Kerala High Court
M/S.Orient Underwater Engineers ... vs The Board Of Trustees on 30 November, 1995
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT:
THE HONOURABLE MR.JUSTICE V.CHITAMBARESH
&
THE HONOURABLE MR. JUSTICE SATHISH NINAN
THURSDAY, THE 19TH DAY OF JANUARY 2017/29TH POUSHA, 1938
AS.NO. 867 OF 1996 ( )
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AGAINST THE JUDGMENT IN O.S. NO.316/1993
OF ADDITIONAL SUB COURT, KOCHI DATED 30-11-1995
APPELLANT(S)/PLAINTIFF:
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M/S.ORIENT UNDERWATER ENGINEERS (PVT.) LTD.,
NOW HAVING ITS OFFICE AT L-116, SURYA KIRAN
BUILDING, KASTURBA GANDHI MARG,
NEW DELHI - 110 001 AND NOW HAVING ITS
REGISTERED OFFICE AT A-2/34, SAFDARJUNG
ENCLAVE, NEW DELHI - 110 028.
BY ADV. SRI.M.A.GEORGE,RAJIV A.GEORGE
RESPONDENT(S)/DEFENDANT:
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THE BOARD OF TRUSTEES,
COCHIN PORT TRUST,
WILLINGDON ISLAND,
COCHIN - 682 009.
BY SENIOR ADVOCATE SHRI K.ANAND (A.201)
THIS APPEAL SUIT HAVING BEEN FINALLY HEARD ON
09.01.2017, THE COURT ON 19.01.2017 DELIVERED THE FOLLOWING:
"C.R."
V.CHITAMBARESH
&
SATHISH NINAN, JJ.
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A.S. No.867 of 1996
&
Cross Appeal
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Dated this the 19th day of January, 2017
J U D G M E N T
SATHISH NINAN, J.
The plaintiff in a suit for recovery of damages, return of money and other reliefs has filed this Appeal Suit challenging the portion of the decree against him. A Cross Objection has been filed by the defendant challenging that portion of the decree that went against them.
2. The defendant invited tenders for salvaging the sunken dredger, 'HSD Mattancherry'. The plaintiff was the successful tenderer. On 01.12.1990 agreement relating to the work was executed between the parties. As per the agreement, on completion of the work, the plaintiff becomes the owner of the wreck and Rs.13 lakhs is payable A.S. No.867 of 1996 & Cross Appeal -: 2 :- by the plaintiff to the defendant. The work was to be completed within a period of nine months. There was delay in completion of the work. According to the plaintiff, the delay occurred consequent to the furnishing of incorrect information by the defendant regarding the details of the vessel. Material details, especially regarding the heel of the vessel were not disclosed by the defendant. The vessel had a heel of approximately 50 to the starboard side. This defect was neither intimated to the plaintiff nor was disclosed in the tender papers. Information furnished regarding the dimension of the crack/tear on the underwater hull was wrong. Though as per the tender papers the crack/tear had a size of 4.7 metres length and 7.5 cms width, during the course of work it was found that the actual size was only 90 cms length and 2 cms width. The size of the crack/tear is very material in determining the methodology to be adopted for salvaging the vessel. Consequent to the furnishing of false information, huge additional expenditure had to be borne by the plaintiff. A.S. No.867 of 1996 & Cross Appeal -: 3 :- The representation by the defendants was that the vessel was lying on starboard side in about 8 metres of water and that the depth of the water varied between 7.2 metres to 8.05 metres. But the depth of the water was only 8 metres on the eastern side and 2 metres on the western side at midship. The fact that after sinking, the vessel was pushed by the defendant using tugs further into the mud was not informed to the plaintiff. All these were material information which were either actively concealed or were intentionally and fraudulently misrepresented by the defendant. It is alleged that the contract is vitiated by fraud and misrepresentation consequent to which the plaintiff suffered damages. Apart from the claim for damages on those allegations, there is a further relief for recovery of an amount of Rs.52,000/- collected by the defendant from the plaintiff as sales tax. According to the defendant there was no fraudulent representation or misrepresentation on their part. The claims made by the plaintiff, were denied.
