Karnataka High Court
The Karnataka Housing Board vs Nav Vikas Builders (P) Ltd on 15 December, 2023
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RFA No.1238/2008
C/w RFA No.1251/2008
RFA No.1252/2008
RFA Crob.No.5/2012
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 15TH DAY OF DECEMBER 2023
PRESENT
THE HON'BLE MRS JUSTICE K.S.MUDAGAL
AND
THE HON'BLE MR JUSTICE C M JOSHI
REGULAR FIRST APPEAL No.1238/2008 (MON)
C/w
REGULAR FIRST APPEAL No.1251/2008
REGULAR FIRST APPEAL No.1252/2008
REGULAR FIRST APPEAL Crob.No.5/2012
RFA No.1238/2008:
BETWEEN:
1 . THE KARNATAKA HOUSING BOARD
CAUVERY BHAVAN
BANGALORE - 560 009
BY ITS CHAIRMAN
2 . THE HOUSING COMMISSIONER
THE KARNATAKA HOUSING BOARD
CAUVERY BHAVAN, BANGALORE-560 009.
3 . THE EXECUTIVE ENGINEER
THE KARNATAKA HOUSING BOARD
BELGAUM DIVISION, BELGAUM-01
4 . THE EXECUTIVE ENGINEER
KARNATAKA HOUSING BOARD
HUBLI DIVISION, CHANAKYAPURI
HUBLI-02, DHARWAD DISTRICT
ALL ARE REPTD. BY ITS SECRETARY ...APPELLANTS
(BY SRI RAGHAVENDRA A KULKARNI, ADVOCATE)
AND:
NAV VIKAS BUILDERS (P) LTD.,
2ND FLOOR, C BLOCK, AKSHAYA COMMERCIAL
COMPLEX, NO 26, VICTORIA ROAD
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RFA No.1238/2008
C/w RFA No.1251/2008
RFA No.1252/2008
RFA Crob.No.5/2012
BANGALORE - 560 047
BY ITS MANAGING DIRECTOR ...RESPONDENT
(BY SRI.VIKAS MAHENDRA, ADVOCATE)
THIS REGULAR FIRST APPEAL IS FILED UNDER SECTION 96
R/W ORDER XLI RULE 1 OF THE CPC AGAINST JUDGEMENT AND
DECREE DT.16.06.2008 PASSED IN OS NO.11145/1997 ON THE
FILE OF THE XXVII ADDL. CITY CIVIL JUDGE, BANGALORE,
DECREEING THE SUIT FOR RECOVERY OF MONEY.
RFA No.1251/2008,
RFA No.1252/2008
BETWEEN:
1 . THE KARNATAKA HOUSING BOARD
CAUVERY BHAVAN
BANGALORE - 560 009
BY ITS HOUSING COMMISSIONER
2 . THE HOUSING COMMISSIONER
THE KARNATAKA HOUSING BOARD
CAUVERY BHAVAN, BANGALORE-560 009
3 . THE CHIEF ENGINEER
THE KARNATAKA HOUSING BOARD
CAUVERY BHAVAN, BANGALORE-560 009
4 . THE EXECUTIVE ENGINEER
THE KARNATAKA HOUSING BOARD
HUBLI DIVISION, CHANAKYAPURI,
HUBLI, DHARWAD DISTRICT-02
ALL ARE REPTD. BY ITS SECRETARY
KHB, BANGALORE - 560 009 ...APPELLANTS
(COMMON)
(BY SRI.RAGHAVENDRA A KULKARNI, ADVOCATE)
AND:
1. THE STATE BANK OF HYDERABAD
AUSTIN TOWN BRANCH, NO.18
VICTORIA ROAD, BANGALORE - 47
BY ITS BRANCH MANAGER
2. NAV VIKAS BUILDERS (P) LTD.,
2ND FLOOR, C BLOCK, AKSHAYA COMMERCIAL
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RFA No.1238/2008
C/w RFA No.1251/2008
RFA No.1252/2008
RFA Crob.No.5/2012
COMPLEX, NO 26, VICTORIA ROAD
BANGALORE - 560 047
BY ITS MANAGING DIRECTOR ...RESPONDENTS
(COMMON)
(BY SRI BRIJESH CHANDER GUREE, ADVOCATE FOR R1;
SRI VIKAS MAHENDRA, ADVOCATE FOR R2)
RFA NO.1251/2008 AND RFA NO.1252/2008 ARE FILED
UNDER SECTION 96 R/W ORDER XLI RULE 1 OF CPC PRAYING TO
SET ASIDE THE JUDGEMENT AND DECREE DATED 16.06.2008
PASSED BY THE XXVII ADDL. CITY CIVIL JUDGE, BANGALORE, IN
O.S.No.7462/1995 AND O.S.No.8665/1995 RESPECTIVELY
DECREEING THE SUIT FOR RECOVERY OF MONEY.
RFA CROB.No.5/2012:
BETWEEN:
NAV VIKAS BUILDERS (P) LTD.,
2ND FLOOR, C BLOCK, AKSHAYA COMMERCIAL
COMPLEX, NO 26, VICTORIA ROAD
BANGALORE - 560 047
BY ITS MANAGING DIRECTOR ...CROSS OBJECTOR
(BY SRI VIKAS MAHENDRA, ADVOCATE)
AND:
1. THE KARNATAKA HOUSING BOARD
CAUVERY BHAVAN
BANGALORE - 560009
REPTD. BY ITS HOUSING COMMISSIONER
2. THE HOUSING COMMISSIONER
THE KARNATAKA HOUSING BOARD
CAUVERY BHAVAN, BANGALORE-560009
3. THE EXECUTIVE ENGINEER
THE KARNATAKA HOUSING BOARD
BELGAUM DIVISION, BELGAUM-01
4. THE EXECUTIVE ENGINEER
KARNATAKA HOUSING BOARD
HUBLI DIVISION, CHANAKYAPURI,
HUBLI-2, DHARWAD DISTRICT ...RESPONDENTS
(BY SRI.RAGHAVENDRA A KULKARNI, ADVOCATE)
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RFA No.1238/2008
C/w RFA No.1251/2008
RFA No.1252/2008
RFA Crob.No.5/2012
THIS RFA.CROSS OBJECTION IS FILED UNDER ORDER XLI,
RULE-22 READ WITH SECTION 96 AND SECTION 151 OF CPC
PRAYING TO SET ASIDE THE JUDGMENT AND DECREE DATED
16.06.2008 PASSED BY THE XXVII ADDITONAL CITY CIVIL JUDGE,
BANGALORE IN O.S.11145/1997 DECREEING THE SUIT FOR
RECOVERY OF MONEY.
THESE REGULAR FIRST APPEALS AND R.F.A.CROSS
OBJECTION HAVING BEEN HEARD AND RESERVED ON 26.09.2023,
COMING ON FOR PRONOUNCEMENT OF JUDGMENT THIS DAY,
K.S.MUDAGAL J., DELIVERED THE FOLLOWING:
JUDGMENT
These appeals and cross objection arise out of common judgment in O.S.No.7462/1995, O.S.No.8665/1995 and O.S.No.11145/1997 passed by the XXVII Additional City Civil Judge, Bengaluru.
