Ajay Deep Construction Pvt.Ltd. vs Maharashtra State Police Housing And Welfare Corpn. Ltd.

CNR No : HCBM020199112021

2026:BHC-OS:22739-DB
app9-22withapp29-22.doc


IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
APPEALS NO.9 OF 2022
IN
SUIT NO.1418 OF 2003
Maharashtra State Police Housing and
Welfare Corporation Ltd. .. Appellant
Versus
Ajay Deep Construction Pvt.Ltd. .. Respondent
WITH
APPEALS NO.29 OF 2022
IN
SUIT NO.1418 OF 2003
Ajay Deep Construction Pvt.Ltd. .. Appellant
Versus
Maharashtra State Police Housing and
Welfare Corporation Ltd. .. Respondent
Mr.Narayan Sahu a/w Mr.Sagar Kothari and Mr.Sahil Narvekar i/b
M/s.Legasis Partners, Advocates for the Appellant in APP/9/2022,
and for Respondent in APP/29/2022.
Mr.Hasmit Trivedi a/w Mr.Indra Kumar Lahoti, Ms.Niharika Ahirekar
i/b M/s.Praxis Legal, Advocate for the Appellant in APP/29/2022 and
for the Respondent in APP/9/2022.
CORAM: B. P. COLABAWALLA &
FIRDOSH P. POONIWALLA, JJ.
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RESERVED ON: JULY 10, 2026
PRONOUNCED ON: OCTOBER 19, 2026
Judgement: (Per FIRDOSH P. POONIWALLA, J.)
1. This Judgement deals with Appeal No. 9 of 2022 and Appeal
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No.29 of 2022, both challenging the impugned Judgement dated 28 June
2021 passed by a Learned Single Judge of this Court in Suit No.1418 of 2003.
2. In this Judgement, the parties will be referred to as per their
nomenclature in the Suit.
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3. By the impugned Judgement dated 28 June 2021, the Learned
Single Judge has decreed the Suit in the following terms:
(i) A sum of Rs.9,32,544 (Rupees Nine Lakhs Thirty-two
Thousand Five Hundred Forty-four only) being the total amount
due towards the extra work of additional depth of foundation
(Rs.8,58,619) and for the extra work of excess quantities of 200
mm CI pipeline for gravity main (Rs.73,925), as claimed in para
108 read with Exhibit XXXX to the plaint;
(ii) A sum of Rs.2,82,484 (Rupees Two Lakhs Eighty-two
Thousand Four Hundred Eighty-four only) towards the extra
work of compound wall Type 5 quarters, GSR of Type 1
quarters, transformer for extra load, as claimed in para 109
read with YYYY of the plaint;
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(iii) A sum of Rs.1,47,871/- (Rupees One Lakh Fourty-seven
Thousand Eight Hundred Seventy-one only) towards interest on
RA bill nos.12, 13 and 14 and bill no.35 (final bill) till the date
of the suit;
(iv) A sum of Rs.2,65,441/- (Rupees Two Lakh Sixty-five
Thousand Four Hundred Forty-one only) towards interest on
bill no.10 (final bill) of Escalation (labour, material and POL);
(v) A sum of Rs.27,351/- (Rupees Twenty Seven Thousand Three
Hundred Fifty-one only) towards interest on bill nos.3 and 4
(final bill) of Escalation (star rate) upto the date of the suit;
(vi) A sum of Rs.22,18,507/- (Rupees Twenty Two lakhs Eighteen
Thousand Five Hundred Seven only) towards interest on the
sums of Rs.9,32,544 and Rs.2,82,484 decreed in terms of
Clauses (i) and (ii) above upto the date of the decree;
(viii) The Defendants shall pay costs of the suit. Such costs as
may be taxed by the Taxing Master.
4. Appeal No.9 of 2022 is filed by the Defendant and Appeal No.29
of 2022 is filed by the Plaintiff.
FACTS
5. The Defendant invited tenders for the construction of 650
quarters for policemen of SRPF Group IX at Amravati, with infrastructural
amenities. The Tender contemplated construction of diverse types of
quarters as more particularly set out therein. Under the Tender, the Work
was to be completed in 36 months. The Plaintiff's bid came to be accepted.
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6. Accordingly, Work Order dated 7 November 1996 was issued in
favour of the Plaintiff for an aggregate estimated value of Rs.
15,29,54,891/-,subsequently revised to Rs. 21,50,35,70/-. The Work was to
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be completed by 6 November 1999. The Work was to be supervised by the
Defendant through Shree Housing Associates who were its Project
Management Consultant (“PMC”) along with the Executive Engineer in
charge. The Plaintiff completed the work within the stipulated time. From
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27 December 1996 to 14 March 1997, RA Bill Nos. 1 to 3 were certified and
forwarded by the PMC to the Defendant. The Defendant released payments
towards the aforesaid bills.

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7. By a letter dated 21 March 1997, the Defendant recorded that
the Plaintiff was entitled to interest bearing Mobilisation Advance
aggregating to Rs. 75.00 lakhs. The Mobilisation Advance was to be
recovered in instalments from payments towards RA Bills.

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8. From 5 May 1997 to 22 December 1997, RA Bill Nos. 5 to 13,
Escalation Bill Nos. 1 and 2 were certified and forwarded by the PMC to the
Defendant. The Defendant did not release payment towards RA Bill Nos. 12,
13 & 14 within the stipulated timelines.
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9. By a letter dated 9 January 1998, the Plaintiff complained
about delayed payments towards RA Bills Nos. 12, 13 & 14 and Escalation Bill
No. 3 & 4. The Plaintiff inter alia claimed compensation by way of interest at
the rate of 21% p.a. for delayed payments not only towards the previous Bills
but also towards the future Bills.

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10. On 23 January 1998, the Defendant replied to the Plaintiff’s
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letter dated 9 January 1998. In the said letter, the Defendant denied any
defaults or breaches on its part.

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11. From 27 January 1997 to 2 March 1998, Escalation Bill No. 3,
RA Bill Nos. 14-15 were certified and forwarded by the PMC to the Defendant.
The payment in respect thereof was not released within the stipulated
timelines.
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12. At a meeting held on 24 February 1998, the Defendant inter
alia assured the Plaintiff to resolve issues pertaining to delayed payments
against Bills as recorded in contemporaneous correspondence
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13. From 3 April 1998 to 4 May 1998, RA Bill Nos. 16 and 17, Star
Rate Bill No. 1 and Escalation Bill No. 4 were certified and forwarded by the
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PMC to the Defendant. The payment in respect thereof was not released
within the stipulated timelines.
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14. By a letter dated 27 May 1998, the Plaintiff reiterated issues
pertaining to RA Bill payments and requested the Defendant to release
payments at the earliest. The Plaintiff inter alia stated that an amount
exceeding Rs. 2 crores remained outstanding and drew the Defendant's
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attention to previous correspondence, including the letter dated 9 January
1998.

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15. From 6 September 1998 to 11 September 1998, RA Bill Nos.
18-34, Escalation Bill Nos. 5-9 and Star Rate Bill Nos. 2 and 3 were certified
and forwarded by the PMC to the Defendant. The payment in respect thereof
was not released within the stipulated timelines. The Plaintiff addressed
repeated correspondence to the Defendant in respect thereof. However, the
Defendant failed to resolve the said issues.
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16. On 16 December 1999, the Plaintiff completed the entire Work
well within the stipulated date of completion in accordance with the
provisions of the Contract. The Plaintiff thereafter requested the Defendant
to issue the Certificate of Completion of the Work.
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17. On 11 January 2000, RA Bill No. 35 (Final Bill), Final
Escalation Bill No. 10 and Final Star Rate Bill No. 4 were submitted by the
Plaintiff. In the Final Bill, the Plaintiff had claimed interest on delayed
payments of the previous Bills. As per clause 5.16 of the Tender, the Final Bill
was to be paid within a period of three months from the date of submission of
the final bill. The payment in respect thereof was not released within the
stipulated timelines.
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18. On 27 March 2000, the Defendant recovered interest from the
Plaintiff on the mobilisation advance to the tune of Rs. 1,87,568/- from
payments in respect of RA Bill No. 8.
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19. By a letter dated 27 March 2000, the Plaintiff reiterated its
claim for interest on delayed payments of the Bills. As per the statements
enclosed therein, the Plaintiff claimed an amount of Rs. 69,09,209/- as
interest, computed at the rate of 24% p.a.

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20. On 12 May 2000, the Final Bill was certified and forwarded by
the PMC to the Defendant. The payment in respect thereof was not released
within the stipulated timelines.
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21. On 30 May 2000, the Plaintiff resubmitted details of various
extra items for an aggregate amount of Rs. 2,82,484/-.
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22. By a letter dated 23 June 2000, the Defendant rejected the
Plaintiff's claim for extra depth of foundation and approved payment of an
amount of Rs. 73,295/- towards laying and joining CI pipeline for gravity
main.

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23. On 8 August 2000, the PMC approved the said payment of
Rs.73,295/-.

