MARWAR TENT FACTORY v. UNION OF INDIA — 1973 DIGILAW 229 (DEL)

S. N. Shankar, J. ( 1 ) THE petitioner (in CW 357/71) claims to be a tent manufacturer on the approved list of contractors of the Directorate General of supplies and Disposals, Govt, of India. In pursuance of the acceptance of tender dated March 13, 1968 the petitioner agreed to supply tents of a total cost of Rs. 62,03,650. 00 of the agreed apecifications and quality to the Union of India. According to the terms and conditions of the contract, 95 per cent of the agreed purchase price of the tents was to be paid after inspection and acceptance of the same by the inspecting Officer and on proof of their despatch. The balance 5 per cent was to be paid after their receipt in good good condition by consignee. Petitioner supplied total contracted quantity in nine consignments, tendered for inspection during the months of June, July, August and September, 1968. All the consignments were inspected by the Inspecting Officer and accepted. On proof of their despatch 95 per cent of the price was paid to the petitioner. The balance 5 per cent was also paid to it after receipt of the consignments by the consignse on the basis of three certificates issued by the consignee in September, 1968 that they were received in good condition. After a lapse of over two years, thereafter, by letter dated March 9, 1971 the Director General of Supplies and Disposals, New Delhi called on the petitioner to pay a sum of Rs. 92,363. 00 as compensation for breach of a warranty of the contract. Failing payment, the letter said, the Pay and Accounts Officer, New Delhi will be asked to deduct this amount from any of the petitioner s pending or future bills. The petitioner has prayed for the quashing of this letter. The demand for Rs. 92,363. 00 and the threat to deduct this amount from the pending or future bills, the petitioner maintains, is wholly illegal and without jurisdiction and amounts to deprivation of his property without the authority of law. The petitioner also contends that he was never heard before creating the liability against him and the threat to deduct this amount from the other monies due and payable to it "being penal in nature" is liable to be quashed. The petitioner also contends that he was never heard before creating the liability against him and the threat to deduct this amount from the other monies due and payable to it "being penal in nature" is liable to be quashed. ( 2 ) IN the counter affidavit, the respondents maintain that the writ petition is not maintainable as Article 226 of the Constitution cannot he invoked in the matter of determination of rights and obligations of the parties arising out of contract. On merits it is urged that the tents when received by the consignees were not found to be of the specifications governing the supplies and the respondents were within their rights to set off their dues and adjust the same from the pending and future bills of the petitioner under clauses 18 and 18a of the agreed General Terms and Conditions which governed the contract. The demand for the payment of Rs. 92,363. 00 is maintained to be perfectly legal and in order. ( 3 ) THE preliminary objection as to maintainability of the writ petition cannot be decided in the abstract. Before dealing with this question, we, therefore, advert to the con- tentions that need to be examined on merits. ( 4 ) IT is admitted between the parties that General Terms and Conditions govern the contract is question. Clause 18 of these terms reads as under : 18. RECOVERY OF SOME DUE Whenever any claim for the payment of a sum of money arises out of or under the contract against the contractor, the purchaser shall be entitled to recover such sum by appropriating in whole or in part, the security, if any, deposited by the contractor, and for the purpose aforesaid, shall be entitled to sell and or realise securities forming the whole or part of any such security deposit. It the event of the security being insufficient, the balance and if no security has been taken from the contractor, the entire sum recoverable shall be recovered by appropriating any sum then due or which at any time thereafter may become due to the contractor under the contract or any other contract with the purchaser. or the Government or any person contracting through the Secretary, if such sum even be not sufficient to cover the full amount recoverable, the contractor shall on demand pay to the purchaser the balance remaining due. or the Government or any person contracting through the Secretary, if such sum even be not sufficient to cover the full amount recoverable, the contractor shall on demand pay to the purchaser the balance remaining due. " ( 5 ) THE letter dated March 9, 1971 (Annexure P. 5) impugned by the petitioner states that the consignee had reported to the Office of the Director General of Supplies and Disposals that on a thorough check on receipt of the stores at Kanpur, it was found that they Stained various defects. After mentioning defects it says :- "since the goods on receipt were not in terms of specification you have committed a breach of warranty and reasonable compensation has to be given by you. It has, therefore, now been decided to impose a price reduction of 5% on the contract price for 8210 Nos Flies Outer to compensate the loss to the Government on account of the above defects. You are hereby called upon to pay the sum of Rs. 92,363. 