# KERALA STATE ELECTRICITY BOARD AND ANR v. KURIEN E. KALATHIL AND ANR

- **Citation:** [2018] 11 S.C.R. 511
- **Court:** Supreme Court of India
- **Decided:** 2018-03-09
- **Case number:** Civil Appeal Nos. 3164-3165 of 2017
- **Bench:** Ranjan Gogoi, R. Banumathi
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/kerala-state-electricity-board-and-anr-v-kurien-e-kalathil-and-anr-32364
- **Pages:** 35

## Headnote

Contract - Contract between appellant and respondent for
construction of dam - Notification issued escalating minimum wages
payable to workers - Writ petition filed by respondent claiming
labour escalation charges with interest as per Ex.P-20 - While the
petition was pending, appellant terminated the contract - Writ
petition filed by respondent challenging the same and seeking
payment of works done as per Ex.P59, allowed directing the
appellant to pay the amounts as claimed u/Ex.P-20 and Ex.P-59 -
Challenged by appellant in C.A.No.4092 of 2000, but Supreme Court
declined to interfere - Appellant paid an amount of Rs.12,82,96,320/-
- However, three years thereafter, respondent filed I.A.No.6 of 2006
before Supreme Court on which it was granted liberty to move High
Court for recovery of the disputed amount - Writ petition filed by
respondent before High Court, allowed - Issue as to mode of
appropriation of payments made by the appellant and claim for
subsequent interest - Held: By respondent's own statement, he had
adjusted all payments received from the appellant firstly towards
the labour escalation due i.e. the principal amount - But, when
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 appellant, amounts were still
due and payable to him - This important aspect of change in the
method of adjustment/appropriation was lost sight by High Court -
Respondent not justified in changing the method of calculation -
High Court's direction to the appellant to make payment u/Ex.P20
to the respondent, set aside - Further, direction of High Court to
pay future interest on the claims made u/Ex.P59, also set aside -
Judgment of High Court set aside - Code of Civil Procedure, 1908
- Or. XXI, r.1.
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Code of Civil Procedure, 1908 - s.34(2) - Interest - Payment
of - Contract between appellant and respondent for construction
of dam - Notification issued escalating minimum wages payable to
workers - Writ petitions filed by respondent claiming labour
escalation charges with interest as per Ex.P-20 and for payment of
works done as per Ex.P59, allowed - Challenged by appellant in
C.A.No.4092 of 2000 - Supreme Court declined to interfere -
Another writ petition filed by respondent inter alia claiming interest
on amounts payable u/Ex.P20 and Ex.P59, allowed - Held: Under
sub-s.(2) of s.34, where a decree is silent as to payment of further
interest on the principal sum, it shall be deemed to have been refused
- In the present case, since there was no direction for future interest
either by High Court or Supreme Court, in view of sub-s.(2) of s.34,
it must be deemed that the court had refused such interest - Direction
of High Court to pay subsequent interest u/Ex.P20 and u/Ex.P59 is
set aside.
Code of Civil Procedure, 1908 - s.89 - Reference to arbitration
- Agreement between appellant and respondent-contractor for
construction of dam - Dispute between parties inter alia regarding
claims of additional work u/Ex.P59 - High Court with the oral
consent of the counsel for the parties without written instruction
from the party, referred the parties to arbitration - Held: 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
- There was no arbitration agreement between the parties - High
Court ought not to have referred the parties to arbitration -
Arbitration and Conciliation Act, 1996 - s.7.
Constitution of India- Art.136 - Jurisdiction under, of
Supreme Court- Held: In exercise of jurisdiction u/Art.136, Supreme
Court does not n

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[2018] 11 S.C.R. 511
 511
KERALA STATE ELECTRICITY BOARD AND ANR.
v.
KURIEN E. KALATHIL AND ANR.
(Civil Appeal Nos. 3164-3165 of 2017)
MARCH 09, 2018
[RANJAN GOGOI AND R. BANUMATHI, JJ.]