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24. On 27 September 2000, under the Defendant's instructions, the
Plaintiff submitted the revised bill for an amount of Rs. 8,58,619.77 for extra
items as per general additional specification No. 10.6.13 of the tender.
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25. On 10 November 2000, the Defendant called upon the Plaintiff
to provide information in respect of the extra items executed by the Plaintiff.
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26. On 14 December 2000, the PMC certified an amount of Rs.
8,58,619/- towards extra work of additional depth of foundation.
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27. On 18 December 2000, the Defect Liability Period as per the
contract expired.
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28. On 5 January 2001, t he Defendant released payment against
the Final Bill.
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29. By a letter dated 16 January 2001, the Plaintiff requested the
Defendant to release payments against extra items of Work including for
increased depth in foundation and increased depth of 200 mm C.I pipe for
gravity main.
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30. By a letter dated 22 February 2001, the Defendants intimated
that the payment towards extra item in respect of increased length of CI
pipeline was approved and approvals in respect of other extra works were
under scrutiny. The Defendant however rejected the Plaintiff's claim for
compensation by way of interest for the delay in payment of the RA Bills
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31. By a letter dated 26 February 2001, the Plaintiff requested the
Defendant to release payments against the Final Bill.
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32. By a letter dated 5 March 2021, the Plaintiff listed down
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amounts due and payable to the Plaintiff between 10 May 2002 and 10
October 2002. The Defendant released payment against the Final Escalation
Bill and the Star Rate Bills.
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33. On 22 April 2003, the Plaintiff filed the present Suit i.e. Suit
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No.1418 of 2003. The Defendant filed its Written Statement on 11 January
2008. In the Suit, the following issues were framed by a Learned Single
Judge of this Court:
“1) Whether the Plaintiffs prove that they have carried
out extra work under the contract and they were entitled to be
paid for the extra work?

2) If the answer to issue no.1 is in the affirmative, then at
what rate is the Plaintiffs entitled to be paid?

3) Whether the Plaintiffs prove that the Defendants
delayed in paying the running account bills and therefore, the
Plaintiffs are entitled to interest on those delayed bills?
4) If the answer to issue no.3 is in the affirmative, then at
what rate interest is the Plaintiffs entitled to be paid?
5) Whether the Plaintiffs prove that the Defendants have
deducted excess interest on the mobilisation advance and the
amount of excess recovered has to be paid back to the Plaintiffs
and if so, how much?
6) Whether the Plaintiffs are entitled to decree in the sum
of Rs. 1,09,78,024/-?
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7) Whether the Plaintiffs prove that they are entitled to
interest @ 19% p.a. and for what period?
8) What decree? What order?”
34. As stated hereinabove, the impugned Judgement was passed by
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the Learned Single Judge of this Court on 28 June 2021. Being aggrieved by
the impugned Judgement, the Defendant filed Appeal No.9 of 2022 and the
Plaintiff filed Appeal No.29 of 2022.
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35. By an Order dated 9 January 2023, this Court admitted
both the Appeals. The Appeal filed by the Defendant was admitted
depositing of Rs. 30 lakhs with Prothonotary and Senior Master,
subject to
High Court within four weeks. The Defendant has thereafter deposited the
said amount before this Court.
APPEAL NO. 9 OF 2022
ON CLAIMS OF ADDITIONAL DEPTH OF FOUNDATION AND EXCESS
QUANTITY OF 200 MM CI PIPELINE FOR GRAVITY MAIN
36. In paragraph 20(i) of the Judgement, the Learned Single Judge
has directed payment of a sum of Rs.9,32,544/- i.e. the amount of
Rs.8,58,619/- towards the excess work of additional depth of foundation and
Rs.73,925/- for the excess quantity of 200 mm CI Pipeline for gravity main.
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37. The Defendant has not disputed the granting of Rs.73,925/-
towards excess quantity of 200 mm CI Pipeline for gravity main.
DEFENDANT’S SUBMISSIONS ON DIRECTING PAYMENT OF
Rs.8,58,619/- TOWARDS ADDITIONAL DEBT OF
FOUNDATION.
38. Mr.Narayan Sahu, the learned counsel appearing on behalf of
the Defendant, submitted that the aforesaid claim ought not to have been
granted to the Plaintiff. In this context, he submitted that calling upon the
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Plaintiff to provide information as set out in the letter dated 10 November
2000 of the Defendant, can by no stretch of imagination be construed to have
waived all the terms and conditions applicable for the purpose of Plaintiff
making a claim of extra work. Mr.Sahu submitted that the said letter has
called upon the Plaintiff (a) to explain as to why "the extra work was not
claimed within the prescribed time limit of the Contract", (b) to submit
appropriate drawings for the alleged extra item carried out and (c) authority
(or sanction) for execution of the extra item. Mr.Sahu submitted that the
impugned judgement, without reference to the contents of the said letter, has
wrongly concluded that calling upon the Plaintiff to provide information
waived the conditions of the Contract. Further, Mr.Sahu submitted that,
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assuming that the said letter waived the terms and conditions of clause 9 of
the Contract, the said letter cannot be construed to have waived the other
terms and conditions of the Contract.
39. Mr.Sahu submitted that the impugned judgement had failed to
take into account Clauses 5 and 6 of the Conditions of Contract. Clause 5
specifically requires that the Contractor (the Plaintiff herein) shall not vary or
deviate from the drawings or specifications or execute any extra work of any
kind whatsoever unless upon the express authority of the Executive Engineer,
which shall be obtained by an order in 'writing of the Executive Engineer' or
by a plan or drawing expressly given or 'signed by him as an extra work or
variation' or by any subsequent approval 'signed by him'. The said Clause also
specifically provides that the foundation shall be carried out to the depth in
suitable strata shown in the approved drawings, but if the Executive Engineer
is of opinion that they should be shallower or deeper and so direct the
Contractor in writing, the difference will be dealt with as per clause 6.
40. Further, Mr.Sahu submitted that it would also appear from
Clause 6 that the Executive Engineer alone shall have the powers to make
additions and alterations in the drawing or the specifications, as the case may
be, and that the rates for the work as may be added to the Tender, if not
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specified in the Contract, shall be mutually agreed between the Engineer in
Charge and the Contractor. In the event the Contractor commences the
additional or altered work for which no rate is entered in the schedule of rates
and/or the Contractor is ordered to carry out work before the rates are agreed
upon, this Clause specifically requires that the Contractor shall within 7 days
of the date of receipt of the order to carry out the work inform the Executive
Engineer of the rates which the Contractor proposes to charge for such class
of work. In the event the Executive Engineer does not agree to the rates of the
Contractor, the Contractor shall, by a notice in writing, be at liberty to cancel
the order to carry out such class of work.
41. Mr.Sahu submitted that a bare perusal of the terms and
conditions contained in Clauses 5 and 6 make it clear that, in the event of a
necessity arising for extra work, in addition to Clause 9 with regard to
stipulation of the time limit of claims to be made and the terms contained in
10.6.13, the Plaintiff was required to comply with the terms contained in
Clauses 5 and 6. Mr.Sahu submitted that the impugned judgement
completely ignores the prescribed procedure under the Contract required to
be complied with for the purpose of claiming any alleged extra work. Mr.Sahu
submitted that the PMC had no role, much less any authority whatsoever to
certify or authorize any extra work.
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42. Further, Mr.Sahu submitted that the terms contained in Clause 5
and 6 of the Contract specifically requires the Plaintiff to take an order for
executing extra work in writing. Admittedly, in so far as the alleged claim of
Rs.8,58,619/- towards depth of foundation is concerned, the Plaintiff did not
have authority by any specific order in writing of the Executive Engineer to
carry out the alleged extra work. The impugned Judgement has completely
ignored this specific requirement and has proceeded to erroneously conclude
that the Plaintiff is entitled to the said claim.
43. Mr.Sahu further submitted that the impugned Judgement
coming to the conclusion that the objections raised by the Defendant in its
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letter dated 23 June 2000 are an afterthought, is completely incorrect and
not borne out by the records. In this context, he submitted that the Plaintiff
had earlier on or about October / November 1999 had claimed extra depth of
foundation. The said claim, having regard to the terms of the Contract, and
in particular Clause 10.6.13, was rejected by the Defendant by a letter dated
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12 November 1999. The Plaintiff again made the said claim by its letter
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dated 30 May 2000 read with the PMC’s letter dated 8 May 2000 referred
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to in the Defendant's letter dated 23 June 2000, by which the said claim of
extra depth of foundation was again rejected.
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44. Mr.Sahu submitted that in view of the Plaintiff's consistent
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illegal claims of extra depth as per revised Bill submitted by a letter dated 27
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September 2000, along with the PMC's letter dated 8 August 2000, the
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Defendant, by a letter dated 10 November 2000, called upon the Plaintiff to
submit all the requisite documents and necessary explanation in compliance
of the terms and conditions contained in Clauses 5, 6, 9 and 10.6.13 of the
Contract.

45. Mr.Sahu submitted that, in non-compliance of the principles of
natural justice and to avoid allegations of arbitrariness, it was specifically
stated that the claim of extra item may be considered, if found admissible as
per the accepted tender.
46. Mr.Sahu submitted that, in the light of the contents of the said
letter unequivocally calling upon Plaintiff to comply with the terms and
conditions of the Contract, the same could not have been and cannot be
construed as any waiver nor acceptance of the alleged extra work.

47. Mr.Sahu submitted that the impugned Judgement, at paragraph
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9, had, on the basis of the letter dated 8 August 2000 of the PMC, relied on
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the claims of the PMC that instructions by various authorities of Defendant
were given at the time of visit to the site for the purpose of extra depth of
foundation.

48. Mr.Sahu submitted that the extra work and the claim in that
regard are required to comply with the terms and conditions contained in
Clauses 5 and 6 of the Contract.

