State of Gujarat vs M.K. Patel and Company

R.M. Chhaya, J.—Both these appeals are directed against the judgment and decree dated 29.3.1985 passed in Special Civil Suit No. 135 of 1981, whereby the Civil Judge (S.D.), Narol, was pleased to partly allow the suit by judgment and decree for Rs. 4,37,255/-against the State of Gujarat with interest @ 12% p.a. from the date of the suit till realisation.

The State of Gujarat by way of filing First Appeal No. 1866 of 1985 has challenged the said judgement and decree. The original Plaintiff has filed First Appeal No. 1867 of 1985 for recovery of further amount of Rs. 7,55,114/-with interest @ 18% p.a. Both the appeals arise out of the same judgment and decree as aforesaid, and hence both the appeals are considered by this common judgment. The parties are described hereinafter as per their position in lower Court for the sake of brevity.

The facts arising in these two appeals are as under:

That the Plaintiff Firm is an Engineer & Contractor doing business in the name and style of M/s. M.K. Patel and Company at Ahmedabad. The Executive Engineer, Irrigation Division, Anand invited tenders for carrying out the work of flood control measures in Vishwamitri basin and the same involved work of straightening and resectioning of river channel within city limits section, Sama Bridge to city Bridge section. In response to the tender notice the Plaintiff filled in their tender quoting Rs. 33,04,518/-against the estimated cost of Rs. 15,19,896/-. After following the procedure as the tender of the Plaintiff was found to be lowest its tender was accepted and approved for Rs. 33,04,518.17 ps. vide order dated 11.1.1977 for which the work order was given to the Plaintiff by the Defendants on 3.2.1977 with a stipulation to complete the tender

work within a span of 20 months i.e. latest by 30.9.1978.

It is the case of the Plaintiff that as per stipulation of the contract, the Plaintiff was supposed to be handed over the full length of size, upon which the tender work was to be executed by the Plaintiff. It is also the case of the Plaintiff that in order to fulfill his obligation, created all necessary infrastructure for the same, however, the Defendants did not hand over the full site and thus committed breach of the contract. It transpires from the record, that the Defendants during the entire contract period could hand over possession of 3900 ft. land in place of 14,800 ft.land. The Plaintiff therefore contended that the Defendant had committed breach of contract which rendered the contract void. It is the case of the Plaintiff that because of such a breach having been committed by the Defendants the Plaintiff could execute work only to the tune of Rs. 5 lacs and work to the tune of Rs. 28 lacs remained unexecuted. It was also contended that it was not possible for the Plaintiff to execute the remaining major portion of work due to changed conditions terms and rates and also due to non-availability of the site. It also transpires from the record that by notice dated 28.4.1978 the plaitniff also made certain offers which were not accepted by the Defendants. It transpires from the record that vide communication dated 17.3.1980 the Executive Engineer, Irrigation Division, Vadodara terminated the contract. The Plaintiff challenged the said termination by filing the present suit and raised total claim of Rs. 12,53,165.00 under different heads and also claimed interest @ 18% p.a. At paragraph No. 18, the Plaintiff raised total claim of Rs. 12,53,165.00 under the different heads as under:

Rs.1,95,114.60

On account of work done and not measured not paid, under item No.1 quantity 35,540 CM at the rate of Rs.5.49.

Rs.49,200.00

On account of work done, not measured and not paid under item No. 2 of the Schedule ''B'' of the tender, quantity 32,800 CM at the rate of Rs. 1.50.

Rs. 49,662.00

On account of part rates paid under items of Schedule B of the tender. The work was carried out as per the items and specification and they were entitled for full rates the department has wrongly paid part rates.

Rs. 2,143.00

Amount of security deposit deducted from the running account bill.

Rs. 60,796.00

Amount of security deposit paid in the shape of bank guarantee. Either it should be discharged or the amount should be paid.

Rs. 56,250.00

On account of interest on the mobilistion wrongly recovered.

Rs. 8,40,000.00

Total : Rs. 12,53,165.00

On account of loss of profit at 30% on the remaining work of Rs.28/-lacs.

The suit was contested by the Defendants by filing a written statement (Exh. 10) and denied the allegations made by the Plaintiff. It was specifically urged on behalf of the Defendants that the contract did not provide for handing over the site in entirety simultaneously and even though site to the tune 3900 ft.land was handed over to the Plaintiff immediately Plaintiff deliberately did not carry out the work. It was also contended by the Defendants that Defendant could carry out only 13.19% of the work within span of one year. It was also further contended on behalf of the Defendant that even though there was No. monsoon season, the Plaintiff voluntarily abandoned the work in 1978. It was also specifically contended that though Clause 6 provides for extension of time No. such application was made by the Plaintiff. It was also contended that Clause 14 of the contract interalia provides for additions and alterations of the original designs and drawings and, therefore, Defendants denied that there was any breach of contract on the part of the Defendants.

