Ram Prasad Vs. Govt. of Andhra Pradesh  INSC 605 (23 November 1994)
K. Ramaswamy, K. Reddy, K. Jayachandra (J)
1995 SCC (1) 418 JT 1995 (2) 86 1994 SCALE (5)42
These appeals by special leave arise from the judgment of the Division Bench of
the Andhra Pradesh High Court in Memo of Cross Objection in C.M.A No.191/75
dated 23.4.75. The appellant had entered into a contract on 16.3.65 to
construct food grains godown at Karimnagar. In execution thereof, a dispute had
arisen whether the appellant had executed the work as per the contract and is
entitled to certain sums of money withheld by the engineer and also to the
interest payable thereon at 12% etc. The dispute has been referred to the Arbitrator,
a retired Chief Engineer, who in his Award dated 12.4.72 awarded a sum of Rs.27,776/
- with interest at 12% on the amounts wrongfully withheld by the Engineer. We
are concerned in these appeals only with the entitlement of interest on the
amounts withheld by the engineer. The Division Bench concluded, while negativing
the claim for interest, thus:
are, however, inclined to agree with the first ground given by the Court below
in negativing the claim for interest. Under clause 69 of M.D.S.S. which has to
be treated as part of the contract, it is provided "nor shall the
contractor be entitled to interest upon any guarantee fund or payments in
arrears, nor upon any balance which may, on the final settlement of his
accounts, be found to be due to him". Even if it is assumed that the
recoveries from the bills were wrongfully made, such sums would be sums which
would be found due to the contractors on the final settlement of
are not concerned with the correctness of the views expressed on other issues
as the State did not file appeals.
Rao, the learned counsel for the appellant contended that when the appellant
had executed the work within the period- in terms of the contract, and the
officials of the respondent had wrongfully withheld the due payment on the
respective dates, the appellant is entitled to the interest on the amounts
wrongfully withheld. He further contends that clause 69 of the M.D. S. S.. is
inapplicable to the facts of this situation. In support thereof, he places
reliance on the judgment of a learned single Judge of that Court reported in
A.P.S.R.TC. v. P. Ramana Reddi, 1989 (1) ALT 195.
question, therefore, is whether the appellant is entitled to payment of
interest from the respective dates on which the amounts were withheld by the
concerned engineer and the dispute is arbitrable? 4. Clause 69 of M.D.S.S.
Interest on money due to the con- tractor:- (a)No omission by the Executive
Engineer or the Sub-Divisional officer to pay the amount due upon certificates
shall vitiate or make void the contract, nor shall be contractor be entitled to
interest upon any guarantee found or payments in arrear, nor upon any balance
which may, on the final settlement of his accounts, be found to be due to him".
reading of this clause gives an indication that interest on money due to the
contractor was negatived in the following circumstances:
omission by the Executive Engineer or Sub-Divisional officer to pay the amount
due upon certificates shall not vitiate or make the contract void;
contractor shall not be entitled to interest upon:
in arrears; and
any balance which may on final settlement of his account to be found to be due
question is whether the contractor is entitled to the payment of interest on
the amounts wrongfully withheld from the respective dates. Clause (c) of the
second part of clause 69 of the MDSS would indicate that there should be a
final settlement of the account and upon its settlement, if it is found to be
due and payable to the contractor, on such amount also the contractor is not
entitled to the payment of interest as contracted under clause 69 of the NOSS.
When such is the position, whether the contractor is entitled to payment of
interest on mere making a claim and reference made to the arbitrator and
whether the arbitrator gets jurisdiction to award interest on the amount due
from the respective dates on which the payments were withheld by the concerned
engineer? 6. It is true that the learned single Judge of the A.P.
Court appears to have considered the question and the construction of clause 69
was put up is in favour of the contractor as contended for. It is not a correct
construction put up on clause 69 of MDSS is not correct.
on the facts in that case there does not appear to be any dispute as to the
amount due. Therefore, the learned judge had proceeded that since the contract
provides for withholding the payment for a suspended period of six months, if
the amount is withheld beyond that period, the contractor would be entitled to
the payment of interest.
is not the factual scenario in this case. The very dispute is whether the
appellant is entitled to the Payment of the amount pursuant to the contract.
The claim of the State appears to be that the appellant had not constructed the
godown in accordance with the specifications and that, therefore, they withheld
the payment. Unless the dispute is resolved and the amount is found due, the
contractor is not entitled to the payment of it. Thereon interest in terms of
clause 69 of the MDSS is contracted out. When such be the position, then mere
reference does Five jurisdiction to the arbitrator to award interest to the
period prior to the reference.
This Court in Executive Engineer (Irrigation) v. Abhaduta Jena, 1988 (1) SCC
418, in para 20 held that:
the remaining cases which arose before the commencement of the Interest Act,
1978, the respondents are not entitled to claim interest either before the
commencement of the proceedings.......... They are not entitled to claim
interest for the period prior to the commencement of the arbitration
proceedings for the reason that the Interest Act, 1839 does not apply to their
cases and there is no agreement to pay interest or any usage of trade having
the force of law or any other provision of law under which the claimants were
entitled to recover interest".
ratio was followed by another Bench of this Court in State of Orissa v. Niranjan Swain, 1989 (4) SCC
269. In Secretary, Irrigation Department v. G.C. Roy, 1992(1) SCC 508, the
Constitution Bench was concerned with the case whether the contractor is
entitled to interest pendente lite. The controversy, therefore, centres round
the question whether the contractor is entitled to the interest pendente lite.
The ratio therein, therefore, has no relevance for the purpose of this case.
The ratio in Jena's case on the above 89 quoted ratio
is still good law. Accordingly, we are of the view that the contractor is not
entitled to payment of interest in terms of clause 69 of NDSS for the period
anterior to the reference for arbitration until the final settlement of the
amount due to the contractor of his account is determined. In this case that
dispute was determined by the arbitrator in his award.Therefore, from the date
of withholding till the date of award the appellant is not entitled to the
payment of interest. The arbitrator has no jurisdiction to arbitrate that
dispute. The Division Bench, therefore, rightly negatived the claim for
appeals are accordingly dismissed, but in the circumstances, without costs.