M/s. Shree Construction vs State of Chhattisgarh and Others

Manindra Mohan Shrivastava, J.—By this petition under Article 226 of the Constitution of India, the petitioner seeks to impugn and assail the validity of action of respondent No. 2-Executive Engineer, whereby respondent No. 2 Executive Engineer vide an internal correspondence dated 2-6-2011 (Annexure P-1), informed the Chief Engineer that an amount of Rs. 16,76,605/- is recoverable from the petitioner on account of termination of contract under Agreement No. 02/DL of 2008-09 and for that reason, the payments, which are due to the petitioner under agreement No. 04/DL of 2005-06 has been withheld. The factual matrix leading to dispute between the parties and filing of instant petition, in nutshell, are that the petitioner is a registered A-4 Class Contractor, registered with Public Works Department (for short "P.W.D.") of the State of Chhattisgarh. In respect of two different works of the P.W.D. at different places, two different works contract were awarded to the petitioner. Under Agreement No. 40/DL of 2005-06, the petitioner was awarded contract for construction of Bridge i/c approaches across Kharkhara river on Deosara Deori Pari road. Vide another Agreement No. 02/DL of 2008-09, the petitioner was awarded contract for construction of bridge i/c approaches across Ghumaria Nall in K.M. 3/4 on Dongaragaon-Chhuria road. Relevant documents with regard to two agreements have been placed on record as Annexures P-2 and P-3.

Further case of the petitioner is that as far as the agreement No. 40/DL 2005-06 is concerned, the petitioner completed construction work under the agreement and a Completion Certificate (Annexure P-4) was issued in his favour. Final bills were prepared by the P.W.D. vide Annexure P-5. The petitioner vide his letter dated 24-3-2011 (Annexure P-6), requested for releasing of payment due to him under the bills in respect of the said agreement. When the bills were not released, the petitioner entered into correspondences with respondent No. 2- Executive Engineer as well as respondent No. 3 Chief Engineer, whereupon, Chief Engineer sought clarification from respondent No. 2 Executive Engineer vide his letter dated 2-6-2011 (Annexure P-7). In response to the said query made by the Chief Engineer, the Executive Engineer vide impugned letter dated 2-6-2011 (Annexure P-1) informed that the bills worth Rs. 17.40 lacs payable to the petitioner under Agreement 40/DL of 5005-06 have been withheld on account of termination of the agreement No. 02/DL of 2008-09, where under an amount of Rs. 16,76,605/- is recoverable against the petitioner.

It is the aforesaid action of respondent No. 2 Executive Engineer, which is under challenge in this writ petition.

Learned counsel for the petitioner submitted that as far as the liability fastened upon the petitioner under Agreement No. 02/DL of 2008-09 for a sum of Rs. 16,76,605/- is concerned, the said liability has been seriously disputed by the petitioner and the petitioner has already invoked the arbitration clause and the matter is presently pending before the Chief Engineer. In his submission, unless there is proper adjudication of the liability of the petitioner by the Chief Engineer in appeal or by the arbiter in case eventuality so arises, respondent No. 2 could not be Judge or arbiter of his own cause in the matter of dispute between him and the petitioner arising out of Agreement No. 02/DL of 2008-09. It is contended that the rights and obligations arising between the parties under Agreement No. 02/DL of 2008-09 are independent and distinct from the rights and obligation of the parties under Agreement No. 40/DL of 2005-06. Therefore, the amount alleged to be due and recoverable under another agreement could not be withheld on the ground that some other amount is recoverable from the petitioner by the Executive Engineer under another agreement, particularly when the said liability is disputed and the parties have already approached the adjudicating authority under the arbitration clause. In support of his submission, learned counsel for the petitioner relied upon the judgment of the Supreme Court in the case of State of Karnataka Vs. Shree Rameshwara Rice Mills, Thirthahalli, and a Division Bench judgment of this Court in the case of A.K. Construction Company v. the State of MP 2005 (4) MPHT 15 CG. Relying upon the aforesaid two decisions, learned counsel for the petitioner submitted that the amount under Agreement No. 02/DL 2008-09 would not become due and recoverable from the petitioner unless there is adjudication of the rights and liabilities of the parties in accordance with the arbitration Clause 28 of the Agreement, particularly when the petitioner has disputed the said liability and has already taken recourse to the remedy by way of adjudication before the Chief Engineer, where the matter is still pending.

