Panchmahal District Panchayat & Anr. vs Shree Ram Construction

(PER : HONOURABLE MR. JUSTICE ILESH J. VORA)

Captioned appeals filed by the District Panchayat, Godhra, arise out of the common judgment and decree dated 31.03.2006 passed in Special Civil Suit No. 44 of 1994 filed by the original plaintiff – Shri Ram Construction Company and Special Civil Suit No. 34 of 1995 filed by the appellant – District Panchayat – original defendant, whereby, the Civil Court Godhra, was pleased to partly allowed the suit of the plaintiff – Ram Construction and dismissed the suit filed by the District Panchayat – defendant.

Parties are referred as par their original status before the trial Court.

To appreciate the controversy raised in the present appeals, relevant facts may be stated in brief:

Civil Suit No. 44 of 1994 – plaintiff – Shri Ram Construction Vs. District Panchayat, Godhra for recovery of amount of damages and compensation of Rs.25,20,183.60

Both the suits were consolidated for the purpose of recording the evidence and disposal.

On the above pleadings, the trial Court framed 4 issues in the suit filed by the contractor and 11 issues framed in the suit filed by the District Panchayat.

Before the trial court, parties have led their common evidence in both the suits. The Contractor Dipesh Shah and his witness Jamsinh Ravisinh have been examined at Exh.56 and 188. The contractor had produced and proved 24 documents including the work order etc. (Exh.56 to 68, 88 to 120, 189 to 196 and 231 to 235). The officers of the District Panchayat Mr. Arvind Shah and Pravin Soni have been examined at Exh.245 and 262. They relied on the documents produced at Exh.246 to 248, 249 to 256, 263, 264 and 267 to 273.

The trial court on consideration of the documentary and oral evidence, vide its common judgment and decree dated 31.03.2006, allowed the claim of extra work amounting to Rs.30,000/- and also awarded Rs.1415/- (the amount of penalty illegally deducted from the bills). The work which has already been done by the contractor having been accepted, the trial Court awarded Rs.5,67,104.90/- + Rs.50,519.67 under the claim of completed work. The claim of the contractor for 20% rise in rate contract, amounting to Rs.1,96,221.04/- has not been accepted and claim to this effect came to be dismissed. The trial court on the issue of rate of interest, did not agree to award Rs.16,03,757.20/- toward pre-suit interest from 01.07.1985 till filing of the suit. However, awarded the interest on the total amount of damages awarded under various heads @ 20% from 01.07.1985 till its realization. The trial court accordingly, partly allowed the suit filed by the contractor and dismissed the suit filed by the District Panchayat, Godhara.

Being aggrieved by the judgment and decree passed in Civil Suit No.44 of 1994, the District Panchayat has preferred the First Appeal no.480 of 2007 and also preferred a First Appeal No.481 of 2007 against the dismissal of the Civil Suit No.34 of 1995.

Mr. P. J. Patel, learned counsel while assailing the judgment and decree passed in Special Civil Suit No.44 of 1994, has submitted that, the District Panchayat is challenging the decree on two counts – (i) the claim of Rs.30,000/- towards the extra work and (ii) grant of rate of interest on the damages awarded under the various claims. Thus, the challenge in the First Appeal No.480 of 2007 is only to the limited extent of grant of interest and claim of Rs.30,000/- awarded towards extra work.

Mr. Patel, learned counsel appearing for the District Panchayat, Godhra submitted that the trial Court awarded the interest at the rate of 20% from 01.07.1985. The contractor before filing the suit, had earlier filed another suit being Special Civil Suit No. 188 of 1986 on the same cause of action without serving statutory notice under the provisions of Gujarat Panchayat Act. Thus, the contractor had withdrawn the said suit on 13.01.1994 with a liberty to file a fresh suit. The present suit thereafter came to be filed on 18.06.1994. Thus, the trial Court failed to appreciate the fact that it was the contractor who had filed a suit without serving statutory notice and thereafter, he realized about non-compliance of the statutory notice. Thus, the contractor was negligent in pursing his remedy. In such circumstances, the proper course available to the trial Court to award the interest not from the filing of the first suit but from the date when the second suit was instituted.

Mr. Patel, learned counsel on the rate of interest awarded by the trial Court has submitted that, there was no contractual stipulation between the parties providing payment of interest at the particular rate and therefore, the interest awarded at the rate of 20% is excessive and arbitrary. Section 34 of the CPC provides that where the liability in relation to the sum so adjudged had arisen out of commercial transaction, the rate of 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 the Nationalized Bank in relation to the commercial transaction. Thus, it was submitted that, the trial Court, misdirected itself while awarding 20% interest as having regard to the nature of work contract and activities of the District Panchayat, the liability cannot be said to be a commercial transaction and therefore, the maximum limit in such kind of work contract, is 6% interest p.a.. Thus, in the present case, the interest rate cannot be exceeded 6% and to that extent, the grant of decree needs to be be modified.

Mr. Patel, learned counsel on the claim of Rs.30,000/- awarded under the head of extra work by the trial Court, has submitted that, the alleged extra work of rock cutting was not part of the work contract and having regard to the oral evidence, there was no assurance for and on behalf of the District Panchayat to consider the amount of extra work, as claimed by the plaintiff. Thus, therefore, the trial Court has wrongly granted the claim of Rs.30,000/-.

