B.B. Verma And Anr. And S.C. Batra ... vs State Of M.P. And Anr. on 25 September, 2007

    B.B. Verma And Anr. And S.C. Batra And Anr. vs State Of M.P. And Anr. on
25/9/2007

ORDER

   A.K. Patnaik, C.J.

   1. These are references made by the Division Bench by order dated 4-5-2007
passed in W.A. Nos. 292 of 2006, 316 of 2006, 320 of 2006 and 321 of 2006, by
order dated 17-5-2006 passed in W.A. No. 314 of 2006 and by order dated
19-6-2006 passed in W.A. No. 319 of 2006. By the aforesaid orders, the Division
Bench has referred to the Full Bench two Division Bench decisions in Ch. Chandra
Shekhar v. State of M.P. and Ors. 2000 (3) M.P.H.T. 351 : 2002 (1) MPLJ 358 and
Seth Mohanlal Hiralal v. State of M.P. and Anr. 2001 (5) M.P.H.T. 539 for
reconsideration.

   2. The facts briefly are that the agreements of the appellants with the State
Government in respect of some public works were terminated by the respondents
and orders were issued for recovery of money under Clauses 4.3.3.3 and 4.3.38.1
from the appellants as arrear of land revenue under the M.P. Land Revenue Code,
1959. The appellants raised a dispute before the Superintending Engineer (for
short 'S.E.') contending that the action of the Executive Engineer in
terminating the agreements and issuing orders of recovery was illegal. Since the
S.E. did not decide the dispute, the appellants filed applications under Section
7 of the M.P. Madhyastham Adhikaran Adhiniyam, 1993 (for short 'the Adhiniyam')
and the applications are pending adjudication by the Arbitration Tribunal under
the Adhiniyam. The appellants-filed writ petitions in this Court contending
inter alia that until the Tribunal adjudicates the dispute filed by the
appellants under the Adhiniyam, the recovery of the amounts as arrears of land
revenue could not be made by the respondents. The learned Single Judge held
relying' on the decision of the Division Bench in Seth Mohanlal Hiralal v. State
of M.P. and Anr. (supra) that the respondents could recover the amounts from the
appellants without any adjudication by the Tribunal under Clauses 4.3.3.3 and
4.3.38.1 of the conditions of contract and dismissed the writ petitions.

   3. Aggrieved, the appellants filed the present Writ Appeals before the
Division Bench of this Court and after hearing learned Counsel for the parties,
the Division Bench found that in Ch. Chandra Shekhar v. State of M.P. and Ors.
and Seth Mohanlal Hiralal v. State of M.P. and Anr. (supra), two earlier
Division Benches had taken a view that the Government had the power under the
conditions of contract to recover the amounts from the appellants as arrears of
land revenue without seeking adjudication of its claim before the Tribunal under
the Adhiniyam. The Division Bench, however, found that in Stale of Karnalaka v.
Rameshwar Rice Mills Thirthahalli AIR 1987 SC 1359, the Supreme Court while
interpreting Clause 12 of the agreement in the case enabled the State Government
to recover from a private person who was a party to the agreement amount that
may become due and payable by him as arrears of land revenue but the Supreme
Court took a view that under Clause 12 of the agreement, damages for breach of
conditions of contract could not be recovered. The Division Bench further found
that following the decision of the Supreme Court State of Karnataka v. Ramesh
Rice Mills Thirthahalli (supra), a learned Single Judge of this Court had
decided in W.P. No. 640 of 1998 Thakurdas Narang and Sons v. State of M.P. and
Ors. on 13-4-1999 that unilateral recovery of any sum without adjudication is
impermissible. The Division Bench also found that in yet another decision in
F.A. Construction, Mumbai v. Narmada Valley Development Department and Anr. 2006
(2) M.P.H.T. 216 a learned Single Judge placing reliance on the decision of the
Supreme Court in State of Kamataka v. Rameshwar Rice Mills Thirthahalli and
Thakurdas Narang and Sons v. State of M.P. and Ors. (supra), had expressed the
opinion that recovery of damages cannot be done without proper adjudication.
Considering the aforesaid conflicting decisions on the point, the Division Bench
in the orders dated 4-5-2007, 17-5-2007 and 19-6-2007 has referred to the Full
Bench the decisions in Seth Mohanlal Hiralal v. State of M.P. and Anr. and Ch.
Chandra Shekhar v. State of M.P. and Ors. (supra) for reconsideration.

