State of H.P. and Another vs Mountain Movers <BR> Mountain Movers Vs State of H.P. and Another

Kuldip Singh, J.—This Judgment shall dispose of OSA Nos. 5 and 6 of 2008, as both have arisen from Judgment dated 23.4.2008 passed by Hon''ble Single Judge in Civil Suit No. 29 of 2001. M/s Mountain Movers was the plaintiff and State of H.P, Executive Engineer, Theog Division HPPWD were the defendants. The parties in the Judgment are referred in the manner as they are described in OSA No. 6 of 2008.

The facts in brief are that appellant, a contractor had filed a suit for declaration and injunction against the respondents. It has been alleged that appellant had entered into a contract with respondents for execution of work relating to `C/O Degree College building at Theog'', agreement No. 1 of 1999-2000 to this effect was executed. The tender of appellant was accepted by the respondents vide letter dated 9.4.1999. The said letter was received by the appellant towards the end of April 1999. The respondents while accepting the tender had unilaterally reduced the time for execution of work from three years to two years, therefore, the appellant did not sign formal agreement that reduced the time period for execution of the work.

It has been alleged that as per aforesaid letter the appellant was required to complete the work within the period of three years from 15th day of issue of letter of acceptance. The work was required to be commenced by 24.4.1999 and completed by 23.4.2002. The appellant was required to execute 1/8th of the work in 1/4th of the time, 3/8th of the work in 1/2 of the time and 3/4th of the work within 3/4th of the time stipulated. There was provision for extension of time for completion of work, hence time stipulated in the agreement was not essence of the contract. The respondents were required to provide the site for work, drawings, instructions for execution of the work, required quantities of cement, steel and blasting material.

It has been alleged that site remained without approach, designs and drawings were made available partly to the appellant in the middle of June 1999, funds for the work were also not made available. The running account bill passed by the Assistant Engineer in September 1999 was paid only in December 1999.

The agreement further provides that in case delay was attributable to appellant, respondent No. 1 was entitled to such amount of compensation not exceeding 10% of the value of the work as may be determined by the Superintending Engineer concerned. The respondent No. 2 by usurping the powers of Superintending Engineer vide his letter dated 14.1.2000 illegally determined that appellant was liable to pay to respondent No. 1 compensation amounting to Rs. 12,62,052/- for delay in completion of the work. In addition, the agreement was rescinded by respondent No. 2 and he had also forfeited the security deposited by appellant amounting to Rs. 1,00,000/- in favour of respondent No. 1. The compensation determined by respondent No. 2 and forfeiture of security deposit amount is null and void. In these circumstances, appellant became entitled for damages sustained due to breach of contract. On these grounds, the suit was filed restraining the respondents from recovering the amount determined by respondent No. 2.

The suit was contested by respondents No. 1 and 2 by filing written statement in which preliminary objections of maintainability, estoppel were taken. On merits, it was pleaded that stipulated time for completion of work was 24 months. The drawings were supplied to the appellant on 22.5.1999, 7.6.1999 and 22.6.1999. The site was also handed over to the appellant immediately on which appellant had started the work on 2.5.1999. The progress of the work was slow keeping in view of the magnitude of the work awarded to the appellant for a sum of Rs. 1,26,40,521/-. The appellant was reminded to restart the work which was stopped on 4.11.1999. The appellant was not in a position to complete the work within the stipulated period. In these circumstances, the compensation was levied and the contract was rescinded and security deposited by the appellant was forfeited in favour of respondent No. 1. The appellant is not entitled to any relief.

The replication was filed by the appellant reasserting the case set up in the plaint and denied the case projected by the respondents. The Honble single Judge has partly decreed the suit of the appellant for declaration and respondents were restrained from recovering Rs. 12,64,052/- or effecting any recovery in that regard. It was held that appellant is not entitled to any other relief. The appellant has filed OSA No. 6 of 2008 and respondents have filed OSA No. 5 of 2008 against the impugned Judgment.

We have heard the learned Counsel for the parties and we have also gone through the record. At the time of hearing the learned Counsel for the appellant has only assailed the findings recorded by the Hon''ble Single Judge on issue No. 2, whereas on behalf of the respondents findings returned by Hon''ble Single Judge on issue No. 1 were assailed.

