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Gautam Constructions... v. National Bank For Ag...
Factual and Procedural Background
The appellant, M/s Gautam Constructions & Fisheries Ltd., entered into two linked agreements with the first respondent, the National Bank for Agriculture and Rural Development (NABARD), for the construction and sale of 48,000 sq ft of office space. Under the principal agreement the construction rate was Rs 250 per sq ft, and under the subsidiary agreement an additional Rs 150 per sq ft was payable for amenities, bringing the combined rate to Rs 400 per sq ft.
During execution of the project, the originally planned stilt parking was replaced by a basement measuring 12,090 sq ft. Disputes arose over the additional cost for this basement and over competing monetary claims by each party. The controversy proceeded to arbitration; the arbitrator awarded the appellant Rs 400 per sq ft for the basement area together with 18% p.a. interest and dismissed NABARD’s counter-claims.
The appellant sought confirmation of the award in the Madras High Court (O.P. No. 216 of 1990), while NABARD filed O.P. No. 483 of 1990 to set it aside. A learned Single Judge upheld the arbitrator on the rate for the basement but limited interest to 18% p.a. from the date of judgment. On NABARD’s appeal, a Division Bench reduced the payable rate for the basement to Rs 150 per sq ft and fixed interest at the contractual 12% p.a. The Division Bench also directed refund of any excess amount withdrawn by the appellant from monies deposited in court. The present Supreme Court appeal challenges that Division Bench decision.
Legal Issues Presented
- Whether the appellant is entitled to recover the cost of the 12,090 sq ft basement at the rate of Rs 400 per sq ft, or some other rate consistent with the contract.
- Whether interest should be awarded at 18% p.a. as granted by the arbitrator, or at the contractual rate of 12% p.a.
- Whether restitution of excess funds withdrawn by the appellant should include interest, and if so, at what rate.
Arguments of the Parties
Appellant's Arguments
- The basement, though used for parking, forms part of the built-up area and is therefore payable at the full composite rate of Rs 400 per sq ft specified in the agreements.
- Interest should be awarded at 18% p.a. from 21-12-1987 (date of final bill) until payment, as allowed by the arbitrator.
Respondent's Arguments
- The basement is not equivalent to office space and should attract only Rs 150 per sq ft earmarked for “amenities, extra works and fittings.”
- The agreements cap interest at 12% p.a.; any higher rate violates the contractual terms.
- The appellant must refund all excess amounts withdrawn pursuant to interim court orders, with appropriate interest.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The Supreme Court agreed that NABARD must pay for the constructed basement but rejected both parties’ proposed rates as extreme: Rs 400 per sq ft (appellant) was deemed excessive because the basement lacks the amenities of office space, while Rs 150 per sq ft (respondent) undervalued the construction itself.
Interpreting the two agreements together, the Court held the principal-agreement rate of Rs 250 per sq ft applicable. The Court reasoned that under quantum meruit principles this rate represents reasonable compensation for work actually performed when the contract does not expressly price the substituted structure (the basement).
On interest, the Court enforced the contractual ceiling of 12% p.a., emphasising that neither an arbitrator nor a court may impose a higher rate contrary to the parties’ express agreement.
Regarding restitution, the Court noted that the Division Bench had already recognised NABARD’s right to reclaim any excess sums withdrawn by the appellant. Consistency required ordering repayment with interest at the same 12% p.a. rate, aligning with the interest awarded to the appellant.
Holding and Implications
Partly Allowed: The Court set aside the Division Bench’s rate of Rs 150 per sq ft and substituted Rs 250 per sq ft for the 12,090 sq ft basement area. The award of interest above 12% p.a. was rejected; interest is affirmed at 12% p.a. only. The appellant must refund any excess amount previously withdrawn, with interest at 12% p.a. from the date of withdrawal until repayment.
Implications: The decision resolves the parties’ financial dispute without creating new precedent; it reinforces the principle that courts and arbitrators are bound by the parties’ agreed contractual terms, particularly concerning interest rates.
Doraiswamy Raju, J.— The controversy involved for consideration in these appeals is in a very narrow compass. The appellant M/s Gautam Constructions & Fisheries Ltd., and the 1st respondent National Bank for Agriculture and Rural Development, Bombay, entered into an agreement for the sale and purchase of office accommodation admeasuring 48,000 square feet of built-up area together with the land at the rate of Rs 400 per square feet of built-up area. The transaction is governed by two agreements and whereas under the principal agreement, the total amount payable is Rs 1,20,00,000 at the rate of Rs 250 per sq ft for 48,000 sq ft, under the subsidiary agreement, provision was made for amenities, extra works, fittings etc. in a payment of Rs 150 per sq ft and that is how the total rate constituted Rs 400 per sq ft. Though originally there was a provision for construction of stilts for parking cars, subsequently what was desired and constructed was a basement for car parking. It appears that the conveyance of the buildings was to be after the construction of all floors and as further agreed upon between the parties and that it was a specific term of agreement between the parties also that no separate consideration shall be payable at the time of conveyance other than that which was agreed to between the parties under the agreements.
