payment of interest - whether the defendants are liable to pay interest @ 12% per annum towards delayed payment after settlement of the final bill to the plaintiff. = “… There was no contract between the parties regarding payment of interest on delayed deposit or on account of delay on the part of the opposite party to render the services. Interest cannot be claimed under Section 34 of the Civil Procedure Code as its provisions have not been specifically made applicable to the proceedings under the Act. We, however, find that the general provision of the Section 34 being based upon justice, equity and good conscious (conscience) ….”- “A person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name. It may be called interest, compensation or damages. This basic consideration is as valid for the period the dispute is pending before the arbitrator as it is for the period prior to the arbitrator entering upon the reference. This is the principle of Section 34, Civil Procedure Code and there is no reason or principle to hold otherwise in the case of arbitrator.”= It is not the case where there was a delay on the part of the contractor in executing the work. The work was completed within time as per schedule. - It is only a case where the plaintiff is seeking interest for the delayed payment for a period of 3 ½ years for which without there being any sufficient cause or reason, the appellants/defendants withheld the amount without paying the same. There must be some explanation for the delay in payment of the amount by the Government when the contract bill amount had already been settled. No reason is stated or spoken to, by D.W.1 in his evidence as to under what circumstances, the Government did not pay the final bill to the plaintiff. Therefore, in the absence of any proper reason given by the defendants and on the ground of equity, the plaintiff is entitled to interest. Considering these aspects, the trial Court rightly awarded the interest @ 12% per annum to the plaintiff. None of the findings is shown to be perverse or not based on evidence available on record. Therefore, there are no grounds to interfere with the impugned judgment and decree. 14. In the result, the Appeal Suit is dismissed confirming the Judgment and Decree dated 08.04.2008 in Original Suit No.21 of 2006 on the file of the Principal District Judge, Nalgonda. There shall be no order as to costs.


THE HON’BLE SRI JUSTICE K.C.BHANU
APPEAL SUIT No. 811 of 2008
JUDGMENT:
1.       This Appeal Suit, Under Section 96 of the Code of Civil Procedure, 1908, (for short, “C.P.C.”) is directed against the Judgment and Decree, dated 08.04.2008, in Original Suit No.21 of 2006, on the file of the Principal District Judge, Nalgonda, whereunder and whereby, the suit filed by the respondent/plaintiff for recovery of Rs.16,34,290/- being the interest claimed on Rs.14,47,013/- @ 18% per annum from 12.12.2001 to 22.03.2006 and on Rs.7,74,450/- @ 18% per annum from 12.06.2002 to 22.03.2006, was decreed partly.

2.       The appellants herein are the defendants, and the respondent herein is the plaintiff, in the suit.  For better appreciation of facts, the parties are hereinafter referred to, as they are arrayed in the trial court.

3.       The plaintiff filed the suit stating that the plaintiff is a registered Class-I Civil Contractor undertaking construction works on due entrustment under specific construction contracts at several places duly entering into agreements with the concerned Government departments. Defendant No.2 called for tenders for remodeling of Udayasamudram Tank, Panagal Village, Nalgonda District, for utilizing it as a balancing reservoir in S.L.B.C. Scheme now shown as A.M.R.P. Scheme including construction of Off take Sluices 3 and 4. Since the first agency Sri G. Venkata Reddy and Company failed to do the work, the balance work was entrusted to the plaintiff, who is the second agency. Defendant No.2 entered into an agreement with the plaintiff bearing L.S. Agreement No.2/96-97, dated 24.10.1996, for completion of the aforesaid work. The plaintiff completed the work entrusted to it by 12.12.2001 and defendant Nos.2 and 3 became liable to pay an amount of Rs.22,21,463/- soon after the completion of the work. In spite of several demands made by the plaintiff, the defendants failed to pay the same. The aforesaid amount which was due and payable after 12.12.2001 was unjustly and improperly withheld by defendant Nos.2 and 3 without any fault on the part of the plaintiff.
          The plaintiff obtained loan for execution of the work in question from Vijaya Bank, Guntur with interest at 36% per annum and due to non-payment of the dues payable by defendant Nos.2 and 3 and due to inordinate delay in payment of the amount, the plaintiff’s Managing Partner suffered financial loss to a tune of Rs.50,00,000/- besides suffering mental agony and also undergone cardiac operations. After a long time and with great effort of plaintiff, defendant No.3 paid Rs.14,47,013/- on 28.06.2006 and Rs.7,74,450/- on 14.07.2005, even though the said amount was payable after the completion of work i.e., on 12.12.2001.  The plaintiff got issued notice dated 12.09.2005 under Section 80 C.P.C., to the defendants demanding them to pay interest @ 24% per annum as per law for undue delay in payment of Rs.22,21,463/- within two months, failing which suit will be filed for recovery of interest of Rs.17,89,000/- by that time. The defendants received the suit notice and defendant No.3 gave reply, dated 02.11.2005, with all untenable pleas. The reply notice is evasive and vague and has been sent in routine course without proper application of real facts. The defendants have admitted that the work was completed by 22.01.2002. It is the bounden duty of the defendants to obtain additional financial sanctions from the Government in time and there is sheer negligence on the part of the defendants in paying the amounts due to plaintiff after completion of work and there are no lapses on the part of the plaintiff in completing the work and the various contentions and pleas mentioned in the reply notice are untenable and not proper and legal.  The plaintiff is entitled under law as per trade, custom, usage and provisions of Interest Act, 1978 (for short, “the Act”) to interest @ 24% per annum since the transaction is a commercial one and the defendants are at fault for delayed payment, but he is claiming interest @ 18% only. Hence, the suit.