2. By the impugned judgment and decree, the trial Court dismissed O.S.No.7462/1995 and O.S.No.8665/1995 and partly decreed O.S.No.11145/1997. The particulars of the appeals, cross objection, suit and the ranks of the parties who preferred the appeals and cross objection are as follows:
Sl. Appeal/Cross Suit in O.S. Ranks of parties No. objection No. before the trial Court 1 RFA No.1238/2008 11145/1997 Defendants (KHB) 2 RFA Crob.No.5/2012 11145/1997 Plaintiffs (Contractor) 3 RFA No.1251/2008 7462/1995 Plaintiffs (KHB) 4 RFA No.1252/2008 8665/1995 Plaintiffs (KHB)
3. State Bank of Hyderabad was not made party in O.S.No.11145/1997. The rest of the parties were common in all three suits. Except, State Bank of Hyderabad, the other -5- RFA No.1238/2008 C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012 parties in the said suits are referred to according to their ranks in O.S.No.11145/1997 since it has larger scope and State Bank of Hyderabad will be referred to by its name.
4. The brief facts of the case are as follows:
Defendant No.1 Karnataka Housing Board ('KHB' for short) is a statutory body constituted under the Karnataka Housing Board Act, 1962. Defendant Nos.2 to 4 are the Officers of defendant No.1 in various cadres. To commemorate centenary birth anniversary of Dr.B.R.Ambedkar, the Government of Karnataka floated a scheme named as 'Ashraya Scheme' to provide houses and sites to the people belonging to the weaker sections of the society. In that regard, the Government of Karnataka issued the Government orders bearing G.O.No.HUD 407 KHB 91 dated 24.06.1991 and G.O.No.HUD 535 KHB 91 dated 04.11.1991 proposing to build 1,75,000 houses in rural areas, 30,000 houses in Bangalore urban areas and 30,000 houses in other urban areas. The Government entrusted the matter to defendant No.1 KHB. The cost of the house in rural areas was fixed at Rs.15,000/- and in urban areas fixed at Rs.16,000/-.-6-
RFA No.1238/2008 C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012
5. In that regard, defendant No.1 KHB floated the tenders by advertising in Deccan Herald, English daily newspaper on 14.11.1991 from the contractors for execution of the project in respect of seven assembly constituencies in Dharwad District namely, Byadagi, Ranebennur, Hirekerur, Hangal, Shiggaon, Shirahatti and Haveri. Similarly, the tenders were called for nine assembly constituencies in Belgaum District namely Ramdurga, Parasgad, Bailhongala, Kittur, Khanapur, Belgaum Corporation, Uchgaon, Bagewadi and Gokak.
6. On 27.11.1991, the plaintiff/building contractor submitted its tender to the Chief Engineer, K.H.B. The defendants issued letter of intent (Ex.P5 regarding Dharwad) dated 23.01.1992 accepting the tender of the plaintiff/contractor to execute the work.
7. Subsequently, defendant No.1/KHB and the plaintiff entered into two separate contracts for construction of 8079 houses in the aforesaid seven constituencies of Dharwad District and for construction of 10251 houses in nine constituencies referred to above in Belgaum District. The contracts in respect of nine assembly constituencies in Belgaum District and seven assembly constituencies in -7- RFA No.1238/2008 C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012 Dharwad District were executed on 23.03.1992. The work orders in respect of both the assembly constituencies were issued.
8. As per the contract, the work was to be completed within six months from the date of handing over of the sites to the plaintiff excluding three months of monsoon session. As per the contract, 5% of the project costs was to be paid by way of mobilization of amount and that was paid to the plaintiff on 28.01.1992. Regarding that the plaintiff had to provide Bank guarantees. The bank guarantees were issued by State Bank of Hyderabad, Austin Town Branch, Bangalore. The said bank is defendant No.1 in O.S.No.7462/1995 and O.S.No.8665/1995.
9. The work orders were issued on 30.03.1992. On 14.05.1992 the plaintiff/contractor requested defendant No.1/KHB to release mobilization amount. On furnishing bank guarantees defendant No.1 released Rs.34,84,500/- out of mobilization amount of Rs.61,29,750/-. Therefore, State Bank of Hyderabad, Austin Town Branch, Bangalore was made as party in O.S.No.7462/1995 and O.S.No.8665/1995. -8- RFA No.1238/2008 C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012
10. On 20.10.1992, defendant No.1/KHB issued letter through defendant No.4/Executive Engineer of Hubli Division (Ex.P79) and on 11.08.1992 defendant No.3/Executive Engineer of Belgaum terminated the contract on the ground that the plaintiff committed breach of terms of the agreement and he failed to complete the work as per the agreement. The bank guarantees were invoked under letter dated 09.11.1992 (Ex.P13 in O.S.No.7462/1995). On 14.03.1995 the Bank repealed the Bank guarantee on the ground that the invocation was not in terms of Bank guarantee.
11. Plaintiff/contractor filed O.S.No.11145/1997 against the defendants seeking recovery of Rs.5,36,38,077/- with interest at 18% p.a. contending that the defendants/KHB without performing their part of contract illegally terminated the contract.
12. The plaintiff/contractor contended that it had invested huge manpower and other infrastructure at a larger cost. But the defendants/KHB did not hand over the sites for commencement of the construction. The plaintiff further contended that the contracts were terminated even without the expiry of stipulated time, thereby it had suffered financial losses. The plaintiff further contended that by such illegal -9- RFA No.1238/2008 C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012 cancellation of the contract, its reputation is also affected. Therefore plaintiff claimed damages on different heads to the tune of Rs.5,36,38,077/- as aforesaid.
13. The defendants contended that despite handing over the sites, the plaintiff did not commence the work and wherever it was commenced, the plaintiff had showed marginal progress in the work, therefore the defendants were forced to terminate the contract. According to the defendants, the termination of the contract was in accordance with law, therefore they sought dismissal of O.S.No.11145/1997.
14. The defendants/KHB filed O.S.No.7462/1995 seeking recovery of Rs.53,66,130/- and O.S.No.8665/1995 seeking recovery of Rs.40,73,685/- from the plaintiff/contractor and State Bank of Hyderabad who had issued the bank guarantees. Thereafter the plaintiff/contractor filed O.S.No.11145/1997 against the defendants claiming damages as aforesaid in respect of Dharwad and Belgaum Constituencies. The defendants/KHB in those suits claimed that the contractor did not execute the work as per the time schedule despite the authorities releasing the mobilization of funds to the tune of
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RFA No.1238/2008C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012 Rs.61,29,750/- despite handing over the sites, therefore the authorities were forced to terminate that contract. The defendants in those suits further contended that the contractor is liable to refund the mobilization amount. It was contended that the bank without valid reason illegally declined to invoke the bank guarantees and pay the funds, therefore the Bank is also liable to pay the said funds.
15. On the basis of the pleadings of the parties, in all the three suits, the following issues were framed. ISSUES IN O.S.No.7462/1995
1. Whether the 1st plaintiff-Board has performed its part of the contract referred to in the plaint?
2. Whether the plaintiffs prove the breach of the terms of the contract by the 2nd defendant as pleaded?
3. Whether the termination of the contract referred to in the plaint by the 1st plaintiff-Board is valid?
4. Whether the 1st plaintiff-Board is entitled to force the bank guarantees of the 2nd defendant given by the 1st defendant?
5. Whether the suit is barred by law of limitation?
6. Whether the suit is not maintainable?
7. Whether the plaintiffs are estopped in law from the above delay and default on the part of the 2nd defendant as contended by the 2nd defendant?
8. Whether the 1st plaintiff-Board is entitled to recover the interest as claimed?
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RFA No.1238/2008C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012
9. Whether the plaintiffs are entitled to recover the suit claim from the defendants?
ISSUES IN OS.No.8665/1995
1. Do the plaintiffs prove that the 2nd defendant has committed breach of contract dated 23.03.1992 and as such they incurred loss of Rs.26,45,250/- as averred?
