Lakshmichand & Balchand Vs. State of
Andhra Pradesh [1986] INSC 225 (5 November 1986)
PATHAK, R.S. PATHAK, R.S. OZA, G.L. (J)
CITATION: 1987 AIR 20 1987 SCR (1) 108 1987
SCC (1) 19 JT 1986 785 1986 SCALE (2)725
ACT:
Civil Procedure Code, 1908--Order 21, Rule
18---Power of the Court to allow set off--When is a claim rounded on doctrine
of equitable set off.
HEADNOTE:
The appellant-contractor entered into two
agreements with the respondent State for carrying out certain road repairing
works. Clause 68 of the agreement provided for preparation of the final bill of
the contractor after taking into account amounts received by him earlier, while
clause 71 permitted the State to retain or deduct money due under the contract
from an amount due to the contractor under any other contract. While the work
was in progress the contractor made certain claims in respect of loss suffered
on account of delay, escalation of rates and other heads. The arbitrator held
the contractor entitled to Rs.99 lacs. The civil court refused to pass a decree
in terms of the award.
The High Court on appeal allowed the claim to
the extent of Rs.16 lacs together with interest. The contractor claimed
recovery of decretal amount with interest in terms of the award and cost of
execution proceedings. The respondent State contested the claim contending that
a sum of Rs.22 lacs was recoverable from the appellant and claimed adjustment
against the amount due under the decree. The Executing Court held the
respondent State entitled to set off.
In the revision petition before the High
Court it was contended for the appellant that the respondent State was not
entitled to set off in execution proceedings, and that the sum of which
adjustment was sought consisted of (a) an amount claimed by respondent State as
due to it upon preparation of the final bill in respect of the contracts
covered by the award, and (b) an amount claimed by the respondent State under a
separate contract on the ground that the appellant had committed a breach of
that contract. The High Court having regard to cl. 68 of the agreement found
the respondent State entitled to set off so far as the first claim was
concerned. It justified the second claim also by reference to cl. 71 of the
contract but held that adjustment claimed could not be made against the
decretal amount but must await determination upon the arbitration.
109 In this appeal by special leave it was
contended that Order 21, Rule 18 of the Code of Civil Procedure, under which a
set off can be claimed, does not apply in terms to the present case.
Allowing the appeal in part, the Court,
HELD: 1. The Court has the power to allow a
set off in certain circumstances even in cases which do not strictly fail
within the terms of Order 21, Rule 18 of the Code of Civil Procedure. [112B]
Bhoganadham Seshaiah v. Budhi Veerabhadrayya (died) & Ors., AIR 1972 Andhra
Pradesh 134, approved.
2. The respondent State's claim to adjustment
of the amount due to it upon the preparation of the final bill is covered by
cl. 68 of the contract. What was awarded to the contractor under the decree was
an amount relating to a part only of the work entrusted to him. The contract
was still in the process of execution. Any amount claimed by him for such work
was subject to a final settlement of account on the preparation of the final
bill. The fight to payment depended on the terms of the contract. Any payment
made while the contract was still being worked out was in the nature of a
provisional payment. It was always subject to adjustment against amounts found
due on preparation of the final bill.
Such adjustment was implied in the very terms
of the contract. The High Court was, therefore, right in holding that the
amount claimed by the State Government on this count was entitled to be set off
against the decretal amount claimed by the contractor. [112C E]
3.1 The claim to adjustment of the amount
claimed on breach of another contract is rounded in the doctrine of equitable
set off but there is no evidence on record to bring the case within the operation
of the doctrine. It is not a case where cross demands rise out of the same
transaction, or the demands are so connected in their nature and circumstances
that they can he looked upon as part of one transaction. [112F G]
3.2 The benefit of cl. 71 of the contract can
be claimed only if the amount sought to. he retained is an ascertained sum, an
amount which can be readily adjusted against the amount payable under the other
contract. In the instant case, the amount sought to be adjusted had yet to be
determined as a liability against the contractor. The decision of the High
Court cannot, therefore, he sustained. [112GH, 113A]
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 4083 of 1986 110 From the judgment and order dated 13.4.1984 of the Andhra Pradesh
High Court in C.R.P. No. 3072 of 1983.
Dr. Y.S. Chitale, G.N. Narayan and N. Nittar
for the Appellant.
T.S. Krishnamurthy Iyer, T.V.S.N. Chaff and
Ms. V. Grover for the Respondent;
The Order of the Court was delivered by
PATHAK, J. This appeal is directed against the judgment and order of the High
Court of Andhra Pradesh disposing of a revision petition filed by the Appellant
in execution proceedings.
The Appellant is a contractor, who entered
into two agreements with the Government of the State of Andhra Pradesh for
providing B.T. Macadam wearing coat and seal coat along two stretches of the
Hyderabad-Vijayawada National Highway. While the work was in progress, the
contractor made certain claims in respect of the loss suffered on account of
delay, escalation of rates and other heads. The claims were referred to
arbitration. On September 4, 1979 the Arbitrator held the contractor entitled
to a sum of Rs.99,00,000 under five heads of claim. The contractor applied to
the Civil Court for making the award a rule of the Court while the State
Government prayed for setting aside the entire award.
The Civil Court set aside the award and
refused to pass a decree in terms of the award. The contractor-appealed to the
High Court, and on April 19, 1982 the High Court allowed the appeal to the
extent of one of the claims only, the claim being for loss of profit in the sum
of Rs. 16,00,000 together with interest. The appeal was dismissed in respect of
the other heads of claim.
