Holding

Payments must be appropriated strictly in accordance with the decree’s direction; where the contractor had already applied payments to principal, he cannot later re‑allocate them to interest, and no further interest is payable absent a specific decree provision.

Summary

The Kerala State Electricity Board (KSEB) contracted with Kurien E. Kalathil to construct a dam, after which a government notification raised minimum wages, leading the contractor to claim labour‑escalation charges with interest (Ex.P‑20) and additional work charges (Ex.P‑59). The High Court ordered KSEB to pay amounts under both exhibits, including future interest, and referred the parties to arbitration despite no arbitration agreement. On appeal, the Supreme Court held that the contractor had himself appropriated all payments received towards the principal and could not later re‑allocate them to interest; consequently, no further interest was payable under Section 34(2) CPC, and the High Court's directions for additional payments and arbitration were set aside. The Court also clarified that where a decree specifies the mode of appropriation, payments must follow that direction, and absent such direction, interest may be taken first only if the debtor does not indicate otherwise. The award of the arbitrator was vacated, and the arbitration appeal was allowed. The Court directed that the excess payment already made be treated as full settlement of all claims under Ex.P‑59.

Issues considered

The proper mode of appropriation of payments made by the judgment‑debtor under Ex.P‑20 and whether the contractor could re‑allocate payments to interest after having previously applied them to principal.
Whether the contractor is entitled to claim subsequent interest on amounts payable under Ex.P‑20 and Ex.P‑59 in the absence of a specific decree direction.
Whether the High Court could refer the parties to arbitration without a written arbitration agreement or joint consent under Section 89 CPC and Section 7 of the Arbitration and Conciliation Act, 1996.
Whether the High Court's directions for uniform rates of labour and material escalation and for future interest are sustainable.

Legislation cited

Arbitration and Conciliation Act, 1996s. 7
Code of Civil Procedure, 1908s. 34(2), s. 89

Subjects

contractlabour escalationinterestmode of appropriationCPC Section 34arbitrationArticle 136public procurementpayment adjustment

Judgment

[2018] 11 S.C.R. 511 511

KERALA STATE ELECTRICITY BOARD AND ANR. A
v.
KURIEN E. KALATHIL AND ANR.
(Civil Appeal Nos. 3164-3165 of 2017)
MARCH 09, 2018 B
[RANJAN GOGOI AND R. BANUMATHI, JJ.]
Contract – Contract between appellant and respondent for
construction of dam – Notification issued escalating minimum wages
payable to workers – Writ petition filed by respondent claiming
C
labour escalation charges with interest as per Ex.P-20 – While the
petition was pending, appellant terminated the contract – Writ
petition filed by respondent challenging the same and seeking
payment of works done as per Ex.P59, allowed directing the
appellant to pay the amounts as claimed u/Ex.P-20 and Ex.P-59 –
Challenged by appellant in C.A.No.4092 of 2000, but Supreme Court D
declined to interfere – Appellant paid an amount of Rs.12,82,96,320/-
– However, three years thereafter, respondent filed I.A.No.6 of 2006
before Supreme Court on which it was granted liberty to move High
Court for recovery of the disputed amount – Writ petition filed by
respondent before High Court, allowed – Issue as to mode of
E
appropriation of payments made by the appellant and claim for
subsequent interest – Held: By respondent’s own statement, he had
adjusted all payments received from the appellant firstly towards
the labour escalation due i.e. the principal amount – But, when
respondent filed I.A.No.6 of 2006, the entire method of calculation
was changed by showing adjustment of payments firstly towards F
interest and then towards principal, only to claim that in spite of
payment of Rs.12,82,96,320/- by the appellant, amounts were still
due and payable to him – This important aspect of change in the
method of adjustment/appropriation was lost sight by High Court –
Respondent not justified in changing the method of calculation –
G
High Court’s direction to the appellant to make payment u/Ex.P20
to the respondent, set aside – Further, direction of High Court to
pay future interest on the claims made u/Ex.P59, also set aside –
Judgment of High Court set aside – Code of Civil Procedure, 1908
– Or. XXI, r.1.
H
511
512 SUPREME COURT REPORTS [2018] 11 S.C.R.

A Code of Civil Procedure, 1908 – s.34(2) – Interest – Payment
of – Contract between appellant and respondent for construction
of dam – Notification issued escalating minimum wages payable to
workers – Writ petitions filed by respondent claiming labour
escalation charges with interest as per Ex.P-20 and for payment of
works done as per Ex.P59, allowed – Challenged by appellant in
B
C.A.No.4092 of 2000 – Supreme Court declined to interfere –
Another writ petition filed by respondent inter alia claiming interest
on amounts payable u/Ex.P20 and Ex.P59, allowed – Held: Under
sub-s.(2) of s.34, where a decree is silent as to payment of further
interest on the principal sum, it shall be deemed to have been refused
C – In the present case, since there was no direction for future interest
either by High Court or Supreme Court, in view of sub-s.(2) of s.34,
it must be deemed that the court had refused such interest – Direction
of High Court to pay subsequent interest u/Ex.P20 and u/Ex.P59 is
set aside.
D Code of Civil Procedure, 1908 – s.89 – Reference to arbitration
– Agreement between appellant and respondent-contractor for
construction of dam – Dispute between parties inter alia regarding
claims of additional work u/Ex.P59 – High Court with the oral
consent of the counsel for the parties without written instruction
from the party, referred the parties to arbitration – Held: Since
E referring the parties to arbitration has serious consequences of
taking them away from the stream of civil courts and subject them
to the rigour of arbitration proceedings, in the absence of arbitration
agreement, the court can refer them to arbitration only with written
consent of parties either by way of joint memo or joint application
F – There was no arbitration agreement between the parties – High
Court ought not to have referred the parties to arbitration –
Arbitration and Conciliation Act, 1996 – s.7.
Constitution of India– Art.136 – Jurisdiction under, of
Supreme Court– Held: In exercise of jurisdiction u/Art.136, Supreme
G Court does not normally re-appreciate the evidence and findings of
fact; but where the findings of High Court are perverse or the
findings are likely to result in excessive hardship, Supreme Court
would not decline to interfere merely on the ground that findings in
question are findings of fact.

H
KERALA STATE ELECTRICITY BOARD AND ANR. v. 513
KURIEN E. KALATHIL AND ANR.

Allowing the appeals, the Court A
HELD: 1.1 Ex. P20-MODE OF APPROPRIATION OF
PAYMENT MADE: In computation of his claims in Ex.P20, the
respondent-contractor himself adjusted all payments received
from the appellant-Board, only towards the principal and not
towards interest. The respondent-contractor has separately B
calculated the interest payable on “Labour Escalation Due”
claimed under each bill at the rate of 18% i.e. Rs.7,66,35,927/-
[Paras 9, 10] [524-G; 525-F-G]
1.2 Parties are governed by the terms of the contract.
Clause E1.079 of the agreement expressly provided that the C
appellant would pay no interest to the respondent-contractor for
delayed payment. Even as per respondent’s own letter dated
25.11.1994, the respondent-contractor has deducted the advances
paid only towards the principal and claimed interest. Thus, by his
own calculation and as per his own letter dated 25.11.1994, the
respondent-contractor has adjusted all payments received from D
the Board firstly towards the principal. But when the respondent
filed I.A.No.6 of 2006, the entire method of calculation was
changed by showing adjustment of payments firstly towards
interest and then towards principal, only to claim that in spite of
payment of Rs.12,82,96,320/- by the Board, amounts are still due E
and payable to him. In the calculation sheet filed alongwith I.A.
No.6 of 2006 while making adjustments of payment of rupees
four crores (payment made to the respondent-contractor during
the pendency of the earlier round of writ petition), the same was
adjusted firstly against the interest and then against the principal
amount. [Paras 11, 12] [526-E-G; 527-B-D] F

1.3 Pursuant to the directions of the High Court and after
disposal of C.A.No.4092 of 2000, the appellant-Board made a
total payment of Rs.12,82,96,320/-. Since the respondent-
contractor changed the method of adjustment i.e. by adjusting
the payment firstly towards interest and then towards principal, G
even after payment of Rs.12,82,96,320/-, according to him
Rs.3,38,57,618/- was still due to him. This manner of appropriation,
firstly towards the interest was in clear violation of the directions

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514 SUPREME COURT REPORTS [2018] 11 S.C.R.

A given by Supreme Court to make payment under Ex.P20 and the
method of adjustment which the respondent-contractor himself
adopted in Ex.P20. In the original Ex.P20, when respondent-
contractor himself has expressly adjusted all payments made by
the appellant towards principal and not towards interest, the
respondent-contractor cannot turn round and change the method
B
of calculation by showing the adjustment of payments made first
against the interest and then towards the principal. This important
aspect of change in the method of adjustment/appropriation was
lost sight by the High Court and the direction of the High Court
to make further payment of Rs.4,12,58,224/- under Ex.P20 is not
C sustainable. [Para 13] [528-A-B, E-G]
1.4 IN THE FACTS OF THE PRESENT CASE WHETHER
THE RESPONDENT - CONTRACTOR IS JUSTIFIED IN
APPROPRIATION OF PAYMENT FIRSTLY TOWARDS
INTEREST: If there is a direction in the decree as to the mode
D of appropriation of payment, then appropriation of any payment
made by the judgment-debtor has to be strictly in accordance
with the direction contained in the decree. If there is no such
direction in the decree, then the general principle is that where a
judgment-debtor makes payment without making any indication
E as to how the payment is to be adjusted, it is the option of the
creditor to make adjustment firstly towards the interest and then
towards the principal. But if the judgment-debtor has indicated
the manner in which the appropriation is to be made, then the
creditor has no choice to apply the payment in a different manner.
The general principle of mode of appropriation firstly in payment
F of interest and thereafter in payment of principal amount is subject
to the exception i.e. the parties may agree to the adjustment of
the payment in any other manner despite the decree. In C.A.No.
4092 of 2000, Supreme Court directed payment as per Ex.P20.
and therefore, the appropriation/adjustment of payment has to
be made strictly as stated in Ex.P20. The respondent-contractor
G
cannot turn round and say that the amount received by him will
be adjusted towards the interest first and then towards the
principal. [Paras 14, 18 and 19][528-G-H; 531-C-G]

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KERALA STATE ELECTRICITY BOARD AND ANR. v. 515
KURIEN E. KALATHIL AND ANR.

