Partly allowed

M/S Nischal Constructions v. the Vice Chancellor

Karnataka HC26 Jul 2024RFA/108/2019

Case brief

AI extract

What is this about?

Contractor sued a university for unpaid balance and claimed 18% interest on withheld amounts after completing tender works. The court upheld 6% interest on the deducted sum, finding the CPWD GCC clause was not part of the contract, but increased compensation for delayed payment from Rs.2 lakh to Rs.6 lakh.

What did the court decide?

Impugned decree modified: appellant entitled to Rs.6,00,000 (cumulative loss of profit, legal expenses etc.) instead of Rs.2,00,000, payable within twelve weeks; no costs.

M/S Nischal Constructions Vs the Vice… — Public Procurement and Tenders | Karnataka HC (2024)

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 26^TH DAY OF JULY, 2024

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PRESENT

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THE HON'BLE MR JUSTICE V KAMESWAR RAO

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AND

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THE HON'BLE MR JUSTICE C M JOSHI

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RFA NO. 108 OF 2019(MON)

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BETWEEN:

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M/S. NISCHAL CONSTUCTIONS, A PROPRIETARY CONCERN, REPRESENTED BY ITS PROPRIETOR,

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SRI.G.C.RAMACHANDRA, S/O. SRI.CHENNIGARAYAPPA, R/O. NO.111, 16^TH CROSS ROAD, 11^TH MAIN ROAD,

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NEAR LAKSHMIKANTHA KALYANA MANTAPA, PADMANABHANAGAR, BANGALORE – 560 070.

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…APPELLANT

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(BY SRI. AMITH L.M, ADVOCATE FOR SRI. L.M. CHIDANANDAYYA, ADVOCATE)

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AND:

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THE VICE CHANCELLOR, TUMKUR UNIVERSITY, VISHWAVIDAYALAKARYALAYA, B.H.ROAD, TUMAKURU.

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TUMKUR UNIVERSITY, REPRESENTED BY ITS REGISTRAR, VISHWAVIDAYALAKARYALAYA, B.H.ROAD, TUMAKURU.

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THE REGISTRAR, TUMKUR UNIVERSITY, VISHWAVIDAYALAKARYALAYA, B.H.ROAD, TUMAKURU.

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EXECUTIVE ENGINEER, TUMKUR UNIVERSITY, VISHWAVIDAYALAKARYALAYA, B.H.ROAD, TUMAKURU.

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FINANCE OFFICER, TUMKUR UNIVERSITY, VISHWAVIDAYALAKARYALAYA, B.H.ROAD, TUMAKURU.

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…RESPONDENTS

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(BY SRI. PALLAVA R., ADVOCATE FOR R1 TO R3, R4 AND R5 SERVED, BUT UNREPRESENTED)

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THIS APPEAL IS FILED UNDER SECTION 96 OF THE CODE OF CIVIL PROCEDURE AGAINST THE JUDGMENT AND DECREE DATED 27.08.2018 PASSED IN OS 81/2016 ON THE FILE OF THE III ADDITTIONAL SENIOR CIVIL JUDGE AND JMFC., TUMKUR PARTLY DECREEING THE SUIT FOR RECOVERY OF MONEY.

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THIS APPEAL HAVING BEEN HEARD AND RESERVED ON 14.06.2024, COMING ON FOR PRONOUNCEMENT OF JUDGMENT THIS DAY, THE COURT DELIVERED THE FOLLOWING:

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CORAM: THE HON'BLE MR JUSTICE V KAMESWAR RAO AND THE HON'BLE MR JUSTICE C M JOSHI

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CAV JUDGMENT

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(PER: THE HON'BLE MR JUSTICE V KAMESWAR RAO)

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This Regular First Appeal (‘RFA’ in short) has been filed by the appellant herein assailing the judgment of the Court of III Additional Senior Civil Judge and JMFC, Tumakuru in OS No.81/2016, whereby the learned Trial Court had decreed the suit partially with cost.

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The appeal has been filed to the extent of Judgment & Decree denying the interest on Rs.2,67,217/at 18% p.a. and also interest of Rs.20,09,275/- being 18% on the paid amount and the loss of profit and the legal expenses claimed by the appellant in the aforesaid suit.

