Karnataka High Court
State Of Karnataka, vs M/S. P.B.Ibrahim, on 8 May, 2020
Author: Suraj Govindaraj
Bench: Suraj Govindaraj
RFA No.4150 OF 2013
-1-
IN THE HIGH COURT OF KARNATAKA
DHARWAD BENCH
DATED THIS THE 8TH DAY OF MAY, 2020
PRESENT
THE HON'BLE MRS. JUSTICE K.S.MUDAGAL
AND
THE HON'BLE MR.JUSTICE SURAJ GOVINDARAJ
RFA NO.4150 OF 2013 (PAR/POS)
BETWEEN:
1. State of Karnataka
Represented by the
Deputy Commissioner
Uttara Kannada
Mini Vidhana Soudha
Karwar - 581 301.
2. The Chief Engineer
C & B (North Division)
Public Works Department
Dharwad. ... APPELLANTS
(By Sri.Vinayak S.Kulkarni, AGA)
AND:
M/s.P.B.Ibrahim
Engineers & Contractors
Age: 67 years
Bunder Road, Bhatkar
Uttara Kannada - 581 320. ... RESPONDENT
(By Sri.Sriranga Subbanna for
Sri.K.L.Patil & Srinivas B Naik, Advocates)
RFA No.4150 OF 2013
-2-
This RFA is filed under Section 96 of CPC against the
judgment and decree dated 25.04.2013 passed in
O.S.No.22/2008 on the file of the Principal Senior Civil
Judge, Karwar, decreeing the Suit filed for recovery of
money.
This appeal having been heard and reserved for
Judgment on 21.01.2020, this day, SURAJ GOVINDARAJ
J., through video conference delivered the following:
JUDGMENT
1. The appellants, who were the Defendants in O.S.No.22/2008, before the Principal Senior Civil Judge, Karwar have filed the present appeal being aggrieved by the judgment and decree dated 25.04.2013. The respondent was the Plaintiff in the said Suit.
2. For convenience, the parties are referred to as per their ranking before the trial court.
3. The Plaintiff had filed a suit in O.S.No.22/2008 contending that:
RFA No.4150 OF 2013 -3- 3.1. The Plaintiff was a Class I Contractor registered with the Government of Karnataka, and he had maintained a good and immaculate record.
3.2. The Suit was filed regarding illegal recovery that the 1st Defendant has made from the Plaintiff's bills in respect of the work of Karwar Harbour Project i.e., "Construction of Southern Break Waters" near Karwar Head".
3.3. Government of Karnataka on 20.12.1990 through the Executive Engineer (Ports Division), Karwar invited applications for pre-qualification from eligible Class I Contractors for the work of construction of Break Waters (Rubble Mound Type) at Karwar Port for the work detailed therein.
3.4. The Plaintiff had applied for pre-qualification, his application was accepted. Tender documents RFA No.4150 OF 2013 -4- were issued. The estimated cost of the works was about Rs.489.415 lakhs.
3.5. The Plaintiff offered his tender quoting a premium of 46.33% above the sanctioned estimate, i.e., 21.60% above CSR rates of 1992- 1993.
3.6. The same being the lowest was accepted. A mobilization advance of Rs.71.61 lakhs at a yearly interest of 18% was also released. 3.7. An agreement was entered into between the Government of Karnataka and the Plaintiff on 26.07.1993. The time for completion was 36 months, excluding the monsoon period, i.e., 15th June to 15th October. The work order also came to be issued on 24.08.1993.
RFA No.4150 OF 2013 -5- 3.8. The Plaintiff was directed to take up the execution of the work by the Department, he carried out the work and submitted his bills from time to time and until January 1997, he had submitted 20 bills as per quoted rates which were also paid.
3.9. During the course of execution of the work, the respondent came up with fresh drawings and designs which entailed additional work with additional quantities than what was envisaged in the Contract executed on 26.07.1993. The Plaintiff executed this additional work also. 3.10. Whenever additional work is required to be executed on account of alteration of the quantity of work, specification and designs, etc., Clause 13 (a)(iii)(b) came into operation. As regards, rates for quantity in excess of 125% of the RFA No.4150 OF 2013 -6- tendered items, which provided that excess quantity is to be calculated and paid for at the rates derived from the Schedule of rates prevalent at the time of executing additions and alternations work. The said Clause 13(a)(iii)(b) is reproduced herewith:
"The additional quantity which exceeds 125 percent of the tendered quantity shall be paid at the rates entered in or derived from the Schedule of rates prevalent at the time of executing additions and alterations plus or minus the overall percentage of the original tendered rates over the current Schedule of Rates of the year in which the tender is accepted as per the comparative statement prepared at the time of acceptance of the tender."
3.11. In view of the above, the Supplementary Agreement came to be executed between the Plaintiff and the 1st Defendant on 01.11.1998 (Ex.D7). The Supplementary Agreement gives RFA No.4150 OF 2013 -7- the scope of the additional work and rates thereof, which reads as under:-
"Shri.P.B.Ibrahim, the said Contractor do hereby agree to execute the additional quantities pertaining to the work of "Karwar Harbour Project - Construction of Southern Break Water from Ch.00 to 125 M. and 125 M. to 250 Mtrs at Karwar Harbour (Rubble Mound Type) at the rates and specifications noted in Schedule 'B' attached to this Agreement and in accordance with the terms and conditions of the original Agreement pertaining to the above works registered in D.A.R. No.ISC/1/Govt./Bangalore/93-94, subject to the following additional terms and conditions.
