State Of M.P. & Ors vs Din Dayal Agrawal

Pradeep Mittal, J

The present revision has been filed under Section 19 of the M.P. Madhyastham Adhikaran Adhiniyam, 1983 against the award dated 31.10.2001 passed by the Madhya Pradesh Arbitration Tribunal, Bhopal in Reference Case No. 3/2000 (for the sake of brevity, the defendant shall hereinafter be referred to as the ‘petitioner’ and the plaintiff as the ‘respondent’), whereby the Tribunal partly allowed the reference in favour of the respondent/plaintiff.

The defendant/petitioner had invited tenders for construction of a Primary Health Centre building along with G-Type and H-Type quarters and a garage at Bordehi, including water supply and sanitary fittings under the P.W.D. Betul Division. The respondent’s tender at 12.80% above C.S.R. was accepted on 31.01.1995, and a work order was issued on 03.07.1995 with a stipulated completion period of 10 months. During inspection, the Executive Engineer found that the bricks used in the masonry work were of poor quality and not as per the specifications, and therefore the masonry work was rejected and the contractor was directed to redo the work. The respondent was repeatedly instructed to rectify the defects and to expedite the work, but the progress remained unsatisfactory. Subsequently, the department issued several show-cause notices under the terms of the contract. As the respondent neither improved the progress nor complied with the instructions, the contract was terminated on 20.02.1998. Thereafter, a fresh tender was issued for completion of the remaining work and the balance work was awarded to another contractor.

The plaintiff/respondent thereafter filed a petition before the Madhya Pradesh Arbitration Tribunal under Section 7 of the Adhiniyam claiming Rs. 1,99,715 under various heads including refund of earnest money and security deposit, payment of the final bill, interest, and compensation for delay and breach of contract. The petitioner contested the claim contending that the work executed by the respondent was not in accordance with the specifications and that the first running bill had already been reduced due to rejection of defective brick masonry work, which the respondent had accepted without protest.

Learned counsel for the defendant/petitioner submitted that the Madhya Pradesh Arbitration Tribunal committed an error in law in awarding a sum of Rs.68,018/- in favour of the respondent along with interest from the date of presentation of the claim petition till payment. It was contended that the Tribunal itself recorded findings that the plaintiff /respondent was responsible for not taking the layout in time and for the delay in execution of the work, yet relief was wrongly granted in favour of the respondent /plaintiff.

It was further submitted that the Tribunal erred in holding that the termination of the contract by the defendant/petitioner was invalid on the grounds that it was done within less than 30 days. Learned counsel submitted that several show cause notices had been issued to the respondent /plaintiff dated 25.06.1997, 16.10.1997 and 24.01.1998, which clearly show that sufficient opportunity was granted to the respondent /plaintiff to complete the work. Despite these notices, the respondent /plaintiff failed to resume or complete the work. The Tribunal itself recorded a finding that the respondent /plaintiff had abandoned the work prior to 27.06.1996, and therefore the defendant/petitioner was justified in terminating the contract under Clause 3 of the General Conditions of the Contract, which permits rescission of the contract and recovery of losses at the risk and cost of the contractor.

Learned counsel also contended that the Tribunal erred in holding that the amount relating to rejected brick masonry work was wrongly withheld. It was submitted that deduction for poor quality brick masonry had already been made in the first running bill, which was accepted by the respondent /plaintiff without protest. Therefore, the respondent /plaintiff could not subsequently dispute the deduction. It was further argued that the Tribunal wrongly awarded Rs.54,807/- towards the final bill and granted ante lite interest, even though the said amount had already been deducted earlier.

Lastly, it was submitted that after termination of the contract, the balance work was re-tendered on 15.04.1998 and awarded to Ashok Kumar Agrawal, who is the son of the respondent /plaintiff, and the respondent /plaintiff was aware that any excess expenditure incurred for completion of the balance work would be recoverable from him. Therefore, the Tribunal erred in awarding Rs. 7,000/- towards earnest money, Rs. 13,291/- towards security deposit, Rs. 54,807/- towards final bill and Rs. 16,389/- towards ante lite interest, along with 12% interest per annum on the total amount of Rs. 68,018/-. It was thus prayed that the impugned award be set aside.

