CHELLAPPAN v. EXECUTIVE ENGINEER — 1977 DIGILAW 351 (KER)

Judgment :- 1. A difficult but interesting question the decision of which may be of considerable consequence arises in this case. The question relates to the validity of the revenue recovery proceedings taken against the petitioner by the Revenue authorities to recover what is claimed as due from him as damages for breach of the contract he had entered into with the Executive Engineer, PWD. (B&R) Division, Trivandrum. That the petitioner tendered for the work of construction of certain structures in the State Guest House premises at Trivandrum on 21-6-1975, that the Executive Engineer concerned accepted bis tender, that the petitioner executed an agreement on 17-7-1975 for completion of the work before the end of December, 1975 and the work was not completed within the period specified in the agreement are admitted facts. The petitioner has some explanation to offer for the delay in the completion of the work. According to him necessary materials which the PWD. had to supply him in accordance with the terms of the agreement were not supplied in time. By the time they were supplied the petitioner is said to have fallen ill consequent upon which he is said to have sought for extension of time for completion of the work. But then even before the period agreed upon for completing the work had expired the contract was terminated. That it was so terminated is not disputed. It was terminated on 13-11-1975 and the security deposit was forfeited. It was stated in Ext. P3 letter issued by the first respondent that the petitioner is seen to have abandoned the work after completing the foundation masonry for a portion of the compound wall at the entrance, that repeated requests were made to the petitioner to complete the work with the least delay, that he had been told repeatedly that the progress was very slow, that therefore the work could not be completed within the specified period and that there was no progress as required by the terms of the contract which enabled the first respondent to cancel the contract. I am not called upon in this case to decide whether there was sufficient excuse for the petitioner for defaulting to carry out the work according to the time schedule contemplated by the parties or whether there were circumstances which may justify the termination of the contract. I am not called upon in this case to decide whether there was sufficient excuse for the petitioner for defaulting to carry out the work according to the time schedule contemplated by the parties or whether there were circumstances which may justify the termination of the contract. That would be beyond the province of this Court as I will presently indicate. But the further contention of the petitioner is that recovery sought to be made from him of an amount of Bs. 31843/-as intimated by Ext. P4 ought not to be permitted. The petitioner complains that he was never given an opportunity to show how this amount could be claimed as damages and that he was never given an opportunity to show that the case that loss was caused by re-arrangement of work had no basis. The complaint is that the unilateral determination by the Executive Engineer of the quantum of damages and proceedings for recovering such quantum were not warranted by law. 2. The two questions which therefore arise in this case are: (1) Whether this Court should go into the question as to the propriety of the termination of the contract by the first respondent and (2) Whether revenue recovery proceedings can be resorted to recover what is claimed as damages due as a result of breach of contract. 3. When the State enters into a contract with the citizen the rights of the parties to the contract are determined solely on the terms of the contract and the remedies available for breach of contract to either of the parties would be in terms of the contract, in the matter of entering into contractual relations the State is exercising its executive power and the provisions of Part III of the Constitution impose certain restrictions in the matter. It is not open to the State to pick and choose the persons with whom it proposes to enter into a contract. In other words, the exercise of such executive power at the stage prior to the entering into a contract is liable to be examined by a court with a view to see whether there is an infringement of the fundamental rights guaranteed to a citizen. All citizens must have similar opportunity to propose entering into contract with the State. In other words, the exercise of such executive power at the stage prior to the entering into a contract is liable to be examined by a court with a view to see whether there is an infringement of the fundamental rights guaranteed to a citizen. All citizens must have similar opportunity to propose entering into contract with the State. But when a contract is entered into the position of the citizen who enters into a contract with the State is just that of any other contracting party. He cannot complain of violation of Art.14 in the matter of execution of the contract. Thus, for instance, he cannot complain that while some contractors have been given extension of time he has not been given similar extension, that while heavy penalties are imposed on him in terms of such contract such penalties have not been imposed on other contracting parties. If he is liable under the terms of contract to be subjected to such penalty he cannot complain against the State that the concession shown to others must be shown to him, for, the question of violation of Art.14 in the matter of performance of the contract does not arise. Consequently if he seeks a remedy on account of the conduct of the other party to the contract such remedy would be the same as that available to him under a contract with a party other than the State. If his contract had been with another citizen or another individual he could not come to this court in proceedings under Art.226 of the Constitution complaining that termination of the contract was bad. His remedy, if any, would then lie elsewhere. The position would not be different simply because he has contracted with the State. Therefore this Court will not examine the question whether the State was right in its stand that the petitioner was guilty of such conduct as to enable the State to terminate the contract. 