1.5 An ‘Appropriation of money’ is the indication of an A
intention that money should be applied in a particular way. In the
present case, the statement of respondent-contractor himself and
other circumstances clearly indicate that payment ought to be
adjusted only towards the principal amount. In respondent’s own
letter to the appellant-Board dated 25.11.1994, the respondent-
B
contractor himself stated that he had deducted the advances from
the principal amount claimed under “Labour Escalation Charges”
and “interest” are shown separately. By his own statement, the
respondent-contractor had firstly appropriated the advances
towards the labour escalation due i.e. the principal amount. The
respondent-contractor is not justified in changing the method of C
calculation and claim appropriation of the payments firstly towards
the interest and then towards the principal amount. The claim of
the respondent-contractor for a further sum of Rs.2,29,34,559/-
with interest under Ex.P20 cannot be sustained and the direction
of the High Court to pay the same is liable to be set aside. [Paras
D
20, 21] [531-G-H; 532-A-D]
1.6 WHETHER RESPONDENT-CONTRACTOR IS
ENTITLED TO SUBSEQUENT INTEREST ON THE AMOUNT
CLAIMED IN EX.P20: Ex.P20 relates to “Labour Escalation
Charges” and “Interest” thereon claimed separately. In the earlier
round of litigation (O.P. No.283 of 1995), there was no prayer for E
future interest; also, there was no direction by the High Court
for payment of subsequent interest. In the appeal before Supreme
Court in C.A. No.4092 of 2000, the appellant Board was directed
only to pay the amount shown in Ex.P20 with reduced interest at
9% p.a.. There was no direction by Supreme Court to pay F
subsequent interest on Ex.P20. [Paras 22, 23] [532-E-G;
533-C-D]
1.7 Under Sub-section (2) of Section 34 CPC, where a
decree is silent as to payment of further interest on the principal
sum, it shall be deemed to have been refused. In the present G
case, since there was no direction for future interest, in view of
sub-section (2) of Section 34 CPC, it must be deemed that the
court refused such interest. The respondent-contractor cannot
claim further interest on the amount payable under Ex.P20 beyond

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516 SUPREME COURT REPORTS [2018] 11 S.C.R.

A the date of judgment of the High Court (02.04.1998) and in any
event not beyond the date of judgment of Supreme Court
(19.07.2000). The respondent-contractor himself had understood
the order of Supreme Court in CA No.4092 of 2000 that there
was no direction for payment of further interest on the amount
payable under Ex.P20. In I.A. No.6 of 2006, the respondent-
B
contractor specifically prayed for payment of further interest
forthwith [prayer (i) in I.A. No. 6 of 2006] which was not granted
by Supreme Court in its order dated 24.09.2000 while disposing
of I.A. No.6 of 2006. The appellant-Board has paid a total amount
of Rs.12,82,96,320/- and according to the Board, it has overpaid
C the respondent-contractor an excess amount of Rs.1,74,75,247/-.
In the absence of any direction in the underlying order of the
High Court and order of Supreme Court in C.A. No.4092 of 2000
to pay subsequent interest, the respondent-contractor is not
entitled to claim subsequent interest on the amount payable under
Ex.P20. The direction of the High Court to pay subsequent
D
interest of Rs.1,83,23,665/- under Ex.P20, is not sustainable. The
impugned judgment of the High Court directing the appellant-
Board to pay Rs.4,12,58,224/- in Ex.P20 [Rs.2,29,34,559/-
(principal) plus Rs.1,83,23,665/- (subsequent interest)] under
Ex.P20, is set aside. [Paras 24, 25 and 26] [533-D-H; 533-A-D]
E 1.8 CLAIM UNDER EX.P59 FOR THE ADDITIONAL
WORK AND SUBSEQUENT INTEREST: In Ex.P20, the
respondent-contractor himself calculated labour escalation on
monthly basis and has not followed his own prior example. The
High Court did not keep in view the respondent’s own method of
F calculation of labour escalation on monthly basis and erred in
allowing labour escalation and material escalation at single uniform
rate of 173.60% and 98% respectively and the direction of the
High Court to pay Rs.5,81,53,892/- is not sustainable. Since
appellant has admitted the amount of Rs.1,55,65,817/- as payable
under Ex.P59, the same is payable with labour escalation and
G material escalation calculated on monthly basis. The High Court
has directed the appellant to pay subsequent interest of
Rs.2,98,17,262/- on the amount directed to be paid under Ex.P59.
There was no direction either by the High Court or by Supreme
Court to pay future interest qua Ex.P20. In the earlier round of
H
KERALA STATE ELECTRICITY BOARD AND ANR. v. 517
KURIEN E. KALATHIL AND ANR.

litigation, the High Court only directed the appellant to pay the A
amount as ordered in Ex.P20. In view of the express provision of
sub-section (2) of Section 34 CPC, no future interest is payable
under Ex.P59. The direction of the High Court to pay future
interest of Rs.2,98,17,262/- on the claims made under Ex.P59 is
not sustainable and is liable to be set aside. [Paras 32, 33]
B
[534-D; 536-A; 537-A-D]
1.9 REFERENCE TO ARBITRATION: Arbitrator/ Tribunal
is a creature of the contract between the parties. There was no
arbitration agreement between the parties. Jurisdictional pre-
condition for reference to arbitration under Section 7 of the
Arbitration and Conciliation Act, 1996 is that the parties should C
seek a reference or submission to arbitration. So far as reference
of a dispute to arbitration under Section 89, CPC, the same can
be done only when parties agree for settlement of their dispute
through arbitration in contradistinction to other methods of
alternative dispute resolution mechanism stipulated in Section D
89, CPC. Insofar reference of the parties to arbitration is
concerned, oral consent given by the counsel without a written
memo of instructions does not fulfill the requirement under
Section 89, CPC. Since referring the parties to arbitration has
serious consequences of taking them away from the stream of
civil courts and subject them to the rigour of arbitration E
proceedings, in the absence of arbitration agreement, the court
can refer them to arbitration only with written consent of parties
either by way of joint memo or joint application; more so, when
government or statutory body like the appellant-Board is involved.
[Paras 34, 35] [537-E-H; 538-A-B] F
1.10 Under Section 89 CPC, referring the parties to
arbitration could be made only when the parties agree for
settlement of the dispute through arbitration by a joint application
or a joint affidavit before the court. Referring the parties to
arbitration has serious civil consequences. Once the parties are G
referred to arbitration, the proceedings will be in accordance with
the provisions of Arbitration and Conciliation Act, 1996 and the
matter will go outside the stream of the civil court. Under Section
19 of Arbitration and Conciliation Act, the arbitral tribunal shall

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518 SUPREME COURT REPORTS [2018] 11 S.C.R.

A not be bound by the Code of Civil Procedure and the Indian
Evidence Act. Once the award is passed, the award shall be set
aside only under limited grounds. Hence, referring the parties to
arbitration has serious civil consequences procedurally and
substantively. When there was no arbitration agreement between
the parties, without a joint memo or a joint application of the
B parties, the High Court ought not to have referred the parties to
arbitration. The impugned order referring the parties to
arbitration, in any event cannot be sustained on other grounds
also. The Arbitrator had passed the award for Rs.19,98,05,805.72
with interest @ 9% p.a. which was subsequently corrected on
C 29.10.2012 as Rs.21,55,34,430.55 with interest @ 9% p.a. The
appeal preferred by the appellant under Section 34 of the 1996
Act was dismissed by the District Judge. The appeal preferred
by the appellant under Section 37 of the 1996 Act (Arbitration
Appeal No.Z-47 of 2013) was transferred to Supreme Court.
While directing the appellant-Board to pay rupees five crores to
D the respondent-contractor on furnishing undertaking vide order
dated 20.02.2017, Supreme Court directed Arbitration Appeal
No.Z-47 of 2013 to be sent back to the High Court. Since the
impugned judgment of the High Court is set aside, the award
passed by the Arbitrator is liable to be set aside and consequently
E the Arbitration Appeal No.Z-47 of 2013 pending before the Kerala
High Court shall stand allowed. [Paras 39, 40 and 42] [538-B-C;
540-F-H; 541-A-B, E-H]
1.12 IN EXERCISE OF JURISDICTION UNDER
ARTICLE 136 OF THE CONSTITUTION OF INDIA-
F WHETHER THIS COURT CAN INTERFERE: In exercise of
jurisdiction under Article 136 of the Constitution of India, Supreme
Court does not normally re-appreciate the evidence and findings
of fact; but where the findings of the High Court are perverse or
the findings are likely to result in excessive hardship, the Supreme
Court would not decline to interfere merely on the ground that
G findings in question are findings of fact. In the present case, for a
contract of Rs.7.76 crores under original PAC amount and revised
PAC amount of Rs.10.40 crores, the appellant-Board has so far
paid Rs.56.58 crores and additionally rupees five crores by order
of Supreme Court dated 20.02.2017. The findings of the High
H Court are perverse causing loss to the statutory body like the
KERALA STATE ELECTRICITY BOARD AND ANR. v. 519
KURIEN E. KALATHIL AND ANR.

appellant-Board, Supreme Court would not decline to interfere A
merely on the ground that the findings in question are findings of
fact. If the judgment of the High Court is to be sustained, the
Board would have to make a total payment of about Rs.100 crores,
causing huge loss to the appellant which would ultimately be
passed on to the consumers. The impugned judgment is liable to
B
be set aside. [Paras 43, 44 and 45][542-A, C-D; 543-C-E]
1.13 Under Ex.P20, the appellant-Board has made excess
payment of Rs.1,74,75,247/-. By order dated 20.02.2017,
Supreme Court directed the appellant to pay a sum of rupees
five crores subject to furnishing of undertaking by respondent-
contractor. As per Ex.P59, the respondent-contractor claimed C
Rs.5,55,62,597/- for the work done; material escalation and labour
escalation charges claimed additionally. The admitted amount
under Ex.P59 was only Rs.1,55,65,817/-. The amount claimed
under Ex.P59 also will not carry subsequent interest. Material
escalation and labour escalation charges additionally claimed are D
to be calculated only on monthly basis. Since an amount of
Rs.6,74,75,247/- (Rs.1,74,75,247/-plus Rs.5,00,00,000/-) has been
paid to the respondent-contractor, it is directed that the same be
treated as full quit of all the claims under Ex.P59 including tender
excess, material and labour escalation charges. [Para 46] [543-
F-G; 544-A] E

Gurpreet Singh v. Union of India (2006) 8 SCC 457 :
[2006] 7 Suppl. SCR 422 – followed.
Bharat Heavy Electricals Ltd. v. R.S. Avtar Singh and
Company (2013) 1 SCC 243 : [2012] 10 SCR 701; F
Afcons Infrastructure Ltd. and Anr. v. Cherian Varkey
Construction Co. (P) Ltd. and Ors. (2010) 8 SCC 24 :
[2010] 8 SCR 1053; Shailesh Dhairyawan v. Mohan
Balkrishna Lulla, (2016) 3 SCC 619 : [2015]
12 SCR 70; Mahesh Dattatray Thirthkar v. State of
Maharashtra (2009) 11 SCC 141 : [2009] 3 SCR 1122 G
– relied on.
Kerala State Electricity Board and Another v. Kurien E.
Kalathil and Others (2000) 6 SCC 293 : [2000] 1 Suppl.
SCR 581; Meghraj and Others v. Mst Bayabai and
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520 SUPREME COURT REPORTS [2018] 11 S.C.R.

