IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated: 28.06.2006 Coram: The Hon'ble Mr.Justice P.K.MISRA and The Hon'ble Mr. Justice M.JAICHANDREN O.S.A.No.9 of 2000 IN C.S.NO.937 OF 1998 Sports Development Authority of Tamil Nadu No.116-A, Periyar E.V.R.High Road, Chennai 600 084 represented by its Member Secretary Appellant/Defendant vs. M/s Tarapore & Co., Engineers and Contractors, 827, Anna Salai, Chennai 600 002 rep. by its Partner .. Respondent/Plaintiff This Appeal is filed under Order XXXVI Rule 1 of O.S.Rules r/w Clause 15 of Amended Letters Patent r/w Order IV Rules 28 to 32 of Appellate side Rules against the Judgment and Decree dated 26.10.1999 in C.S.No.937/98, on the file of the Hon'ble High Court, Madras. For Appellant : Mr.V.T. Gopalan. Senior Advocate for Mr.K. Rajendiran For Respondent : Mr.S. Murari JUDGMENT P.K.MISRA, J. The present appeal has been filed by Sports Development Authority against the Judgment and Decree of the learned Single Judge in C.S.No.937 of 1998, filed by the present respondent. In the impugned Judgment, the Trial Court has decreed the suit of the plaintiff/respondent for realisation of Rs.3,94,13,245/- https://hcservices.ecourts.gov.in/hcservices/ with further interest at the rate of 18% p.a. 2. The facts in brief are as follows:- The plaintiff is a registered firm of Partnership engaged in engineering and construction works. The defendant/appellant is a Society registered under the Tamil Nadu Societies Registration Act, 1975 constituted as per G.O.Ms.No.641 of 1998 of Government of Tamil Nadu and as such an instrumentality of the State attached to the Education Department of Tamil Nadu. For the purpose of hosting South Asian Federation Games at Chennai, the Sports Development Authority, Chennai contemplated constructing four new stadiums. The Sports Development Authority called for tenders for construction of a Tennis Stadium, Aquatic Stadium, Hockey Stadium and Indoor Stadium. The tenders offered by the plaintiff for construction of Tennis Stadium, Aquatic Stadium and Hockey Stadium was accepted by the defendant and the total value of the contract was Rs.26,82,48,843.50/-. Three separate agreements containing similar terms were executed. Apart from the above three works, on the basis of instructions of the subordinate officers of the defendant, the plaintiff had also undertaken the work of Paving Block/Chain Link Fencing in the Hockey Stadium, even though no formal written order had been issued by the defendant or any official. The plaintiff submitted bill for Rs.30,42,942.36 on 24.01.1996 in relation to the work of the Aquatic complex which was duly certified by the defendant engineers on 10.02.1996. Similarly, plaintiff submitted bill for Rs.51,22,983.74 on 23.01.1996 of the Hockey Stadium, which was duly certified on 17.02.1996. A bill for Rs.1,64,19,123.89 dated 23.01.1996 was submitted for the Tennis Stadium, which was duly certified on 21.02.1996. For the additional work of Paving Block/Chain Link, bill for Rs.1,82,430.55 was submitted on 17.04.1996, which was duly certified on 15.07.1996. Thus, the plaintiff was entitled to Rs.2,47,67,480.54. In addition, Rs.74,03,781/- representing 2.5% of the retention amount was refundable after the completion of the Defects Liability period and subsequently the defendant realised a portion of the retention money, keeping the balance amount of Rs.9,83,531/-. The plaintiff had correspondence with the defendant regarding the amount due. The plaintiff also wrote a letter to the Chief Secretary, Government of Tamil Nadu indicating about the amount due to the plaintiff and also complaining regarding the higher rate of interest claimed by defendant on the mobilization advance made to the plaintiff. Since the correspondence with the defendant did not evoke any positive response, the plaintiff filed a suit for realisation of a sum of Rs.2,57,51,012/- towards https://hcservices.ecourts.gov.in/hcservices/ the outstanding bills and the balance retention amount and further a sum of Rs.1,36,62,233/- towards interest at the rate of 18% on the aforesaid amount payable from the due date till the date of filing of the suit. The plaintiff also claimed further interest at the rate of 18% on the principal amount, as according to the plaintiff the work was commercial in nature. In fine, the plaintiff claimed a sum of Rs.3,94,13,245/- together with further interest on the principal amount of Rs.2,57,51,012/- at 18%. 