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Some of the facts to be noted in this judgment are, Respondent No.1 is the University established by the Government of Karnataka under the Karnataka State Universities Act. The other respondents are the functionaries of Respondent No.1. The respondents invited

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E-Bids in order to undertake the repair works of underground drainage, water supply and electricity connection to the Faculty Guest House at Tumakuru University.

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The case of the appellant-M/s. Nischal Constructions (‘Company’ for short) before the Trial Court was that, it had obtained the Tender Form and submitted its Tender through Techno-Commercial Bid and the price bid on 22.03.2013 to the respondents. The appellant was the sole bidder to the said work of the respondents. Accordingly, it qualified for the said work for a sum of Rs.56,40,125/- which was the lowest one. Thereafter, the respondents have placed the quotation of the appellant before the Syndicate of the University and passed a resolution accepting the Bid of the appellant for a sum of Rs.56,40,125/-. Thereafter, on 29.03.2013, Respondent No.1 on behalf of University, had issued Letter of Acceptance and called upon the appellant to sign the agreement in terms of Para No.24.4 of invitation Bid.

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It was the case of appellant, as per the terms of agreement, the period of completion of the project was

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fixed as three months from the date of agreement. But, the respondents instructed the appellant to complete the work within 30 days due to urgency and accordingly, the appellant has mobilized the huge resources for the purpose of executing the project work within 30 days.

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It was the case of the appellant that, it had completed the entire work on 28.04.2013 in less than 30 days from the date of entrustment of the project work. It was also the case of the appellant that, the respondents issued Work Completion Certificate intimating that, the appellant has completed the entire work at Rs.56,40,125/-.

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It was also the case of the appellant that, the project work was for a higher consideration and there was no denial of payment to the said work. Therefore, there was a contractual obligation on the part of the respondents to pay bill amount without any delay.

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The stand taken by the appellant was that, as per the terms and conditions of the contract, the bill shall be paid within 60 days from the date of submission of the Bill. It after completing the entire project work, had submitted the first and final bill on 28.04.2013 to the

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Executive Engineer as per the terms and conditions of the agreement.

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Thereafter, the Executive Engineer cross-checked the said bill with reference to the bills of quantity in the tender and certified the bill for payment of Rs.56,39,678.81. However, the Vice Chancellor, without any basis, had on 13.01.2015, placed the Bill before the Syndicate of University. The Syndicate passed a resolution for payment of Rs.56,25,322.50 to the appellant.

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It was the case of the appellant that there was no authority to the Vice Chancellor to deduct a sum of Rs.2,67,217/- from the running account bill submitted by the appellant. It was stated that the Vice Chancellor without any authority, passed an order on 05.05.2015 directing to deduct Rs.2,67,217/- by falsely stating that the plaintiff has not executed the work to the tune of Rs.2,67,217/-. Accordingly, payment of Rs.53,58,107-50 was made on 08.03.2015.

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The appellant addressed a letter to the respondents dated 01.06.2015 for payment of the balance

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amount together with interest. However, the respondents had not taken any steps in spite of receiving said letter.

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It was the case of the appellant that the respondents have illegally delayed payment of its final bill amount and illegally withheld the balance amount of Rs.2,67,217/- without any proper reason.

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The appellant got issued a legal notice calling the respondents to make payment of the balance amount of Rs.2,67,217/- with interest at 18% p.a. Further, the interest at the rate of 18% p.a., on the delayed payment of Rs.53,58,107-50 to the tune of Rs.20,09,275/- was claimed apart from loss of profit on account of blockade of funds to the tune of Rs.25,00,000/- and legal expenses of Rs.5,00,000/-.

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The non-payment of the aforesaid amount has resulted in filing of the suit, wherein the impugned judgment and decree has been passed.

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The case of the respondents before the trial Court was that the, Tender Notification dated 19.02.2013 was issued. The said tender was allotted to the appellant

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for contract price of Rs.56,40,125/-. They have also issued the Letter of Acceptance to the appellant dated 29.03.2013. On the aspect of deduction of Rs.2,67,217/- is concerned, their case was that the appellant has not done the project work properly and as such, they have held-up the said amount as per the opinion of the Senior Engineer and paid the entire amount to the appellant by obtaining permission from the committee and there was no balance amount due for payment to the appellant.

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Based on the pleadings of the parties, the Trial Court had framed eight issues in the following manner:-

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i) Whether plaintiff proves that it has completed the tender work as per the tender contract?

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ii) Whether plaintiff proves that it has submitted first and final bill within time?