The Trial Court framed 14 issues at Exh. 11 and after considering the documentary as well as oral evidence adduced by both the sides was pleased to decree the suit by impugned judgment and decree for a sum of Rs. 4,37,255/- against the Defendant with interest @ 12; p.a. and was further pleased to direct the Defendants to discharge bank guarantee of Rs. 60,796/-within a period of one month. By the said judgment and decree the lower Court was pleased to reject other claims made by the Defendant to the tune of Rs. 7,55,114/-.

Being aggrieved by the judgment and decree, the Plaintiff as well as Defendants both have preferred these appeals.

Before reverting to the evidence on record and the findings recorded by the lower Court it is required to be noted that the concluded contract between the parties was in form of ''Form B-2'' which is part of the record at Exhibit 113.

Heard Mr. Niraj Soni, learned Assistant Government Pleader for the Defendant State of Gujarat and learned Advocate Mr. K.G. Sukhwani for the Plaintiff. We have also perused Record & Proceedings of the lower Court.

Mr. Soni, learned Assistant Government Pleader has taken us through the impugned judgment and has also taken us through the relevant clause of the contract and more particularly clause Nos. 2, 3 & 14. Mr. Soni vehemently submitted that the Plaintiff unilaterally did not complete the work even for the site which was provided at the first instance by the Defendant and on the wrong pretext that the full site was not provided has raised claims which does not warrant acceptance. Mr. Soni relying upon Clause 14 of the contract submitted that under the said clause the Engineer in charge had power to make any alterations in or additions to the original specifications, drawing, designs and instructions. He therefore submitted that the Defendant has never acted beyond the scope of the contract. Mr. Soni further submitted that the Trial Court has wrongly appreciated the evidence on record and has wrongly believed the case of the Plaintiff especially to the fact that there was breach on part of the Defendant. Mr. Soni further submitted that the Trial Court has misread the oral evidence especially of Vajid Husein Alataf (Exh.115) who was Deputy Engineer in charge of the project till 30.3.1977. Mr. Soni further submitted that even though commercial site of 3900 ft. of the land was provided to the Plaintiff, the Plaintiff did not work properly and the progress was also slow and in fact the Defendant had to send reminders for the same. Mr. Soni further submitted that the Trial Court has wrongly drawn adverse inference for non production of field book. Mr. Soni further submitted that the Trial Court has read and interpreted Rule 211(d) of PWD Rules Manual in isolation without considering the other clauses of the tender document. Mr. Soni submitted that in fact false claims have been raised by the Plaintiff in order to cover up the breach committed by the Plaintiff. Mr. Soni submitted that the Trial Court has wrongly come to the conclusion that as per Clause (2) of the agreement the Executive Engineer has failed to fix item wise programme. He further submitted that the Trial Court has without any basis and on wrong appreciation of evidence has come to the conclusion that the action of termination taken by the Defendant under Clause (3) of the agreement is wrongful and illegal. Mr. Soni further submitted that the Trial Court has also erred in awarding Rs. 2,80,000/-by way of loss of profit. Mr. Soni further submitted that the Trial Court has erred in believing the version of the Plaintiff and has wrongly applied the ratio which is applicable in case under the Income Tax Act. Mr. Soni submitted that the Trial Court has wrongly applied the ratio laid down by this Court in relation to loss of profit and has straight way granted 10% and has therefore without any cogent evidence and material on record.

Mr. Soni further submitted that in fact Plaintiff abandoned the work and thereby committed breach of the contract. Mr. Soni submitted that the Trial Court on the basis of the evidence on record has correctly found that the Plaintiff was not entitled for additional amount of Rs. 1,25,000/-for the future unmeasured work. The Trial Court has rightly taken into consideration the measurements recorded in the measurement book (Exh. 30) and has rightly come to the conclusion that the Plaintiff had not carried out excavation work in 1,41,981.20 C.M.T. and has rightly come to the conclusion that the department had measured the work which was already recorded in the measurement book and therefore has rightly rejected the claim of Rs. 1,95,114.60. Mr. Soni also submitted that the Trial Court has wrongly awarded interest @ 12% p.a. Mr. Soni therefore submitted that the impugned judgment and decree deserves to be quashed and set aside and appeal deserves to be accepted and allowed. Mr. Soni submitted that the appeal filed by the Plaintiff is devoid of any merit and the same deserves to be dismissed.

