IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HON'BLE THE ACTING CHIEF JUSTICE MR.J.B.KOSHY & THE HONOURABLE MR. JUSTICE K.P.BALACHANDRAN WEDNESDAY, THE 28TH JANUARY 2009 / 8TH MAGHA 1930 WP(C).No. 31108 of 2007(C) -------------------------- PETITIONER: -------------------- KURIEN E.KALATHIL, CONTRACTOR, T.C.NO.14/1004, VAZHUTHACAUD, TRIVANDRUM. BY SR. ADV. SRI. ARAVIND DATTAR, & ADV. SRI.M.RAMESH CHANDER RESPONDENT(S): --------------------------- 1. STATE OF KERALA, REPRESENTED BY THE CHIEF SECRETARY, GOVERNMENT SECRETARIAT, TRIVANDRUM - 695 004. 2. KERALA STATE ELECTRICITY BOARD, REPRESENTED BY ITS SECRETARY, VYDYUTHI BHAVANAM, PATTOM, TRIVANDRUM - 695 001. 3. THE CHIEF ENGINEER (CONSTRUCTION CIVIL) NORTH, KERALA STATEELECTRICITY BOARD, GANDHI ROAD, KOZHIKODE. R2 & R3 ADV. SRI.P.P.THAJUDEEN, STANDING COUNSEL & ADV. SRI. ASOK M.CHERIYAN, STANDING COUNSEL. THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 13/01/2009, AND SPOKEN TO ON 28.01.2009 , THE COURT ON THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WP(C).No. 31108 of 2007(C) APPENDIX PETITIONER'S EXHIBITS: Ext.P1: True copy of judgment dated 2.4.1998 of this Honourable Court in O.P.Nos.283/1995-H and 10759/1997. Ext.P2: True copy of judgment dated 19.7.2000 of the Honourable Supreme Court in CA No.4092/2000 (amended as per Order dt.13.2.2008 in IA No.2190/08). Ext.P3: True copy of Review Petition No.1095/2000 dt.7.9.2000 on the file of the Honourable Supreme Court(amended as per Order dt.13.2.2008 in IA No.2190/08).. Ext.P4: True copy of order dt. 07.12.2000 of Supreme Court in Review Petition (C) No.1095//2000 in CA No.4092/.2000. Ext.P5: True copy of clarification petition dt.28.10.2000 in CA No.4092/2000 filed by the respondent Board before the Supreme Court. Ext.P6: True copy of order dt. 19.2.2001 of Honourable SupremeCourt in IANos.4 and 5 in CA No.4092/2000 ((amended as per Order dt.13.2.2008 in IA No.2190/08). Ext.P7: True copy of IA NBo.6/2006 in CA No.4092/2000 filed by petitioner before Supreme Court ((amended as per Order dt.13.2.2008 in IA No.2190/08). Ext.P8: Counter Affidavit dt. 07.3.2007 filed by KSEB before Supreme Court in IA No.6 of 2006 in CA No.4092/2000 (amended as per Order dt.13.2.2008 in IA No.2190/08). Ext.P9: True copy of order dt.24.09.2007 of Supreme Court in IA No.6/2006 in CA No.4092/2000. Ext.P10: True copies of letters dated 28.5.2002, 10.3.2002 and 26.7.2004 submitted by the petitioner. Ext.P11: True copy of letter dated 25.11.1994 along with statement showing amount payable under labour escalation and interest. Ext.P12: True copy of CC Bill No.85 dated 27.2.1997 raised by the petitioner for the works done. Ext.P13: True copy of statement of claims under Labour Escalation and bills raised together with interest @ 9% after adjusting part payments as on 30.9.2007. (amended as per Order dt.13.2.2008 in IA No.2190/08). J.B. Koshy, Ag. C.J. & K.P. Balachandran, J. ------------------------------- WPC No.31108 of 2007 ------------------------------- Dated, this the 28th day of January, 2009 JUDGMENT Koshy, Ag. C.J. The writ petition is filed based on the direction of the Honourable Supreme Court for granting amounts due to the petitioner in implementation of the common judgment of the Division Bench (Ext.P1) passed in O.P.Nos. 283 of 1995 and 10759 of 1997, which was affirmed by the Hon'ble Supreme Court in Civil Appeal No.4092 of 2000. The exhibits mentioned in the above judgment are referred in that order in this judgment. 