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49. Mr.Sahu submitted that, admittedly, the letter dated 10
November 2000, contrary to the claims of the PMC, called upon the Plaintiff
to comply with the provisions of the Contract as set out therein. Mr.Sahu
submitted that, in view thereof, the conclusion of the impugned Judgement
with regard to implied approval is dehors the evidence on record.
50. Mr.Sahu further submitted that the impugned Judgement had
failed to consider that the PMC had no authority to certify any extra item
and/or work. The terms and conditions of the Contract specifically defines
the role of the PMC. Clause 5.6 defines the authority of the PMC and restricts
the authority only regarding the work and bill. Clause 5.6 also specifically
provides that the PMC, who shall be a representative of the Executive
Engineer, is vested with authority only to watch and supervise the work and
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to test and examine any material to be used and the workmanship employed
in connection with the work.
51. Mr.Sahu further submitted that Clause 5.8 of the Contract
further clarifies that any work completed and ready for inspection shall not
be considered to have been completed in accordance with the terms of the
Contract until the Engineer in Charge shall have certified the work in writing.
52. Mr.Sahu submitted that, in these circumstances, the impugned
Judgement ought not to have allowed the claim of Rs.8,58,619/-.
PLAINTIFF’S SUBMISSIONS
53. Mr.Hasmit Trivedi, the learned counsel appearing on behalf of
the Plaintiff, submitted that in so far as the claim relating to additional depth
of foundation is concerned, the Learned Single Judge has recorded a
categorical finding that the work was in fact executed by the Plaintiff and that
there is no dispute regarding this between the parties. Further, by a letter
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dated 4 December 2000, the PMC had accepted that the additional
foundation work involved excavation beyond the contractual depth of 2.00
metres and recommended the same for payment of Rs. 8,58,619/- Thus, the
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Plaintiff's entitlement to payment for the additional depth of foundation is
therefore fully supported by the evidence on record. Mr.Trivedi submitted
that, in these circumstances, the impugned Judgement had correctly directed
payment of Rs.8,58,619/- towards additional depth of foundation.
ANALYSIS AND FINDINGS
54. As far as the claim for Additional Depth of Foundation is
concerned, it is the case of the Plaintiff that for such additional depth of
foundation, it had submitted a revised bill for items beyond two metre depth
as per general additional specification No.10.6.13 of the tender, amounting to
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Rs.8,58,619/-. The Revised Bill was submitted with the letter dated 27
September 2000. There is no dispute between the parties as to the actual
work carried out by the Plaintiff in this behalf. Also, it is not in dispute that
the Plaintiff had duly raised a bill in respect of this extra work.
55. The Plaintiff’s claim for extra depth of foundation was rejected
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by the Defendant by its letter dated 23 June 2000. The Defendant’s letter
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dated 23 June 2000 rejects the same on the ground that the Plaintiff had
not considered natural ground levels as per Clause 10.6.13 of the Contract.
Secondly, it is claimed that the Plaintiff had not submitted its claim for extra
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work within 30 days of occurrence of the event as per tender condition No.9.
The Defendant’s objection in respect of Clause 10.6.13 of the Tender seems to
be an after thought. It was never raised earlier. Clause 10.6.13 provides for
average depth of excavation of foundation of 2.00 mtrs. with respect to
average natural ground level of the plot. If the average depth exceeds 2.00
mtrs. from the natural ground level, then extra quantities of excavation,
concrete etc. are required to be paid extra to the contractor. As clearly
accepted by the PMC, the extra work of excavation claimed by the Plaintiff
involved depth of beyond 2.00 mtrs. The claim is, thus, very much within the
terms of the contract, and in keeping with Clause 10.6.13.
56. So far as tender condition No.9 is concerned, namely non-
submission of the claim within 30 days of the occurrence of the event, the
Learned Single Judge has recorded that the learned counsel for the
Defendant had accepted that the Defendant had waived this condition so far
as the item of extra work was concerned. Further, there is also
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contemporaneous record in the form of Defendant’s letter dated 10
November 2000 that the Defendant had waived the condition and called for
information such as drawings for the extra works and authority for their
execution.
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57. Further, it is important to note that the PMC of the Defendant
had initially recommended the Plaintiff’s bill in respect of this extra item for
payment and there is an evidence on record to show that even the Defendant
did not dispute the item earlier.

58. Further, the nature of this work as an extra item and its value
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has clearly been reflected in an admitted document, being a letter dated 8
August 2000 addressed by the PMC to the Superintending Engineer of the
Defendant. The PMC also submitted the justification/background and
necessity for such extra item. The PMC certified that the contractor, i.e. the
Plaintiff herein, had not previously claimed these extra items as per condition
No.9 of the detailed tender notice, in anticipation of getting a post facto
approval for the same. The PMC also supported the Plaintiff's case that these
extra items, which were recommended for payment by the consultant, were a
result of instructions given at the time of visits of various authorities of the
Defendant and their architect to the work site and were special and technical
requirements of the project. Thus, in our view, there is adequate material on
record to bear out that these extra works were ordered by the Defendant
during the course of inspection at site and there was no need for the Plaintiff
to make any claim for extra work under condition No.9.

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59. Further, in any event, a contractual clause such as condition
No.9 in the present case, which stipulates the time and manner within which
the contractor has to intimate the employer about extra or additional work,
has never been considered as a statutory limitation or bar for a claim for
extra/additional work. The purpose of such stipulation is to ensure that
extra/additional work has actually been done. Once it is established that the
work has indeed been done, payment for it cannot be denied on a technical
ground such as non-intimation according to the stipulation. This has been
held by the Hon’ble Apex Court in the case of Chandigarh Construction
Company Pvt.Ltd. vs. State of Punjab' (2020) 11 SCC 161. On the basis of this
law and the evidence produced before the Court, in our view, the Plaintiff has
clearly made out its case for payment of extra work of Rs.8,58,619/-.
60. The Defendant has made an attempt to question the authority of
the PMC to certify or recommend payment of the contractor's bills. Under the
contract, the PMC has been acknowledged as a representative of the
Engineer-in-charge in clause 5.6 of the "detailed tender notice to contractor",
who was the final authority insofar as completion of any particular work and
the contractor's entitlement to payment for such work is concerned. The
duties of the representative of the Engineer, mentioned in clause 5.6, include
"to watch and supervise the work and to test and examine any material to be
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used or workmanship employed in connection with the works." The PMC as a
representative has a clear authority to approve any work or materials and, by
logical extension, to recommend such work or materials for payment. It is
another matter that failure to disapprove any work or materials by such
representative was not to prejudice the power of the Engineer in charge to
thereafter disapprove such work or materials and order their pulling down,
removal or breaking up. There is nothing on record to show that the
concerned works, approved by the PMC were at any time disapproved or
ordered to be pulled down or removed by the Engineer in charge. Further,
under Clause 5.16, the PMC has the authority to certify the quality as well as
quantity of the work and record the measurements/payment schedule in the
measurement book of the Defendant. The bill has to be processed for
payment thereafter. The approval of the works and recommendation for
payment made by the PMC, thus, go a long way in justifying the contractor's
claim for payment in relation to the concerned works. So far as the
measurements/payment schedule measurement book are concerned, the
documents being in possession of the Defendants, it was for them to produce
the same, if, according to them there were no corresponding entries of
measurement/payment schedule in the books. They have obviously not done
so.
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61. In the light of the aforesaid, the Defendant’s submission that the
th
letter dated 10 November 2000, cannot be considered as a waiver of the
terms and conditions of the Contract cannot be accepted.

62. Further, for all the aforesaid reasons, the Defendant’s reliance
on Clauses 5 and 6 of the Conditions of Contract for rejecting the claim is
unfounded.

63. In our view, the view taken by the Learned Single Judge is a very
plausible view and requires no interference in Appeal.

ON CLAIMS OF EXTRA WORK OF COMPOUND WALL TYPE 5
QUARTERS, GSR OF TYPE 1 QUARTERS AND TRANSFORMER FOR
EXTRA LOAD
64. In paragraph 20(ii) of the judgement, the Learned Single Judge
has directed payment of a sum of Rs.2,82,484/- towards the aforesaid extra
work.
DEFENDANTS’ SUBMISSIONS