1. The Contractor has deposited additional Earnest Money deposit of Rs.7.75 Lakhs in the form of Bank Guarantee.
2. The additional works are to be executed in accordance with the revised Design and drawings enclosed to this Supplemental Agreement.
This Agreement containing pages 1 to 11 is supplement to the original Agreement No.ISC/1 Govt / Bangalore/93-94 and Registered RFA No.4150 OF 2013 -8- as ISC/30/C.E./C & B / (W) Dharwad 98-99."
3.12. Schedule B to the Supplementary Agreement clearly specifies the unit rates for 11 additional items which, according to the Plaintiff, was inclusive of published CSR rates plus the 21.6% premium which the Plaintiff had tendered. 3.13. Subsequent to the execution of the Supplementary Agreement, the Plaintiff executed and completed the additional work also and fully performed his part of the Contract. During said process, Plaintiff submitted Running Bills, i.e., R.A.Bill Nos.22 to
34. Bills Nos.22 to 33 were verified, scrutinized and paid for according to the unit rates agreed in the Supplementary Agreement.
RFA No.4150 OF 2013 -9- 3.14. However, as regards Running Bill No.34 dated 31.12.2003, the Defendants unilaterally deducted an amount of Rs.27,56,000/- without any reason or cause. On enquiry with the Defendants, the Plaintiff was informed that the said deductions were on account of audit objections raised by the Accountant General's office as regards the inclusion of sales tax @ 4% while working out the rate analysis and offering fixed unit rates for additional work. This, the Plaintiff contends, could not have been done by the Accountant General's Office since the same would amount to overriding the contractual terms agreed by and between the parties. More so, if any such change is made after the completion of the work, it would cause detriment to the Plaintiff.
RFA No.4150 OF 2013 -10- 3.15. The Plaintiff contended that Defendant, however, went by the suggestion of the Accountant General's office and deducted an amount of Rs.27,56,000/- from R.A.Bill No.34 dated 31.12.2003 as also the further sum of Rs.22,76,477/- from R.A.Bill No.35 dated 19.06.2004. However, as regards the second amount, Plaintiff contends that the reason for such deductions has neither been informed nor available on record.
3.16. The Plaintiff thereafter issued several correspondences to the Defendants seeking for explanation for the above deductions except the oral statement that a sum of Rs.27,56,000/- has been deduced as per the objections of the Accountant General's office. The Plaintiff was not informed about the same in writing. The Plaintiff contends that the action of the RFA No.4150 OF 2013 -11- Defendants in the instant case is unjust and is a breach of Contract.
3.17. The Plaintiff was then constrained to issue legal notice dated 09.02.2007 (Ex.P2). On receipt of the said notice, the Chief Engineer had referred the matter to the Secretary Public Works, Port and IWT Department, Bangalore and the Chief Engineer participated. The Plaintiff put forward his claim, and everybody had assured the Plaintiff that the Plaintiff's claim was valid and would be considered.
3.18. The Plaintiff contends that the Executive Engineer has replied to the Director, Ports and IWT Department confirming that the claim of the Plaintiff is valid and payment has to be made vide its letter dated 22.05.2007 (Ex.P9). Subsequently, the Executive Engineer on RFA No.4150 OF 2013 -12- 22.04.2008 informed the Plaintiff that since the deduction has been made as per the objections raised by Accountant General's office in terms of the observations made therein, Department could not take any stand contrary thereto. It is at that time when all modes of redressal of grievance of the Plaintiff reached a dead end that the Plaintiff filed a suit in O.S.No.22/2008 seeking for recovery of the amounts deducted on R.A.Bill Nos.34 and 35 amounting to Rs.50,32,477/- as also interest thereon @ 18% from the date of deduction till payment, etc.
4. On notice being served, Defendant No.2 appeared and filed its written statement. It is pertinent to note here that Defendant No.1 has not filed its written statement.
RFA No.4150 OF 2013 -13-
5. Defendant No.2, in its written statement, has contended as under:
5.1. The nature of work, awarding of the Contract, etc. were admitted. Defendant No.2 stated that all the amounts due as per quoted rates in the Original Agreement had been paid to the Plaintiff.
5.2. As per Clause 13 of the Original Agreement, the determination of the current data rate was analyzed and paid. However, during the said analysis, Karnataka Sales Tax was taken into consideration which could not have been done so. Hence, excess payment has been made to the Plaintiff, which was recovered in R.A.Bill Nos.34 and 35.
5.3. In terms of Clause 2(e) of the Agreement, if any excess payment was made due to RFA No.4150 OF 2013 -14- arithmetical mistake or clerical faults, the same could have been recovered from the Plaintiff and hence, so recovered.
5.4. As per Clause 13(a)(iii)(b) of the original Contract, if any additional quantity of work is done, the payment was to be made in terms of Clause 13 (d) of the original Agreement in respect of which any decision of Chief Engineer was final. Chief Engineer has already opined that the deductions made are proper and therefore, the Plaintiff cannot question the same. It is contended that rates have been determined as per Clause 13 of the Agreement, which would include the sales tax. Thus, once again adding sales tax for the purpose of rate analysis did not arise and was wrong.
