Karnataka High Court
Kirloskar Brothers Limited vs Karnataka Neeravari Nigam Limited on 11 October, 2018
Author: R Devdas
Bench: R Devdas
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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 11TH DAY OF OCTOBER, 2018
BEFORE
THE HON'BLE MR.JUSTICE R DEVDAS
WRIT PETITION NOS.9084-9086 OF 2013 (GM-RES)
BETWEEN
KIRLOSKAR BROTHERS LIMITED
A COMPANY INCORPORATED UNDER
THE COMPANIES ACT, 1956
REGISTERED OFFICE AT:
UDYOG BHAVAN
TILAK ROAD, PUNE-411002
AND HAVING ITS
CORPORATE OFFICE AT:
"YAMUNA",
SURVEY NO.98/3 TO 7
BANER, PUNE-411045 (INDIA)
REGIONAL OFFICE AT:
NO.5, LAKSHMI COMPLEX
2ND FLOOR, 10TH CROSS,
RMV EXTENSION,
C.V.RAMAN ROAD
BANGALORE-560080
REPRESENTED BY ITS GENERAL MANAGER
MR C. RAMANATHAN
... PETITIONER
(BY SRI VIVEK HOLLA, ADVOCATE)
AND
1. KARNATAKA NEERAVARI NIGAM LIMITED
NO.1, COFFEE BOARD BUILDING
4TH FLOOR, DR. AMBEDKAR VEEDHI
2
BANGALORE-560001
REP. BY ITS MANAGING DIRECTOR
2. THE CHIEF ENGINEER
KARNATAKA NEERVARI NIGAM LTD
UPPER TUNGA PROJECT ZONE
SAGAR ROAD
SHIMOGA-577 201
3. THE EXECUTIVE ENGINEER
KARNATAKA NEERVARI NIGAM LTD
NO.4, BRLBC DIVISION
BHADRAVATHI-577 301
4. THE EXECUTIVE ENGINEER
KRISHNA BHAGYA JALA NIGAM LTD
ALBC DIVISION
ALMATTI-586 201
... RESPONDENTS
(BY SRI. K.RAMACHANDRAN, ADVOCATE FOR
SRI. M.R.C.RAVI, ADVOCATE)
THESE WRIT PETITIONS ARE FILED UNDER ARTICLE 226
& 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH
THE LETTER DATED 8.10.2010 ISSUED BY R-3 ANNEXURE-H,
LETTER DT.5.3.2011 ISSUED BY THE R-3 (ANNEXURE-K) & THE
LETTER DATED 29.2.2012 ISSUED BY R-4 (ANNEXURE-M) AND
ETC.
THESE PETITIONS COMING ON FOR FINAL HEARING THIS
DAY, THE COURT MADE THE FOLLOWING:
ORDER
R.DEVDAS J., (ORAL):
The petitioner is a Company incorporated under the Companies Act. The petitioner is before this Court calling in 3 question the action initiated by the respondent-Karnataka Neeravari Nigam Limited, for recovery of alleged loss sustained by the respondents, since the petitioner was in breach of a contract entered between the parties in the month of June 2007.
2. The respondent-Karnataka Neeravari Nigam Limited (for short 'KNNL'), a Government of Karnataka undertaking, entered into an agreement with the petitioner for carrying out the work of design, supply, installation, testing and commissioning of Lift Irrigation system for Bakrihalla-Kadahinabylu Lift Irrigation Scheme in N.R.Pura Taluk, Chickamagalur District on Turn key basis. The cost of work was estimated at Rs.8,38,52,000/- and the petitioner had paid the Earnest Money Deposit of Rs.8,38,520/- under the Scheme. The work entrusted to the petitioner was to be completed within a period of 18 months. According to the petitioner, the petitioner was to get the site surveyed and was required to submit a detailed project report to the respondents, before execution of the work. Due to heavy rains, the consultant could not conduct the survey and therefore there was delay in submitting the detailed project report to the respondents. Further, it was submitted that after the project 4 report was prepared, it was found that the cost of execution would escalate by over 25% due to unavoidable circumstances. Therefore, the petitioner sought to negotiate with the respondents regarding the price escalation. Ultimately, the request for price escalation was rejected by the respondents and thereafter, since the petitioners never commenced the work, the respondents terminated the contract by issuance of letter dated 06.12.2008.
3. Thereafter, it appears that the petitioner was directed to stop the work with risk and cost as on 01.01.2009. Though the petitioner objected to the unilateral decision of the respondents in terminating the contract, the respondent-authorities forfeited the security deposit furnished by the petitioner by way of a bank guarantee to the tune of Rs.8,38,000/-. It is an admitted fact that subsequent to the termination of the contract of the petitioner, the respondents have entered into an agreement with one M/s.Arun Engineering Project Private Limited, Bangalore, and work was entrusted at a higher cost of Rs.12.54 crores.
