KERALA STATE ELECTRICITY BOARD v. A. L. JACOB — 1995 DIGILAW 326 (KER)

JUDGMENT B. N. Patnaik, J. - The plaintiff, Kerala State Electricity Board, for short, the K.S.E.B. in O.S. No. 53 of 1984 on the file of the Sub-Court, Trivandrum, is the appellant. The suit was filed for recovery of a sum of Rs. 1,25,081.25 with interest at the rate of 18% per annum by way of damages sustained by the plaintiff for breach of contract by the defendants. 2. The case of the plaintiff is that, the plaintiff is a statutory body having, its head office at Trivandrum. Defendant No. 1 is a partnership-firm and defendant No. 2 is a partner having his registered office at Chittur Road, Kochi. Plaintiff entered into a contract with the first defendant for supply of 25,000 numbers of 4-line cross-arms as per specification and drawings for teak wood poles at the rate of Rs. 29/- each totalling to the value of Rs. 7,25,000/- as per the purchase order dated 19.10.1979 (Ext. A1) and the contract agreement dated 27.11.1979 (Ext. A2). As per the original delivery schedule given in the purchase order the firm was bound to commence supply within one month from the date of receipt of the order and the entire supply was to be completed making the supply at a monthly rate of not less than 10,000 numbers of 4-line cross-arms. But the defendant supplied only 2650 numbers of cross-arms against the ordered quantity of 25,000 numbers upto 11.4.1980. When further supply was insisted the defendants by their letter dated 6.8.1980 (Ext. A3) demanded a revised rate of Rs. 40/- per cross-arms. This was, however, rejected by the plaintiff by its letter dated 24.10.1980 (Ext. A4). The defendants again insisted on enhancement of rates for making the balance supply by their letter dated 17.11.1980 (Ext. A5) and 3.2.1981 (Ext. A6) and wanted the plaintiff to reconsider its earlier decision. But, the plaintiff declined to accede to the demand of the defendants and by its letter dated 25.2.1981 (Ext. A7) it was intimated that the request for enhancement of the price of the cross-arms was not accepted by the Board. The defendants were called upon to supply the balance quantity on or before 30.4.1981, failling which it is intimated that the original order dated 19.10.1979 would be cancelled at the risk and costs of the defendants. The defendants failed to make any further supply of the materials as per letter Ext. A7. The defendants were called upon to supply the balance quantity on or before 30.4.1981, failling which it is intimated that the original order dated 19.10.1979 would be cancelled at the risk and costs of the defendants. The defendants failed to make any further supply of the materials as per letter Ext. A7. Hence by letter dated 1.6.1981 (Ext. A8), the agreement with the defendants was cancelled. As the defendants failed to supply the balance quantity of cross-arms, the plaintiff was compelled to arrange for supply through another agency by procuring at a higher rate. The plaintiff has to incur extra expenses of Rs. 420/- as costs towards procurement charges. As a result of the breach of contract committed by the defendants, the plaintiff had to incur a loss of Rs. 1,06,001.40 which the plaintiff is entitled to recover from the defendants. A registered notice dated 18.1.1983 (Ext. A9) was served on the defendants claiming the said amount together with interest at the rate of 18% from 15.2.1983. The defendants failed to comply with the demand and hence the suit was filed on 23.4.1984 to recover the said amount with 18% from 15.2.1983 till the date of filing the suit. The plaintiff has also claimed future interest. 3. In the joint written statement of the defendants, while admitting that by Exts. A1 and A2 they are required to supply the articles as stated in the plaint, they contended that the suit is barred by limitation. It is further stated that as per the purchase order dated 19.10.1979 the supply should have commenced within one month from the receipt of the order. The entire supply of 25,000 numbers of cross-arms was to be completed by despatching 10,000 numbers per month. The defendants received the purchase order on 29.11.1979 and as such the supply was to be completed on 29.3.1980, which the defendants could not make due to supervening impossibility in the matter of getting the required quantity of M.S. angles from SIDECO and due to sudden change in the policy of supplying the raw materials. The defendants could make the supply of only 2,650 numbers of cross-arms within this period. Since time was of the essence of the contract, it came to an end on 29.3.1980. The cause of action having arisen on 29.3.1980, the suit for recovery of the damages as alleged should have been filed within three years thereafter. The defendants could make the supply of only 2,650 numbers of cross-arms within this period. Since time was of the essence of the contract, it came to an end on 29.3.1980. The cause of action having arisen on 