2. Do the plaintiffs further prove valid invocation of bank guarantee as per the terms stipulated?
3. Does the 1st defendant proves that it has utilized the mobilization advance paid by the plaintiffs?
4. Are the plaintiffs entitled to the interest as claimed?
5. Are the plaintiffs entitled to the suit claim?
6. If so, against which of the defendants?
7. What relief?
ISSUES IN OS.No.11145/1997
1. Whether the plaintiff proves that defendants have handed over only 1155 sites in Dharwad District and thus committed breach of contract?
2. Whether the plaintiff proves that the 3rd defendant has handed over only 206 sites in Belgaum District as against 10251 sites and thus committed breach of contract?
3. Whether the plaintiff proves that the defendants have committed breach by not handing over the sites by arbitrarily terminating the contract prematurely?
4. Whether the suit is bad for want of notice under Section 72 of the KHB Act, 1962?
5. Whether the suit is barred in view of Arbitration Clause 26 of the Contract?
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RFA No.1238/2008C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012
6. Whether the suit is bad for mis-joinder of parties and cause of action?
7. Whether the plaintiff proves that it has suffered damages of Rs.5,36,380-77 in respect of Belgaum and Dharwad Districts?
8. Whether the defendants prove that they have handed over all the 10,251 sites in Belgaum District as pleaded?
9. Whether the defendants prove that they have handed over 8079 sites in Dharwad District as pleaded?
10. Whether the defendants prove that this Court has no jurisdiction to entertain and try this suit?
11. Whether the plaintiff is entitled to the reliefs sought for?
12. What decree or order?
16. In O.S.No.7462/1995, the official of the authorities was examined as PW.1 and Ex.P1 to P15 were marked. In O.S.No.8665/1995 the very same witness was examined as PW.1 and Ex.P1 to P15 were marked. After recording of the evidence of the plaintiff in O.S.No.7462/1995 and O.S.No.8665/1995, it appears that those suits were consolidated with O.S.No.11145/1997. In that suit, on behalf of the plaintiff therein, PWs.1 to 4 were examined and Exs.P1 to P126 were marked. On behalf of the defendants therein, DWs.1 to 3 were examined and Exs.D1 to D8 were marked.
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RFA No.1238/2008C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012
17. By the impugned common judgment and order, the trial Court dismissed O.S.No.7462/1995 and O.S.No.8665/1995 and decreed O.S.No.11145/1997 holding that the defendants themselves were guilty of breach of terms of contract and the termination of the contract was illegal. The trial Court decreed O.S.No.11145/1997 for recovery of Rs.4,61,38,077/- with interest at 18% per annum on Rs.33,14,383/- and at 6% per annum on Rs.4,17,56,250/-. Plaintiff filed O.S.No.11145/1997 as indigent person with the permission of the Court, therefore the Court fee was ordered to be recovered as the first charge on the decreetal amount.
Submissions of Sri Vikas Mahendra, learned counsel for the plaintiff/Cross Objector:
18. The defendants' own document and the admissions of their own witnesses show that there was clear breach of terms of the contract by the defendants. The evidence adduced by the plaintiff clearly shows that it suffered damages due to such illegal termination of the contracts. Therefore, the finding of the trial Court that the defendants are liable to pay damages to the plaintiff is sound and reasonable. However, the trial Court committed error in
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RFA No.1238/2008C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012 rejecting the claim of Rs.75,00,000/- on the head of general damages and awarding interest only at 6% p.a. on Rs.4,17,56,250/- since the transaction was commercial transaction, the trial Court should have awarded interest at 18% p.a. on the same also. The contention of the defendants that the trial Court had no territorial jurisdiction is wholly unsustainable. As the defendants themselves filed two other suits regarding the same cause of action before the very same Court, all other contentions of the defendants in the appeal and cross objection are unsustainable. The appeals of the defendants are liable to be dismissed and the cross objection shall be allowed.
19. In support of his contentions, he relies on the following judgments:
1. Pathumma v. Kuntalan Kutty1
2. Kiran Singh v. Chaman Paswan2
3. The Associated Cement Company Ltd. v. State of Karnataka3
4. RSDV Finance Co. Pvt. Ltd. v. Shree Vallabh Glass Works Ltd.4
5. K.P.Kanga Rao v. K.V.Venkatesham5 1 (1981) 3 SCC 589 2 AIR 1954 SC 340 3 RFA No.151/2003 D.D.30.11.2009 4 (1993) 2 SCC 130 5 (2015) 13 SCC 514
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C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012
6. Bhagwandas Goverdhanas Kedia v. Girdharilal Parshottamadas and Co.6
7. A.B.C.Laminart Pvt. Ltd. v. A.P.Agencies, Salem7
8. M/s Malaprabha Co-Operative Spring Mills Ltd., Belgaum Dist. V. M/s Buildment Pvt. Ltd.8
9. A.T.Brij Paul Singh v. State of Gujarat9
10. Mohd. Salamatullah v. Govt. of Andhra 10 Pradesh
11. Dwarkadas v. State of Madhya Pradesh11
12. ITC Zeneca Ltd v. Shri Balaji Agro Traders12
13. The Managing Director, J and K Handicrafts v.
M/s Good Luck Carpets13
14. Karnataka State Financial Corporation v. Sri Nithyananda Bhavan14
15. Syndicate Bank v. West Bengal Cements Limited15
16. The Managing Director Bhoruka Textiles Limited v. M/s Kashmiri Rice Industries16
17. Maharashtra state Electricity Distribution Co.
18. Hindustan Construction Co. Ltd. v. State of Bihar18
19. Madhya Pradesh Power Generation Company Limited v. Ansaldo Energia Spa19
20. BT Patil and sons v. The Chief Engineer20 6 AIR (1966) SC 543 7 AIR 1989 SC 1239 8 ILR 2013 KAR 94 9 AIR 1984 SC 1703 10 AIR 1977 SC 1481 11 AIR 1999 SC 1031 12 RFA No.917/2002 DD 13.10.2009 13 AIR 1990 SC 864 14 AIR 1982 Kant 179 15 AIR 1989 Del 107 16 RFA No.982/2007 DD 29.01.2008 17 (2018) 3 SCC 133 18 (1999) 8 SCC 436 19 (2018) 16 SCC 661 20 WA No.672/2007 DD 04.07.2011
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RFA No.1238/2008C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012
21. P.Dasaratharama Reddy Complex v. Government of Karnataka21
22. Hind Construction Contractors v. State of Maharashtra22
23. Mahabir Auto Stores v. Indian Oil Corporation23
24. Gopal Krishnaji Ketkar v. Mahomed Haji Latif24 Submissions of Sri Raghavendra Kulkarni, learned Counsel for the defendants/appellants:
20. The Government of Karnataka had entrusted the construction work to defendant No.1 and therefore the suit without impleading the Government is bad for non-joinder of necessary parties. The work in question had to be executed in Belgaum District and Dharwad District. Therefore, the Court at Bangalore had no territorial jurisdiction to adjudicate the suit in O.S.No.11145/1997. The plaintiff failed to execute the work within the time stipulated, thereby there was breach of contract. Hence, the defendants/authorities were justified in terminating the contract. There was arbitration clause in the agreement. In the light of the said agreement, the suit was barred by said arbitration clause. The trial Court was not justified in awarding damages of Rs.4,61,38,077/-
on the basis of Exs.P106 to P110 which are un-audited 21 AIR 2014 SC 168 22 AIR 1979 SC 720 23 AIR 1990 SC 1031 24 AIR 1968 SC 1413
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RFA No.1238/2008C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012 accounts. The trial Court should have noticed that the suit for damages without seeking declaration regarding termination of the contracts were not maintainable. The findings of the trial Court that the sites were not handed over to the plaintiff was contrary to the evidence on record. Dismissal of the suit of the authorities for recovery of mobilization of funds was illegal. The bank have not encashed the bank guarantees illegally and declined to encash the same. Therefore the trial Court should have passed the decree against them for recovery of bank guarantees. The trial Court decreed the suit of the contractor and dismissed the suit of the defendants on erroneous appreciation of the evidence on record. Therefore the appeals of the authorities deserve to be allowed and the cross objection of the contractor is liable to be dismissed.
