Central Bank of India Vs Messrs. Ashoka Constructions

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 IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO.5366 OF 2006

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 Central Bank of India ..Petitioner.
 Vs.

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 Messrs. Ashoka Constructions ..Respondents.

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 Mr.A.Y.Sakhare, Sr.Counsel i/b T.N.Tripathy & Co. ,
 adv. for the Petitioner.

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 Mr.R.S.Apte i/b A.A.Garge, advs. for the Respondents.

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 WITH
 WRIT PETITION NO.3254 OF 2006

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 M/s. Ashoka Constructions ..Petitioners.
 Vs.

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 Central Bank of India ..Respondent.

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 Mr.R.S.Apte i/b A.A.Garge, advs. for the Petitioners.

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 Mr.A.Y.Sakhare Sr.Counsel i/b T.N.Tripathy & Co., advs.
 for the Respondent.

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CORAM : J.H.BHATIA, J.
DATE : AUGUST 7, 2007.

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 P.C.:

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 1. Heard the learned counsel for the Parties.

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 2. The Central Bank of India had given a contract
 to M/s.Ashoka Constructions (Hereinafter referred to as
 ’Contractor’) for construction of building. That
 construction was completed sometimes in the year of
 1995 and some payments were also made. However, there
 was dispute about the final bill and the balance amount
 to be paid and the matter was referred to the Sole

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 Arbitrator. The Sole Arbitrator passed an award on 3rd
 April, 1999 holding that the total amount of Rs.
 30,43,743/- was due from the bank to the contractor.
 This included the amount of revised final bill,
 interest thereon from the date when the bill had became
 due till the matter was referred to the Arbitrator and
 also the interest on the amount from the date when the
 matter was referred to the Arbitrator till date of
 award. The learned Arbitrator directed the bank to

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 make the payment of the said amount within 30 days and
 also directed that failing to pay the amount within the
 stipulated period, the amount shall carry interest at
 the rate of 18% per annum from 4-5-1999 till the date
 of actual payment. This award was challenged by the
 bank and in C.M.Application No.241 of 1999, the IIIrd
 Additional District Judge, Nashik modified the award in
 respect of the amount deleting the claim on account of
 rise in price due to the Gulf War. As per the order
 passed by the IIIrd Additional District Judge, Nashik,
 the bank was liable to pay Rs.24,41,950/- in stead of
 the amount awarded by the Arbitrator. In Clause 3 of
 the order, the learned IIIrd Additional Sessions Judge
 stated "The award be modified accordingly, to the
 extent of aforesaid extent only and rest part of it is
 confirmed". It appears that the contractor moved the
 IIIrd Additional District Judge, Nashik pointing out
 some mistake in the calculation of amount and after

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 hearing the parties, the learned IIIrd Additional
 Sessions Judge passed the order dated 14-8-2003 and
 corrected the amount payable as follows:

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 . The amount payable by the Bank to the
 contractor, is as under:-

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 (A) Net amount payable as per
 final bill Rs.13,72,448.00
 (B) Post-interest Rs. 8,55,505.00
 (C) Pendente lite interest Rs. 2,43,742.50

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 ________________
 Total Amount Rs.24,71,695.50
 ================

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 3. Thus, as per this order total amount payable by
 the bank to the contractor was calculated to be
 Rs.24,71,695.50 paise. Thereafter, the matter was
 taken to the IVth Ad-hoc Additional District Judge,
 Nashik and the impugned order was passed on 17-3-2006.
 It appears that the bank had made the payment of
 Rs.24,41,950/- on 25-7-2003. Second payment to the
 tune of Rs.29,21,629.32 was made on 14-10-2005 and the
 last payment of Rs.29,745/- was made on 30-01-2006.
 The contractor made certain calculations, which were
 not acceptable to the IVth Additional District Judge.
 Taking into consideration the payments made, the
 learned IVth Additional District Judge directed that
 whole of the amount of Rs.24,71,695/- shall carry
 interest at the rate of 18% per annum from 4-5-1999 to
 25-7-2003, the date when the first payment was made and

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 only on amount of Rs.29,745/-, interest be paid from
 26-7-2003 to 14-10-2005. It appears that the learned
 Judge first adjusted the payment towards the principal
 amount and directed to calculate interest only on the
 balance amount.

