K.P. Selvam vs The Superintending Engineer

K.K. Sasidharan, J.—Challenge in the writ petition is to the proceedings of the second Respondent dated 24.07.2008 directing the third Respondent to recover a sum of Rs. 26,35,185/- from the amount due to the Petitioner.

FACTS OF THE CASE:

The Petitioner is an Engineering Contractor registered with the Respondents.

The Petitioner was the successful bidder in respect of the work relating to widening of highways between Ramanathapuram-Nainarkovil and Emaneswaram Road-30/2-39/0 KM and the work was allotted to him on 21.12.2005. As per the terms and conditions of the contract, the Petitioner has to complete the work within a period of eight months. However, on account of heavy rain, the site was not handed over to him within the stipulated time and it was done only on 20.02.2006. There were also certain difficulties experienced by the Petitioner on account of the indifferent attitude of the department, which made the Petitioner to file series of representations before the second Respondent. Through those representations, the Petitioner called upon the second Respondent to rectify the flaws in the agreement. The Petitioner was directed to lay Tar twice on a particular portion of road between the distance from 36/2 to 39/0, even though the agreement has no stipulation to the said effect. The second Respondent, as per his communication dated 04.09.2007. failed to clarify about the flaws in the agreement. As per the communication issued by the second Respondent, the Petitioner was called upon to lay Tar to the thickness which would measure 65 mm instead of either 50 or 75 as found in the agreement. In short, the Petitioner was asked to do certain works which were not found in the agreement. In view of the difficulties faced by the Petitioner, he was not in a position to continue the work which resulted in terminating the contract by the second Respondent, as per order dated 08.10.2007. However, before terminating the contract, no notice was issued to the Petitioner as contemplated under the SSRB Standard Specification to Roads and Bridges. Therefore, the said order was challenged by the Petitioner before the first Respondent on 18.10.2007. However, there was no reply from the first Respondent.

The Petitioner has undertaken certain other works within the jurisdiction of the third Respondent and he has been carrying out the work to the satisfaction of the said Respondent. At that juncture, the second Respondent issued the impugned order dated 24.07.2008 directing the third Respondent to recover a sum of Rs. 26,35,185/- from the running bills of the Petitioner and to pay the same to the said Respondent. Aggrieved by the said order, the Petitioner is before this Court. OPPOSITE VERSION:

The second Respondent has filed a counter-affidavit in answer to the contentions raised in the writ petition. According to the second Respondent, the contract work entrusted to the Petitioner on 21.12.2005 was not completed within the time permitted. The Petitioner was able to complete only 15.6% of value of the work within eight months of the date of the agreement and, therefore, series of extensions were granted so as to enable him to complete the work. It was only on account of the failure of the Petitioner to execute the work even within the extension granted to him which made the second Respondent to terminate the agreement on 08.10.2007. According to the second Respondent, Article 109.09 of PS to SSRB permits the Government to retain or deduct the amount due from any moneys that may be due or may become due on account of another work. Similarly, as per Article 109.10 of PS to SSRB, the Engineer shall have the right to retain any reserve accumulated in his possession at the date of determination until the final settlement of all claims made by the new contractor. Therefore, according to the second Respondent, he was well within his powers to issue the impugned order directing the third Respondent to recover the amount.

The third Respondent has also filed a counter-affidavit, wherein it was indicated that as per the order issued by the second Respondent, they have to recover the amount from the bill raised by the Petitioner in respect of the ongoing work. However, a sum of Rs. l 1,74,287/- was ordered to be paid to the Petitioner on 30.09.2008 subject to his filing an undertaking.

SUBMISSIONS:

The learned Counsel for the Petitioner contended that the contract in question contains a provision for arbitration as well as a civil suit. Admittedly, the Petitioner has already filed a civil suit. Therefore, it was too premature on the part of the second Respondent to initiate proceedings for recovery. According to the learned Counsel, it was only after the determination of the amount by the civil Court, that further proceedings could be taken by the second Respondent and, therefore, there was no justification for issuing the order of recovery at this point of time.