3. A written statement was filed by the defendant, wherein it was indicated that as per the original terms and conditions, no mobilization advance was to be given to the plaintiff. But subsequently, on the basis of request of the plaintiff, mobilization advance was given with a specific condition that such advance is repayable with 17% interest. Since the Government subsequently revised the rate of interest to 18%, the difference of interest payable by plaintiff at 1% is yet to be recovered. It was further indicated that as per the contract, the plaintiff was required to point out all the defects within the Defects Liability period of 24 months and many such defects were pointed out and only after rectification of the defects and certification by the concerned officers, the withheld amount had been released to the plaintiff and retention money as regards the non-tendered items only had been kept pending and the delay in realising the retention amount was on account of the plaintiff as defects had been noticed. It was further indicated that the defendant had been taking steps with the State Government to expedite the process with regard to the "alleged bills of the plaintiff which is pending before the defendant". It was further pleaded as follows: "This defendant further submits that the agreement does not provide for payment of interest on any amount that might be found to be outstanding." In paragraph 7 of the written statement, it was further pleaded as follows:- "This defendant submits the Government vide G.O.Ms.(1D) No.35, School Education Department, dated 9.3.98 had constituted Two Man Committee comprising of two Engineers in the cadre of Superintending Engineer, one from the Public Works Department, and another from Tamil Nadu State Construction Corporation Ltd., and have referred the https://hcservices.ecourts.gov.in/hcservices/ bills of the plaintiff pertaining to non-tendered items for verification of the rates as was prevailing at the time of execution. A detailed report has also been called for from the Two Man Committee appointed for the said purpose. The report of the Two Man Committee with regard to the Aquatic complex is awaited. Only upon the receipt of the comprehensive report of the Two Man Committee could this defendant will be able to effectively traverse the various allegations made in the plaint. This defendant reserves the right to file additional written statement if any as and when the final report from the Two Member Committee is received." 4. On the basis of the aforesaid pleadings, the learned Single Judge framed the following issues:- (i) Whether the plaintiff is entitled for the amount claimed in the suit? (ii) Whether the plaintiff is entitled for interest at 18% from the date mentioned in the plaint? (iii) To what relief, if any, the plaintiff is entitled? 5. While dealing with issue Nos.1 and 2, the learned Single Judge, while discussing about the three works done as per the agreements and the work admittedly done on the basis of the oral instruction held that, the entitlement of the plaintiff to the amount mentioned in the final bill is not challenged or disputed by the defendant and therefore the plaintiff is entitled to balance of Rs.2,57,51,012/- which is the principal amount claimed by the plaintiff. Since the main dispute raised before the learned Single Judge and reiterated before this Court revolves round the question of payment of interest, the relevant findings of the Trial Court on such aspect may be extracted in detail. In paragraph 10 of the order, the Trial Court observed as follows:- "The defendant seems to question the claim of interest by stating that there is no wanton delay in payment of bills and there is also no provision in the agreements for payment of any https://hcservices.ecourts.gov.in/hcservices/ interest. But, it has been elicited from D.W.1 himself that the amount that becomes due and payable to the plaintiff, if not paid within the date of entitlement, the same is to be treated as debt and this is also found in the agreements themselves. Therefore, it is not as if that Exs.A-1 to A-3 agreements do not provide for payment of interest in case of delayed payments. Therefore, once it is admitted by the defendant that the amount of Rs.2 crores and odd has become payable and due to the plaintiff on 21.03.1996, and when the amount is not paid even according to the defendant, the plaintiff is entitled to claim interest and plaintiff has claimed interest only at the rate of 18% per annum. Even if there is no provision in the agreements, the amount has become due and if the defendant is not paying the amount which has necessitated the plaintiff to come to the Court by way of filing this suit, the plaintiff will be entitled to interest. But, here is a case where it has been stated in the agreements themselves that for the amount become payable to either party of the contract, it must be deemed to be a debt and therefore the claim of interest cannot be challenged by the defendant." 