated that he has deducted the advances from
the principal amount claimed under "Labour Escalation Charges" and
"interest" are shown separately.
1721. By his own statement, the respondent-contractor has firstly
appropriated the advances towards the labour escalation due i.e. the
principal amount. The respondent-contractor is not justified in changing
the method of calculation and claim appropriation of the payments firstly
towards the interest and then towards the principal amount. The claim of
the respondent-contractor for a further sum of Rs.2,29,34,559/- with
interest under Ex.P20 cannot be sustained and the direction of the High
Court to pay the same is liable to be set aside.
22. WHETHER RESPONDENT-CONTRACTOR IS ENTITLED TO
SUBSEQUENT INTEREST ON THE AMOUNT CLAIMED IN EX.P20: Insofar
as Ex.P20, in O.P. No.283 of 1995, the High Court granted the following
relief:-
"...We, therefore, grant prayer (b) as prayed for and issue a writ of
mandamus directing the second respondent to pay the petitioner
interest at 18% on the amount shown in the statement, Ext.P20...."
In O.P. No.283 of 1995, the respondent-contractor in prayer (b), prayed
for issuance of writ of mandamus directing the appellant-Board to pay
the amount shown in the statement Ex.P20 together with interest
thereon within a time to be fixed by this Court. Ex.P20 relates to
"Labour Escalation Charges" and "Interest" thereon claimed separately.
As seen from prayer (b) in O.P. No.283 of 1995, there was no prayer for
18future interest; also, there was no direction by the High Court for
payment of subsequent interest.
23. In the appeal before this Court in C.A. No.4092 of 2000, this Court
observed that disputes among such contractual or commercial activities
of a statutory body should not have been agitated in the writ court.
However, since the labour escalation notification for minimum wages
was issued way back in 1983, this Court directed the amount as shown
in Ex.P20 to be paid to the respondent-contractor with interest at the
rate reduced from 18% to 9% p.a. This Court held as under:
"15. The High Court has directed the Board to pay to the contractor
the amounts shown in the statement Ext. P-20 along with interest @
18% per annum. Having considered the totality of the circumstances,
we feel that it would be just and proper to award interest @ 9% per
annum instead of 18%. In the statement Ext. P-20, the contractor has
calculated interest @ 18% per annum. The interest amount would
now be calculated at 9% instead of 18% per annum. The impugned
judgment of the High Court is modified accordingly."
The above order of this Court directs payment by the appellant Board
only of the amount shown in Ex.P20 with reduced interest at 9% p.a.
There is no direction by this Court to pay subsequent interest on
Ex.P20.
24. Under sub-section (2) of Section 34 CPC, where a decree is silent
as to payment of further interest on the principal sum, it shall be
deemed to have been refused. Section 34(2) CPC reads as under:-
1934. Interest.
(1) .....
(2) Where such a decree is silent with respect to the payment of
further interest on such aggregate sum as aforesaid from the date
of the decree to the date of payment or other earlier date, the Court
shall be deemed to have refused such interest, and a separate suit
therefore shall not lie.
In the present case, since there is no direction for future interest, in view
of sub-section (2) of Section 34 CPC, it must be deemed that the court
has refused such interest. The respondent-contractor cannot claim
further interest on the amount payable under Ex.P20 beyond the date of
judgment of the High Court (02.04.1998) and in any event not beyond
the date of judgment of this Court (19.07.2000).
25. The respondent-contractor himself has understood the order of
this Court in CA No.4092 of 2000 that there was no direction for
payment of further interest on the amount payable under Ex.P20. In I.A.