RFA No.4150 OF 2013 -15- 5.5. Addition of Karnataka sales tax was contrary to Clause 37 of the Agreement since any quoted amount included all taxes including sales tax. Thus, the addition of KST again is contrary to Clause 37 of the original Agreement.
5.6. The audit department exercises financial control over the 2nd Defendant and hence, execution of the work and payment made is governed by pre and post audits of the audit department. Hence what has been done by 2nd Defendant was proper and correct. In the above background, 2nd Defendant sought for dismissal of the Suit.
6. Based on the above pleadings, the trial court framed the following issues:
6.1. Whether the Plaintiff proves that a sum of Rs.50,32,477/- from his R.A.Bill No.34 and RFA No.4150 OF 2013 -16- 35 as mentioned in para No.16 and 17 of the plaint, was illegally recovered and deducted by the Defendants?
6.2. If so, is plaintiffs entitled to recover the same with interest at 18% per annum from the date of the respective recoveries as detailed in para 22, amounting to Rs.44,22,320?
6.3. Is Defendants entitled to revise and change the agreed rates on the basis of audit observations?
6.4. Is the payment to the plaintiff contractor governed by the Agreement executed between the parties or it is subject to the audit objections, if any, though contrary to the Agreement?
6.5. Is Plaintiff entitled for refund of the amount deducted/recovered by Defendants with interest as claimed?
6.6. What order or decree?"
7. Issues were answered as under:
"Issue No.1: In the affirmative Issue No.2: In the affirmative Issue No.3: In the negative Issue No.4: Answered as the payment to the plaintiff-contractor is governed by the Agreement but not by virtue of audit objection RFA No.4150 OF 2013 -17- which is contrary to the Agreement dated 26/7/1993.
Issue No.5: In the affirmative
Issue No.6: As per the order herein
below for the following"
8. On behalf of the Plaintiff, Sri.Mossa K.Ibrahim was examined as PW-1 and Exs.P1 to P11 were marked. On behalf of 2nd Defendant, Sri.Krishna Siddaling Jamble, Executive Engineer, Port Division was examined as DW-1. Sri.Shivappa Yellappa Kundaragi, Superintending Engineer, PWB and IWT, Dharwad Circle was examined as DW-2. Sri.Puttappa B.L., Senior Audit Officer, Office of Principal Accountant General (Economic Services and Revenue Sector Audit), Bangalore was examined as DW-3 and Exs.D1 to D25 were marked.
RFA No.4150 OF 2013 -18-
9. The trial court on hearing the parties, after examining the pleadings, both documentary and oral evidence on record held that: 9.1. The objection raised by the Accountant General was that excess payment was made as regards Running Bill No.34 and no objection has been raised in respect of Running Bill Nos.1 to 21. Further observed that the objection was as regards the rate arrived at in supplementary Contract and nor as regards, the payment per se. 9.2. On account of the mistake committed by the Defendant authorities while assessing and fixing rates, the authorities could not make any deductions and recover the so-called amount due.
RFA No.4150 OF 2013 -19- 9.3. Since the Plaintiff was not at all part of this process, since it was determined internally by the Department, the Plaintiff could not be made to suffer on account of the mistake if any committed by the Defendants. 9.4. In view of the above findings, the trial court decreed the Suit and directed the Defendants-State authorities to make payment of Rs.96,13,319/- with future as well as current interest from the date of filing of Suit till the date of realization of decretal amount both at the rate of 18% per annum on the principal amount.
10. The Defendants have filed the present appeal assailing the judgment and decree on the ground that:
RFA No.4150 OF 2013 -20- 10.1. The trial court has not considered the documents in its entirety which has resulted in a miscarriage of justice.
10.2. The determination of rate was required to be done in terms of Clause 13, which was so done and cannot be found fault with. 10.3. The data rate arrived at in the supplementary Agreement dated 02.11.1998 is proper and correct. However, inadvertently, sales tax has been taken into consideration wrongly which fact has not been taken into consideration by the trial court. 10.4. The State has not deducted any amount in respect running bill Nos.1 to 33 but has only deducted running bill Nos.34 and 35 which would establish the genuineness of the deductions made on the ground, that mistake RFA No.4150 OF 2013 -21- has been committed in including the sales tax amount.
10.5. The mistake caused by the Defendants in including the tax amount does not create any right in favour of the Plaintiff. 10.6. The trial court misdirected itself by referring Clause 13 (b) and (c) of the original Contract when in fact, what was applicable was Clause 13(d).
10.7. The ground taken by the Plaintiff that whether 4% sales tax was included or not in arriving at item rate is of no importance since the office of the Accountant General has raised an objection.
10.8. The appellants have also assailed the interest awarded @ 18% claiming that there was no RFA No.4150 OF 2013 -22- agreement between the parties for grant of such high rate of interest.
11. Smt. Vidyavathi, learned Additional Advocate General addressed arguments on behalf of Defendants-appellants and Sri. Sriranga, learned counsel addressed arguments on behalf of plaintiff-respondent.