4. I am fortified in my view by the decision of the Supreme Court in Radhakrishna Agarwal v. State of Bihar, AIR. 1977 SC. 1496. Beg C.J., speaking for the Court said in that case thus: "It is thus clear that the Erusian Equipment & Chemicals Ltd's case (AIR. 1975 SC. 4. I am fortified in my view by the decision of the Supreme Court in Radhakrishna Agarwal v. State of Bihar, AIR. 1977 SC. 1496. Beg C.J., speaking for the Court said in that case thus: "It is thus clear that the Erusian Equipment & Chemicals Ltd's case (AIR. 1975 SC. 266) (supra) involved discrimination at the very threshold or at the time of entry into the field of consideration of persons with whom the Government could contract at all. At this stage, no doubt, the State Act purely in its executive capacity and is bound by the obligations which dealings of the State with the individual citizens import into every transaction entered into in exercise of its constitutional powers. But, after the State or its agents have entered into the field of ordinary contract, the relations are no longer governed by the constitutional provisions but by the legally valid contract which determines rights and obligations of the parties inter se. No question arises of violation of Art.14 or of any other constitutional provision when the State or its agents, purporting to act within this field, perform any act. In this sphere, they can only claim rights conferred upon them by contract and are bound by the terms of the contract only unless some statute steps in and confers some special statutory power or obligation on the State in the contractual field which is apart from contract." 5. The further question for examination here concerns the propriety of the proceedings for recovery under the Revenue Recovery Act on a unilateral determination of the quantum of damages. Assuming that the petitioner has made himself liable in damages by committing breach of the contract, it gives rise to a cause of action for claiming damages for breach. The right to sue for damages accrues to the party against whom default is committed. This right to sue is not transferable property. It is a right which can be put in action by making an appropriate claim for determination of damages and until such damages are determined no amount could be said to be due. It may be that parties may contemplate in the contract the amount of liquidated damages in the event of breach. It is a right which can be put in action by making an appropriate claim for determination of damages and until such damages are determined no amount could be said to be due. It may be that parties may contemplate in the contract the amount of liquidated damages in the event of breach. But there is no subtle distinction in India between liquidated and unliquidated damages, for, even where parties to a contract agree in the contract itself as to the quantum of damages payable by the party in the event of the breach the question as to the amount of damages is still a matter for determination by Court, for, in spite of such agreement whether the amount would be reasonably due and therefore for that reason the covenant for liquidated damages is enforceable is a question which would call for examination. That is the reason why even the stipulation for liquidated damages would not render the defaulting party liable ipso facto by reason of the default to answer for the sum agreed upon as damages. The position therefore would be that on the breach only a right to sue for damages may accrue. But so long as the sum due remains undetermined it cannot be said that any amount is due. If it is not due it is not recoverable under the Revenue Recovery Act, for, S.68(1) enables recovery only of amounts due under contracts where the contract stipulates resort to revenue recovery process as one of its terms. To invoke the said provision it is necessary that the amount should have become due. For reasons indicated, I am of the view that in spite of the breach and in spite of the fact that normally such breach may entitle the party against whom that breach is committed to claim damages at that stage what arises is only a claim for unliquidated damages and until that is determined no amount could be said to be due. 6. In this context I may refer to the decision of the Supreme Court in Union of India v. Raman Iron Foundry AIR. 1974 SC. 1265. 