21. In support of his contentions, he relies on the following judgments:
1. Athmanathaswami Devasthanam v.
K.Gopalaswami25
2. Angile Insulations v. Davy Ashmore India Ltd.26
3. M/s.Malaprabha Co-operative Spinning Mills Ltd. v. M/s Buildmet Pvt. Ltd.27
4. A.V.M. Sales Corporation v. Anuradha Chemicals Private Limited28 25 AIR 1965 SC 338 26 (1995) 4 SCC 153 27 2012 (3) KCCR 2304 (DB) 28 (2012) 2 SCC 315
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C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012
5. ONGC Ltd. v. M/s. Modern Construction and Co.29
6. National Thermal Power Corporation Ltd. v.
Flowmore Pvt. Ltd.30
7. Hindustan Steel Workers Construction Ltd. vs. G.S.Atwal & Co. (Engineers) Pvt. Ltd.31
8. State of Maharashtra v. M/s.National Construction Company32
9. Daewoo Motors India Ltd. v. Union of India.33
10. Laliteshwar Prasad Singh v. S.P.Srivastava34
11. M/s. MSK Projects (I) (JV) Ltd. v. State of Rajasthan35
12. Ravinder Kumar Sharma v. State of Assam.36 Submissions of Sri Brijesh Chander Guree, learned Counsel for the Bank:
22. The invocation of the bank guarantees were not in accordance with terms of the bank guarantees. Therefore, the Bank was not liable to encash the bank guarantees in favour of KHB. Nothing was elicited to show that the bank had arbitrarily rejected the claim for invocation of the bank guarantees. Therefore the suits were rightly dismissed by the trial Court. The said judgments as against the Bank do not warrant any interference.
29
AIR 2014 SC 83 30 (1995) 4 SCC 515 31 AIR 1996 SC 131 32 AIR 1996 SC 2367 33 (2003) 4 SCC 690 34 (2017) 2 SCC 415 35 AIR 2011 SC 2979 36 AIR 1999 SC 3571
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RFA No.1238/2008C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012
23. On consideration of the submissions of both side and on examination of the records, the points that arise for consideration are:
(i) Whether the finding of the trial Court that the defendants in O.S.No.11145/1997 are guilty of breach of the terms of the contract is sustainable?
(ii) Whether the finding of the trial Court that the time was not the essence of the contract is sustainable?
(iii) Whether the trial Court was justified in holding that it had the jurisdiction to try O.S.No.11145/1997?
(iv) Whether the impugned common judgment and decree in O.S.No.7462/1995, O.S.No.8665/1995 and O.S.No.11145/1997 is sustainable?
Analysis Reg. Point No.1 Breach of contract:
24. In all these three suits, common questions of law and facts are involved. The admitted facts of the case are as follows:
That defendant No.1/KHB floated a scheme called 'Ashraya Scheme' to provide houses and sites to the people belonging to the weaker section of the society, by issuing the Government Orders No.HUD 407 KHB 91 dated 24.06.1991
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C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012 and No.HUD 535 KHB 91 dated 04.11.1991 proposing to build 1,75,000 houses in rural areas, 30,000 houses in Bangalore urban areas and 30,000 houses in other urban areas. On 14.11.1991, the Government entrusted the project to defendant No.1/KHB. Cost of the houses in rural areas and in urban areas was fixed at Rs.15,000/- and Rs.16,000/- each respectively. Accordingly, defendant No.1 on 14.11.1991 invited the tenders from the contractors. The tenders of the plaintiff were accepted and agreements were entered into between the defendants and the plaintiffs for construction of 8079 houses in 7 assembly constituencies namely Byadagi, Ranibennur, Hirekerur, Hanagal, Shiggaon, Shirahatti and Haveri in Dharwad district and 10,251 houses in 9 assembly constituencies namely Ramdurga, Parasgad, Bailhongala, Kittur, Khanapur, Belgaum Corporation, Uchgaon, Bagewadi and Gokak in Belgaum district. The letter of intent and work orders were issued for release of the mobilization fund. The defendants took the bank guarantees from the plaintiff issued by State Bank of Hyderabad. The documents were separately marked in three suits, therefore there is duplication of exhibits and witnesses. The trial Court at least after consolidation of the suits should have
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C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012
consolidated the exhibits' numbers and the witnesses' numbers for easy reference. Since O.S.No.11145/1997 is the comprehensive suit and related to both Belgaum and Dharwad constituencies, the documents in that case can be referred for the purpose of these appeals.
25. The description of the documents/exhibits and the particulars are set out in the table below:
Ex. Description Related constituencies No. P15 Separate Agreements Byadagi, Ranebennur, to P21 for each Hirekerur, Hanagal, constituencies in Shiggaon, Shirahatti and Dharwad District Haveri P22 General conditions of contract P6 to Separate agreement Ramadurg, Parasgad, P14 for each Bailahongal, Kittur, constituencies in Khanapura, Belgaum Belgaum District. Corporation, Uchgoan, Bagevadi and Gokak
26. On the request of the plaintiff, the defendants released a sum of Rs.34,84,500/- as mobilization fund for the work in Byadagi, Ranebennur, Hirekerur and Hanagal constituencies and Rs.26,45,250/- with regard to Shirahatti, Haveri and Shiggaon constituencies respectively. Regarding Belgaum District constituency, no mobilization fund was released. Thus the total mobilization fund released to the plaintiff was Rs.61,29,750/-. The defendants terminated the
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RFA No.1238/2008C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012 contracts regarding Dharwad District by letters dated 20.10.1992 and 22.12.1992 and Belgaum District by letter dated 11.08.1992 on the ground that the plaintiff failed to construct the houses as per the time schedule. Whereas the plaintiff contends that the defendants themselves failed to handover the sites as per the agreement, therefore they were guilty of breach of contract and liable to pay the damages.
27. The defendants' Counsel contended that the work should have been completed within six months from the date of agreement. Whereas the plaintiff contends that the work had to be completed within six months from the date of the delivery of the possession of the sites and in those six months, three months' monsoon period has to be excluded. Therefore this Court has to find out what was the time schedule agreed.
28. As rightly pointed by the trial Court, all the agreements were similar and contain the same clauses. Clause 2(b) in all the agreements so far it relates to the time schedule reads as follows:
"Program of work
(b) The Time allowed for carrying out the work as entered in the tender shall be strictly observed by the
- 23 -RFA No.1238/2008
C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012
contractor, it shall be reckoned from the day of handing over to the contractor, the work site area either full or in parts."
29. In Clause 6 of the agreement, the clause regarding period of construction is as follows:
"6. Period of construction- six months excluding monsoon......................."