A.S. No.867 of 1996 & Cross Appeal -: 4 :-
3. As regards the claims on the allegations of fraud and misrepresentation, the suit was dismissed. A decree was granted in favour of the plaintiff for recovery of the sales tax amount collected.
4. Heard Shri Rajiv A.George, the learned counsel for the appellant/plaintiff, and Shri K. Anand, the learned Senior Counsel for the respondent/defendant.
5. Grievance of the appellant/plaintiff is that, by false representations of the defendant, the plaintiff was induced to enter into the contract in question. There has been positive assertions of incorrect matters and active concealment of material facts. Learned counsel for the appellant rested his submissions on Sections 17 and 18 of the Indian Contract Act, 1872 (for short, "the Act").
6. The terms 'fraud' and 'misrepresentation' are two loosely and widely used terms, often without comprehending the true legal connotation of the same. Since the claims are essentially seated upon 'fraud' under Section 17 of the Act and 'misrepresentation' A.S. No.867 of 1996 & Cross Appeal -: 5 :- under Section 18 of the Act, it would be apposite to refer to the said Sections and the ingredients thereof for a proper understanding of the case.
7. Section 17 reads thus:
"17. 'Fraud' defined.-"Fraud" means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agents, with intent to deceive another party thereto his agent, or to induce him to enter into the contract;
(1) the suggestion as a fact, of that which is not true, by one who does not believe it to be true;
(2) the active concealment of a fact by one having knowledge or belief of the fact;
(3) a promise made without any intention of performing it; (4) any other act fitted to deceive;
(5) any such act or omission as the law specially declares to be fraudulent.
Explanation.--Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence, is, in itself, equivalent to speech." The Section indicates five actions, the commission of any of which, would constitute 'fraud' if the said acts A.S. No.867 of 1996 & Cross Appeal -: 6 :- are committed with either an intent to deceive another or to induce him to enter into the contract. The mere commission of any of the five acts, by itself, are not sufficient to constitute fraud. The acts or any of them must have been committed either with intent to deceive or to induce to enter into the contract. Going by the Explanation to the Section, silence as to a particular fact will not constitute fraud unless, the circumstances involved cast a duty on the person to speak, or the circumstances are such that the silence in itself is equivalent to speech. Sub clause 2 of Section 17 embodies the latin maxim, "Supressio Veri Suggestio Falsi" which means, suppression of a material fact is treated as expression of positive words of falsehood. The application of the maxim presupposes the existence of a duty to speak. Therefore, whether silence of a party to the contract constitutes fraud or not depends on the question as to whether there was a duty to speak, which in turn depends on the factual circumstances.
8. Section 18 reads thus:
A.S. No.867 of 1996 & Cross Appeal -: 7 :- "18. Misrepresentation" defined.- "Misrepresentation"
means and includes -
(1) the positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true;
(2) any breach of duty which, without an intent to deceive, gains an advantage to the person committing it, or anyone claiming under him; by misleading another to his prejudice, or to the prejudice of any one claiming under him;
(3) causing, however innocently, a party to an agreement, to make a mistake as to the substance of the thing which is subject of the agreement."
As per sub-sec.(1), to constitute misrepresentation, there must be positive assertion of a fact which is false but is believed to be true, but the maker's information did not justify the making of it. The information available with the maker, if was not sufficient enough to make the assertion, then it constitutes misrepresentation even if he believes the information to be true. Here it would be relevant to refer to the decision reported in Sayu Mohammed Abdulla v. Neelakantan Krishan (1957 KLT 911). There, the Division Bench referred to the statement of law by the A.S. No.867 of 1996 & Cross Appeal -: 8 :- Calcutta High Court in Mohan Lall v. Sri. Gungaji Cotton Mills Co. (1889 (4) CWN 369), "that an assertion cannot be said to be warranted for the present purpose where it is based upon mere hearsay"; and observed thus, "That is to say, the person making the representation, should entertain the belief as to truth, not merely having some reasonable ground but founded on the best information that is available. This decision may have gone further than what the framers of the Act intended". As per sub- sec.(2) of the Section, any breach of duty, that misleads another to his prejudice and causes advantage to the maker, is misrepresentation. The element of intention is insignificant there. The third contingency taken in under the Section is an act of 'innocent misrepresentation' as is often referred to. There, the representation though innocently made, has caused the other party to commit a mistake on the subject of the agreement.