12. Smt. Vidyavathi, learned Additional Advocate General (AAG) contends that 12.1. The Defendants have no objection insofar as first 20 running bills submitted by the respondent. Infact, the Defendants have made payments thereof as per agreed rates. Objections were raised by Accountant General Office as regards the rates arrived at by the methodology of rate analysis as regards the bill Nos.21 to 35, and the said RFA No.4150 OF 2013 -23- objection was also limited only to the extent of 4% sales tax which has wrongly been taken into consideration during the process of rate analysis. The consideration of the said 4% is a mistake on the part of concerned officers.
12.2. The Plaintiff cannot take advantage of the mistake committed by the said officers in terms of Section 72 of the Indian Contract Act. The Plaintiff is liable to return any additional amount that the Plaintiff had received on account of the said mistake of the officers of the respondent. In support thereof, she relies on Clause 37(a) of the Agreement which is reproduced hereunder:
"Clause 37(a): The rates to be quoted by the Contractor must be inclusive of sales tax. No extra payment on this account will be made to the Contractor."
RFA No.4150 OF 2013 -24- 12.3. Placing reliance on the said Clause 37(a), she contends that the rates which are quoted by the Contractor must be inclusive of the sales tax and no extra payment on this account can be made by the Defendants to the Plaintiff. She further relies on Supplementary Agreement - Ex.D7 to contend that the terms and conditions of the original Agreement pertaining to the works covered under the original Agreement would continue to be binding on the Plaintiff subject to only changes as contained in the supplementary Agreement. Therefore, Clause 37(a) of the original Agreement would also apply to the supplementary Agreement, and therefore, the inclusion of sales tax @ 4% during the course of rate analysis is misconceived. More so, on RFA No.4150 OF 2013 -25- account of the fact that the Defendants were not liable to pay the sales tax amount. She further relies on Ex.D24 being the data rates of the original estimate wherein a detailed calculation has been made in respect of the rates to be awarded for the additional work. That however, during the said rate analysis in the last portion, there is an addition of sales tax @ 4% which is the disputed item. The Defendants have no objection insofar as the rate arrived at but only to the addition of 4% to the rate arrived at which according to her she claims that Defendants are entitled to recover from the Plaintiff in terms of Section 72 of the Contract Act. It is for this reason that the amount of Rs.27,56,000/- has been deducted in Running Bill No.34 and further more Rs.22,76,477/- has been deducted from RFA No.4150 OF 2013 -26- the Running Bill No.35. The deduction made being in accordance with law as also the Contract she contends that the Plaintiff cannot have any objection to such deduction and the claim made by the Plaintiff in the Suit is without any basis and the Suit, therefore, ought to have been dismissed.
12.4. Relying on the oral evidence on record, she contends that PW-1 has accepted during the course of cross-examination that Clause 37(a) is applicable even to the supplementary Agreement. Hence, it is admitted that the Plaintiff is not entitled to the sales tax amount. Therefore, on the basis of said admission, the trial Court ought to have negatived the claim of the Plaintiff. She contends that DWs-1, 2 and 3 have stood the test of cross-examination. DW-1 has RFA No.4150 OF 2013 -27- categorically stated in his affidavit as also in the cross-examination that the addition of 4% sales tax was a mistake and further that the Plaintiff was not entitled to the said sales tax amount.
12.5. DW-2 has categorically stated in the cross-
examination that in terms of Clause 2(e) of the original Contract (Ex.D5) any excess payment could be recovered in the subsequent bill that is what has been done by the Defendants. DW-2 has also stated that the entire payments were subject to an audit of the Accountant General. The Accountant General office having raised objection and pointed out the mistake committed; the Defendants were bound to act in accordance with the said deficiencies pointed out and therefore, both the points having been RFA No.4150 OF 2013 -28- categorically stated by DW-2 in the cross- examination, Defendants were entitled to deduct the excess amount in the next running bill.
12.6. DW-3 deposing on behalf of the Accountant General also stood the test of cross- examination and has stated that the addition was a mistake committed and this mistake has to be rectified in pursuance of which the Defendants are rectified the mistake. 12.7. Learned AAG submitted that the action of the respondents being proper, the Suit filed was liable to be dismissed, which was not so done. Hence, the finding of the trial court being contrary to records, the appeal is to be allowed, and the Suit is to be dismissed by this Court.
RFA No.4150 OF 2013 -29-
13. Per contra, Sri.S.Sriranga, learned counsel appearing for the Plaintiff submits as under:
13.1. During the course of execution of work, the Defendant came out with fresh drawings and designs which entailed additional quantities than what was envisaged in the original Contract dated 21.07.1993, therefore, the procedure as prescribed under clause 13(a)(iii) was to be applied since the additional designs entailed an excess quantity beyond 125% of the tendered quantity.
13.2. It is not clause 13(d) which has been applied, but in fact, it is clause 13(b) of the Agreement which is relevant since in the present case, the additional quantities are beyond 125% of the original quantities.