The learned Special Government Pleader contended that the contract given to the Petitioner was determined on account of his failure to complete the work within the period originally fixed as well as the extended period and as such, he caused substantial loss to the Highways Department and the department was well within their powers to issue the order of recovery from the amount due to the Petitioner from the third Respondent. The learned Special Government Pleader also submitted that the second Respondent was also entitled to proceed under the Revenue Recovery Act for realization of the amount due from the Petitioner and as such, there was no illegality in the proceedings initiated for recovery.

CONSIDERATION:

The contract in question was entered into between the Petitioner and the second Respondent. According to the Petitioner, the contractual terms were not adhered to by the second Respondent which made him to submit series of representations to the second Respondent and his subordinates. However, no action was taken to clarify certain flaws in the agreement. It was also the grievance of the Petitioner that he was directed to do certain works -which were not within the purview of the contract and all these contributed for the delay in executing the work. Therefore, according to the Petitioner, he was not responsible for the sorry state of affairs culminating in cancelling his contract and as such, the second Respondent was not justified in taking action to recover the amount.

The second Respondent has initiated action to recover the amount on the ground that the Petitioner has caused substantial loss to the department on his failure to complete the work within the extended period granted to him. Therefore, it was well within the powers of the second Respondent to quantify the amount and to recover the same from the amount due to the Petitioner from the third Respondent.

The Petitioner and the second Respondent being parties to a contract are bound by the terms and conditions of the contract. The learned Counsel for the Petitioner as well as the learned Special Government Pleader confirmed the fact that the agreement contains a provision for arbitration upto a particular limit and a civil suit for claim exceeding Rs. 2 lakhs and the second Respondent was entitled to appoint the arbitrator to decide the dispute between the parties. When there was a mechanism provided in the agreement entered into between the parties, they have to resort to the said remedy. It is not permissible for a party to a contract to take up the task of adjudication by themselves and to come to a conclusion that the other party to a contract was liable to pay such and such amount on account of his failure to fulfil the terms of the contract.

One of the parties to a contract is not entitled to quantify the amount due to him from the other party unilaterally, without the intervention of Court or through arbitration. The position would be different, in case the amount was a pre-determined one. However, that is not the case in the present matter. The damages sustained by the second Respondent was not quantified in the manner known to law. The second Respondent has not initiated any proceeding for determining the quantum either through arbitration or by way of adjudication through a Court of law. When the contract itself says that the matter could be referred to an arbitrator at the instance of the second Respondent, or a civil suit for major claims, it was not permissible for the second Respondent to determine the damages himself behind the back of the Petitioner, and to recover the amount from the bills in respect of the ongoing work. Such a procedure is unknown to law. The agreement executed between the parties governs the situation and both the parties are bound by the terms and conditions of the contract. Neither the Petitioner nor the second Respondent can be heard to say that they are not bound by a particular provision. It would never be open to them to determine the question of violation of the contractual terms as well as the damages sustained and the quantum of compensation liable to be paid by the opposite party.

In State of Karnataka Vs. Shree Rameshwara Rice Mills, Thirthahalli, , the issue before the Supreme Court was as to whether the State was competent to adjudicate upon the question of breach of contract committed by a person as well as the assessment of damages for the said breach and as to whether the damages assessed can be recovered from such person as if they were arrears of land revenue. The issue was considered by the Supreme Court and it was held thus:

...

The terms of Clause 12 do not afford scope for a liberal construction being made regarding the powers of the Deputy Commissioner to adjudicate upon a disputed question of breach as well as to assess the damages arising from the breach. The crucial words in Clause 12 are "and for any breach of conditions set forth hereinbefore, the first party shall be liable to pay damages to the second party as may be assessed by the second party". On a plain reading of the words it is clear that the right of the second party to assess damages would arise only if the breach of conditions is admitted or if no issue is made of it. If it was the intention of the parties that the officer acting on behalf of the State was also entitled to adjudicate upon a dispute regarding the breach of conditions the wording of Clause 12 would have been entirely different. It cannot also be argued that a right to adjudicate upon an issue relating to a breach, of conditions of the contract would flow from or is inhered in the right conferred to assess the damages arising from a breach of conditions. The power to assess damages, as pointed out by the Full Bench, is subsidiary and consequential power and not the primary power. Even assuming for argument''s sake that the terms of Clause 12 afford scope for being construed as empowering the officer of the State to decide upon the question of breach as ell as assess the quantum of damages, we do not think that adjudication by the Officer regarding the breach of the contract can be sustained under law because a party to the agreement cannot be an arbiter in his own cause. Interests of justice and equity require that where a party to a contract disputes the committing of any breach of conditions the adjudication should be by an independent person or body and not by the other party to the contract. The position will, however, be different where there is no dispute or there is consensus between the contracting parties regarding the breach of conditions. In such a case the Officer of the State, even though a party to the contract will be well within his rights, in assessing the damages occasioned by the breach in view of the specific terms of Clause 12.