Heard the parties and perused the record.

Clauses 3 and 16 of the agreement are relevant to decide the dispute, therefore above provision are given below-

Action when the work is Left Incomplete, Abandoned or Delayed beyond the Permitted Limit Allowed by the Divisional Officer.

Clause 3- In any case in which under any clause or clauses of this contract the contractor shall have rendered himself liable to pay compensation amounting to the whole of his security deposit (whether paid in one sum or deducted by instalments) or committed a breach of any of the rules contained in clause-24 or in the case of abandonment of the work, except due to permanent disability or death of the contractor, or any other cause the Divisional Officer on behalf of the Governor of M.P. shall give a notice before 15 days for work costing up to Rs. 10.00 lacs and before 30 days for works costing above Rs. 10.00 lacs and in event of the contractor failing to comply with the directions contained in the said notice, shall have power to adopt any of the following courses, as he may deem best in the interests of the Government.

(a) To rescind the contract (of which rescission notice in writing to the contractor under the hand of the Divisional Officer shall be conclusive evidence) and in which case the security deposit of the contractor shall stand forfeited and the absolutely at the disposal of-Government.

(b) To employ labour paid by the works Department and to supply materials to carry out the work or any part of the work debiting the contractor with the cost of the labour and the price of the materials (of the amount of which cost and price certificate of the Divisional Officer shall be final and conclusive against the contractor) and crediting him with the value of the work done in all respects in the same manner and the same rates as if it had been carried out by the contractor under the terms of his contract or the cost of the labour and the price of the materials as certified by the Divisional officer, whichever is less. The certificate of the Divisional Officer as to the value of the work done shall be final and conclusive against the contractor.

(c) To measure up the work of the contractor and to take such part there of as shall be unexecuted out of is hands, and to give it to another contractor to complete in which case any expenses which may be incurred in excess of The sum which would have been paid to the original contractor, if the whole work had been executed by him (of the amount of which excess certificate in writing of the Divisional Officer shall be final and conclusive) shall be borne and paid by the original contractor and may be deducted from any money due to him by Government under the contract or otherwise or from his security deposit or the proceeds of sale thereof or a sufficient part thereof.

In the event of any of the above courses being adopted by the Divisional Officer, the contractor shall have no claim to compensation for any loss sustained by him by reason of his having purchased or procured any materials or entered into any agreements or made any advances on account of, or with a view to, the execution of the work or the performance of the contract. And in case the contract shall be rescinded under the provision aforesaid the contractor shall not be entitled to recover or be paid any sum for any work thereto for actually performed under the contract unless and until the Sub Divisional/Officer will have certified in writing the performance of such work and the value payable inrespect thereof, and he shall only be entitled to be paid the value so certified.

Whenever action is taken under clause -3(a) the contractor's bill shall be finalised up within three months from the date of rescission both in the case of building works and road and bridge works.

Clause 16- If at any time before the security depositis refunded to the contractor, it shall appear to the Engineer-in-Charge or his subordinatein charge of the work, that any work has been executed with unsound, imperfect or, unskilful workmanship or with materials of inferior quality, or that any materials or articles provided by him for the, execution of the work are unsound, or of a quality inferior to that contracted for, or are otherwise not in accordance with the contract, it shall be lawful for the Engineer-in-Charge to intimate this fact in writing to the contractor and then notwithstanding the fact that the work, materials or articles complained of may have been inadvertently passed, certified and paid for, the contractor shall be bound forthwith to rectify, or remove and reconstruct the work so specified in whole or in part, as the case may require, or if so required shall remove the materials or articles so specified and provide other proper and suitable materials or articles at his own proper charge and cost, and in the event of his failing to do so within a period to be specified by the Engineer-in-Charge in the written intimation aforesaid, the contractor shall be liable to pay compensation at the rate of one percent on the amount of contract put to tender every day not exceeding ten days during which the failure so continues, and in the case of any such failure the Engineer-in-Charge may rectify or remove and, re- execute the work or remove and replace the materials or articles complained of as the case may be at the risk and expense in all respects of the contractor. Should the Engineer-in-Charge consider that any such inferior work or materials as described above any be accepted or made use of, it shall be within his discretion to accept the same at such reduced rates, as he may fix therefore.