2. Petitioner was the contractor for construction of a Composite Dam across Karamanthodu at Padinjarethara in connection in Banasura Sagar Scheme (Kuttiyadi Augmentation Scheme). The contract was awarded to the petitioner (hereinafter referred to as,”the contractor”) by the Kerala State Electricity Board (in short, “the Board”) on 1.7.1981 under Ext.P1 agreement. Ext.P3 agreement was entered between the parties on 16.9.1989, which contained a formula regarding labour escalation rate depending upon revision of wages. The minimum wages were increased in the Kerala State by Ext.P5 notification. The Industrial Tribunal also awarded that the above wages are applicable to the workmen employed by the contractor by Ext.P15 WPC No.31108/07 - 2- award. In implementation of the award of the Industrial Tribunal, Ext.P18 bipartite settlement was also entered into between the Unions and the Management. Thereafter, Ext. P20 demands were placed before the Board for granting escalation as per the clause in Ext.P3 agreement. For getting the escalation benefit with interest, the contractor filed W.P. (C) No.283 of 1995. Meanwhile, the contract with the petitioner was terminated. The petitioner-contractor approached this court by filing O.P. No.10759 of 1997 against termination of the contract and for paying the bills (Ext.P59) raised for the work already done. The main contention of the Board was that it was a contractual matter and it cannot be looked into by the High Court in writ proceedings. A Division Bench of this Court considered the matter extensively and finally by Ext.P1 judgment in O.P.Nos.283 of 1995 and 10759 of 1997, while allowing the claim for escalation as raised in Ext.P20 escalation claim, the Division Bench at para 6 of Ext.P1 judgment, has noticed as follows: (Page 52 of paper book) “The dispute centres round the interpretation and implementation of labour escalation formula incorporated in Ext.P3. The labour escalation clause has been finally accepted by the parties as extracted in para No.8 of this judgment.”. The court also noticed that labour escalation claim was paid for some period and all on a sudden it was stopped. Thereafter at para 7, it was WPC No.31108/07 - 3- held as follows: (page 64 of paper book) “Therefore, as rightly pointed out by the learned counsel for the petitioner, the Board is bound to reimburse the amounts to the petitioner which had been claimed by him. The Board cannot escape its liability inspite of its several promises made to the petitioner to fulfill the terms of the contract before and after entering into the contract in question.”. Thereafter, at para 8 of the judgment, (page 75), it was further held as follows: “In our opinion, the obligation of the Board to compensate the petitioner as per the labour escalation formula is unconditional and absolute and the Board cannot go behind the same.”. It was further held by the court as follows: (Page 76 - 77) “We have already seen that the petitioner has submitted on 25th November, 1994 a detailed statement of amounts payable to him by way of labour escalation, adjustment of advance paid to the petitioner, net labour escalation amount payable as on 31-10-1994 and the interest due thereon, etc., which is produced and marked as Ext.P20. The authorities were requested to settle the claim at an early date. However, the Board has not done so. We are of the view that the Government's sanction is not necessary for effecting payment, since the Board is a WPC No.31108/07 - 4- party to the dispute covered by the award; since it is a statutory autonomous body empowered to take decisions and also bound by the provisions of the agreement Ext.P3.”. Thereafter, the following relief was granted at para 10 of the judgment: (Page 85 - 86) “Thus, it is seen that the legitimate claim of the petitioner has not been settled by the Board inspite of several representations made and inspite of several recommendations made by the top officials of the Board and also of the award passed by the Industrial Tribunal, the Board has unlawfully and illegally withheld the payment lawfully due to the contractor from the year 1985 onwards.”. The following relief was also granted in the writ petition No.283/95 filed by the petitioner for enforcing Ext.P20 in that writ petition, claiming the amount paid to the workers based on the escalation clause in Ext.P3 agreement. (at page 87) “We therefore, grant prayer (b) as prayed for and issue a writ of mandamus directing the second respondent to pay the petitioner interest at 18% on the amount shown in the statement, Ext.P20.”