Per contra, learned counsel for the State respondents has opposed the prayer. Learned counsel for the State has raised specific objection with regard to maintainability of the petition by submitting that as there exists an arbitration Clause 28 under the agreement between the parties, which provides for a in house procedure of adjudication of dispute between the parties. firstly before the Superintending Engineer and then by way of appeal before the Chief Engineer and thereafter by way of arbitration at the instance of party aggrieved by the order of Chief Engineer, present writ petition is not maintainable. He further submitted that the dispute between the parties arises out of a contract and the petitioner, therefore, is not entitled under the law to seek enforcement of rights and obligations qua contract through the extraordinary remedy of writ jurisdiction.

On merits, submission of learned counsel for the respondents is that the amount of final bills payable to the petitioner for the work done under the agreement No. 40/DL of 2005-06 is in the hands of the respondents and the respondents have every right to adjust and appropriate the said amount towards the amount recoverable from the petitioner by the same department for breach of another agreement committed by the petitioner. He further submits that the right of the respondents to appropriate and adjust the amount lying with them, though payable to the petitioner on account of work done in another agreement, cannot be disputed and, if at all, there is any dispute with regard to said liability, the remedy open for the petitioner is to approach the arbiter as envisaged under Clause 28 of the Agreement. According to respondents, as both the works are under agreement executed between the petitioner and the Executive Engineer in the same department public works, it confers every right on the respondents to withhold payment of amount due and payable to the petitioner under one agreement until the dispute in other agreement and the petitioner''s liability is finally adjudicated by the adjudicating authority or the arbiter from the Court.

We have given our anxious consideration to the submissions made by learned counsel for the parties and perused the records.

As preliminary objection with regard to maintainability of the writ petition has been raised by learned counsel for the State respondents, we shall first deal with the said objection.

The pleadings and documents placed on record undisputedly show that two different agreements for two different works were executed between the petitioner and the Executive Engineer. It is also not disputed by respondents that as far as Agreement No. 40/DL of 2005-06 is concerned, work has been completed and the Completion Certificate (Annexure P-4) has been issued in favour of the petitioner and final bills have also been prepared vide Annexure P-6. The respondents have not disputed that the amount payable to the petitioner as per the bills are not payable to the petitioner because of any dispute as between the petitioner and respondent No. 2 arising out of Agreement No. 40/ DL/2005-06. The only reason assigned by respondents not to release payments due and payable to the petitioner under Agreement No. 40/DL of 2005-06, as reflected from impugned communication dated 2-6-2011 (Annexure P-1) and reflected from the pleadings in the return, is that there is a dispute between the parties arising out another Agreement No. 02/DL of 2008-09, which has been terminated and the department has claimed recovery of Rs. 16,76,605/- from the petitioner. Therefore, for that reasons, the said amount due and payable to the petitioner under Agreement No. 40/DL of 2005-06 has been withheld.

In the case of ABL International Ltd. and another v. Export Credit Guarantee Corporation of India Ltd. and Ors. (2004) 3 SCC 553, dealing with a dispute arising out of contractual matter between the parties, wherein, one of the parties was a State under Article 12 of the Constitution of India, the Supreme Court observed :

13... This Court in the case of LIC of India proceeded on the facts of that case and held that a relief by way of a writ petition may not ordinarily be an appropriate remedy. This judgment does not lay down that as a rule in matters of contract the Courts jurisdiction under Article 226 of the Constitution is ousted. On the contrary, the use of the words "Court may not ordinarily examine it unless the action has some public law character attached to it" itself indicates that in a given case, on the existence of the required factual matrix a remedy under Article 226 of the Constitution will be available.....