   4. Mr. Rohit Arya, learned Senior Counsel for the appellants submitted that
in Union of India v. Raman Iron Foundry , the

   Supreme Court, after interpreting Clause 18 of the General Conditions of
Contract, which is similar to Clauses 4.3.38.1 of the conditions of contract in
the present case has held that the Clause confers a right on the purchaser to
recover a claim for a sum which is presently due to be paid by the contractor
and does not confer any right on the purchaser to recover a claim for damages
for breach of contract. He submitted that in this decision, the Supreme Court
has also held that it is only when the claim for damages is adjudicated upon by
a Civil Court or an arbitrator and the breach of contract is established and the
amount of damages decreed or awarded becomes a debt due and payable or
recoverable. He submitted that similarly, Clause 4.3.38.1 confers a right on the
Government to recover dues from the contractor and until the amount claimed by
the Government is held to be due by the S.E. under Clause 4.3.38.1 of the
General Conditions of Contract or by the Tribunal under the Adhiniyam, the State
Government cannot recover the amount as arrears of land revenue under Clause
4.3.38.1 of the conditions of contract.

   5. Mr. Arya also cited the decision of the Supreme Court in State of Kamataka
v. Rameshwar Rice Mills Thirthahalli (supra), in which Clause 12 of the
agreement entered into between the State of Mysore and a private party for
purchase of paddy under the Paddy Procurement Scheme, 1959 provided inter alia
that any amount that may become due or payable by the first party to the second
party as may be assessed by the second party under any part of the agreement,
shall be deemed to be and may be recovered from the first party as if they were
arrears of land revenue, and the Supreme Court held that interest of justice and
equity require that where a party to the 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 and therefore Clause 12 did not
confer any power on the officer of the State to decide upon the question of
breach as well as assessment of quantum of damages. He submitted that in the
present case similarly Clause 4.3.38.1 does not confer any power on the State
Government or its officers to unilaterally assess the damages for breach of the
terms and conditions of the contract by the contractor and recover the amount so
assessed as damages from the contractor as arrears of land revenue.

   6. Mr. Arya submitted that in view of the aforesaid two decisions of the
Supreme Court in Union of India v. Raman Iron Foundry and State of Karnataka v.
Rameshwar Rice Mills Thirthahalli (supra), the view taken by the Division Bench
in the two decisions in Ch. Chandra Shekhar v. State of M.P. and Ors. and Seth
Mohanlal Hiralal v. State of M.P. and Anr. (supra), that the State Government
and its officers can recover the amount from the contractor as damages under
Clause 4.3.38.1 of the agreement as arrear of revenue without decision by the
S.E. and thereafter by the Tribunal under the Adhiniyam is not correct in law.

   7. Mr. V.K. Shukla, learned Deputy Advocate General appearing for the
respondents, on the other hand, submitted that Clauses 4.3.3.3 of the Conditions
of Contract confers a right on the Divisional Officer or the Executive Engineer
to measure up the work of the contractor and to take such part thereof as shall
be unexecuted out of his hands and give it to another contractor to complete, in
which case 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
shall be borne and paid by the original contractor and may be deducted from any
money due to him by the Government under the contract or otherwise, or from
security deposits or from proceeds of the sale thereof, or a sufficient part
thereof. He argued that the claim made by the Divisional Officer or the
Executive Engineer under Clause 4.3.3.3 is thus, not a claim of damages but a
claim towards additional expenses incurred for the work to be completed by
another contractor and can be recovered under Clause 5.4.38.1 as arrears of land
revenue as has been stipulated in the said Clause of the conditions of contract.
He submitted that the view taken by the Division Bench in the two decisions in
Ch. Chandra Shekhar v. State of M.P. and Ors. and Seth Mohanlal Hiralal v. State
of M.P. and Anr. (supra), therefore is correct.