30. As per condition No.11, it was agreed that the time allowed for the work from the date of the work order to the contractor is six months period excluding the rainy season from 15th June to 15th September. The defendants' witnesses have unequivocally admitted that the time stipulated starts to run after handing over the possession of the sites. J.K.Sridharamurthy, the Manager of KHB who is examined as PW.1 in the defendants' suit unequivocally admitted that the time stipulated for construction of the houses was nine months including the monsoon period and that nine months had to be reckoned from the date of delivery of the possession of the sites. The conditions of agreement further show that the concerned Executive Engineer had to conduct monthly review of the progress of work and Chief Engineer had to conduct bimonthly review of the progress of the work. The agreement further provides for
- 24 -
RFA No.1238/2008C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012 extension of time by the defendants to the plaintiff for completion of the work in case the work is not completed on time, on being satisfied about the reason for extension.
31. Therefore the question is whether the defendants handed over the possession of the sites soon after the agreements and the date of termination was after six months of such delivery of possession of the sites to the plaintiff. The defendants terminated the contracts relating to the constituencies of Dharwad and invoked the bank guarantees on the ground that the work was not completed within the scheduled time. To show that the sites were not handed over within the scheduled time, the plaintiff relied on Exs.P1 and P2 the charts prepared by it about delivery of possession of the sites. Ex.P1 is the chart relating to the constituencies in Belgaum District and Ex.P2 relates to the constituencies in Dharwad District. For the purpose of easy grasp, the relevant particulars in Exs.P1 and P2 are extracted as below:
Description Constituency
Bagewadi Bailhongala Kittur Ramadur Parasgad Khanapur Belgaum Uchgaon Gokak
ga Corpn.
Total No. of 1097 1147 1097 1147 1147 1147 1150 1097 1222
sites
supposed to
be handed
over by KHB
at
Commenceme
nt of contract
- 25 -
RFA No.1238/2008
C/w RFA No.1251/2008
RFA No.1252/2008
RFA Crob.No.5/2012
Total No. of 101 80 25 Nil Nil Nil Nil Nil Nil
sites handed
over till date
of cancellation
of contract
Dates of 20 sites on 20 sites on 25 Not Not Not Not Not Not
handover of 15.7.92 20.7.92 sites on applicable applicabl applicabl applicabl applicabl applic
sites 15 sites on 60 sites on 15.7.92 e e e e able
20. 7.92 22.7.92
66 sites on
11.8.92
Completion 20 houses 20 houses 25 Not Not Not Not Not Not
date as per on 15.3.93 on 15.3.93 houses applicable applicabl applicabl applicabl applicabl applic
contract 15 houses on e e e e able
on 15.3.93 60 houses 15.3.93
66 houses on 15.3.93
on 15.3.93
Date of 11/8/92 11/8/92 11/8/9 11/8/92 11/8/92 11/8/92 11/8/92 11/8/92 11/8/9
cancellation of 2 2
contract
Balance time 20 houses - 20 houses 25 Not Not Not Not Not Not
for completion 7 months - 7 months houses applicable applicabl applicabl applicabl applicabl applic
still available -7 e e e e able
on date of 15 houses -
60 houses months
cancellation of 7 months
- 7 months
contract
66 houses -
7 months
No. of joint
progress Nil Nil Nil Nil Nil Nil Nil Nil
review Nil
meetings held
by Executive
Engineer as
required by
clause 2 (c) of
agreement
No. of
progress Nil Nil Nil Nil Nil Nil Nil Nil Nil
reviews by
Chief Engineer
in terms of
Clause 2 (c)
of agreement
Description Constituency
Haveri Shirhatti Shiggaon Byadagi Ranebennu Hirekarur Hangal
r
Total No. of sites
supposed to be 1147 1147 1197 1147 1197 1097 1147
handed over by
KHB at
- 26 -
RFA No.1238/2008
C/w RFA No.1251/2008
RFA No.1252/2008
RFA Crob.No.5/2012
Commencement of
contract
Total No. of sites
handed over till 249 684 182 32 Nil Nil Nil
date of cancellation
of contract
Dates of handover 50 sites on 283 sites 28 sites on 32 sites Not Not 8 sites on
of sites 24.4.92 on 20.7.92 on applicable applicable 13.10.92
07.08.92 26.9.92
76 sites on 25 sites on
10.9.92 179 sites 23.9.92
on 24.9.92
123 sites 94 sites on
on 222 sites 5.11.92
15.10.92 on
03.11.92 35 sites on
12.11.92
Completion date as 50 houses 283 28 houses 32 Not Not 8 houses
per contract on 23.1.93 houses on on 15.3.93 houses on applicable applicable on
15.3.93 25.03.93 14.4.93
76 houses 25 houses
on 15.3.93 179 on 22.3.93
houses on
123 23.3.93 94 houses
houses on on 4.5.93
14.4.93 222
houses on 35 houses
2.5.93 on 11.5.93
Date of cancellation 22/12/1992 22/12/1992 22/12/1992 20/10/199 20/10/1992 20/10/1992 20/10/19
of contract 2 92
Balance time for 50 houses- 283 houses 28 houses- 3 32 houses Not Not 8 houses
completion still 1 month - 3 months months - 5 applicable applicable - 6
available on date of months months
cancellation of 76 houses 179 houses 35 houses -
contract - 3 months - 3 months 3 months
123 houses 222 houses 94 houses -
- 4 months - 4.5 4.5 months
months
35 houses -
4.5 months
No. of joint
progress review
meetings held by
Executive Engineer Nil Nil Nil Nil Nil Nil Nil
as required by
clause 2 (c) of
agreement
No. of progress
reviews by Chief
Engineer in terms Nil Nil Nil Nil Nil Nil Nil
of Clause 2 (c) of
agreement
- 27 -
RFA No.1238/2008
C/w RFA No.1251/2008
RFA No.1252/2008
RFA Crob.No.5/2012
32. Exs.P1 and P2 were not disputed by the
defendants in any manner either in the cross-examination of the plaintiff's witnesses or in the evidence of defendants' witnesses. Nothing was produced to show that the sites referred to in Exs.P1 and P2 were handed over to the contractor in variance with the entries in Exs.P1 and P2. J.K.Sridharamurthy official of defendants/KHB in his cross- examination admitted that his statement in affidavit by way of examination in chief that the construction should have been completed within six months was incorrect. He has admitted that the time stipulated including the monsoon period was nine months and that had to be calculated from the date of delivery of possession of sites to the contractor. Though he claimed that the sites were handed over to the contractor according to the schedule, he further states that he cannot give such dates of delivery of possession of sites. At another breath, he states that despite writing several letters, the plaintiff did not come forward to take possession of the sites in respect of four assembly constituencies. But the said letters were not produced before the Court and he admitted non-production of the same. He further admitted that the contracts were terminated even before expiry of
- 28 -
RFA No.1238/2008C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012 stipulated period. Under the circumstances, the trial Court was justified in relying on Ex.P1 and P2 and the oral evidence of the plaintiffs' witnesses.
33. Ex.P1 shows that the defendants did not hand over a single site in Ramdurga, Parasgad, Khanapura, Ucchgaon, Gokak, Belgaum corporation etc. It further shows that the defendants handed over only 101 out of 1097 in Bagewadi constituency, 80 out of 1147 in Bailhongal, 25 out of 1097 in Kittur Constituencies. Ex.P1 further shows that the period for completion of the construction of the houses in those constituencies was expiring on 15.03.1993. Whereas, the contract was terminated on 11.08.1992 i.e., seven months before the expiry of the stipulated period. So far as Ramadurg, Parasgad, Khanapur, Belgaum Corporation, Ucchgaon and Gokak, the time for commencement of the work itself had not started.