No.6 of 2006, the respondent-contractor specifically prayed for payment
of further interest to the appellant forthwith [prayer (i) in I.A. No. 6 of
2006] which was not granted by this Court in its order dated 24.09.2000
while disposing of I.A. No.6 of 2006. The appellant-Board has paid a
total amount of Rs.12,82,96,320/- and according to the Board, it has
overpaid the respondent-contractor an excess amount of
Rs.1,74,75,247/-. In the absence of any direction in the underlying
order of the High Court and order of this Court in C.A. No.4092 of 2000
20to pay subsequent interest, the respondent-contractor is not entitled to
claim subsequent interest on the amount payable under Ex.P20. The
direction of the High Court to pay subsequent interest of
Rs.1,83,23,665/- under Ex.P20, is not sustainable.
26. The impugned judgment of the High Court directing the appellantBoard
to pay Rs.4,12,58,224/- in Ex.P20 [Rs.2,29,34,559/- (principal)
plus Rs.1,83,23,665/- (subsequent interest)] under Ex.P20, is set aside.
27. Claim under Ex.P59 for the additional work and subsequent
interest: So far as Ex.P59 is concerned, it is towards additional work
done - material escalation and labour escalation. So far as Ex.P59 is
concerned, in the earlier round of litigation in O.P.No.283 of 1995, in
para (26) of its judgment, the High Court held as under:
"26. The Board shall also pay to the petitioner the bills raised by
him for the work done till date including labour escalation payment
etc. etc. as ordered in O.P. No.283 of 1995....."
28. Contention of the respondent-contractor is that in C.A. No.4092 of
2000, since this Court did not make any observation regarding
respondent's claim made under Ex.P59, the order of the High Court
directing payment under Ex.P59 has become final and the amount
claimed thereon in Ex.P59 has to be paid to the respondent-contractor.
While disposing of the appeal in C.A. No.4092 of 2000, this Court, of
course, did not make any observation regarding Ex.P59. But
21respondent's claim under Ex.P59 for additional work done has to be
examined in the context of this Court's observation that "....The disputes
relating to interpretation of the terms and conditions of such a contract
could not have been agitated in a petition under Article 226 of the
Constitution of India..." and ".....Whether any amount is due and if so,
how much and refusal of the appellant to pay it is justified or not, are not
the matters which could have been agitated and decided in a writ
petition.....". Having said so, this Court proceeded to direct the appellant
to pay the amount as claimed under Ex.P20.
29. Be that as it may, so far as Ex.P59 is concerned, the contractor
has made a claim of Rs.5,55,62,597/- towards additional work including
departmental materials and the Board has disputed the claim made by
the respondent-contractor in I.A.No.6 of 2006 and pleaded that the total
work done by the contractor was only for Rs.1,55,65,817/- including cost
of departmental materials. The relevant portion of the counter affidavit
filed by the Board in I.A.No.6 of 2006 reads as under:-
"56. As per Ext.P59, the contractor had demanded an amount of
Rs.5,55,62,597/- including departmental materials and excluding
tender excess, material escalation and labour escalation. Out of
this, 23 items were wrongly claimed in Ext.P59 by the contractor
and the same was withdrawn by the contractor in his next bill. ie CC
86 bill submitted to the Board. The amount for the above 23 items
wrongly claimed would come to Rs.49,40,251/-. So the net amount
claimed by the contractor would come to Rs.5,06,22,346/-.
Whereas, the total work done by the contractor was
Rs.1,55,65,817/- including cost of departmental materials and
22excluding tender excess, Material escalation and labour escalation.
A detailed statement on each items claimed by the contractor in
Exhibit P59 and the claim admitted by the Board and their remarks
is appended."
30. Taking us through the counter filed by the appellant in W.P.(C)
No.31108 of 2007, learned senior counsel for the respondent-contractor
submitted that the claim of the respondent-contractor in Ex.P59 on
various items was not disputed by the appellant in its counter filed in
WP(C) No.31108 of 2007. This contention does not merit acceptance.