00 ( rupees ninety-two thousand three hundred and sixty-three only) in favour of the Pay and Accounts Officer, Ministry of Supply, New Delhi by 31-3-71 failing which the P and AO, New Delhi will be asked to deduct the same from any of your pending or future bills. " ( 6 ) THE impugned letter thus creates a demand for Rs. 92,363. 00 against the petitioner (also called "the contractor" for purposes of discussion on clauses 18 and 18a) on account of compensation/damages alleged to have been suffered by the respondants (also called the purchaser" for discussion relating to the said clauses) and further seeks to enforce recovery of this amount either by cash payment, or by deduction from the pending or future bills of the petitioner. The question for decision is whether clauses 18 or 18a as they stand confer such a right and power on the purchaser. ( 7 ) BEFORE dealing with scope and effect of these clauses let us examine the nature of the claim raised by the purchaser. . The claim is for compensation for an alleged breach of a warranty of the contract. ( 7 ) BEFORE dealing with scope and effect of these clauses let us examine the nature of the claim raised by the purchaser. . The claim is for compensation for an alleged breach of a warranty of the contract. To succeed in this claim, if the petitioner-contractor disputes it, the respondent-purchaser has to prove (i) that (here was in law a breach of contract on the part of the contractor and (ii) that as a result of that breach, the particular amount claimed was suffered by the purhaser by way of damages. Until those two conditions are fulfilled the claim for damages remains only a right to sue for damages and not a claim in the sense of being a debt recoverable from the contractor. Such a right is an indeterminate claim and not a chose iu action assignable in law. In Iron and Hardware (India) Co. Vs. Sham Lal and Bros. A. I. R. 1954 Bombay 423 on this aspect, Chagla, C. J. said :- "it is well settled that when there is a breach of contract the only right that accrues to the person who complains of the breach is the right to file a suit for recovering damages. The breach of contract does not give rise to any debt and therefore it has been held that a right to recover damages is not assignable because it is not a chose in action. An actionable claim can be assigned, but in order that there should be an actionable claim there must be debt in the sense of an existing obligation. But in as much as a breach of contract does not result in any existing obligation on the part of the person who commits the breach, the right to recover damages is not an actionable claim and can not be assigned. " ( 8 ) A claim for payment of a sum of money as compensation or damages, therefore, is a mere right to sue for a certain amount and is not a debt due from the contractor. "debt", according to page 4 of Corpus Juris Secundum Vol. 26, is a liquidated demand, the payment of which is not dependent on the happening of any contingency or the performance of any condition. It is opposed to what is commonly called a "liability" as used in the sense of inchoate or contingent debt. "debt", according to page 4 of Corpus Juris Secundum Vol. 26, is a liquidated demand, the payment of which is not dependent on the happening of any contingency or the performance of any condition. It is opposed to what is commonly called a "liability" as used in the sense of inchoate or contingent debt. ( 9 ) THE claim of the purchaser, therefore, if disputed, needs to be adjudicated before it can be a debt binding on the contractor. There are no words in clause 18 conferring a right on the purchaser to adjudicate its claim for demages to convert the amount claimed into a binding debt recoverable from the contractor. To read the power to adjudicate to be Implicit in the clause, because the clause gives a power to the purchaser to appropriate, would be to constitute the purchaser a Judge in its own cause. This obviously cannot be done on the clause as it stands. It would be against all canons of interpretation and contrary to the basic principles of natural justice. ( 10 ) IN General Manager, North East Frontior Railway Vs Dinabandhu Chakraborty 1970. S. L. R. 382, the respondent was a Station Master. On his retirement he was entitled to receive provident fund standing to his credit While serving as Station Master, it was alleged that in the remittances made by him on a certain date there was a shortage of Rs. 3,0001. 