. With regard to the termination of the contract, in O.P.No.10759 of 1997 the Division Bench at paragraph 25 observed as follows: (page 123- WPC No.31108/07 - 5- 124) “The Board has not performed its obligation under the contract in paying the escalation charges legally and lawfully due to the petitioner. But has taken steps to cancel the contract without taking into account public interest and public money involved. If only the Board has paid the escalation charges, which has already been paid by the contractors to the contractors as per the provisions of the Minimum Wages Act, the contractor would not have stopped the work. The Board, in spite of the legal advice from the then standing counsel, the award of the Industrial Tribunal and of the settlement reached between the contractor and the workers and inspite of the positive direction given by the Government by constituting a committee of experts for implementation of the award and in spite of the advice of the officers of the Board who were at the helm of affairs, have miserably failed to discharge their statutory obligation for extraneous considerations which compelled us to allow O.P.No.283 of 1995.” At paragraph 26, the following directions were issued: (page 125) “The Board shall also pay to the petitioner the bills raised by him for the work done till date including labour escalation payment etc. etc. as ordered in O.P.No.283 of 1995.” This court has after setting aside the termination of the contract also directed to pay the bills for the works completed (Ext.P59) and O.P.No.10759 of 1997 was also allowed. The contract was completed thereafter. WPC No.31108/07 - 6- 3. The Board approached the Honourable Supreme Court against the above judgment mainly contending that being a contractual matter, the writ should not have been entertained by the court. They contended on merits also. Those contentions were repelled by Ext.P2 judgment of the Supreme Court which was reported in Kerala State Electricity Board v. Kurien E.Kalathil, AIR 2000 SC 2573. At paragraphs 14 and 15, the Honourable Supreme Court has ordered as follows: “14. In view of the aforesaid facts, the High Court directed the Board to discharge its obligation under the contractual provisions. It was noticed that earlier the Board had made payment to the contractor for enhanced wages from 1st April, 1983 to 31st December, 1984. Under the circumstances, declining to accept the second contention, we refrain from interfering with the direction for payment given in the impugned judgment except in respect of the rate of interest awarded by the High Court. 15. The High Court has directed the Board to pay to the contractor the amount shown in the statement, Ext.P20, along with interest @ 18% per annum. Having considered the totality of circumstances, we feel that it would be just and proper to award interest @ 9% per annum instead of 18%. In the statement Ex.P20, the contractor has calculated interest @ 18% per annum. The interest WPC No.31108/07 - 7- amount would now be calculated at 9% instead of 18% per annum. The impugned judgment of the High Court is modified accordingly.”. (emphasis supplied) 4. In effect, the direction of the Division Bench to pay Ext.P20 and escalation charges and Ext.P59 was accepted, but instead of interest at 18% per annum, only 9% per annum was allowed. Then a review petition was filed and the review petition was also dismissed by the Supreme Court by Ext.P4 judgment. Thereafter, two clarification petitions (I.A.Nos.4 and 5) were filed by the Board and both petitions were dismissed by Ext.P6 order dated 19.2.2001. When another clarification petition (I.A.No.6 of 2006) was filed, the Honourable Apex Court has passed the following order (Ext.P9 dt.24.3.2007): [Pg.233] “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, judgment dated 19.7.2000, had confirmed the finding of the High Court. The Petitioner-Contractor would be at liberty to move the High Court of Kerala seeking further steps for recovery of the amount WPC No.31108/07 - 8- 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.”