RFA No.4150 OF 2013 -30- 13.3. The entire rate analysis was done by the Defendants without any consultation with the Plaintiff. The amount for different items was derived by the respondents from and out the amounts agreed under the original Contract. The Plaintiff had not submitted any quote, nor was the Plaintiff asked to submit any quote as regards the additional items. Thus, he submits that clause 37(a) is not applicable. Mistake if any in the determination of the rates and or arrival at the final rates by the Defendants cannot in any manner be blamed on the Plaintiff. The Plaintiff had accepted the rates proposed by the Defendants thinking and believing that those are the final rates. If the Plaintiff had been informed about the deduction of 4% of the amounts as sales tax or otherwise, the RFA No.4150 OF 2013 -31- Plaintiff would probably have negotiated with the Defendants on the pricing.
13.4. Having agreed on the prices, the Defendants are estopped from contending otherwise and or deducting the pricing agreed upon. Sri. Sriganga relies on the following Judgments:
i) DDA v. Joint Action Committee, Allottee of SFS Flats, (2008) 2 SCC 672 (Paras 62, 66, 80)
ii) BSNL v. BPL Mobile Cellular Ltd., (2008) 13 SCC 597 (Para 44)
iii) W.B. Seb v. Patel Engg. Co. Ltd., (2001) 2 SCC 451 (Para 26, 27,
28)
iv) Kusheshwar Prasad Singh v. State of Bihar, (2007) 11 SCC 447 (Paras 13, 14, 16)
v) Ashok Kapil v. Sana Ullah, (1996) 6 SCC 342 (Para 7)
vi) Bhagawati Oxygen Ltd. v.
Hindustan Copper Ltd., (2005) 6 SCC 462 (Paras 11, 12, 41, 42) RFA No.4150 OF 2013 -32-
vii) State of U.P. v. Coromandal Engineering Co. Ltd., (2013) 3 All LJ 746 (Paras 22, 23, 33)
14. Having heard Smt. Vidyavathi the learned AAG appearing for Defendants-appellants and Sri. Sriranga, learned counsel appearing for plaintiff- respondent, the only questions that arise for consideration for this Court are:
i) Whether clause 37(a) would be applicable in the event of the rate being derived by the Defendants?
ii) Once the rates have been agreed upon, can the Defendant change the rates on the basis of objections?
iii) Is there any legal infirmity in the Judgment of the Trial Court in O.S. No.22/2008 requiring interference by this Court?
iv) What order?
RFA No.4150 OF 2013
-33-
15. On behalf of the Plaintiff, Sri.Mossa K.Ibrahim was examined as PW-1.
15.1. PW-1 has reiterated the contents of the plaint in his affidavit and got marked Ex.P1 to P11. 15.2. During the course of cross-examination, he admits that he is aware of the contents of the Agreement, that in terms of Clause 37 any quote given by the Plaintiff would have to include the sales tax element.
15.3. PW-1 was cross-examined on 7.12.2011.
During the course of his cross-examination, PW-1 has stated that all works in respect of the Contract had been done in terms of the direction of the Executive Engineer of the Port Department.
RFA No.4150 OF 2013 -34- 15.4. It is admitted that agreements with regard to the works to be done, as also new additional works to be done, have been entered into. He states that there is a reference in the original Agreement as regards additional work wherein it has been mentioned that clause 13 of the original Agreement would apply to additional work.
15.5. He agrees with the suggestion that in case the bill is paid without deduction of sales tax resulting in additional payment than what was due. The said additional amount could be deducted from the next bill.
15.6. PW-1 Agrees to the suggestion that in terms of clause 37(2)(a), 'quoted rate' would mean and include all taxes. PW-1 denies that in the audit report, the sales tax collected from RFA No.4150 OF 2013 -35- the Contractor is lesser than what is required to be collected. He further states that no further amount could be reduced from the amount derived from rate analysis. 15.7. He denies that there is no amount due and payable by the Authorities to the Plaintiff. He further states that the Plaintiff does not owe any money to the Authorities. He denies that no interest is liable to be paid by the Authorities.
15.8. It is only on account of the Authorities indicating that the Plaintiff would have to approach the Court of law that the Suit was filed thereafter.
16. On behalf of 2nd Defendant, Sri. Krishna Siddaling Jamble, Executive Engineer, Port Division was examined as DW-1.
RFA No.4150 OF 2013 -36- 16.1. He has also reiterated the contents of the written statement.
16.2. During the course of cross-examination, he has stated as under:
16.3. DW-1 was cross-examined on 2.7.2102. DW-
1 states that he has been working in Karwar since 17.08.2009. Hence, it is suggested to him that he was not aware of the facts of the case which has been denied by him. DW-1 accepts that he has no Personal information about the discussions that were held at the time of award of additional work and or the rate analysis.
16.4. He has stated that his entire evidence is only on the basis of the documents available. He opines that at the time of rate analysis, sales tax component ought not to have been taken RFA No.4150 OF 2013 -37- into consideration or added by the concerned.
He states that due to the said addition, there is an excess amount of Rs. 65 lakhs which has been recovered and adjusted while making payment of Running bill Nos.34 and 35. He states that the Authorities were well within their right to deduct and adjust the said amount if the Contractor had added sales tax, income-tax or royalty. On being called upon to produce the details of the calculation said to be furnished by the Plaintiff which includes sales tax/income-tax/royalty, he states that he could answer the same only on verification of the documents. On being asked to verify from the evidence on record, upon verification, he states that no such document had been furnished by the Plaintiff. On being asked on what heads the amount of RFA No.4150 OF 2013 -38- Rs.22,76,000/- was deducted in bill No.34 and an amount of Rs.22,56,000/- was deducted in bill No.35, he states that there are no documents which are available which would satisfy the headings under which the above deductions were made. Later he states that the amount of Rs.27,76,000/- has been deducted on account of sales tax, but, however, he is unable to state as to for what reason the amount of Rs.22,56,000/- has been deducted and there are no documents available with the Defendants in connection with the same.