00. An enquiry was instituted and the Enquiry Committee held that he was responsible for the loss of this amount. While paying the sum of the provident fund, the railway authorities deducted the sum of Rs. 3,000. 00 from this amount. The respondent contested the deduction. Rule 1341 of the Provident Fund Rules which authorised deduction by the Controlling Officer of any amount due under a liability incurred by the subscriber to the provident fund was pleaded in defence. The Supreme Court said : - "under; that rule the Controlling Officer is empowered to deduct any amount due under a liability incurred by the subscriber to the Government. Therefore before any deduction can be made, it must be established that under a liability incurred by the subscriber the amount in question is due to the Government. In the instant case, the respondent has disputed his liability. His contention is that he was not responsible for the loss in question. Therefore before any deduction can be made, it must be established that under a liability incurred by the subscriber the amount in question is due to the Government. In the instant case, the respondent has disputed his liability. His contention is that he was not responsible for the loss in question. Under the -Provident Fund Rules, no authority is constituted for deciding any dispute that might arise between the subscriber and the Government as regards any alleged incurring of the liability nor as regards its quantum. Therefore the only form in which these disputes can be decided is the Civil Court. The Government cannot be a judge in its own cause in the absence of any statutory provision empowering it to act as such. Hence the High Court was right in its conclusion that action taken by the Government is an arbitrary one. " ( 11 ) IN M. C Joseph v. State of Kerala ana others (1973 All-India Services Reports 668) the petitioner was a Godown keeper in the Food grains Depot under the Civil Supplies Department. During the period of his service there was shortage in the stock of rice in that depot. By orders of the State of Kerala and the Board of Revenue, the liability of the petitioner for this shortage was fixed at Rs. 8,034. 22 which was later reduced to Rs 2,708. 26 and this amount was sought to be recovered after adjusting the security deposit. The petitioner moved the Court for quashing this recovery. Reliance was placed in defence on a term in the petitioner s contract of service which provided that in the event of any loss or damage being caused to the Government by any act, or omission etc. 26 and this amount was sought to be recovered after adjusting the security deposit. The petitioner moved the Court for quashing this recovery. Reliance was placed in defence on a term in the petitioner s contract of service which provided that in the event of any loss or damage being caused to the Government by any act, or omission etc. etc of the petitioner he "shall make good to the Government sue loss or damage in full, immediately on receipt of notice in writing from the Government as to the amount of such loss or damage and that on his failure to so pay up the amount, it shall be lawful and competent to the Government to recover same from him as arrears of Public Revenue under the provisions of the Revenue Recovery Act for the time being in force or in any other manner that may commend itself to the Government " The Court held that this condition undoubtedly provided for the recovery of the loss or damage from the petitioner but observed : ". . . THERE is no indication anywhere in the contract as to how the Government would fix the extent of the liability In the contract the Government his not been made an arbitrator and no power is conferred on the Government to fix the liability. The liability for damages and the power to fix the extent of the damage are entirly different things- Consequently on the strength of the provisions of the contract alone it is incompetent for the Government to take a one-sided decision and fix the liability of the petitioner. That no man can be a Judge in his own cause is a rule of natural equity which has to be held sacred. In a dispute about a contract a person cannot be both a party and a Judge. If he is a party he cannot sit or act as a Judge and if he does so the decision is vitiated. " ( 12 ) SIMILAR view was taken by a division bench of Mysore High Court in N. K. Some sekhers Arathya v. State of Mysore (1966) 2 Mysore Law Journal 447. The petitioner in that case agreed with the State Government to supply rice. " ( 12 ) SIMILAR view was taken by a division bench of Mysore High Court in N. K. Some sekhers Arathya v. State of Mysore (1966) 2 Mysore Law Journal 447. The petitioner in that case agreed with the State Government to supply rice. Clause 12 of the agreement provided that in the event of breach of the conditions of agreement by the petitioner, the petitioner shall pay damages to the Government such as may be assessed by the Government. The Court held that in spite of this clause the question whether there was a breach of the agreement was one for decision by a Court of