29.3.1980, the suit for recovery of the damages as alleged should have been filed within three years thereafter. Since, it was filed on 23.2.1984, the suit is barred by limitation. The defendants' have further stated that the cancellation of the agreement at the risk and cost of the defendants is null and void as it is in violation of the agreement. Being small scale industrial unit, the defendants firm solely depended on the quota of materials to be supplied by SIDECO. But due to restrictions imposed by consequent policy decisions in the matter of bulk supply of steel, the defendants could not procure sufficient quantity of materials required for the execution of the contract. Hence due to circumstances beyond their control, they could not procure the same. This fact had been intimated to the plaintiff more than once and the plaintiff was requested to supply the steel which was allotted to it to fulfil the contract. Since the defendants could not make the entire supply due to supervening impossibility, the defendants had to depend upon the open market for procuring the same. The rate in the open market was higher than the rate quoted by SIDECO. So, the plaintiff was requested to revise the rate to Rs. 40/- per cross-arms. But, the plaintiff refused to enhance the rate. There is no wilful neglect on the part of the defendants. The defendants are not responsible for the loss sustained by the plaintiff due to their rash and hasty action. The contract has become impossible to perform and as such they have not committed breach of any of the conditions. 4. The learned Sub-Judge framed the following three issues : (1) Whether the plaintiff is entitled to the damages as prayed for in the plaint ? (2) Whether the suit is barred by limitation ? (3) Relief and costs. 5. On a consideration of the relevant documents, the learned Sub-Judge held that the plaintiff is entitled to claim Rs. 1,06,001.40 by way of damages with 6% interest with effect from 15.2.1983, but dismissed the suit by holding that the suit is barred by limitation. (2) Whether the suit is barred by limitation ? (3) Relief and costs. 5. On a consideration of the relevant documents, the learned Sub-Judge held that the plaintiff is entitled to claim Rs. 1,06,001.40 by way of damages with 6% interest with effect from 15.2.1983, but dismissed the suit by holding that the suit is barred by limitation. He further held that it being a suit for damages for breach of contract, the same is governed by Art. 55 of the Limitation Act, under which the period prescribed for recovery of damages is three years and the time will run from the date on which the contract is broken. In this case, time is of the essence of the contract and the breach has occurred by the end of March, 1980. Hence, the limitation will start to run from 1.4.1980. The present suit having been filed on 23.2.1984, i.e., beyond three years after the alleged breach of contract, it is barred by limitation. 6. Neither any cross objection nor any cross appeal has been filed by the defendants against the finding on issue No. 1. No arguments have also been advanced by the learned Counsel for the respondents in this appeal, challenging the correctness of the finding about the liability of the defendants to pay the damages as claimed. Hence, the finding on issue No. 1 having been finally concluded, it has to be held that the defendants are liable to pay damages to the plaintiff as claimed. 7. It is well settled that interest as damages cannot be awarded. Interest upto date of suit, therefore, was not claimable. As regards interest pendente lite until the date of realisation, grant of such interest was within the discretion of the court. (See Mahabir Prasad v. Durga Dutta (AIR 1961 SC 990)). In the present case, therefore, plaintiff is not entitled to get interest upto the date of suit by way of damages. But, the plaintiff is entitled to pendente lite interest, i.e., from the date of filing the suit at the rate of 6% p.a. on the decretal amount until the date of realisation. 8. The only question for consideration is whether time was of the essence of the contract and if so, whether the suit is barred by limitation. But, the plaintiff is entitled to pendente lite interest, i.e., from the date of filing the suit at the rate of 6% p.a. on the decretal amount until the date of realisation. 