IN THE HIGH COURT OF GUJARAT AT AHMEDABAD FIRST APPEAL No. 1676 of 2004 For Approval and Signature:
HONOURABLE MR.JUSTICE AKIL KURESHI Sd/-
HONOURABLE MR.JUSTICE C.L. SONI Sd/-
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========================================= COMMISSIONER,JAMNAGAR MUNICIPAL CORP.
Versus PARTNERS OF PRAKASH ELECTRIC STORES =========================================A ppearance :
MS SEJAL K MANDAVIA for the Appellant , MR PREMAL S RACHH for the Respondent ========================================= CORAM : HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE C.L. SONI Date : 07/05/2012 CAV JUDGMENT (Per : HONOURABLE MR.JUSTICE C.L. SONI)
1. This appeal is by defendant against judgment and decree passed by learned 3rd Joint Civil Judge (S.D.) Jamnagar dated 3.3.2004 in Special Civil Suit No.6 of 2001, whereby the suit of the respondent plaintiff was allowed and the plaintiff was declared entitled to recover Rs.8,78,389.90 ps. with interest at the rate of 9% per annum from 1.9.1998 till realization of the amount from the appellant-defendant.
2. Plaintiff filed a suit stating that the plaintiff was awarded the work, by order dated 13.4.1998 by the defendant- Jamnagar Municipal Corporation for lighting and decoration at Lakhota Smarak and Ranmal Talav. As per the said work order, the plaintiff was to execute work as per the detailed estimate dated 18.3.1997 provided by M/s. Phillips India Ltd. With progress of work and presentation of the monthly bill for such work, Engineer of the Corporation was to certify and to pay 70% of the amount within 15 days from such certification by the engineer. Plaintiff had presented in all five invoices between 7.8.1998 to 8.9.1999 for total amount of Rs.21,97,863.30 ps. Against the above said total bill, the defendant made payment of Rs.10,05,339.40 ps. The plaintiff had completed the entire work satisfactorily within the prescribed time and informed the defendant vide communication dated 13.8.1998 and on being satisfied about the work, lighting and decoration was made open for public on 15.8.1998. However, when the final bill was presented before the defendant for payment and for refund of the security amount, the defendant did not make payment in spite of the repeated requests made by the plaintiff. To shirk from the responsibility of making payment, defendant demanded particulars vide its letter dated 17.9.1999, illegally and de hors the tender clause. The requisite material as per the work order was called for by the plaintiff and deposited with the defendant and Engineer of the defendant of Lighting Department had already checked the materials deposited by the plaintiff with the defendant. As per the claim in the plaint, out of Rs.16,81,948.20 ps., which were for bill Nos.6312, 6313 and 6314 dated 7.8.1998, Rs.13,69,473.40 ps. was paid. Thus, Rs.3,12,474.80ps. remained outstanding. Rs.5,15,915.10 under Bill No.6821 dated 8.9.1999 was to be added, which comes to Rs.8,28,389.90 + Rs.20,000/- being security amount deposited on 9.3.1998 and amount of Rs.30,000/- being further security deposit made on 2.4.1998. Thus, total principal amount claimed in the plaint comes to Rs.8,78,389.90 ps. On the said amount, the plaintiff has claimed Rs.1,22,974.58 ps. being the amount of interest at the rate of 24% for the period from 1.9.1998 to 31.3.1999. It thus came to be Rs.10,01,364.98 due and payable by defendant as on 31.3.1999. To the above-said amount, the plaintiff has further added Rs.2,40,327.47 ps. being the amount of interest at the rate of 24% for the period from 1.4.1999 to 31.3.2000, which makes total of Rs.12,41,691.95, due and payable as on 31.3.2000. The plaintiff further claimed Rs.2,11,087.63 ps. being the amount of interest at the rate of 24% for the period from 1.4.2000 to 15.12.2000. The total amount of Rs.14,52,779.58 ps., stated to be due and payable on 15.12.2000. The plaintiff has thus claimed an amount of Rs.14,52,779.58 ps., which included Rs.8,78,389.90 ps. towards the principal amount and security deposit and rest of the amount is towards interest for the period from 1.9.1998 to 15.12.2000. The plaintiff has prayed this amount to be recovered from the defendant with interest at the rate of 24% till the same is paid.
