Bangalore Construction Co. vs Executive Engineer on 9 November, 1989

    Bangalore Construction Co. vs Executive Engineer on 9/11/1989

JUDGMENT

   Mohan, C.J.

   1. The appellant is a firm who undertakes to execute building and road work
as well as irrigation contract for the State Government as well as for the local
bodies. It entered into a contract in strengthening the carriageway by providing
50 mm thick B.M. 20 mm thick chipcarpet with seal coat from 223.36 KM to 231.70
KM on the Bangalore Madras National Highway 4 under job No.672/KNT 4. This work
was entrusted to the appellant as per work order No.BNH-SPC.DB.DM1 79-85 dated
16th April 1979 issued by the first respondent, namely, the Executive Engineer,
National Highways Division, K.R. Circle, Bangalore, who is incharge of the
Division in question.

   2. As per the work order, the total cost of the work was fixed at Rs.
11,78,592/-. The work was entrusted to the appellant on 26th April 1979. It
appears there was a break in the work with regard to this construction.

   3. As per the terms of the agreement, the work should commence from 26th
April 1979 and had to be completed by 25th April 1980 with a monthly stipulated
progress of Rs. 1,31,000/-. In spite of several notices issued to the appellant
that it had achieved progress only to an extent of Rs. 3,28,200/- as: against
the contract of Rs. 11,78,592/- for the period ending 3rd April 1980, the
appellant did not resume the work thereafter. Therefore, a final notice was
issued on 3rd April 1980 wherein it was informed that if the appellant failed to
resume the work, the contract will be rescinded as per tender Clause 3(a), (b)
and (c) and the balance work will be got done by some other agency and the ext a
cost involved will be recovered from the appellant.

   4. It was also intimated to the appellant to be present on the work spot on
14th April 1980 at 11 a.m. to record the final measurements of the work done by
the appellant. In case the appellant failed to be present on the work spot on
the appointed day and time, final measurements will be recorded in his absence
and no claims will be entertained with regard to measurements after they are
recorded on that day.

   There was no response from the appellant and the proposal was submitted to
the higher authorities to rescind the contract and approval obtained.
Accordingly, the contract was rescinded and the balance work was taken up by the
Department at the risk of the appellant and cost.

   5. The extra cost involved for the completion of balance work i.e., Rs.
8,29,929/- having become due under the terms of the contract, the Executive
Engineer forfeited to Government the EMD and FSD and the balance was sought to
be recovered by the notice dated 16th October 1985. The appellant objected by
his letter dated 20th November 1985 stating that non-completion of the work was
due to the non-co-operative attitude adopted by the first respondent. The
appellant came to know of the recession only on receipt of the letter dated 16th
October 1985. Hence, the question of forfeiting the final bill amount and
security deposit would not arise and therefore the first respondent was called
upon to settle the final bill and release the security deposit. However, the
first respondent issued Annexure-A in the following terms:

              "Sub: Construction of Bridge

                            at 36.05 KM of NH-48.

                                Ref: 1. Your letter No. CC/208/85-

                                             86 dated 20-11-85.

                                          2. Your letter No. CC/118/86

                                             dated 21-7-86.

                                          3. This office letter No.NDE/

                                             AC.1/KLR-12/Job No.672/KNT

                                             4/85-86/3917-21 dated 16- 10-1985.

     With reference to your letter dated 20-11-1985, I am to state that as per
Clause 44(a) of the PWG. 65 of the Contract Agreement, any dues to Government
has to be recovered from the Contractor even though work being executed on
different agreements. Accordingly an amount of Rs. 8,29,929-00 is to be
recovered being the extra cost involved for having the rescinded your contract
for the work "Strengthening the carriageway by providing 50 mm thick B.M. 20 mm
thick chip carpet with seal cost from 223.36 to 231.700 KM of Bangalore-Madras
Road on NH - 4 job No. 672/KNT 4. This has been intimated to you in this office
letter dated 16-10-1985 vide reference (3) cited above.

     As such the amount payable to you in your 14th and part bill of work
"Reconstruction of Minor Bridge across Kumudvathi river at 36.50 KM. in
Bangalore - Mangalore Road -NH-48 - Job No. 840/KNT.48" will be got adjusted
against the amount due to Government.