9. Having referred to Sections 17 and 18, it would be necessary to refer to Section 19 of the Act A.S. No.867 of 1996 & Cross Appeal -: 9 :- also since it is practically interwoven with it. The Section reads thus:
"19. Voidability of agreements without free consent.- When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused.
A party to contract, whose consent was caused by fraud or misrepresentation, may, if he thinks fit, insist that the contract shall be performed, and that he shall be put on the position in which he would have been if the representations made had been true.
Exception.- If such consent was caused by misrepresentation or by silence, fraudulent within the meaning of section 17, the contract, nevertheless, is not voidable, if the party whose consent was so caused had the means of discovering the truth with ordinary diligence.
Explanation.- A fraud or misrepresentation which did not cause the consent to a contract of the party on whom such fraud was practised, or to whom such misrepresentation was made, does not render a contract voidable."
Therefore, when an agreement is vitiated by coercion, fraud or misrepresentation, the said contract is voidable at the hands of the party whose consent was so obtained. The Explanation to the Section makes it clear A.S. No.867 of 1996 & Cross Appeal -: 10 :- that fraud or misrepresentation would render the contract voidable only if the said act was the reason, the cause, for the grant of consent by the party. The exception to Section 19 provides that if the consent to the contract was caused by misrepresentation or fraudulent silence, still the contract would not be voidable if the party who give the consent could have discovered the truth with ordinary diligence.
10. Therefore, it will have to be found out as to whether the assertions/representations and silence on the part of the defendant as regards the matters narrated supra would constitute fraud or misrepresentation under Sections 17 and 18, respectively; and as to acts of silence alleged, whether there a duty to speak. In spite of the misrepresentation and the fraudulent silence, if any, if the plaintiff had the means of discovering the truth with ordinary diligence, then the contract would not be voidable.
11. Going by the plaintiff's case, there were intentional positive representations on the part of the A.S. No.867 of 1996 & Cross Appeal -: 11 :- respondent regarding the dimensions of the crack/tear in the underwater hull of the vessel. There was misrepresentation regarding the depth at which the vessel lay. There was positive silence regarding the fact that the vessel had a heel of approximately 50. So also, the fact that the vessel was pushed further into the silt by using tugs was willfully suppressed. According to the appellant, these were material facts to be provided for by the respondent since the methodology for the salvaging operations would depend on the same. The wreck could be removed either by re-floating or by removing it in pieces by fragmentation. If the vessel could be sold on re-floating, it could fetch higher value than being sold by fragmentation. Going by the details as provided by the defendant/respondent, the plaintiff/appellant decided to proceed for removal of the vessel by re-floating. However, the representations and willful silence on material aspects proved to be detrimental to the course adopted by the appellant for salvaging the vessel. Learned counsel for the appellant, A.S. No.867 of 1996 & Cross Appeal -: 12 :- referring to Section 17 of the Act, would contend that fraud was employed by the defendant/respondent for inducing the appellant to enter into the contract by suggesting that the crack/tear is of a particular size and further by concealing the fact that the vessel had a heel of approximately 50. It was consequent to such representations that the appellant was made to enter into the contract. Further there were misrepresentations on the part of the respondent falling within Section 18 of the Act. The learned counsel referred to Brady on Marine Salvage Operations and Kennedy's Law of Salvage to contend that in the law of salvaging, the particulars regarding the vessel, its heel, dimension of the crack/tear, etc., are important materials to be provided for by the authority. The contention appears to be that there was a duty on the respondent to correctly provide the above informations and that they could not have kept silent.
12. The claim of the appellant on the above grounds, though might appeal at the first blush, could A.S. No.867 of 1996 & Cross Appeal -: 13 :- not be sustained. In sum and substance, the case of the appellant is that, there are two methods which could be adopted for salvaging the wreck; either by re-floating or by fragmentation. Salvaging by re-floating would be more beneficial to the tenderer. Consequent to the representations or misrepresentations on the part of the respondent, the appellant was made to adopt a methodology which on actual facts were found to be incorrect necessitating change in the methodology for salvaging during course of the work, thus incurring heavy additional expenditure.
