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PETITIONER: M/S DURGA RAM PRASAD

       Vs.

RESPONDENT: GOVT. OF ANDHRA PRADESH

DATE OF JUDGMENT23/11/1994

BENCH: RAMASWAMY, K. BENCH: RAMASWAMY, K. REDDY, K. JAYACHANDRA (J)

CITATION:  1995 SCC  (1) 418        JT 1995 (2)    86  1994 SCALE  (5)42

ACT:

HEADNOTE:

JUDGMENT: ORDER 1.   These appeals by special leave arise from the  judgment of the Division Bench of the Andhra Pradesh High Court in Memo of Cross  Objection in C.M.A No.191/75 dated 23.4.75. The appellant had  entered into a contract on 16.3.65 to construct foodgrains godown at Karimnagar.   In  execution thereof, a  dispute  had  arisen whether  the  appellant  had executed the work  as  per  the contract  and is entitled to certain sums of money  withheld by the engineer and also to the interest payable thereon  at 12% etc.  The dispute has been referred to the Arbitrator, a retired  Chief  Engineer,  who in his  Award  dated  12.4.72 awarded  a sum of Rs.27,776/ - with interest at 12%  on  the amounts  wrongfully  withheld  by  the  Engineer.   We   are concerned  in  these appeals only with  the  entitlement  of interest  on  the  amounts withheld by  the  engineer.   The Division  Bench  concluded, while negativing the  claim  for interest, thus:               "We  are, however, inclined to agree with  the               first  ground  given  by the  Court  below  in               negativing  the  claim  for  interest.   Under               clause 69 of M.D.S.S. which has to be  treated               as  part of the contract, it is provided  "nor               shall  the contractor be entitled to  interest               upon   any  guarantee  fund  or  payments   in               arrears,  nor upon any balance which  may,  on               the final settlement of his accounts, be found               to be due to him".  Even if it is assumed that               the recoveries from the bills were  wrongfully               made,  such sums would be sums which would  be               found  due  to the contractors  on  the  final               settlement of accounts". 2.   We are not concerned with the correctness of the  views expressed on other issues as the State did not file appeals. Shri  Kanta  Rao,  the learned  counsel  for  the  appellant

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contended  that  when the appellant had  executed  the  work within  the  period-  in  terms of  the  contract,  and  the officials of the respondent had wrongfully withheld the  due payment  on the respective dates, the appellant is  entitled to  the  interest on the amounts  wrongfully  withheld.   He further  contends  that  clause 69 of the  M.D.  S.  S..  is inapplicable  to  the facts of this situation.   In  support thereof,  he  places reliance on the judgment of  a  learned single  Judge  of that Court reported in A.P.S.R.TC.  v.  P. Ramana Reddi, 1989 (1) ALT 195. 3.The  question,  therefore,  is whether  the  appellant  is entitled to payment of interest from the respective dates on which  the amounts were withheld by the  concerned  engineer and the dispute is arbitrable?               4.    Clause 69 of M.D.S.S. reads thus:               "69.   Interest  on  money  due  to  the  con-               tractor:-               (a)No  omission by the Executive  Engineer  or               the  Sub-Divisional officer to pay the  amount               due  upon certificates shall vitiate  or  make               void the contract, nor shall be contractor  be               entitled to interest upon any guarantee  found               or  payments in arrear, nor upon  any  balance               which  may,  on the final  settlement  of  his               accounts, be found to be due to him". 5.   A  reading  of  this clause gives  an  indication  that interest on money due to the contractor was negatived in the following circumstances: 1)the  omission by the Executive Engineer or  Sub-Divisional officer  to pay the amount due upon certificates  shall  not vitiate or make the contract void; 2)the contractor shall not be entitled to interest upon: a)   any guarantee found; 88 b)   payments in arrears; and c)   upon  any balance which may on final settlement of  his account  to  be  found to be due to him.   The  question  is whether  the  contractor  is  entitled  to  the  payment  of interest  on  the  amounts  wrongfully  withheld  from   the respective  dates.  Clause (c) of the second part of  clause 69  of the MDSS would indicate that there should be a  final settlement of the account and upon its settlement, if it  is found  to  be  due and payable to the  contractor,  on  such amount also the contractor is not entitled to the payment of interest  as contracted under clause 69 of the  NOSS.   When such is the position, whether the contractor is entitled  to payment  of  interest on mere making a claim  and  reference made  to  the  arbitrator and whether  the  arbitrator  gets jurisdiction  to award interest on the amount due  from  the respective dates on which the payments were withheld by  the concerned engineer? 6.   It  is true that the learned single Judge of  the  A.P. High  Court appears to have considered the question and  the construction  of  clause 69 was put up is in favour  of  the contractor as contended for.  It is not a correct  approach. The construction put up on clause 69 of MDSS is not correct. However, on the facts in that case there does not appear  to be any dispute as to the amount due.  Therefore, the learned judge  had  proceeded that since the contract  provides  for withholding  the  payment  for a  suspended  period  of  six months,  if the amount is withheld beyond that  period,  the contractor  would  be entitled to the payment  of  interest. That  is  not the factual scenario in this case.   The  very dispute is whether the appellant is entitled to the  Payment of  the amount pursuant to the contract.  The claim  of  the

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State  appears to be that the appellant had not  constructed the  godown in accordance with the specifications and  that, therefore, they withheld the payment.  Unless the dispute is resolved and the amount is found due, the contractor is  not entitled to the payment of it.  Thereon interest in terms of clause  69 of the MDSS is contracted out.  When such be  the position, then mere reference does Five jurisdiction to  the arbitrator  to  award interest to the period  prior  to  the reference. 7.   This  Court  in  Executive  Engineer  (Irrigation)   v. Abhaduta Jena, 1988 (1) SCC 418, in para 20 held that:               "In the remaining cases which arose before the               commencement  of the Interest Act,  1978,  the               respondents are not entitled to claim interest               either   before   the  commencement   of   the               proceedings.......... They are not entitled to               claim  interest  for the period prior  to  the               commencement  of the  arbitration  proceedings               for  the  reason that the Interest  Act,  1839               does not apply to their cases and there is  no               agreement  to  pay interest or  any  usage  of                             trade  having  the force of law or  any  other               provision  of  law under which  the  claimants               were entitled to recover interest". This  ratio was followed by another Bench of this  Court  in State  of  Orissa v. Niranjan Swain, 1989 (4) SCC  269.   In Secretary,  Irrigation Department v. G.C. Roy,  1992(1)  SCC 508,  the  Constitution Bench was concerned  with  the  case whether  the  contractor is entitled  to  interest  pendente lite.    The  controversy,  therefore,  centres  round   the question whether the contractor is entitled to the  interest pendente  lite.   The  ratio  therein,  therefore,  has   no relevance for the purpose of this case.  The ratio in Jena’s case on the above 89 quoted  ratio is still good law. Accordingly, we are of  the view  that  the  contractor is not entitled  to  payment  of interest  in  terms  of clause 69 of  NDSS  for  the  period anterior  to the reference for arbitration until  the  final settlement  of  the  amount due to  the  contractor  of  his account  is  determined.  In  this  case  that  dispute  was determined  by the arbitrator in his  award.Therefore,  from the date of withholding till the date of award the appellant is not entitled to the payment of interest.  The  arbitrator has no jurisdiction to arbitrate that dispute.  The Division Bench, therefore, rightly negatived the claim for interest.      8.   The appeals are accordingly dismissed,  but in the circumstances, without costs.