As pointed out above, the claim of the respondent-contractor on each
one of the items in Ex.P59, the appellant-Board has filed a detailed
reply in I.A.No.6 of 2006 disputing the claim on each of the items
claimed by the respondent-contractor. It is in this context, this Court has
disposed of I.A. No.6 of 2006 observing that there is dispute regarding
the quantum of the amount payable and giving liberty to the respondentcontractor
to move to the High Court. It is seen from the impugned
judgment that the High Court has also taken note of the counter filed by
the appellant-Board in I.A.No.6 of 2006 in which the appellant-Board
disputed each one of the items in Ex.P59 and also referred to the same
in its order and the same reads as under:
"9. .....If we accept the statement of the Board in paragraph 56 of
the counter filed before the Supreme Court, the net amount
exclusive of the tender excess, material escalation and labour
escalation can only be Rs.5,06,22,346/-. .....The contention of the
Board that out of the above amount, only Rs.1,55,65,817/- is
23payable cannot prima facie be accepted, as the measurement was
taken by the Board after ten years of the judgment (Ext.P1)...."
31. The High Court proceeded to observe that the contention of the
appellant that only Rs.1,55,65,817/- is payable under Ex.P59 cannot
prima facie be accepted as the measurement was taken by the Board
after ten years of the judgment (Ex.P1); whereas the contractor's claims
were made then and there by the contractor on actual measurement.
After so referring to the dispute between the parties, the High Court
observed that there is dispute with regard to the actual measurements
of certain additional works as well as the contractual rates, the same
has to be factually verified and calculations are to be made and that the
matter has to be discussed with the parties. The High Court directed the
appellant-Board to pay Rs.8,79,71,154/-[Rs.5,81,53,892/- (principal)
plus Rs.2,98,17,262/- (interest)]. The split-up figure of principal amount
of Rs.5,81,53,892/- is as under:-
Claim in Ex.P59 admitted by the Board ................
.
1,55,65,817
Material Escalation 98% of Ex.P59 ................
.
1,52,54,501
Labour Escalation at 173.60% of Ex.P59 ................
.
2,70,22,258
Tender Excess at 2% of Ex.P59 ................
.
3,11,316
................
.
5,81,53,892
2432. The High Court ordered single uniform rate for labour escalation
at 173.60% and material escalation at 98% of Ex.P59. The contention
of the appellant-Board is that the direction of the High Court to pay at
uniform rate of 98% and 173.60%, is contradictory to the terms of the
agreement and as per own calculation of the respondent-contractor.
According to the Board, material escalation and labour escalation are to
be calculated on a monthly basis as claimed by the respondentcontractor
in other bills. In Ex.P20, the respondent-contractor himself
calculated labour escalation on monthly basis and has not followed his
own prior example. The High Court did not keep in view the
respondent's own method of calculation of labour escalation on monthly
basis and erred in allowing labour escalation and material escalation at
single uniform rate of 173.60% and 98% respectively and the direction
of the High Court to pay Rs.5,81,53,892/- is not sustainable. Since
appellant has admitted the amount of Rs.1,55,65,817/- as payable
under Ex.P59, the same is payable with labour escalation and material
escalation calculated on monthly basis.
33. The High Court has directed the appellant to pay subsequent
interest of Rs.2,98,17,262/- on the amount directed to be paid under
Ex.P59. As discussed earlier, there was no direction either by the High
Court or by this Court to pay future interest qua Ex.P20. In the earlier
25round of litigation, the High Court only directed the appellant to pay the
amount as ordered in Ex.P20. In view of the express provision of subsection
(2) of Section 34 CPC, no future interest is payable under
Ex.P59. The direction of the High Court to pay future interest of
Rs.2,98,17,262/- on the claims made under Ex.P59 is not sustainable
and is liable to be set aside.
34. REFERENCE TO ARBITRATION: After pointing out the disputed
claims of additional work (Ex.P59) and on the oral consent of the
counsel for the appellant, the High Court has referred the parties to
arbitration appointing Justice K.A. Nayar as the arbitrator. Arbitrator/
Tribunal is a creature of the contract between the parties. There was no
arbitration agreement between the parties. The question falling for
consideration is whether the High Court was right in referring the parties
to arbitration on the oral consent given by the counsel without written
instruction from the party.