law and, therefore, the assessment of damages also would be for the Court to make. ( 13 ) WE are, therefore, of the view that a mere claim for damages raised by the purchaser is not a debt or sum legally recoverable or due as much from the contractor and clause 18 does not carry, by implication, a right or power for the purchaser to authorise it to quantify the damages if the contractor disputes the claim raised against it. ( 14 ) THE question then arises what is the scope and effect of clause 18 ? In our opinion, it authorises the purchaser to appropriate any sum admitted or adjudicated to be due from the contractor against any amount due and payable to the latter. Normally, according to section 59 of the Contract Act where a debtor owes some amounts to the creditor he has the right and option to allocate his payment to any particular debt and the payment accepted, by the creditor must be applied accordingly, but clause 18 makes an exception to this general rule to confer a right on the purchaser to appropriate the amount due to and recoverable by it against any sum payable to the contractor or becoming due to it under the same contract or even any other contract including the security deposited by the contractor in the account of and towards a wholly different contract. ( 15 ) WE now come to clause 18a. It reads:- 18a. SET-OFF. ( 15 ) WE now come to clause 18a. It reads:- 18a. SET-OFF. Any sum of money due and payable to the contractor (including security deposit returnable to him) under the contract may be appropriated by the Purchaser or Government or any other person or persons contracting through the Secretary and set-off against any claim of the purchaser or Government or such other person or persons for the payment of a sum of money arising out of or under any other contract made by the contractor with the Purchaser or Government or such other person or persons. " ( 16 ) THIS clause also does not confer a right of adjudication on the purchaser. There can be no "set off" of an unascertained amount. The claim of the purchaser even though assessed by it at a particular amount, if disputed by the contractor, still remains, for reasons aforesaid, a disputed right to claim and not an ascertained debt. The appropriation of such a claim against any sum of money due and payable to the contractor would be without the authority of law and in that sense without jurisdiction. ( 17 ) FOR reasons aforesaid, we are of the view that the respondents in this case could not create a demand for Rs. 92,363. 00 against the petitioner in the sense of being a legally recoverable debt due from it and the threat to appropriate the amount of this demand from any pending or future bills of the petitioner is illegal. ( 18 ) WE also find that the demand for Rs. 92,363. 00 in the sense of an enforceable and recoverable demand could in no case be created by the impugned letter without hearing the petitioner. In paragraph 20 of the petition, the petitioner has alleged that he was not given any opportunity whatsoever to put his case before the issuance of the impugned demand. The allegation that hearing was not given has not been denied in the counter affidavit. The demand, if intended to be binding and operative against the petitioner, is violative of the principles of natural justice and for this reason also is liable to be quashed. See State of Orissa Vs. Dr. (Miss) Binapani Dei and others AIR 1967 Supreme Court 1269 and A. K. Kraipak and others Vs. Union of India and others AIR 1970 Supreme Court 150 ). See State of Orissa Vs. Dr. (Miss) Binapani Dei and others AIR 1967 Supreme Court 1269 and A. K. Kraipak and others Vs. Union of India and others AIR 1970 Supreme Court 150 ). ( 19 ) SHRI S. S. Chadha, appearing for the respondents, argued that for purposes of clauses 18 and 18a claim to recover any sum from the petitioner was not a property within the meaning of Article 19 (1) (f) of the Constitution and, therefore, no hearing was called for. The submission in the facts of this case is without merit. The threat of deduction in the impugned letter is a threat to deprive the petitioner of property to the extent of Rs. 92,363. 00 by deducting this sum from the other amounts due or becoming due to the petitioner. This affects the pecuniary interests of the petitioner involving "civil consequence" to him. The rule of audi alteram partem is clearly attracted. Hearing was, therefore, necessary. ( 20 ) DURING arguments, it was urged that clauses 18 and 18a by implication confer on the respondents as purchaser a right not only to claim damages but also to quantify them so as to convert the claim for damage into a recoverable debt due from the contractor. We have already dealt with this aspect of the matter. We find nothing in these clauses to empower the purchaser to adjudicate and to be a Judge in its own cause to convert the mere claim into a recoverable debt or sum due from the contractor. We further find that the suggested interpretation of these clauses would be