It is clear from the above observations of this Court, once the State or an instrumentality of the State is a party of the contract, it has an obligation in law to act fairly, justly and reasonably which is the requirement of Article 14 of the Constitution of India. Therefore, if by the impugned repudiation of the claim of the appellants the first respondent as an instrumentality of the State has acted in contravention of the abovesaid requirement of Article 14, then we have no hesitation in holding that a writ Court can issue suitable directions to set right the arbitrary actions of the first respondent....

The law propounded by the Supreme Court in the case of ABL. International Ltd. (supra), has been reiterated in the case of Karnataka State Forest Industries Corporation Vs. Indian Rocks, in following words :

Although ordinarily a superior Court in exercise of its writ jurisdiction would not enforce the terms of a contract qua contract, it is trite that when an action of the State is arbitrary or discriminatory and, thus, violative of Article 14 of the Constitution of India, a writ petition would be maintainable. (See ABL International Ltd. v. Export Credit Guarantee Corpn. of India Ltd.)

In yet another decision in the case of Sushila Chemicals Pvt. Ltd. and Another Vs. Bharat Coking Coal Ltd. and Others, , the aforesaid principles have been reiterated in following words:

It is settled by a series of decisions of this Court starting from Shrilekha Vidyarthi v. State of U.P. that even in the domain of contractual matters, the High Court can entertain a writ petition on the ground of violation of Article 14 of the Constitution when the impugned act of the State or its instrumentality is arbitrary, unfair or unreasonable or in breach of obligations under public law.

The grievance of the petitioner in the present petition is against the action of the respondents authority in withholding the amount payable to the petitioner under the Agreement No. 40-DL of 2005-06. The respondents have not disputed the claim of the petitioner for payment under the Agreement No. 40/DL of 2005-06. However, the only justification provided for withholding amount of the petitioner under that agreement is that under another Agreement No. 02/DL of 2008-09, recovery is to be made from the petitioner. It has also not been disputed that the petitioner has seriously disputed his liability under the Agreement No. 02/DL of 2008-09. Specific averments have been made in the writ petition, which have not been substantially denied that the petitioner has already approached the Chief Engineer invoking rights of appeal as provided under Clause-28 of the agreement and the matter is pending consideration before the Chief Engineer. This shows that so far, there has been no final adjudication of the dispute between the parties. The grievance of the petitioner, as put forth by way of present writ petition, is that undisputed and admitted payment under one agreement has arbitrarily been withheld because of a pending dispute in the matter of adjudication of liability arising under some other agreement.

In the case of Kisan Sahkari Chini Mills Ltd. and Others Vs. Vardan Linkers and Others, , while entertaining challenge to order passed by the authorities staying operation of allotment letter and subsequent cancellation of allotment, the Supreme Court observed:

Ordinarily, the remedy available for a party complaining of breach of contract lies for seeking damages. He will be entitled to the relief of specific performance, if the contract is capable of being specifically enforced in law. The remedies for a breach of contract being purely in the realm of contract are dealt with by civil Courts. The public law remedy, by way of a writ petition under Article 226 of the Constitution of India, is not available to seek damages for breach of contract or specific performance of contract. However, where the contractual dispute has a public law element, the power of judicial review under Article 226 of the Constitution of India may be invoked.