35. Jurisdictional pre-condition for reference to arbitration under
Section 7 of the Arbitration and Conciliation Act is that the parties should
seek a reference or submission to arbitration. So far as reference of a
dispute to arbitration under Section 89 CPC, the same can be done only
when parties agree for settlement of their dispute through arbitration in
contradistinction to other methods of alternative dispute resolution
mechanism stipulated in Section 89 CPC. Insofar reference of the
parties to arbitration, oral consent given by the counsel without a written
memo of instructions does not fulfill the requirement under Section 89
CPC. Since referring the parties to arbitration has serious
consequences of taking them away from the stream of civil courts and
subject them to the rigour of arbitration proceedings, in the absence of
arbitration agreement, the court can refer them to arbitration only with
written consent of parties either by way of joint memo or joint
application; more so, when government or statutory body like the
appellant-Board is involved.
36. Emphasizing that under Section 89 CPC, referring the parties to
arbitration could be made only when the parties agree for settlement of
the dispute through arbitration by a joint application or a joint affidavit
before the court, in Afcons Infrastructure Ltd. and Anr. v. Cherian
Varkey Construction Co. (P) Ltd. and Ors. (2010) 8 SCC 24, this Court
held as under:-
"33. Even if there was no pre-existing arbitration agreement, the
parties to the suit can agree for arbitration when the choice of
ADR processes is offered to them by the court under Section 89 of
the Code. Such agreement can be by means of a joint memo
or joint application or a joint affidavit before the court, or by
record of the agreement by the court in the order-sheet
signed by the parties. Once there is such an agreement in
writing signed by parties, the matter can be referred to
arbitration under Section 89 of the Code; and on such
reference, the provisions of the AC Act will apply to the arbitration,
27and as noticed in Salem Bar Bar Association, T.N. v. Union of
India (I) (2003) 1 SCC 49, the case will go outside the stream of
the court permanently and will not come back to the court."
[Underlining added]
The same view was reiterated in Shailesh Dhairyawan v. Mohan
Balkrishna Lulla, (2016) 3 SCC 619 which is as under:-
"28. It has been noticed by this Court in some earlier judgments†
that Section 89 CPC is not very happily worded. Be that as it may,
Section 89 provides for alternate methods of dispute resolution i.e.
those methods which are alternate to the court and are outside
the adjudicatory function of the court. One of them with which we
are concerned is the settlement of dispute through arbitration.
Insofar as reference of dispute to arbitration is concerned, it has
been interpreted by this Court that resort to arbitration in a
pending suit by the orders of the court would be only when parties
agree for settlement of their dispute through arbitration, in
contradistinction to the Alternate Dispute Resolution mechanism
(for short “ADR”) through the process of mediation where the
Judge has the discretion to send the parties for mediation, without
even obtaining the consent of the parties. Thus, reference to
arbitration is by means of agreement between the parties. It is
not in dispute that there was an agreement between the parties
for reference of dispute to the arbitration and it was so referred."
[Underlining added]
37. The learned senior counsel for respondent-contractor placed
reliance upon Byram Pestonji Gariwala v. Union Bank of India and Ors.,
(1992) 1 SCC 31 to contend that the counsel has the implied authority
to consent for arbitration on behalf of a party. In Byram Pestonji
Gariwala case, this Court made it clear that the counsel should not act
on implied authority unless there is exigency of circumstances
demanding immediate adjustment of suit by agreement or compromise
and the signature of the party cannot be obtained without undue delay.