3. It appears that, initially, no written statement was filed by the defendant. Thereafter, with the permission of the Court, written statement was filed opposing the suit claim. The suit claim is opposed mainly on the ground that the plaintiff was to complete the project by using the materials as per the specification of M/s. Phillips India Ltd. and since the plaintiff did not use the material of M/s. Phillips India Ltd., and used the materials not of the specification, as promised, the plaintiff is not entitled to any payment as claimed. The suit claim was also opposed on the ground that though the plaintiff was required to present bills of materials of M/s. Phillips India Ltd. but the plaintiff did not present any such bill but presented bills of the materials bought from the other companies, which were not according to the specification as required under the agreement between the parties. Since the plaintiff used the materials not of M/s. Phillips India Ltd., he was not entitled to any amount and the plaintiff had approached this Court by filing Special Civil Application No.3248 of 2000 and as per the direction issued by this Court, the Municipal Commissioner was inquiring to decide the claim after hearing the plaintiff which the Municipal Commissioner decided on 28.11.2000 and the Municipal Commissioner passed speaking order making the plaintiff dis-entitled to receive any amount. The suit claim is thus, mainly opposed on the ground that it was the plaintiff who was responsible for breach of the contract and therefore, the suit filed by the plaintiff was required to be dismissed.
4. On the basis of the pleadings, the Trial Court framed the following issues:-
(1) Whether plaintiff proves that defendant has issued work order for the decoration and lighting at Lakhota lake?
(2) Whether plaintiff proves that they have completed works as per terms of order within stipulated time ?
(3) Whether plaintiff proves that Rs.14,52,779.58 ps. are outstanding ?
(4) Whether the plaintiff is entitled to recover due amount with interest at the rate of 24% p.a. ?
(4-A) Whether defendant proves that this court has no jurisdiction to try this suit ?
(4-B) Whether defendant proves that the work of plaintiff is not as per terms of contract and it is of inferior quality ?
(5) What order and decree ?
Findings recorded by the Trial Court against each of the issues are stated below:-
Issue No.1 : In the affirmative. Issue No.2 : In the affirmative, Issue No.3 : Partly in the affirmative Issue No.4 : Partly in the affirmative with the interest at the rate of 9% p.a.
Issue No.4-A : In the negative. Issue No.4-B : In the negative. Issue No.5 : As per final order.
5. The plaintiff examined its witness Shri Lalitbhai Bhikhabhai Patel, who was authorized by the partners of the plaintiff. This witness in his deposition has stated that as per the agreement, the plaintiff, in all, deposited Rs.50,000/- towards the security deposit, that the Standing Committee has sanctioned amount of Rs.18.30 lakhs, vide resolution No.661 dated 27.3.1998 as project expenses for completion of the work of Lakhota Smarak and Ranmal Talav and decided to give the said work to the plaintiff, for which an agreement was entered into on 2.4.1998 and the work order dated 13.4.1998 was given to the plaintiff and as per the work order, the work was to be completed within four months and the plaintiff had started the said work and the materials were being brought and stored with the defendant under the supervision of the Engineers who were regularly inspecting the stores and sites were regularly supervised by the Engineers and all materials were as per the required specification of M/s. Phillips India Ltd. The work was satisfactorily completed. However, against the final bill, Rs.8,78,389.90 ps. remained due and payable by the defendant which was excluding the amount of Rs.50,000/- being the amount of security deposit. This witness has further stated that the total amount with security deposit came to Rs.8,78,389.ps. and with interest at the rate of 24%, it would come to Rs.14,52,779.58 ps. which has remained due and payable by the defendant, for which the suit is filed. Since the defendant had filed written statement after the evidence of the plaintiff's witness was over, the plaintiff had given further evidence stating that it is not correct to say that the plaintiff had used the material of below standard quality and that the material used by the plaintiff was not according to the specification as agreed. It is further stated that those materials which were available with M/s. Phillips India Ltd., were utilized as per the specification provided to the defendant and therefore, it is not correct that the materials used by the plaintiff for the project was not as per the specification provided in the agreement. This witness has further stated that the defendant had never raised any objection as regards the quality of material used by the plaintiff till the entire project was over. This witness has also stated that at the relevant time, all the bills of the material used were produced with the defendant and the defendant had never pointed out, which material was not of specified quality.