13. It needs to be noted that, the respondent had invited the tender, for the purpose of removal of the sunken dredger. There are two methods of removal; either by re-floating or by fragmentation. The respondent never advised or suggested the manner in which the salvaging is to be done. The tender was only for the purpose of removal of the sunken dredger. It could be done in the manner most suited for the tenderer. In the agreement dated 01.12.1990 it is stated that "WHEREAS A.S. No.867 of 1996 & Cross Appeal -: 14 :- the Board is desirous of salvaging the Sunken Dredger and floated tenders for the work comprising Wreck removal of Sunken Dredger HSD Mattancherry on 'no cure no pay basis". Therefore, the tender was only for the purpose of salvaging the sunken dredger. The respondent was not concerned about the methodology by which it is being removed. In their letter dated 12.04.1990 sent by the appellant, they had stated about their vast practical experiences in the field, that they are the only company in India with a qualified Master Salver who is assisted by a well experienced naval architect. It is further stated that "thus unlike some other companies who are wholly dependent on the report provided to them by the divers, we are in a position to direct them and guide them". Therefore, according to the respondent, they were not guided by the report of any outside agency but they have their own experienced personnel in the field on whose report and advice they proceed. Further in the very same letter at page No.3 it is stated thus:
A.S. No.867 of 1996 & Cross Appeal -: 15 :- "In view of the unique nature of Salvaging Operations, it is not always possible to rigidly follow the pert chart. The decisions have to be taken at the spur of the moment. At times, this may entail modifying the salvage plan, increasing/decreasing the number/category of personnel and/or equipment. Thus we shall do, what we think is in the best interest of work."
Therefore, according to the appellant, the salvage plan would essentially be decided on the spot apart from the prior planning. In the said letter, they have proposed two methodologies for removal of the dredger. In the first method proposed, it is stated that a detailed underwater inspection of the vessel would be carried out by the divers; that all hull openings such as damaged holes, open doors, hatches, portholes, sea suctions and overboard discharge shall be recorded with their precise location and sizes. It is also stated that in view of the particulars so obtained, they would evolve a suitable salvage plan. The first alternative referred to the re-floating of the vessel and its removal. Under the head alternative (2) appellant has stated that after the A.S. No.867 of 1996 & Cross Appeal -: 16 :- initial inspection, if the work so demands, they would remove the vessel cutting it up piece by piece. Clause 16 of the instructions to the tenderer provides an option for a pre-tender inspection by the tenderer of the sunken vessel. It was always open for the appellant to conduct such survey and make their quote thereafter.
At clause 3.1 of the preamble of the contract document, the scope of work involved was very specific, viz., work involved was removal of the wreck by re-floating or in piece by fragmentation. Therefore, what the respondent wanted was removal of the sunken dredger irrespective of as to whether it is re-floated and removed or removed in pieces by fragmentation. Clause 3.3 of the preamble further gives opportunity to the appellant to carry out a detailed survey of the vessel before commencement of the actual work. Clause 6.2 again provides for pre- tender inspection for the tenderer. Clause 6.3 of the conditions of contract provides that the contractor shall be deemed to have satisfied himself as to the practicability and suitability of the removal operation A.S. No.867 of 1996 & Cross Appeal -: 17 :- and his method of working, prior to the submission of the tender. The very first sentence in Ext.A1(e), form of tender is, "Having inspected the site.....".