6. In this context I may refer to the decision of the Supreme Court in Union of India v. Raman Iron Foundry AIR. 1974 SC. 1265. Bhagwati J. speaking for the Bench said in that case at page 1273 thus: "Now the law is well settled that a claim for unliquidated damages does not give rise to a debt until the liability is adjudicated and damages assessed by a decree or order of a court or other adjudicatory authority. When there is a breach of contract, the party who commits the breach does not eo instanti incur any pecuniary obligation, nor does the party complaining of the breach becomes entitled to a debt due from the other party. The only right which the party aggrieved by the breach of the contract has is the right to sue for damages. That is not an actionable claim and this position is made amply clear by the amendment in S.6(1) of the Transfer of Property Act, which provides that a mere right to sue for damages cannot be transferred." I may also refer to a passage from the decision of the Bombay High Court in Iron and Hardware (India) Co. v. Firm Shamlal and Bros. AIR. 1954 Born. 423, a passage to which reference is made in the above decision. That reads thus: "As already stated, the only right which he has is the right to go to a Court of law and recover damages. Now, damages are the compensation which a Court of law gives to a party for the injury which he has sustained. But, and this is most important to note, he does not get damages or compensation by reason of any existing obligation on the part of the person who has committed the breach. He gets compensation as a result of the fiat of the Court. Therefore, no pecuniary liability arises till the Court has determined that the party complaining of the breach is entitled to damages. Therefore, when damages are assessed, it would not be true to say that what the Court is doing is ascertaining a pecuniary liability which already existed. The Court in the first place must decide that the defendant is liable and then it proceeds to assess what that liability is. Therefore, when damages are assessed, it would not be true to say that what the Court is doing is ascertaining a pecuniary liability which already existed. The Court in the first place must decide that the defendant is liable and then it proceeds to assess what that liability is. But till that determination there is no liability at all upon the defendant." The Supreme Court concluded by saying: "A claim for damages for breach of contract is, therefore, not a claim for a sum presently due and payable and the purchaser is not entitled, in exercise of the right conferred upon it under Clause.18, to recover the amount of such claim by appropriating other sums due to the contractor." 7. It is clear therefore that what is the amount due is a matter for adjudication and until such adjudication is made there can be no amount due. If amount is not due no amount will be recoverable under, the provisions of the Revenue Recovery Act. 8. The learned Government counsel, at the close of the hearing, drew my attention to the contract which is in his file and particularly to Clause.2 of the conditions of the contract which, according to him enables the Executive Engineer to recover such sums from the contractor and his assets under the provisions of the Revenue Recovery Act for the time being in force as if they were arrears of land revenue or otherwise as government may choose. It may be necessary to refer to this clause in extenso. So I am extracting Clause.2 here: "2. In every case in which under any clause or clauses of this contract the contractor shall have rendered himself liable to damages amounting to the whole of his security deposit, the Executive Engineer shall have power either to rescind the contract altogether or to have the work completed without further notice at the contractor's risk or expense as he may deem best suited to the interest of the. Government and the contractor shall have no claim to compensation for any loss that may accrue from any materials he may have collected or engagements he may have entered into, on account of his work and in the latter case the Executive Engineer shall have power to deduct whatever amount may be expended on the completion of the work, from any sums that may be due or become due from the Government to the Contractor on account of this or any other work or recover such sums from him and his assets moveable and immoveable under the provisions of the Revenue Recovery Act for the time being in force as if they were arrears of land revenue or otherwise as Government may choose. And in case the contract shall be rescinded under the provisions aforesaid the Contractor shall not be entitled to recover or be paid any sum for any work therefore actually performed under this contract unless and until the Executive Engineer shall have certified the performance of such work and the value thereof, and he shall only be entitled to be paid the value so certified." I cannot read this clause as enabling the Executive Engineer to determine the quantum of damages. Therefore I do not go into the further question whether if such a term had been provided for how far that term would have been sustainable in law. On the terms of the contract it cannot be said that the determination of quantum of damages on breach of the contract has been left to the Executive Engineer. Much less is there any case that adjudication as contemplated in Clause.2 of the terms of the contract has been made by the Executive Engineer in this case. 9. The view I have taken here as to propriety of Revenue Recovery Proceedings accords with the view taken by my learned brother Vadakkel J. in the decision in M/s. Universal Marine Agencies v. State of Kerala ILR.1977 (2) Ker. 5781977 KLT. 949. I therefore hold that the proceedings under the Revenue Recovery Act for recovery of the sum claimed due as damages for breach of contract would be incompetent and no such proceedings shall be taken until determination of the quantum of such amount. The Original Petition is allowed as above. No costs in the circumstances of the case. Allowed.