6. It was further concluded by the Trial Court that the defendant itself having recovered interest at the rate of 17% on the mobilization advance given and was claiming that the plaintiff is liable to pay a further 1% towards interest on such mobilization advance, the defendant cannot oppose the payment for interest at 17%. On the basis of the aforesaid conclusion, the Trial Court has decreed the suit. 7. Even though the entire Judgment had been challenged in appeal, the grounds raised in the memorandum of appeal revolve round the question of liability to pay interest. The learned Senior Counsel appearing at the time of hearing the appeal also confined his submission to the question of payment of interest, even though in passing he has referred to certain other aspects. These ancillary https://hcservices.ecourts.gov.in/hcservices/ aspects, we can notice first before coming to the main question raised in the appeal. 8. Before considering the questions raised, it is necessary to notice that in the Trial Court, only certain clauses of the agreement had been formally marked as exhibits, but the entire contract agreement had not been marked. The plaintiff had furnished a list of documents filed; under Order 7 Rule 14(I) of the CPC, such as Clause 14, clause 17, clause 32, clause 34 and clause 42 of the contract and apparently only those copies had been marked obviously on consent of both parties. However the three contract agreements, all dated 15.02.1995 even though furnished were not formally marked as Exhibits. Since in deciding the appeal, it is necessary to refer to the contract agreement, in interest of justice, by exercising power under Order 41 Rule 27 CPC, copy of the contract agreement relating to construction of Aquatic complex at Velacherry road is formally marked as an exhibit, on consent of the counsels appearing for both parties. It may also be noticed that the other two agreements relating to Hockey Stadium and Tennis Stadium executed on the very same day, being similar, it is not necessary to formally mark those documents, as the essential terms and conditions in all the agreements are the same. 9. The learned Senior Counsel has referred to clause 60 of the Contract Agreement, which is as follows:- "60. Arbitration: The contract for carrying out the works shall not cover Arbitration for settlement dispute(s) any arise(s). The Member Secretary, SDATN shall be the final authority in deciding all disputes between the parties to the contract. The decision of the Member Secretary/SDATN is final." 10. Relying upon the aforesaid clause, it is submitted by the learned Senior Counsel that at the time when the suit was filed, the matter was under correspondence between the plaintiff-defendant and the State Government, but before a formal decision could be taken by the Member Secretary, Sports Development Authority, Government of Tamil Nadu, the suit was filed. It is submitted by him that even though the term specifically excludes arbitration, it envisages that Secretary, Sports Development Authority, shall be the final authority in deciding all disputes between the parties to the contract and the decision of the Member Secretary is final. This, according to the learned Senior Counsel https://hcservices.ecourts.gov.in/hcservices/ excludes the jurisdiction of the Civil Court to deal with the matter. 11. We are unable to accept such submission made by the learned Senior Counsel appearing for the appellant. The clause does not purport to specifically exclude the jurisdiction of any Court. Prima-facie, it appears to be a intradepartmental mechanism to decide a particular matter. If it is construed to be akin to arbitration clause, the defendant should have raised such specific objection before the Trial Court. In the written statement, no such objection has ever been taken regarding the excluding of the jurisdiction of the Civil Court. The learned counsel has submitted that the decision of the Secretary being final, it must be taken to be implied bar. We are not inclined to accept such submission. Moreover, it is not the case of the defendant that any decision in the matter had been taken by the authority contemplated under Clause 60. The submission of the counsel for the appellant that the plaintiff could have sought for a mandamus compelling the appropriate authority to render a decision as contemplated in clause 60 is too far-fetched to merit acceptance. Such submission made by the counsel for the appellant for the first time in course of hearing of the appeal (it may be indicated that no such ground has been taken in the memorandum of appeal) deserves to be rejected. 