   8. Clauses 4.3.3.3, 4.3.29.2 and 4.3.38.1 of the conditions of contract
incorporated in the agreement in Form B prescribed by the Government of M.P. are
extracted herein below:

     4.3.3.3. To measure up the work of the contractor and to take such part
thereof as shall be unexecuted out of his hands and 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 (for the amount of which excess, the
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.
If the work is carried out at lower rates, the contractor shall not be entitled
for any refund on this account. Savings, if any, shall go to the Government.

     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 engagements or made any advance 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 provisions aforesaid, the contractor
shall not be entitled to recover or be paid any sum for any work thereof
actually performed under this contract, unless and until the Sub-
Divisional/Divisional Officer will have certified in writing the performance of
such work and the value payable in respect thereof, and he shall only be
entitled to be paid the value so certified.

     4.3.29.2. Except where otherwise specified in the contract, for claim
valued at Rs. 50,000/- or more the decisions of the S.E. of the Circle for the
time being in respect of all questions and disputes relating to the meaning of
the specification, designs, drawings, and instructions hereto before mentioned
and as to the quality of workmanship or materials used on the work or as to any
other question, claim, right, matter or thing whatsoever, in any way arising out
of, or relating to the contract, designs, drawings, specifications, estimates,
instructions, orders or those conditions or otherwise concerning the work of
execution or failure to execute the same whether arising during the progress of
the work or after the completion or abandonment thereof shall be final provided
that the S.E. shall before giving his decision in writing in the matter give an
opportunity of being heard, to the parties to the contract.

     If any party to the contract is dissatisfied with the final decision of the
S.E. in respect of any matter, he may within 28 days after receiving notice of
such decision may refer such dispute to the Arbitration Tribunal constituted
under the Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1982 (No. 2 of 1983).

     4.3.38.1. Recovery of dues from the contractor.-

     Whenever any claim against the contractor for the payment of a sum or money
arises out of or under the contract, Government 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 Govt. Should this sum be not sufficient to cover the full
amount recoverable from the contractor then it shall be recovered from him as
arrears of land revenue.

   9. A perusal of Clause 4.3.29.2 of the conditions of contract quoted above
would show that the decision of the S.E. of the Circle for the time being in
respect of questions and disputes mentioned therein 'or as to any other
question, claim, right, matter or thing whatsoever in any way arising out of, or
relating to the contract...or otherwise concerning the work of execution or
failure to execute the same whether arising during the progress of the work or
after the completion or abandonment thereof shall be final'. Hence, the decision
of the Divisional Officer of the Executive Engineer under Clause 4.3.3.3 of the
conditions of contract quoted above to have the unexecuted work completed by
another contractor and claim the expenses which may have been incurred in excess
of the sum which would have been paid to the original contractor is subject to
the final decision of the S.E if the contractor raises a dispute on such claim
made by the Divisional Officer or the Executive Engineer. The second para of
Clause 4.3.29.2 further stipulates that if any party to the contract is
dissatisfied with the final decision of the S.E. in respect of any matter, he
may within 28 days after receiving notice of such decision refer such dispute to
the Arbitration Tribunal constituted under the Adhiniyam. Hence, any decision
taken and any amount claimed by the Executive Engineer or the Divisional Officer
under Clause 4.3.3.3 of the conditions of contract is not final but subject to
the decision of the S.E. and any decision of the S.E. on these aspects is also
subject to the decision of the Tribunal under the Adhiniyam, if referred to the
Tribunal by any party to the contract. The result is that the amount claimed by
the Executive Engineer or the Divisional Officer under Clause 4.3.3.3 will not
become a sum due from the contractor until the dispute is decided by the S.E. on
an appeal made before him from the decision of the Executive Engineer or the
Divisional Officer, or until the dispute is adjudicated by the Tribunal under
the Adhiniyam where the decision of the S.E. is challenged by way of reference.

