Kerala High Court
State Of Kerala vs Baby Varghese on 24 March, 2023
Author: A. Muhamed Mustaque
Bench: A.Muhamed Mustaque
C.R.
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR. JUSTICE A.MUHAMED MUSTAQUE
&
THE HONOURABLE MRS. JUSTICE SHOBA ANNAMMA EAPEN
FRIDAY, THE 24TH DAY OF MARCH 2023 / 3RD CHAITHRA, 1945
RFA NO. 36 OF 2019
AGAINST THE JUDGMENT DATED 24.11.2017 IN OS 67/2013 OF
SUB COURT, ERNAKULAM
APPELLANTS/DEFENDANTS:
1 STATE OF KERALA
REPRESENTED BY DISTRICT COLLECTOR, ERNAKULAM
2 THE EXECUTIVE ENGINEER,
OFFICE OF THE EXECUTIVE ENGINEER, MAJOR
IRRIGATION DIVISION, KAKKANAD, ERNAKULAM
3 THE ASSISTANT EXECUTIVE ENGINEER,
MAJOR IRRIGATION SUB- DIVISION, KAKKANAD,
ERNAKULAM
BY ADV GOVERNMENT PLEADER
ADV. K.V. MANOJ KUMAR SR. GP
RESPONDENT/PLAINTIFF:
BABY VARGHESE, S/O. VARGHESE, NADAKKAL HOUSE,
KIZHUURY P.O., RAMAMANGALAM, ERNAKULAM,PIN-686
663
BY ADVS.
SRI.RAJESH CHERIAN
SRI.V.VINAY MENON
P.T.MOHANKUMAR(K/78/1983)
THIS REGULAR FIRST APPEAL HAVING COME UP FOR
ADMISSION ON 22.03.2023, THE COURT ON 24.03.2023
DELIVERED THE FOLLOWING:
RFA NO. 36 OF 2019
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C.R.
A.MUHAMED MUSTAQUE & SHOBA ANNAMMA EAPEN, JJ.
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R.F.A No. 36 of 2019
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Dated this the 24th day of March, 2023
J U D G M E N T
A. Muhamed Mustaque, J This appeal was filed by the State challenging a decree allowing the plaintiff to recover Rs.62,58,000/- together with 6% interest from the State.
2. The plaintiff is a contractor and he was engaged by the Public Works Department (PWD) for dredging, cleaning and improving the boundary canal in West Cochin known as Rameswaram-Calwati Canal. The nature of work has been specifically mentioned in the agreement executed between the plaintiff and the Department. The plaintiff had a two-fold claim. One is based on the agreement and the other is based on the work undertaken on RFA NO. 36 OF 2019 ..3..
the alleged instruction of the Department and the local MLA. According to the plaintiff, though he was entitled for more than Rs.97,45,032/- from the Department, he limited his claim to Rs.47 Lakhs for the purpose of valuation and court fee. Besides the above claim, he also demanded the return of the retention amount of Rs.9 Lakhs and Rs.1 Lakh deposited towards security. The plaintiff also claimed damages to the tune of Rs.5 Lakhs from the Department.
3. The trial court allowed all other claims except the claim for damages. We are not able to discern from the trial court judgment as to how the trial court arrived at the calculation of the amount. At the appellate stage, the learned counsel for the appellant pointed out that a calculation statement was made based on measurements recorded in Ext.B2 series and that statement was given to the trial court Judge. A copy of the calculation statement was also made RFA NO. 36 OF 2019 ..4..
available before us for perusal.
4. The learned Senior Government Pleader Sri. K.V. Manoj Kumar pointed out that the trial court having declined the relief as against the declaration to the effect that the plaintiff was not liable to execute the remaining part of the work and that the balance work shall not be at his risk and cost, this Court could not have granted the decree sought by the plaintiff for recovering the money. The learned Government Pleader further submitted that the contract having been terminated at the risk of the plaintiff, he is liable to compensate the government for the loss.
5. Before we proceed to decide the question involved in this case, we need to state the law regarding quantification of loss and recovery by the State based on contract. There are different views expressed at the Bar in regard to the unilateral determination of loss and retention of RFA NO. 36 OF 2019 ..5..
the amount due as well as also recovery by the State based on the alleged breach of contract. It is to be noted that the State is empowered to recover its dues by raising demand as public dues of revenue on land under the Revenue Recovery Act, 1890. The question is whether the State can unilaterally determine its loss and has any right to retain any amount payable to the plaintiff contractor.