12. The other ancillary question raised by the appellant is based on clause 34 of the Contract which relates to claim for extra, which is extracted hereunder:- "34. Claim for Extra When any instruction or decision given at site involves extra work or where the Contractor may plan to claim an extra, it shall be the responsibility of the Contractor to inform the Employer/Architect of the extra amount and get written authorisation from the Architect and or the Employer before proceeding with the work involved. Any modification carried out for expediting or simplifying work at the request of the Contractor or his representatives shall not be taken as the basis for claiming an extra. However, if such modification shall also involve an extra, the rate for such modification shall be settled in advance and written authorisation obtained by https://hcservices.ecourts.gov.in/hcservices/ the Contractor from the Employer/Architect before proceeding with the work involved. If no such information is given by the Contractor in writing to the SDATN/Architect such modification shall not be accepted as the basis for extra charge. Rates for extra items shall be determined as follows: a) If already specified he shall carry out at the same rate. b) If not specified, the rate for that item shall be derived from the rate for the nearest similar item. c) At the actual expenditure incurred in execution of the item inclusive of any taxes, octroi, etc., plus 10% (Ten percent) for contractor's profit and overhead. The actual expenditure will have basis of materials and labour as per the Tamilnadu State P.W.D. Rate Analysis. Where Schedule of rates are not available in Tamilnadu State P.W.D. Rate Analysis, the actual labour/material involved and recorded by the Architects/Employer in executing the item shall be considered. The Labour component of any non-scheduled item as per actual shall be based on Tamilnadu State PWD Rates." 13. It has been submitted by the learned counsel appearing for the appellant that in the present case, the additional work relating to Paving Block/Chain link has been done without getting written authorisation from the architect and or the Sports Development Authority. 14. So far as the written statement is concerned, the only averment on this aspect seems to be contending paragraph 6, which is to the effect that the Education Department had been addressed for the approval of the unit cost of non-tendered items and for approval of the additional quantities of tendered items. Apart from the fact that no such question has been specifically raised in the written statement even before the Trial Court, this aspect has not at all been raised. On the other hand, as observed in the Judgment, the defendant had practically conceded that amounts claimed in the final bills were payable. https://hcservices.ecourts.gov.in/hcservices/ 15. In the grounds of appeal, it has been stated as follows:- 3. It is submitted that in the Minutes of Pre-Bid Meeting, it was reduced to writing inter-alia, that Extra items would be dealt with in the following manner:- (i) For such of those items which are not governed by the Schedule of quantities, only 10% will be allowed on the actual cost. (ii) Deviation of rates will not be accepted. If there is any variation in the quantity, the same will be taken into account while settling the bills." 4. It is submitted that the Plaintiff/Respondent has all along failed to furnish any claim and evidence of actual cost of the construction materials in respect of the suit claim (extra works) and labour, so that 10% profit could be awarded to the Plaintiff. This is vital and fatal. 5. It is submitted that the suit claim is covered by Clause -34 of the Agreement. It provides for written authorisation from the architect and or employer (Appellant herein), before proceeding with extra work. The same was not followed by the Plaintiff (Contractor) and hence the suit claim is not enforceable in Court." 16. Since the bill relating to extra work has been certified, it is obvious that there is no dispute relating to the value of the extra work done. It is of course true that Clause 34 itself contemplated that a written authorisation should be obtained. However, even in the absence of a written authorisation, it is evident that the work was done admittedly on the basis of oral instruction issued by the subordinate officers of the defendant and the defendant has enjoyed the benefit of such work. It is evident that such work was executed by the plaintiff for the benefit of the defendant and the defendant having enjoyed the benefit is required to compensate the plaintiff as envisaged under Section 70 of the Contract Act and https://hcservices.ecourts.gov.in/hcservices/ therefore, the appellant cannot turn around at this stage and submit that no amount is payable. To be fair to the learned counsel appearing for the appellant, it may be stated that even though such a question was raised in passing, the learned counsel fairly submitted that the principal amount on this score is payable. 17. As already indicated, the main question raised by the appellant relates to the liability of the appellant to pay interest for the period prior to the date of the filing of the suit. The counsel for the appellant has also submitted that even though pendente lite and future interest is payable, the trial Court should not have granted such pendente lite and future interest at 18%. 18. So far as the period prior to the date of the filing of the suit is concerned, the learned counsel for the appellant has contended that the contract specifically excludes payment of interest on the amount due under the final bill. For the aforesaid purpose, the learned counsel has referred to the Appendix at page 71 of the contract agreement, with the following heading: "Summary of notice inviting tender and condition of contract". 