A Others (1969) 2 SCC 274 : [1970] 1 SCR 523;
Industrial Credit and Development Syndicate now called
I.C.D.S. Ltd. v. Smithaben H. Patel (Smt.) and Others
(1999) 3 SCC 80 : [1999] 1 SCR 555; Mathunni Mathai
v. Hindustan Organic Chemicals Ltd. and Ors. (1995)
4 SCC 26 : [1995] 3 SCR 765; Premnath Kapur and
B
Anr. v. National Fertilizers Corporation of India Ltd.
and Others (1996) 2 SCC 71 : [1995] 5 Suppl. SCR
790; Byram Pestonji Gariwala v. Union Bank of India
and Ors., (1992) 1 SCC 31 : [1991] 1 Suppl. SCR 187;
Banwari Lal v. Chando Devi (Smt) (Through LRs.) and
C Anr. (1993) 1 SCC 581 : [1992] 3 Suppl. SCR 524;
Gurpreet Singh v. Chatur Bhuj Goel (1988) 1 SCC 270
: [1988] 2 SCR 401; Taherakhatoon (D) by LRs. v.
Salambin Mohammad (1999) 2 SCC 635 : [1999]
1 SCR 901 – referred to.
D Case Law Reference

[2000] 1 Suppl. SCR 581 referred to Para 4

[1970] 1 SCR 523 referred to Para 14

E [1999] 1 SCR 555 referred to Para 14

[1995] 3 SCR 765 referred to Para 16

[1995] 5 Suppl. SCR 790 referred to Para 16
F [2006] 7 Suppl. SCR 422 followed Para 17

[2012] 10 SCR 701 relied on Para 17

[2010] 8 SCR 1053 relied on Para 36
G [2015] 12 SCR 70 relied on Para 36

[1991] 1 Suppl. SCR 187 referred to Para 37

[1992] 3 Suppl. SCR 524 referred to Para 38
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KERALA STATE ELECTRICITY BOARD AND ANR. v. 521
KURIEN E. KALATHIL AND ANR.

[1988] 2 SCR 401 referred to Para 38 A

[1999] 1 SCR 901 referred to Para 43

[2009] 3 SCR 1122 relied on Para 44
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 3164- B
3165 of 2017
From the Judgment and Order dated 28.01.2009 in W. P. (C) No.
31108 of 2007 (C) and Order dated 23.06.2009 in R. P. No. 542 of
2009(C) of the High Court of Kerala at Ernakulam.
Krishnan Venugopal, Sr. Adv., Kaushik Mishra, Shivendra Singh, C
Ms. Deepanshi Ishar, A. Raghunath, Advs. for the Appellants.
Dhruv Mehta, Sr. Adv., E. M. S. Anam, Dileep Pillai, G. Prakash,
Jishnu M. L., Mrs. Priyanka Prakash, Mrs. Beena Prakash, Vijay Shankar
V. L., Advs. for Respondents.
D
The Judgment of the Court was delivered by
R. BANUMATHI, J. 1. These appeals have been filed against
the impugned judgment dated 28.01.2009 in W.P.(C) No.31108 of 2007
and order dated 23.06.2009 in R.P.No.542 of 2009, passed by the High
Court of Kerala at Ernakulum in and by which the High Court directed
E
the appellant-Kerala State Electricity Board (KSEB) to pay an amount
of Rs.12,92,29,378/- with simple interest at the rate of 9% per annum in
the dispute arising out of a contract between the appellant-Board and
the respondent-Contractor.
2. The dispute between the appellant-Board and the respondent-
contractor had a chequered history. Brief facts which led to filing of F
these appeals are as follows:- Appellant-Kerala State Electricity Board
(KSEB) entered into an agreement on 16.09.1981with respondent-
contractor for construction of a composite dam across Karamanthodu
at Padinjarethara in connection with Banasura Sagar Scheme (Kuttiyadi
Augmentation Scheme). After commencement of work, Government G
of Kerala issued a notification dated 30.03.1983, by which minimum
wages payable to certain categories of workers employed in works
mentioned in notification was revised with effect from 01.04.1983. The
respondent-contractor claimed labour escalation charges from 01.04.1983

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522 SUPREME COURT REPORTS [2018] 11 S.C.R.

A to December, 1984. The Government of Kerala referred the matter to
the industrial tribunal for adjudication of the dispute with regard to the
claim of workmen employed for the construction of dam for the wage
rates and other benefits fixed in the Minimum Wages Notification issued
by the State Government.The industrial tribunal passed the award dated
14.10.1993holding that the notification of Government of Kerala was
B
applicable to workmen employed by the respondent-contractor.
3. Respondent-contractor filed O.P.No.283 of 1995 claiming an
amount of Rs.6,32,84,050/- towards labour escalation charges and an
amount of Rs.7,66,35,927/- being interest at the rate of 18% per annum
payable under Ex.P20 in respect of various bills issued by the respondent-
C contractor for the period 15.01.1985 to 31.10.1994. When the said writ
was pending, the appellant-Board terminated the contract with
respondent-contractor, which again came to be challenged before the
High Court by filing O.P.No.10759 of 1997 against termination of contract
and for the payment of works done (Ex.P59) by respondent-contractor.
D The High Court disposed of both the petitions by a common judgment
dated 02.04.1998 holding that the termination of contract was arbitrary
and directed the appellant-Board to pay the amount claimed by the
respondent-contractor for payment of labour escalation as per Ex.P20
with interest at the rate of 18% per annum which the contractor claimed
separately. The High Court also directed the appellant-Board to pay the
E amount claimed by the respondent-contractor under Ex.P59 towards
additional work done by the respondent-contractor.
4. Being aggrieved, KSEB approached this Court by way of appeal
in C.A.No.4092 of 2000 reported in Kerala State Electricity Board
and Another v. Kurien E. Kalathil and Others, (2000) 6 SCC 293.In
F para (11) of the judgment, this Court observed that the contract between
the parties is in the realm of private law and not a statutory contract and
the matter could not have been agitated in the writ petition. However,
having regard to the fact that the contract was of the year 1981 and that
the notification for minimum wages was issued in 1983 and in the peculiar
G facts and circumstances, this Court did not interfere with the order of
the High Court directing the payment of amount to the respondent-
contractor as per Ex.P20; but reduced the rate of interest claimed under
Ex.P20 from 18% per annum to 9% per annum. So far as Ex.P59 is
concerned, there was no direction by this Court. Review petition filed by

H
KERALA STATE ELECTRICITY BOARD AND ANR. v. 523
KURIEN E. KALATHIL AND ANR. [R. BANUMATHI, J.]

the appellant-Board came to be dismissed by this Court vide order dated A
07.12.2000. Appellant-Board has so far paid an amount of
Rs.12,82,96,320/-under Ex.P20 which was accepted by the respondent-
contractor without any demur.
5. Three years after the payment under Ex.P20, respondent-
contractor filed I.A.No.6 of 2006 seeking direction of the court to make B
payments due under judgment of this Court, with further interest to be
paid forthwith. In I.A. No.6 of 2006, this Court has passed the following
order:
“By virtue of the impugned judgment of the High Court, the Kerala
State Electricity Board is liable to pay certain amount to the C
Petitioner-Contractor. There is a dispute regarding the quantum
of the amount payable. This Court, vide Judgment dated 19.7.2000,
had confirmed the finding of the High Court. The Petitioner-
Contractor would be at liberty to move the High Court of Kerala
seeking further steps for the recovery of the amount and if there
is any dispute between the petitioner-Contractor and the Electricity D
Board, the High Court would consider the same and issue
appropriate directions within a reasonable time....”
6. Respondent-contractor filed W.P.(C) No.31108 of 2007 before
the High Court seeking for a direction to the appellant-Board to release
the amount as directed by the High Court and affirmed by this Court. E
By the impugned judgment dated 28.01.2009, the High Court allowed
the writ petition directing the Board to pay: (i) Rs.4,12,58,224/- under
Ex.P20 [Rs.2,29,34,559/-(principal) plus Rs.1,83,23,665/-(Interest)]; and
(ii)Rs.8,79,71,154/- [Rs.5,81,53,892/- (principal) plus Rs.2,98,17,262/-
(interest)] towards the amount payable for additional work done after F
adding labour escalation charges and material escalation charges as per
Ex.P59.The High Court held that the total amount payable under Ex.P20
and Ex.P59 as on 31.12.2008 was Rs.12,92,29,378/-which is to be paid
by the appellant-Board within three months with 9% simple interest from
01.01.2009 till date of payment. So far as the claim as to the additional
work done, the High Court directed the parties to mutually discuss among G
themselves on disputed items in appeal. Furtherwith the consent of the
counsel for the parties, the High Court referred the matter to the sole
arbitrator Justice K.A. Nayar, former Judge of the High Court of Kerala

H
524 SUPREME COURT REPORTS [2018] 11 S.C.R.

