Kerala High Court
Rambal Company vs Kerala State Science And Technology ... on 23 March, 2000
Equivalent citations: AIR2000KER296, AIR 2000 KERALA 296, 2000 (3) ARBI LR 212, (2000) 2 KER LT 613, (2000) 3 ARBILR 212, (2000) 4 CIVLJ 98
JUDGMENT Narayana Kurup, J.
1. The petitioner had entered into Ext. P1 agreement with the first respondent Kerala State Science and Technology. Thiruvananthapuram which is a society registered under the Travancore Cochin Literary and Scientific Societies Registration Act, 1955, on 16-5-1988 for the "construction of planetarium building of the Kerala State Science and Technology Museum and allied Civil Works", Dispute having arisen between the parties, the agreement came to be terminated as could be seen from Ext. P2 termination notice dated 3-11-1989 issued by the first respondent. Ext. P2 was followed by Ext. R1(c) letter from the Managing Partner of the petitioner company allegedly admitting the breach of contract, suit notice dated 6-11-1990 issued by the first respondent to the petitioner which was replied by the petitioner as per Ext. P3 dated 31-12-1990 repudiating the alleged breach and raising a counter claim -- According to the petitioner, there was a long silence after Ext. P3 which was broken on 12-1-1998 on which date, the petitioner received Ext. P4 demand notice from the 2nd respondent Deputy Tahsildar (RR), Thiruvananthapuram under Section 34 of the Revenue Recovery Act, 1968 calling upon it to remit an amount of Rs. 22,16,303/-with future interest at the rate of 12% from 1-4-1997. On receipt of Ext. P4, the petitioner moved this Court with Arbitration Request No. 2/98 under Section 11 of the Arbitration and Conciliation Act, 1996 for the appointment of an Arbitrator for resolution of all disputes and differences between the parties concerning the performance of the work under Ext. P1 agreement. The request of the petitioner was resisted by the first respondent contending, inter alia, that there is no provision for arbitration in Ext. P1 agreement. It was also contended that as per Clause 54 of Ext. P1 agreement, there is aspecific exclusion of resolution of disputes by arbitration and the civil Courts at Thiruvananthapuram alone are clothed with jurisdiction to resolve the disputes arising between the parties out of Ext. P1 agreement. In other words, not only Ext. P1 does not contain an arbitration clause, on the contrary, Ext. P1 specifically rules out arbitration as a mode of settlement of disputes or claims arising out of Ext. P1. Accepting the contentions raised by the 1st respondent, this Court, as per Ext. P9 order in Arbitration Request No. 2/98 rejected the request. After Ext. P9 order was rendered by this Court, the petitioner filed Ext. P10 writ petition, being O.P. No. 22633/98 to quash Ext. P4 demand notice and for other reliefs which came to be disposed of by Ext. P11 judgment dated 17-11-1998 directing the 3rd respondent-District Collector to consider and pass orders on Ext. P8 representation preferred by the petitioner within one month from the date of receipt of a copy of Ext. Pll judgment, Pending issuance of orders by the District Collector as aforesaid, the demand notice as evidenced by Ext. P4 was stayed. As a sequel to Ext. Pll Judgment, the 3rd respondent District Collector passed Ext. P12 order rejecting Ext. P8. Upon rejection of Ext. P8 by Ext. 12, Ext. P4 was revived and the petitioner was called upon to pay the amount mentioned therein being the loss suffered by the 1st respondent in re-arranging the work at the risk and cost of the petitioner. It was at this stage, that the petitioner moved this Court with the present writ petition praying for the issuance of a writ of certiorari or any other appropriate writ, direction or order quashing Ext. P12 order and Ext. P4 demand notice as illegal and arbitrary and for the Issuance of a writ of mandamus declaring that revenue recovery proceedings may be intitlated against the petitioner only after prior adjudication by a Court of law or any other independent judicial/quasi-judicial body and other reliefs.
2. When the writ petition came up for hearing before the learned single Judge, it was contended by the learned counsel for the petitioner that since breach of contract is not admitted by the petitioner, the first respondent, standing in the position of another party to the contract, cannot unilater-ally assess the damage alleged to have sustained by it on account of the alleged default on the part of the petitioner. It was also contended that the amount demanded as per Ext. P4 is time barred. The further contention of the petitioner was that since the entire proceedings are barred, a time barred debt cannot be recovered by recourse to revenue recovery proceedings. According to learned counsel for the first respondent, the first respondent is a society owned by the State and therefore, Article 112 of the Limitation Act is applicable and in that view, the demand placed is well within time. In view of the nature of the contentions raised, the learned single Judge felt that the matter should be placed before a Division Bench and accordingly, it is posted before us.