As against this, Mr. Sukhwani for the Plaintiff submitted that the Trial Court has rightly come to the conclusion that there was breach on the part of the Defendant especially in giving the full site. Mr. Sukhwani submitted that the Trial Court has after considering the evidence thread-bare has rightly come to the conclusion that there was breach on the part of the Defendant and the termination of the contract is rightly held to be wrongful and illegal. Mr. Sukhwani therefore submitted that the appeal filed by the Defendant is meritless and the same deserves to be dismissed.

Mr. Sukhwani further relying upon oral as well as documentary evidence and the tender document submitted that the Trial Court has erred in disallowing the claim raised by the Plaintiff, in relation to the work done and not measured. Mr. Sukhwani submitted that the Defendant had withheld the information of the work which was done during the subsistence of the contract period. Mr. Sukhwani further submitted that at every stage the Plaintiff had informed the Engineer in charge of the site and even though the alternative alignment was given which was not part of the contract, the Plaintiff undertook that work under the faith and belief that he would be paid for the said work as per the terms of the agreement. Mr. Sukhwani therefore submitted that the Trial Court having come to the conclusion that there is an admitted breach has wrongly brushed aside the evidence lead by the Plaintiff and has misread the documentary evidence as well as oral evidence lead by the Defendant and has erred in not awarding Rs. 1,95,114.60 as claimed for on account of work done and not measured and not paid for the quantity of 35,540 C.M.

Mr. Sukhwani relying upon the deposition of the Plaintiff i.e. Ghanshyambhai G. Patel (Exh.55), submitted that the Trial Court has wrongly come to the conclusion that the Plaintiff is entitled to loss of profit only to the tune of Rs. 2,80,000/-even though it has come to the conclusion that there was breach on the part of the Defendant and instead 30% has wrongly awarded only 10%. Mr. Sukhwani further submitted that during the period of contract prevailing bank rate was 18% p.a. and therefore, the Trial Court ought to have awarded 18% as claimed for instead of 12% p.a. He therefore submitted that the appeal filed by the Plaintiff deserves to be allowed by modifying decree as prayed for.

On reappreciation of the evidence on record and on going through the reasonings given by the Trial Court we find that the Trial Court has on proper appreciation of evidence on record has come to the conclusion that the Defendant failed to perform its obligation and committed breach of the contract. We find that even as per deposition of the witness of the Defendant Deputy Engineer, who was in charge of the site (Exh.115) Vajid Husein and the map produced by the Defendant (Exh.113) and also considering the oral testimony of the Defendant witness Yashvant Mahadev Marathe, (Exh.122), as well as Jayantilal Mangaldas Joshi has come to the conclusion that the Defendant has failed to give the possession of the lands of the site. We find that the Trial Court has rightly come to the conclusion that the site would mean entire full site. We also find that from the documentary evidence in the form of correspondence between the parties (Exhs. 76, 78, 80, 81 and 84) that the Defendant could provide site which in fact had hindrances and obstruction. We therefore find that the Trial Court has rightly come to the conclusion that the Defendant had committed breach of the contract.

We find that the Trial Court has rightly come to the conclusion that as the Defendant had committed breach of the contract the Defendant was not entitled to impose any penalty. We therefore find that the Trial Court has rightly come to the conclusion that the unilateral termination of the contract by the Defendant was wrongful and illegal. The Trial Court has rightly disbelieved the case of the Defendant that the Plaintiff abandoned the work.

We find that the Trial Court has examined each and every claim raised by the Plaintiff in the suit and has properly weighed the evidence on record and has rightly awarded the claims on account of work done but not measured and not paid under item No. 2 of the schedule ''B'' of the tender for 32800 C.M. @ Rs. 1.50. We find that the Trial Court has rightly interpreted the relevant clause of the tender document and has rightly allowed other claims.