4. Learned Counsel for the petitioner submits that after entrustment of the works to the subsequent successful bidder, 5 the respondents issued a letter dated 08.10.2010 calling upon the petitioner to remit a sum of Rs.4,16,17,451/- towards the loss incurred by the respondents because of the termination of the contract and that since the termination was with a condition that the said termination will be at the cost and risk of the petitioner, the petitioner was liable to make good the differential amount that the respondents incurred on awarding the contract to the subsequent successful bidder. The petitioner raised objections for such an action on the part of the respondents. Nevertheless, the respondents-KNNL seems to have written a letter to the Krishna Bhagya Jala Nigam Limited (for short 'KBJNL'), another Government of Karnataka undertaking, to withhold the amounts that are due to the petitioner for the works undertaken through KBJNL, and to pass on the same to KNNL. Pursuant to the requisition of the first respondent, a communication was made by KBJNL vide letter dated 29.02.2012 to the petitioner informing the petitioner that the said sum will be recovered from the bills pertaining to the petitioner. Being aggrieved, the petitioner is before this Court seeking quashment 6 of the letters dated 08.10.2010 and 05.03.2011, which are communications from respondent No.3-KNNL to the petitioner.
5. Sri Vivek Holla, learned Counsel appearing for the petitioner submits that the action of the respondents is not only contrary to the terms of the contract but the same is opposed to the procedure of law contemplated in the matter of recovery of loss or damages. The learned Counsel submits that the first respondent had no authority of law to request the fourth respondent-KBJNL to withhold amounts due to the petitioner for works that were executed by the petitioner under contracts entered into between the petitioner and the KNNL. It was also submitted that the fourth respondent was in no way obliged to deduct the amounts payable to the petitioner and pass it on to the first respondent. The learned Counsel submits that these actions are totally opposed to the principles of law. The learned Counsel submits that if there is violation of the contract or the terms of the contract, the aggrieved party could not proceed unilaterally to determine the loss accrued or proceed to initiate action to recover the sums without there being any adjudication 7 from a competent Court of law. To buttress his arguments, the learned Counsel has relied upon the following judgments:
i) Adhunik Steels Ltd., Vs. Orissa Manganese And Minerals (P) Ltd., (2007) 7 SCC 125, wherein it is held that in relation to a breach of contract, the proper remedy against a defendant who acts in breach of his applications under a contract, is either damages or specific relief. The two principal varieties of specific relief are, decree of specific performance and the injunction. It was further held that the remedy for non-
performance for a duty are (i) compensatory, (ii) specific. In the former, the Court awards damages for breach of the obligation. In the latter, it directs the party in default to do or forbear from doing the very thing, which he is bound to do or forbear from doing. The law of Specific Relief is said to be, in its essence, a part of the law of procedure, for, specific relief is a form of judicial redress.
(ii) Union of India Vs. Raman Iron Foundry reported in (1974) 2 SCC 231, wherein it is held that the law is well settled that a claim for unliquidated damages does not give rise to a debt until the liability is adjudicated and damages assessed by a 8 decree or order of a Court or other adjudicatory authority. When there is a breach of contract, the party who commits the breach does not eo instanti incur any pecuniary obligation, nor does the party complaining of the breach becomes entitled to a debt due from the other party. The only right which the party aggrieved by the breach of the contract has is the right to sue for damages. It was further held that a claim for damages for breach of contract is, therefore, not a claim for a sum presently due and payable and the purchaser is not entitled, in exercise of the right conferred upon it under the contract, to recover the amount of such claim by appropriating other sums due to the contractor.
6. The learned Counsel hastens to point out that in this decision, the Hon'ble Supreme Court has also held that it would not be permissible for appropriating other sums due to the Contractor even by the same entity or the same aggrieved tenderer. It was therefore submitted that it was impermissible under law to allow another Company, though an undertaking of State, to appropriate the sums due to the petitioner and pass it on to the first respondent since there is no privity of contract as 9 between the fourth respondent and the first respondent with respect to the work that was entrusted to the petitioner by the first respondent.
7. In Green Hills Exports (Private) Limited, Mangalore And Others Vs. Coffee Board, Bangalore, 2001 (4) Kar.L.J.158, a Division Bench of this Court, while reiterating the decision of the Hon'ble Supreme Court in Raman Iron Foundry's case (supra), culled out certain principles for ready reference. Some of the principles that are applicable to the facts and circumstances of this case are as follows:
"14. We will now cull out the principles for ready reference:
(i) A 'debt' is a sum of money which is now payable or will become payable in future by reason of a present obligation. The existing obligation to pay a sum of money is the sine qua non of a debt.