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65. Mr.Sahu, the learned counsel appearing on behalf of the
Defendant, submitted that it would appear from the terms of the Contract
that the alleged extra work was well within the scope of work.
66. In this context, Mr.Sahu referred to Clause 5.1.2 of the Contract
which provides that the tender is for construction of residential buildings,
including internal plumbing, sanitary fittings, electrification, etc. and all infra
structural amenities such as roads, S.W. drains, leveling of plot, external
water supply, sanitary, external electrification, garden, compound wall, etc.
67. Mr.Sahu submitted that Clause 5.3 provides that the special
provisions in the detailed specifications and wording of any item shall gain
precedence over corresponding contradictory provisions (if any) in the
standard specifications of the P.W.D. Handbook where reference to such
specification is given without reproducing the details in the Contract.
68. Mr.Sahu submitted that Clause 9 of the Contract specifically
provides that claims of extra work shall be paid separately apart from the
interim bills for the main work. The payment of the bills for main work would
not be affected for want of decision on the extras or claims not covered under
the appendices. Mr.Sahu submitted that this clause clearly provides that
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claim for any extra work has to be beyond what is provided under the
appendices i.e. the specifications referred to in the contract.
69. Mr.Sahu submitted that Schedule B provides for scope of work
and detailed specification of work. He submitted that the items of extra work
claimed in terms of the paragraph 20(ii) of the Judgement, namely (i)
Compound wall is a part of the specification set out in Schedule B at internal
page 191, running page 571 (ii) Ground Storage Reservoir at Type 4 referred
to in Particulars of Claim as Type 1, is a part of the specifications set out in
clause 7.5 at internal page 136, running page 517 of Vol. III which was
separately tendered, and (iii) transformer for extra load is part of "supply and
installation of electrical supply and distribution mains" being part of
Schedule B at internal page 233, running page 613 of Vol. III of the Suit, at
item Nos.11 and 12.
70. Mr.Sahu submitted that in view of the specific requirements set
out in the Contract itself and in the specifications in Schedule B, the
purported claims decreed in terms of paragraph 20(ii) on the basis that the
said items are not part of the Contract is contrary to the admitted
documentary evidence being the Contract (the tender document).
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71. Further, Mr.Sahu submitted that, admittedly, except for the
th
statement annexed to the letter dated 16 January 2001, no claim was ever
submitted by Plaintiff in regard to the alleged extra work referred to
hereinabove.
72. Mr.Sahu further submitted that, without prejudice to the fact
that the claims decreed in paragraph 20(ii) are well within the detailed
specifications of the contract and was inclusive in the cost of the tender, if the
Plaintiff had reasons to believe and treated these items/ quantities as extra
item/quantities and intended to claim as such, the same was required to be
claimed as per the specific terms of Clauses 5, 6 and 9 of the Contract.
Mr.Sahu submitted that the Plaintiff's claim could not have been granted
without regard to the contractual terms and based on the principles of pre-
ponderance of probabilities.
73. Mr.Sahu submitted that, for all these reasons, the Learned Single
Judge has erroneously decreed the amount mentioned in paragraph 20(ii) of
the Judgement.
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PLAINTIFF’S SUBMISSIONS
74. Mr.Trivedi, the learned counsel appearing on behalf of the
Plaintiff, submitted that the Learned Single Judge had categorically held that
the works comprising the compound wall for Type-5 quarters, Ground
Storage Reservoir (GSR) and transformer for additional load amounting to
Rs. 2,82,484/- were not part of the original contractual scope and were
executed at the request of the Defendant.

75. Mr.Trivedi further submitted that the Judgement records that
there was no dispute regarding the execution of these works and that the
Defendant's witness merely feigned ignorance when questioned about the
same. Mr.Trivedi further submitted that, significantly, the Learned Single
Judge also found that there was no material on record to demonstrate that
the Defendant had ever disputed the valuation of the said works. Mr.Trivedi
submitted that the findings relating to the execution, necessity and valuation
of the extra works are therefore pure findings of fact based on appreciation of
oral and documentary evidence and warrant no interference in appeal.
76. Further, Mr.Trivedi submitted that the extra works were
executed pursuant to instructions issued by the Defendant and its
representatives during site inspections and constituted special and technical
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requirements of the project. Mr.Trivedi submitted that thus the evidence on
record establishes not only the execution of the extra works but also the
Defendant's knowledge, approval and acceptance thereof.
ANALYSIS AND FINDINGS
77. There is no dispute between the parties as to the execution of
these works. The particulars have been submitted by the Plaintiff vide its
th
letter dated 30 May 2000 (Exhibit P-38). The total claim, originally
formulated in the sum of Rs.4,77,139/-, was revised by the Plaintiff to
Rs.2,82,484/-. This included the aforesaid three items. The Defendant’s
witness, Sunil Marotrao Sambe (DW-1), did not dispute the Plaintiff's
construction of these works. He simply feigned ignorance when asked to
verify the Plaintiff's construction of these three items. Besides, there is
nothing on record to show that the Defendants at any time objected to the
value of the work claimed by the Plaintiff. Even at the hearing of this suit, no
such submission was advanced by the Learned Counsel for the Defendant.
The Plaintiff's witness had deposed extensively on the execution of these
extra items of work at paragraph 112 of the Affidavit of Examination in Chief
of PW 1 and their values. Having regard to the oral and documentary
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evidence on record, the Plaintiff can be certainly said to have made out its
case for execution of this extra work as well as its value.

78. In our view, the view taken by the Learned Single Judge, with
regard to these three items is a plausible view, and requires no interference in
Appeal.
ON CLAIMS OF INTEREST ON DELAYED PAYMENTS OF RA
BILLS GRANTED BY THE LEARNED SINGLE JUDGE
79. In paragraph 20(iii) of the Judgement, the Learned Single Judge
has directed payment of a sum of Rs.1,47,871/- (Rupees One Lakh Forty-
seven Thousand Eight Hundred Seventy-one only) towards interest on RA
bill Nos. 12, 13 and 14 and bill No.35 (final bill) till the date of the suit. In
paragraph 20(iv) of the Judgement, the Learned Single Judge has directed
payment of a sum of Rs.2,65,441/- (Rupees Two Lakh Sixty-five Thousand
Four Hundred Forty-one only) towards interest on bill No.10 (final bill) of
Escalation (labour, material and POL). In paragraph 20(v) of the Judgement,
the Learned Single Judge has directed payment of a sum of Rs.27,351/-
(Rupees Twenty Seven Thousand Three Hundred Fifty-one only) towards
interest on bill Nos.3 and 4 (final bill) of Escalation (star rate) upto the date
of the suit.
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DEFENDANT’S SUBMISSIONS

80. Mr.Sahu, the learned counsel for the Defendant, submitted that
the claim for interest on delayed payment on the face of the Contract is not
maintainable, as such, the impugned Judgement ought not to have granted
interest on the alleged delayed payment claimed by the Plaintiff. Mr.Sahu
submitted that the terms and conditions of the Contract as stipulated in
Clause 5 (Additional Instructions to the Contractor), and in particular Clause
5.1.2, shows that the rates agreed under the Contract shall be inclusive of
providing infrastructural amenities mentioned in the Contract and that built-
up area of the infrastructure as set out therein are not to be considered
separately for payment.
81. Mr.Sahu further submitted that Clause 5.3 read with Schedule of
"Tender of the lumpsum Contract" specifically provides that the Contract is
for a lumpsum amount quoted by the Plaintiff. Further, clause 5.4 defines the
"Contract Sum" which shall mean the sum for which the tender is accepted.
82. Mr.Sahu further submitted that Clause 5.15 provides for
payment and specifies that "Contractor must understand clearly that the
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rates / offer quoted are for the complete work and include all cost" for the
items mentioned therein. It is specifically clarified therein that "no claim for
additional payment beyond the prices or rates quoted will be entertained".
83. Mr.Sahu further submitted that the claim of alleged interest for
alleged delayed payment of the bills is claimed on the basis of a misplaced
interpretation of Clause 5.16 of the Contract. The said clause only provides
for processing the bills for payment within 15 days "if possible". The
specification of 15 days, on a true construction of the Contract, cannot be said
to be mandatory. The Contract provides for a time limit of 3 months for
payment of the final bill, which clearly shows that, in the contract, the time
limit is only for the payment of final bill.
84. Further, Mr.Sahu submitted that the Plaintiff, under the
Contract, was not entitled to mobilisation advance. However, at the request
of the Plaintiff, the Board of Directors of the Defendant, as a special case,
granted approval for mobilisation advance to the extent of Rs.75,00,000/- on
st
the terms and conditions set out in the Defendant's letter dated 21 March
1997. Mr.Sahu submitted that the Plaintiff accepted the terms and agreed to
avail mobilisation advance, which carried interest at the rate of 19% p.a. from
the date of release and recovery thereof to commence after completion of 10%
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of the value of the work against the RA Bills to be raised thereafter. Mr.Sahu
submitted that it was specifically agreed that the said advance shall be
completely recovered with interest by the time 75% of the value of the
Contract is completed.

85. Further, Mr.Sahu submitted that the Plaintiff, initially, by a
th
Notice dated 9 January 1998, claimed interest on delayed payment of the
running bills. By the said Notice, it was also stated that for the future delayed
payments, Plaintiff shall claim interest as set out therein. Thereafter, the
th
Plaintiff, by a Notice dated 27 March 2000, purported to claim interest on
the alleged delayed payment of the Running Account Bills.

86. Mr.Sahu submitted that the Plaintiff is fully aware that the
Contract at clause 5.15 clearly provides that "No claim for additional payment
beyond the price or rates quoted will be entertained under the Contract". In
addition, clause 5.3 read with the Schedule of "Tender of the lumpsum
Contract" clarifies that the Contract is a Fixed Price Contract and no other
amount except what is agreed thereunder is payable to the Plaintiff. Mr.Sahu
submitted that, in these circumstances, the notices issued by the Plaintiff
were illegal and contrary to the provisions of the Contract.