On the basis of submissions made by either side the following points emerge for determination in the appeals:

(i) legality of compensation of Rs. 12,62,052/-

(ii) validity of forfeiture of security.

Clause 2 of the agreement, which is a part of Ex.DW 1/O is as follows:

Clause 2: Compensation for delay

The time allowed for carrying out the work as entered in the tender shall be strictly observed by the contractor and shall be deemed to be the essence of the contract on the part of the contractor and shall be reckoned from the fifteenth day after the date on which the order to commence the work is issued to the contractor. The work shall throughout the stipulated period of the contract be proceeded with all due diligence and the contractor shall pay as Compensation an amount equal to one per cent of such smaller amount as the Superintending Engineer (whose decision in writing shall be final) may decide on the amount of the tendered cost of the whole work as shown in the tender for every day that the work remains uncommenced or unfinished, after the proper dates. And further, to ensure good progress during the execution f the work, the contractor shall be bound in all cases in which the time allowed for any work exceeds one month save for special jobs to complete one-eighth of the whole of the work before one forth of the whole time allowed under the contract has elapsed, three-eighth of the work, before one half of such time has elapsed and three fourth of the work, before three forth of such time as elapsed.

However, for special jobs if a time-schedule has been submitted by the Contractor and the same has been accepted by Engineer-in-charge, the contractor shall comply with the said time schedule. In the event of the, contractor failing to comply with this condition, he shall be liable to pay as compensation an amount equal to one percent or such smaller amount as the Superintending Engineer (whose decision in writing shall be final), may decide on the said tendered cost of the whole work for every day that the due quantity of work remains incomplete; provided always that the entire amount of compensation to be paid under the provisions of this clause shall not exceed ten per cent, on the tendered cost of the work as shown in the tender.

Ext. PW 1/G is the letter dated 14.1.2000 issued by respondent No. 2 to appellant informing the appellant that as per decision conveyed by the Superintending Engineer, 2nd Circle, HPPWD, Shimla, compensation for delay as per clause-2 of the agreement amounting to Rs. 12,64,052/- being 10% of the tender cost of Rs. 1,26,40,521/- is levied on the appellant. DW 1 P.K. Tandon, Executive Engineer has stated that during the period from May 1998 to February 2000, he remained posted as Executive Engineer, Theog. He had reported the matter to Superintending Engineer for levy of compensation and for rescinding the contract on 14.10.1999 vide Ext. DW 1/M. The letter Ext. DW 1/M provides that despite letter dated 4.10.1999 issued to appellant to resume work, the appellant had not responded and violated clause-2 of the provision. The hearing may be conducted with the appellant for resumption of work or face imposition of compensation for delay. In case appellant fails to attend the hearing, the approval of levying compensation of Rs. 12,64,052/- for delay upon the appellant at the rate of 10% of the tender amount of Rs. 1,26,40,521/- may be conveyed. It is clear from Ex.DW 1/M that compensation of Rs. 12,64,052/- was allegedly assessed by respondent No. 2 and he only requested approval to levy compensation of Rs. 12,64,052/- vide Ext. DW 1/M. DW 1 has further stated that appellant had failed to respond the letter dated 30.10.1999 Ex. DW 1/N of Superintending Engineer and, therefore, compensation was levied against the appellant vide letter dated 14.10.2000 Ex. PW 1/G. DW 1 has nowhere stated that after Ex. DW 1/M and letter Ext. DW 1/N any decision was taken by Superintending Engineer to impose compensation.

The letter Ex. PW 1/G, however, refers that compensation amounting to Rs. 12,64,052/- has been imposed as per decision of the Superintending Engineer. The decision of Superintending Engineer to impose compensation of Rs. 12,64,052/under clause-2 of the agreement has not been placed on record. On the contrary endorsement part of Ex. PW 1/G indicates that compensation was imposed by respondent No. 2 on verbal instructions of Superintending Engineer. The respondent No. 2 vide Ext. PW 1/G sought approval of the action taken in writing, but such approval has not been proved on record. This proves that compensation of Rs. 12,64,052/- was allegedly assessed by respondent No. 2 and respondent No. 2 had requested the Superintending Engineer to give approval.