     Further the balance amount will have to be got adjusted out of any other
works being executed in other Divisions."

   Under these circumstances, the appellant preferred a Writ Petition in the
nature of certiorari to quash the order made in Annexure-A. Our learned Brother
Justice Murlidher Rao who heard W.P.No. 15022 of 1986 was of the view that the
entire matter pertains to the realm of contract and the same cannot be adjudged
within the narrow scope of Article 226 of the Constitution. Accordingly, he
rejected the Writ Petition. Under these circumstances, the appeal has been
preferred.

   6. It is vehemently argued before us that as per Section 27 of the Specific
Relief Act, after recession of the contract, the party contracted cannot assess
the damages, that is the function of the Court. Where, therefore, that function
of the Court has been arrogated by the first respondent and proceeds to
appropriate the other amount (security deposit) to the appellant, it would
squarely amount to exercising a jurisdiction which is not conferred under the
terms of the contract. In other words, he who seeks recession must approach the
Court and cannot decide himself. If that be so, it would amount to violation of
one of the fundamental principles of natural justice, Nemo Judex Non Causa Sua
meaning that no person can be both a Judge and a prosecutor. The authority in
this regard is clear, namely, SOMSEKHARA ARADHYA v. STATE OF MYSORE 1966(2)
Mys.L.J. 477. Then again, where recovery of this nature arising under a contract
was sought to be recovered under the Karnataka Land Revenue Act, it was held
that such a recovery was incompetent as seen from the decision in STATE OF
KARNATAKA v. RAMESHWARA RICE MILLS, THIRTHAHALLI AIR 1987 SC 1359. This decision
affirms the Full Bench ruling of this Court rendered in R.S.A. No. 311 of 1969
dated 15-9-1972 State of Mysore v. Rameshwara Rice Mills. Yet another ruling
that could usefully be cited is .

   7. More than above all this, where the rights of the parties though arise out
of the contract are traceable to a statute, the provisions of the statute will
have to be strictly followed. That is the ruling in GUJARAT STATE FINANCIAL
CORPN. v. LOTUS HOTELS PVT. LTD AIR 3983 SC

   848. Lastly, it is submitted that this arbitrary action of assessing the
damages unilaterally and proceeding to recover from the amounts due to the
appellant from the other contracts, is nothing but whimsical and the same is
opposed to Article 14 of the Constitution.

   8. We will now proceed to consider these points only from the limited angle
whether under Article 226 these questions can be gone into. It is well settled
in law that where a contract is entered into between the parties and that
contract is not affected by any one of the supervening elements like fraud,
coercion, undue influence, misrepresentation or mistake of facts as contemplated
under Sections 15 to 19 of the Contract Act, that could hardly be assailed. The
rights and liabilities of the parties flow from the contract and contract alone.
In the instant case, we have set out the fact at some length in order to show
that this is a case in which the right of the first respondent is sought to be
exercised only by reason of the contract that has been entered into. Having
entered into a contract with open eyes, the appellant cannot be allowed to
wriggle out of the same. It should also be noted here that this contract is not
traceable to any statute. It is outside the pale of any statute; purely for the
purpose of construction. Therefore, we may straightaway say that the decision in
A.I.R. 1983 Supreme Court 8485 does not apply to this case. With this
background, we will proceed to consider the case of the appellant.

   9. Here is a case, assuming that the appellant's contention is correct that
the recession is not warranted, are we now to decide the same under Article 226?
Our answer must be emphatically no, because that is a matter for evidence as to
under what circumstances recession has come to be effected. No doubt Section 27
of the Specific Relief Act says that the party to the contract itself cannot
unilaterally decide or adjudicate upon the damages. But that is far from the
issue because we are not deciding whether the recession is right or wrong and
the recovery of damages follows in law. We are only on the question about the
maintainability of the Writ Petition. We are constrained to say this because
repeatedly we heard the arguments advanced on behalf of the appellant that the
action of the first respondent is arbitrary and therefore the appellant could
invoke Article 14 and consequently this Court can decide and cannot turn away
the appellant to a civil suit. We are of the firm view that once a contract is
entered into between the parties, no question of arbitrariness would arise,
because, as we said above, the rights and liabilities stem from the contract.