34. Ex.P2 shows that the defendants had not handed over single site in Ranebennur, Hanagal and Hirekerur Constituencies. In Byadagi constituency as against 1147 sites, only 32 sites were handed over. So far as Haveri and Shirahatti only 249 and 684 out of 1147 in each taluk were
- 29 -
RFA No.1238/2008C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012 handed over and in Shiggoan out of 1197 sites only 182 sites were handed over. Ex.P2 and other evidence on record goes to show that, the time for completion of the contract in those constituencies was about to expire on 23.01.1993, 15.03.1993, 14.04.1993, 23.03.1993, 02.05.1993, 22.03.1993, 04.05.1993 and 11.05.1993 (based on data available regarding delivery of the possession of the sites). Whereas the contract was terminated on 20.10.1992 and 22.12.1992. That was much before the agreed time.
35. The plaintiff contended that the defendants had to mark out the sites and deliver the same to it to execute the work. The plaintiff further contended that in some places the defendants directed the plaintiff to construct the houses without such demarcation and the local people laying claim over the same obstructed for taking possession. Another Official by name B.R.Hosur, the Executive Engineer, who was examined as PW.2 states that he has given his evidence based on the records and he has no personal knowledge about the facts in question. He further admits that he had no knowledge about the affairs of defendant No.1 relating to Belgaum District. He admits that marking out the sites means marking the exact location of the places where the
- 30 -
RFA No.1238/2008C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012 houses had to be constructed. Though he claims that separate work orders were issued in respect of different villages, he says that he is unaware of it. According to him, the xerox copies of the work orders are available in the office records. He unequivocally admits that the defendants had to handover possession of sites to the plaintiff for taking out the construction work. One Mohammed Fayazuddin, the Executive Engineer of defendant No.1 deposed about the works in Dharwad district. According to him, there are records in the office of the first defendant to show the dates on which the sites were handed over to the plaintiff in respect of different constituencies in Dharwad District. According to him, the said documents were in correspondence file. As rightly pointed out by the trial Court, no such records were produced to prove that the sites were handed over to the plaintiff as alleged.
36. One T.Mallanna, the Executive Engineer of first defendant was examined as PW.4. He states in his cross- examination that he has no personal knowledge about the contract in question and he is giving evidence based on the available records and the information gathered by him. He admitted that no sites were handed over to the plaintiff in
- 31 -
RFA No.1238/2008C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012 respect of six assembly constituencies in Belgaum District. He himself admits that he is not able to state about exact number of sites which were handed over to the plaintiff in respect of Bagewadi, Bailhongal and Kittur constituencies. Relying on Exs.P51 and 52 an attempt was made to say that despite the correspondence by defendant No.4 the plaintiff itself did not receive the sites. But the above discussed evidence shows that the defendants failed to prove that the sites were handed over to the plaintiff on marking. Thus there was breach of contract on the part of the defendants in not delivering the sites as agreed.
37. The defendants contended that wherever the sites were delivered, the work was not executed as per the time schedule or the progress of the work was very slow. Therefore the agreements were terminated. The defendants could ascertain the progress of the work only if they conducted a review of the work as per the clauses of the agreements in that regard stated supra.
38. To prove that the work was in progress and the defendants without any work review falsely alleged slow progress in the work, the plaintiffs' relied on the evidence of
- 32 -
RFA No.1238/2008C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012 S.K.Mathur, the Managing Director of the plaintiff who is examined as PW.1/DW.1 and Exs.P42, P76, P77, P83, P115 to P122. Ex.P42 is a letter dated 07.05.1992 addressed by defendant No.4 the Executive Engineer, Hubli Division to defendant No.1. The said document is not disputed. In that document defendant No.4 himself had admitted that the excavation work in respect of 50 houses at Karajagi railway station site was in progress. That letter further shows that within 2 months of entering into contract, such progress was made. The witness J.K.Sridhar Murthy admitted that there was progress in the work entrusted to the plaintiff with reference to the sites handed over to it. Ex.P76 was marked through S.K.Mathur. The said admitted document shows that the plaintiff had made arrangements for exclusive supply of blocks from three manufacturers. The said document further shows that the plaintiff was entering into contracts with some other vendors for supply of power, water, labour and procuring the machines from Shirke machines and made arrangements for procuring cements, jalli stones and deployed the technical staff etc. Ex.P77 is another such work progress report. Ex.P115 is the letter dated 24.11.1992 addressed by defendant No.4 to the Manager of State Bank
- 33 -
RFA No.1238/2008C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012 of Hyderabad. In that letter, defendant No.4 himself had admitted that the work is going on. Exs.P116 to P122 show that the plaintiff was working on the project. Those documents also show that they were facing problems in taking possession of the sites due to some litigation. In Ex.D1 the letter dated 06.08.1992 (marked in O.S.No.8665/1995) addressed by defendant No.4 to the plaintiff, he himself admits that the work is in progress and the construction of the houses were to be completed by the end of March 1993.
39. In the light of the aforesaid documents and the evidence, the burden was on the defendants to prove that there was slow progress in the work. The defendants did not produce any material to show that the Executive Engineer and Chief Engineer conducted the work review as stipulated in the agreement. The defendants' witnesses unequivocally admitted that they have not produced any document to show that such work review was conducted. Therefore the contention that there was slow progress or no progress in the work was rightly rejected by the trial Court. Contrary to their own lapses, the defendants under Exs.P79 and P80 dated 20.10.1992, 22.12.1992 terminated the contracts relating to
- 34 -
RFA No.1238/2008C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012 7 constituencies in Dharwad district and under Ex.P78 dated 11.08.1992 terminated the contract relating to 9 constituencies of Belgaum District arbitrarily.
40. The trial Court on sound appreciation of the evidence has returned the finding that the defendants were guilty of breach of contract and the termination of contracts were illegal. The said finding does not warrant any interference.
Reg. Time being the essence of contract:
41. As noted above, the works were to be completed within nine months including monsoon season. The said 9 months had to be computed from the date of delivery of possession of sites. Further the contracts provide for extension of time by the Executive Engineer on review of the work on the basis of the progress achieved. The contention that there was no progress in the work is already rejected. The terms of the contract show that there was provision for extension of time for completion of the work. Admittedly, under Ex.D1 (O.S.No.8556/1995) defendant No.4 had extended time for execution of the work in respect of Dharwad District till March 1993.
- 35 -
RFA No.1238/2008C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012
42. Clause 2(d) of the condition of the contract under Ex.P22 states that, if there is delay on the part of the contractor to perform the work, according to Clause 2(b) &
(c) they shall be liable to pay penalty at certain percent of the estimated costs of the balance work which could extend upto 7½ %. Thus it is clear that the contract contained the clause for extension of time and imposition of penalty in cases of default.
43. The Hon'ble Supreme Court in para 8 of the judgment in Hind Constructions Contractor's case referred to supra held as follows:
"8. It will be clear from the aforesaid statement of law that even where the parties have expressly provided that time is of the essence of the contract such a stipulation will have to be read along with other provisions of the contract and such other provisions may, on construction of the contract, exclude the inference that the completion of the work by a particular date was intended to be fundamental, for instance, if the contract were to include causes providing for extension of time in certain contingencies or for payment of fine or penalty for every day or week the work undertaken remains unfinished on the expiry of the time provided in the contract such clauses would be construed as rendering ineffective the express provision relating to the time being of the essence of contract. The emphasised portion of the aforesaid statement of law is based on
- 36 -RFA No.1238/2008
C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012 Lamprell v. Billericay Union, Webb v. Hughes and Charles Rickards Ltd. v. Oppenheim. ........................."