Contract - Contract between appellant and respondent for
construction of dam - Notification issued escalating minimum wages
payable to workers - Writ petition filed by respondent claiming
labour escalation charges with interest as per Ex.P-20 - While the
petition was pending, appellant terminated the contract - Writ
petition filed by respondent challenging the same and seeking
payment of works done as per Ex.P59, allowed directing the
appellant to pay the amounts as claimed u/Ex.P-20 and Ex.P-59 -
Challenged by appellant in C.A.No.4092 of 2000, but Supreme Court
declined to interfere - Appellant paid an amount of Rs.12,82,96,320/-
- However, three years thereafter, respondent filed I.A.No.6 of 2006
before Supreme Court on which it was granted liberty to move High
Court for recovery of the disputed amount - Writ petition filed by
respondent before High Court, allowed - Issue as to mode of
appropriation of payments made by the appellant and claim for
subsequent interest - Held: By respondent's own statement, he had
adjusted all payments received from the appellant firstly towards
the labour escalation due i.e. the principal amount - But, when
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 appellant, amounts were still
due and payable to him - This important aspect of change in the
method of adjustment/appropriation was lost sight by High Court -
Respondent not justified in changing the method of calculation -
High Court's direction to the appellant to make payment u/Ex.P20
to the respondent, set aside - Further, direction of High Court to
pay future interest on the claims made u/Ex.P59, also set aside -
Judgment of High Court set aside - Code of Civil Procedure, 1908
- Or. XXI, r.1.
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SUPREME COURT REPORTS
[2018] 11 S.C.R.
Code of Civil Procedure, 1908 - s.34(2) - Interest - Payment
of - Contract between appellant and respondent for construction
of dam - Notification issued escalating minimum wages payable to
workers - Writ petitions filed by respondent claiming labour
escalation charges with interest as per Ex.P-20 and for payment of
works done as per Ex.P59, allowed - Challenged by appellant in
C.A.No.4092 of 2000 - Supreme Court declined to interfere -
Another writ petition filed by respondent inter alia claiming interest
on amounts payable u/Ex.P20 and Ex.P59, allowed - Held: Under
sub-s.(2) of s.34, where a decree is silent as to payment of further
interest on the principal sum, it shall be deemed to have been refused
- In the present case, since there was no direction for future interest
either by High Court or Supreme Court, in view of sub-s.(2) of s.34,
it must be deemed that the court had refused such interest - Direction
of High Court to pay subsequent interest u/Ex.P20 and u/Ex.P59 is
set aside.
Code of Civil Procedure, 1908 - s.89 - Reference to arbitration
- Agreement between appellant and respondent-contractor for
construction of dam - Dispute between parties inter alia regarding
claims of additional work u/Ex.P59 - High Court with the oral
consent of the counsel for the parties without written instruction
from the party, referred the parties to arbitration - Held: 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
- There was no arbitration agreement between the parties - High
Court ought not to have referred the parties to arbitration -
Arbitration and Conciliation Act, 1996 - s.7.
Constitution of India- Art.136 - Jurisdiction under, of
Supreme Court- Held: In exercise of jurisdiction u/Art.136, Supreme
Court does not normally re-appreciate the evidence and findings of
fact; but where the findings of High Court are perverse or the
findings are likely to result in excessive hardship, Supreme Court
would not decline to interfere merely on the ground that findings in
question are findings of fact.
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Allowing the appeals, the Court
HELD: 1.1 Ex. P20-MODE OF APPROPRIATION OF
PAYMENT MADE: In computation of his claims in Ex.P20, the
respondent-contractor himself adjusted all payments received
from the appellant-Board, only towards the principal and not
towards interest. 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/-
[Paras 9, 10] [524-G; 525-F-G]
1.2 Parties are governed by the terms of the contract.
Clause E1.079 of the agreement expressly provided that the
appellant would pay no interest to the respondent-contractor for
delayed payment. Even as per respondent's own letter dated
25.11.1994, the respondent-contractor has deducted the advances
paid only towards the principal and claimed interest. 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. 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. [Paras 11, 12] [526-E-G; 527-B-D]
1.3 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 respondentcontractor 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. This manner of appropriation,
firstly towards the interest was in clear violation of the directions
KERALA STATE ELECTRICITY BOARD AND ANR. v.