17. Sri. Shivappa Yellappa Kundaragi, Superintending Engineer, PWB and IWT, Dharwad Circle was examined as DW-2.
RFA No.4150 OF 2013 -39- 17.1. In his examination-in-chief, he states that while preparing the data rates under the supplementary agreements for quantities beyond 125%, sales tax at 4% was added by mistake and therefore, the running bills were raised as per those data rates and paid at such excess rates.
17.2. He has stated that only an addition of 4% sales tax was added by mistake and hence, immediately on discovery, the same was adjusted in next running account bill. 17.3. He states that in terms of Clause (2)(c) of the Contract any excess payment made could be adjusted in the next running account bill or at any time before the final bill was paid together with interest at 6% or such other RFA No.4150 OF 2013 -40- percentage as the Government may determine from time to time.
17.4. During cross-examination, he states that from 1994-2003 he was posted at another place and he does not have personal knowledge about the events that occurred and he is deposing only on the basis of the documents available.
17.5. He states that if the Audit department were to raise any objection or query on such basis, the Defendant would make such changes as may be required in the payments made and deduct the amounts from next bill.
18. Sri. Puttappa B.L., Senior Audit Officer, Office of Principal Accountant General (Economic Services and Revenue Sector Audit), Bangalore, was examined as DW-3.
RFA No.4150 OF 2013 -41- 18.1. In his examination in chief, he has stated that as per audit conducted in the year 2002-03. 18.2. It was noted by the Accountant General that a sum of Rs.27,56,000/- was paid in excess to the Plaintiff. He states that a performance review of the work of State Public Works Department was conducted in the year 2003 and comment was made in the audit report of the Comptroller of Audit General of India (Civil) for the year ending 31.3.2002 that an excess payment of Rs.27.56 lakhs was made to the Plaintiff due to the inclusion of inadmissible sales tax in the data rate prepared by the State Public Works Department.
18.3. During the course of cross-examination, he agrees that the Auditor General's office is not RFA No.4150 OF 2013 -42- involved at the time when a rate analysis is done.
18.4. He admits that the bills have been raised in terms of the agreed data rate. However, he states that the inclusion of sales tax was wrong. Therefore the bills raised were incorrect.
19. It is in the above background that we have to examine the matter in issue.
Point No. (i) :
Whether clause 37(a) would be applicable in the event of the rate being derived by the Defendants?
20. Though the Plaintiff has led the evidence of one witness and Defendants have led the evidence of three witnesses as also produced several documents, the aspects relating to the RFA No.4150 OF 2013 -43- applicability of Clause 37(a) would have to be adjudicated on the basis of the contractual terms. Clause 37(a) has been reproduced hereinabove and hence, not repeated.
21. Clause 37(a) does not provide for subsequent additional works and/or rate analysis. The same is covered under Clause 13. Clause 37(a) would apply insofar as the initial quote which is tendered by the Contractor i.e., the Plaintiff herein and thereafter in terms of Clause 13, the rates for additional works has to be derived from the quoted rates, data rate analysis is done as also on the prevalent rates on which the additional work is awarded. Clause 37(a) therefore can be relied upon by the Defendants only insofar as the quoted rate by the Plaintiff are concerned. Admittedly, it is those quoted rates which are the basis for conducting the rate RFA No.4150 OF 2013 -44- analysis subsequently. Thus, Clause 37(a) spent itself by the time rate analysis process, either commenced or was completed.
22. Clause 37(a) would apply only in the event of a quote which is tendered by the Contractor - Plaintiff and not in any other case. Admittedly, as regards the additional work and quantities as also the revised rate which has been derived, there is no quote which has been tendered or submitted by the Plaintiff for additional work.
23. The Plaintiff has tendered the rate at the time of initial tender which was accepted, and in furtherance, thereof works were carried out by the Plaintiff, Running Bill Nos.1 to 20 submitted which were as per the quoted rates, payment has also been made by the authorities to the Plaintiff.
RFA No.4150 OF 2013 -45-
24. The dispute in the present proceedings is only as regards the sales tax component pertaining to the additional work and quantities carried out by the Plaintiff. As stated above and as observed, Ex.D22 are the rates derived by the Assistant Executive Engineer without any quote being tendered by the plaintiff-contractor. The working of each and every item has been carried out by the Assistant Executive Engineer and the same has been approved by the Executive Engineer and the Superintending Engineer as can be seen from Ex.D6. Therefore, these workings being internal and having been arrived at without any quote having been tendered by the Plaintiff; it is impermissible for the appellants/Defendants to contend that Clause 37(a) is applicable to the given facts and circumstances. This point is required to be answered based on the RFA No.4150 OF 2013 -46- interpretation of the clauses concerned. Hence, there is no requirement for appreciating or re- appreciating oral evidence on record. Whatever the witnesses have said are their own interpretation and/or justification for the actions taken by them. Be that as it may. DW-1 who is cross-examined on this point, has baldly stated that Clause 37(a) is applicable without any details being furnished or explanation tendered as to how it is applicable.