A to resolve the dispute relating to items which they could not amicably
resolve. The appellant-Board filed review bearing R.P.No.542 of
2009,which came to be dismissed on 23.06.2009. Being aggrieved, the
appellant-Board is before us.
7. We have heard the learned counsel for the parties at length and
B perused the impugned judgment and also judgment of this Court in
C.A.No.4092 of 2000 and I.A. No.6 of 2006 and other materials on
record. In the facts and circumstances of the present case and since
public money is involved,we deem it a fit case for reappreciating the
facts and the materials on record or otherwise the findings of the High
Court are likely to result inexcessive hardship to the appellant-Board
C and consequently passed onto the consumers.
8. EX.P20-CLAIM FOR LABOUR ESCALATION AND
INTEREST THEREON-WHETHER ANY AMOUNT IS
PAYABLE TO THE RESPONDENT: Ex.P20 pertains to the bills
from CC.14 to CC.78 towards the work done, labour escalation charges
D and the interest thereon. Under the impugned judgment, the High Court
has directed the appellant-Board to pay Rs.4,12,58,224/- under Ex.P20
[Rs.2,29,34,559/- (principal) plus Rs.1,83,23,665/- (interest)]. The
respondent-contractor claimed that even after payment of
Rs.12,82,96,320/-, an amount of Rs.3,38,57,618/- is still due to be paid to
E him under Ex.P20 i.e. principal (Rs.2,29,34,559/-) and subsequent interest
(Rs.1,09,23,059/-). According to KSEB by 10.02.2003, it has paid a
total amount of Rs.12,82,96,320/- under Ex.P20 and actually made excess
payment of Rs.1,74,75,247/-. Direction of the High Court to pay the
amount of Rs.4,12,58,224/- under Ex.P20 has two components:- (i) claim
of the respondent-contractor payable as principal under Ex.P20-
F Rs.2,29,34,559/-; and (ii) subsequent interest thereon. Dispute in the
amount payable under Ex.P20 is twofold:-(i) Mode of appropriation of
payments made by the Board; and (ii) claim for subsequent interest.
9. Ex.P20-MODE OF APPROPRIATION OF PAYMENT
MADE:While claiming the charges for labour escalation, in column
G no.(3), the respondent-contractor has shown the value of work done
under each bill and separately shown “Labour Escalation Due” on
each bill by showing the method of calculation/appropriation. For proper
appreciation, we may usefully refer to the claims made under the bills
from CC.14 to CC.18 and then from CC.68 to CC.75 (Ex.P20), which
H read as under:-
KERALA STATE ELECTRICITY BOARD AND ANR. v. 525
KURIEN E. KALATHIL AND ANR. [R. BANUMATHI, J.]

CC
No.
Month
to which
Value of
work
Minimum
wage
Present wage for the corresponding month
Consu- Index D.A. at Basic Hill total
Difference Formulae Labour
Escalation
Advance Remarks
received A
relates done (R) for the mer number 0.06 ps wage of allowance due
base price after per ordinar y 15%
period Index deduct-ing point labourer
in the number 100 points
Agt. of as in Govt.
Meppa- Notifica-
di tion
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
CC.14 12/84 2651230.00 13.00 316 216 12.96 12.90 3.74 28.70 15.70 3.08 x 15.70 x 2651230 1282029.00 -
100
CC.15 1/85 3885356.00 13.00 316 216 12.96 12.00 3.74 28.70 15.70 3.08 x15.70 x 3885356 1878803.00
&2/85 (Ave.) 100 B
CC.16 3/85 2520496.00 13.00 314 214 12.84 12.00 3.73 28.57 15.57 3.08 x 15.57x 2520496 1208719.00
100
CC.17 4/85 1591848.00 13.00 316 216 12.96 12.00 3.74 28.70 15.70 3.08 x 15.70 x 1591848 769754.00
100
CC.18 5/85 3782665.00 13.00 318 218 13.08 12.00 3.76 28.76 15.76 3.08 x 15.76 x 3782665 1836136.00
100
...................

CC.68 12/91 2039002.00 13.00 545 445 26. 12.00 5.81 44.51 31.51 3.08 x 31.51 x 2039002 1978868.00
70 100
Ways and Means advance received on 15.1.92 3000000.00 C
CC.69 1/92 2221294.00 13.00 552 452 27.12 12.00 5.81 44.99 31.99 3.08 X 31.99 X 2221294 2188623.00
100
CC.70 2/92 2502304.00 13.00 553 453 27.18 12.00 5.88 45.06 32.06 3.08 X 32.06 X 2502304 2470895.00
100
Ways and Means Advance received on 13.3.92 3000000.00
CC.71 3/92 2248500.00 13.00 552 452 27.12 12.00 5.87 44.99 31.99 3.08 X31.99 X 2248500 2215429.00
100
CC.72 4/92 1312431.00 13.00 553 453 27.18 12.00 5.88 45.06 32.06 3.08 X32.06 X 1312431 1295957.00
100
CC.73 5/92 2608465.00 13.00 558 458 27.48 12.00 5.92 45.40 32.40 3.08 X 32.40 X 2608465 2603039.00
100 D
CC.74 6/92 3573468.00 13.00 562 462 27.72 12.00 5.96 45.68 32.68 3.08 X 32.68 X 3573468 3596853.00
100
Ways and means advance received on 30.10.92 3000000.00
Adhoc Advance received on 14.1.93 2500000.00
CC.75 1/93 2088949.00 13.00 593 493 29.58 12.00 6.24 47.82 34.82 3.08 X 34.82 X 2088949 2240306.00
100
6,32,84,050.
00

E
In the same manner, for all the bills, the respondent-contractor has
calculated the “Value of work done”, “difference in wages” and
“Labour Escalation Charges” on monthly basis. After so calculating
the claim under all the bills, the respondent-contractor had shown the
dates on which advances received in column no.(14) and deducted the
advance received towards the principal and finally shown Rs.6,32,84,050/- F
as total amount due towards labour escalation. As seen from the above
tabular column, in computation of his claims in Ex.P20, the respondent-
contractor himself thus adjusted all payments received from the appellant-
Board, only towards the principal and not towards interest.
10. The respondent-contractor has separately calculated the G
interest payable on “Labour Escalation Due” claimed under each bill
at the rate of 18% i.e. Rs.7,66,35,927/-. For proper appreciation, we
may usefully refer to bills from CC.14 to CC.18 and from CC.68 to
CC.75 as to how the interest was calculated and claimed separately
which read as under: H
526 SUPREME COURT REPORTS [2018] 11 S.C.R.

A CC Labour Less Accumulated Date from Period No. Rate ofInterest Remarks
No. Escalation advance Balance which due of interest Due
From To
due received days
1 2 3 4 5 6 7 8 9 10 11
CC.14 12,82,029.00 - 12,82,029.00 15.1.85 15.1.85 14.3.85 59 18% 37,302.00
CC.15 18,78,803.00 31,60,832.00 15.3.85 15.3.85 14.4.85 31 18% 48,322.00
CC.16 12,08,719.00 - 43,69,551.00 15.4.85 15.4.85 14.5.85 30 18% 64,645.00
CC.17 7,69,754.00 - 51,39,305.00 15.5.85 15.5.85 14.6.85 31 18% 78,568.00
B CC.18 18,36,136.00 - - - - - -
...........
CC.68 19,78,868.00 605,22,166.00 15.1.92 15.1.92 14.2.92 31 18% 9,25,243.00
Ways and Means 30,00,000.00
Advance
CC.69 21,88,623.00 597,10,789.00 15.2.92 15.2.92 14.3.92 29 18% 8,53,946.00
CC.70 24,70,895.00 621,81,684.00 15.3.92 15.3.92 14.4.92 31 18% 9,50,613.00
Ways and Means 30,00,000.00
C Advance
CC.71 22,15,429.00 - 613,97,113.00 15.4.92 15.4.92 14.5.92 30 18% 9,08,341.00
CC.72 12,95,957.00 - 626,93,070.00 15.5.92 15.5.92 14.6.92 31 18% 9,58,431.00
CC.73 26,03,039.00 - 652,96,109.00 15.6.92 15.6.92 14.7.92 30 18% 9,66,025.00
CC.74 35,96,853.00 - 688,92,962.00 15.7.92 15.7.92 14.2.93 215 18% 73,04,541.00
Ways and Means 30,00,000.00
Advance
D Adhoc Advance 25,00,000.00
CC.75 22,40,306.00 - 656,33,268.00 15.2.93 15.2.93 14.3.93 28 18 9,06,279.00
................
Total interest claimed................. 7,66,35,927

11. Parties are governed by the terms of the contract. Clause E1.079
of the agreement dated 16.09.1981 expressly provided that the appellant
E would pay no interest to the respondent-contractor for delayed payment.
Clause E1.079 of the agreement reads as under:-
“E1.079
No claim for delayed payment due to dispute etc.
No claim for interest or damages will be entertained by the Board
with respect to any money or balance which may be lying with the
F Board owing to any dispute, difference or misunderstanding between
the Engineer on the one hand and the contractor on the other hand
or with respect to any delay on the part of the Engineer-in-charge in
making periodical or final payment or any respect whatsoever, and
the Board shall not be liable for any interest or damages or loss to
the contractor.”
G
Even as per respondent’s own letter No.D.W/94/090 dated 25.11.1994,
the respondent-contractor has deducted the advances paid only towards
the principal and claimed interest. The said letter reads as under:-
“I am herewith submitting a comprehensive Statement (Claim bill),
giving the details of labour escalation payable against each C.C Bill,
H deducting the advances paid to me which are adjustable against the
KERALA STATE ELECTRICITY BOARD AND ANR. v. 527
KURIEN E. KALATHIL AND ANR. [R. BANUMATHI, J.]