It is revealed from the record that the petitioner issued Notice A1 dated 03/07/1992 to complete the work within the stipulated period of ten months. Notice A2 dated 25/06/1995 was issued for extension of period till 02/05/1996. Another notice dated 16/10/1997 was issued for extension of period till 02/02/1998. A show cause notice A4 dated 24/01/1998 was given as to why action under Clause 3(a) & 3(b) and/or 3(c) of the above agreement should not be taken against you on account of breach of contract on your part. By notice dated 20/05/1998, the work was forfeited without notice at your risk and expense. It has been submitted that on the basis of the above notice, the Executive Engineer withheld the final bill and security deposit to compensate for the losses incurred. After the above notice, the Executive Engineer did not exercise the power to forfeit the security deposit, only rescinding the contract does not automatically operate as forfeiture of the security deposit. To forfeit the security deposit, the Executive Engineer ought to have issued a notice intimating his intention to forfeit the security deposit. Hence, without forfeiture, the security deposit cannot be withheld.

Respondent/ contractor submitted that petitioner neither forfeited the security deposit nor lead any evidence to prove the losses incurred due to work given to the debatable agency. Remaining work of contract was given to Shri Ashok Kumar 29.25 percent above C S R effective from 01/06/1993 by memo 414 dated 25/07/1998. Petitioner neither filed counter claims nor set off against the respondent /plaintiff claims, nor notice given to recover losses incurred to complete the work or forfeited security.

The defendant/petitioner has contended that the claim raised by the respondent/plaintiff before the competent authority was time barred, as the reference made by the respondent /plaintiff to the Superintending Engineer, PWD, Hoshangabad Circle on 15/04/1998 was not in accordance with Clause 29 of the agreement, which required that the contractor must raise his claim within 30 days from the date of termination of the contract, i.e., 20/02/1998. According to the defendant/petitioner, since the representation was made after expiry of the said period, the claim was liable to be rejected as barred by time.

The aforesaid contention has been considered by the Madhya Pradesh Arbitration Tribunal. The Tribunal, while deciding the issue of interest, recorded a finding that the respondent /plaintiff had raised his demand before the competent authority by letter dated 15/04/1998. The Tribunal treated the said communication as the first formal demand for payment of the withheld amounts and considered the same as the relevant date for awarding interest on the amounts found due.

Defendant/respondent has argued that the contractor has abandoned the work much before the work is terminated and in his letter Ex.P.17 dated 27/06/1996 has asked the respondent/plaintiffs that due to price increase they should be paid 15% profit for the balanced work, otherwise in these circumstances they will not be able to do further work. Again, vide their letter Ex.P.18 dated 17/07/1996, they intimated that the work is closed for the last 5 months and if the respondent/plaintiffs want to get the balance work done, then they have to pay the escalation charges. Similar letters were written Ex.P.19 dated 06/08/1996. Respondent/plaintiff counsel pleaded that they have asked for extension of time up to 02.02.1997 vide Ex.P.16 dated 02/04/1996, which was not replied to. E.E. gave the first notice of termination Ex.P.3 dated 28/06/1997 under Clause 3 of the agreement of 10 days, then on 24/01/1998 of 10 days, and the contract was terminated vide letter Ex.P.6 dated 20/02/1998 under Clause 3(c) of the agreement. The period required for termination is 30 days, while the period from the last notice dated 24/01/1998 to the termination notice on 20/02/1998 is only 27 days.

In our opinion the period of limitation for filing case before arbitrator compute, when the cause of action arose not for the termination of contract. Cause of action arose when after the termination of contract Executive Engineer could not finalize the bill for payment within three months as per the condition of agreement. Clause 3 of agreement provided whenever action is taken under clause -3(a) the contractor's bill shall be finalized within three months from the date of rescission both in the case of building works and road and bridge works. Therefore, the claim of plaintiff/respondent was within limitation. Tribunal has rightly held that the claim is within limitation.

The finding recorded by the Tribunal is based on appreciation of the facts and contractual provisions and cannot be said to be perverse or suffering from any jurisdictional error. The defendant/petitioner has not been able to demonstrate that the Tribunal committed any legal error in entertaining the claim or in computing the period from the date of demand. Therefore, the ground raised by the defendant/petitioner regarding limitations under Clause 29 does not merit acceptance.