19. The learned counsel has also invited our attention to Clause at Sl.No.12 which is to the following effect:- "12. Rate of interest for delayed payment : Nil" In this context, he has submitted that as per the subsequent correspondence dated 18.01.1995, there is a specific condition regarding payment of interest by the Contractor to mobilization advance and on the other hand Sl.No.12 of the Appendix itself contemplates no interest is payable for delayed payment. The learned counsel appearing for the respondent on the other hand has submitted that the aforesaid is construed as clause prohibiting the payment of interest for delayed payment, more particularly when it was intended that no interest is payable, it has been specifically so indicated in the contract. In this connection, he has invited our attention to Clause 16 of the general instructions and notice inviting tender which contemplates that earnest money equal to 1% of the tender value, which is equally to be paid at the time of submitting the tender will be returned without any interest if tender is not accepted. Similarly, it is pointed out by him that security deposit as contemplated in condition No.19(a) and 5% of the value of the work done withheld will be refunded after the expiry of the defects liability https://hcservices.ecourts.gov.in/hcservices/ period of 24 months. In such clause 19(a), it has been specifically indicated as follows:- "The amounts retained by the employer shall not bear any interest." This stipulation is again been reiterated in paragraph (i) and (ii) of clause 19(a). It is also further pointed out that as per Clause 33 of the Contract, relating to certificate and payment, it is indicated as follows:- "The Contract Sum adjusted as necessary in accordance with the terms of these conditions, and the difference (if any) between the two sums shall be expressed in the said certificate as a balance due to the Contractor from the Employer or to the Employer from the Contractor as the case may be, and subject to any deductions authorised by these conditions, the said balance shall as from the fourteenth day after the issue of the said certificate be a debt payable as the case may be by the Employer to the Contractor or by the Contractor to the Employer." 20. In this connection, it is submitted by him that this specifically contemplates that the balance amount 14 days after the issuance of the certificate is considered as "debt payable by the Employer to the Contractor". However, there is no specific clause that no interest is payable. According to the learned counsel for the respondent, in the absence of any specific clause, prohibiting payment of interest, as contained in respect of certain other conditions, Sl.No.12 of the Appendix cannot be considered as a clause prohibiting payment of interest and it only indicates that no specific rate of interest for delayed payment has been provided. 21. On going through the materials on record and after careful consideration of the submissions made by the counsels for both parties, we are unable to accept the submissions made by the learned counsel for the appellant that the contract specifically excludes payment of interest on the amount payable. When there are specific terms and conditions, which expressly excluded payment of interest, nothing prevented the defendant from incorporating the specific clause excluding payment of any interest on the amount payable. On the other hand, the very fact that https://hcservices.ecourts.gov.in/hcservices/ specific terms and conditions have been incorporated expressly excluding payment of interest in respect of certain contingencies will indicate and no such express exclusion in Clause 33 clearly indicates that payment of interest for the delay in payment of final bill is not specifically excluded. On the other hand, paragraph 6 of the written statement clearly states that the agreement does not provide for payment of interest on any amount found to be outstanding. In other words, the stand of the defendant at that stage appears to be that the agreement was silent on the question of payment of interest on the outstanding amount and the defendant never construed the agreement containing any prohibition regarding payment of interest. Similarly in the memorandum of appeal, it is not specifically contended that the agreement contains any condition prohibiting payment of interest. In ground No.6, it has been indicated as follows:- "It is submitted that there is no negative covenant with regard to any breach of contract in respect of payment schedule and non-payments. Therefore, Plaintiff cannot claim interest in respect of works opted by Tenders and Contract. The suit relates to Non- Tendered Works.