violative of Article 14 of the Constitution. Unlike any contract between two private individuals, the contract in question is a contract with the Union or India which is "state" within the meaning of Article 12 of the Constitution. Even in discharge of its executive functions the Union of India would be bound to observe the mandate of Article 14 of the Constitution. To read the right to adjudicate to be implicit in the clauses would be to single out the contractor by an executive action of the Union and deprive him of the general protection of law, available to all other citizens, not to be subject to or bound by any obligation not admitted by or adjudicated against him. To read the right to adjudicate to be implicit in the clauses would be to single out the contractor by an executive action of the Union and deprive him of the general protection of law, available to all other citizens, not to be subject to or bound by any obligation not admitted by or adjudicated against him. Reference in this connection may be made to Delhi Peasants Co-operative Multipurpose Society Ltd Vs. The Collector and others ( 1971 DLT 399 ). ( 21 ) SHRI S. S. Chadha then urged that by clause 18 the contractor had agreed that when any claim for payment of the sum of money was raised by the purchaser he was entitled to recover "such sum" by appropriating in whole or in part the security, if any, deposited by the contractor. "such sum", he said, meant the claim as assessed by the purchaser so that under this clause the purchaser was entitled to recover the amount of the claim as unilaterally assessed by it. This interpretation of the clause is clearly not permissible. The expression "appropriate" according to the Shorter Oxford English Dictionary means "to make over to any one as his own", "to take for one s own, or to on self". When used in relation to money, in a commercial contract, in our view, it means the appropriation of the particular amount by one of the parties to the contract when it has become in law the property of the person appropriating it and nothing further remains to be done to make it so. A sum of money claimed as damages which Is neither admitted nor adjudicated is not such property. It cannot, therefore, be appropriated. The appropriation envisaged in clausel8 is only in regard to monies that could be taken over by the purchaser as its own i. e. the monies that were either admitted by the contractor or were adjudicated by a competent tribunal to be due from him. Clause 18 talks of appropriation. It is intended to be effective between the parties. Finality is attached to the appropriation of the sum of money in the sense that the contractor has no right to claim it back. Clause 18 would be a complete defence to such a claim by the contractor. Clause 18 talks of appropriation. It is intended to be effective between the parties. Finality is attached to the appropriation of the sum of money in the sense that the contractor has no right to claim it back. Clause 18 would be a complete defence to such a claim by the contractor. The argument of the respondents that even if the government appropriates under this clause against its claim for damages which is merely a right to sue, the contractor can sue the government or invoke the arbitration clause in respect of the claim for damages has no validity. To say that the government s right to appropriate is subject to the contractor s right to sue appears to us to be a contradiction in terms. Such an argument which has been advanced in these cases does violence to clause 18. Therefore, as a matter of construction, clause 18 would apply only if the sum of money claimed is either admitted or adjudicated and is not a mere right to sue. ( 22 ) SHRI Chadha REFERRED TO Yogendra Kumar Jain V. Union of India and another (A. I. R. 1972 Delhi 234) in support of the proposition that the purchaser had the right to appropriate the security deposited by the contractor without the determination of the actual amount due. This case appears to have been decided on its own peculiar facts. The learned singleJudge has observed in the facts of that case that "there is no question of any determination involved here" but if this decision is taken to lay down the broad proposition that the purchaser had the right to deduct or recover any sum of money which he merely claimed on account of an alleged breach of contract, the liability for which the contractor disputed, then, with respect, we disagree with this conclusion for reasons that have already been set out by us. ( 23 ) SHRI Chadha also referred us to Annexure P. 1, the schedule to the Acceptance of Tender, clause 7 of which provides that conditions of the contract were to be those as contained in Form No. DGSandd (revised) as amended, excluding clause 24, and specifically realised on clause 8, Sub-clause (7) of clause 14, clause 17 with particular emphasis on its sub-clause (8) and clause 19 of the clauses, contained therein. On the basis of these clauses, he argued that in