"Damages" is money claimed by, or ordered to be paid to, a person as compensation for loss or injury. It merely remains as a claim till adjudication by a Court and becomes a 'debt' when a Court awards it.
(ii) In regard to a claim for damages (whether liquidated or unliquidated), there is no 'existing 10 obligation' to pay any amount. No pecuniary liability in regard to a claim for damages, arises till a Court adjudicates upon the claim for damages and holds that the defendant has committed breach and has incurred a liability to compensate the plaintiff for the loss and then assesses the quantum of such liability. An alleged default or breach gives rise only to a right to sue for damages and not to claim any 'debt'. A claim for damages becomes a 'debt due', not when the loss is quantified by the party complaining of breach, but when a competent Court holds on enquiry, that the person against whom the claim for damages is made, has committed breach and incurred a pecuniary liability towards the party complaining of breach and assesses the quantum of loss and awards damages. Damages are payable on account of a fiat of the Court and not on account of quantification by the person alleging breach.
8. Learned Counsel Sri K.Ramachandran, appearing for the respondents, including the KBJNL, submits that the petitions are not maintainable, since the grievance of the petitioner pertains to or arises out of a contract which is in the realm of private contract.
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9. The learned Counsel relies upon a judgment of the Hon'ble Supreme Court in the case of Pimpri Chinchwad Municipal Corporation And Others Vs. Gayatri Construction Company And Another reported in (2008) 8 SCC 172. To buttress his contention that such a writ petition is not maintainable, the learned Counsel points out to the relevant paragraphs of the judgment, where it is held that the interpretation and implementation of a clause in a contract cannot be the subject-matter of a writ petition. It was also pointed out that in a matter of contract, a writ petition is not maintainable. Even in matters of forfeiture of security deposit and breach of contract, Article 226 of the Constitution could not be invoked. It was also pointed out that a mere fact that one of the parties to the agreement is a statutory or public body will not by itself affect the principles to be applied. The disputes about the meaning of a covenant in a contract or its enforceability have to be determined according to the jurisdiction of the Contract Act. Every act of a statutory body need not necessarily involve the exercise of statutory power. Statutory bodies, like private parties have power to contract or deal with property. Such 12 activities may not raise any issue of public law. Further it was held that whether an amount is due and if so, how much and refusal of the appellant to pay it is justified or not, are not the matters which could have been agitated and decided in a writ petition. Any dispute relating to interpretation of the terms and conditions of such a contract cannot be agitated, and could not have been agitated, in a writ petition. The prayer in the writ petition viz. to restrain the Government from deducting a particular amount from the writ petitioner's bill(s) was not a prayer which could be granted by the High Court under Article
226.
10. The learned Counsel further submits that the contract in fact, provides for penalty and delay and action when the whole of security deposit is forfeited. The learned Counsel submits that as per Clause 3 of the agreement, where there is a breach of contract by the Contractor, and when he becomes liable to pay compensation or penalty amounting to the whole of his security deposit including the amount deducted in intalments from the bills as further security deposit, the Executive Engineer, on behalf of the Government shall have the power to adopt any 13 of the following courses as he may feel best suited in the interest of the Government.
11. Learned Counsel submits that there is a provision under the agreement for forfeiture of security deposit, recovery of extra of cost on his executing the work. Emphasis was laid by the learned Counsel on this clause which provides for recovery of extra cost on unexecuted work.
12. Trying to differentiate between the pronouncements of the Hon'ble Supreme Court in the cases relied upon by the petitioner, the learned Counsel for the respondents submits that the recovery sought to be made by the respondents is not for damages but for the loss sustained by the respondents on account of non-execution of the work by the petitioner. The learned Counsel therefore contends that the decisions cited by the learned Counsel for the petitioner is not applicable to the facts and circumstances of the case.
13. The learned Counsel further points out to clause-36 which provides for set off against any claim of Government/Government under other contracts. Clause-36 is extracted hereunder:
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"SET OFF AGAINST ANY CLAIM OF GOVT/GOVERNMENT UNDER OTHER CONTRACTS.
Clause 36--Any sum of money due and payable to the contractor (including the security deposit returnable to him) under this contract may be appropriated by the Govt and set off against any claim of Govt/ Government in respect of a payment of a sum of money arising out of or under any other contract made by the contractor with the Govt/Government."