In para (37) of Byram Pestonji Gariwala case, it was held as under:-
"37. We may, however, hasten to add that it will be prudent
for counsel not to act on implied authority except when
warranted by the exigency of circumstances demanding
immediate adjustment of suit by agreement or compromise
and the signature of the party cannot be obtained without
undue delay. In these days of easier and quicker
communication, such contingency may seldom arise. A wise
and careful counsel will no doubt arm himself in advance with the
necessary authority expressed in writing to meet all such
contingencies in order that neither his authority nor integrity is
ever doubted. This essential precaution will safeguard the
personal reputation of counsel as well as uphold the prestige and
dignity of the legal profession."
38. In a subsequent decision in the context of examining the
compromise under Order XXIII Rule 3 CPC, in Banwari Lal v. Chando
Devi (Smt) (Through LRs.) and Anr. (1993) 1 SCC 581, this Court has
observed that the case of Byram Pestonji Gariwala had ignored the law
laid down in Gurpreet Singh v. Chatur Bhuj Goel (1988) 1 SCC 270 and
held that when parties enter into a compromise, the court must insist
upon the parties that the compromise be reduced into writing. In para
(10) in Banwari Lal case, it was held as under:-
"10. ........ The order on face of it purported to dismiss the suit of the
plaintiff on basis of the terms and conditions mentioned in the
petition of compromise. As such, the validity of that order has to be
judged treating it to be an order deemed to have been passed in
purported exercise of the power conferred on the Court by Rule 3 of
Order 23 of the Code. The learned Subordinate Judge should
not have accepted the said petition of compromise even if he
had no knowledge of the fraud alleged to have been practised
on the appellant by his counsel, because admittedly the
29petition of compromise had not been signed either by the
respondent or his counsel. This fact should have been
discovered by the Court. In the case of Gurpreet Singh v. Chatur
Bhuj Goel (1988) 1 SC 207 it has been said: (SCC p. 276, para 10)
“Under Rule 3 as it now stands, when a claim in suit
has been adjusted wholly or in part by any lawful
agreement or compromise, the compromise must be
in writing and signed by the parties and there must be
a completed agreement between them. To constitute
an adjustment, the agreement or compromise must
itself be capable of being embodied in a decree.
When the parties enter into a compromise during
the hearing of a suit or appeal, there is no reason
why the requirement that the compromise should
be reduced in writing in the form of an instrument
signed by the parties should be dispensed with.
The court must therefore insist upon the parties
to reduce the terms into writing.”
39. Referring the parties to arbitration has serious civil consequences.
Once the parties are referred to arbitration, the proceedings will be in
accordance with the provisions of Arbitration and Conciliation Act and
the matter will go outside the stream of the civil court. Under Section 19
of Arbitration and Conciliation Act, the arbitral tribunal shall not be bound
by the Code of Civil Procedure and the Indian Evidence Act. Once the
award is passed, the award shall be set aside only under limited
grounds. Hence, referring the parties to arbitration has serious civil
consequences procedurally and substantively. When there was no
arbitration agreement between the parties, without a joint memo or a
joint application of the parties, the High Court ought not to have referred
the parties to arbitration.
3040. The impugned order referring the parties to arbitration, in any
event, inter alia, cannot be sustained on other grounds also. While
referring the parties to arbitration, the impugned judgment has, inter
alia, made many observations affecting crucial areas of disputes
namely:- (i) check measurements for the works done - "measurements
taken by the Board after ten years of judgment; whereas the claims
made by the contractor then and there on actual measurement"; (ii)
percentage of labour escalation ordered by the High Court @ 173.60%
is contradictory to the prior method of calculation adopted by the
respondent-contractor in the labour escalation; and (iii) materials
escalation @ 98%. These observations in the impugned judgment
would seriously prejudice the rights of the appellant-Board in pursuing
the matter before the Arbitral Tribunal.
41. Contention of the respondent-contractor is that the appellantBoard
has not raised the issue of absence of arbitration agreement
before the Tribunal and the jurisdiction of the Arbitral Tribunal. Since the
appellant-Board has challenged the impugned order before this Court in
the matter pending for consideration, the appellant-Board could not
have raised the issue of lack of jurisdiction before the Arbitral Tribunal
and the contention of the respondent-contractor does not merit
acceptance.