dues. The net labour escalation amount payable as on 31.10.1994 A
works out to Rs.6,32,84,050.00, after thus deducting the advances
received. The interest amount payable has also been worked out
and included in the enclosed bill, separately, which comes to
Rs.7,66,35,927.00. The total amount due as on 31.10.1994 is
Rs.13,99,19,1977.00. This amount may be paid to me without
further delay.” B
Thus by his own calculation and as per his own letter dated 25.11.1994,
the respondent-contractor has adjusted all payments received from the
Board firstly towards the principal.
12. But when the respondent filed I.A.No.6 of 2006, the entire
method of calculation was changed by showing adjustment of payments C
firstly towards interest and then towards principal, only to claim that inspite
of payment of Rs.12,82,96,320/- by the Board, amounts are still due and
payable to him. In the calculation sheet filed alongwith I.A. No.6 of 2006
while making adjustments of payment of rupees four crores (payment
made to the respondent-contractor during the pendency of the earlier round
of writ petition), the same was adjusted firstly against the interest and then D
against the principal amount. The calculation sheet filed by the respondent-
contractor in I.A.No.6 of 2006 is as under:-
Principal (i n Rupees) Interest @ 9% (in R upees) Remarks
Balance DR CR Date Particu lars DR CR Balance
63284050 Pr inc ipal amount of Labour Amount received from Ker ala State
Escalation upto CC 78 as per Electricity Board is fir stly adjusted agains t
Ext. P20 interest and then principal amount
Inter est upto CC 78 f or the 40218107

20.06.95
period upto 20.6.95
Amount Receiv ed Rs. 1 cr ore 10000000 30218107
E
Interest from 21.6.95 to 13.2.96 3713820 33931927
13.02.96 Amount Receiv ed Rs.1cr ore 10000000 23931927
Inter est from 14.2.96 to 23.2.96 156043 24087970
23.02.96 Amount Receiv ed Rs.2 cr ores 20000000 4087970
Interest 24.2.96 to 20.3.01 28867930 32955900
56239950 7044100 20.03.01 Amount received (4 crores ) 32955900 0 Out of Rs.4 crores received the interest
as on this date Rs.32955900/- is wiped off
and balance Rs.7044100 adjusted
against principal amount
Inter est 21.3.01 to 5.9.01 2343588
48583538 7656412 05.09.01 Amount received (1 crore) 2343588 0 Out of Rs.1 crore received, the interest as
on this date Rs.2343588/- is wiped off
F
and balance Rs.7656412 adjusted
against principal amount
Inter est from 6.9.01 to 12.10.01 443242
29026780 19556758 12.10.01 Amount received (2 crores ) 443242 0 Out of Rs.2 cr ore received the interest as
on this date Rs.443242/- is wiped off and
balance Rs.19556758 adjusted agains t
principal amount
Inter est 13.2.01 to 1.6.02 1660491
23955276 5071504 01.06.02 Amount received (6731995) 1660491 0 Out of Rs.67,31,995/- received the
interest as on this date Rs.1660491/- is
wiped off and balance Rs.5071504/-
adjusted against principal amount
G
Inter est 2.6.02 to 17.8.02 454822
22734120 1221156 17.08.02 Amount received (1675978) 454822 0 Out of Rs.16,75,978/- received the
interest as on this date Rs.454822/- is
wiped off and balance Rs.1221156/-
adjusted against principal amount
Inter est 18.8.02 to 10.2.2003 992204
13837977 8896143 10.02.03 Amount received (9888347) 992204 0 Out of Rs .98,88,347/- received, the
interest as on this date Rs.992204/- is
wiped off and balance Rs.8896143/-
adjusted against principal amount
Inter est from 11.2.03 to 31.5.05 2866168 2866168
81716415 H
528 SUPREME COURT REPORTS [2018] 11 S.C.R.

A 13. Pursuant to the directions of the High Court and after disposal
of C.A.No.4092 of 2000, the appellant-Board made a total payment of
Rs.12,82,96,320/-. Since the respondent-contractor changed the method
of adjustment i.e. by adjusting the payment firstly towards interest and
then towards principal, even after payment of Rs.12,82,96,320/-, according
to him Rs.3,38,57,618/- was still due to him. The said calculation shown
B
in I.A.No.6 of 2006, reads as under:-
Ext.P20 (LABOUR ESCALATION)
Labour escalation claimed in CC Bill 14 to 78 (Ref.Ext.P20) ................ 63284050
Labour escalation claimed in CC Bill 79 to 85 (Schedule 3) ................ 9096582
Total ................ 72380632
C Total interest upto 31.05.2005 @ 9% (Schedule 2 & 3)
(81716415 + 8056891) 89773306
Total Amount due as on 31.5.2005 ................ 162153938
Less: Amounts received from K.S.E. Board on (Schedule 6) ................ 128296320
various dates (adjusted firstly against interest and
then principal amount)
D Balance amount due as on 31.5.2005 (Schedule 5) ................ 33857618

Principal amount ................ 22934559
Interest ................ 10923059
................ 33857618

E This manner of appropriation, firstly towards the interest is in clear
violation of the directions given by this Court to make payment under
Ex.P20 and the method of adjustment which the respondent-contractor
himself adopted in Ex.P20. In the original Ex.P20, when respondent-
contractor himself has expressly adjusted all payments made by the
appellant towards principal and not towards interest, the respondent-
F contractor cannot turn round and change the method of calculation by
showing the adjustment of payments made first against the interest and
then towards the principal. This important aspect of change in the method
of adjustment/appropriation was lost sight by the High Court and the
direction of the High Court to make further payment of Rs.4,12,58,224/-
G under Ex.P20 is not sustainable.
14. IN THE FACTS OF THE PRESENT CASE WHETHER
THE RESPONDENT-CONTRACTOR IS JUSTIFIED IN
APPROPRIATION OF PAYMENT FIRSTLY TOWARDS
INTEREST:Learned counsel for the respondent-contractor submitted
that in the case of a debt due with interest, the normal rule is that any
H
KERALA STATE ELECTRICITY BOARD AND ANR. v. 529
KURIEN E. KALATHIL AND ANR. [R. BANUMATHI, J.]

payment made by the debtor, in the first instance, to be adjusted towards A
satisfaction of interest and only thereafter to the principal. In support of
his contention, learned counsel placed reliance upon Meghraj and Others
v. Mst. Bayabai and Others (1969) 2 SCC 274 and Industrial Credit
and Development Syndicate now called I.C.D.S. Ltd. v. Smithaben
H. Patel (Smt.) and Others (1999) 3 SCC 80.
B
15. In I.C.D.S.’s case,while considering how the payments made
by the judgment-debtor areto be adjusted, in para (14), it was held as
under:
14. In view of what has been noticed hereinabove, we hold that
the general rule of appropriation of payments towards a decretal C
amount is that such an amount is to be adjusted firstly, strictly in
accordance with the directions contained in the decree and in the
absence of such direction, adjustments be made firstly in payment
of interest and costs and thereafter in payment of the principal
amount. Such a principle is, however, subject to one exception,
i.e., that the parties may agree to the adjustment of the payment D
in any other manner despite the decree. As and when such an
agreement is pleaded, the onus of proving is always upon the
person pleading the agreement contrary to the general rule or the
terms of the decree schedule. The provisions of Sections 59 to 61
of the Contract Act are applicable in cases where a debtor owes E
several distinct debts to one person and do not deal with cases in
which the principal and interest are due on a single debt.”
[Underlining added]
16. In Mathunni Mathai v. Hindustan Organic Chemicals Ltd.
and Ors.,(1995) 4 SCC 26, it has been held that Order XXI Rule 1 CPC F
as amended in 1976 is applicable in executing the award made under the
Land Acquisition Act. In Mathunni Mathai’s case, it was indicated
that if the decretal amount is deposited by the judgment-debtor pursuant
to the order of the Court and the judgment-debtor has not given notice of
such deposit to the decree holder and also does not specify the manner
in which the amount should be appropriated, then the decree holder will G
be entitled to appropriate the amount deposited by the judgment-debtor
firstly towards interest and other expenses and the decree holder is not
bound to adjust the same towards the principal. In Prem Nath Kapur
and Anr. v. National Fertilizers Corporation of India Ltd. and Others,
(1996) 2 SCC 71; the decision in Mathunni Mathai’s case has been H
530 SUPREME COURT REPORTS [2018] 11 S.C.R.

A expressly overruled by a three Judges Bench of the Supreme Court on
the finding that Order XXI Rule 1 CPC cannot be extended to the
execution of an award made under the Land Acquisition Act on the
score of its inconsistency with the provisions of Land Acquisition Act.
17. The view taken in Prem Nath Kapur’s case was approved
B as a correct view in Gurpreet Singh v. Union of India(2006) 8 SCC
457. Though the question posed for consideration before the Constitution
Bench in Gurpreet Singh’s case was whether the view taken in Prem
Nath Kapur’s case is correct and whether the rule of “different stages
of appropriation” set out in Prem Nath Kapur’s case was required
to be restated on the scheme of the Land Acquisition Act, the Constitution
C Bench specifically dealt with Order XXI Rules 1, 2, 4 and 5 CPC and
clarified the position. After referring to the relevant portion of the decision
in Gurpreet Singh’s case,in Bharat Heavy Electricals Ltd. v. R.S.
Avtar Singh and Company (2013) 1 SCC 243, this Court summarized
the principles emerging as under:
D “31. From what has been stated in the said decision, the following
principles emerge:
31.1.The general rule of appropriation towards a decretal amount
was that such an amount was to be adjusted strictly in accordance
with the directions contained in the decree and in the absence of
E such directions adjustments be made firstly towards payment of
interest and costs and thereafter towards payment of the principal
amount subject, of course, to any agreement between the parties.
31.2. The legislative intent in enacting sub-rules (4) and (5) is a
clear pointer that interest should cease to run on the deposit made
F by the judgment-debtor and notice given or on the amount being
tendered outside the court in the manner provided in Order 21
Rule 1(1)(b).
31.3. If the payment made by the judgment-debtor falls short of
the decreed amount, the decree-holder will be entitled to apply
G the general rule of appropriation by appropriating the amount
deposited towards the interest, then towards costs and finally
towards the principal amount due under the decree.
31.4. Thereafter, no further interest would run on the sum
appropriated towards the principal. In other words if a part of the
H
KERALA STATE ELECTRICITY BOARD AND ANR. v. 531
KURIEN E. KALATHIL AND ANR. [R. BANUMATHI, J.]