4.       The defendants filed written statement admitting the averments of plaint till the entrustment of the work and denying that the defendants failed to pay the amounts to the plaintiff.  It is stated that they were not aware of the plaintiff taking financial assistance from the Vijaya Bank at abnormal rate of interest @ 36% per annum, which is totally against to the principles of banking system. The plaintiff acknowledged the receipt of payments made by the defendants towards full and final satisfaction of the claim. The time for completion of work as per the agreement is 15 months and the rate of progress is 20% each at 5 quarters.  But the plaintiff had not executed any work during the first quarter and in the second quarter the plaintiff had executed only jungle clearance, instead of target of Rs.46,28,000/- in spite of issuance of three notices. During the third quarter, the plaintiff executed the work of collection of small quantity of sand in spite of six constant reminders issued by defendant Nos.2 and 3 and the Deputy Executive Engineer and imposing penalty to Rs.17,000/- for slow progress. In fourth and fifth quarters, six notices were issued by defendant Nos.2 and 3, and the defendant No.3 imposed penalty of Rs.11,000/- for slow progress. The plaintiff applied for EOT up to 23.07.1998 and the EOT was granted by defendant No.2 duly imposing penalty of Rs.2,000/- and even during the EOT period, plaintiff executed only 17.12% of work in spite of issuing six slow progress notices and imposing penalty of Rs.2,000/- and the excavator machine was shifted during June, 1998 without intimating the department staff. The plaintiff applied for second EOT up to 31.12.1998 on the grounds of ill-health and the same was granted duly imposing a penalty of Rs.10,000/- and during the second EOT period also seven notices were issued duly imposing a penalty of Rs.2,500/- for slow progress. Third EOT was sanctioned up to April, 1999 duly imposing penalty of Rs.500/-. Similarly, fourth EOT was granted up to 31.08.1999 with a penalty of Rs.1,000/- and the plaintiff shifted the machinery during May, 1999 without notice to the defendants and also abandoned the work from May, 1999 and for that, an amount of Rs.2,000/- was imposed as penalty. With regard to fifth and seventh EOTs’ dated 31.12.1999 and 31.12.2000, penalty was imposed at Rs.4,000/- and Rs.2,000/- respectively but sixth EOT dated 31.03.2000 was sanctioned to the plaintiff. The plaintiff had given undertaking on 29.09.2000 stating that he would complete the work on or before 31.12.2000 if not to terminate the contract. In spite of the above EOTs’ and issuing notices, the plaintiff failed to complete the work on or before 31.12.2000.  8th to 12th EOTs’ dated 07.03.2001, 30.06.2001, 30.09.2001, 30.11.2001 and 31.01.2002 respectively were sanctioned, and a penalty of Rs.1,000/-, Rs.2,000/-, Rs.5,000/-, Rs.5,000/- and Rs.2,000/- respectively were imposed. The plaintiff had neither completed the work during agreement period nor as per undertaking given by him. Due to non-completion of work by the plaintiff, water to the proposed ayacut and drinking water to Nalgonda and fluoride affected villages in the said route were delayed.  The work was proposed to be completed on 23.01.1998 but completed on 22.01.2002 with a delay of four years after issuing of 17 notices and imposing of penalty of Rs.27,000/- during agreement period and 24 notices and imposing penalty of Rs.23,500/- during the EOT period for which the plaintiff is solely responsible. Even on completion of the work on 22.01.2002, the plaintiff was asked to attend minor miscellaneous works to submit the final bill, but he had not attended the work nearly for one year and due to non-completion of finishing, the field staff submitted the final bill on division office for security. For want of approval of revised estimate by the Government, proposals were prepared and submitted to the higher officials and finally the Government has sanctioned the Revised estimate in G.O.Ms.No.84, dated 05.05.2005, and the final bill was sent to the Pay and Accounts Officer, A.M.R.P. Scheme for arranging payment and the final bill was paid on 28.06.2005 and there was no delay in making payment after receipt of Government Orders and also the above transactions are made as per rules for making final payment and approval of revised administrative approval. Though the work was completed on 22.01.2002, the finishing has not been completed nearly for one year in spite of constant persuasion by the field staff of the defendants and the approval of revised estimate was got on May, 2005 and the final bill was paid on 28.06.2006. There is no delay on the part of the department and the amount of Rs.7,74,450/- towards refund of EMD and FSD was paid on 10.07.2005. While arranging the final payment the plaintiff submitted “release and discharge certificate” wherein he accepted that “I accept all measurements in full and final settlement and discharge all claims and demands whatsoever arising out of this contract”. The same is recorded in the Measurement Book as well as enclosed with the bill.   As per clause 4.4.7 in the agreement, the contractor will not be entitled to any interest on arrears which may on the final settlement of his account to be found due to him and in view of the above clause in the agreement, payment of interest for delayed payment cannot be paid. Further, as per the agreement condition 3.10.3 a reference for adjudication under this clause shall be made by either party to the contract within six months from the date of intimating the contractor of the preparation of final bill or his having accepted payment and in this regard the limitation was expired. Hence, they prays to dismiss the suit.