6. The plaintiff also examined one Paragbhai Popatbhai Patel, at Exh.93, who was stated to be the authorized Stockist of M/s. Phillips India Ltd. and of other reputed companies producing electrical items, to prove the supply of the materials by him of requisite specification to the plaintiff for the purpose of use thereof in completion of the light project.
7. Defendant examined one Shri Ratilal Laljibhai Nanda as its witness. This witness stated that after he came into charge, he inspected the site and at that time, the entire work of the project was over and it was made open for the public. The plaintiff was paid most of the amount under the bill. At the time of final payment, it was found that the plaintiff used the material of other companies than M/s. Phillips India Ltd. and did not produce the bill of materials though demanded. Some of the bills which were produced on record, are of M/s. Phillips India Ltd. From other bills produced on record, it appears that the plaintiff used the material of other companies, the rates of which were higher than the rates of M/s. Phillips India Ltd. In cross, he has stated that the entire work was completed under the supervision of the officer and it was not a supply contract but contract of turnkey job. He stated that there were no complete information with him as to which material used by the plaintiff company were not of M/s. Phillips India Ltd. He also stated that the plaintiff was never informed in writing about the quality of goods.
8. On the basis of the above-said oral evidence as also documentary evidence, learned Judge has passed decree for Rs.8,78,389.90 ps. with interest at the rate of 9% with effect from 1.9.1998, till realization of the above-said amount.
9. Learned advocate Ms. Mandavia with Mr. N.J. Mehta for the appellant Corporation has strenuously contended that since the plaintiff committed breach of the contract by not utilizing the materials as per the agreed specification and of Phillips Company Ltd., the plaintiff was not entitled to any amount as claimed in the suit. She would further contend that the plaintiff did not produce the bills of the materials though demanded by the appellant Corporation to prove that he had utilized the materials as per the agreed specification. She has drawn our attention to some of the bills placed on record of the case to point out that those bills are not of Phillips Company Ltd. but are of other company, which supplied electrical materials and at much higher rate than Phillips Company Ltd. She, therefore, urged that in order to avail of more benefits by executing the work awarded to the plaintiff, the plaintiff not only utilized the materials of inferior quality but also of the rates which were higher than the rates quoted by Phillips Company Ltd. She, therefore, submitted that what was already paid to the plaintiff was in fact much higher amount than the plaintiff deserved for executing the work and therefore, the claim as regards the principal amount with interest of the plaintiff is not required to be accepted at all.
9.1. Learned advocate for the appellant then made very serious grievance as regards the interest on the principal amount for the period prior to institution of the suit. She has read Clause No.10 of the terms of agreement between the parties and pointed out that the parties have specifically agreed that the contractor- plaintiff shall not be entitled to demand any amount of interest or compensation for delay in making payment of security deposit or of the bill. On the basis of this term of agreement, she submitted that this is negative covenant and makes the plaintiff dis-entitled to any interest on account of delay in payment of bill amount and therefore, learned Judge was not justified in granting interest on the principal amount for the period prior to institution of the suit. She has relied upon the provisions of Section 34 of the Code of Civil Procedure and submitted that the Trial Court does not have any jurisdiction to award interest on the principal amount prior to institution of the suit when there is no agreement between the parties for such payment of interest. She submitted that in absence of any such agreement, Court below would have jurisdiction to award interest only pendente lite and post decree on the principal amount. She, therefore, urged that the judgment and decree insofar as grant of interest for the period prior to institution of the suit passed by the learned Judge cannot be sustained.