14. Placing reliance on clause-36, the learned Counsel for the respondents submits that the convenants provide for or empowers the first respondent to request or require another Government undertaking to pass on the amounts payable to the same Contractor, if he becomes due to pay to the first respondent.
15. Having heard the learned Counsels, what is to be decided in these petitions is :
i) whether the writ petitions are maintainable?15
ii) whether the action initiated by the respondents in recovering the monies from the petitioner is in accordance with law?
16. As regards the question of maintainability, in Shrilekha Vidyarthi (Kumar) Vs. State of U.P. reported in 1991 (1) SCC 212, it was held that every State action, in order to survive, must not be susceptible to the vice of arbitrariness which is the crux of Article 14 and basic to the rule of law, the system which governs us, arbitrariness being the negation of the rule of law. Non-arbitrariness, being a necessary concomitant of the rule of law, it is imperative that all actions of every public functionary, in whatever sphere, must be guided by reason and not humour, whim, caprice or personal predilections of the persons entrusted with the task on behalf of the State and exercise of all powers must be for public good instead of being an abuse of power. Action of renewability should be gauged not on the nature of function but public nature of the body exercising that function and such action shall be open to judicial review even if it pertains to the contractual field. The State action which is not informed by reason cannot be protected as it would be 16 easy for the citizens to question such an action as being arbitrary.
17. The decision in Shrilekha Vidyarthi (supra) has been reiterated in the case of Style (Dress Land) Vs. Union Territory, Chandigarh and Another reported in 1999 (7) SCC 89 and Sushila Chemicals Private Limited and Another Vs. Bharat Coking Coal Limited and Others reported in (2010) 10 SCC 388. In all these matters, the Hon'ble Supreme Court has held that even in the domain of contractual matters, the High Court can entertain a writ petition on the ground of violation of Article 14 of the Constitution when the impugned act of the State or its instrumentality is arbitrary, unfair or unreasonable or in breach of obligations under public law.
18. Moreover, the petitioner is not calling in question or seeking interpretation of any terms of the Contract. The petitioner is before this Court being aggrieved by the arbitrary action initiated by the respondents, inasmuch as determining the loss suffered by the respondents on account of the breach of contract. As stated above, whenever a person is aggrieved by a breach of contract, unless the value of the loss sustained or 17 damages incurred is adjudicated by a competent Court of law, initiation of action to recover any amount, would fall in the vice of being termed as arbitrary.
19. The question before this Court is not as to the value of loss sustained by the respondents, it is the arbitrary action of the respondents that has been called in question. This Court is not venturing into the question as to whether the respondents have sustained any loss or not. It is for a competent civil Court to determine the loss sustained by the respondents. It is also possible that in a contract, there can be a mechanism evolved to determine the loss sustained by the parties. The learned Counsel for the respondents has not been able to point out to any such covenant in the agreement, which would enable the respondents to determine the loss sustained. In the absence of any such provision, as directed by the Hon'ble Supreme Court, the respondents could only approach the competent Court and get the matter adjudicated and the value or loss sustained in terms of quantifiable sum and thereafter proceed to recover in accordance with law.
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20. In view of the discussions made above, it is clear that the action initiated by the respondents in trying to recover the money from the petitioner as loss sustained on account of breach of contract, cannot be sustained. For the very same reason, the impugned communications dated 08.10.2010 and 05.03.2011 at Annexures-H and K, made by the third respondent-Executive Engineer, KNNL, and the communication dated 29.02.2012 at Annexure-M issued by the fourth respondent-KBJNL deserves to be set aside and are accordingly quashed and set aside.
21. The petitions are accordingly allowed. No order as to costs.
22. At this juncture, the learned Counsel for the respondents submits that Clause-29 of the agreement provides for Settlement of disputes - Time for Decision. According to the learned Counsel, a mechanism has been provided under the agreement and the aggrieved party has to approach the Chief Engineer for redressal of the grievance.
23. To a pointed question as to whether the respondents referred the matter to the Chief Engineer, as provided under 19 Clause-29, the learned Counsel submits that it was for the petitioner to have approached the Chief Engineer and not the respondents.
24. This submission cannot be accepted because on a plain reading of Clause-29, it is seen that an aggrieved party could refer the matter to the Chief Engineer who has jurisdiction over the work specified in the contract. If the Chief Engineer passes an order within 60 days, the aggrieved person could again approach the Government on an appeal. The petitioner is not the aggrieved person. The aggrieved person or the aggrieved party is the respondents, since it alleges that it sustained loss on account of non-performance on the petitioner. Therefore, if the respondents have not approached the Chief Engineer, they have not made use of the course open under Clause-29 of the agreement.
With these observations, the petitions are allowed.
SD/-
JUDGE JT/-