The scope of interference in a writ petition arising out of a contractual dispute was explained as below;

If the dispute considered as purely one relating to existence of an agreement, that is whether there was a concluded contract and whether the cancellation and consequential non-supply amounted to breach of such contract, the first respondent ought to have approached the civil Court for damages. On the other hand, when a writ petition was filed in regard to the said contractual dispute, the issue was whether the Secretary (Sugar), had acted arbitrarily or unreasonably in staying the operation of the allotment letter dated 26-3-2004 or subsequently cancelling the allotment letter. In a civil suit, the emphasis is on the contractual right. In a writ petition, the focus shifts to the exercise of power by the authority, that is, whether the order of cancellation dated 24-4-2004 passed by the Secretary (Sugar), was arbitrary or unreasonable. The issue whether there was a concluded contract and breach thereof becomes secondary. In exercising writ jurisdiction, if the High Court found that the exercise of power in passing an order of cancellation was not arbitrary and unreasonable, it should normally desist from giving any finding on disputed or complicated questions of fact as to whether there was a contract, and relegate the petitioner to the remedy of a civil suit. Even in cases where the High Court finds that there is a valid contract, if the impugned administrative action by which the contract is cancelled, is not unreasonable or arbitrary, it should still refuse to interfere with the same, leaving the aggrieved party to work out his remedies in a Civil Court. In other words, when there is a contractual dispute with a public law element, and a party chooses the public law remedy by way of a writ petition instead of a private law remedy of a suit, he will not get a full-fledged adjudication of his contractual rights, but only a judicial review of the administrative action....

In view of the settled judicial pronouncements, which have been laid down by the Supreme Court, we are inclined to reject the objection with regard to maintainability of the writ petition.

The terms and conditions of agreement between the parties are also not disputed. The petitioner has placed on record the copy of Agreement No. 02/DL of the 2008-09 executed between the parties. The said agreement provides for an arbitration clause and shows that in the event of dispute, the same shall be referred to the Superintending Engineer and in the event the Superintending Engineer fails to decide or decides the same which is not acceptable to one of the parties, then the aggrieved party may prefer an appeal to the Chief Engineer and he will give his decision. It further provides that if any of the parties is not satisfied with the decision of the Chief Engineer, he can file objection for resolving the dispute through arbitration before the Arbitration Tribunal. Therefore, it is clear that in the present case, under the disputed agreement, the petitioner has already taken recourse to in house procedure for adjudication of dispute between the parties and the matter is presently pending before the Chief Engineer. This would mean that so far, there has been no adjudication of the disputes between the parties and the liability of the petitioner. The question, therefore, which arises for consideration is whether the sum which is said to be due to the petitioner under Agreement No. 02/DL of 2008-09 is recoverable from the petitioner without adjudication of the dispute between the parties as per the terms of arbitration clause.

In the case of State of Karnataka Vs. Shree Rameshwara Rice Mills, Thirthahalli, a similar issue arose for consideration before the Supreme Court. That was a case where contractor had entered into an agreement with the State for construction of certain buildings. As the contractor failed to complete the work, the contracts were terminated in terms of agreement entered into by them and damage payable were assessed and sought to be recovered as arrears of land revenue, without there being any adjudication upon the question with regard to the liability of the parties. The Supreme Court in the case of Shri Rameshwara Rice Mills (supra), interpreting the clause-12 of the agreement held:

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 well 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 officer 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.

In the case of A.K. Construction Company (supra), work of construction was awarded after completion of work, bills were submitted. The claim bills, however, were not released. It led to dispute between the parties and the aggrieved patty approached Arbitration Tribunal constituted under Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983. Defence was taken that the Govt. dues was to be recovered and in terms of the agreement, the Govt. was entitled to recover "sums recoverable" not only under the contract in question, but also under other contracts. It was held that the Govt. could not be arbiter, Judge of its own cause and could not recover the amount unless the amount is held to be due and recoverable by way of adjudication either by the Court or by the Arbitration Tribunal. The relevant clause relating to recovery of dues from the contractor in that case was referred to and it was held that no person can be Judge of its own cause and it would be entitled to recover any sum from the contractor only when it is admitted by the contractor to be due to the Govt. or when disputed by the contractor upon adjudication by the Court or the Arbitrator, declaring the sum to be due and recoverable from the contractor. Paragraph-6 of the aforesaid decision is reproduced herein below :

