THE HON'BLE SRI JUSTICE L. NARASIMHA REDDY CIVIL REVISION PETITION No. 392 OF 2013 Dated:08-08-2014
Between:
Union of India, rep., by its Engineer-in-Chief, M.E.S. Head Quarters, New Delhi and two others ... PETITIONERS AND M/s. Arvind Constructions (P) Limited, Engineers & Contractor, Flat No. 68, Jagannath Towers, Radhaswamy Colony, Sikh Road, Secunderabad, rep., by its Director, G.L. Reddy, S/o. G. Narsi Reddy ... RESPONDENT THE HON'BLE SRI JUSTICE L. NARASIMHA REDDY CIVIL REVISION PETITION No. 392 OF 2013
ORDER:
This revision is filed against the order dated 22-11-2012 passed by the learned Chief Judge, City Civil Court, Hyderabad in E.P No. 25 of 2013.
The petitioners awarded a civil contract to the respondent for certain works in the ordnance factory at Eddumylaram. The cost of the work, as per the tender schedule was Rs.4,04,24,188/-
. Disputes arose in respect of execution of the work. The respondent filed O.P No. 55 of 1995 before the Court of III Additional Chief Judge, City Civil Court, Secunderabad, with a prayer to appoint an Arbitrator, in terms of the agreement. The trial Court appointed one Mr. A.J. Kumarasen as Arbitrator. That was challenged by the respondent in C.R.P No. 3777 of 1997. The C.R.P was allowed and through an order dated 08-10-1988, a learned single Judge of this Court appointed Hon’ble Dr. Justice K. Ramaswamy, a retired judge of the Supreme Court as Arbitrator. The learned Arbitrator passed award dated 29-04-2001 and allowed claim Nos.1, 2, 13 and 17 in their entirety and claim No.12 in part. Apart from determining the amounts payable towards the respective claims, the Arbitrator has also awarded interest at 18% from different dates till the date of payment in respect of different sums, payable.
The respondent filed O.P No. 3 of 2001 under Sections 14 to 17 of the Indian Arbitration Act, 1940 before this Court, with a prayer to make the award as the Rule of Court. The petitioners did not file any petition for setting aside the award. O.P 3 of 2001 was allowed through judgment dated 27-12-2002, making the award of the Arbitrator, as the Rule of Court. The interest was however reduced to 12% from the date of decree. The respondent filed E.P No. 25 of 2003 before the Chief Judge, City Civil Court, Hyderabad for execution of the decree in the O.P. During the pendency of the E.P., the petitioners filed L.P.A No.44 of 2003 challenging the order passed in O.P No. 3 of 2001. A Division Bench of this Court dismissed the L.P.A through judgment dated 11-04-2011. When the L.P.A was pending, certain amounts have been deposited to the credit of the E.P.
After the dismissal of the L.P.A, the respondent filed calculation memo in the E.P. It was pleaded that by 28-04-2003 i.e., the date of filing of the E.P., the amount payable is Rs.14,92,64,270/- and the amount that has been deposited from time to time does not have the effect of satisfying the decree. The petitioners, on the other hand, pleaded that the principal amount is Rs.4,24,24,342/-. Interest thereon as awarded by the Arbitrator at 18% per annum and reduced in the O.P to 12% per annum from the date of decree is Rs.11,24,44,448/- and as against those amounts, Rs.6,00,00,000/- was paid on 13-06-2004 and Rs.7,92,45,130/- was paid on 24-01-2002. Both the parties filed their calculation memos from time to time.
The area of cosntroversy was mainly as to whether the interest at 12% per annum, as ordered by the learned single Judge of this Court, in O.P No. 3 of 2001, must be calculated on the principal amount awarded by the learned Arbitrator i.e., Rs.4,24,24,342/- or on the aggregate of principal and the interest that has accrued up to the date of decree in the O.P, at 18% per annum and at 12% per annum thereafter. Through the order under revision, which is named as ‘intermediary orders’, the executing Court directed the petitioners herein to deposit a sum of Rs.5,67,25,858/-. The said order is challenged in this revision.
Sri B. Narayan Reddy, learned Assistant Solicitor General submits that the principal amount is only Rs.4,24,24,342/-, and interest, be it at the rate of 18% as directed by the Arbitrator or at 12% as directed by this Court, must be on the principal amount and not on the aggregate of the principal and interest up to the date of filing of the E.P. He submits that phenomenal loss to the department is evident from the fact that though the entire amount stipulated in the agreement itself was just about Rs.4,00,00,000/-, the respondent has amassed so far Rs.15,00,00,000/- and still the Union of India is exposed to extensive liability. He submits that though there is no dispute as to the principle that any amount deposited by the judgment debtor must be first adjusted towards interest, the dispute in the instant case is that the principal itself blown to geometrical proportions, contrary to law. According to the learned counsel, the occasion to merge interest into principal would arise only when the Arbitrator passed an award granting interest till the date on which award is made Rule of Court and in the instant case, the interest was awarded till the date of realisation and in that view of the matter, the principal amount would remain and continue the same, till it is realized, whatever be the mechanism.
Ms. Manjari S. Ganu, learned counsel for the respondent, on the other hand, submits that the contention of the petitioners that the principal amount is only about Rs.4,00,00,000/- cannot be accepted. She contends that in view of the judgment of the
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Supreme Court in Central Bank of India v. Ravindra , the interest that accrued up to the date of decree merges with the principal and subsequent interest is payable on such a figure. She contends that the executing Court has taken the correct view of the matter and that no interference is warranted.