Refund of Earnest Money and Security Deposit - Rs. 20,211/-.The plaintiff/respondent has claimed Earnest Money in the shape of F.D.R. of Rs. 7,000/- and Security Deposit of Rs. 13,211/- totaling Rs. 20,211/-. Denying this claim, the defendant/petitioner pleaded that they failed to complete the work allotted to him as per specifications so not entitled to refund of Earnest Money and Security Deposit. Defendant/petitioner has not made any counter claim for balance work carried out by the dubitable agency or any extra amount or extra expenditure is incurred by the department in getting the work done by another agency. No notice given to respondent /plaintiffs for forfeiture of earnest money, Therefore, tribunal has rightly hold that respondent is entitled to get refund of Earnest Money in the shape of F.D.R. of Rs. 7,000/- and Security Deposit of Rs. 13,211/- totaling Rs. 20,211/-.

The defendant/petitioner has challenged the award of Rs. 7,000/-towards earnest money and Rs. 13,211/- towards security deposit. From the record it is apparent that the Madhya Pradesh Arbitration Tribunal has examined the question of validity of termination of the contract. The Tribunal found that the last show-cause notice was issued on 24.01.1998 granting ten days’ time, whereas the contract was terminated on 20.02.1998. The Tribunal further observed that as per the terms of the agreement a minimum period of 30 days was required before terminating the contract. Since the termination was affected within 27 days, the Tribunal held that the termination was not in accordance with the contractual stipulation. The Tribunal also noticed that the petitioner had not raised any counter claim regarding loss allegedly suffered by them in getting the remaining work done. In view of these facts, the Tribunal held that the contractor was entitled to refund of earnest money and security deposit. This Court finds that the said finding is based on proper appreciation of the contractual terms and material on record and does not suffer from any perversity.

Payment of Final Bill - Rs. 61,807/-. Respondent/plaintiff has claimed payment of final bill including the withheld amount of Rs. 54,807/-for brick work and filling under floors and work for which measurements are recorded but not paid amounting to Rs. 7,000/- totaling to Rs. 61,807/-.

The plaintiff/respondent raised the demand for making payment of the withheld amount of Rs. 54,807/- to the E.E. vide Ex.P.22 dated 10/07/1997 and Ex.P.24 dated 16/07/1997. The first running account bill was entered on 15/04/1996 and paid on 03/08/1996. After this, the plaintiff/respondent did not carry out any extra work. The second running account bill was paid on 13.06.1997 for a net amount of Rs. 33,947/- vide Art. ‘C’, M.B. No. 21989 on page 50. The plaintiff/respondent has not mentioned that he has not been paid for any other work except the withheld amount of Rs. 54,807/-. The plaintiff/respondent has also not furnished any details regarding the amount of Rs. 7,000/- claimed for the work allegedly done by him after payment of the second running bill. It has been stated that the plaintiff/respondent had stopped the work long before the second running bill was recorded. The plaintiff/respondent has also submitted that the plinth filling was recorded but the payment was not made.

The defendant/petitioner, in their reply, stated that during inspection of the work it was noticed that the plaintiff/respondent had plastered the plinth brick masonry, due to which its quality was suspected. The defendant/petitioner further stated that as per Clause 18 of the agreement, the plaintiff/respondent was required to inform the department before plastering the brick masonry. A note was made on the note-sheet while paying the first running bill that the brick masonry in the plinth was of inferior quality and was therefore rejected. The S.D.O., vide letter dated 08/08/1997, rejected the brick masonry. The plaintiff/respondent alleged that the masonry was as per the specifications prescribed by the defendant/petitioner and the same had been duly recorded. The defendant/petitioner stated that the masonry was rejected after visual examination when the plaster was removed at a few places. However, before rejecting the work, the defendant/petitioner did not get the bricks tested after taking out samples. The defendant/petitioner further alleged that the plinth filling was also rejected since the plinth brick masonry had been rejected. The work of brick masonry had been executed by the plaintiff/respondent and recorded by Shri S.R. Karaiya, Sub-Engineer, and checked by the Assistant Engineer of the defendant/petitioner after initial tests. Therefore, it appears that the rejection of the brick masonry merely on visual examination and non-payment for the plinth filling was not justified. The communication issued by the S.D.O. after a gap of about two years also does not carry much significance. In these circumstances, the Tribunal rightly awarded the withheld amount of Rs. 54,807/- towards brick masonry and plinth filling to the plaintiff/respondent. The finding recorded by the Tribunal cannot be said to be perverse on the record.