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iii) Whether plaintiff proves that the defendants are due to pay bill amount of Rs.2,67,217/- to him?

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iv) Whether plaintiff proves that the defendants are liable to pay interest of 18% p.a. to the plaintiff on dues as claimed?

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v) Whether plaintiff proves that the defendants are liable to pay interest on delayed payment, loss of profit on account of blockade of funds and legal expenses as claimed?

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vi) Whether defendants prove that the plaintiff has not executed the tender work as per agreed quality and quantity?

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vii) Whether the plaintiff is entitled for the reliefs as prayed?

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viii) What order or decree?

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The Issue Nos. 1, 2, 3, 4, 5 & 7 have been decided partially in the affirmative. Issue No.6 was decided in the negative. Issue No.8 was decided as per the final order.

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Suffice to state, the Trial Court has granted an amount of Rs.2,67,217/- to the appellant with interest at the rate of Rs.6% p.a., from the date of suit till realization. The Trial Court has also granted an amount of Rs.2,00,000/- towards loss of profit on account of delay in payment of bill amount, the legal expenses and other charges to the plaintiff. While granting interest of 6% p.a., instead of 18% p.a., as was claimed by the appellant, the

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conclusion of the Trial Court was that, there is no conclusive proof that the respondents have agreed for payment of the amount with interest at the rate of 18% pa., in the event of default.

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In so far as claim for Rs.20,09,275-00 (which is a claim of interest at the rate of 18% p.a. on Rs.53,58,10750) as interest, on the ground that there is delay of 25 months in payment of the said amount is concerned, the Trial Court has granted an amount of Rs.2,00,000/- under the head ‘Loss of Profit’ on account of delay in payment of bill amount/legal expenses and other charges.

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The submission of the learned counsel for the appellant is primarily is that the denial of 18% interest on the amount of Rs.2,67,217/- and also denial of claim of Rs.20,09,275/- which claim is on the basis of entitlement of interest at the rate of 18% p.a., from 28.04.2013 to 08.05.2015 for 25 months is completely illegal and without authority of law and contrary to the material evidence produced by the appellant before the Trial Court.

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He qualifies his submission by stating that, the Trial Court has failed to consider that it having given a

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finding that the deduction of Rs.2,67,217/- is illegal, it ought to have granted interest at the rate of 18% p.a., from the date of submission of the bill till payment. According to him, the Trial Court failed to consider that, under Clause (33) of GCC, there is a contractual obligation on the part of the respondents to make payment of bill within 60 days from the date of submission of the bill. The amount of Rs.2,67,217/- was not paid even on the receipt of the legal notice as on the date of the suit.

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Therefore, the appellant is entitled to interest at the rate of 18% p.a.. He submitted that the appellant had made huge investments for completing the project work. Therefore, the appellant’s entitlement of interest from the date of submission of bill is genuine and could not have been denied by the Trial Court. According to him, the appellant produced the documents to show that the appellant had suffered on account of breach committed by the respondents. That apart, there is no justifiable reason to delay the payment of the final bill for a period of 25 months.

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In fact, he stated, it is because of the processes undertaken by the University, (i) by appointing Sri. H.C. Shivakumar, the Retired Executive Engineer as One Man Commission, who had verified and found that the appellant had completed the work and recommended payment of Rs.56,39,678.81, and (ii) the Vice Chancellor placed the matter before the Syndicate of University, which also carried out inspection of the work to assess the quality though not contemplated in the contract and if such a process has been undertaken, i.e., at the risk of the respondents, it could not have caused prejudice to the appellant resulting in the delay of payment for 25 months.

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In fact, he heavily relied on the fact that, even when the Syndicate has recommended the release of the bill for an amount of Rs.56,39,678-81, the Vice Chancellor could not have deducted the amount of Rs.2,67,217/-.

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According to him, the appellant is entitled to the interest at the rate of 18% p.a. on Rs.2,67,217/- and on Rs.53,58,107.50 (for 25 months), which has been denied to the appellant by the Trial Court, by granting 6% interest and an amount of Rs.2,00,000/- under different heads,

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which according to the counsel is a perverse finding overlooking the stipulation in the GCC, more particularly, which contemplates release of the bill within 60 days of its receipt.

