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Judgment
Suit is one for a declaration that the penalty clause in the tender conditions, which provides for a deduction of up to 10% of the contract price
for the delay in supply and the Clause which provides for levy of penalty of 20% of the cost of the material, if it is rejected inferior quality as illegal,
irregular and unenforceable and for a direction to the defendant to pay a sum of Rs.52,03,340.50, which is withheld by the defendants with interest
at 24% per annum from the date of suit till date of realization.
The averments made in the plaint are as follows:
The 1st defendant had issued a tender for supply of 39 compactor vehicles with 14 cubic meter capacity. The plaintiff was the successful tenderer
and he was awarded the contract for supply of 39 compactor vehicles to the defendants. As per the terms of the contract, the vehicles that to be
supplied as per the time framed fixed under the contract. Since there was a delay in supply of the vehicles, the defendants had withheld a sum of
Rs.52,03,340.50, which represents 10% of the total value of the contract towards the said delay.
According to the plaintiff, the said Penal Clause in the Tender notification which enables the plaintiff to withhold 10% of the contract value for
the delay is illegal and ultra vires Article 14 of the Constitution of India. The plaintiff would further contend that the supply of the compactors was
delayed because of the delay in supply of the chassis by the manufacturer, viz., Ashok Leyland Limited. It is also averred that the clutches supplied
by the manufacturer were sub-standard quality therefore, the plaintiff had sought for replacement of the clutches, which resulted in the delay. Thus,
it is seen that the plaintiff''s claim is primarily based on sub-standard quality of goods supplied by the manufacturer. The plaintiff would also contend
that the defendants being a Corporation cannot impose such a penalty clause while it is expected to function for public good. Claiming that the
Penalty clause and the Forfeiture clause are ultra vires Article 14 of the Constitution, plaintiff has come forward with the above suit seeking the
declaration as stated supra.
The first defendant filed a written statement contending that the plaintiff being a party to the agreement and having signed the contract with eyes
wide open cannot now be heard to contend that the penalty clause is arbitrary or ultra vires. According to the defendants, only 10 out of 20
compactors, which were to be supplied in the first 90 days were supplied within the time. The supply of the other compactors was delayed and the
total delay caused by the plaintiff in supply of the compactors was about 133 days.
In view of the said delay and in view of the penalty clause contained in the tender document as well as the agreement entered into between the
parties, the defendants were justified in withholding the said sum of Rs. 52,03,340.50. The plaintiff cannot be heard to contend that the penalty
clause itself is invalid after having entered into an agreement and after having effected supply of the compactors as per the agreement. On the
above contentions the defendants sought for dismissal of the suit.
Defendants 2 and 3 adopted the written statement filed by the 1st defendant.
On the above pleadings, this court had framed the following issues:
Is the penalty clause under clause VI at page 14 of the contract for the supply of compactor equipment issued by the 3rd defendant is illegal and
unenforceable?
Is the plaintiff entitled to recover the suit claim as prayed for, as the penalty imposed by the first defendant is against law?
Is the 1st defendant/Commissioner, Corporation of Chennai is entitled to retain the suit claim under the guise of delay?
Whether the contract for the supply of compactor equipments issued by the 3rd defendant is legal as the relationship between the Corporation
and the plaintiff is that of employer and employee?
To what other reliefs the parties are entitled to?
At trial, one Anil Shivaji Chaudhari, Director of the plaintiff was examined as P.W.1 and Mr.R.A.Prabakar, Executive Engineer, Mechanical
Engineering Department of the 1st defendant Corporation was examined as D.W.1. Exhibits P1 to P19 were produced by the plaintiff and the
defendants produced Exhibit D1.
I have heard Mr.D.Ashok Kumar, learned counsel appearing for the plaintiff and Mrs.Karthikaa Ashok, learned counsel appearing for the
respondents.
Issue No.1:
The terms of the contract are not in dispute. Nothing turns the oral evidence in the case on hand. The Tender document has been produced by
the plaintiff as Ex.P1. The fact that the plaintiff was the successful tenderer and that he had entered into an agreement for supply of the 39
compactors vehicles on 25.01.2008 is not disputed. Clause 6 at page 14 of the Tender document reads as follows:
Penalty
a) Subject to Force majeure, if the supplier fails to deliver any or all the goods or perform the services within the time period(s) specified in the
contract, the department shall deduct from the contract price a sum equivalent 0.5% of the delayed goods or unperformed services for each day of
delay up to maximum deduction of 10% of the delayed supply or services. Once the maximum is reached the department may consider termination
of contract.
The plaintiff had accepted the Tender conditions and had taken part in the tender. He also entered into a contract under Ex.P2 for supply of
the vehicles on 25.01.2008. Clause 15 of Ex.P2 reads as follows:
Penalty for delay:
In case of delay in delivery of materials the Corporation of Chennai may at his option, impose a penalty calculated at the rate of 0.1 percent of the
Indent/Contract value of such portion only of the quantity as have not been delivered on the specified date, for each day of delay. Such reduction
shall be in full satisfaction of the suppliers liability for the delay and shall not in any case exceed five percent of the total value of contract.