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87. Further, Mr.Sahu submitted that the Learned Single Judge,
while granting the claims, under the provisions of Section 3(1)(b) of the
Interest Act, 1978, did not consider the provisions of Section 3 in its entirety
and in particular sub-section (3) thereof. Sub-section (3) of Section 3 of the
Interest Act, 1978 (“Interest Act”) provides that nothing in this Section shall
apply in relation to any debt or damages upon which payment of interest is
barred by virtue of an express agreement. Mr.Sahu submitted that, in view of
the above, the Learned Single Judge ought not to have concluded in terms of
paragraph 19 of the impugned Judgement that the Plaintiff is entitled to the
interest as set o ut in paragraph 20(iii), (iv) and (v) of the Judgement.
PLAINTIFF’S SUBMISSIONS
88. The Plaintiff has contended that the Learned Single Judge was
correct in granting the interest that he has directed to pay by the Judgement.
In fact it is the case of the Plaintiff that the Learned Single Judge ought to
have granted further interest. That aspect of the case of the Plaintiff will be
dealt with while dealing with Appeal No.29 of 2022 filed by the Plaintiff.
ANALYSIS AND FINDINGS
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89. As far as pre-suit interest is concerned, the claim is broadly of
two types, one by way of interest on the principal amounts of running bills
and final bill already paid, though with delay, for the period of such delay and
the other on the amounts which, though due, were not paid and which have
been claimed in the suit by way of principal money. As far as first type is
concerned, interest has been claimed on (i) running account bills and final
bill paid with delay, (ii) Escalation bills (labour, material, POL) paid with
delay and (iii) Escalation bills (star rate) paid with delay. So far as running
account bills, including bills for Escalation, both labour, material, POL and
star rate, are concerned, the contractual stipulation for payment is to be
found in clause 5.16 of the contract, which provides for payment in fifteen
days of raising of a bill, if possible. As for the final bill, the contract (Clause
5.16) provides for payment within three months. The submission of the
Defendant is that there is no absolute liability on its part to pay running bills
within fifteen days. It had to do so only to the extent possible. It was,
however, accepted by the learned Counsel for the Defendant before the
Learned Single Judge that, so far as the final bill is concerned, its payment
had to be made within three months to the extent of undisputed items or
claims. It is also submitted by the Defendant that even in the event of delay,
assuming such delay to be in breach of contract, there was no stipulation for
any interest in the contract and no interest was payable in that case.
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90. Therefore, the first question which arises is whether there was
any time-line provided for payment so far as running account bills are
concerned. In our view, there was such a time-line, namely, fifteen days of
submission of the bill. It did not make a difference that the said stipulation
uses the words "if possible". The words “if possible" may introduce a
concession in the sense that the employer could get away from consequences
of not paying in time by claiming that processing of a particular bill and its
payment within the stipulated time was "not possible". If that is his claim in a
Court of law, he must plead and prove the same. In our view, the words "if
possible" do not bring about any element of tentativeness in the stipulation.
In our view, the same would make no commercial sense. The present matter
relates to a contract for construction of a housing complex, which is a
commercial contract. A clause providing for a tentative time-line in such a
contract would make no sense. A better construction, which in all probability
would have been intended by the parties, would be to treat these words as an
exception.

91. The second question is, what is the the consequence of non-
payment within time. The contract does not provide for any. It has been an
established principle of law that interest (that is, pre-suit interest) can be
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allowed on delayed payment (i) in terms of the agreement entered into
between the parties, or (ii) where it is permissible by statute, or (iii) by reason
of usage of trade having the force of law. The agreement between the parties
does not provide for any interest nor does it bar the claiming of interest.
There is no usage of trade. The Plaintiff claims interest under a statute, i.e,
the Interest Act. It is the case of the Plaintiff that it has given notices from
time to time for claiming interest on delayed payments at 21 per cent per
annum from dates mentioned in that behalf in such notices. It is again well
settled in law that the Interest Act applies where interest is not otherwise
payable by law.
92. In these circumstances, in our view, interest is payable by the
Defendant in terms of Section 3(1)(b) of the Interest Act.
93. On the basis of the law discussed above, we will consider the
facts of this case so far as the Plaintiff's claim on the basis of a notice of
demand under Section 3 of the Interest Act is concerned. In the first place, as
far as running accounts are concerned, the very first notice of demand under
Section 3 was issued in respect of RA bill Nos. 10, 12, 13 and 14, Escalation
bills comprising of Escalation (labour, material, POL) and RA bill Nos.2 to 4.
RA bill Nos.1 to 10 had already been paid by that time. So also, were the first
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and second RA bills for Escalation (labour, material, POL). What was
th
outstanding as of the date of this notice i.e. notice dated 9 January 1998
(Exhibit P-8) were RA bills Nos. 12, 13 and 14 and RA bills Nos. 3 and 4 of
Escalation (labour, material, POL). Thereafter, the Plaintiff had addressed
reminders for further RA Bills, particularly RA bills Nos. 20 to 34 and RA bill
No.35, which was in effect the final bill, and also Escalation RA bills (labour,
material, POL) Nos.5 to 9 and RA bill No.10, which was the final bill for
Escalation (labour, material, POL) and Escalation (star rate). RA bills Nos.1
to 3 and RA bill No.4, which was a final bill. These reminders are marked as
Exhibits P-13, P-14, P-17 to P- 19, P-21 to P-23, P-25, P-27, P-28, P-31, P-33
and P-34. In none of these notices was there any demand for interest in
relation to any outstanding bill. The first demand of interest after the notice
th th
of 9 January 1998 was in the Plaintiff's letter dated 27 March 2000. At
that stage, all regular running account bills upto RA bill No.33, Escalation
bills of star rate and labour, material, respectively, upto RA bill No.3 and RA
bill No.9, had already been paid. What was outstanding was regular RA bill
Nos.34 and 35 (which was a final bill) and Escalation (star rate) (fourth and
final bill) and Escalation (labour, material, POL) (tenth and final bill).
94. The Plaintiff annexed a statement of interest payable by the
th
Defendants on delayed payment of bills to the said notice dated 27 March
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2000 (“Exhibit P-35”). The statement includes claims for delay in respect of
all regular RA bills, namely, RA bill Nos.1 to 34 and 35 and final bill as well as
th
RA bills of labour, material, etc. from Nos.1 to 9 and 10 and final bill and RA
bills of Escalation (star rate) (being Nos.1 to 3 and fourth and final bill). This
th
was the only demand after the first demand of 9 January 1998 (Exhibit P-8),
which was for RA bill Nos.10 and 12 to 14 and RA bills of Escalation (labour,
material, POL) Nos.2 to 4. Further, as held by us hereinbelow, no demand for
interest in the event of concluded payments of principal can sustain a suit for
recovery of interest under Section 3 of the Interest Act. Accordingly, the
Plaintiff can have a valid claim under Section 3 of the Interest Act only in
respect of regular RA bill Nos.12 to 14 and Escalation RA bills Nos. 3 and 4
(labour, material, POL) which were covered by the notice for demand dated
th
9 January 1998 and for bill No.35, which was the regular final bill, and
Escalation final bills i.e. bill No.10 for Escalation (labour, material) and bill
No.4 for Escalation (star rate) (which were covered by notice of demand
th
dated 27 March 2000 (Exhibit P-35).
95. As far as the rate of interest is concerned, from the material
produced by the Plaintiff comprising of official banking documents (which
are not contested), 9 per cent per annum appears to be the average or
maximum interest payable on deposits by scheduled banks for the relevant
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period. The Learned Single Judge has therefore correctly awarded interest at
the said rate.
96. For all the aforesaid reasons, the Learned Single Judge has
correctly granted interest in the paragraphs 20(iii), (iv) and (v) of the
Judgement.
APPEAL NO.29 OF 2022
PLAINTIFF’S SUBMISSIONS
97. Appeal No.29 of 2022 is filed by the Plaintiff. Mr.Trivedi, the
learned counsel for the Plaintiff, submitted that, by the impugned
Judgement, the Learned Single Judge allowed the claims for extra three
items of work executed and certified. In addition, the Learned Single Judge,
however, rejected the claims for interest on delayed payment in respect of
most of the bills. In addition, the Learned Single Judge also rejected the
claims for pendente lite interest (save and except on the claim of extra items)
and post decree interest on all amounts. Mr.Trivedi submitted that the
rejection of the Plaintiff’s claim of interest is contrary to the facts and to the
provisions of the Interest Act and the Code of Civil Procedure, 1908 (“CPC”).
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98. Mr.Trivedi submitted that the finding that the Plaintiff did not
comply with the provisions of the Interest Act is patently illegal. Mr.Trivedi
submitted that, under Clause 5.16 of the Tender, the Defendant was liable to
release payments towards the Plaintiff's bills within a period of 15 days from
the date of certification. Admittedly, the Defendant repeatedly breached the
th
aforesaid stipulation. By a letter dated 9 January 1998, the Plaintiff issued a
notice stating that the Defendant would be liable to pay interest on delayed
payment of Bills. The said letter explicitly records the Plaintiff's intention to
claim interest on the Bills previously issued as well as future Bills. The
Plaintiff adduced oral evidence in support thereof. The oral evidence of the
Plaintiff's witness remained uncontroverted. Mr.Trivedi submitted that the
aforesaid letter satisfies the requirement of Section 3 of the Interest Act in
respect of all Bills certified by the PMC during the subsistence of the contract.
rd
Mr.Trivedi further submitted that in its letter dated 23 January 1998, the
Defendant did not deny the Plaintiff's claim for interest in respect of future
bills. In fact, in the Written Statement, the Defendant merely states that the
claim for interest is contrary to the contract.