25. It is not in dispute that a sum of Rs.50,32,477/- has been deducted by the Defendants from R.A.Bill Nos.34 and 35. It is also not in dispute that it is on the basis of audit observations that the deductions had been made. It is also further not in dispute that the rates which had been agreed have been revised by includes 4% amount attributable to sales tax. What is in dispute is RFA No.4150 OF 2013 -47- whether the agreed rate could be changed on the basis of the audit observations. If it cannot be so done, the deduction would be illegal and consequently, the Plaintiff would be entitled to amount deducted with the applicable rate of interest.
26. Clause 37(a) does not provide for subsequent additional works and/or rate analysis. The same is covered under Clause 13. Clause 37(a) would apply insofar as the initial quote which is tendered by the Contractor i.e., the Plaintiff herein and thereafter in terms of Clause 13, the rates for additional works has to be derived from the quoted rates on the basis of rate analysis done as also on the prevalent rates on which the additional work is awarded. Clause 37(a) can be relied upon by the Defendants only insofar as the quoted rate by the Plaintiff are concerned.
RFA No.4150 OF 2013 -48- Admittedly, it is those quoted rates which are the basis for reference for the rate analysis carried out subsequently. Thus, Clause 37(a) spent itself by the time rate analysis process is completed.
27. The relevant provision in this respect is not Clause 37(a) but it would be Clause 13. The issue arises whether it is Clause 13(b) or Clause 13(d). Clause 13(b) and 13(d) are reproduced herein:
"13(b): The Additional quantity which exceeds 125 percent of the tendered quantity shall be paid at the rates entered in or derived from the Schedule of rates prevalent at the time of executing additions and alterations plus or minus the overall percentage of the original tendered rates over the current Schedule of Rates of the year in which the tender is accepted as per the comparative statement prepared at the time of acceptance of the tender.
13(d): If the rates for additional, substituted or altered work cannot be RFA No.4150 OF 2013 -49- determined in the manner specified in sub clauses (b) and (c) above, then the Contractor shall within 7 days of the date of receipt by him of the order to carry out the work, inform the Executive Engineer of the rates which it is his intention to charge for such class of work, supported by analysis of the rate or rates claimed. Thereupon the Executive engineer shall determine the rate or rates on the basis of observed data and failing this on the basis of prevailing market rates.
Under no circumstances the Contractor shall suspend the work on the place of non-settlement of rates for items falling under this Clause. In the event of any dispute regarding the rates for such items the decision of the Chief Engineer shall be final."
(Emphasis Supplied)
28. A perusal of Clause 13(d) indicates that it is not applicable to the present facts and circumstances since the same would come into operation only if the rates for additional, substituted or altered work cannot be determined in the manner specified in sub-Clauses (b) and (c) of Clause 13, RFA No.4150 OF 2013 -50- i.e., in the event rate not being agreed upon subsequent to rate analysis between the employer (Defendants) and the Contractor (Plaintiff), then in that event, the plaintiff- contractor would have to inform the Executive Engineer of the rates that he intends to charge that is to say he is to provide a fresh quote for those items and it is on the basis of such fresh quote that the rates would have to be arrived at.
29. It is not in dispute that rate analysis carried out in furtherance of Clause 13(b) has been accepted by the plaintiff-contractor. The rates arrived at by the Defendants is the offer made by the Defendants to the Plaintiff which has been accepted by the Plaintiff. The acceptance having been completed, a contract came into existence between the Plaintiff and Defendants to carry out RFA No.4150 OF 2013 -51- the additional work at the rate agreed upon. The offer of these rates having been made by the Defendants, the Defendants cannot revoke the said offer and make changes to the offer after acceptance is completed at the end of the plaintiff-contractor.
30. In the above circumstances, we are of the firm opinion that Clause 13(d) is not applicable to the present facts and circumstances and it is infact, Clause 13(b) which is applicable. Clause 13(b) does not contemplate any quote to be tendered by the Plaintiff - contractor, therefore, the reliance upon Clause 37(a) by the Defendants is not permissible. Hence, we answer Point No.1 by holding that Clause 37(a) is not applicable to the facts and circumstances of the present case.
RFA No.4150 OF 2013 -52- Point No. (ii) Once the rates have been agreed upon, can the Defendant change the rates on the basis of objections?
31. The Accountant General office was not concerned with the approval of rates between the Plaintiff and Defendants. The terms of the Agreement does not say that rates arrived at between the parties shall be subject to the approval of the Accountant General. There is no allegation against the Plaintiff that the Plaintiff resorted to any underhand or corrupt practices to influence the rate arrived at. As could be seen from Ex.D6, the rate was arrived at by the process of rate analysis carried out by the Assistant Executive Engineer, reviewed by Executive RFA No.4150 OF 2013 -53- Engineer and finally accepted/approved by Superintending Engineer.
32. It is not in dispute that the rate which had been derived upon were so derived in the above fashion. Defendants do not dispute the said rate analysis and the rate arrived at. Infact, payments were also made from R.A.Bill Nos.1 to 33 on that basis, thereby establishing that both the parties have acted upon the Supplementary Agreement and the rate arrived at under the Supplementary Agreement.