Clause 4.3.93.1 on which Mr. Murthy relies upon is quoted herein below:

4.3.39.1 Recovery of dues from the contractor:

Whenever any claim, against the contractor for the payment of a sum of money arises out of or under the contract Govt. shall be entitled to recover such sum by appropriating in part or whole, the security deposit of the contractor and to sell any Govt. promissory notes etc. forming the whole or part of such security. In the event of the security being insufficient or if no security has been taken from the contractor, then the balance or the total sum recoverable as the case may be shall be deducted from any sum then due or which at any time thereafter may become due to the contractor under this or any other contract with the Govt. should this sum be not sufficient to cover the full amount recoverable from the contractor then it shall be recovered from him as an arrears of land revenue.

It will be clear from second sentence of the aforesaid clause that in the event of the security being insufficient or if no security has been taken from the contractor, then the balance or the total sum recoverable, as the case may be, shall be deducted from any sum then due or which at any time thereafter may become due to the contractor under the instant or any other contract with the Govt. The expression ''sum recoverable'' would mean any sum that is admitted by a contractor to be due to the Govt. or that is disputed by the contractor but adjudicated by the Court or the arbitrator to be due and recoverable from the contractor. This can be the only interpretation of Clause 4.3.39.1 consistent with the principle of natural justice that no person can be a Judge of his own cause. In case, it is held, as has been held by the Arbitration Tribunal that the "sum recoverable" is any amount which the Govt. or any authority of the Govt. considers to be recoverable from the contractor, then the Govt. or such authority will be a Judge of its own cause and would be entitled to recover any sum from the contractor, even though the said sum is disputed and not adjudicated to be due and recoverable from the contractor by the arbitrator or the Court.

It is apparently clear that though the respondents have claimed certain amount to be recoverable from the petitioner under Agreement No. 02/DL of 2008-09, the petitioner has seriously disputed his liability and has already taken recourse to the provision contained under arbitration Clause-29 by approaching appellate authority, namely Chief Engineer. However, without adjudication of petitioner''s liability towards payment, alleged sum is sought to be recovered against the petitioner, that too, by way of withholding the undisputed amount payable to the petitioner under another Agreement No. 40/ DL of 2005-06. Learned counsel for the respondents could not bring to the notice of this Court any law operating in the field, authorizing the respondents authority to with-hold undisputed and admitted amount due and payable to the petitioner under another agreement, because of the dispute leading to recovery against the petitioner under a distinct and separate agreement. The respondents also could not bring to the notice of this Court, any term under the Agreement No. 40/DL of 2005-06 so as to provide that the amount due and payable under the agreement shall be withheld in case there is some amount found due and payable in connection with any other works contract. Present is not a case where even after adjudication, the petitioner has failed to deposit the amount and, therefore, the respondent have proceeded to recover the amount as arrears of land revenue. Therefore, the act on the part of respondents- authority in withholding undisputed and admitted amount payable to the petitioner under the Agreement No. 40/DL of 2005-06 can only be termed as arbitrary and unreasonable, violative of Article 14 of the Constitution of India.

Similar view has been taken by this Court in the case of M/s. Macadum Makers v. State of Chhattisgarh and Ors. W.P. (C) No. 881/2011 decided on 23rd March, 2012, which involved identical disputes based on almost similar facts.

As an upshot of the above discussions, we are inclined to hold the action of the respondent Executive Engineer, in withholding admitted and undisputed amount payable to the petitioner under Agreement No. 40/ DL of 2005-06 as arbitrary, unreasonable and violative of Article 14 of the Constitution of India.

The respondents shall not withhold release of payment of undisputed and admitted amount payable to the petitioner under Agreement No. 40/DL of 2005-06 only on the ground that an amount of Rs. 16,76,605/- is recoverable from the petitioner under another Agreement No. 02/DL of 2008-09.

The petition is accordingly allowed to the extent indicated above. No order as to costs.