10. As against the above-said arguments advanced by learned advocate for the appellant, learned advocate Shri Premal Rachh for the respondent plaintiff has submitted that the plaintiff had carried out the work satisfactorily under the supervision of the Engineer of the defendant and on completion of the work, after inspection was carried out, the officers of the defendant was fully satisfied and then only the entire project was made open for the public at large. He submitted that at no point of time, the plaintiff was served with any notice or any communication in the nature of objection as regards the quality of the materials used by the plaintiff. He pointed out that when the entire work was over and when most of the payment was already released, at the time of releasing the remaining payment towards final bill, the defendant sought to raise kinds of objection as regards quality of the material used by the plaintiff. He, therefore, submitted that such objection having not been raised at any point of time, it is not open to the defendant to deprive the plaintiff of its legitimate right to get remaining outstanding amount from the defendant with interest. He further submitted that the plaintiff had provided all the bills for the entire material used by the plaintiff for completing the work of lighting project. He drew our attention to the details of estimate provided by Phillips Indian Company Ltd. to demonstrate the items stated therein with the bills produced by the plaintiff so as to establish that only those materials which were not manufactured by Phillips Company Ltd., the plaintiff had to use the other good quality materials from the reputed companies and there was no prohibition in using some of the materials not manufactured by Phillips India Company Ltd. He stated that at no point of time, the defendant ever objected to use of the materials which were not manufactured by Phillips India Company Ltd. and in fact, the officers of the defendant, all through out, inspected the materials being brought in the stores of the defendant and utilized by the plaintiff under the direct supervision of the officers of the defendant. He submitted that it is not the case of the defendant that the lighting project was not completed and that there was any dissatisfaction as regards the performance of the lighting project. In fact, lighting project was satisfactorily completed with the materials as per the agreed terms between the parties and till it was open for public, nobody has raised any grievance about the use of the interior quality of material. He, therefore, submitted that the plaintiff having adhered to the terms of agreement between the parties and utilized all the materials which were manufactured by Phillips India Company Ltd. and produced on record the bills of some of the materials, which were required to be utilized of other good companies in respect of non-availability of the materials of Phillips India Company Ltd., it cannot be said that the plaintiff had committed any breach of the contract. As regards the contention of learned advocate for the appellant on the point of grant of interest for the period prior to institution of the suit, he has submitted that Section 34 of the Civil Procedure Code gives ample power and jurisdiction to Court to grant interest on the principal amount even for the period prior to institution of the suit. He submitted that the grant of interest on commercial transaction is the discretion available to the Court under Section 34 of the Civil Procedure Code and learned Judge having exercised the discretion and granted interest right from the stage, the outstanding amount remained due and payable, learned Judge cannot be said to have have committed any illegality much less error of jurisdiction. He has relied on the judgment of the Hon'ble Supreme Court in the case of Bhagwati Oxygen Ltd. Vs. Hindustan Copper Ltd. reported in (2005)6 SCC 462, to point out that the Court has got ample power to award interest on the principal sum adjudged by the Court from the date it became due and payable. He ultimately urged that learned Judge having come to the right conclusion as regards the amount due and payable by the defendant and having exercised his discretion available under Section 34 of the Civil Procedure Code and having granted reasonable interest from the date the principal amount became payable, this Court may not interfere with the judgment and decree passed by the learned Judge.
11. From the rival contentions raised before us, two main points arise for our consideration, namely :
(1) Whether the defendant was justified in withholding the outstanding amount of the final bill of the plaintiff on the ground that the plaintiff committed breach of the contract by using the material not of required specification as per the agreement ? and
(2) Whether learned Judge was justified in awarding interest to the plaintiff, on the principal sum due and payable for the period prior to institution of the suit ?
