Gujarat High Court
Kunal Structure (India) Ltd vs Gujarat Industrial Development ... on 20 March, 2017
Author: Anant S. Dave
Bench: Anant S. Dave, A.Y. Kogje
C/SCA/12115/2016 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 12115 of 2016
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KUNAL STRUCTURE (INDIA) LTD....Petitioner(s)
Versus
GUJARAT INDUSTRIAL DEVELOPMENT CORPORATION &
1....Respondent(s)
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Appearance:
MR SP MAJMUDAR, ADVOCATE for the Petitioner(s) No. 1
MR. HJ KARATHIYA, ADVOCATE for the Petitioner(s) No. 1
MR RUTVIJ M BHATT, ADVOCATE for the Respondent(s) No. 1
NOTICE SERVED BY DS for the Respondent(s) No. 2
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CORAM: HONOURABLE MR.JUSTICE ANANT S. DAVE
and
HONOURABLE MR.JUSTICE A.Y. KOGJE
Date : 20/03/2017
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE ANANT S. DAVE)
1. Heard learned advocate for the parties.
2. This petition under Article 226 of the Constitution of India is preferred by the petitioner challenging notice/order dated 2.7.2016 issued by respondent No.2, by which, the petitioner is informed that an amount of Rs.45.87 lakhs paid in excess to the petitioner for the additional/extra work completed by the petitioner in the year 2010 will be recovered from the amount due and payable to the petitioner from ongoing/current contract pertaining to Dahej Drainage Main line.
3. That certain facts are not in dispute about work order given to the petitioner by GIDC for construction of new Page 1 of 11 HC-NIC Page 1 of 11 Created On Mon Aug 14 15:59:52 IST 2017 C/SCA/12115/2016 ORDER roads and expansion of existing roads, laying down infrastructure namely pavement, street light etc. which was to be completed by April, 2009 and in case if the actual work is 30% more than the so mentioned in the tender, the contractor will be entitled for payment of the price prescribed in SOR price list. However, the petitioner was assigned extra work by GIDC for the approximate price of Rs.7.35 crores and the above work was also completed within extended time limit by April, 2010 at the cost of Rs.51.62 crores in total. Since audit objection was raised in August, 2011 about excess payment of Rs.45.87 lakhs paid to the petitioner for extra/additional 30% work executed by the petitioner, respondent GIDC was informed to comply with remarks of audit objection as above. Initially reply was given by GIDC towards compliance to the audit objection that upon execution of contract initially and also for extra work the contractor was paid the amount and accordingly to them excess amount will be not more than 13.48 lakhs as per prescribed price list (SOR) 2009-2010. The above explanation and compliance towards audit objection was not accepted and, therefore, impugned communication dated 2.7.2016 is addressed to the petitioner ordering to recover Rs.45.87 lakhs towards compliance of audit objection para 3.10 from the current/ongoing work assigned to the petitioner for Dahej Drainage Main Line etc.
4. At the outset, learned advocate for the petitioner has drawn our attention to the oral order dated 20.7.2016 passed by this Court at the time of issuance of notice and a reference made to certain observations of the Page 2 of 11 HC-NIC Page 2 of 11 Created On Mon Aug 14 15:59:52 IST 2017 C/SCA/12115/2016 ORDER judgement dated 1.3.2016 in Special Civil Application No.18002 of 2015 about affording no opportunity of hearing to the petitioner before such an order was passed and, therefore, ad-interim stay was granted directing respondent to maintain status-quo prevailing on the date of issuing the notice. It is submitted that the action of respondent of recovering the amount of Rs.45.87 lakhs from the current/ongoing project namely the Dahej Drainage Main Line of the petitioner is ex facie illegal and not permitted and enshrined in any of the clauses of the contract namely for extension and new construction of roads upto village Vilayat and other infrastructure facilities of pavement and streetlight. Further, there is no grievances about breach of any of the conditions of the contract executed between the petitioner and respondent- GIDC and even work including the additional and extra was executed by the petitioner to the satisfaction of respondent authority, for which, a certificate was also issued. Under the circumstances reliance placed on oral order dated 1.3.2016 passed in Special Civil Application No.18002 of 2015 by this Court having almost identical circumstances and even plea raised on behalf of respondents in that case based on clause 26 pertaining to an arbitration clause in case any dispute arises between the parties regarding breach of conditions or otherwise was considered. This Court placed reliance on decision of the Apex Court in the case of Karnataka vs. Shree Rameshwara Rice Mills, Thirthahalli reported in AIR 1987 SC 1359 and other decision in the case of Narmada Cement Co. vs. State of Gujarat and Anr. decided vide order dated 22.10.1996 in Special Civil Page 3 of 11 HC-NIC Page 3 of 11 Created On Mon Aug 14 15:59:52 IST 2017 C/SCA/12115/2016 ORDER Application No. 821 of 1995 and held that it is not permissible for the authority to recover the amount due from the contractor for the subject contract from any other existing or ongoing contract assigned to the contractor. Only when the amount of recovery is crystallized after quantification exercise can be undertaken by the authority. Thus, the action of the respondent authority deserves to be quashed and set aside.