6. In Union of India v. Raman Iron Foundry [(1974) 2 SCC 231], a two judges Bench of the Apex Court opined that based on a Government contract, the Government had no right or authority to appropriate the amounts of a contractor from pending bills towards satisfaction of its claim for damages without independent adjudication by the adjudicating authority. This decision was overruled by a three judge bench decision of the Apex Court in Kamaluddin Ansari and Co. v. Union of India RFA NO. 36 OF 2019 ..6..
[(1983) 4 SCC 417]. The Apex Court is of the view that though the Government can be injuncted from recovering or appropriating the amount under the bills of the contractor for the damages claimed, it cannot be injuncted from withholding such amount under the bills. In State of Gujarat through Chief Secretary and Another v. Amber Builders [(2020) 2 SCC 540], the views of the three bench decision in Ansari's case has been reiterated.
7. In the State, the Kerala Public Works Department manual is followed as part of the works awarded by the State Government and the Public Works Department. Clause 2116.2.1 stipulates realisation of loss on account of termination, which reads thus:
"Realisation of loss on account of termination.
An amount equal to 30% of the cost of the remaining works at agreed rates of the terminated contract shall be recovered from the defaulted contractor towards the risk and cost. The contractor shall be directed to remit the risk and cost RFA NO. 36 OF 2019 ..7..
amount within three months. There is no need to wait till the work is arranged alternatively through another contractor and the total loss sustainable due to the default of the original contractor is assessed. Such loss, if any, shall be realised after completion of the work. If he fails to remit the amount within this periods following steps can be adopted for realisation of loss. The amount can be realised from the following.
EMD/Security Bill amount/retention if any due to the contract.
Any dues from department to the contractor Bank guarantee/Performance Guarantee of By filling civil suit against the contractor"
8. In the light of the above clause, PWD can unilaterally determine the loss and retain any amount due to the contractor under the bill for the dues, though it cannot appropriate the amount due calculated towards the loss. The remedy, in such a situation, for a contractor is to challenge the determination in an appropriate manner. The authority of PWD to retain any amount due under the bill cannot be questioned in the light of the contract. However if the State or the Department wants to recover any amount RFA NO. 36 OF 2019 ..8..
towards loss in excess of the amount retained, it has to file a suit or counter claim.
9. A problem may arise in a civil suit filed by the contractor against the State or the Department, where the latter would raise a claim based on the loss calculated unilaterally by the Department. At the Bar it was addressed that the defendant-State or Department will have to raise a plea of set-off or counterclaim and in the absence of such plea of set-off or counterclaim, such determination of loss cannot be considered by the Civil Court. This is not a correct position of law. Raising a plea of set-off or counterclaim would arise only when a party has no authority to decide upon the claim made by him. If no challenge is made by the plaintiff, the State or Department is entitled to retain it as they have the authority under the contract to retain the amount calculated unilateraly towards the loss. The remedy in such a situation for the RFA NO. 36 OF 2019 ..9..
aggrieved is to challenge such determination. However, if the state or department wants to recover any excess amount than the retained amount towards the loss, they will have to raise a plea of set-off or counter claim in such a suit.
The legal position is as follows:
i) In a contract with the State or its Department, if the contract allows the Department to recover loss, the amount calculated towards the loss cannot be directed to be paid without there being a challenge against the determination of loss.
ii) In a suit for recovery laid down by the plaintiff/contractor, the State or Department need not raise a plea of set-off or counterclaim for any amount retained by them towards loss based on the contract.
iii) if the state or department wants to recover any amount over and above the retained RFA NO. 36 OF 2019 ..10..
amount, they will have to file a separate suit or will have to raise a plea of set-off or counterclaim in a suit against them.
iv) In the absence of any contract, the State or Department will have to raise a plea of set-off or counterclaim in a suit filed by the contractor.
10. The suit in this case was filed on 14.01.2013. The three points that arise for consideration in this matter are:-
i). The calculation of the amount of Rs.47,00,000/- as cost of unpaid work, as per the agreement.
ii). The right of the plaintiff to recover the cost of extra work not covered by the agreement.
iii).The right of Authority or the State to recover the loss.
Point No.i The plaintiff appears to have relied on RFA NO. 36 OF 2019 ..11..