5.          Basing on the above pleadings, the trial court framed the following issues for trial:
“1) Whether the plaintiff is entitled to the suit
         amount?
2) Whether the suit is maintainable?
3) To what relief?”

6.          During trial, P.W.1 was examined and Exs.A1 to A8 were got marked, on behalf of the plaintiff, and D.W.1 was examined and Exs.B1 to B33 were got marked, on behalf of the defendants. 

7.       The trial court, upon considering the evidence on record, decreed the suit in part awarding @ 12% p.a. on Rs.14,47,013/- from 12.12.2001 and on Rs.7,74,450/- from 12.06.2002, till realization of the amount.  Aggrieved by the same, the present appeal has been preferred by the defendants.

8.       Now, the only point that arises for consideration in this appeal is whether the plaintiff is entitled to interest @ 12% per annum as granted by the trial court ?

9.       The factual matrix is not in dispute.  Entrustment of the contract work to, and carrying out the contract work by, the plaintiff-contractor are not in dispute.   Completion of the contract work in terms of L.S. agreement, Ex.A3, is also not in dispute.  Settlement of the bill for a sum of Rs.22,21,463/- is not in dispute.  It is also not in dispute that the contract work entrusted to the plaintiff with reference to the tender schedule has been satisfactorily executed by the plaintiff. It is also not in dispute that the final settlement has been done and thereafter, the defendants released the funds to the plaintiff in pursuance of the contract work. But, after completion of the work, there was delay of 3 ½ years in payment of the final bill amount to the plaintiff.  Therefore, in these circumstances, it has to be seen whether the defendants are liable to pay interest @ 12% per annum towards delayed payment after settlement of the final bill to the plaintiff. 

10.     The learned Assistant Government Pleader for the appellants/defendants placed strong reliance on clause 4.4.7 of the L.S. Agreement Ex.A3, which reads thus:
“4.4.7. The contractor will not entitled to any interest on arrears which may on the final settlement of his accounts to be found due to him.”

Except this clause, there is no other clause in the L.S. agreement with regard to payment of interest for the delayed payment in pursuance of the final settlement of the contract.  When the contract work of the plaintiff has been executed once for all duly arriving at a particular amount to be payable to the plaintiff, the defendants have to pay that amount within a reasonable period of time.  If that is not paid, certainly, the plaintiff is entitled to reasonable interest. In the absence of any specific clause with regard to payment of interest on delayed payment, Section 34 C.P.C. and Section 4 of the Interest Act, 1978, give power to the Court to award reasonable rate of interest for the period of delay in payment.   