   10. Further, the Proviso to Section 7-B of the Adhiniyam states that if the
Final Authority, namely S.E. fails to decide a dispute within the period
stipulated therein, a petition to the Tribunal under Section 7 can be made by a
party. Thus, when an appeal against the decision of the Executive Engineer or
the Divisional Officer under Clause 4.3.3.3 of the conditions of contract is not
decided by the S.E. and a party files a reference under Section 7 of the
Adhiniyam before the Tribunal, the amount claimed by the Executive Engineer or
the Divisional Officer under Clause 4.3.3.3 will not be due and therefore not
recoverable from the contractor as arrears of land revenue under Clause 4.3.38.1
of the conditions of contract until the Tribunal adjudicates the dispute raised
by the contractor.

   11. In the two decisions in Ch. Chandra Shekhar v. State of M.P. and Ors. and
Seth Mohanlal Hiralal v. State of M.P. and Anr. (supra), the Division Bench lost
sight of the fact that the decision of the Executive Engineer or the Divisional
Officer under Clause 4.3.3.3 and other Clauses of the conditions of contract is
subject to the final decision of the S.E. and the decision of the S.E. is
subject to the award of the Tribunal where a reference is made to the Tribunal
against the decision of the S.E. or where the S.E. fails to decide the dispute.
In fact, in the two decisions of the Division Bench, there is no reference
whatsoever to the Clause providing for decision by the S.E. or by the Tribunal
under the Adhiniyam.

   12. In the two decisions of the Division Bench in Ch. Chandra Shekhar v.
State of M.P. and Anr. and Seth Mohanlal Hiralal v. State of M.P. and Anr.
(supra), there is also no reference to the decision of the Supreme Court in
Union of India v. Raman Iron Foundry (supra). As we have seen, in Union of India
v. Raman Iron Foundry (supra), Clause 18 of the general conditions of the
contract which was titled 'Recovery of Sums Due' provided inter alia that
whenever any claim for payment of a sum or money arises against the contractor,
the purchaser shall be entitled to recover such sum by appropriating in whole or
in part the security if any deposited by the contractor and in the event of
security being insufficient and if no security has been taken from the
contractor, the entire sum recoverable shall be recovered by appropriating any
sum then due or which at any time thereafter may become due to the contractor
under the contract or any other contract with the purchaser. The Supreme Court,
interpreting Clause 18 of the General Conditions of Contract, held that under
Clause 18, the purchaser cannot recover the amount as claimed without resorting
to arbitration by appropriating sums due to the contractor under the same
contract or under other contracts and if the claim of the purchaser is not well
founded and the appropriate made by him is therefore not justified, the
contractor can always resort to civil suit or arbitration and it is only when
the adjudication is made by the Civil Court or the arbitrator and the breach of
the contract is established and the amount of damages decreed that the amount
becomes due and recoverable from the contractor.

   13. In the two decisions of the Division Bench in Ch. Chandra Shekhar v.
State of M.P. and Ors. and Seth Mohanlal Hiralal v. State of M.P. and Anr.
(supra), there is also no reference to the decision of the Supreme Court in
State of Karnataka v. Rameshwar Rice Mills Thirthahalli (supra), in which Clause
12 of the agreement with the State of Mysore and a private person for purchase
of paddy under the Paddy Procurement Scheme, 1959 inter alia provided that any
amount that may become due or payable by the first party to the second party
under any part of the agreement shall be deemed to be and will be recovered from
the first party as if they are arrears of land revenue and the Supreme Court
held that the terms of Clause 12 of the agreement do not have scope for liberal
construction being made so as to confer power on the Deputy Commissioner to
adjudicate upon disputed questions of breach as well as to assess the damages
arising from the breach. The Supreme Court further held that the officers of the
State Government which is a party to the agreement, cannot be an arbiter in his
own cause and interest 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.