3142. The arbitrator has passed the award dated 30.09.2012 for
Rs.19,98,05,805.72 with interest @ 9% p.a. which was subsequently
corrected on 29.10.2012 as Rs.21,55,34,430.55 with interest @ 9% p.a.
The appeal preferred by the appellant under Section 34 of the Act was
dismissed by the District Judge, Thiruvananthapuram vide order dated
23.12.2015. The appeal preferred by the appellant under Section 37 of
the Arbitration and Conciliation Act (Arbitration Appeal No.Z-47 of 2013)
was transferred to this Court. While directing the appellant-Board to pay
rupees five crores to the respondent-contractor on furnishing
undertaking vide order dated 20.02.2017, this Court directed Arbitration
Appeal No.Z-47 of 2013 to be sent back to the High Court. Since the
impugned judgment of the High Court is set aside, the award passed by
the Arbitrator is liable to be set aside and consequently the Arbitration
Appeal No.Z-47 of 2013 pending before the Kerala High Court shall
stand allowed.
43. IN EXERCISE OF JURISDICTION UNDER ARTICLE 136 OF THE
CONSTITUTION OF INDIA-WHETHER THIS COURT CAN INTERFERE:
Learned senior counsel for the respondent-contractor urged that in
exercise of jurisdiction under Article 136 of the Constitution of India, the
Supreme Court normally does not reappreciate the evidence and
findings of fact unless there is miscarriage of justice or manifest
32illegality. In support of his contention, learned senior counsel placed
reliance upon Taherakhatoon (D) by LRs. v. Salambin Mohammad (1999)
2 SCC 635.
44. In exercise of jurisdiction under Article 136 of the Constitution of
India, this Court does not normally reappreciate the evidence and
findings of fact; but where the findings of the High Court are perverse or
the findings are likely to result in excessive hardship, the Supreme
Court would not decline to interfere merely on the ground that findings in
question are findings of fact. After referring to various judgments on the
scope in exercise of power under Article 136 of the Constitution of India,
in Mahesh Dattatray Thirthkar v. State of Maharashtra (2009) 11 SCC
141, this Court in para (35) summarized the principles as under:-
"35. From a close examination of the principles laid down by this
Court in the aforesaid series of decisions as referred to
hereinabove on the question of exercising power to interfere with
findings of fact by this Court under Article 136 of the Constitution,
the following principles, therefore, emerge:
• The powers of this Court under Article 136 of the
Constitution of India are very wide.
• It is open to this Court to interfere with the findings of fact
given by the High Court if the High Court has acted
perversely or otherwise improperly.
• When the evidence adduced by the parties in support of
their respective cases fell short of reliability and
acceptability and as such it is highly unsafe and improper
to act upon it.
• The appreciation of evidence and finding is vitiated by
any error of law of procedure or found contrary to the
principles of natural justice, errors of record and
 misreading of the evidence, or where the conclusions of
33the High Court are manifestly perverse and
unsupportable from the evidence on record.
• The appreciation of evidence and finding results in
 serious miscarriage of justice or manifest illegality.
• Where findings of subordinate courts are shown to be
perverse or based on no evidence or irrelevant evidence
or there are material irregularities affecting the said
findings or where the court feels that justice has failed
and the findings are likely to result in unduly excessive
hardship.
• When the High Court has redetermined a fact in issue in
a civil appeal, and erred in drawing inferences based on
presumptions.
• The judgment was not a proper judgment of reversal."
[Underlining added]
45. In the present case, for a contract of Rs.7.76 crores under original
PAC amount and revised PAC amount of Rs.10.40 crores, the appellantBoard
has so far paid Rs.56.58 crores and additionally rupees five
crores by order of this Court dated 20.02.2017. As discussed above,
the findings of the High Court are perverse causing loss to the statutory
body like the appellant-Board, this Court would not decline to interfere
merely on the ground that the findings in question are findings of fact. If
the judgment of the High Court is to be sustained, the Board would have
to make a total payment of about Rs.100 crores, causing huge loss to
the appellant which would ultimately be passed on to the consumers
and the impugned judgment is liable to be set aside.