As regards point No.1, we may briefly refer to the evidence of the witness of the plaintiff again. Plaintiff’s evidence has proved the work contract, completion of the contract, inspection carried out by the engineer at the relevant time and making open the lighting project for the view of the public successfully. The plaintiff has heavily demonstrated that the plaintiff had utilized all the materials as included in the estimate provided by Phillips India Company Ltd. and also established that only those materials which were not forming part of the estimate of Phillips India Company Ltd., were called for from reputed suppliers and used under the supervision of the engineers of the Corporation and at no point of time, any objection was raised till completion of the project by the plaintiff. In support of his case that the materials which were used other than of Phillips India Company Ltd., were of standard quality, the plaintiff examined another witness Shri Paragbhai Popatbhai Patel, who stated that he was authorized stockiest of Phillips India Company Ltd. and other reputed companies producing electrical items. Plaintiff has produced the bills for those materials supplied by Shri Paragbhai Popatbhai Patel. As against this evidence, if we consider the evidence of witness of the appellant- defendant Corporation Shri Ratilal Laljibhai Nanda, this witness has stated that when he came into charge, he inspected the site and he found that the entire work of the project was already over and was made open for the public. Plaintiff was already paid most of the amount under the bill. However, at the time of final bill, it was found that the plaintiff used the material of other companies. This witness has stated in cross that entire work was completed under the supervision of the officers and he had no complete information as regards the materials which were not of Phillips India Company Ltd. From the evidence of this witness, it clearly appears that after the entire work was completed, the appellant Corporation raised objection about use of some materials by the plaintiff which were not of Phillips India Company Ltd. However, there is no evidence adduced by the appellant Corporation to prove that even though such materials were available and included in the estimate of Phillips India Company Ltd., still the plaintiff called for the materials from other companies, just to earn more profit. In fact, learned advocate Shri Rachh has taken us to the estimate of Phillips India Company Ltd. and to the bills of the materials bought from the other companies, to establish that the materials of other companies were never included in the estimate of Phillips India Company Ltd. and were never available with Phillips India Company Ltd. From the above said comparison, demonstrated by learned advocate Shri Rachh, it appears that the plaintiff had to use some materials of other companies as those were not available and included in the estimate of Phillips India Company Ltd. Be that as it may, once the entire contract was completed under the supervision of the engineers of the appellant Corporation and when there was no objection raised about inferior quality of the material when inspection was carried out by engineer and till the contract was completed and lighting project was made open for public, it is not open to the appellant Corporation to raise dispute about quality of the work and materials utilized by the plaintiff and to allege breach of the contract by the plaintiff. We find that learned Judge has well considered and appreciated the evidence placed before him and has not committed any error in reaching to the conclusion that plaintiff had not utilized any inferior quality of material and work carried out by the plaintiff was not in violation of the terms of the agreement. We also find that the defendant has not produced any evidence that work was not as per the contract and that at any point of time, there was any dispute raised about quality of the material. In fact, we have seen the evidence on record, which go to show that Phillips India Company Ltd. had not included all items in his estimate as all items were not being manufactured by Phillips India Company Ltd. and the materials which were required to be purchased by the plaintiff from the other companies, were having ISI certificate. Therefore, we concur with the findings recorded by the learned Judge and hold that the plaintiff has not committed any breach of the contract, on the ground of not utilizing the materials as per the specification. We also hold that the amount of Rs.8,28,389.90 ps. as outstanding was correctly arrived at by the learned Judge. Respondent was not justified to withhold this amount as the plaintiff had not committed any breach of the contract.
12. This brings us to the second point raised for our consideration, i.e. awarding of interest by learned Judge for the period prior to filing of the suit. We recall Clause 10 of the agreement between the parties. We have already recorded the contention of learned advocate for the Corporation that there is negative covenant on the question of paying interest to the plaintiff for delay in making payment as also of the security amount. Clause 10 in the agreement, which is in vernacular language, but translated in English version and reproduced by us, as under:
“Contractor shall not be entitled to demand either interest, compensation or damages on the ground of delay in payment of security deposit or the amount of bill.”
This covenant is part of the agreement between the parties at Exh.110.
13. Awarding of interest by the Court is governed by Section 34 of the Civil Procedure Code, which reads as under:-
“34. Interest. (1) Where and in so far as a decree is for the payment of money, the Court may, in the decree, order interest at such rate as the Court deems reasonable to be paid on the principal sum adjudged, from the date of the suit to the date of the decree, in addition to any interest adjudged on such principal sum for any period prior to the institution of the suit, [with further interest at such rate not exceeding six per cent per annum as the Court deems reasonable on such principal sum], from the date of the decree to the date of payment, or to such earlier date as the Court thinks fit:
[Provided that where the liability in relation to the sum so adjudged had arisen out of a commercial transaction, the rate of such further interest may exceed six per cent per annum, but shall not exceed the contractual rate of interest or where there is no contractual rate, the rate at which moneys are lent or advanced by nationalised banks in relation to commercial transaction.
(2) Where such a decree is silent with respect to the payment of further interest [on such principal sum] 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 therefor shall not lie.”