We find that the Trial Court after appreciating the evidence on record has rightly awarded loss of profit to the tune of Rs. 2,80,000/-. The Apex Court in the case of Dwaraka Das Vs. State of Madhya Pradesh and Another, after taking into consideration the

ratio laid down by the judgments reported in A.T. Brij Paul Singh and Others Vs. State of Gujarat, and Mohd. Salamatullah and Others Vs. Government of Andhra Pradesh, has held as under:

The claim of the Petitioner for payment of Rs. 20,000/-as damages on account of breach of contract committed by the Respondent-State was disallowed by the High Court as the Appellant was found to have not placed the material on record to show that he had actually suffered any loss on account of the breach of contract. In this regard the appellate Court observed:''It is not his case that for due compliance of the contract he had advanced money to the labourers or that he had purchased materials or that he had incurred any obligations and on account of breach of contract by the Defendants he had to suffer loss on the above and other heads. Even in regard to the percentage of profit he did not place any material on record but relied upon assessment of the profits by the Income Tax Officer while assessing the income of the contractors from building contracts''. Such a finding of the appellate Court appears to be based on wrong assumptions. The Appellant had never claimed Rs. 20,000/-on account of alleged actual loss suffered by him. He had preferred his claim on the ground that had he carried out the contract he would have earned profit of 10% on Rs. 2 lacs which was the value of the contract. This Court in A.T. Brij Paul Singh and Others Vs. State of Gujarat, while interpreting the provisions of Section 73 of the Contract Act, has held that damages can be claimed by a contractor where the government is proved to have committed breach by improperly rescinding the contract and for estimating the amount of damages Court should make a broad evaluation instead of going into minute details. It was specifically held that where in the works contract, the party entrusting the work committed breach of contract, the contractor is entitled to claim the damages for loss of profit which he expected to earn by undertaking the works contract. Claim of expected profits is legally admissible on proof of the breach of contract by the erring party. It was observed (at p.1707 of AIR)

what would be the measure of profit would depend upon facts and circumstances of each case. But that there shall be a reasonable expectation of profit is implicit in a works contract and its loss has to be compensated by a way of damages if the other party to the contract is guilty of breach of contract cannot be gainsaid. In this case we have the additional reason for rejecting the contention that for the same type of work, the work site being in the vicinity of each other and for identical type of work between the same parties, a Division Bench of the same High Court has accepted 15 per cent of the value of the balance of the works contract would not be an unreasonable measure of damages for loss of profit....

Now if it is well-established that the Respondent was guilty of breach of contract inasmuch as the rescission of contract by the Respondent is held to be unjustified, and the Plaintiff-contractor had executed a part of the works contract, the contractor would be entitled to damages by way of loss of profit. Adopting the measure accepted by the High Court in the facts and circumstances of the case between the same parties and for the same type of work at 15 per cent of the value of the remaining parts of the work contract, the damages for loss of profit can be measured''.

To the same effect is the judgment in Mohd. Salamatullah and Others Vs. Government of Andhra Pradesh, After approving the grant of damages in case of breach of contract, the Court further held that the appellate Court was not justified to interfere with finding of fact given by the trail Court regarding quantification of the damages even if it was based upon guess work. In both the cases referred to hereinabove. 15% of the contract price was granted as damages to the contractor. In the instant case however the trial Court had granted only 10% of the contract price, which we feel was reasonable and permissible, particularly when the High Court had concurred with the finding of the trial Court regarding breach of contract by specifically holding that ''we therefore see No. rason to interfere with the finding recorded by the trail Court that the Defendants by rescinding the agreement committed breach of contract.'' It follows therefore as and when the breach of contract is held to have been proved being contrary to law and terms of the agreement, the erring party is legally bound to compensate the other party to the agreement. The appellate Court was, therefore, not justified in disallowing the claim of the Appellant for Rs. 20,000/-on account of damages as expected profit out of the contract which was found to have been illegally rescinded.

We find that while coming to the conclusion that the Plaintiff is entitled to loss of profit to the tune of Rs. 2,80,000/-the Trial Court has rightly taken into consideration the fact that had the Plaintiff carried out the said work the Plaintiff would have earned the said amount by way of profit. The Trial Court having rightly come to the conclusion that the Defendant has committed breach of the contract has rightly awarded Rs. 2,80,000/-on account of damages as expected out of private contract which has been held to be illegally rescinded.

We find that the Trial Court has rightly awarded @ 12% as same was prevailing bank rate of the period in question. We have also examined the contentions raised by the Plaintiff and we find that the Trial Court has not committed any error in disallowing the claims under the head of work done and not measured and not paid being item No. 1.

We therefore find that both the appeals are meritless and the same do not warrant any interference by this Court in its appellate jurisdiction. Consequently both the appeals fail and the same are dismissed and the judgment and decree of the Trial Court stands confirmed. Cost of the suit granted by the Trial Court is also confirmed, however, on facts and circumstances of these appeals parties to bear their own costs.

Registry is directed to send back the Record & Proceedings forthwith.