3446. While we set aside the impugned judgment, what is the
order/direction to be passed is the point falling for consideration. As
discussed earlier, under Ex.P20, the appellant-Board has made excess
payment of Rs.1,74,75,247/-. By order dated 20.02.2017, this Court
directed the appellant to pay a sum of rupees five crores subject to
furnishing of undertaking by respondent-contractor. As per Ex.P59, the
respondent-contractor claimed Rs.5,55,62,597/- for the work done;
material escalation and labour escalation charges claimed additionally.
The admitted amount under Ex.P59 was only Rs.1,55,65,817/-. As
discussed earlier, the amount claimed under Ex.P59 also will not carry
subsequent interest. Material escalation and labour escalation charges
additionally claimed are to be calculated only on monthly basis. Since
an amount of Rs.6,74,75,247/- (Rs.1,74,75,247/- plus Rs.5,00,00,000/-)
has been paid to the respondent-contractor, it is directed that the same
be treated as full quit of all the claims under Ex.P59 including tender
excess, material and labour escalation charges.
47. Conclusion:- In the result, the impugned judgment of the High
Court is set aside and these appeals are allowed with the following
observations and directions:-
(i) As held in Gurpreet Singh's case, the payment is to be
appropriated strictly in accordance with the directions
35contained in the decree. In C.A.No.4092 of 2000, this Court
directed the payment as per Ex.P20. In Ex.P20, the
respondent-contractor himself has shown the labour
escalation due as the principal amount and interest thereon
separately and has given the credit of the advances made by
the appellant-Board firstly towards the principal and claimed
the balance amount. The respondent-contractor is not right
in changing the method of calculation by appropriation of the
payments firstly towards the interest and then towards the
principal amount. The direction of the High Court to pay a
further sum of Rs.2,29,34,559/- under Ex.P20 is set aside;
(ii) In the absence of direction in the underlying judgment of the
High Court and judgment of this Court in C.A. No.4092 of
2000 to pay subsequent interest, in view of sub-section (2) of
Section 34 CPC, the respondent-contractor is not entitled to
claim subsequent interest on the amount payable under
Ex.P20. The direction of the High Court to pay subsequent
interest of Rs.1,83,23,665/- under Ex.P20 is set aside;
(iii) The High Court's direction to pay labour escalation and
material escalation at single uniform rate of 173.60% and
98% respectively for the bills towards additional work and to
pay Rs.5,81,53,892/- under Ex.P59 to the respondent is set
aside. In view of the express provision of sub-section (2) of
Section 34 CPC, no future interest is payable under Ex.P59.
The direction of the High Court to pay future interest of
Rs.2,98,17,262/- on the claims made under Ex.P59 is set
aside;
36(iv) When there was no arbitration agreement between the
parties, without a joint memo or a joint application of the
parties, the High Court ought not to have referred the parties
to arbitration. Hence, the award dated 29.10.2012 passed by
the arbitrator Justice K.A. Nayar is set aside and the
Arbitration Appeal No.Z-47 of 2013 filed by the appellantBoard
pending before the High Court of Kerala is allowed;
(v) The amount of Rs.1,74,75,247/- paid under Ex.P20 which is
in excess of the claim under Ex.P20 and the amount of
rupees five crores paid to the respondent-contractor vide
order of this Court dated 20.02.2017 be treated as payment
under Ex.P59 for additional work including tender excess,
material escalation and labour escalation charges and in full
quit of all claims under Ex.P59;
(vi) Parties to bear their respective costs.
………………………..J.
 [RANJAN GOGOI]
..……………………..J.
 [R. BANUMATHI]
New Delhi;
March 09, 2018

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