2. Disputes arose between the parties as to the actual amounts to be paid, though the building has been completed and handed over and payments have been made. As against the claim of the appellant for an additional cost of Rs 48,36,000, the 1st respondent made certain counter-claims in a sum of Rs 85,63,781 with interest also claimed by both the parties on the amounts respectively claimed by them. The matter was referred to the 2nd respondent arbitrator and he passed an award on 24-5-1990. It may be stated at this stage that the dispute in the present proceedings pertains to only the amount claimed and awarded by the arbitrator and the courts below in respect of 12,090 sq ft of the basement portion provided for car parking in lieu of the earlier agreed stilts, and the rate, if at all to be allowed in respect of the same. So far as the arbitrator is concerned, he allowed for the basement portion also at the rate of Rs 400 per sq ft with interest at 18% p.a from the date of submission of the final bill, viz., 21-12-1987, till date of payment. There is no dispute with reference to the payment of an extra sum for the extra area of 870.30 sq ft and costs of extra items and deposit made by the appellant with the Electricity Board. The arbitrator totally rejected all counter-claims made by the 1st respondent Bank.
3. The appellant filed OP No. 216 of 1990 for a direction to the arbitrator to file the award in the Court and make it a rule of court by passing a decree in terms of the award for a sum of Rs 78,02,247.15 with interest due thereon. The 1st respondent Bank filed OP No. 483 of 1990 for setting aside the award dated 24-5-1990. The learned Single Judge of the Madras High Court by a judgment dated 4-1-1991 sustained the claim of the appellant for the basement area of 12,090 sq ft at the rate of Rs 400 per sq ft though the interest was allowed only from the date of the judgment at 18% p.a on the sum of Rs 48,36,000, in question. The 1st respondent's counter-claims were allowed in part only and there is no need to go into the details of the same. Aggrieved, the 1st respondent filed OSAs Nos. 75 and 76 of 1991 before a Division Bench. As found stated in the judgment of the Division Bench dated 1-8-1996, under challenge in this Court, the contest in the appeals before the Division Bench was only with reference to the additional cost of construction relating to the basement area for car parking and the rate of interest claimed at 18% p.a as against the agreed rate of Rs 12% p.a in the contract. The learned Judges of the Division Bench held that the 1st respondent was bound to pay the cost of construction for the basement but it should be only at the rate of Rs 150 for the extent of 12,090 sq ft and not at the rate of Rs 400 per sq ft as allowed by the arbitrator and affirmed by the learned Single Judge. So far as the rate of interest is concerned, it was held to be at 12% p.a only and not at 18% p.a since the agreed and contractual rate was only of 12% p.a and the same was ordered from the date of judgment of the learned Single Judge, viz., 4-1-1991. The Division Bench had also noticed the fact that the entire decree amount deposited in the Court was allowed to be withdrawn under orders of the Court — half without furnishing security and the other half on furnishing security and it was further made clear that pursuant to the judgment of the Division Bench the appellants will repay and the 1st respondent is entitled to the refund of the excess amount drawn by them. Hence, the above appeals against the judgment of the Division Bench.
4. Heard Mr T.L Vishwanath Iyer for the appellant in the appeals and Mr Dushyant Dave for the 1st respondent Bank. On a careful consideration of the respective submissions of the learned Senior Counsel appearing on either side, we are of the view that though no exception could be taken to the decision directing payment by the 1st respondent Bank for the area of 12,090 sq ft of basement portion of the building for car parking, the award of the sum at the rate of Rs 150 seems to us to be unwarranted and unjustified, having regard to the very terms of the contract which provided for payment at the rate of Rs 250 per sq ft and an additional sum of Rs 150 for amenities of the nature mentioned therein. The basement portion meant only for car parking cannot be equated to the regular office portion of the ground and other floors agreed to be constructed with all stipulated amenities. Though the claim of Rs 400 on behalf of the appellant seems to be far-fetched and unwarranted on the terms of the contract, the reasonable rate at which the appellant could claim for reimbursement in respect of the basement area for car parking constructed in lieu of the initially agreed stilt portion for the very same purpose of car parking only, at the rate of Rs 250 and nothing more since for the said portion, if at all the rate agreed under the principal agreement at Rs 250 will apply and could alone be allowed. Viewed in the context of the principle of quantum meruit also we feel that the said rate is reasonable and both the claims made for the appellant at the rate of Rs 400 per sq ft as well that made by the 1st respondent at Rs 150 appear to be on the other extremes, and without any rationale or just and reasonable basis of law as well the terms of the contract. We, therefore, partly allow the appeals by awarding the rate of Rs 250 per sq ft for the extent of 12,090 sq ft.
5. So far as the interest is concerned, no exception could be taken to the award at the rate of 12% p.a The grant of interest at 18% p.a is directly opposed to the specific terms in the contract and it is not permissible for the arbitrator or the court dealing with the validity of the award to award a higher rate than the mutually agreed rate, which is binding on parties. The challenge to the judgment of the Division Bench in this connection fails and shall stand rejected.
6. Mr Dushyant Dave reiterated that this Court should order restitution of the excess sum drawn by the appellant under orders of the High Court out of the sum deposited in the Court with interest at 18% p.a We find even the Division Bench has indicated about the right of the 1st respondent to get refund of the excess drawn from the court deposit and the liability of the appellant to return the same. Since interest at 12% p.a has been allowed in favour of the appellant for the amounts due to the appellant, it is just and necessary and reasonable too, to only order for restitution by the appellant of the excess amount withdrawn, with interest due thereon also at 12% p.a from the date of such excess withdrawal till date of repayment.
7. The appeals are ordered on the above terms. The parties will bear their respective costs.
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