33. The dispute as regards rate arose only on the basis of the objections raised by Accountant General's office. The matter being purely contractual and once the rate offered by the Defendants to the Plaintiff is accepted by the RFA No.4150 OF 2013 -54- Plaintiff, no change could be made to the said agreement/rate subject to Sections 15 to 23 of the Indian Contract Act. The Defendants do not claim that the Contract was vitiated for want of free consent or due to undue influence.
34. The contention of the learned AAG that there was a mistake which was committed by the concerned officer by including the sales tax amount of 4% does not qualify to be a mistake in terms of Section 20 of Indian Contract Act. For the said mistake to come within the ambit of Section 20 of the Contract Act, both the parties are to be under a mistake as to a matter of fact essential to the Agreement. In the present case, the Plaintiff is not even aware of inclusion of sales tax in the rate analysis carried out by the Defendants. Therefore, it cannot be contended RFA No.4150 OF 2013 -55- that the Plaintiff was under a mistake as to a fact essential to the Agreement. Furthermore, Contract being implemented and work having been completed, no reliance can be placed on Section 20 of the Contract Act for the reason that under Section 20 the Contract becomes void. Here the Contract has been implemented and the Defendants have derived the benefits under the said Contract. As stated above, Section 20 of Indian Contract Act would be applicable if both the parties are under a mistake of fact. As stated above, Plaintiff cannot be said to be under a mistake of fact and therefore, on this ground also Section 20 of the Act is not applicable.
35. At the most, it could be contended that there is a unilateral mistake. It is trite that a person RFA No.4150 OF 2013 -56- cannot advantage of his own mistake. The Hon'ble Apex Court in the judgment in SRI TARSEM SINGH VS SRI SUKHMINDER SINGH AIR 1998 SC 1400 has held that unilateral mistake is outside the scope of Section 20 of the Contract Act.
36. In ITC LIMITED VS STATE OF U.P. & ORS AIR 2012 SC 1820, the Hon'ble Apex Court has held that the transfer of property can not be cancelled on the ground that parties were mistaken about the consideration. As noticed hereinabove, in the present case, the Contract has been implemented services were rendered and thereafter, the running bill raised. At this stage, the appellant-employer cannot seek to take advantage of its own wrong and its alleged RFA No.4150 OF 2013 -57- mistake without incorporating the sales tax additionally at 4%.
37. Learned AAG on the basis of said mistake refers and relies on Section 72 of the Contract Act to contend that since the money was delivered by mistake, the party receiving the money, i.e., the Plaintiff is required to return it. As aforestated, the mistake which is referred to in Section 72 should either be traceable to Section 20 or 21 of the Contract Act. Section 21 exfacie is not applicable and having held that Section 20 is not applicable, the reliance placed by the learned AAG on Section 72 of the Contract Act is impermissible. Both the parties not being under a mistake, Section 72 is not applicable.
RFA No.4150 OF 2013 -58-
38. Learned AAG relied upon the judgment in MAFATLAL INDUSTRIES LIMITED VS. UNION OF INDIA (1997) 5 SCC 536 to contend that by way of such payment, there is unjust enrichment on the part of the Plaintiff is also untenable. If at all, at the time of furnishing the rate to the Plaintiff, if amounts were lesser, the Plaintiff could have disputed the same and resorted to the procedure prescribed under Clause 13(d) of the Agreement.
39. The contention of Sri. Sriranga, learned counsel for the respondent, in this regard is that the rate analysis being arrived at and accepted in terms of Clause 13(b), the Plaintiff went on with and continued implementation of the project deserves consideration.
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40. The rate agreed between the parties being contractual there cannot be a contention raised by the Defendants that there is unjust enrichment on the part of the Plaintiff, the decision in Mafatlal's case stated supra is not applicable.
41. In view of the above, we hold that the rate being offered by the Defendants in terms of Clause 13(b) of the Contract and accepted by the Plaintiff, the rate not suffering from any mischief under Section 20 or Section 21 of the Contract Act, Section 72 of the Contract Act, not being applicable, the Accountant General's office not being the approving authority for the purposes of rate analysis or rate finalization under Clause 13(b), we are of the opinion that the rates once agreed upon could not have been changed by RFA No.4150 OF 2013 -60- the Defendants and deducted in R.A.Bill Nos.34 and 35 as done. Hence, we answer Point No.2 accordingly.
Point No.3:
Is there any legal infirmity in the Judgment of the Trial Court in O.S. No.22/2008 requiring interference by this Court?
42. On the basis of aforesaid reasoning, we hold that there is no legal infirmity in the judgment of the trial court requiring interference by this Court. The trial court has considered all the relevant aspects. The grounds raised in the present appeal as also the arguments advanced by the learned AAG do not in any manner establish any infirmity in the judgment of the trial court.
43. We hereby confirm the judgment dated 25.04.2013 in O.S.No.22/2008 passed by RFA No.4150 OF 2013 -61- Principal Senior Civil Judge, Karwar and dismiss the above appeal.
Parties are directed to bear their own costs.
Sd/-
JUDGE Sd/-
JUDGE Prs*/ln