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In support of his submissions, learned counsel has relied upon two Judgments of the Supreme Court in the case of State of Haryana and Others Vs. S.L. Arora and Company reported in (2010) 3 SCC 690 and also in Executive Engineer Dhenkanal Minor Irrigation Division, Orissa and others reported in (2001) 2 SCC 721. He also relied upon the judgment in the case of Secretary, Irrigation Department, Government of Orissa and others Vs. G.C. Roy and connected appeal, reported in (1992) 1 SCC 508 , in support of his submissions.

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On the other hand, learned counsel for the respondents would contest the appeal filed by the appellant by stating that, there is no illegality in the judgment and decree passed by the Trial Court. He stated the plea of the learned counsel for the appellant on the provision of GCC to contend that, the time stipulated for payment of final bill

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was within 60 days of its presentation is a misconceived plea as no such stipulation is provided in the agreement. According to him, the GCC on which reliance has been placed by the learned counsel for the appellant, has been issued by CPWD for its own works. The said GCC was not the part of the contract between the parties.

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It is his submission that, the grant of interest is a discretion that lies with the Trial Court, more so when interest has not been prescribed in the contract/agreement/statutory provision.

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He submitted in the background of aforesaid facts, it has to be seen whether the Trial Court was justified in granting interest at 6% pa., on the amount of Rs.2,67,217/-. According to him, the discretion exercised by the Trial Court is not illegal as there is some basis for grant of the same.

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That part, it is his submission that, when there is no stipulation in the contract, for release of the payment as per the bill within 60 days, if the respondents after following the due process ensuring that the appellant has completed the work as per the tender documents by

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appointing One Man Committee and also through the process of Syndicate of University which concluded that there was a defective work, resulted in withholding of an amount of Rs.,2,67,217/-, the action of the respondents cannot be contested. He do concede to the fact that the respondents have not filed any appeal against the judgment and decree. In any case, it is his submission that the judgment and decree of the Trial Court is justified and should not be interfered with. In support of his submissions, he has relied upon the Judgment of the Supreme Court in the case of Continental India Private

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Limited Vs. General Manager, Northern Railway

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reported in 2 022 SCC OnLine SC 922 .

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ANALYSIS

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Having heard the learned counsel for the parties and perused the record, the question which arises for consideration is, whether the Trial Court is justified in awarding interest on Rs.2,67,217/- at the rate of 6% p.a., and also awarding Rs.2,00,000/- towards loss of profit on account of delay in payment of bill amount, legal expenses and other charges, instead of the claim of the appellant for

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interest at the rate of 18% p.a., on Rs.2,67,217/- and also for interest at the rate of 18% on the delayed payment of Rs.53,58,107.50 quantified as Rs.20,09,275/- and for loss of profit on account of blockade of funds of Rs.25,00,000/and legal expenses of Rs.5,00,000/-.

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The plea of the learned counsel for the appellant is, primarily as the claim of the appellant was on the basis of a commercial contract and as per Clause 33 of the GCC, the final bill dated 28.04.2013 having not been paid within 60 days from the date of submission, the Trial Court erred in not granting interest at the rate of 18% in the manner claimed.

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The plea is also that the Trial Court has failed to consider that, under Clause 33 of the GCC, the respondent/University had to make payment of bill within 60 days from the date of submission of the bill. So his submission is that, Rs.2,67,217/- which is with-held amount having not been paid within 60 days with effect from 28.04.2013 and also the amount of Rs.53,58,107.50, having been paid after 60 days, the appellant is entitled to the interest at the rate of 18% p.a.

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On the other hand, the learned counsel for the respondents has disputed the applicability of the GCC to contend, the same is a part of tender issued by CPWD. In that sense, clause 33 is not part of the tender documents in respect of the work in question and hence, it has no applicability.

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We agree that the submission of the learned counsel for the respondents for the reason, it has not been shown that GCC was made part of the contract. In fact, the appellant in its written submissions before the Trial Court has stated that the respondents have not denied Clause-33 in their written statement. Suffice to state an existence of a clause in contract has to be established from the document itself and not on the basis of pleadings. It follows the conclusion of the Trial Court (at Page No.61 of the appeal) on payment of interest is justified.

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Having said so, the issue which now has to be decided is even if interest at the rate of 18% is not an obligation under the contract, whether the Trial Court has erred in exercising its discretion to grant interest at the rate of 6% p.a., and not 18% p.a.?