(Emphasis supplied)
44. Thus it becomes clear that even if one clause of the contract says that time was the essence of the contract and if there were clauses for extension of time and imposition of penalty, then the clause with regard to time being the essence of the contract renders ineffective. The trial Court considering the aforesaid facts and circumstances and the aforesaid judgment of the Hon'ble Supreme Court rightly rejected the contention that time was the essence of the contract.
Reg. Jurisdiction:
45. Learned Counsel for the defendants vehemently argued that the works in question were to be executed in Dharwad and Belgaum, defendant Nos.3 and 4 were the residents of Belgaum and Dharwad respectively, therefore, City Civil Court had no territorial jurisdiction to try the suit. Section 20(b)(c) of CPC states that the suit can be filed before the Court within whose jurisdiction any one of the defendants resides or works or carries its business or cause of action to suit wholly or in part arises.
- 37 -
RFA No.1238/2008C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012
46. As rightly pointed out by the trial Court, the suit agreements were executed in Bangalore, defendant Nos.1 and 2 reside within the jurisdiction of the trial Court namely XXVII Additional City Civil and Sessions Judge, Bangalore. Therefore the suit was well within the territorial jurisdiction of the trial Court. Further the defendants themselves filed the suits before the very same Court in O.S.No.7462/1995 and O.S.No.8665/1995 in relation to the contracts of 7 constituencies of Dharwad district claiming that the said Court has jurisdiction. Therefore the contention that the trial Court lacked territorial jurisdiction to entertain O.S.No.11145/1997 is ridiculous and absurd. Suffice it to say that innumerable judgments relied on by learned Counsel for the defendants are not applicable to the facts of the present case. The finding of the trial Court on that point is in accordance with law and evidence on record. Reg. Common impugned judgment in O.S.No.7462/1995, O.S.No.8665/1995 and O.S.No.11145/1997:
47. Defendants of O.S.No.11145/1997 filed O.S.No.7462/1995 for recovery of Rs.53,66,130/- and O.S.No.8665/1995 for recovery of Rs.40,73,685/- with interest at 18% per annum against the contractor and the
- 38 -
RFA No.1238/2008C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012 Bank on the ground that the contracts were terminated. The said suits were filed claiming that the contractor failed to perform his part of the contract and on termination of the contract they are liable to refund mobilization funds released by KHB with interest and the Bank was liable to encash the bank guarantees on the request of KHB. It was contended that the Bank wrongfully declined to encash the bank guarantees, therefore the bank and the contractor were jointly and severally liable to pay the said amount with interest 18% p.a. Whereas the contractor claims that the termination of the contract itself was illegal and by such illegal termination he suffered damages to the tune of Rs.5,36,38,077/-. Both contractor and the bank contended that invocation of the bank guarantees was not in accordance with the terms of the bank. Therefore they are not liable to pay any amount. The contractor claims that as against that the defendants themselves were liable to pay compensation of Rs.5,36,38,077/ - with interest at 18% per annum under different heads as per the table below:
Sl. Details In Rupees In Rupees
No
.
1 15% profit on the contract value 1,83,89,250/-
for construction 8079 houses in
Dharwad District-Contract value
is Rs.12,25,85,000/-
- 39 -
RFA No.1238/2008
C/w RFA No.1251/2008
RFA No.1252/2008
RFA Crob.No.5/2012
2 Expenditure incurred by the
plaintiff on executing the works
for Dharwad contract 70,75,981/-
Less Mobilisation advance
received from Karnataka 61,29,750/- 9,46,231/-
Housing Board.
3 Expenditure incurred by the
plaintiff in executing the works
for Belgaum contract 23,68,152/-
4 Interest on items 2 and 3 above
from the date of incurring to 10,67,444/-
date:
5 General damages on account of
loss of 5 business and loss of
reputation: 75,00,000/-
Total 3,02,71,077/-
6 15% profit on the contract value 2,33,67,000/-
for construction of 10,251
houses in Belgaum District
already included in plaint:
Contract value
Rs.15,57,80,000/-
Total Claim: 5,36,38,077/-
48. While answering the aforesaid point it is already held that the termination of the contracts by the defendants are arbitrary and illegal. In the similar circumstances, the Hon'ble Supreme Court in para 12 of the judgment in Mahabir Auto Stores's case referred to supra held that the defendants terminated the contract even without giving any opportunity to the plaintiff to justify itself. Therefore it was held that when the State or the statutory bodies enter into contract with the citizens, it should be reasonably fair. Referring to its several earlier judgments in that paragraph it was held that even though the rights of the citizens are in the
- 40 -
RFA No.1238/2008C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012 nature of contractual right, the manner, the method and the motive of decision of entering or not entering into contract are subject to judicial review on the touchstone of relevance or reasonableness, fair play, natural justice, equality and non discrimination in the type of the transactions and the nature of the dealing.
49. The plaintiff contended that the defendants wanted to give the contract to one Swarnamukhi Building Components Ltd. and Akshaya Constructions for extraneous consideration. Therefore, they terminated their contract with the plaintiff without any reasons under the colour that the progress of the work was slow. According to the contractor, such termination is colourable exercise of the power.
50. The plaintiff's witnesses viz., B.R.Hosur, Mohammed Fayazuddin and Mallanna in their cross- examination unequivocally admitted that immediately after termination of the contract, the defendants without re- tendering entrusted the same to one Swarnamukhi Building Components in Dharwad District and to one Akshaya Constructions in Belgaum District. Their evidence further shows that even before termination of the contracts pertaining to Belgaum District, they have entrusted the
- 41 -
RFA No.1238/2008C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012 contracts to Akshaya Constructions relating to that district without re-tendering. Therefore there is lot of force in the contention of the plaintiff that termination of the contracts against it were malafide and for extraneous consideration of favouring the aforesaid two contractors.
51. The witnesses S.K.Mathur and H.Sreenivasan are the plaintiff's Managing Director and Chartered Accountant respectively. S.K.Mathur reiterated how they arrived at the damages claimed by them. They have deposed about the arrangements which were made to execute the work, whether the sites were handed over to the contractor. Rs.94,44,133/- was claimed as expenditure incurred by the contractor, as per their account books consisting of ledger books Exs.P85 to P93. They rely on Exs.P94 to P105/vouchers to support the expenditure incurred by the contractor.
52. The witnesses have spoken about Exs.P106 to P110 the auditors reports with balance sheets for four years from 1991-1992 to 1995-1996. Both witnesses state that accounts were maintained regularly in usual course and the same were submitted to the Income Tax Authorities and the
- 42 -
RFA No.1238/2008C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012 Registrar of Companies. According to their evidence Ex.P111 was the Chartered Accountant's certificate for the total expenditure on the project with bifurcation between Dharwad and Belgaum District.
53. The plaintiff claimed that since they had taken out work in those districts during that time, the contractor had not accepted any other work. Exs.P85 to P93 were account books relating to the suit contracts only. According to their evidence, the plaintiff has incurred expenditure of Rs.70,75,981/- for Dharwad District on deducting mobilization advance of Rs.61,29,750/- received from the Board, the loss suffered by the contractor regarding Dharwad District is Rs.9,46,231/-.