. So, Ext.P1 judgment has become final in all respects. Therefore, this petition was filed by the contractor compelling the Board to make payment as confirmed by the Supreme Court. The amount payable under labour escalation as per Ext.P20, according to the contractor, was Rs.6,32,84,050/- upto CC bill 78 and CC Nos.79 to 85 was Rs.90,96,582/- as can be seen from Exts.P6 and P7. On a reading of the counter affidavit (Ext.P8) filed before the Supreme Court by the Board in I.A. No.6 of 2006, the amounts worked out and admitted by the Board as labour escalation charges are mentioned, as per the two bills the total amount payable after adjusting advances paid like ways and means advance, adhoc advance etc. was Rs.7,23,80,632/- (see para 44 of Ext.P8). Therefore the total principal amount due after adjusting advances as on 5.1.1995 in respect of the two bills, there is no difference or dispute. But interest calculated was only Rs.5,57,39,710/-. The total amount with interest, after adjusting the advance, according to the Board, was Rs.12,81,20,342/- [Rs.7,23,80,632/- (principal) + Rs.5,57,39,710/- (interest)], and the above amount was paid on various dates and the last payment was made on 17.08.2003. It is the WPC No.31108/07 - 9- contention of the petitioner that the interest calculated by the Board is wrong. According to the contractor, the principal amount payable after adjusting the advances was calculated as Rs.7,66,35,927/- as on 31.10.1994. The above interest was calculated by taking 18% interest. It is also submitted that only simple interest was calculated. Therefore, if it is 9% interest, the interest payable as on 31.10.1994 would be Rs.3,83,17,963.50. The net amount payable as on 30.6.2006 on the two bills as per the statement filed before the Supreme Court for labour escalation charges taking 9% simple interest on principal amount on diminishing balance of Rs.3,60,93,738/-, the Board did not file any specific objection regarding calculation. As on 30.9.2007, the amount due from the Board to the contractor against Ext.P20 (labour escalation) calculated at 9% simple interest on diminishing balance for the bills CC 14 to 78 is Rs.57,73,143/- and the principal amount is Rs.1,38,37,977/-. With regard to the second bill (CC bill 79 to 85), the admitted balance outstanding as against the principal amount was Rs.9,09,582/- and the interest due at 9% simple interest was Rs.99,67,143/-. Thus, the total of the balance amount inclusive of principal and interest as on 30.9.2007 will be Rs.3,86,73,845/-. The details of the calculation is as follows: WPC No.31108/07 - 10- Balance amount Interest due date Remarks Principal Interest Principal Interest (B) From To (A) 6,23,84,050 - - - 6,23,84,050 - 15.01.1985 20.06.1995 2577 4,02,18,107 4,02,18,107 6,23,84,050 1,00,00,000 - 1,00,00,000 6,23,84,050 3,02,218,107 20.6.1995 13.02.1996 238 37,13,820 3,39,31,927 6,23,84,050 1,00,00,000 - 1,00,00,000 6,23,84,050 2,39,31,927 13.02.1996 23.02.1996 10 1,56,043 2,40,87,970 6,23,84,050 2,00,00,000 - 2,00,00,000 6,23,84,050 40,87,970 23.02.1996 20.03.2001 1850 2,88,67,930 3,29,55,900 6,23,84,050 4,00,00,000 70,44,100 3,29,55,900 5,62,39,950 - 20.03.2001 05.09.2001 169 23,43,588 23,43,588 5,62,39,950 1,00,00,000 76,56,412 23,43,588 4,85,83,538 - 05.09.2001 12.10.2001 37 4,43,242 4,43,242 4,85,83,538 2,00,00,000 1,95,56,758 4,43,242 2,90,26,780 - 12.10.2001 01.06.2002 232 16,60.491 16,60.491 2,90,26,780 67,31,995 50,71,504 16,60,491 2,39,55,276 - 01.06.2002 17.08.2002 77 4,54,822 4,54,822 2,39,55,276 16,75,78 12,21,156 4,54,822 2,27,34,120 - 17.08.2002 10.02.2003 177 9,92,204 9,92,204 2,27,34,120 98,88,347 88,96,143 9,92,204 1,38,37,977 - 10.02.2003 30.09.2007 1692 57,72,143 57,72,143 1,38,37,977 8,46,22,390 57,72,143 Amount due from KSEB to Sri.Kurien E.Kalathil, Contractor, as on 30.9.2007 as per judgment against Ext.P20 (labour escalation) calculated at 9% simple interest on diminishing balance Opening due from CC 14 to 78 less advance of Rs.3.65 crores received Amount received Amount received adjusted against No. of days Interest