Madhya Pradesh High Court
B.B. Verma And Anr. And S.C. Batra And ... vs State Of M.P. And Anr. on 25 September, 2007
Equivalent citations: 2008(1)MPHT17, AIR 2008 MADHYA PRADESH 202, 2008 (5) AKAR (NOC) 702 (MP), 2008 A I H C 2423, (2009) 1 LANDLR 403, 2008 ARBILR(SUPP) 2 567, (2007) 4 MPLJ 610, (2008) 1 MPHT 17, 2008 (5) AKAR (NOC) 702 (M.P.) = AIR 2008 MADHYA PRADESH 202 FULL BENCH
Bench: Chief Justice, A.M. Sapre
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.