99. Mr.Trivedi submitted that, in the Judgement, the Learned
Single Judge has concluded that the aforesaid letter only expresses an
th
intention to claim interest in respect of the Bills outstanding as on 9
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January 1998. The Learned Single Judge has referred to the said letter dated
th
9 January 1998 but failed to consider the effect of its contents. Mr.Trivedi
submitted that the contents of the said letter reveal the Plaintiff's intention to
claim interest on all delayed payments.

100. Mr.Trivedi further submitted that the provisions of Section 3 of
the Interest Act inter alia serve as a caution to a debtor that he/she shall be
liable to pay interest on any delayed payments from the date mentioned in
th
the notice. The Plaintiff's letter dated 9 January 1998 serves the aforesaid
purpose. Mr.Trivedi submitted that the Learned Single Judge failed to
th
appreciate the intention and purport of the letter dated 9 January 1998.
Thus, the finding that the Plaintiff did not comply with the conditions of
Section 3 of the Interest Act is unsustainable in fact.

101. Mr.Trivedi further submitted that the Learned Single Judge had
failed to appreciate the plain text of the provisions of the Interest Act.
Mr.Trivedi referred to Section 3 of the Interest Act and submitted that the
opening words of Section 3(1) are crucial. They described the class of
proceedings to which the section applies. That class is defined in two distinct
limbs; (i) proceedings for the recovery of any debt or damages and (ii)
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proceedings in which a claim for interest in respect of any debt or damages
already paid is made.

102. Mr.Trivedi submitted that the second limb is unambiguous. It
expressly covers proceedings where the principal debt or damages have
already been paid at the date of institution of the suit. No further condition is
imposed by the statute. There is no qualification to the effect that the
principal must remain outstanding at any particular date.

103. Further, Mr.Trivedi submitted that Section 3(1)(b) of the
Interest Act governs the period in respect of which interest may be awarded
where the proceedings arise from a debt or damages other than those falling
under a written contract. It provides that the period runs from the date when
the creditor notifies the debtor by notice in writing that interest will be
claimed, to the date of institution of the proceedings.

104. Mr.Trivedi submitted that three features of this provision bear
close examination. First, the Section requires a notice in writing. It does not
require that the principal debt remain outstanding on the date of notice. It
does not require that the notice be given before any payment is made.
Second, the Section uses the future tense "that interest will be claimed." The
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notice operates prospectively. It is an intimation of an intention to claim
interest. A notice given after payment of principal does not militate against
the aforesaid provision. Third, the Section specifies the period for which
interest may be claimed from the date of notice to the date of institution of
proceedings. The Section does not say the period would be from the date of
notice, provided principal remains outstanding. The terminal point is the
date of institution. The starting point is the date of notice. Both are fixed by
the statute and no other condition is imposed.
105. Mr.Trivedi then referred to the proviso to Section 3(1) of the
Interest Act. Mr.Trivedi submitted that the proviso deals with a situation
where the principal has been repaid before proceedings are instituted. It does
not say that the notice loses its validity on repayment of principal. It only says
that interest shall not be allowed for the period after repayment.

106. Mr.Trivedi submitted that the Plaintiff's principal claim in the
Suit was amounts due towards interest on delayed payments from the
respective due dates till the date of filing of the Suit. The Plaintiff states that,
in the first instance, notice under the Interest Act was issued vide letter dated
th
9 January 1998. Subsequently, the Plaintiff once again recorded its
th
intention to claim interest in the letter dated 27 March 2000.
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107. Mr.Trivedi submitted that the Learned Single Judge held that
the aforesaid letters do not satisfy the requirements of Section 3 of Interest
Act. In the Judgement, the Learned Single Judge has concluded that notice
under Section 3 of the Interest Act is mandatorily to be issued after the
amounts become due and prior to payment of the principal amount in respect
where interest is claimed.

108. Mr.Trivedi submitted that, in other words, the Learned Single
Judge has held that if notice is issued prior to amounts becoming due or after
payment is received by the creditor, such notice does not comply with the
provisions of Section 3 of the said Act.

109. Mr.Trivedi submitted that in so far as the Learned Single Judge
impliedly rejects the notice issued prior to the amounts becoming due, it is
submitted that the same is inconsistent with the purpose of Section 3. Section
3 of the Interest Act is enacted to inter alia ensure that the debtor is notified
of the desire to claim interest. The Plaintiff submits that a notice issued prior
to amounts becoming due serves the aforesaid purpose. In that view of the
matter, it is submitted that the conclusion recorded in the Judgement is
inconsistent and thus untenable in law.
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110. Mr.Trivedi submitted that the condition which the Learned
Single Judge read into Section 3(1)(b), particularly that the notice must be
given while the principal remains outstanding, is not found in the Section. It
is a condition added by construction. Mr.Trivedi submitted that such a
construction is impermissible.

rd
111. Mr.Trivedi submitted that the 63 Report of the Law
Commission is an external aid and it is admissible only where the statutory
language is ambiguous. Mr.Trivedi submitted that the reports of Law
Commissions and Committees which preceded the enactment of legislation
are permissible external aids to construction. However, their admissibility is
conditional. They may be consulted only where the language of the statute is
ambiguous or obscure. They cannot be used to override plain statutory
language. In this connection, Mr.Trivedi referred to the judgements of the
Hon'ble Supreme Court in R.S. Nayak v. A.R. Antulay (1984) 2 SCC 183 and
Bhaiji v. Sub-Divisional Officer, Thandla (2003) 1 SCC 692 and to the
judgement of this Court in State of Maharashtra v Dattatraya Balwant
Upadhyaya (1976) Mah LJ 550.

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112. Further, Mr.Trivedi submitted that, without prejudice to his
submissions on the Law Commission’s Report, reliance on it is misplaced as
the Commission was addressing a materially different question. In this
context, Mr.Trivedi submitted that the 63rd Report of the Law Commission
was entitled "The Interest Act, 1839." Its central concern is identified with
precision at paragraphs 4.18 to 4.20 of the Report. At the relevant time, there
was a divergence of opinion between High Courts on a specific and well-
defined question, namely, whether a suit for interest alone, where the
principal debt had already been paid, was maintainable at all. The
Commission was addressing the aforesaid divergence. The Commission's
recommendation was unequivocal. At paragraph 4.18 it stated that a suit
merely for interest, where the principal has been paid, should be permissible.
At paragraph 4.19 it observed that there was no rational basis for exempting a
debtor from interest merely because the principal had been paid before the
suit. Mr.Trivedi submitted that Section 3(1) of the Interest Act (of 1978) gave
effect to that recommendation. Mr.Trivedi submitted that the question before
the Learned Single Judge was not whether a suit for interest alone is
maintainable. Mr.Trivedi submitted that the said question is no longer res
intergra . The question actually decided was a different one: Whether a notice
given after payment of principal can sustain a claim for interest. Mr.Trivedi
submitted that this is a question about the timing condition for a valid notice
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rd
under Section 3(1)(b). The 63 Report does not address that question. It was
never before the Commission.

113. Mr.Trivedi submitted that, in addition to rejecting the Plaintiff's
claims for interest, the Learned Single Judge also rejected the Plaintiff's
claims for pendente lite interest and post decree interest. Mr.Trivedi
submitted that the Judgement contains no reasons in support of the aforesaid
rejection. Mr.Trivedi submitted that, in the absence of reasons, the aforesaid
rejection is unsustainable in law. He submitted that the provisions of Section
34 of the CPC govern the award of pendente lite and post decree interest. The
present case does not reveal any circumstances which may disentitle the
Plaintiff from pendente lite or post decree interest.

114. Mr.Trivedi submitted that it is settled law that if a person is
deprived of the use of money to which he is legitimately entitled, he has a
right to be monetarily compensated for the said deprivation. The object
behind awarding interest to a party, who has suffered loss, due to a legitimate
deprivation of the enjoyment of the use of money that he was entitled to
rightfully, is to balance the equities, and while doing so, the facts involved in
each case must be examined by the Court.

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115. In support of the aforesaid submissions, Mr.Trivedi relied upon
the Judgement of this Court in Satish Solvent Extractions Pvt. Ld. V. New
India Assurance Company Ltd. 1996 SCC OnLine Bom 2. and the Judgements
of the Hon’ble Supreme Court in M/s. Tomorrowland Ltd. v. Housing and
Urban Development Corporation Ltd. and Anr. (2025) 4 SCC 19 and Jagdish
Rai & Brothers v Union of India (1999) 3 SCC 257.