3. We heard learned counsel on both sides at length.
4. The moot question that arises for consideration is whether a breach of conditions of a contract is not admitted, whether it will be open for the first respondent to adjudicate upon the disputed question of breach as well as to assess the damages arising from the breach. According to the first rspondent, the petitioner has committed breach of Ext. P1 agreement as borne out by Ext. R1(c). However, according to learned counsel for the petitioner, they have not committed any breach of contract as can be spelt out from Ext. P3. The petitioner would contend that Ext. R1(c) is a letter written by the Managing Partner of the petitioner company to the first respondent three months after the termination of Ext. P1 agreement stating about certain financial mis-managements that took place in the Branch Office of the petitioner company at Thiruvananthapuram and that will not tantamount to admission of breach of contract by the petitioner. In Ext. P3 reply notice sent by the petitioner to the first respondent, the petitioner has thrown the entire blame for termination of the contract on the first respondent. In paragraph 7 of Ext. P3, it is stated that even from the very beginning of the work, the first respondent was imposing very many restrictions in the user of work site premises stating one reason or other. In fact, according to the petitioner, the work site comprises only a few cents leaving practically no outer space at all. The further contention raised by the petitioner in Ext. P3 is that work was delayed due to lack of effort from the side of the first respondent to get permission for passage through the adjacent property of the Stationery Department, which is attributed to the first respondent's unfriendly relationship with the officials of the Stationery Department. Therefore, the petitioner would contend that they were prevented from proceeding with the work according to the schedule fixed by them. Ext. P3 contains other heads of objections also which highlights various other items of lapses on the part of the first respondent, relating to failure on its part to remove the overhead electric line passing over the work site resulting in idling of men and metals of the petitioner and so on and so forth.
5. On a consideration of Ext, Rl(c) and Ext. P3, we arc of opinion that the petitioner cannot be said to have admitted breach of contract on its part. Even where the power of the State or its instrumentality under an agreement entered into by it with a private Individual expressly provided for assessment of damages for breach of conditions of the agreement and recovery of damages, that power can be exercised only in cases where the breach of conditions is admitted or is not disputed. It is, by now, well settled that one of the contracting parties cannot adjudicate upon a disputed question of breach as well as to assess the damages arising from the breach. As already noticed, the petitioner has alleged in Ext. P3 reply notice that they have not committed breach of contract and the delay was due to lapses on the part of the first respondent against whom the petitioner had made counter claims. Even assuming that clause in an agreement empowers the instrumentality of the State to adjudicate the question of breach as well as the quantum of damages, the adjudication by an officer of the State instrumentality regarding the breach of contract and assessment of damages cannot be sustained in law because the parties to an agreement cannot be an arbiter in his own cause. The question as to whether there is a breach of contract and if so, what is the quantum of damages, are all matters which are best left to be adjudicated upon by a Court or Tribunal and not by one of the contracting parties. The view, we are taking, finds support in the decision of the Supreme Court reported in State of Karnataka v. Rameshwara Rice Mills Thirthahalli, AIR 1987 SC 1359. There, it was contended that when the State is one of the contracting parties and seeks to recover damages for breach of that contract, the State cannot be a Judge in its own cause and cannot be its own arbiter to determine the liability and quantum of damages. Upholding the contention, the Apex Court held as follows at pages 1361-1362: of AIR :
The terms of Clause 12 to do not afford scope for a liberal construction being made regarding the powers of the Deputy Commissioner to adjudicate upon a disputed question of breach as well as to assess the damages arising from the breach. The crucial words in Clause 12 are "and for any breach of conditions set forth hereinbefore, the first party shall be liable to pay damages to the second party as may be assessed by the second party. On a plain reading of the word, it is clear that the right of the second party to assess damages would arise only if the breach of conditions is admitted or if no issue is made of it. If it was the intention of the parties that the officer acting on behalf of the State was also entitled to adjudicate upon a dispute regarding the breach of conditions the wording in Clause 12 would have been entirely different. It cannot also be argued that a right to adjudicate upon an issue relating to a breach of conditions of the contract would flow from or is inhered in the right conferred to assess the damages arising from a breach of conditions. The power to assess damages, as pointed out by the Full Bench, is subsidiary and consequential power and not the primary power. Even assuming for argument's sake that the terms of Clause 12 afford scope for being construed as empowering the officer of the State to decide upon the question of breach as well as assess the quantum of damages, we do not think that adjudication by the officer regarding the breach of the contract can 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. The position will, however, be different where there is no dispute or there is consensus between the contracting parties regarding the breach of conditions. In such a case, the Officer of the State, even though a party to the contract will be well within his rights in assessing the damages occasioned by the breach in view of the specific terms of Clause 12.