5. As against the above, Mr. Rutvij Bhatt, learned advocate for the respondent would contend that the excess amount paid to the petitioner if not permitted to be recovered would amount loss to public exchequer and respondent-GIDC is duty bound to recover such an amount since audit objection was raised in this regard and calculation of the amount to be paid by the petitioner was based on incorrect interpretation of the terms of the contract and due to inadvertence it escaped from the notice of the respondent authority that in case of extra or additional work is more than 30% of the work shown in the contract procedure of taking recourse to prescribed price list (SOR) was to be followed. Learned advocate for the GIDC has also drawn our attention to refer to clause 30 pertaining to arbitration and submitted that if any grievance arises due to communication impugned dated 2.7.2016 the petitioner can certainly avail the above remedy or any other civil remedy and no relief be granted in exercise of powers under Article 226 of the Constitution of India. For the mistake on the part of the officers of GIDC in making such an extra payment to the petitioner Page 4 of 11 HC-NIC Page 4 of 11 Created On Mon Aug 14 15:59:52 IST 2017 C/SCA/12115/2016 ORDER contrary to terms and conditions, action taken by respondent GIDC of recovering such an amount of Rs.45.87 lakhs from Dahej Drainage Main Line the current and ongoing project assigned to the petitioner is just unreasonable warranting no interference of this Court and the petition deserves to be rejected.
6. Having regard to the facts and circumstances of the case and submissions made by learned advocate for the parties and undisputed fact emerges about completion of basic work assigned to the petitioner as per terms of contract and also an additional and extra work based on mutual understanding between the petitioner and GIDC was completed by April, 2010 to the satisfaction of GIDC. The impugned action vide communication dated 2.7.2016 by GIDC to the petitioner is solely based on audit objection of para 3.10 raised by the audit department and any recovery is to be affected for such an extra payment contrary to prescribed price list (SOR) has to be in accordance with law and recovery of such an amount from another ongoing and current project assigned to the very contractor in absence of any clause in the terms of earlier contract is not permissible. Besides, such a dispute namely payment of an excess amount for additional extra work unless is quantified and crystallized cannot be referred to the arbitrator under clause 30 of the contract. We may profitably refer to the decision to which reference is made by this Court in oral order dated 1.3.2016 passed in Special Civil Application No. 18002 of 2015 which reads as under:
3. Similar issues have come-up for consideration before this Court on various Page 5 of 11 HC-NIC Page 5 of 11 Created On Mon Aug 14 15:59:52 IST 2017 C/SCA/12115/2016 ORDER occasions. We may refer to recent judgement dated 18.02.2016 in case of Amber Builders vs. State of Gujarat and anr in Special Civil Application No. 5517 of 2015. Relevant portion of the judgement reads as under:
"7. Facts are not seriously in dispute. As per the department, the petitioner's work being not satisfactory, the road was damaged due to rainfall, which the petitioner had to repair. The case of the petitioner is that, such repair work was also completed which the department disputes. Whatever be the disputes between the petitioner and the department on this score, we cannot get away from the fact that, upon completion of the defect liability clause, the Government also released the security deposit of the petitioner. The action of the respondents, thereafter, to raise the recovery of Rs.1,09,00,092/- and threatening to recover the same if not paid by the petitioner, from the security deposit and running bills of other ongoing contracts, would not be permissible. Even the above referred Clause 43A of the contract, on which, heavy reliance is placed by the counsel would not authorize the Government to do so.
8. In case of State of Karnataka vs. Shree Rameshwara Rice Mills, Thirthahalli reported in AIR 1987 SC 1359 under somewhat similar circumstances, the Supreme Court observed as under:
"7. On a consideration of the matter we find ourselves unable to accept the contentions of Mr. Iyenger. The terms of Clause 12 do not afford scope for a liberal construction being made regarding the power 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 Page 6 of 11 HC-NIC Page 6 of 11 Created On Mon Aug 14 15:59:52 IST 2017 C/SCA/12115/2016 ORDER words in clause 12 are "and for any breach of conditions set forth herein before, 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 words 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 of 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 a 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 or 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 Page 7 of 11 HC-NIC Page 7 of 11 Created On Mon Aug 14 15:59:52 IST 2017 C/SCA/12115/2016 ORDER occasioned by the breach in view of the specific terms of Clause 12.
8. 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 disputed."