spite of completion of delivery of the tents in this case and the payment of the price of the stores supplied, it was still open to the purchaser to raise a claim for damages under section 59 of the Sale of Goods Act, treating the breach by the contractor as a breach of warranty. Shri Singhania, appearing for the petitioner disputed this position and maintained that section 59 was not at all attracted. Without going into this controversy and assuming that section 59 applied and a claim for breach of warranty could be raised, we find that the claims for damages on the footing of a breach of warranty still remained a claim which if disputed, had to be adjudicated and until adjudicated the claim could not be recovered as a debt for a specified amount due from the contractor enforceable either by way of cash payment, appropriation of set off. The argument, therefore, does not advance the case of the respondents. ( 24 ) WE now come to the objection regarding maintainability of the writ petition. The petitioner s case all through is that the Government is acting to deprive him of his property otherwise than in accordance with law and without the jurisdiction contractual or otherwise to do so. It is true that to determine the contention raised by the petitioner, the contract between the petitioner, and the Government has to be seen, but that is only to determine whether the action complained of is within the jurisdiction of the Government or is arbitrary or illegal. In D. F. O. South Kheri and others v. Ram Sanchi Singh (A. I R. 1973 Supreme Court 205) in answer to a writ filed by the respondent to restrain the Divisional Forest Officer and Conservator of Forests from cancelling his "sleeper tally" the argument raised was that the grievance related to a contractual relationship and should not be allowed to be agitated in a writ court. On page 206 of the report. Shah (as his Lordship then was), speaking for the Court said:- "but in the present case the order is passed by a public authority modifying the order or proceeding of a subordinate forest authority. By that order he has deprived the respondent of a valuable right. On page 206 of the report. Shah (as his Lordship then was), speaking for the Court said:- "but in the present case the order is passed by a public authority modifying the order or proceeding of a subordinate forest authority. By that order he has deprived the respondent of a valuable right. We are unable to hold that merely because the source of the right which the respondent claims was initially in a contract, for obtaining relief against any arbitrary and unlawful action on the part of a public authority he must resort to a suit and not to a petition by way of a writ. . . . . . . . . "the present petition, therefore, in the facts of this case, is competent. ( 25 ) IT was also urged on behalf of the respondents that the contractor, in case he disputed the claim raised by the purchaser, had the alternative remedy to have the matter settled either by arbitration in cases where the contract contained an arbitration clause, or through court if there was no arbitration clause, and this alternative remedy being available, the writ was not competent. Apart from the fact that in case the claim is disputed by the contractor it would primarily be for the party raising the claim to avail of these remedies and these remedies cannot properly be said to be the legal remedies of the purchaser it is obvious that the basic grievance of the contractor in this case is that he is being deprived of his property without the other party resorting to these legal remedies and this wrongful act of the other party which, in this case, is the Union of India, affects his fundamental rights. To seek redress in such a situation the aggrieved party has a right to invoke Article 226 of the Constitution. Further, it is settled law that the existence of an alternative remedey is no bar to a writ in the case of infringement of fundamental rights- (see Himmatlal Hiralal Mehta v. The State of Madhya Pradesh and others (1954) S. C. R. 1122. ( 26 ) FOR the aforesaid reasons, we are of the view that the impugned demand deserves to be quashed. A writ is accordingly issued declaring that the demand for Rs. 92,363. ( 26 ) FOR the aforesaid reasons, we are of the view that the impugned demand deserves to be quashed. A writ is accordingly issued declaring that the demand for Rs. 92,363. 00 in the impugned letter dated March 9, 1971, by way of recoverable debt due from the petitioner and the direction to the Pay and Accounts Officer to deduct this amount from any pending or future bills of the petitioner is illegal and without jurisdiction, and on that account inoperative. This shall, however, not prevent the respondents from having, their claim for damages, if any, referred to in this letter, duly assessed and quantified in accordance with law and then enforce recovery and payment of the amount adjudged to be due to them from the petitioner by resorting to clauses 18 or 18a.