It has been contended on behalf of the appellant that Superintending Engineer has not considered the imposition of compensation as per clause-2. The letter dated 14.1.2000 Ext. PW 1/G indicates that compensation was assessed by respondent No. 2 and it was sent for approval to the Superintending Engineer. The clause-2 of the agreement provides that compensation shall not exceed 10% on the tendered cost of work. In assessing the compensation the Superintending Engineer is required to apply his mind and record the reasons for imposing compensation as to why maximum compensation at the rate of 10% on the tendered cost is to be imposed. The clause-2 gives discretion to the Superintending Engineer to impose compensation not exceeding 10% but that discretion cannot be exercised arbitrarily. It must be supported by the reasons emerging from the record. In the present case nothing has been placed on record by the respondents that case of the appellant was considered by the Superintending Engineer for imposing maximum compensation of 10% on the tendered cost. The imposition of compensation under clause-2 adversely affects the contractor, therefore, the decision of the Superintending Engineer must be on the basis of material coming on the record and that too after hearing the contractor.

The Hon''ble Supreme Court in Vishwanath Sood Vs. Union of India (UOI) and Another, has considered similar clause-2 and has held that clause-2 contains a complete machinery for determination of compensation which can be claimed by Government on the ground of delay on the part of the contractor in completing the contract as per the time schedule agreed to between the parties. The decision of the Superintending Engineer is in the nature of considered decision which he has to arrive at after considering the various mitigating circumstances that may be pleaded by the contractor or his plea that he is not liable to pay compensation at all under this clause. The question regarding the amount of compensation levied under Clause 2 has to be decided only by the Superintending Engineer and no one else.

The bare perusal of Clause 2 of the agreement indicates that Superintending Engineer is required to apply his independent mind to the facts and is required just not to say yes to the proposal mooted by the Executive Engineer for imposition of compensation. In the present case, the respondent No. 2 on the basis of simple mathematics imposed 10% compensation Rs. 12,64,052/- on the tendered cost of Rs. 1,26,40,521/-. The respondent No. 2 has also independently not supported the decision by giving reasons as to why maximum amount of compensation at the rate of 10% is to be imposed. This is in addition to the fact that Superintending Engineer has not taken any independent decision on the basis of material on record for imposing compensation on the appellant under clause-2 of the agreement. There is nothing on record that any mitigating circumstance was taken into consideration even by respondent No. 2 while assessing the compensation. The Superintending Engineer under clause-2 is not required to just put his seal of approval on the assessment made by respondent No. 2. The Superintending Engineer is independently required to assess the compensation under clause-2 of the agreement.

The Hon''ble Supreme Court in State of Karnataka v. Shree Rameshwara Rice Mills, Thirthahalli AIR 1987 SC 1359 has held that powers of the State Government under an agreement entered into by it with a private person providing for assessment of damages for breach of conditions of the agreement and recovery of the damages is confined only to those cases where the breach of conditions is admitted or it is not disputed. The appellant had not admitted the breach, rather the appellant had attributed the breach to the respondents. The Supreme Court in State of Karnataka v. Shree Rameshwara Rice Mills, Thirthahalli (supra) has further held that a right to adjudicate upon an issue relating to a breach of conditions of the contract cannot be said to flow from or is inhered in the right conferred to assess the damages arising from a breach of conditions. The power to assess damages is a subsidiary and consequential power and not the primary power. Even assuming that the terms of the relevant clause afford scope for being construed as empowering the officer of the State to decide upon the question of breach as well as the quantum of damages, the adjudication by the officer of State Government regarding the breach of contract cannot 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.

In the present case, the stand of the appellant is that formal agreement was not signed because of dispute, therefore, very authority of Superintending Engineer under clause-2 of the agreement for want of formal agreement is under cloud. Assuming that clause-2 of the agreement is available to the respondents to impose compensation on the appellant for causing delay for the execution of work, still in the light of above discussion, the respondents are not entitled to recover Rs. 12,64,052/-. The compensation amounting to Rs. 12,64,052/- under clause-2 has not been imposed by the Superintending Engineer, therefore, respondents are not entitled to recover Rs. 12,64,052/- under clause-2 of the agreement from the appellant.