14. Court can award interest at three stages, namely:
(1) For the period prior to filing of the suit;
(2) Pending the suit (Pendente lite);
(3) For the period from the date of decree to the date of payment or to such earlier date as Court thinks fit.
In our view, the Court has discretion to award interest for the period from the date of institution of the suit till passing of the decree and from the date of decree till payment is made, but the Court has no discretion to award interest for the period prior to filing of the suit, otherwise the legislature would not have incorporated words in phrase, 'in addition to any interest adjudged on such principal sum for any period prior to institution of the suit’. If the legislature had an intention to leave it to the discretion of the Court for awarding interest even prior to institution of the suit, it was not necessary to separately incorporate the above-said words in phrases in Section 34 of the Civil Procedure Code. Meaning thereby, if the legislature had intended that grant of interest for the period prior to institution of the suit was to be left to the discretion of the Court, then Section 34 would have provided grant of interest at the discretion of the Court for the period even prior to institution of the suit as has been provided for the period after institution of the suit till the decree is passed and after the date of decree till payment is made. Therefore, it clearly appears to us that unless there is agreement between the parties, or a special statute recognizing right to interest or any usage for grant of interest, Court under Section 34 of the Civil Procedure Code is devoid of any power or jurisdiction to grant interest for the period prior to filing of the suit. In the present case, we do not find any agreement between the parties for grant of interest nor do we find any usage or any other provision in the special statute providing for grant of interest on the principal amount after it became due till filing of the suit. In fact, there is a covenant in negative form, not to claim any interest by the plaintiff on the principal amount, found to be due and payable, from the date it became due and payable till filing of the suit. Therefore, we are of the opinion that in absence of any agreement for grant of interest, for the period prior to filing of the suit and in view of the specific negative covenant for non-payment of interest, from the date principal amount became due and payable till filing of the suit on the ground of delay in making payment of the principal amount, the respondent plaintiff was not at all entitled to interest for the period prior to filing of the suit. We are fortified in our view by judgments of the Hon’ble Supreme Court in below mentioned two cases:-
(1) In the case of Mahabir Prasad Rungta Vs. Durga Datta, reported in AIR 1961 SC 990,
(2) In the case of The Union of India Vs. The West Punjab Factories Ltd. reported in AIR 1966 SC 395.
The Hon’ble Supreme Court in the above-said two decisions, has held that in absence of any usage or contract expressed or implied, or any provision of law, to justify the award of interest, interest cannot be awarded for the period prior to the date of the suit.
15. We have also considered the provisions of Section 3 of the Interest Act, 1978. Sub-Section (1) thereof provides for grant of interest for different periods, including the period before institution of the proceedings in the Court. Sub-Section (3) thereof provides that nothing in Section shall apply in relation to any debt or damages upon which, interest is payable as of right by virtue of any agreement or any debt or damages or upon which payment of interest is barred by virtue of an express agreement. Therefore, when there is specific agreement under which, interest is either payable or payment of interest is barred, statutory benefit of interest shall not be available in such cases. We have already noted above that there is no agreement for payment of interest on the amount of bill remained due and payable. But, there is express negative covenant in the agreement making the respondent plaintiff dis-entitled to payment of any interest if there is a delay in payment of security amount or principal amount. We, therefore, hold that the plaintiff is not entitled to any amount of interest for the period the principal amount became due and payable till filing of the suit. As regards awarding of interest for rest of the period, we do not find any reason to interfere with the sound discretion exercised by the learned Judge in awarding interest at the rate of 9%.
16. In view of the above, the appeal is required to be partly allowed. It is accordingly partly allowed. Judgment and decree awarding interest for the period prior to filing of the suit is hereby quashed and set aside. Judgment and decree passed by the learned Judge insofar as making the plaintiff entitled to recover principal amount of Rs.8,78,389.90 ps. as also award of interest at the rate of 9% from the date of the suit till the amount is realized is hereby confirmed. The plaintiff shall be entitled to recover Rs.8,28,389.90 ps. with interest at the rate of 9% from the date of filing the suit till realised from the defendant. Decree shall be modified accordingly .
Record and Proceedings be remitted back to the Trial Court.
Sd/-
(AKIL KURESHI, J.) omkar Sd/-
(C.L. SONI, J.)