The case on hand demonstrates as to how government projects, even taken up by the defence department, if bogged up in litigation, would eat away substantial portion of the limited resources that are available in the exchequer. The value of the contract was Rs4,04,24,188/-. Not only the respondent but also many others participated in the tender. Each one of them knew or were supposed to know the nature of work and the contingencies involved therein. The nation however is blessed with a set of contractors, who are more well-versed in arbitration law, than in their expertise in execution of the works which they bag, some how or the other. A seasoned civil contractor of government is the one who lays a fertile ground for future arbitration, even before the work as such begins. The time spent in correspondence for arbitration with the higher authorities more often, yields an amount, which is many times more than the sum accrued under the contract. That exactly, happened in this case.
There is no dispute that the respondent was paid the amount as per the rates mentioned under the agreement. However, it laid as many as 20 claims for additional demands. As that was not acceded to, it invoked the arbitration clause. A retired engineer was appointed as Arbitrator and he came to be replaced by a retired judge of the Supreme Court. An award was passed allowing claim Nos. 1, 2, 13 and 17 in their entirety and claim No.12 in part, aggregating to Rs. 4,24,24,342/-. Interest was awarded at 18% per annum almost from the year of agreement. The interest itself accounted for more than Rs.10,00,00,000/- up to the date of the award.
The circumstances under which the O.P for making the award as the Rule of Court came to be directly filed before this Court, or those under which the E.P came to be filed in a Court which neither entertained the O.P for appointment of Arbitrator nor appointed the Arbitrator; are not immediately before this Court. The fact remains that the award was made as the Rule of Court on 27-12-2002.
It is important to note that the learned Arbitrator awarded interest at 18% per annum, till “the date of realization” and it was not up to the date on which the award may become the Rule of Court. The learned single Judge who allowed O.P No. 3 of 2001 made the award as Rule of Court. The only difference was that the interest from the date of decree was reduced to 12%.
Where a suit is filed for recovery of a specified amount with interest and the suit is decreed, the interest from the date of filing of the suit till the date of decree merges with the principal amount and what becomes recoverable is the decretal amount. That in turn will earn interest, at the rate stipulated by the Court itself. For instance, if a suit is filed for recovery of a sum of Rs.1,00,000/- with interest at 12% per annum and the suit has prayed for is decreed after two years, the decretal amount comes to Rs.1,24,000/-. If interest on the decretal amount is awarded at the rate of 9% per annum, such interest is to be calculated on Rs.1,24,000/-. In the instant case, the petitioners stated that the decree passed by this Court in O.P No. 3 of 2001 did not bring about any qualitative change and what is executable in effect, is the award as such. On that premise, it is pleaded that the principal amount is Rs. 4,24,24,342/-, where as the interest at 18% is to be calculated up to the date of decree in O.P No.3 of 2001 and at 12% per annum thereafter. The respondent, on the other hand, pleaded that the interest up to the date of decree in O.P No.3 of 2001 gets capitalized and merges with the principal and a compound figure comes to be treated as principal. They tried to draw support from the judgment of the Supreme Court in Central Bank of India’s case (1 supra). The record discloses that the executing Court proceeded on the same basis and treated the compound figure of principal of Rs. 4,24,24,342/-, and interest at 18%, worked up to the date of decree in O.P No. 3 of 2001; as the principal amount.
Another point urged by the petitioners was that the amount paid by them, that too under the relevant orders passed by the High Court must be adjusted towards the principal amount. They sought to rely upon the judgment of this Court in Oriental
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Insurance Company Ltd., v. Smt. V. Kala Bharathi .
Incidentally, the said judgment was rendered by me. After taking into account the precedents on the subject and the amendments caused to CPC, particularly, to sub-rules (4) and (5) of Rule 1 of Order XXI and sub-section (3) of Section 3 of the Interest Act, 1978, it was held that any partial payment made to the credit of an E.P., must be adjusted towards the principal, and the balance, towards interest. The said judgment was carried in appeal to the Supreme Court in V. Kala Bharathi v. Oriental Insurance Co.
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Ltd., . The same was reversed by taking note of the judgments of the Supreme Court that were rendered after the amendment to CPC. Therefore, the said ground is no longer available to the petitioners.
Even on the question as to whether the principal that should be taken into account for reckoning interest in the E.P., must be the principal amount awarded by the learned Arbitrator against claims, or the sum of interest added to it, this Court does not intend to enter the controversy. The amount due as on 22-11-2012, as per the calculation is said to be in the range of Rs.5,00,00,000/-
. This is after the petitioner paid almost Rs.14,00,00,000/- under the award, in addition to the amount mentioned in the contract. In the interregnum, the calculation of the respondent would yield a few more crores. The respondent would have been well advised to keep the proceedings pending as long as possible, so that it becomes a perennial source of phenomenal income of at least a crore per year. Though this may sound somewhat strange, the law as it stands now, permits it and one cannot help the situation. Obviously, the other genuine defence needs of the country must be diverted for satisfying the decree. This Court does not find any basis to interfere with the order under revision. The C.R.P is accordingly dismissed.
The miscellaneous petitions filed in this revision shall also stand disposed of. There shall be no order as to costs.
L. NARASIMHA REDDY, J 08-08-2014 ks LR copy to be marked.
B/O ks
[1] AIR 2001 SC 3095
[2] 2005 (5) ALT 564
[3] (2014) 5 SCC 577