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 4. The learned Senior Counsel for the bank
 contended that only on the principal amount, i.e.,
 final bill amount, future interest could have been
 awarded and, therefore, calculation of interest on
 whole of the amount of Rs.24,71,695/- is not correct.
 On the other hand, the learned counsel for the
 contractor contended that the award had already became
 final and, therefore, the Executing Court can not go
 beyond the said award, which had became the decree and,
 therefore, whole of the amount has to be considered for
 the purpose of calculation of future interest. His
 grievance is that the learned trial Court committed
 error in appropriating the payment made by the bank,
 first towards the principal amount and directing to pay
 only the balance amount of interest. According to him,
 as per law the contractor has liberty to appropriate
 the amount first towards the interest and as long as
 principal amount is not paid, it is liable to future
 interest.

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 5. After hearing the learned counsel and after

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 perusal of the record, I find that the award passed by
 the Arbitrator with two modifications made by the IIIrd
 Additional District Judge had already became final and,
 therefore, the terms of award can not be the subject
 matter of the present writ petition. The Arbitrator
 had clearly included the interest on principal amount
 being the final bill, interest on the same from the
 date when the amount had became due till the matter was
 referred to the Arbitrator and the interest from the
 date when the matter was referred to the Arbitrator
 till its decision in the award amount. Whole of that
 amount had became principal amount for the purpose of
 future interest. It is settled that interest on the
 principal amount, which has accrued before filing of
 the suit becomes a part of the interest for future
 interest . However, normally interest on such

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 principal amount from the date of suit till the date of
 decree is not merged in the principal amount for the
 future interest. If the award would have been
 challenged, possibly it could be rectified but as the
 award has become final subject to two modifications,
 now no correction can be made and it must be held that
 even amount of interest on the principal amount from
 the date of reference of the matter to the Arbitrator
 till the date of award has become a part of the
 principal amount for the purpose of calculation of the
 future interest. Therefore, future interest will have

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 to be calculated from 4-5-1999 on the total amount of
 Rs.24,71,695/-. In view of this, I find no substance
 in the objection taken on behalf of the bank.

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 6. The learned counsel for the Contractor has

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 rightly contended that the creditor is entitled to
 appropriate the amount of payment first towards the
 interest of cost and then to the principal amount and
 he is supported by M/s. Industrial Credit and
Development Syndicate v. Smt. Smitaben H. Patel and
others AIR1999 Supreme Court 1036. Therefore,
 whatever payments are made, they are liable to be first
 adjusted towards the interest amount and then towards
 the principal amount.

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 7. In view of this, the following order will meet
 the ends of justice:

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 8. Interest at the rate of 18% per annum shall be
 calculated on the amount of Rs.24,71,695/- from
 4-5-1999 till 25-7-2003 as stated in the impugned
 order. The payment made by the bank on 25-7-2003 of
 Rs.24,41,950/- shall be reduced from the total of
 aforesaid principal amount and the interest thereon
 upto that date and the balance amount, within the limit
 on principal amount, shall continue to carry interest
 at the rate of 18% per annum till 14-10-2005 when the

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 second payment of Rs.29,21,629.32 was made and if still
 there was some amount due, it will continue to carry
 interest at the rate of 18% per annum till the amount
 is fully satisfied. In case, the bank has made excess
 amount, the same shall be refunded. In case, the
 amount deposited by the bank with the Court is
 invested, the same shall be paid to the contractor with
 interest. With aforesaid directions, both the
 petitions stand disposed off.

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 9. At this stage, the learned senior counsel makes
 a request to stay payment to the contractor for four
 weeks. I see no justification for such request.

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 Request stands rejected.

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[J.H.BHATIA, J.]

Central Bank of India v. Messrs. Ashoka Constructions

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Central Bank of India v. Messrs. Ashoka Constructions

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