principal amount has been paid along with interest due thereon as A
on the date of issuance of notice of deposit interest on that part of
the principal sum will cease to run thereafter.
31.5. In cases where there is a shortfall in deposit of the principal
amount, the decree-holder would be entitled to adjust interest and
costs first and the balance towards the principal and beyond that B
the decree-holder cannot seek to reopen the entire transaction
and proceed to recalculate the interest on the whole of the principal
amount and seek for reappropriation.” [Underlining added]
18. As held in Constitution Bench judgment in Gurpreet Singh’s
case followed in BHEL’s case,if there is a direction in the decree as to C
the mode of appropriation of payment, then appropriation of any payment
made by the judgment-debtor has to be strictly in accordance with the
direction contained in the decree. If there is no such direction in the
decree, then the general principle is that where a judgment-debtor makes
payment without making any indication as to how the payment is to be
adjusted, it is the option of the creditor to make adjustment firstly towards D
the interest and then towards the principal. But if the judgment-debtor
has indicated the manner in which the appropriation is to be made, then
the creditor has no choice to apply the payment in a different manner.
The general principle of mode of appropriation firstly in payment of
interest and thereafter in payment of principal amount is subject to the E
exception i.e. the parties may agree to the adjustment of the payment in
any other manner despite the decree.
19. In C.A.No.4092 of 2000, this Court directed payment as per
Ex.P20. As held in Gurpreet Singh’s case, the payment is to be
appropriated strictly in accordance with the directions contained in the F
decree. In C.A.No.4092 of 2000, since this Court directed the payment
as per Ex.P20 and therefore, the appropriation/adjustment of payment
has to be made strictly as stated in Ex.P20. When the direction of the
court is to make payment as per Ex.P20, the respondent-contractor cannot
turn round and say that the amount received by him will be adjusted
towards the interest first and then towards the principal. G
20. An ‘Appropriation of money’ is the indication of an intention
that money should be applied in a particular way. In the present case,
the statement of respondent-contractor himself and other circumstances
clearly indicate that payment ought to be adjusted only towards the
H
532 SUPREME COURT REPORTS [2018] 11 S.C.R.

A principal amount. As discussed earlier, in Ex.P20 the respondent-
contractor himself has shown the labour escalation due as principal
amount and interest thereon separately and has given the credit of the
advances made by the Board firstly towards the principal and claimed
the balanced amount of the principal. At this juncture, we may usefully
recapitulate respondent’s own letter to the appellant-Board dated
B
25.11.1994 extracted in para (11) above where the respondent-contractor
himself has stated that he has deducted the advances from the principal
amount claimed under “Labour Escalation Charges” and “interest”
are shown separately.
21. By his own statement, the respondent-contractor has firstly
C appropriated the advances towards the labour escalation due i.e. the
principal amount. The respondent-contractor is not justified in changing
the method of calculation and claim appropriation of the payments firstly
towards the interest and then towards the principal amount. The claim
of the respondent-contractor for a further sum of Rs.2,29,34,559/-with
D interest under Ex.P20 cannot be sustained and the direction of the High
Court to pay the same is liable to be set aside.
22. WHETHER RESPONDENT-CONTRACTOR IS
ENTITLED TO SUBSEQUENT INTEREST ON THE AMOUNT
CLAIMED IN EX.P20: Insofar as Ex.P20, in O.P. No.283 of 1995,
E the High Court granted the following relief:-
“...We, therefore, grant prayer (b) as prayed for and issue a writ
of mandamus directing the second respondent to pay the petitioner
interest at 18% on the amount shown in the statement, Ext.P20....”
In O.P. No.283 of 1995, the respondent-contractor in prayer (b), prayed
F for issuance of writ of mandamus directing the appellant-Board to pay
the amount shown in the statement Ex.P20 together with interest thereon
within a time to be fixed by this Court. Ex.P20 relates to “Labour
Escalation Charges” and “Interest” thereon claimed separately. As
seen from prayer (b) in O.P. No.283 of 1995, there was no prayer for
G future interest;also,there was no direction by the High Court for payment
of subsequent interest.
23. In the appeal before this Court in C.A. No.4092 of 2000, this
Court observed that disputes among such contractual or commercial
activities of a statutory body should not have been agitated in the writ
court. However, since the labour escalation notification for minimum
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KERALA STATE ELECTRICITY BOARD AND ANR. v. 533
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wages was issued way back in 1983, this Court directed the amount as A
shown in Ex.P20 to be paid to the respondent-contractor with interest at
the rate reduced from 18% to 9% p.a. This Court held as under:
“15. The High Court has directed the Board to pay to the
contractor the amounts shown in the statement Ext. P-20 along
with interest @ 18% per annum. Having considered the totality B
of the circumstances, we feel that it would be just and proper to
award interest @ 9% per annum instead of 18%. In the statement
Ext. P-20, the contractor has calculated interest @ 18% per
annum. The interest amount would now be calculated at 9% instead
of 18% per annum. The impugned judgment of the High Court is
modified accordingly.” C

The above order of this Court directs payment by the appellant Board
only of the amount shown in Ex.P20 with reduced interest at 9% p.a.
There is no direction by this Court to pay subsequent interest on Ex.P20.
24. Under sub-section (2) of Section 34 CPC, where a decree is D
silent as to payment of further interest on the principal sum, it shall be
deemed to have been refused. Section 34(2) CPC reads as under:-
34. Interest.
(1) .....
E
(2) Where such a decree is silent with respect to the payment of
further interest on such aggregate sum as aforesaid from the date
of the decree to the date of payment or other earlier date, the
Court shall be deemed to have refused such interest, and a
separate suit therefore shall not lie.
F
In the present case, since there is no direction for future interest, in view
of sub-section (2) of Section 34 CPC, it must be deemed that the court
has refused such interest. The respondent-contractor cannot claim further
interest on the amount payable under Ex.P20 beyond the date of judgment
of the High Court (02.04.1998) and in any event not beyond the date of
judgment of this Court (19.07.2000). G
25. The respondent-contractor himself has understood the order
of this Court in CA No.4092 of 2000 that there was no direction for
payment of further interest on the amount payable under Ex.P20. In
I.A. No.6 of 2006, the respondent-contractor specifically prayed for
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534 SUPREME COURT REPORTS [2018] 11 S.C.R.

A payment of further interest to the appellant forthwith[prayer (i) in I.A.
No. 6 of 2006] which was not granted by this Court in its order dated
24.09.2000 while disposing of I.A. No.6 of 2006. The appellant-Board
has paid a total amount of Rs.12,82,96,320/- and according to the Board,
it has overpaid the respondent-contractoran excess amount of
Rs.1,74,75,247/-. In the absence of any direction in the underlying order
B
of the High Court and order of this Court in C.A. No.4092 of 2000 to
pay subsequent interest, the respondent-contractor is not entitled to claim
subsequent interest on the amount payable under Ex.P20. The direction
of the High Court to pay subsequent interest of Rs.1,83,23,665/- under
Ex.P20, is not sustainable.
C 26. The impugned judgment of the High Court directing the
appellant-Board to pay Rs.4,12,58,224/- in Ex.P20 [Rs.2,29,34,559/-
(principal) plus Rs.1,83,23,665/- (subsequent interest)] under Ex.P20, is
set aside.
27. Claim under Ex.P59 for the additional work and
D subsequent interest: So far as Ex.P59 is concerned, it is towards
additional work done- material escalation and labour escalation. So far
as Ex.P59 is concerned, in the earlier round of litigation in O.P.No.283
of 1995, in para (26) of its judgment, the High Court held as under:
“26. The Board shall also pay to the petitioner the bills raised by
E him for the work done till date including labour escalation payment
etc. etc. as ordered in O.P. No.283 of 1995.....”
28. Contention of the respondent-contractor is that in C.A. No.4092
of 2000,since this Court did not make any observation regarding
respondent’s claim made under Ex.P59, the order of the High Court
F directing payment under Ex.P59 has become final and the amount claimed
thereon in Ex.P59 has to be paid to the respondent-contractor. While
disposing of the appeal in C.A. No.4092 of 2000, this Court, of course,
did not make any observation regarding Ex.P59. But respondent’s claim
under Ex.P59 for additional work done has to be examined in the context
G of this Court’s observation that “....The disputes relating to
interpretation of the terms and conditions of such a contract could
not have been agitated in a petition under Article 226 of the
Constitution of India...” and “.....Whether any amount is due and if
so, how much and refusal of the appellant to pay it is justified or
not, are not the matters which could have been agitated and decided
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KERALA STATE ELECTRICITY BOARD AND ANR. v. 535
KURIEN E. KALATHIL AND ANR. [R. BANUMATHI, J.]

in a writ petition.....”. Having said so, this Court proceeded to direct A
the appellant to pay the amount as claimed under Ex.P20.
29. Be that as it may, so far as Ex.P59 is concerned, the contractor
has made a claim of Rs.5,55,62,597/- towards additional work including
departmental materials and the Board has disputed the claim made by
the respondent-contractor in I.A.No.6 of 2006 and pleaded that the total B
work done by the contractor was only forRs.1,55,65,817/- including cost
of departmental materials. The relevant portion of the counter affidavit
filed by the Board in I.A.No.6 of 2006 reads as under:-
“56. As per Ext.P59, the contractor had demanded an amount of
Rs.5,55,62,597/- including departmental materials and excluding C
tender excess, material escalation and labour escalation. Out of
this, 23 items were wrongly claimed in Ext.P59 by the contractor
and the same was withdrawn by the contractor in his next bill. ie
CC 86 bill submitted to the Board. The amount for the above 23
items wrongly claimed would come to Rs.49,40,251/-. So the net
amount claimed by the contractor would come to Rs.5,06,22,346/-. D
Whereas, the total work done by the contractor was
Rs.1,55,65,817/- including cost of departmental materials and
excluding tender excess, Material escalation and labour escalation.
A detailed statement on each items claimed by the contractor in
Exhibit P59 and the claim admitted by the Board and their remarks E
is appended.”
30. Taking us through the counter filed by the appellant in W.P.(C)
No.31108 of 2007, learned senior counsel for the respondent-contractor
submitted that the claim of the respondent-contractor in Ex.P59 on various
items was not disputed by the appellant in its counter filed in WP(C) F
No.31108 of 2007. This contention does not merit acceptance. As pointed
out above, the claim of the respondent-contractoron each one of the
items in Ex.P59, the appellant-Board has filed a detailed reply in I.A.No.6
of 2006 disputing the claim on each of the items claimed by the
respondent-contractor. It is in this context, this Court has disposed of
I.A. No.6 of 2006 observing that there is dispute regarding the quantum G
of the amount payable and giving liberty to the respondent-contractor to
move to the High Court. It is seen from the impugned judgment that the
High Court has also taken note of the counter filed by the appellant-
Board in I.A.No.6 of 2006 in which the appellant-Board disputed each
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536 SUPREME COURT REPORTS [2018] 11 S.C.R.