14. The defendant had not invited tenders for removal of the sunken dredger by re-floating. The tenderer is given a right to conduct pre-tender inspection of the site and vessel. The tenderer is further given a right to conduct inspection before the actual commencement of the work. On submission of the tender, the contractor shall be deemed to have satisfied himself about the practicability and suitability of the removal operations and method of working. As per the letter of offer dated 14.04.1990, the appellant had stated that they have sufficient expertise in the field and unlike other contractors, they do not really depend on independent surveyors or engineers but are guided by their own experts in the field. The appellant further stated that out of the two methodologies, they would manage the stand on the spot. They also emphasised that underwater inspection would be conducted before the A.S. No.867 of 1996 & Cross Appeal -: 18 :- commencement of the work. On the face of these materials, it could not be found that the appellant was induced to enter into the contract in question by any fraudulent positive assertion or representation on the part of the defendants. Since the methodology for removal was left to the option of the contractor, there is no point in contending that the heel of the vessel was not disclosed. Though the preamble of the contract agreement refers to a crack of about 4.7 metres length and 7.5 cms width in the underwater hull, the measurement is not specific. So also, there was sufficient opportunity for pre-tender inspection and also for inspection before the actual commencement of the work. There is no allegation that the mentioning about the approximate size of the crack/tear was made by the respondent without believing it to be true. The non- mentioning of the heel of the vessel would not be of any significance in so far as the tender was only for removal of the vessel irrespective of the methodology being used. If the appellant/plaintiff wanted to re- A.S. No.867 of 1996 & Cross Appeal -: 19 :- float and remove the vessel, they should have asked for clarifications from the respondent. As submitted by the learned counsel for the appellant, there may not be any inconsistency as such between the statement of law relied on by them from Brady's Marine Salvage Operations and Kennedy's Law of Salvage and the provisions of the Indian Contract Act. Both the above text books would state that in salvage operations if there is any duty of disclosure, the court will treat as material, any fact in or relating to the property for which salvage assistance is sought if that fact affects, or may affect; the danger to the property; the risk, difficulty or duration of the salvor's service; the suitability of the salvor's vessel as an instrument of salvage or the prospects of success under a contract to use best endeavours or possibly the assessment of the potential reward. But as noticed above, that presupposes the existence of a duty of disclosure. When the methodology for removal was not specified by the employer, it cannot be held that there was a duty upon the employer to A.S. No.867 of 1996 & Cross Appeal -: 20 :- specify a particular data that would be relevant for removing the vessel by re-floating method.
15. At the cost of repetition, it is observed that the tender was only for removal of the sunken dredger irrespective of the methodology. In view of the same and also the right provided to the contractor to conduct inspection prior to submission of the tender and also prior to the commencement of the work, it could not be found that there is any concealment of material fact, any positive assertion of falsehood knowing it to be false, or that there was a duty to speak. Apart from all that, there was sufficient opportunity for the appellant to conduct necessary site inspection and decide upon the methodology to be adopted. It was always open for the appellant to seek for clarifications if any regarding the material particulars relevant for their proposed methodology from the respondent. The expertise claimed by the appellant is also an important factor, among others, relevant to hold that the appellant with ordinary diligence had the means of discovering the A.S. No.867 of 1996 & Cross Appeal -: 21 :- truth. Having not chosen to do so, it is not open for the appellant to challenge the contract alleging fraud under Section 17 and misrepresentation under Section 18 of the Act.
16. Another aspect to be noted is that, though the appellant claims that during the course of work it was noticed that there were fraudulent misrepresentations on the part of the respondent in disclosing the details regarding the vessel, they did not choose to avoid the contract then and there. On the contrary, they chose to proceed with the contract and have the dredger removed and sold. After having performed the contract, the appellant is now not entitled to fall back upon the allegations in the nature as is now made. The contract was performed in spite of their opportunity to repudiate the same and on coming to know about the alleged vitiating factors.
17. Exhibit A19 is a letter dated 25.05.2002 issued by the appellant to the respondent wherein it is stated that huge expenditure had to be incurred, far A.S. No.867 of 1996 & Cross Appeal -: 22 :- more than the normal expenditure being incurred for similar type of salvage operations, for various reasons enlisted in the said letter. So many reasons have been projected therein, but none is attributable to the respondent except the one stated towards the concluding portion wherein they stated regarding the discrepancy about the details regarding the crack/tear on the vessel. All the reasons stated have nothing to do with the tender conditions. On the above, we do not find any reason to interfere with the dismissal of the suit on the said counts.
18. Coming to the Cross Appeal filed by the respondent, a decree was granted against them for return of the sales tax amount collected by them in violation of the terms of the agreement. Referring to paragraph 5 of the instructions to the tenderer, the court below has held that the amount quoted by the tenderer includes charges payable under various heads including sales tax. We do not find any material or reason to differ from the conclusion arrived at by the court below regarding the A.S. No.867 of 1996 & Cross Appeal -: 23 :- said claim.
In the result, the Appeal Suit as well as the Cross Appeal are dismissed. No costs.
Sd/-
V.CHITAMBARESH, JUDGE.
Sd/-
SATHISH NINAN, JUDGE.
vsv /true copy/ P.S. To Judge