The next question is regarding the forfeiture of the security. The case of the appellant is that as per tender notice which is also part of Ext. DW 1/O, time allowed for carrying out the work was 36 months. According to respondents, after negotiations the appellant had agreed to complete the work within 24 months. The letter dated 9.4.1999 Ext. PW 1/E, which is also part of Ext. DW 1/O provides that tender of appellant was accepted, work may be started within 15 days from the date of issue of the said letter and completed within 24 months. In the letter dated 8.3.1999 Ex. DW 1/B the appellant has stated "we agreed that all efforts shall be made to complete the work within 24 months". In Ext. DW 1/B reference of negotiations dated 8.3.1999 has been given and in the letter dated 9.4.1999 also date of negotiations dated 8.3.1999 has been given. The letter Ex. DW 1/B does not conclusively establish that appellant had agreed to complete the work within 24 months.

It is the case of the appellant that no formal agreement was executed between the parties. The respondents in the notice inviting tender have allowed 36 months for completion of the work. It is not possible to conclude that on the basis of Ex. DW 1/B read with letter dated 9.4.1999, the appellant had agreed to complete the work within 24 months, the appellant at the most had agreed that efforts would be made to complete the work within 24 months. Thus it can be safely inferred that time allowed for completion of work was 36 months and not 24 months.

PW 1 Parmodh Sharma has stated that defendant No. 2 was to provide the site for construction, design, drawings, material and money for the construction. The site was made available by the defendants about 45 days after the plaintiff received letter of award, only one drawing regarding cutting was made available to the plaintiff in the month of June 1999, structural drawings were neither provided nor prepared at all. The defendants failed to make the payments as per agreement. The defendants were irregular in supplying cement, steel and blasting material. The construction work in question could not be completed basically because of non-supply of drawings, non-payment by the defendants and also for want of supply of material.

PW 2 Prem Chander Sharma, Junior Assistant, office of Executive Engineer (B&R), HPPWD, Theog has stated that the contract between the parties was rescinded vide communication dated 7.2.2000 vide Ext. PW 1/H. The work was awarded to plaintiff on 9.4.1999 for Rs. 1,26,40,521/-. In cross examination he has stated that department had written 11 letters to plaintiff to speed up the progress of the work. No response as per record was received from the plaintiff. DW 1 has stated that site was handed over to the plaintiff on 9.5.1999 and plaintiff commenced the construction. The plaintiff had written letter dated 19.5.1999 Ex. DW1/C. The drawings were supplied to the plaintiff by Assistant Engineer concerned under covering letter dated 22.5.1999. The plaintiff was asked to expedite the execution of the work vide telegrams dated 9.8.1999, 28.8.1999 and letters dated 28.8.1999, 9.12.1999, telegrams dated 13.12.1999 and 17.12.1999 and letter dated 13.1.2000. Out of total award work worth Rs. 1,26,40,521/- the plaintiff had executed work worth Rs. 6,74,804. When the plaintiff stopped the work, he reported the matter to the Superintending Engineer for levy of compensation and for rescinding of contract.

The letter dated 19.5.1999 Ex. DW 1/C is the only communication written by the appellant in which grievance with respect to non-supply of copy of drawings was made. This letter was received in the office of respondent No. 2 on 20.5.1999 and according to DW 1 the drawings were supplied to the appellant by the Assistant Engineer concerned under covering letter dated 22.5.1999. It has also come in the statement of DW 1 that many letters and telegrams were written to appellants from 9.8.1999 to 17.12.1999 to speed up the work but without any positive result. The aforesaid material which has come on record has established that appellant was at fault for causing delay in the execution of the work. In these circumstances, no fault can be found for forfeiting of security amount of appellant vide letter dated 7.2.2000 Ex. PW 1/H. The Hon''ble Single Judge has rightly appreciated the material on record. The appellant has failed to establish that security amount was wrongly forfeited by the respondents. There is no merit in both the appeals.

No other point was urged.

The result of above discussion, both the appeals are dismissed.