A one of the items in Ex.P59 and also referred to the same in its order and
the same reads as under:
“9. .....If we accept the statement of the Board in paragraph 56
of the counter filed before the Supreme Court, the net amount
exclusive of the tender excess, material escalation and labour
B escalation can only be Rs.5,06,22,346/-. .....The contention of the
Board that out of the above amount, only Rs.1,55,65,817/- is
payable cannot prima facie be accepted, as the measurement was
taken by the Board after ten years of the judgment (Ext.P1)....”
31. The High Court proceeded to observe that the contention of
C the appellant that only Rs.1,55,65,817/- is payable under Ex.P59 cannot
prima facie be accepted as the measurement was taken by the Board
after ten years of the judgment (Ex.P1); whereas the contractor’s claims
were made then and there by the contractor on actual measurement.After
so referring to the dispute between the parties, the High Court observed
that there is dispute with regard to the actual measurements of certain
D additional works as well as the contractual rates, the same has to be
factually verified and calculations are to be made and that the matter
has to be discussed with the parties. The High Court directed the
appellant-Board to pay Rs.8,79,71,154/-[Rs.5,81,53,892/-(principal) plus
Rs.2,98,17,262/-(interest)]. The split-up figure of principal amount of
E Rs.5,81,53,892/- is as under:-
Claim in Ex.P59 admitted by the Board .................. 1,55,65,817
Material Escalation 98% of Ex.P59 .................. 1,52,54,501
Labour Escalation at 173.60% of Ex.P59 ................. 2,70,22,258
F Tender Excess at 2% of Ex.P59 .................. 3,11,316
.................. 5,81,53,892
32. The High Court ordered single uniform rate for labour
escalation at 173.60% and material escalation at 98% of Ex.P59. The
contention of the appellant-Board is that the direction of the High Court
G to pay at uniform rate of 98% and 173.60%, is contradictory to the
terms of the agreement and as per own calculation of the respondent-
contractor. According to the Board, material escalation and labour
escalation are to be calculated on a monthly basis as claimed by the
respondent-contractor in other bills. In Ex.P20, the respondent-contractor
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KERALA STATE ELECTRICITY BOARD AND ANR. v. 537
KURIEN E. KALATHIL AND ANR. [R. BANUMATHI, J.]

himself calculated labour escalation on monthly basis and has not followed A
his own prior example. The High Court did not keep in view the
respondent’s own method of calculation of labour escalation on monthly
basis and erred in allowing labour escalation and material escalation at
single uniform rate of 173.60% and 98% respectively and the direction
of the High Court to pay Rs.5,81,53,892/- is not sustainable. Since
B
appellant has admitted the amount of Rs.1,55,65,817/- as payable under
Ex.P59, the same is payable with labour escalation and material escalation
calculated on monthly basis.
33. The High Court has directed the appellant to pay subsequent
interest of Rs.2,98,17,262/- on the amount directed to be paid under
Ex.P59. As discussed earlier, there was no direction either by the High C
Court or by this Court to pay future interest qua Ex.P20. In the earlier
round of litigation, the High Court only directed the appellant to pay the
amount as ordered in Ex.P20. In view of the express provision of sub-
section (2) of Section 34 CPC, no future interest is payable under Ex.P59.
The direction of the High Court to pay future interest of Rs.2,98,17,262/- D
on the claims made under Ex.P59 is not sustainable and is liable to be set
aside.
34. REFERENCE TO ARBITRATION:After pointing out the
disputed claims of additional work (Ex.P59) and on the oral consent of
the counsel for the appellant, the High Court has referred the parties to E
arbitration appointing Justice K.A. Nayar as the arbitrator. Arbitrator/
Tribunal is a creature of the contract between the parties. There was
no arbitration agreement between the parties. The question falling for
consideration is whether the High Court was right in referring the parties
to arbitration on the oral consent given by the counsel without written
instruction from the party. F

35. Jurisdictional pre-condition for reference to arbitration under
Section 7 of the Arbitration and Conciliation Act is that the parties should
seek a reference or submission to arbitration. So far as reference of a
dispute to arbitration under Section 89 CPC, the same can be done only
when parties agree for settlement of their dispute through arbitration in G
contradistinction to other methods of alternative dispute resolution
mechanism stipulated in Section 89 CPC. Insofar reference of the parties
to arbitration, oral consent given by the counsel without a written memo
of instructions does not fulfill the requirement under Section 89 CPC.Since
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538 SUPREME COURT REPORTS [2018] 11 S.C.R.

A referring the parties to arbitration has serious consequences of taking
them away from the stream of civil courts and subject them to the rigour
of arbitration proceedings, in the absence of arbitration agreement, the
court can refer them to arbitration only with written consent of parties
either by way of joint memo or joint application; more so, when
government or statutory body like the appellant-Board is involved.
B
36. Emphasizing that under Section 89 CPC,referring the parties
to arbitration could be made only when the parties agree for settlement
of the dispute through arbitration by a joint application or a joint affidavit
before the court, in Afcons Infrastructure Ltd. and Anr. v. Cherian
Varkey Construction Co. (P) Ltd. and Ors.(2010) 8 SCC 24, this Court
C held as under:-
“33. Even if there was no pre-existing arbitration agreement, the
parties to the suit can agree for arbitration when the choice of
ADR processes is offered to them by the court under Section 89
of the Code. Such agreement can be by means of a joint
D memo or joint application or a joint affidavit before the court,
or by record of the agreement by the court in the order-
sheet signed by the parties.Once there is such an agreement
in writing signed by parties, the matter can be referred to
arbitration under Section 89 of the Code; and on such reference,
E the provisions of the AC Act will apply to the arbitration, and as
noticed in Salem Bar Bar Association, T.N. v. Union of India
(I)(2003) 1 SCC 49, the case will go outside the stream of the
court permanently and will not come back to the court.”
[Underlining added]

F The same view was reiterated in Shailesh Dhairyawan v. Mohan
Balkrishna Lulla, (2016) 3 SCC 619 which is as under:-
“28. It has been noticed by this Court in some earlier judgments†
that Section 89 CPC is not very happily worded. Be that as it
may, Section 89 provides for alternate methods of dispute resolution
G i.e. those methods which are alternate to the court and are outside
the adjudicatory function of the court. One of them with which
we are concerned is the settlement of dispute through arbitration.
Insofar as reference of dispute to arbitration is concerned, it has
been interpreted by this Court that resort to arbitration in a pending
suit by the orders of the court would be only when parties agree
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KERALA STATE ELECTRICITY BOARD AND ANR. v. 539
KURIEN E. KALATHIL AND ANR. [R. BANUMATHI, J.]

for settlement of their dispute through arbitration, in A
contradistinction to the Alternate Dispute Resolution mechanism
(for short “ADR”) through the process of mediation where the
Judge has the discretion to send the parties for mediation, without
even obtaining the consent of the parties.Thus, reference to
arbitration is by means of agreement between the parties. It is
B
not in dispute that there was an agreement between the parties
for reference of dispute to the arbitration and it was so referred.”
[Underlining added]
37. The learned senior counsel for respondent-contractor placed
reliance upon Byram Pestonji Gariwala v. Union Bank of India and
Ors., (1992) 1 SCC 31 to contend that the counsel has the implied authority C
to consent for arbitration on behalf of a party. In Byram Pestonji
Gariwala case, this Court made it clear that the counsel should not act
on implied authority unless there is exigency of circumstances demanding
immediate adjustment of suit by agreement or compromise and the
signature of the party cannot be obtained without undue delay. In para D
(37) of Byram Pestonji Gariwala case, it was held as under:-
“37.We may, however, hasten to add that it will be prudent
for counsel not to act on implied authority except when
warranted by the exigency of circumstances demanding
immediate adjustment of suit by agreement or compromise E
and the signature of the party cannot be obtained without
undue delay. In these days of easier and quicker
communication, such contingency may seldom arise. A wise
and careful counsel will no doubt arm himself in advance with the
necessary authority expressed in writing to meet all such
contingencies in order that neither his authority nor integrity is F
ever doubted. This essential precaution will safeguard the personal
reputation of counsel as well as uphold the prestige and dignity of
the legal profession.”
38. In a subsequent decision in the context of examining the
compromise under Order XXIII Rule 3 CPC, in Banwari Lal v. Chando G
Devi (Smt) (Through LRs.) and Anr.(1993) 1 SCC 581, this Court has
observed that the case of Byram Pestonji Gariwala had ignored the
law laid down in Gurpreet Singh v. Chatur Bhuj Goel (1988) 1 SCC
270 and held that when parties enter into a compromise, the court must
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540 SUPREME COURT REPORTS [2018] 11 S.C.R.