The learned Special Government Pleader was not in a position to point out a specific provision in the contract granting authority to the second Respondent to decide the issue regarding violation of the provisions of the contract as well as the assessment of damages. When the contract does not contain any such provision for a unilateral assessment of damages by one of the parties to the contract, it is not permissible for the second respondent to undertake the task of examining the breach of contract alleged to have been committed by the Petitioner and to quantify the damages and to call upon the third Respondent to recover the amount from the money due to the Petitioner. There is also nothing to indicate in the impugned order about the issue of notice to the Petitioner before passing the impugned order.

The second Respondent has produced a copy of the agreement entered into between the Petitioner and the department dated 21.12.2005. Clause-12 of the commercial conditions deals with resolution of dispute between the contractor and the department, which runs thus:

In case of any dispute or difference between the parties to the contract either during the progress or after the completion of the work or after the determination/abandonment of the contract or any matter arising there under and if the claims value exceeds Rs. 2.00 Lakhs (Rupees Two Lakhs only) the same shall be settled by filing a civil suit before a Civil Court having jurisdiction for decision. If the claims monetary value is less than Rs. 2.00 Lakhs (Rupees Two Lakhs only) the dispute shall be referred for arbitration to a sole Arbitrator. The Superintending Engineer (Highways) SALEM Circle or his successor in his office shall be the Arbitrator for this purpose; The arbitration proceedings will be governed by Arbitration and Conciliation Act, 1996.

The claim value in the present matter exceeds Rs. 2,00,000/- (Rupees two lakhs only) and as such, the matter has to be decided by a civil Court. It is only when the value of the claim is less than Rs. 2,00,000/- (Rupees two lakhs only) that the dispute has to be referred for arbitration. The Petitioner has already filed a civil suit before the learned District Judge, Ramanathapuram, to declare the termination order dated 08.10.2007 as illegal and void with a further direction to the second Respondent to pay a sum of Rs. 2,02,29,968/- with interest at 18% per annum. Therefore, the dispute is now pending before the civil Court. Since the agreement itself provides for adjudication of the matter by the civil Court, the second Respondent is not entitled to proceed against the Petitioner unilaterally by determining the amount himself and without taking recourse to the machinery provided as per Clause-12 of the commercial conditions.

The claim of the second Respondent with regard to his right to proceed against the Petitioner for realization of the amount by issuing a direction to the third Respondent as well as to initiate proceedings under the Revenue Recovery arises only in cases where the amount has been determined by a forum constituted as per clause-12 of the commercial conditions. Admittedly, the amount has not been quantified in the manner known to law and, therefore, the second Respondent was not justified in passing the impugned order of recovery. The said order has no legal basis and the same was made in violation of clause-12 of the commercial conditions.

Merely because the second Respondent happens to be a State, it cannot be said that the contractual terms are not binding on them and it would be open to them to flout the terms and conditions of contract. In case one of the parties to a contract is permitted to take up the issue of adjudication of the claim, it would undermine the sanctity of the very contract. The terms were settled only on mutual discussions and neither parties to the agreement are entitled to alter or modify the contractual terms.

Therefore, I do not find any ground to sustain the order passed by the second Respondent and as such, the impugned order is liable to be quashed.

Accordingly, the order dated 24.07.2008 on the file of the second Respondent is quashed. The Writ Petition is allowed. Consequently, the connected miscellaneous petition is closed. No costs.