54. According to the plaintiff's evidence, the plaintiff incurred expenditure of Rs.23,68,152/-. Admittedly regarding Belgaum District, no mobilization funds were released. The plaintiff's witnesses have spoken about arrangements made to execute the work in question like establishment of six concrete block making factories in Dharwad and Belgaum Districts, obtaining the lands in question from Town Municipal Council, Haveri and conducting of reconnaissance survey etc. Their deposition was supported by Exs.P26 to P32 and
- 43 -
RFA No.1238/2008C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012 Ex.P46, the letter dated 31.07.1992 issued by the Chief Administrative Officer regarding lease of land for block making factories and the plaintiff's letter dated 19.12.1992 to the Board. Admittedly part of the work was executed. Due to abrupt termination of the contracts, except mobilization of the funds received, no other amount was received by the contractor. The plaintiff assessed damages at 15% of the contract value for the construction of 8079 houses in Dharwad District. The defendants did not dispute that the contract value of Dharwad District was 12,25,85,000/- and Belgaum District was 15,57,80,000/- respectively.
55. The Hon'ble Supreme Court in the judgment in A.T.Brij Paul Singh. V. State Of Gujarat37 held that the contractor is entitled to 15% of balance of price of the works as damages in cases of breach of contract. The trial Court applied the same and accepted that the claim of the plaintiff for Rs.1,83,89,250/- in respect of Dharwad District and Rs.2,33,67,000/- in respect of Belgaum District by way of 15% of the profits of the contract value.
56. Since the matters arise out of the commercial contract, the plaintiff claimed Rs.10,67,444/- by way of 37 AIR 1984 SC 1703
- 44 -
RFA No.1238/2008C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012 interest at the rate of 18% per annum. The expenditure incurred by it was Rs.33,14,383/- (Rs.9,46,231/- + Rs.23,68,152/-). Since the transaction in question is commercial in nature, the trial Court rightly allowed the interest at 18% per annum claimed by the plaintiff.
57. The plaintiff claimed Rs.75,00,000/- by way of general damages due to arbitrary termination of the contract due to which his reputation was foiled and he suffered business loss also. Except the self serving evidence of S.K.Mathur/DW.1 there was no other independent evidence to show that due to termination of the contract, reputation of the plaintiff was lowered in the society and such loss and reputation had a dent on his business prospects.
58. So far as loss of business suffered by him, he claimed 15% of the project costs as damages on the head of loss of profit. He had not commenced the work in Belgaum District and he had not executed substantial portion of the work in Dharwad District due to not handing over of the sites. On that count also, the trial Court has awarded damages of Rs.2,33,67,000/-. After awarding such compensation, again awarding compensation on the head of business loss amounts to duplication. According to the plaintiff's evidence
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RFA No.1238/2008C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012 itself, he did not take up any other work for the purpose of execution of the work in dispute. When he says that he has put all his men and material for the purpose of his work, as rightly pointed out by the trial Court, he accepting other works during the same period does not arise and more so that is not acceptable. Therefore the trial Court was fully justified in rejecting such claim of Rs.75,00,000/-. Reg. Interest:
59. The plaintiff claimed interest at 18% per annum on all the items of damages claimed by it. The actual expenditure or the investment made by the plaintiff was Rs.9,46,231/- and Rs.23,68,152/-. The rest of the damages was by way of loss of profit for the contract period. The damages of Rs.1,83,89,250-/- and Rs.2,33,67,000/- was in all amounting to Rs.4,17,56,250/- was granted by way of profit without execution of the work. Therefore the trial Court justifiably awarded interest at 18% per annum on the expenditure incurred by the plaintiff and awarded interest at 6% per annum on the award by way of profits. Under such circumstances, it cannot be said that the trial Court exercised discretion arbitrarily in awarding interest. Moreover the defendants are public authorities. The damages have to be
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RFA No.1238/2008C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012 paid from public funds. On that count also, awarding interest at 18% per annum on the damages is not appropriate. Under such circumstances, the judgments relied on by learned Counsel for the plaintiff cannot be justifiably applied to the facts of the present case regarding interest. Reg. Bar by Arbitration clause:
60. So far as the contention regarding suit being barred by arbitration clause, as rightly pointed out by the trial Court, such plea should have been taken soon before filing of the written statement. Firstly, that was not seriously urged before this Court. Secondly, the defendants should have raised such contention before filing of the written statement, as per Section 8 of the Arbitration Act, 1996. Further the defendants themselves filed other two suits waiving arbitration clause. Therefore, the trial Court rightly rejected the contention of maintainability of the suit in view of arbitration clause in the agreement. Reg. Invocation of Bank guarantees:
61. Much was argued on behalf of the defendants that the Bank committed default in declining to encash the bank guarantees and that amounts to violation of the terms of the bank guarantee, therefore, the Bank is liable to make
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RFA No.1238/2008C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012 good the sums of the bank guarantees with interest. Whereas the bank claimed that the bank guarantees were not invoked in accordance with the terms of the bank guarantee, therefore, it was justified in declining to encash the bank guarantees.
62. In view of the finding of this Court that the defendants themselves were guilty of breach of contract, they are not entitled to invoke the bank guarantees. If the bank guarantees were permitted to be encashed, that would have led to miscarriage of justice and multiplicity of the proceedings, as the plaintiff had to again take recourse for recovery of the said amount. Therefore, the defendants were not entitled to invoke bank guarantees.
63. As per Clause 2 of the Bank guarantee bonds, the defendants were required to make demand invoking Bank guarantees in following the terms that amount is claimed as damages by way of loss or damage caused to or would be caused to or suffered by KHB by reason of any breach by the said contractor of any of the terms or conditions contained in the said agreement or by reasons of the contractor's failure to perform the said agreement.
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RFA No.1238/2008C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012
64. Ex.P10 (O.S.No.8665/1995) is the letter which is similar to the other letters invoking bank guarantees. In the said letter, there was no whisper that the bank guarantee is being invoked and the amount is being claimed by way of loss or damage caused to or would be caused to or suffered by KHB as contemplated under Clause 2 of the Bank guarantee bond. The Bank claims that since the bank guarantees invocation letters did not include that clause, it was not liable to encash the bank guarantees. Since the said material clause was not incorporated in invocation letters, it cannot be said that the bank's rejection to encash them was arbitrary.
65. Having regard to the aforesaid facts and circumstances of the case the judgments in National Thermal Power Corporation Ltd.'s, Hindusthan Steel Workers Constructions Ltd., State of Maharastra's and Daewoo Motors India ltd.'s cases referred to supra relied on by learned Counsel for the defendants on this point cannot be justifiably applied to the facts of this case. Reg. Non-joinder of parties:
66. So far as the contention that the suit was barred for non-joinder of the parties, the records show that the
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RFA No.1238/2008C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012 defendants in O.S.No.11145/1997 had not raised such contention before the trial Court and no issues were framed on the said contention. As against that, they contended that the suit was bad for mis-joinder of the parties. Therefore it is not open to them to raise such contention for the first time before this Court.
67. The above discussions show that the trial Court on sound appreciation of all the evidence, the applicable law and supplying sound reasons has partly decreed the suit in O.S.No.11145/1997 and dismissed O.S.No.7462/1995 and O.S.No.8665/1995. It can be said that the impugned judgment and order is well written judgment. Therefore there are no grounds to interfere with the same. Hence the following:
ORDER RFA No.1238/2008, RFA No.1251/2008, RFA No.1252/2008 and RFA Cross objection No.5/2012 are hereby dismissed.
The judgment in O.S.No.7462/1995, O.S.No.8665/1995 and O.S.No.11145/1997 are hereby confirmed.
No order as to costs.
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C/w RFA No.1251/2008 RFA No.1252/2008 RFA Crob.No.5/2012 The original title deeds furnished, if any, as security by respondent No.1 in R.F.A.No.1238/2008 shall be returned to him.
Sd/-
JUDGE Sd/-
JUDGE KSR