The defendant/petitioner has also assailed the award of Rs. 54,807/- towards the withheld amount relating to brick masonry and plinth filling. The Tribunal, after examining the record, found that the work had already been measured and recorded by the Sub-Engineer and checked by the Assistant Engineer. The rejection of the masonry work was subsequently done merely on visual inspection without conducting any test of the bricks. The Tribunal further observed that the communication rejecting the work was issued by the S.D.O. after a considerable lapse of time. On these facts, the Tribunal concluded that the plaintiff/petitioner was not justified in withholding the amount and accordingly directed payment of Rs. 54,807/-. The finding is based on evidence on record and cannot be said to be arbitrary or illegal.

Claim for ante-lite interest on the wrongly withheld amounts. The Tribunal awarded ante lite interest from the date on which such a demand is made to the competent authority. The agreement is silent regarding interest in delayed payment. Delayed payment of first running account bill, the claim was made by the plaintiff/respondent to the E.E. for paying 18% interest vide Ex.P.7 dated 27/06/1996. The first running bill was paid on 03/08/1996, hence the Tribunal allows 12% interest p.a. for late payment of the first running account bill from 27/06/1996 to 02/08/1996 on Rs. 1,99,618/- paid to him on 03/08/1996 amounting to Rs. 2,428/-. Plaintiff/respondent has claimed interest on the withheld amount of Rs. 61,807/- on account of the final bill at 12% p.a. w.e.f. February 1996 to April 1997 (26 months, probably it is April 1998) and interest on Earnest Money and Security Deposit amounting to Rs. 20,211/- w.e.f. February 1997 to April 1998 (14 months), and interest on items (c) and (d) above from May 1998 to Dec. 1999. As already explained above, we are of the opinion that the plaintiff/respondent is entitled to 12% interest on Rs. 54,807/- on the withheld amount of the final bill and on Security Deposit of Rs. 13,211/-, totaling to Rs. 68,018/- w.e.f. 15/04/1998, the date on which the letter of claims was sent to the S.E., till the realisation of this claim amount. We award interest @ 12% p.a. on Rs. 68,018/- w.e.f. 15/04/1998 till the filing of this reference petition on 30/12/1999 amounting to Rs. 13,961/-. The total ante lite interest from (a) to (e) works out to Rs. 2,428 + Rs. 13,961 = Rs. 16,389/-. We award Rs. 16,389/- as ante-lite interest till 30/12/1999. There is no jurisdiction error in awarding interest by the Tribunal.

The defendant/petitioner further challenged the award of ante-lite interest amounting to Rs. 16,389/- and interest at the rate of 12% per annum on the amount of Rs. 68,018/-. The Tribunal has awarded interest after considering that they had raised a demand before the competent authority on 15/04/1998 and that the agreement did not contain any clause prohibiting payment of interest on delayed payments. The Tribunal relied upon its earlier decision in R.C. Shrivastav v. Bhopal Vikas Pradhikaran and granted interest from the date of demand till realization. Such award of interest falls within the jurisdiction of the Tribunal and does not disclose any legal infirmity.

Although the Tribunal recorded that the contractor had stopped the work earlier, it nevertheless examined the legality of the termination and found that the contractual procedure was not strictly followed by the department. The Tribunal also rejected the contractor’s claim towards loss of profit and overhead expenses for want of evidence. Thus, the Tribunal allowed the claims only to the limited extent supported by the material on record. This Court is of the view that the findings recorded by the Tribunal are based on proper appreciation of facts and evidence and do not suffer from any illegality, jurisdictional error or material irregularity warranting interference in revisional jurisdiction.

Accordingly, the revision petition filed by the petitioner is dismissed.