due for the period Balance interest after adjustment of interest received - Rs. - Rs. - Rs. - Rs. - Rs. - Rs. - Rs. - Rs. Interest has been worked out on the basis of dates with respect to the passing of each bills from 15.1.1985 to 20.6.1995 Payment received are adjusted against interest first and balance against principal Balance amount due as on 30.09.2007 for CC 14 to 78 WPC No.31108/07 - 11- Amount due from KSEB to Sri.Kurien E.Kalathil, Contractor, as on 30.9.2007 as per judgment against Ext.P20 (labour escalation) calculated at 9% simple interest on diminishing balance Balance Amount Remarks From To Principal Interest C C 79 17,31,126 17,31,126 15.1.1995 14.03.1995 59 25154 17,31,126 25154 C C 80 16,76.548 34,07,674 15.03.1995 14.04.1995 31 26048 34,07,674 51202 C C 81 28,04,782 62,12,456 15.04.1995 14.05.1995 30 45955 62,12,456 97157 C C 82 4,97,461 67,09,917 15.05.1995 14.06.1995 31 51290 67,09,917 1,48,447 C C 83 7,68,964 74,78,881 15.06.1995 14.06.1996 365 6,73,099 74,78,881 8,21,546 C C 84 4,48,345 79,27,226 15.06.1996 14.06.1997 365 7,13,450 79,27,226 15,34,996 C C 85 11,69,356 90,96,582 15.06.1997 31.05.2005 2908 65,21,865 90,96,582 80,56,861 90,96,582 01.06.2005 30.06.2006 395 8,86,917 90,96,582 89,43,778 90,96,582 01.07.2006 30.09.2007 457 10,23,365 90,96,582 99,67,143 99,67,143 90,96,582 99,67,143 Bills upto 14 to 78 (previous page) 1,38, 37,977 57,72,142 Grand Total for CC 14 to 85 as on 30.09. 2007 2,29,34,559 1,57,39,286 3,86,73,845 CC 79 TO 85 FROM 05.1.1995 Bills Outstanding Interest(Date) No. of days Interest (in Rs.) No payment has been received and hence the question of adjustment whether against interest or principal does not arise Balance amount due as on 30.09.2007 for CC 79 to 85 Grand Total of Principal Plus Interest as on 30.09.2007 WPC No.31108/07 - 12- 5. The claim of the contractor that compound interest is to be calculated cannot be accepted. In the absence of specific directions from the court in Ext.P1 judgment or in the agreement, compound interest cannot be claimed, though concept of payment of compound interest is not illegal and there is no law that interest on interest cannot be granted. Fortunately in this case, in Exts.P20 and P59 bills, the contractor has claimed only simple interest. The claim of the Board that part payments should be adjusted first from the principal amount only or interest is payable only till the date of judgment as there is no direction to pay interest till the date of payment also cannot be accepted. The Honourable Supreme Court in Meghraj v. Bayabai, AIR 1970 SC 161, has held as follows:- “...But the normal rule is that in the case of a debt due with interest any payment made by the debtor is in the first instance to be applied towards satisfaction of interest and thereafter to the principal.”. After considering Order 21, Rule 1(2) of C.P.C. and Sections 59 to 61 of the Indian Contract Act, in M/s. I.C.D.S. Ltd. v. Smithaben H.Patel, AIR 1999 SC 1036, at para 9, the Apex Court held as follows: “..... We do not agree with the learned counsel of the respondents that Section 60 of the Contract Act has to be read independently excluding the provisions of Section 59. Accepting such an argument would amount to doing violence WPC No.31108/07 - 13- to the language employed in the Section and the purpose sought to be achieved by it. Besides, it would also be contradictory in terms. Section 60 if applied independently, cannot be held to be conferring any right upon the judgment debtor as it confers a discretion in favour of the creditor to apply such deposited amount to any lawful debt actually due and payable by the debtor when such debtor omits to intimate the discharge of the debt in the manner envisaged under Section 59. We are of the opinion that Sections 59 and 60, Contract Act, would be applicable only in pre decretal stage and not thereafter. Post-decretal payments have to be made either in terms of the decree or in accordance with the agreement arrived at between the parties though on the general principles as mentioned in