LAKSHMICHAND & BALCHAND versus STATE OF ANDHRA PRADESH

Citation: [1987] 1 S.C.R. 108 · Decided: 05-11-1986 · Supreme Court of India · Bench: R.S. PATHAK · Disposal: Case Partly allowed

Judgment (excerpt)

A 
LAKSHMICHAND & BALCHAND 
v. 
STATE OF ANDHRA PRADESH 
-,,--
• 
NOVEMBER 5, 1986 
B 
[R.S. PATHAK AND G.L. OZA, JJ.] 
Civil Procedure Code, 1908-0rder 21, Rule 18-Power of the 
Court to allow set off-When is a claim founded on doctrine of equit-
y 
able set off. 
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The appellant...:ontractor entered into two agreements with the -~ 
respondent State for carrying out certain road repairing works. Clause 
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68 of the agreement provided for preparation or the final bill of the 
contractor after taking into account amounts received by him earlier, 
while clause 71 permitted the State to retain or deduct money due under 
the contract from an amount due to the contractor under any other 
D contract. While the work was in progress the contractor made certain 
claims in respect of loss suffered on account of delay, escalation of rates 
and other heads. The arbitrato1· held the contractor entitled to Rs.99 
lacs. The civil court refused to pass a decree in terms of the award. The 
High Court on appeal allowed the claim to the extent of Rs.16 lacs 
together with interest. The co111tractor claimed recovery of decretal 
E amount with interest in terms of the award and cost of execution pro-
ceedings. The respondent State contested the claim contending that a 
sum of Rs.22 lacs was recoverable from the appellant and claimed 
adjustment against the amount due under the decree. The Executing 
Court held the respondent State entitled to set off. 
.... 
F 
In the revision petition before the High Court it was contended for 
the appellant that the respondent State was not entitled to set off in 
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execution proceedings, and that the sum of which adjustment was sought 
consisted of (a) an amount claimed by respondent State as due to it upon 
preparation of the final bill in respect of the contracts covered by the 
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award, and (b) an amount claimed by the respondent State under a 
G separate contract on the ground that the appellant bad committed a 
breach of that contract. The High Court having regard to cl. 68 of the 
agreement found the respondent State entitled to set off so far as the 
first claim was concerned. It justified the second claim also by reference 
to cl. 71 of the contract hut held that adjustment claimed could not be 
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made against the decretal amount hut must await determination upon 
H the arbitration. 
108 
LAKSHMICHAND v. STATE OF ANDHRA PRADESH 
109 
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In this appeal by special leave it was contended that Order 21, 
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1 
Rule 18 of the Code of Civil Procedure, under which a set off can he 
claimed, does not apply in terms to the present case. 
Allowing the appeal in part, the Court, 
HELD: I. The Court has the power to allow a set off in certain 
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circumstances even in cases which do not strictly fall within the terms of 
Order 21, Rule IS of the Code of Civil Procedure. [Il2B] 
. 
. 
I... . 
Bhoganadham Seshaiah v. Budhi Veerabhadrayya (died) & Ors., 
r'" -AIR 1972 Andhra Pradesh 134, approved. 
2. The respondent State's claim to adjustment of the amount due 
to it upon the preparation of the final bill is covered by cl. 68 of the 
contract. What was awarded to the contractor under the decree was an 
amount relating to a part only of the work entrusted to him. The con· 
tract was still in the process of execution. Any amount claimed by him 
for such work was subject to a final settlement of account on the pre-
paration of the final bill. The right to payment depended on the terms of 
the contract. Any payment made while the contract was still being 
workecl ont was in the natnre of a provisional payment. It was always 
sobject to adjnstment against amount,s found doe on preparation of the 
final bill. Such adjustinent was implied in the very terms or the COD· 
tract. The High Court was, therefore, right in holding that the amount 
claimed by the State Government on this count was entitled to be set off 
against the decretal amount claimed by the contractor. [1!2C El 
3.1 The claim to adjustment of the amount claimed on breach of 
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another contract is founded in the doctrine of equitable set off but 
['- there is no e>idence on record to bring the case within the operation of 
the doctrine. It is not a case where cross demands rise out of the same 
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transaction, or the demands are so connected in their natnre and circum-
stances that they can be looked upon as part of one transaction. [I l 2F GI 
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3.2 The benefit of cl. 71 of the contract can be claimed only if t

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