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given by Supreme 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
respondent-contractor 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. [Para 13] [528-A-B, E-G]
1.4 IN THE FACTS OF THE PRESENT CASE WHETHER
THE RESPONDENT - CONTRACTOR IS JUSTIFIED IN
APPROPRIATION OF PAYMENT FIRSTLY TOWARDS
INTEREST: 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 judgment-debtor 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. In C.A.No.
4092 of 2000, Supreme Court directed payment as per Ex.P20.
and therefore, the appropriation/adjustment of payment has to
be made strictly as stated in 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. [Paras 14, 18 and 19][528-G-H; 531-C-G]
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1.5 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. In respondent's own
letter to the appellant-Board dated 25.11.1994, the respondentcontractor himself stated that he had deducted the advances from
the principal amount claimed under "Labour Escalation Charges"
and "interest" are shown separately. By his own statement, the
respondent-contractor had 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. [Paras
20, 21] [531-G-H; 532-A-D]
1.6 WHETHER RESPONDENT-CONTRACTOR IS
ENTITLED TO SUBSEQUENT INTEREST ON THE AMOUNT
CLAIMED IN EX.P20: Ex.P20 relates to "Labour Escalation
Charges" and "Interest" thereon claimed separately. In the earlier
round of litigation (O.P. No.283 of 1995), there was no prayer for
future interest; also, there was no direction by the High Court
for payment of subsequent interest. In the appeal before Supreme
Court in C.A. No.4092 of 2000, the appellant Board was directed
only to pay the amount shown in Ex.P20 with reduced interest at
9% p.a.. There was no direction by Supreme Court to pay
subsequent interest on Ex.P20. [Paras 22, 23] [532-E-G;
533-C-D]
1.7 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. In the present
case, since there was no direction for future interest, in view of
sub-section (2) of Section 34 CPC, it must be deemed that the
court refused such interest. The respondent-contractor cannot
claim further interest on the amount payable under Ex.P20 beyond
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the date of judgment of the High Court (02.04.1998) and in any
event not beyond the date of judgment of Supreme Court
(19.07.2000). The respondent-contractor himself had understood
the order of Supreme 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 respondentcontractor specifically prayed for payment of further interest
forthwith [prayer (i) in I.A. No. 6 of 2006] which was not granted
by Supreme 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 Supreme Court in C.A. No.4092 of 2000
to 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. 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. [Paras 24, 25 and 26] [533-D-H; 533-A-D]
1.8 CLAIM UNDER EX.P59 FOR THE ADDITIONAL
WORK AND SUBSEQUENT INTEREST: 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. 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.
There was no direction either by the High Court or by Supreme
Court to pay future interest qua Ex.P20. In the earlier round of
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litigation, the High Court only directed the appellant to pay the
amount as ordered in Ex.P20. 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
not sustainable and is liable to be set aside. [Paras 32, 33]
[534-D; 536-A; 537-A-D]
1.9 REFERENCE TO ARBITRATION: Arbitrator/ Tribunal
is a creature of the contract between the parties. There was no
arbitration agreement between the parties. Jurisdictional precondition for reference to arbitration under Section 7 of the
Arbitration and Conciliation Act, 1996 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 is
concerned, 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.
[Paras 34, 35] [537-E-H; 538-A-B]
1.10 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. 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, 1996 and the
matter will go outside the stream of the civil court. Under Section
19 of Arbitration and Conciliation Act, the arbitral tribunal shall
KERALA STATE ELECTRICITY BOARD AND ANR. v.
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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. The impugned order referring the parties to
arbitration, in any event cannot be sustained on other grounds
also. The Arbitrator had passed the award 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 1996
Act was dismissed by the District Judge. The appeal preferred
by the appellant under Section 37 of the 1996 Act (Arbitration
Appeal No.Z-47 of 2013) was transferred to Supreme Court.