Sections 59 and 60 of the Contract Act. As and when such an agreement either express or implied is relied upon, the burden of proving it would always be upon its propounder. The judgment debtors, in the instant case, are proved to have failed in discharging such an onus. There does not appear to be any obligation on the decree holder to intimate the judgment debtor that the amount paid to him had not been accepted in the manner specified by him in the letter accompanying the payment. Insisting upon such a course would result in unnecessary burden upon the financial institutions and conferment of unwanted unilateral discretion in favour of the defaulters. Acceptance of the plea that the amount paid first should be adjusted in the principal amount would not only be against the provisions of law but against the public policy as well. To provide security, continuity and WPC No.31108/07 - 14- certainty in business transaction, the Legislature has been making specific provisions in that regard which may be found in various provisions of the Negotiable Instruments Act or Order 37, Code of Civil Procedure and other statutory provisions.”. It was further held, at para 12, as follows: “..... In view of what we have held hereinabove, we are of the opinion that the learned Judge was not justified to hold 'where a 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 first of the interest and then of the principal, but if the 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. But however he may not agree to the mode of the payment, in which case he must not accept the payment and refund the amount to the debtor'. It was further held, at para 14, as follows: “..... In view of what has been noticed hereinabove, we hold that the general rule of appropriation of payments towards a decretal amount is that such an amount is to be adjusted firstly strictly in accordance with the directions contained in the decree and in the absence of such direction, adjustments, be made firstly in payment of interest and costs and thereafter in payment of the principal amount. Such a principle is, however, subject to one exception, i.e. that the parties may agree to the adjustment of the payment in any WPC No.31108/07 - 15- other manner despite the decree. As and when such an agreement is pleaded, the onus of proving is always upon the person pleading the agreement contrary to the general rule or the terms of the decree schedule. The provisions of Sections 59 to 61 of the Contract Act are applicable in cases where a debtor owes several distinct debts to one person and do not deal with cases in which the principal and interest are due on a single debt.”. In this case, there is no agreement or understanding that part payments made will be adjusted from the principal. There was no indication that part payments were made only after demand was made. In the reply affidavit to I.A. No.6 of 2006 filed before the Supreme Court, such a claim was put forward by the Board. The directions in Ext.P1 judgment which was affirmed by the Supreme Court was to pay interest at 18% per annum till the date of payment and not to the date of the judgment. The Honourable Supreme Court only reduced the interest from 18% to 9% per annum. Here, there is no dispute regarding the amount due on the basis of Ext.P20 claim . After adjusting the advances, the difference in the amount due occurred only because the Board adjusted the part payments made first from the principal, but the contractor first adjusted the amount from the interest and balance from the principal and simple interest was calculated on the diminishing balance of principal amount. The details of the calculation are mentioned in Exts. P7 - P13 also. WPC No.31108/07 - 16- Therefore, we are of the view that as per Ext.P20 for the two sets of bills, the total amount payable by the K.S.E.B. as on 30.9.2007 is Rs.3,86,73,875/- and as on 31.12.2008 adding 9% simple interest on the balance principal amount, the amount will be Rs.4,12,58,224/-. Simple interest at 9% is also payable on the principal