9. Learned Single Judge of this Court in case of Narmada Cement Co. vs. State of Gujarat and anr vide order dated 22.10.1996 in Special Civil Application No. 821 of 1995 interpreted the similar clause contained in the contract and observed as under:
"6. ... ... ... ... ... It is significant to notice that clause 26 of the agreement is under the heading "set off of money" due and payable. The sum can be said to be due and payable only where a claim is either admitted or in a case of dispute settled by resorting to the judicial process. Thus, where the claim is adjudicated upon by a Civil Court or an arbitrator and the breach of the contract is established and the amount of damages ascertained and decreed that a debt due and payable comes into existence, till then it is nothing more than a mere right to sue for damages and it does not fall within the words "due and payable. ... ... ... 7. Thus, I am clearly of the view that in the present case, clause 26 of the agreement cannot be attracted by the respondent to recover the amount by way of set off from the bills of agreement of 1990-91. The amount said to be due under other contracts of 1983-84 and 1988 and the same has been seriously disputed by the respondents. Thus the amount disputed has Page 8 of 11 HC-NIC Page 8 of 11 Created On Mon Aug 14 15:59:52 IST 2017 C/SCA/12115/2016 ORDER not been crystalised. It is only after the amount is crystalised by settlement or by judicial process, instead of going for execution, that the amount can be adjusted by invoking clause 26 of the agreement."
10. Division Bench of this Court in judgement dated 16.09.2009 confirmed the decision of learned Single Judge in case of Narmada Cement Co. vs. State of Gujarat and anr (supra). It was observed as under:
"We are of the view that only in cases where the claim is crystallized, the State Government can set off and adjust those amounts from the money due and payable in respect of the other contract. So far as the facts of the present case, we are of the view that the judgment rendered by the Apex Court in the case of M/s Lakshmichand & Balchand (Supra) would squarely apply. Interpreting Clause 71 of the Contract, the Apex Court held as under:
"In regard to the claim to adjustment on the second count the position is more controversial. The claim is founded in the doctrine of equitable set off, but we do not find evidence before us to bring the case within the operation of the doctrine. It is not a case where cross demands rise out of the same transaction or the demands are so connected in their nature and circumstances that they can be looked upon as part of one transaction. Nor can assistance be derived from Clause 71. The benefit of that provision can be claimed only if the amount sought to be retained is an ascertained sum, an amount which can be readily adjusted against the amount payable under the other contract. Here, the amount sought to be adjusted has yet to be determined as a liability against the contractor. It has been disputed by the appellant.Page 9 of 11
HC-NIC Page 9 of 11 Created On Mon Aug 14 15:59:52 IST 2017 C/SCA/12115/2016 ORDER Accordingly, Clause 71 cannot be invoked. xxx xx "
In our view, Clause 26 would come to the rescue of the State Government only if the amount is adjusted towards a claim which is crystallized, not otherwise. We, therefore, fully endorse the view of the learned Single Judge on the interpretation of Clause 26."
11. Recently, Division Bench of this Court, in judgement dated 21.01.2016 in Special Civil Application No. 13025 of 2015 in case of M.S.Khurana Engineering Limited vs. Ahmedabad Municipal Corporation and anr followed this decision and held as under:
"5. Thus it is well settled that without quantification and crystallization of the amount of recovery, the employer of the contract cannot unilaterally recover such amounts from the ongoing contract work of the same contractor in connection with another contract. In the said decision, Clause 26 of the contract which permitted such recovery was interpreted as to mean that recovery would be permissible only if the amount is adjusted towards the claim which is crystallized but not otherwise.
6. That being the position, respondents cannot be allowed to recover said sum from the payments due and payable to the petitioner in connection with the other ongoing contract works. To that limited extent, petition must succeed. It is therefore, provided that such amount shall not be recovered from the petitioner's payments due in connection with the other contract works. However, this would not prevent the respondents from seeking recovery through other means as permissible in law. Petition is disposed of accordingly. Direct service is permitted."Page 10 of 11
HC-NIC Page 10 of 11 Created On Mon Aug 14 15:59:52 IST 2017 C/SCA/12115/2016 ORDER
12. Under the circumstances, this petition is allowed. Impugned communication dated 11.11.2014 is set aside. Direct service is permitted. "
7. Thus, what is held in the above case can be made applicable in the facts of this case when undisputed fact remains that recovery sought to be effected by impugned communication dated 2.7.2016 by respondent-GIDC from the petitioner is from current and ongoing Dahej Drainage Main Line B-2project while the dispute has genesis in assigning of contract to the petitioner about laying down new roads and expansion of the roads and other infrastructure of pavement, street light etc. at Vilayat village of GIDC in the year 2008 for which a certificate of completion of work to the satisfaction of GIDC was given. We have no hesitation in allowing this writ petition by quashing and setting aside the impugned communication dated 2.7.2016 issued by GIDC with an observation that nothing stated in this order would preclude the respondents from taking any action in accordance with law for recovery of the dues/claim in accordance with law.
7. The petition is allowed with no order as to costs.
(ANANT S.DAVE, J.) (A.Y. KOGJE, J.) SMITA Page 11 of 11 HC-NIC Page 11 of 11 Created On Mon Aug 14 15:59:52 IST 2017