Vehemently opposing the challenged to the decree on interest part, Mr. B. Y. Makad, learned counsel appearing for the contractor submitted that the trial Court has rightly exercising its discretion under Section 34 of the CPC and having regard to the nature of work, the interest rate at the rate of 20% could be said to be the rate similar to the Nationalized Bank prevalent in the year of 1981-82. The contractor had fulfilled his obligation and completed the road work as assigned, however, it was the Panchayat, who failed to handover the possession of the remaining site, as a result, the road work could not have been completed. There was breach of the work contract on the part of the Panchayat. Thus, after huge investment, the due amount withheld by the Panchyat defendant without any justifiable reason and therefore, striking balance to both the sides on equitable consideration, the trial Court has properly exercised the discretion in fair manner and judiciously which does not need interference at the appellate stage.

Mr. Makad, learned counsel on the claim of extra work awarded by the trial Court, submitted that, the claim has been considered after appreciating the oral and documentary evidence and thus, same may not be interfered only on the ground that there was no any revised agreement to this effect between the parties.

We have heard at length the learned counsel for the respective parties and perused the case records and proceedings as well as the impugned judgment and decree of the trial Court.

The appellant Panchayat restricted its prayer on the aspect of rate of interest and claim of Rs.30,000/- granted towards extra work done by the contractor plaintiff.

In the facts of the present case, the terms and condition of the work contract do not authorize the contractor to do any extra work without previous consent in writing of the District Panchayat. The trial Court by-passing the agreeable terms and condition of the work contract, mechanically awarded Rs.30,000/- towards the claim of extra work done. It is the case of the plaintiff that, they executed extra work of rock cutting and while executing the work, the officers who were present there, have assured to make payment of the extra work and on the basis of their assurance, the work was done. This claim was denied by the defendant Panchayat. The witnesses of the defendant have denied to have given any instruction to execute the extra work, as claimed. In our opinion, the oral claim of extra work cannot be accepted, because, the agreement do not authorize to do any extra work without previous consent in writing of the authority concerned. Thus legally, it is difficult to entertain the claim of extra work. Therefore, the findings of the trial Court on the aspect of awarding Rs. 30,000/- towards the extra work is contrary to the evidence on record and settled principle of law.

So far as, awarded of interest is concerned, the trial Court awarded 20% interest from the date of 01.07.1985. Admittedly, the present suit was filed on 18.06.1994. The trial Court has considered the fact of filing of earlier suit for granting interest from the date 01.07.1985. In our opinion the findings of trial Court is erroneous and cannot be sustainable in eye of law. The first suit was filed without serving statutory notice, as mandated under the provisions of Gujarat Panchayat Act. Thereafter it was withdrawn with a condition to file fresh suit. It was the contractor, who remained negligent in pursing the remedy, for which, the other party cannot be held liable. Thus, the awarding of pre-suit interest from the date 01.07.1985 is not in consonance with the provisions of Section 34 of the CPC and also not on equitable consideration.

Now the issue is as to whether the trial Court was justified in awarded interest at the rate of 20% ?

In the facts of the present case, there was no contractual stipulation between the parties providing for payment of interest at any particular rate and therefore, in absence of any agreement or contract, Section 34 of the CPC dealing with the ‘interest’ would come into play. Section 34 is reproduced hereinbelow for ready reference :

The aforesaid provision provides for the payment of interest where the decree is for payment of money. In the decree in a suit for payment of money, the Court has discretion to grant interest at such rate on the principal sum adjudged from the date of the suit to the date of decree and also from the date of decree till the date of realization, however, further interest may exceed 6% per annum when the liability arises out of commercial transaction. In other words, the liability in relation to the sum so adjudged had arisen out of commercial transaction, rate of such further interest may exceed 6% 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 nationalized banks in relation to commercial transactions.

Recently, in the case of M/s. Tomorrowland Limited vs. Housing and Urban Development Corporation Limited and Anr. (2025 INSC 207), the Supreme Court while referring to the Five Judge Bench Judgment (Central Bank of India vs. Ravindra (1996 (5) SCC 279), held that, the award of interest is discretionary exercise steeped into equitable consideration. The award of interest pendente lite or post decree is discretionary as it is essentially governed by Section 34 of CPC dehors the contract between the parties and said discretion shall be exercised fairly, judiciously and not for arbitrary of fanciful reasons.

Reverting to the case of the present case, while awarding the interest at the rate of 20%, the trial Court has literally bye-pass the proviso to Section 34(1) of the CPC, which says that, where the liability in relation to the sum adjudged had arisen out of the 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 while the moneys are lent or advanced by the Nationalized Bank in relation to the commercial transaction. In the facts of the present case, the District Panchayat had awarded a work contract for construction of public road. The core administrative work of the Panchayat to execute the welfare schemes with the aimed public good at large and therefore, considering the constitutional duties of the Panchayat, the work of laying down the public road in rural areas cannot be said to be commercial activities as defined under Section 34 of the CPC. Thus, in our opinion, the trial Court has bye-pass the statutory provision Section 34 CPC while awarding interest at the rate of 20% p.a.

For the reasons recorded, in our opinion, having regard to the nature of work and the manner in which the payment withheld by the defendant for the completed work, the plaintiff contractor is entitled to receive interest at the rate of 9% p.a. on the damages from the date of institution of the present suit, till disposal of the suit and thereafter, at the rate of 6% p.a. till the realization.

So far as First Appeal No. 481 of 2007 is concerned, the trial Court has rightly dismissed the suit filed by the District Panchayat, Godhra, as there is no sufficient evidence adduced by the Panchayat to prove the loss suffered on account of assigning of the work to another contractor and therefore, we are in complete agreement with the findings and conclusion arrived at by the trial Court, that the Panchayat failed to prove their claim against the contractor.

Accordingly, the First Appeal No. 480 of 2007 is allowed in part. The judgment and decree on awarding the interest, as well as granting claim towards extra work is modified to the following extent:

The First Appeal No. 481 of 2007 stands dismissed and is accordingly dismissed.

R & P be sent back to the concerned court.