   10. The decision in A.I.R. 1987 Supreme Court 1359 does not in any way
advance the case of the appellant. With regard to a case where damages for
breach of the condition could be recovered under the Revenue Recovery Act, their
Lordships have held that the power to assess the damages is a subsidiary and
consequential power and not the primary power and that even assuming that the
terms of the relevant clause afford scope for being construed as empowering the
office 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 the contract cannot be sustained under law because a party to the
agreement cannot be an arbiter in his own cause. The situation obtainable here
is totally different. For the breach of the contract, the first respondent
states that he has been obliged to have the contract performed through a third
party, as a result of which he sustained damages. He proceeds to recover those
damages from the other sum (E.M.D. and Security deposit) due to the appellant
from the first respondent. In a way, a right of set off is claimed. Whether such
a claim is well founded or ill-founded how is it possible for this Court under
Article 226 to adjudicate upon either way on mere notice and action effected. It
is a matter for evidence.

   11. We also note that the ruling in A.I.R. 1987 Supreme Court 1359 approves
the ruling of the Full Bench of this Court in R.S.A. No. 311 of 1969? That
ruling was relied upon by a Division Bench of this Court in (Jayanna & Bros v.
State of Karnataka). That

   decision again is of no help to the appellant. Why we say so can easily be
discerned by extract of paragraph 10. The same is extracted below:

     "As noticed earlier, the appellants do not admit the correctness of the
claims made by the respondents. In that situation and in the absence of an
agreement or law, it was not open to the DC to decide the same. As pointed out
by a Full Bench of this Court in State of Mysore v. Rameshwara Rice Mills (RSA
No. 311 of 1969 dated 15-9-1972) that power and function can only be properly
exercised by a competent Civil Court or an authority authorised by law and not
by the very authority that asserts the claim for and on behalf of the State. On
the ratio of the ruling of this Court in Rameshwara Rice Mills' case, the
demands made by the DC are wholly unauthorised and illegal."

   12. Lastly we refer to the decision in Somasekhara Aradhya v. State of
Mysore. That was a case in which a Division Bench of this Court held that where
there was a breach of the agreement which was one for decision by a Court of law
and if that question has to be decided by a Court, what should follow is that
the assessment of damages should also be made by that Court. It should be
carefully noted that this ruling came to be reiterated with reference to
interpretation of Clause 12 of the agreement. The said clause provided for
payment of damages in the event of a breach of the conditions of the agreement
stating the party shall pay damages to the Government such as may be assessed by
the Government. The Director in that case was also invested with the power to
terminate the agreement in the event of breach of the conditions of the
agreement.

   13. Unfortunately for the appellant the position here is totally different
because as stated in the impugned notice, after recession of the contract, which
was intimated to the appellant by letter dated 16th of October 1985 detailing
out the circumstances under which recession of the contract took place in
accordance with Clause 3(a), (b) and (c) of the agreement, the actual amount
which came to be incurred by having the balance of work getting executed through
some other agency was sought to be recovered. As a matter of fact this is not
even damages. There is no question of quantifying of damages. In fact Clause
3(c) of the agreement provides for it. That is why Annexure-D notice dated 3rd
April, 1980 states that as per Clause 3(c) of the agreement, the balance of the
work will be got executed through some other agency and the extra cost will be
recovered from the appellant and this extra cost will be in addition to the levy
of penalty of 7 1/2% as per Clause 2 of the agreement. It is this liability
which is sought to be enforced as against the appellant. We know not how we
could adjudicate upon the correctness of the stand of the first respondent or
how the same could be assailed under Writ jurisdiction. There is no question of
arbitrariness here. Then again the question of 1st Respondent assuming the role
of a Judge and a Prosecutor does not arise. The 1st respondent claims all his
rights only from the contract. We are justified in holding that this matter, as
we have repeatedly pointed out, cannot be decided without the evidence therefor.
Thus we conclude that the learned Single Judge was right in rejecting the Writ
Petition. The Writ Appeal accordingly fails and is dismissed. There will be no
order as to costs.