While directing the appellant-Board to pay rupees five crores to
the respondent-contractor on furnishing undertaking vide order
dated 20.02.2017, Supreme 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. [Paras 39, 40 and 42] [538-B-C;
540-F-H; 541-A-B, E-H]
1.12 IN EXERCISE OF JURISDICTION UNDER
ARTICLE 136 OF THE CONSTITUTION OF INDIAWHETHER THIS COURT CAN INTERFERE: In exercise of
jurisdiction under Article 136 of the Constitution of India, Supreme
Court does not normally re-appreciate 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. 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 appellant-Board has so far
paid Rs.56.58 crores and additionally rupees five crores by order
of Supreme Court dated 20.02.2017. The findings of the High
Court are perverse causing loss to the statutory body like the
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appellant-Board, Supreme 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. The impugned judgment is liable to
be set aside. [Paras 43, 44 and 45][542-A, C-D; 543-C-E]
1.13 Under Ex.P20, the appellant-Board has made excess
payment of Rs.1,74,75,247/-. By order dated 20.02.2017,
Supreme Court directed the appellant to pay a sum of rupees
five crores subject to furnishing of undertaking by respondentcontractor. 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/-. 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. [Para 46] [543F-G; 544-A]
Gurpreet Singh v. Union of India (2006) 8 SCC 457 :
[2006] 7 Suppl. SCR 422 - followed.
Bharat Heavy Electricals Ltd. v. R.S. Avtar Singh and
Company (2013) 1 SCC 243 : [2012] 10 SCR 701;
Afcons Infrastructure Ltd. and Anr. v. Cherian Varkey
Construction Co. (P) Ltd. and Ors. (2010) 8 SCC 24 :
[2010] 8 SCR 1053; Shailesh Dhairyawan v. Mohan
Balkrishna Lulla, (2016) 3 SCC 619 : [2015]
12 SCR 70; Mahesh Dattatray Thirthkar v. State of
Maharashtra (2009) 11 SCC 141 : [2009] 3 SCR 1122
- relied on.
Kerala State Electricity Board and Another v. Kurien E.
Kalathil and Others (2000) 6 SCC 293 : [2000] 1 Suppl.
 SCR 581; Meghraj and Others v. Mst Bayabai and
KERALA STATE ELECTRICITY BOARD AND ANR. v.
KURIEN E. KALATHIL AND ANR.
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Others (1969) 2 SCC 274 : [1970] 1 SCR 523;
Industrial Credit and Development Syndicate now called
I.C.D.S. Ltd. v. Smithaben H. Patel (Smt.) and Others
(1999) 3 SCC 80 : [1999] 1 SCR 555; Mathunni Mathai
v. Hindustan Organic Chemicals Ltd. and Ors. (1995)
4 SCC 26 : [1995] 3 SCR 765; Premnath Kapur and
Anr. v. National Fertilizers Corporation of India Ltd.
and Others (1996) 2 SCC 71 : [1995] 5 Suppl. SCR
790; Byram Pestonji Gariwala v. Union Bank of India
and Ors., (1992) 1 SCC 31 : [1991] 1 Suppl. SCR 187;
Banwari Lal v. Chando Devi (Smt) (Through LRs.) and
Anr. (1993) 1 SCC 581 : [1992] 3 Suppl. SCR 524;
Gurpreet Singh v. Chatur Bhuj Goel (1988) 1 SCC 270
: [1988] 2 SCR 401; Taherakhatoon (D) by LRs. v.