A insist upon the parties that the compromise be reduced into writing. In
para (10) in Banwari Lal case, it was held as under:-
“10......... The order on face of it purported to dismiss the suit of
the plaintiff on basis of the terms and conditions mentioned in the
petition of compromise. As such, the validity of that order has to
B be judged treating it to be an order deemed to have been passed
in purported exercise of the power conferred on the Court by
Rule 3 of Order 23 of the Code. The learned Subordinate Judge
should not have accepted the said petition of compromise even
if he had no knowledge of the fraud alleged to have been
practised on the appellant by his counsel, because admittedly
C the petition of compromise had not been signed either by the
respondent or his counsel. This fact should have been discovered
by the Court. In the case of Gurpreet Singh v. Chatur Bhuj
Goel (1988) 1 SC 207 it has been said: (SCC p. 276, para 10)
“Under Rule 3 as it now stands, when a claim in suit has been
D adjusted wholly or in part by any lawful agreement or
compromise, the compromise must be in writing and signed by
the parties and there must be a completed agreement between
them. To constitute an adjustment, the agreement or
compromise must itself be capable of being embodied in a
E decree. When the parties enter into a compromise during
the hearing of a suit or appeal, there is no reason why the
requirement that the compromise should be reduced in
writing in the form of an instrument signed by the parties
should be dispensed with. The court must therefore insist
upon the parties to reduce the terms into writing.”
F
39. Referring the parties to arbitration has serious civil
consequences. Once the parties are referred to arbitration, the
proceedings will be in accordance with the provisions of Arbitration and
Conciliation Act and the matter will go outside the stream of the civil
court. Under Section 19 of Arbitration and Conciliation Act, the arbitral
G tribunal shall not be bound by the Code of Civil Procedure and the Indian
Evidence Act. Once the award is passed, the award shall be set aside
only under limited grounds. Hence, referring the parties to arbitration
has serious civil consequences procedurally and substantively. When
there was no arbitration agreement between the parties, without a joint
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KERALA STATE ELECTRICITY BOARD AND ANR. v. 541
KURIEN E. KALATHIL AND ANR. [R. BANUMATHI, J.]

memo or a joint application of the parties, the High Court ought not to A
have referred the parties to arbitration.
40. The impugned order referring the parties to arbitration, in any
event,inter alia, cannot be sustained on other grounds also. While
referring the parties to arbitration, the impugned judgment has,inter alia,
made many observations affecting crucial areas of disputes namely:- (i) B
check measurements for the works done - “measurements taken by
the Board after ten years of judgment; whereas the claims made by
the contractor then and there on actual measurement”; (ii) percentage
of labour escalation ordered by the High Court @ 173.60% is
contradictory to the prior method of calculation adopted by the respondent-
contractor in the labour escalation; and (iii) materials escalation @ 98%. C
These observations in the impugned judgment would seriously prejudice
the rights of the appellant-Board in pursuing the matter before the Arbitral
Tribunal.
41. Contention of the respondent-contractor is that the appellant-
Board has not raised the issue of absence of arbitration agreement before D
the Tribunal and the jurisdiction of the Arbitral Tribunal. Since the
appellant-Board has challenged the impugned order before this Court in
the matter pending for consideration, the appellant-Board could not have
raised the issue of lack of jurisdiction before the Arbitral Tribunal and
the contention of the respondent-contractor does not merit acceptance. E
42. The arbitrator has passed the award dated 30.09.2012 for
Rs.19,98,05,805.72 with interest @ 9% p.a. which was subsequently
corrected on 29.10.2012 as Rs.21,55,34,430.55 with interest @ 9% p.a.
The appeal preferred by the appellant under Section 34 of the Act was
dismissed by the District Judge, Thiruvananthapuram vide order dated F
23.12.2015. The appeal preferred by the appellant under Section 37 of
the Arbitration and Conciliation Act (Arbitration Appeal No.Z-47 of 2013)
was transferred to this Court. While directing the appellant-Board to
pay rupees five crores to the respondent-contractor on furnishing
undertaking vide order dated 20.02.2017, this Court directed Arbitration
Appeal No.Z-47 of 2013 to be sent back to the High Court. Since the G
impugned judgment of the High Court is set aside, the award passed by
the Arbitrator is liable to be set aside and consequently the Arbitration
Appeal No.Z-47 of 2013 pending before the Kerala High Court shall
stand allowed.
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542 SUPREME COURT REPORTS [2018] 11 S.C.R.

A 43. IN EXERCISE OF JURISDICTION UNDER ARTICLE
136 OF THE CONSTITUTION OF INDIA-WHETHER THIS
COURT CAN INTERFERE:Learned senior counsel for the
respondent-contractor urged that in exercise of jurisdiction under Article
136 of the Constitution of India, the Supreme Court normally does not
reappreciate the evidence and findings of fact unless there is miscarriage
B
of justice or manifest illegality. In support of his contention, learned
senior counsel placed reliance upon Taherakhatoon (D) by LRs. v.
Salambin Mohammad(1999) 2 SCC 635.
44. In exercise of jurisdiction under Article 136 of the Constitution
of India, this Court does not normally reappreciate the evidence and
C findings of fact; but where the findings of the High Court are perverse
or the findings are likely to result in excessive hardship, the Supreme
Court would not decline to interfere merely on the ground that findings
in question are findings of fact. After referring to various judgments on
the scope in exercise of power under Article 136 of the Constitution of
D India, in Mahesh Dattatray Thirthkar v. State of Maharashtra (2009)
11 SCC 141, this Court in para (35) summarized the principles as under:-
“35. From a close examination of the principles laid down by this
Court in the aforesaid series of decisions as referred to
hereinabove on the question of exercising power to interfere with
E findings of fact by this Court under Article 136 of the Constitution,
the following principles, therefore, emerge:
• The powers of this Court under Article 136 of the Constitution
of India are very wide.
• It is open to this Court to interfere with the findings of fact
F given by the High Court if the High Court has acted
perversely or otherwise improperly.
• When the evidence adduced by the parties in support of their
respective cases fell short of reliability and acceptability
and as such it is highly unsafe and improper to act upon it.
G
• The appreciation of evidence and finding is vitiated by any
error of law of procedure or found contrary to the principles
of natural justice, errors of record and misreading of the
evidence, or where the conclusions of the High Court are
manifestly perverse and unsupportable from the evidence
H on record.
KERALA STATE ELECTRICITY BOARD AND ANR. v. 543
KURIEN E. KALATHIL AND ANR. [R. BANUMATHI, J.]

• The appreciation of evidence and finding results in serious A
miscarriage of justice or manifest illegality.
• Where findings of subordinate courts are shown to be perverse
or based on no evidence or irrelevant evidence or there
are material irregularities affecting the said findings or
where the court feels that justice has failed and the B
findings are likely to result in unduly excessive hardship.
• When the High Court has redetermined a fact in issue in a
civil appeal, and erred in drawing inferences based on
presumptions.
• The judgment was not a proper judgment of reversal.” C
[Underlining added]
45. In the present case, for a contract of Rs.7.76 crores under
original PAC amount and revised PAC amount of Rs.10.40 crores, the
appellant-Board has so far paid Rs.56.58 crores and additionally rupees
five crores by order of this Court dated 20.02.2017. As discussed above, D
the findings of the High Court are perverse causing loss to the statutory
body like the appellant-Board, this Court would not decline to interfere
merely on the ground that the findings in question are findings of fact. If
the judgment of the High Court is to be sustained, the Board would have
to make a total payment of about Rs.100 crores, causing huge loss to the E
appellant which would ultimately be passed on to the consumers and the
impugned judgment is liable to be set aside.
46. While we set aside the impugned judgment, what is the order/
direction to be passed is the point falling for consideration. As discussed
earlier, under Ex.P20, the appellant-Board has made excess payment of F
Rs.1,74,75,247/-. By order dated 20.02.2017, this Court directed the
appellant to pay a sum of rupees five crores subject to furnishing of
undertaking by respondent-contractor. As per Ex.P59, the respondent-
contractor claimed Rs.5,55,62,597/- for the work done;material escalation
and labour escalation charges claimed additionally. The admitted
amount under Ex.P59 was only Rs.1,55,65,817/-. As discussed earlier, G
the amount claimed under E x.P59 also will not carry subsequent interest.
Material escalation and labour escalation charges additionally claimed
are to be calculated only on monthly basis. Since an amount of
Rs.6,74,75,247/- (Rs.1,74,75,247/- plus Rs.5,00,00,000/-) has been paid
to the respondent-contractor, it is directed that the same be treated as
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544 SUPREME COURT REPORTS [2018] 11 S.C.R.

A full quit of all the claims under Ex.P59 including tender excess, material
and labour escalation charges.
47. Conclusion:-In the result, the impugned judgment of the High
Court is set aside and these appeals are allowed with the following
observations and directions:-
B (i) As held in Gurpreet Singh’s case, the payment is to be
appropriated strictly in accordance with the directions contained
in the decree. In C.A.No.4092 of 2000, this Court directed the
payment as per Ex.P20. In Ex.P20, the respondent-contractor
himself has shown the labour escalation due as the principal
C amount and interest thereon separately and has given the credit
of the advances made by the appellant-Board firstly towards
the principal and claimed the balance amount. The respondent-
contractor is not right in changing the method of calculation by
appropriation of the payments firstly towards the interest and
then towards the principal amount. The direction of the High
D Court to pay a further sum of Rs.2,29,34,559/- under Ex.P20
is set aside;
(ii) In the absence of direction in the underlying judgment of the
High Court and judgment of this Court in C.A. No.4092 of
2000 to pay subsequent interest, in view of sub-section (2) of
E Section 34 CPC, the respondent-contractor is not entitled to
claim subsequent interest on the amount payable under Ex.P20.
The direction of the High Court to pay subsequent interest of
Rs.1,83,23,665/- under Ex.P20 is set aside;
(iii)The High Court’s direction to pay labour escalation and material
F escalation at single uniform rate of 173.60% and 98%
respectively for the bills towards additional work and to pay
Rs.5,81,53,892/- under Ex.P59 to the respondent is set aside.
In view of the express provision of sub-section (2) of Section
34 CPC, no future interest is payable under Ex.P59. The
G direction of the High Court to pay future interest of
Rs.2,98,17,262/- on the claims made under Ex.P59 is set aside;
(iv)When there was no arbitration agreement between the parties,
without a joint memo or a joint application of the parties, the
High Court ought not to have referred the parties to
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KERALA STATE ELECTRICITY BOARD AND ANR. v. 545
KURIEN E. KALATHIL AND ANR. [R. BANUMATHI, J.]

arbitration.Hence, the award dated 29.10.2012 passed by the A
arbitrator Justice K.A. Nayar is set aside and the Arbitration
Appeal No.Z-47 of 2013 filed by the appellant-Board pending
before the High Court of Kerala is allowed;
(v) The amount of Rs.1,74,75,247/- paid under Ex.P20 which is in
excess of the claim under Ex.P20 and the amount of rupees B
five crores paid to the respondent-contractor vide order of
this Court dated 20.02.2017 be treated as payment under
Ex.P59 for additional work including tender excess, material
escalation and labour escalation charges and in full quit of all
claims under Ex.P59;
C
(vi)Parties to bear their respective costs.

Divya Pandey Appeals allowed.

D

E

F

G

H