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We must state that, the present proceedings arises from the proceedings initiated before the Civil Court and not from an award rendered by an Arbitrator. In that sense, the provisions of Arbitration and Conciliation Act, 1996 in so far as grant of interest by an Arbitrator, are not applicable.

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The above has been stated by us because, the learned counsel for the appellant has heavily relied on the judgment of the Supreme Court in support of his submission for grant of interest at the rate of 18% p.a. The Supreme Court in State of Haryana Vs. S.L. Arora and Company (supra) has inter alia held that the power of the Arbitral Tribunal under the old act to award interest was for post decree. The power of the Trial Court to award interest is governed by the Interest Act, 1978 and the Supreme Court in the aforesaid case has held in Paragraph22 that the principles relating to award of interest, in general, are not different for the Courts and the Arbitral Tribunals, except to the extent indicated in Section 31(7) of the Act and the Civil Procedure Code.

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In the case on hand, we are concerned with the discretion exercised by the Trial Court to award interest at the rate of 6% p.a. Concedingly, there is no stipulation for payment of interest in the contract at least nothing has been shown to us in that regard. In that sense, it has to be seen whether the discretion exercised by the Trial Court is justified. The grant of interest at the rate of 18% p.a., as sought by the appellant is not the normal rate of interest, nor such an interest rate is prescribed in Section 34 of CPC. Further, the appellant has not produced any document showing the respondents have agreed to pay 18% interest in the event of breach of contract.

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We note, Courts have on facts granted interest at 6% P.A. In that sense, the grant of 6% of interest is permissible on facts. In this case the Trial Court, while granting 6% interest has not given any justification. Be that as it may, we are of the view, since the respondent No.1 is a University (educational institute), any grant of interest, above 6% shall put financial burden on it more so when the University functions survive on the grant-in-aid provided by the Government. As such, the grant of 6% interest and

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denial of 18% interest by the Trial Court, cannot be faulted. It follows the grant of interest at 6% p.a., on the amount of Rs.2,67,217/- is justified. The question would be whether the grant of Rs.2,00,000/- against loss of profit, on account of blockade of funds, legal expenses etc., and not in the manner claimed by the appellant is justified. The claim of the appellant is also for interest on the amount of Rs.53,58,107-50/-. Though the same has been claimed at 18% p.a., in view of our above conclusion, even if the appellant is not entitled to 18%, still the appellant shall be entitled to interest at 6% p.a., because of delay in making payment of Rs.53,58,107-50/-. The amount Rs.2,00,000/granted by the Trial Court is under different heads. The same includes loss of Profit because of blockade of funds, legal expenses etc. We note, there is no justifiable reason given by the respondents to pay the amount of Rs.53,58,107-50/- after 25 months. The procedure evolved by the respondents of constituting a one man Committee and placing the matter before the Syndicate is not a stipulated procedure under the agreement and the same could not have resorted to, which delayed the release of the payment of Rs.53,58,107-50. So, the delay having

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occurred in payment, the issue is whether the Trial Court is justified in awarding Rs.2,00,000/- as a lump-sum amount for loss of profit because of blockade of funds, legal expenses etc. The answer has to be in the negative for the reason, even if interest for 25 months of delay in releasing Rs.53,58,107-50/- is calculated at 6% p.a., then also the amount shall be approximately Rs.6,50,000/- which is much higher than the amount granted by the Trial Court. So, the grant of Rs.2,00,000/- for loss of profit, blockade of funds, legal expenses cannot be countenanced. To that extent the grant of Rs.2,00,000/- by the Trial Court is unsustainable. The amount need to be increased to Rs.6,00,000/- (as a cumulative amount) for loss of profit, legal expenses etc. We limit the amount to Rs.6,00,000/keeping in view the fact that respondent No.1 is an Educational Institution.

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So, to that extent, the impugned judgment and

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decree is modified. The appellant shall be entitled to an amount of Rs.6,00,000/- and not Rs.2,00,000/-. The same shall be paid within twelve weeks of the receipt of Certified Copy of this order.

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Decree sheet be prepared accordingly.

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No costs.

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Sd/(V KAMESWAR RAO) JUDGE

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Sd/(C M JOSHI) JUDGE

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KGR*

M/S Nischal Constructions v. the Vice Chancellor

Case brief

What is this about?

What did the court decide?

M/S Nischal Constructions v. the Vice Chancellor

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Cases cited

Statutes considered

Parties & counsel

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