Salambin Mohammad (1999) 2 SCC 635 : [1999]
1 SCR 901 - referred to.
Case Law Reference
[2000] 1 Suppl. SCR 581
referred to
Para 4
[1970] 1 SCR 523
referred to
Para 14
[1999] 1 SCR 555
referred to
Para 14
[1995] 3 SCR 765
referred to
Para 16
[1995] 5 Suppl. SCR 790
referred to
Para 16
[2006] 7 Suppl. SCR 422
followed
Para 17
[2012] 10 SCR 701
relied on
Para 17
[2010] 8 SCR 1053
relied on
Para 36
[2015] 12 SCR 70
relied on
Para 36
[1991] 1 Suppl. SCR 187
referred to
Para 37
[1992] 3 Suppl. SCR 524
referred to
Para 38
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[1988] 2 SCR 401
referred to
Para 38
[1999] 1 SCR 901
referred to
Para 43
[2009] 3 SCR 1122
relied on
Para 44
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 31643165 of 2017
From the Judgment and Order dated 28.01.2009 in W. P. (C) No.
31108 of 2007 (C) and Order dated 23.06.2009 in R. P. No. 542 of
2009(C) of the High Court of Kerala at Ernakulam.
Krishnan Venugopal, Sr. Adv., Kaushik Mishra, Shivendra Singh,
Ms. Deepanshi Ishar, A. Raghunath, Advs. for the Appellants.
Dhruv Mehta, Sr. Adv., E. M. S. Anam, Dileep Pillai, G. Prakash,
Jishnu M. L., Mrs. Priyanka Prakash, Mrs. Beena Prakash, Vijay Shankar
V. L., Advs. for Respondents.
The Judgment of the Court was delivered by
R. BANUMATHI, J. 1. 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 appellant-Kerala 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
(KSEB) entered into an agreement on 16.09.1981with 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
respondent-contractor claimed labour escalation charges from 01.04.1983
KERALA STATE ELECTRICITY BOARD AND ANR. v.
KURIEN E. KALATHIL AND ANR.
A
B
C
D
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SUPREME COURT REPORTS
[2018] 11 S.C.R.
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
14.10.1993holding 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 respondentcontractor for the period 15.01.1985 to 31.10.1994. When the said writ
was pending, the appellant-Board terminated the contract with
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 respondent-contractor.
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 respondentcontractor 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
A
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C
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523
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 respondentcontractor 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 petition 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. Furtherwith 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
KERALA STATE ELECTRICITY BOARD AND ANR. v.
KURIEN E. KALATHIL AND ANR. [R. BANUMATHI, J.]
A
B
C
D
E
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[2018] 11 S.C.R.
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
public 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 inexcessive hardship to the appellant-Board
and consequently passed onto 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.P20Rs.2,29,34,559/-; and (ii) subsequent interest thereon. Dispute in the
amount payable under Ex.P20 is twofold:-(i) Mode of appropriation 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:-
A
B
C
D
E
F
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525
In 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 appellantBoard, 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:
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.
70
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 X31.99 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 X32.06 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
KERALA STATE ELECTRICITY BOARD AND ANR. v.
KURIEN E. KALATHIL AND ANR. [R. BANUMATHI, J.]
A
B
C
D
E
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526
SUPREME COURT REPORTS
[2018] 11 S.C.R.
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 Engineer-in-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 towards
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
CC
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
A
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527
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 inspite
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 respondentcontractor in I.A.No.6 of 2006 is as under:-
KERALA STATE ELECTRICITY BOARD AND ANR. v.
KURIEN E. KALATHIL AND ANR. [R. BANUMATHI, J.]
Principal (i n Rupees)
Interest @ 9% (in R upees)
Remarks
Balance
DR
CR
Date
Particu lars
DR
CR
Balance
63284050
Principal amount of Labour
Escalation upto CC 78 as per
Ext. P20
Amount
received from
Ker ala State
Electricity Board is fir stly adjusted against
interest and then principal amount
Inter est upto CC 78 f or the
period upto 20.6.95
40218107
20.06.95
Amount Received Rs. 1 cr ore

10000000 30218107

Interest from 21.6.95 to 13.2.96
3713820
33931927
13.02.96
Amount Received Rs.1cr ore
10000000 23931927
Inter est from 14.2.96 to 23.2.96
156043
24087970
23.02.96
Amount Received Rs.2 cr ores

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
Inter est 21.3.01 to 5.9.01
2343588
48583538
7656412 05.09.01
Amount received (1 crore)