11.     In support of his contention, the learned counsel for the respondent/plaintiff relied on a decision of this Court in Block Development Officer, Panchayat Samithi, Prathipadu, Guntur District and another v. M. Sambaiah[1], wherein it is held :
“…. Courts have held that interest can also be awarded by a Court of equity, it is necessary in the first instance to establish the existence of circumstances which attract equitable jurisdiction, such as non-performance of a contract of which equity requires specific performance, …..”

The learned counsel for the respondent/plaintiff also placed reliance on a decision of the Honourable Supreme Court in Sovintorg (India) Ltd. v. State Bank of India, New Delhi[2], wherein it is held thus:
“… There was no contract between the parties regarding payment of interest on delayed deposit or on account of delay on the part of the opposite party to render the services.  Interest cannot be claimed under Section 34 of the Civil Procedure Code as its provisions have not been specifically made applicable to the proceedings under the Act. We, however, find that the general provision of the Section 34 being based upon justice, equity and good conscious (conscience) ….”

From the above decisions, it is clear that Section 34 C.P.C. can be invoked on the ground of equity.

12.     The learned Assistant Government Pleader appearing for the appellants/defendants placed relied on an unreported decision of a Division Bench of this Court, dated 12.04.2010, in C.M.A.No.2105 of 2000 and C.R.P.No.3081 of 2000, in Government of Andhra Pradesh v. M/s. S.V. Engineering Constructions Limited.  The said decision has no application to the facts of the present case because that is a case where the contractor committed fault and he was responsible for the continuation of the contract work beyond the period of contract and also with regard to the additional expenditure incurred for the faults committed by him.  

13.     The learned Assistant Government Pleader also relied on a decision in Dhirubai D. Company, Engineers & Contractors, Secunderabad v. Nizam Sugar Factory Limited, Hyderabad,[3] wherein it is held thus:
“A person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name. It may be called interest, compensation or damages. This basic consideration is as valid for the period the dispute is pending before the arbitrator as it is for the period prior to the arbitrator entering upon the reference. This is the principle of Section 34, Civil Procedure Code and there is no reason or principle to hold otherwise in the case of arbitrator.”

          The above decision is applicable to the facts of the present case.  Ex.A3-L.S. agreement does not specifically prescribe payment of interest for the delayed payment after settlement of final bill.  It is not the case where there was a delay on the part of the contractor in executing the work.  The work was completed within time as per schedule.  
It is only a case where the plaintiff is seeking interest for the delayed payment for a period of 3 ½ years for which without there being any sufficient cause or reason, the appellants/defendants withheld the amount without paying the same.  
There must be some explanation for the delay in payment of the amount by the Government when the contract bill amount had already been settled.  No reason is stated or spoken to, by D.W.1 in his evidence as to under what circumstances, the Government did not pay the final bill to the plaintiff.  Therefore, in the absence of any proper reason given by the defendants and on the ground of equity, the plaintiff is entitled to interest.  Considering these aspects, the trial Court rightly awarded the interest @ 12% per annum to the plaintiff.  None of the findings is shown to be perverse or not based on evidence available on record.  Therefore, there are no grounds to interfere with the impugned judgment and decree.

14.     In the result, the Appeal Suit is dismissed confirming the Judgment and Decree dated 08.04.2008 in Original Suit No.21 of 2006 on the file of the Principal District Judge, Nalgonda.  There shall be no order as to costs.

---------------------
(K.C.Bhanu, J.)
21.03.2011
DRK


THE HON’BLE SRI JUSTICE K.C.BHANU


























APPEAL SUIT No. 811 of 2008














21.3.2011

THE HON’BLE SRI JUSTICE K.C.BHANU

APPEAL SUIT No. 811 of 2008

21.3.2011

Between:

The State of Andhra Pradesh, rep. by the
District Collector, Nalgonda & others
…Appellants
And

M/s. Arekapudi Constructions, Guntur
…Respondent









[1] 2003 (4) ALD 396 (DB)
[2] AIR 1999 SC 2963
[3] 2010 (10 ALT 721 (D.B.)

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