116. Mr.Trivedi submitted that the Defendant retained monies
lawfully due and payable to the Plaintiff, thereby depriving the Plaintiff of the
use and enjoyment thereof. The Plaintiff was consequently compelled to
institute and prosecute the present proceedings for recovery of its legitimate
dues. The Learned Single Judge has recorded no reasons, whatsoever, for
denying pendente lite interest on the claims allowed in favour of the Plaintiff
and post-decree interest on the decretal amount. Mr.Trivedi submitted that
the present case discloses no circumstance which would justify departure
from the settled rule that pendente lite and post-decree interest ought
ordinarily to follow a money decree. In these circumstances, Mr.Trivedi
submitted that the Plaintiff is entitled to pendente lite and post-decree
interest under Section 34 of the CPC and that the impugned Judgement, to
the extent it denies such relief, warrants interference by this Court.
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DEFENDANT’S SUBMISSIONS

117. Mr.Sahu, the learned counsel appearing on behalf of the
Defendant, supported the findings of the Learned Single Judge in so far as
they do not grant the aforesaid interest and submitted that the said findings
did not call for any interference.
ANALYSIS AND FINDINGS
118. Before considering the submissions of the Plaintiff, it would be
worthwhile to consider the facts of the case so for as the Plaintiff’s claim on
the basis of a Notice of Demand under Section 3 of the Interest Act is
concerned. As far as running account bills are concerned, the very first notice
of demand under Section 3 was purportedly issued in respect of RA bill Nos.
10, 12, 13 and 14 and Escalation bills comprising of Escalation (labour,
material, POL) RA bill Nos.2 to 4. It is important to note that RA bill Nos.1 to
10 had already been paid by this time. Further, the first and second RA bills
for Escalation (labour, material, POL) were also paid by this time. What was
th
outstanding as of the date of this notice (notice dated 9 January 1998) were
RA bill Nos. 12. 13 and 14 and RA bill Nos 3 and 4 of Escalation (labour
material, POL). The Plaintiff appears to have addressed thereafter various
reminders for further RA Bills, particularly RA bills Nos. 20 to 34 and RA bill
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No.35, which were in effect the final bill and also Escalation RA bills (labour,
material,POL) Nos.5 to 9 and RA bill No.10, which was the final bill for
Escalation (labour, material, POL) and Escalation (star rate) RA bill Nos.1 to
3 and RA bill No.4, which was a final bill (Exhibits P-13, P-14, P-17 to P. 19, P-
21 to P-23, P-25, P-27, P-28, P-31, P-33 and P-34). In none of these notices
was there any demand for interest in relation to any outstanding bill. The
th
first demand of interest after the notice of 9 January 1998 was in the
th
Plaintiff's letter dated 27 March 2000. At that stage, all regular running
account bills upto RA bill No.33, Escalation bills of star rate and labour,
material, respectively, upto RA bill No.3 and RA bill No.9, had already been
paid. What was outstanding was regular RA bill Nos.34 and 35 (which was a
final bill) and Escalation (star rate) (fourth and final bill) and Escalation
(labour, material, POL) (tenth and final bill).

119. The Plaintiff has annexed a statement of interest payable by the
Defendant on delayed payment of bills to this particular notice i.e. notice of
th
demand dated 27 March 2000. The statement includes claims for delay in
respect of all regular RA bills, namely, RA bill Nos.1 to 34 and 35 and final
bill as well as RA bills of labour, material, etc. from Nos.1 to 9 and 10th and
final bill and RA bills of Escalation (star rate) (being Nos.1 to 3 and fourth
and final bill). As noticed above, this was the only demand after the first
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th
demand of 9 January 1998 which was for RA bill Nos.10 and 12 to 14 and RA
bills of Escalation (labour, material, POL) Nos.2 to 4.

120. On this basis, the Learned Single Judge held that no demand for
interest in the event of concluded payments of principal can sustain a suit for
recovery of interest under Section 3 of the Interest Act. The Learned Single
Judge further held that the Plaintiff can have a valid claim under Section 3 of
the Interest Act only in respect of regular RA bill Nos.12 to 14 and Escalation
th
RA bills Nos. 3 and 4 (labour, material, POL) (notice for demand dated 9
January 1998) and for bill No.35 (regular final bill) and Escalation final bills
(i.e. bill No.10 for Escalation (labour, material) and bill No.4 for Escalation
th
(star rate)) (notice of demand dated 27 March 2000).
121. The first question that arises is whether the notice provided
under Section 3 of the Interest Act can be issued after payment of the
principal. Section 3 of the Interest Act reads as under:
“3. Power of court to allow interest.- (1) In any
proceedings for the recovery of any debt or damages or in any
proceedings in which a claim for interest in respect of any debt
or damages already paid is made, the Court may, if it thinks fit,
allow interest to the person entitled to the debt or damages or to
the person making such claim, as the case may be, at a rate not
exceeding the current rate of interest, for the whole or part of
the following period, that is to say,-
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(a) if the proceedings relate to a debt payable by virtue
of a written instrument at a certain time, then, from the date
when the debt is payable to the date of institution of the
proceedings:
(b) if the proceedings do not relate to any such debt,
then, from the date mentioned in this regard in a written
notice given by the person entitled or the person making the
claim to the person liable that interest will be claimed, to the
date of institution of the proceedings:
Provided that where the amount of the debt or damages has
been repaid before the institution of the proceedings, interest
shall not be allowed under this section for the period after such
repayment.
(2) Where, in any such proceedings as are mentioned in
sub-section (1),-
(a) judgment, order or award is given for a sum which, apart
from interest on damages, exceeds four thousand rupees, and
(b) the sum represents or includes damages in respect of
personal injuries to the plaintiff or any other person or in
respect of a person's death,
then, the power conferred by that sub-section shall be
exercised so as to include in that sum interest on those
damages or on such part of them as the Court considers
appropriate for the whole or part of the period from the date
mentioned in the notice to the date of institution of the
proceedings, unless the Court is satisfied that there are
special reasons why no interest should be given in respect of
those damages.
(3) Nothing in this section,-
(a) shall apply in relation to-
(i) any debt or damages upon which interest is payable as of
right, by virtue of any agreement; or
(ii) any debt or damages upon which payment of interest is
barred, by virtue of an express agreement;
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(b) shall affect -
(i) the compensation recoverable for the dishonour of a bill of
exchange, promissory note or cheque, as defined in
Negotiable Instruments Act, 1881; or
(ii) the provisions of Rule 2 of Order II of the First Schedule
to the Code of Civil Procedure, 1908;
(c) shall empower the Court to award interest upon interest.
122. In our view, on first principles, as the provision stands, from a
contextual point of view, it is impermissible to issue a notice under Section 3
of the Interest Act after payment of the principal is made. The purpose of a
notice under Section 3 of the Interest Act is to caution the debtor that interest
will be charged if the principal amount is not paid and that such charge will
be made from a date mentioned in that behalf in the notice. If the principal
amount has already been paid, though with a delay, the creditor cannot
unilaterally bring about a cause of action for recovery of interest by issuing a
notice under the Interest Act.

123. In our view, a person who has failed to perform a monetary
obligation (whether in debt or in damages) should be given notice by the
creditor or a person entitled to damages of the intention to claim interest, so
that the person liable may stop the negotiation which he might have
undertaken or examination of the facts of the case or legal consultation, and
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pay the principal amount, if he so chooses. Such notice of demand serves two
purposes, namely, (a) re-asserting the claim to claim principal and (b)
notifying the desire of the claimant to claim interest.

124. In our view, it is imperative that the claim for principal amount
should be outstanding as on the date of the notice of demand of interest. It
could not be that the principal amount had already been paid and a fresh
claim for interest was made thereafter under Section 3 of the Interest Act.
This would turn the law of interest proposed by the legislature on its head.
The learned counsel for the Plaintiff is unable to produce any authority to
support his case that interest could be claimed by a notice of demand issued
after payment of the principal amount and based on such notice, a suit for
recovery of only interest could be filed in a Court of law.
125. Thus, neither on first principles nor on authority could a notice
issued under Section 3 of the Interest Act, after payment of the principal,
sustain a claim for interest thereunder.

126. Thus, without taking into consideration the findings of the Law
Commission, on a contextual interpretation of Section 3 of the Interest Act, it
is clear that the notice provided under Section 3 of the Interest Act cannot
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be issued after payment of the principal. Thus, the Learned Single Judge’s
findings in this regard warrant no interference.

127. The second challenge raised by the Plaintiff is in respect of non-
granting of interest from the date of the Suit till the date of the decree and
from the date of the decree till payment in respect of the Bills mentioned in
paragraph 20(iii), (iv) and (v) of the impugned Judgement and non-granting
of interest from the date of the decree till payment in respect of the sums
mentioned in paragraph 20(vi) of the Judgement.
128. Pendente lite interest and post-decree interest are governed by
Section 34 of the CPC, which reads as under:
“34. Interest.-(1) Where and in so far as a decree
is for the payment of money, the Court may, in the
decree, order interest at such rate as the Court
deems reasonable to be paid on the principal sum
adjudged, from the date of the suit to the date of
the decree, in addition to any interest adjudged
on such principal sum for any period prior to the
institution of the suit, with further interest at such
rate not exceeding six per cent. per annum, as the
Court deems reasonable on such principal sum,
from the date of the decree to the date of
payment, or to such earlier date as the Court
thinks fit:

Provided that where the liability in relation to the
sum so adjudged had arisen out of a commercial
transaction, the rate of such further interest may
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exceed six per cent. per annum, but shall not
exceed the contractual rate of interest or where
there is no contractual rate, the rate at which
moneys are lent or advanced by nationalised
banks in relation to commercial transactions.

Explanation I. - In this sub-section, "nationalised
bank" means a corresponding new bank as
defined in the Banking Companies (Acquisition
and Transfer of Undertakings) Act, 1970 (5 of
1970).

Explanation II. For the purposes of this section, a
transaction is a commercial transaction, if it is
connected with the industry, trade or business of
the party incurring the liability.

(2) Where such a decree is silent with respect to
the payment of further interest on such principal
sum 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 therefor shall not lie.”