Ext.B2 series measurement for calculating the amount recovered. It is not discernible from the impugned judgment as to how the trial Judge arrived at the amount with reference to the measurement referred to in Ext.B2 series. It is the fundamental principle in adjudication that disputed claims have to be substantiated on legal evidence. The trial court could have directed the plaintiff to file the calculation statement detailing the measurements and amount claimed and mark the same as an exhibit. This could have given an opportunity to the defendants to object to the calculation. The trial Judge completely erred in framing the issue and assimilating the evidence thereon to decide the issue. We are, therefore, of the view that the calculation shall be reworked after remand.
Point No.ii Admittedly, the additional work has been carried out in respect of the four branch canals. RFA NO. 36 OF 2019 ..12..
The Government refused sanction for the additional work. Nobody has a case that the plaintiff has not done any additional work. The additional work also has been recorded in Ext.B2 series. That means, the additional work was done with the consent and knowledge of the Department. This would probablise the case of the plaintiff/contractor that the additional work was done at the behest of the local MLA and as instructed by PWD officials. Under Section 70 of the Indian Contract Act, 1872, a person who enjoys the benefits of non-gratuitous act is bound to make compensation to the person from whom such service is availed. Therefore, the administrative sanction is an internal matter between the Government and the Department. Thus, the defendants are bound to pay for the additional work done by the plaintiff. However, we again see here that no calculation has been made for the additional work carried out. RFA NO. 36 OF 2019 ..13..
Therefore, for the purpose of calculation, the matter has to be remanded back to the trial court.
Point No.iii The suit was filed on 14.01.2013. The written statement was filed on 22.05.2013. In the written statement, no specific plea has been raised on the determination of loss and the recovery to be effected from the plaintiff. It is seen from the proof affidavit filed by PW1 that the plaintiff was terminated from the contract by an order dated 30.01.2013 at his risk and costs, forfeiting the security deposit based on the agreement. It is also seen that by an order dated 25.01.2014, the contractor was found liable to pay Rs.54,98,879/-. The suit was disposed of only on 24.11.2017. The plaintiff had no case that he was not aware of the determination of loss. In fact, pending suit, the plaintiff challenged the determination of loss in a writ petition filed RFA NO. 36 OF 2019 ..14..
before this Court in WP(C)No.10334/2015. This Court did not interfere with the termination of the contract. This Court, taking note of the pendency of the civil suit, relegated the parties to workout their remedy before the civil court. This judgment has been marked as Ext.A17. The learned counsel for the plaintiff/contractor pointed out to the observation of this Court in para 5, which reads thus:
"It is settled law that, if at all any loss has been resulted, it cannot be quantified and realised by one of the parties to the contract and the same has to be got adjudicated by appropriate Forum. This being the position, it is open for the respondents to take appropriate proceedings, in accordance with law, to get the alleged loss/ amount quantified . It is also open for them to file counter claim, if so advised, in the civil suit filed by the petitioner as O.S.67 of 2013 before the Sub Court, Ernakulam and to pursue the matter accordingly."
Therefore, the argument is that without a plea of set-off or counterclaim, the State or the Department cannot now raise a claim based on loss. It is true that in intra-party cases, RFA NO. 36 OF 2019 ..15..
certain observations have been made in regard to the claim made by the Department. It is to be noted that it was only an observation and no issue has been adjudicated. The challenge itself has been negatived in the writ petition with a liberty to work out their remedy in civil court. In such circumstances, the plaintiff ought to have amended the prayer raising a challenge against the termination and loss of demand. We are of the view that an opportunity should be given to the plaintiff to amend the prayer and raise a challenge against the demand.
11. We, thus, allow this appeal, set aside the impugned judgment and remand back the case to trial court for considering the following issues:
i) On the calculation of the amount for the unpaid work under the agreement.
ii) On the calculation of the amount payable for the additional work not covered by the agreement, and;
RFA NO. 36 OF 2019 ..16..
iii) The above claim will depend upon the challenge being made by the plaintiff as against the decision on the termination and calculation of loss.
The parties are directed to appear before the trial court on 22.05.2023. The records are being sent forthwith. The parties are also given liberty to adduce fresh evidence. The trial court shall dispose of the case before the court closes for Onam holidays.
Sd/-
A.MUHAMED MUSTAQUE JUDGE Sd/-
SHOBA ANNAMMA EAPEN JUDGE PR