   After considering the aforesaid decisions of the Supreme Court in Union of
India v. Raman Iron Foundry and State of Karnataka v. Rameshwar Rice Mills
Thirthahalli (supra), we have no doubt in our mind that Clause 4.3.38.1 does not
confer any power on the State Government or its officers to recover any amount
that is disputed by the contractor as payable under the contract to the State
Government prior to the decision of the S.E. or of the Tribunal under the
Adhiniyam.

   15. In the decision of the Division Bench in Ch. Chandra Shekhar v. State of
M.P. and Ors. (supra), a reference has been made to Sections 146 and 147 of the
M.P. Land Revenue Code, 1959 (for short 'the Code') to show that the procedure
has been prescribed for recovery of amount as arrears of land revenue. Section
146 of the Code provides that Tehsildar or Naib-Tehsildar may cause a notice of
demand to be served on any defaulter before the issue of any process under
Section 147 for the recovery of an arrear and Section 147 of the Code mentions
the different processes by which arrear of land revenue payable to the
Government may be recovered by the Tehsildar. These two provisions, provide the
procedure for recovery of arrear of land revenue but does not provide whether
any amount under any contract between the State Government and a private person
can be recovered as arrear of land revenue. Section 155(b) of the Code provides
that 'all moneys falling due to the State Government under any grant, lease or
contract which provides that they shall be recoverable in the same manner as an
arrear of land revenue' may be recovered in the same manner as an arrear of land
revenue if the contract provides as such. Obviously, where the contractor
disputes an amount claimed by the State Government or any officer on its behalf
as payable by the contractor to the State Government, such an amount cannot be
said to be due to the State under the contract and cannot be recovered as arrear
of land revenue in accordance with the terms of the contract and Section 155(b)
of the Code.

   15. We may now deal with the contention of Mr. Shukla that under Clause
4.3.3.3 of the conditions of contract, the Executive Engineer or the Divisional
Officer does not assess and recover any damages but expenses which may be
incurred in excess of the sum which would have been paid to the original
contractor in case the unexecuted part of the work is completed by another
contractor. This contention of Mr. Shukla over-looks the fact that the
additional expenses incurred by the State Government for getting the unexecuted
part of the work completed by another contractor which are sought to be
recovered under Clause 4.3.3.3 are really in the nature of damages. Section 73
of the Indian Contract Act, 1872 provides that when a contract is broken, the
party who suffers by such breach is entitled to receive from the party who has
broken the contract compensation for any loss or damage caused to him thereby
which naturally arose in the usual course of things from such breach, or which
the parties knew, when they made the contract, to be likely to result from the
breach of it but such compensation will not be given for any remote and indirect
loss or damage sustained by reason of the breach. Where therefore a contractor
does not complete the work entrusted to him under the contract and the
unexecuted part of the work is entrusted to another contractor for completion
and the Government incurs additional expenses for having the work completed by
another contractor over and above the expenses which have been paid to the
original contractor, the additional expenses sought to be recovered by the
Government are nothing but damages within the meaning of Section 73 of the
Indian Contract Act, 1872. The contention of Mr. Shukla that the additional
expenses sought to be recovered under Clause 4.3.3.3 of the conditions of
contract are not really damages is therefore misconceived.

   16. We, therefore, hold that the view taken by the Division Bench in the two
decisions in Ch. Chandra Shekhar v. State of M.P. and Ors. and Seth Mohanlal
Hiralal (supra), that under Clause 4.3.38.1 or any other similar Clause in the
conditions of contract, a claim against the contractor for payment of sum or
money under the contract can be recovered by the Government from the contractor
as arrears of land revenue in accordance with the M.P. Land Revenue Code, 1959
without a decision of the S.E. or the Tribunal under the Adhiniyam where the
contractor disputes the amount before the S.E. or the Tribunal under the
Adhiniyam is not correct in law and the two decisions of the Division Bench on
this point are over-ruled.

   The writ appeals will now be placed before the appropriate Division Bench for
hearing on merits.