We are, therefore, in agreement with the view of the Full Bench that the powers of the State under an agreement entered into by it with a private person providing for assessment of damages for breach of conditions and recovery of the damages will stand confined only to those cases where the breach of conditions is admitted or it is not disputed."
Following the aforesaid decision, a Full Bench of this Court in Abdul Rahiman v. Divisional Forest Officer, 1988 (2) KLT 290 : (AIR 1989 Kerala 1) (FB) held as follows at pages 4-5, of AIR :
"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. This principle of Section 73 of the Contract Act equally applies where one of the contesting parties is the Government. It is the breach of the contract that gives rise to the cause for damages. The primary duty therefore is to fix the liability for the breach. Assessment of damages is only an incidental or subsidiary function. The liability to pay damages is thus fastened where there is breach of contract.
However, when a dispute arises as to whether the contract has been broken or not. that dispute cannot be settled by one of parties to the contract for, he cannot be an arbiter in his own cause. The dispute may have to be referred to an arbitrator or the matter has to be settled in a Court of law. This principle applies to the Government also as a party to the contract.
Where the breach of the contract is admitted i.e. where there is no dispute that the contract has been broken by one of the parties, the Government as the party entitled to claim compensation for the breach need not wait for a determination by any outside agency as to whether there was any breach of contract. In that event, the question of damages alone remains to be considered. A sum can be named in the contract as the amount to be paid in case of breach, an amount in liquidation of the claim for compensation. The contract can thus provide for liquidated damages in the event of breach and the Government claiming that amount as compensation for the admitted breach committed by the other party to the contract, need not seek the aid of Court or any outside agency for the fixation of the quantum of damages. Similarly, if the contract Itself provides that "that one party shall be liable to pay damages to the second party as may be assessed by the second party", the assessment by the second party, in case the breach is admitted, is binding on the first party and there is no more any necessity for a further quantification of the damages by any outside agency. The party assessing the damage can straightway seek to recover the amount and if that party is the Government, it can have recourse to the remedy available under the Keraia Revenue Recovery Act."
6. The cumulalttve effect of the aforesaid decisions is that when breach is not admitted, one of the contracting parties cannot arrogate to Itself the power to claim compensation for the breach from the other party without there being any adjudication by an outside agency as to whether there was any breach of contract. In the case on hand, going by the pleadings as already noticed, it cannot be held that the petitioner has admitted the breach. Therefore, the first respondent has no jurisdiction to quantify any damage or loss alleged to have sustained by it on account of the alleged breach.
7. The impugned orders are bad when approached from another angle also viz., in the context of Article 14 of the Constitution of India. Dealing with a similar situation, one of us (Narayana Kurup, J.) in Latheef v. Superintending Engineer, ILR 1993 (2) Ker 426 had occasion to observe as follows :
"It is settled law that an order entailing civil consequences to an Individual shall be passed strictly in accordance with the principles of natural justice. The State shall not spring orders of this nature like a magician pulling rabbits out of his hat. A citizen cannot be suddenly confronted with a demand notice without there being a prior adjudication by a competent authority in accordance with the principles of natural justice and fair play both of which are intrinsic in the concept of equality before the law enshrined under Article 14 of the Constitution of India. To satisfy the fundamentals of fair play in action the individual concerned should be given an opportunity of presenting his case before he is made liable and the adjudication in question has to be at the hands of an independent authority totally unconnected with the bargain. The question whether there is a breach of contract and if so, what is the quantum of damages, etc. are all matters which are left to be adjudicated upon by a Court or tribunal and not by one of the contracting parties. Adjudication of liability by one of the contracting parties as against the other contracting party and that too without proper notice and hearing resulting in heavy pecuniary liability to the latter is abhorrent to all notions of fair play and Justice and has been frowned upon by Courts."
8. In this connection, it is pertinent to note that after the first respondent issued legal notice and received reply notice. Ext. P3 from the petitioner in 1990, and after having remained silent for nearly 7 years, may not be justified in suddenly raking up the issue without the petitioner being put on notice which conduct of the first respondent, is, in our view, against all cannons of fair play and is a colourable exercise of power,
9. In the light of the aforesaid discussion, we have no hesitation in holding that Exts. P4 and P12 cannot be legally sustained. Accordingly, we quash Exts. P4 and P12 as illegal and arbitrary and against the law laid down by the Honourable Supreme Court and this Court in the decisions cited supra. In view of the fact that we are quashing Exts. P4 and P12 for the reasons already stated, the other questions referred by the learned single Judge viz., the question of limitation is, left open to be adjudicated upon by the appropriate authority in accordance with law.