129. It is settled law that if a person is deprived of the use of money
to which he/she is legitimately entitled, he/she has a right to be monetarily
compensated for the said deprivation. The object behind awarding interest to
a party, who has suffered loss, due to a legitimate deprivation of the
enjoyment of the use of money that he/she was entitled to rightfully, is to
balance the equities and, while doing so, the facts involved in each case must
be examined.
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130. Paragraph 3 of the Judgement of this Court in the case of Satish
Solvent Extractions Pvt. Ld. V. New India Assurance Company Ltd. (Supra),
reads as under:
“3. We have heard the learned counsel for
the appellant. To appreciate the same, it is
expedient to peruse section 34 of the Civil
Procedure Code which provides for grant of
interest pendente lite and future interest from the
date of the decree till realisation. Section 34
provides:

"(1) Where and in so far as a decree is for the payment of
money, the Court may, in the decree, order, interest at such rate
as the Court deems reasonable to be paid on the principal sum
adjudged, from the date of the suit to the date of the decree, in
addition to any interest adjudged on such principal sum for any
period prior to the institution of the suit, with further interest at
such rate not exceeding six per cent per annum, as the Court
deems reasonable on such principal sum, from the date of the
decree to the date of payment, or to such earlier date as the
Court thinks fit:
Provided that where the liability in relation to the sum so
adjudged had arisen out of the commercial transaction, the rate
of such further interest may exceed six per cent per annum, but
shall not exceed the contractual rate of interest or where there is
no contractual rate, the rate at which moneys are lent or
advanced by nationalised banks in relation to commercial
transactions.
Explanation I. - In this sub-section, "nationalised bank" means
a corresponding new bank as defined in the Banking Companies
(Acquisition and Transfer of Undertakings) Act, 1970.
Explanation II. For the purposes of this section, a transaction is
a commercial transaction, if it is connected with the industry,
trade or business of the party incurring the liability.
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(2) Where such a decree is silent with respect to the payment of
further interest on such principal sum 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." (Emphasis supplied).

A plain reading of the above section clearly goes to show that
in a decree for payment of money, the Court has the power to
grant interest pendente lite and future interest. This power is,
however, discretionary which is evident from the expression
"may, in the decree, order interest" appearing in sub-section (1).
The discretion is both in regard to grant of interest and the rate
of interest. The exercise of this power is not dependant upon a
specific claim being made by the plaintiff for such interest. The
Court has the power to grant interest pendente lite, whether
claimed in the suit or not, if it is satisfied on the facts of the case
that such interest should be granted. The question is one for the
discretion of the Court, which it has to exercise judiciously
having regard to the facts and circumstances of the case before
it. Ordinarily interest pendente lite should be granted under
section 34 of the Civil Procedure Code unless there are cogent
reasons for depriving the plaintiff of the interest during trial. In
other words, grant of interest should be the rule refusal an
exception. The discretion of the Court, as earlier stated, is not
only in the matter of grant of interest but also as to the rate of
interest. The Court has also to fix the rate of interest. The
discretion in the matter of future interest is however restricted to
six per cent per annum except in commercial transactions where
under the proviso it may be allowed at the contractual rate or
bank rate in relation to such transactions. ”
(emphasis supplied)
131. The Hon’ble Supreme Court in M/s. Tomorrowland Ltd. v.
Housing and Urban Development Corporation Ltd. and Anr.(Supra)
reiterated the settled principle that in commercial disputes, pendente lite or
post-decree interest ordinarily ought to be granted. Paragraph 57 of the said
Judgement is relevant in this regard and reads as under:
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“57. We are conscious of the fact that as a general principle, in
commercial disputes, the award of interest pendente lite or post-
decree is typically granted as a matter of course. This is because
such interest serves to compensate the aggrieved party for the
time value of money that was due but withheld during the legal
process. It reflects an established norm aimed at ensuring
fairness and equity in commercial transactions.”
132. Similarly, in Jagdish Rai & Brothers v Union of India (Supra),
the Hon’ble Supreme Court held that the grant of interest under Section 34 of
the CPC is ordinarily warranted in money decrees unless there exists strong
reasons for refusing the same. The Hon’ble Court further held that where no
reasons are forthcoming for denial of interest, the decree ought to be in
conformity with law by avoiding appropriate interest and accordingly,
modified the decree to grant post decree interest @ 12% p.a. Paragraphs 3, 4
and 5 of the said Judgement are relevant and read as under:
“3. The claim for interest not having been made before
the Court in which proceedings for making the award the rule of
the court were pending would certainly disentitle the appellant
for making such a claim during the first three stages of pre-
arbitration and post-arbitration that is between award and filing
of application inasmuch as several considerations will have to
be examined before the award of interest and at what rate.
Therefore, when the award had not been challenged for not
granting interest, the award could not be upset to that extent.
The view taken by the High Court appears to be correct to that
extent. However, that is not the end of the matter. The High
Court ought to have further examined whether the appellant was
entitled to any interest after the decree was made in terms of the
award. The courts have taken the view that the award of interest
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under Section 34 CPC is a matter of procedure and ought to be
granted in all cases when there is a decree for money unless
there are strong reasons to decline the same. In the present case,
the appellant had made a claim for interest before the arbitrator
but the same had been denied and no reasons are forthcoming
thereto. Whatever that may be, at any rate after the Sub-Judge
made an award the rule of the court, the decree ought to contain
a provision for making payment of interest. If such payment had
not been made, appropriate correction of the decree could be
ordered to be made when an application had been made before
the High Court.
4. We are conscious of the fact that the appellant had not
preferred any appeal against the order made by the Court of the
Sub-Judge which made the award the decree of the court but did
not grant any interest. Even so, the grant of interest being a
matter of procedure and the appellant having made an
application before the High Court in that regard, we do not
think there is any impediment to grant the same by bringing the
decree of the subordinate court in conformity with law, namely,
by awarding appropriate interest.
5. The learned counsel for the appellant relied upon
several decisions of this Court to state the proposition that such
interest could be granted. It is unnecessary to make any detailed
reference to them. We think it appropriate to modify the decree
of the Court of the Sub-Judge by including a direction for
payment of interest @ 12% per annum from the date when the
award was made the decree of the Court of the Sub-Judge till
realisation. The appeal is allowed to the extent indicated above.
However, in the circumstances of the case, there shall be no
orders as to costs.”
133. In view of the law laid down as aforesaid and applying the same
to the facts of the present case, the Defendant retained monies lawfully due
and payable to the Plaintiff, thereby depriving the Plaintiff of the use and
enjoyment thereof. The Plaintiff was consequently compelled to institute and
prosecute the present proceedings for recovery of its legitimate dues. In the
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impugned Judgement, the Learned Single Judge has recorded no reasons,
whatsoever, for denying pendente lite interest on the claims allowed in favour
of the Plaintiff and post-decree interest on the decretal amount. Further, the
present case discloses no circumstance which would justify departure from
the settled rule that pendente lite and post-decree interest ought ordinarily to
follow a money decree. In these circumstances, in our view, the Plaintiff is
entitled to pendente lite and post-decree interest under Section 34 of the CPC
and that the impugned Decree, to the extent it denies such relief, warrants
interference by this Hon'ble Court.
134. For the aforesaid reasons, in our view, paragraph 20(iii), (iv) and
(v) of the Judgement will have to be modified in order to provide for
pendente lite and post-decree interest and paragraph 20(vi) of the
Judgement will have to be modified to include post-decree interest.

135. As far as the rate of interest is concerned, in the Judgement, the
Learned Single Judge has held that from the material produced by the
Plaintiff comprising of official banking communications (which are not
matters of contest), 9% p.a. appears to be the average or maximum interest
payable on deposits by scheduled banks for the relevant period. Therefore,
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the pendente lite interest will be paid by Defendant at the rate of 9% p.a.
simple interest.
136. As far as post-decree interest is concerned, Section 34 provides
for the rate of 6% p.a. The proviso to Section 34(1) provides that where the
liability in relation to the sum adjudged had arisen out of a commercial
transaction, the rate of such further interest may exceed 6% p.a., but shall not
exceed the contractual rate of interest, or where there is no contractual rate,
the rate at which moneys are lent or advanced by nationalised banks in
relation to commercial transactions.

137. As stated hereinabove, in the impugned Judgement, the Learned
Single Judge has held that 9% p.a. appears to be the average or maximum
interest payable on deposits by scheduled banks for the relevant period. In
these circumstances, in our view, post-decree interest will also have to be
awarded at the rate of 9% p.a.
ORDER
138. In the light of the aforesaid discussion and for the aforesaid
reasons:
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a) Appeal No.9 of 2022 filed by the Defendant is rejected.
b) Appeal No.29 of 2022 is partly allowed to the extent mentioned
hereinbelow.
c) Paragraphs 20(iii), (iv) and (v) of the Judgement are modified to
include simple interest, at the rate of 9% p.a., from the date of the suit
till date of payment/realisation.
d) Paragraph 20(vi) of the Judgement is modified to include simple
interest, at the rate of 9% p.a., from the date of the Judgement till the
date of payment.
e) Rest of the Judgement remains unmodified.
f) The amount of Rs. 30 lakhs deposited by the Defendant with the
Prothonotary and Senior Master of this Court, along with the interest
accrued thereupon, shall be paid to the Plaintiff in part satisfaction of its
claim, within a period of 8 weeks from the date of uploading this
Judgement.
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139. This order will be digitally signed by the Private Secretary/
Personal Assistant of this Court. All concerned will act on production by fax
or email of a digitally signed copy of this order.
[FIRDOSH P. POONIWALLA, J.] [B. P. COLABAWALLA, J.]
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