The fact that an agreement for supply was entered after the plaintiff having been declared as successful tenderer is also admitted. The plaintiff
had based its claim on the ground that there is an employer employee relationship between the plaintiff and the defendant. The said assumption of a
relationship of an employer and employee between the plaintiff and the defendants appears to be misconceived. The contract is one for supply of
certain goods, viz. compactor vehicles to the defendants for its use and the plaintiff is a contractor, who had submitted its bids as per the tender
document and has been declared as a successful tenderer. It is a fundamental position of law that the person, who accepts the tender conditions
and bids at the tender cannot turn around and contend that the clauses in the tender document are invalid or illegal. Apart from accepting the tender
conditions and bidding at the tender, the plaintiff has also signed in Ex.P2 agreement, which also contains a penalty clause. Therefore, I do not
think the claim of the plaintiff that the penalty clause in the tender document as well as the agreement dated 25.01.2008 is invalid and
unenforceable could be accepted. Therefore, issue No.1 is answered against the plaintiff, the Penalty clause in the tender document as well as the
agreement dated 25.01.2008 is valid and legally binding on the plaintiff.
Issue No.4:
As already pointed out the plaintiff has participated in the tender knowing fully well it is a contract for supply of certain goods, viz. Compactor
vehicles from the defendant Corporation. The relationship between the parties is one of the supplier and a purchaser. The fact that the process of
purchase is through a tender does not alter the situation of the parties. At no stretch or imagination can it be said that there was an employer-
employee relationship between the plaintiff and the defendant. The relationship is only that of supplier and a purchaser and nothing more. Hence,
the issue No.4 is answered against the plaintiff and in favour of the defendants.
Issue Nos. 2 and 3:
Now let me consider what is the quantum of penalty contemplated between parties. Ex.P1, which is the tender document provides for
deduction of 0.5% of the value per day subject to the maximum of 10%. But the agreement entered into between the parties after the grant of
tender provides for a penalty of 0.1% for each day of delay subject to a maximum of 5% of the total value of the contract.
Mr.D.Ashok Kumar, learned counsel appearing for the plaintiff would contend that the defendants were not justified in withholding 10% of the
value of the contract, viz. Rs.52,03,340.50. He would submit that the tender document is superseded by the agreement Ex.P2, as per the
agreement under Ex.P2, the defendants are entitled to deduct 0.1% of the value of the contract for every days delay subject to a maximum of 5%.
Per Contra, Mrs.Karthikaa Ashok, learned counsel appearing for the defendants would contend that it is the tender document that would
govern the situation and not the contract, she would in the alternative submit that the reduction of penalty amount in the contract dated 25.01.2008
is a typographical error. A perusal of the tender document would show that the penalty clause enables the defendants to deduct 0.5% of the value
of the delayed goods are un-performed services for each day of delay subject to a ceiling of 10% of the total value of the contract. However, while
entering into the agreement, the said quantum of penalty is reduced to 0.1% per day subject to a maximum of 5% of the contract value. The
document Ex.P2 is signed by the Executive Engineer (Mechanical) of the Chennai Corporation. I do not think the defendants could raise a plea
that the tender document would alone prevail because the agreement for supply is subsequent to the tender document and under the agreement, the
quantum of penalty is altered. Therefore, it could be only taken as a conscious alteration of the quantum of penalty by the parties to the contract. In
my considered opinion Ex.P2 alone would govern the situation seen and not the tender conditions since Ex.P2 supersedes the tender conditions. It
should also be borne in mind Ex.P2, subsequent to the award of the contract to the plaintiff. Therefore, I am of the opinion that the defendants
were not justified in deducting or withholding the 10% of the contract value, viz., a sum of Rs.52,03,340.50. As per the Clause 15 of the contract
for supply of materials dated 25.01.2008, marked as Ex.P2, defendants are entitled to deduct only 5% of the contract value. Therefore, Issue
No.2 is answered the effect that the plaintiff is entitled to recover the money withheld by the defendants over and above the permissible limit of 5%
of the contract value. It is not in dispute that the sum of Rs.52,03,340.50 represents 10% of the contract value. The defendants are entitled to
withhold only 5% of the contract value i.e., equivalent to Rs.26,01,670.25. Therefore, the plaintiff is entitled to recover a sum of Rs.26,01,670.25
which is over and above the 5% of the contract value.
In view of the fact that the Clauses in the contract providing for penalty have been upheld the 1st defendant would be entitled to retain an
amount equivalent to 5% of the contract value towards the delay in supply of the compactors by the plaintiff.
Issue No.5:
In view of the above discussion, it is found that the defendants are not entitle to withhold 10% of the contract value, but they are entitled to
withhold 5% of the contract value. They are bound to return the excess amount withheld by them with interest at 12% per annum from the date of
suit till date of realization.
In fine the suit is decreed for a sum of Rs.26,01,670.25 with interest at 12% per annum from the date of suit till date of decree and thereafter
at 6% per annum till date of realization. Parties are directed to bear on their own costs.