For the realisation of the amount due under
the decree the contractor filed Execution Petition No. 48 of 1982 before the V
Additional Judge, City Civil Court, Hyderabad claiming recovery of Rs.
16,00,000 towards the decretal amount, Rs.7,80,000 towards interest in terms of
the award up to the date of the execution petition and Rs.8,691 towards costs
of the Execution Petition. The State Government filed objections, contending
inter alia that a sum of Rs.22,91,332 was recoverable by it from the contractor
and claimed adjustment against the amount due to the contractor under the said
decree. It urged that after adjusting the amount due to the State Government
the balance payable to the contractor would stand reduced to Rs.76,667. This
sum 111 together with the other deposits of the contractor with the Government
and refundable to him, viz. Rs.3,92,236 was deposited in the Executing Court.
The contractor withdrew the amount without prejudice to his rights to contest
the adjustment. The Executing Court held that the State Government was entitled
to set off the amounts claimed by it, and accordingly adjourned the Execution
Petition for further proceedings.
The contractor filed a revision petition
before the High Court and contended that the State Government was not entitled
to claim adjustment in execution proceedings. It was pointed out that the sum
of Rs.22,91,332 of which adjustment was sought by the State Government against
the amount for which the contractor had taken out execution, consisted of (a)
an amount of Rs.10,21,800 claimed by the State Government as due to it upon the
preparation of the final bill in respect of the contracts covered by the award
and (b) an amount of Rs. 12,69,532 claimed by the State Government under a
separate contract on the ground that the contractor had committed a breach of
that contract. The contractor disputed both claims. He contended that the final
bill in respect of the earlier contract had been prepared in his absence and
that he challenged the inclusion of several items in that bill. In regard to
the latter amount he urged that he was not guilty of any breach of contract.
The High Court has found that so far as the
first claim to adjustment was concerned the State Government was justified in
making it because the arbitration was effected while the work was still in
progress and the contract was in the process of execution by the contractor,
and having regard to clause 68 of the agreement final payment had to be made to
the contractor after taking into account the amount which had been received by
him earlier. The second claim to adjustment was made by the State Government
under another contract, and the High Court justified that claim by reference to
clause 71 of that contract, which permitted the Government to retain or deduct
money due under the contract from an amount due to the contractor under any
other contract. However, it held that the adjustments claimed by the State
Government could not be made against the decretal amount but must await
determination upon due arbitration.
Learned counsel for the Appellant contends
before us that the State Government is not entitled to a set off at all
because, he says, a set off can be claimed only under Order 21 Rule 18 of the
Code of Civil Procedure and that provision does not apply in terms to the
present 112 case. Learned counsel for the respondent urges, on the other hand,
that the power of the Court extends to granting an equitable set off in
appropriate cases, and the High Court was therefore justified in making the
order which it did.
We have no doubt that in certain cases the
Court has the power to allow a set off even in cases which do not strictly fall
within the terms of Order 21 Rule 18 of the Code. A Full Bench of the Andhra
Pradesh High Court has discussed the matter in Bhoganadham Seshaiah v. Budhi
Veerabhadrayya (died) and Others, AIR [1972] Andhra Pradesh 134 and has
examined at some length the circumstances in which such set off may be granted.
The facts before us, however, call for a somewhat different consideration. So
far as the first claim to adjustment is concerned, the matter is covered by
clause 68 of the contract. What was awarded to the contractor under the decree
was an amount relating to a part only of the work entrusted to him. The
contract was still in the process of execution. Any amount claimed by him for
such work was subject to a final settlement of account on the preparation of
the final bill. The right to payment depended on the terms of the contract. Any
payment made while the contract was still being worked out was in the nature of
a provisional payment. It was always subject to adjustment against amounts
found due against the contractor on preparation of the final bill. Such
adjustment was implied in the very terms of the contract. Therefore, in regard
to the adjustment claimed by the State Government on the first count the High
Court is right, in our opinion, in holding that the amount claimed by the State
Government, as determined on arbitration, was entitled to a set off against the
decretal amount claimed by the contractor, and that payment of the decretal
amount was to be subject to such adjustment.
In regard to the claim to adjustment on the
second count the position is more controversial. The claim is rounded in the
doctrine of equitable set off, but we do not find evidence before us to bring
the case within the operation of the doctrine. It is not a case where cross
demands rise out of the same transaction or the demands are so connected in
their nature and circumstances that they can be looked upon as part of one
transaction. Nor can assistance be derived from clause 71. The benefit of that
provision can be claimed only if the amount sought to be retained is an
ascertained sum, an amount which can be readily adjusted against the amount
payable under the other contract. Here, the amount sought to be adjusted has
yet to be determined as a liability against the contractor. It has been
disputed by the appellant. Accordingly, clause 71 cannot be invoked. In the
result, the decision 113 of me High Court in respect of the adjustment of Rs. 12,69,532
cannot be sustained.
In the circumstances, the appeal is allowed
in part, the judgment and order of the High Court is modified in so far that
while the adjustment claimed by the State Government on the basis of the final
bill relating to the contract covered by the award is maintained, the direction
in respect of the adjustment of the claim made under the other contract is set
aside. The parties will bear their own costs.
P.S.S. Appeal allowed.
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