8. The only question for consideration is whether time was of the essence of the contract and if so, whether the suit is barred by limitation. Learned Counsel on both sides have relied on the decision of the Supreme Court in Hind Construction Contractors v. State of Maharashtra (AIR 1979 SC 720), in support of their respective contentions on the question whether in the present case, time was of the essence of the contract. The Supreme Court had to consider as to whether in a given contract, time was of the essence of the contract and a determination of the same without fixing any further period making time the essence of the contract was justified. It was a contract between the State Government and a contractor for construction of an adequate across a river within the stipulated period of 12 months and power, was conferred upon the Executive Engineer to grant extension of time for completion of work on reasonable grounds and further provision was made for levying and recovering penalty/compensation from the contractor at specified rates for the unfinished work after the expiry of the fixed date. It was held that such provisions would exclude the inference that time was intended to be of the essence of the contract. The remission of such a contract on the part of the State Government without fixing any further period making time the essence and directing the contractor to complete the work within such period, was clearly illegal and wrongful and, thereby the State Government committed a breach of the contract with the result that the security deposit of the contractor could not be forfeited. It has also laid down in that decision as follows : "The question whether or not time was of the essence of the contract would essentially be a question of the intention of the parties to be gathered from the terms of the contract. It has also laid down in that decision as follows : "The question whether or not time was of the essence of the contract would essentially be a question of the intention of the parties to be gathered from the terms of the contract. Even where the parties have expressly provided that time is of the essence of the contract such a stipulation will have to be read alongwith other provisions of the contract and such other provisions may, on construction of the contract, exclude the inference that the completion of the work by a particular date was intended to be fundamental, for instance, if the contract were to include clauses providing for extension of time in certain contingencies or for payment of fine or penalty for every day or week the work undertaken remains unfinished on the expiry of the time provided in the contract such clauses would be construed as rendering ineffective the express provision relating to the time being of the essence of contract." In State of Maharashtra v. Digam Bar (AIR 1979 SC 1339), similar observations have been made while construing the terms of a works contract. In that case, it was found on facts that the contractor was informed that he will be burdened with compensation if he fails to show satisfactory progress within a month of the date of the letter and he will be compelled to pay compensation at the increased rate. Further, it was intimated that the authorities will take suitable penal action against him if the work was not completed within the stipulated time. The work not having made such progress and the plaintiff having stopped its execution, he was informed by another letter that the contract stood rescinded under Clause 3 thereof. That was challenged before the court below and the High Court accepted the contention of the contractor and held that the rescission of the contract was illegal. The work not having made such progress and the plaintiff having stopped its execution, he was informed by another letter that the contract stood rescinded under Clause 3 thereof. That was challenged before the court below and the High Court accepted the contention of the contractor and held that the rescission of the contract was illegal. But, the Supreme Court, on a scrutiny of the relevant provision of the contract, set aside the order of the High Court and laid down as follows : "Although in Clause (2) of the contract it was specifically mentioned that time was of the essence of the agreement between the parties, all that was meant was that in case the work was not completed within the time originally specified in that behalf, the plaintiff would be liable to pay such compensation for delay in execution as was fixed by the Superintending Engineer within the limits laid down in the clause. This becomes clear not only from the provision appearing in Clause (2) and stating that the contractor shall pay as compensation an amount equal to 1% or such similar amount as the Superintending Engineer may decide for every day that the work remains uncommenced, or unfinished after the proper dates, but also from the contents of Clause (3) of the contract, which would become operative only if the plaintiff renders himself liable to pay compensation in accordance with Clause (2) or abandons the work either on account of serious illness or death for any other cause and it is then that the contract would become liable to rescission. Clauses (2) and (3) have to be read together and interpreted with reference to each other and their provisions, read as one single whole, clearly mean that the contract was to continue to be in force till the completion of the work or its abandonment. Clauses (2) and (3) have to be read together and interpreted with reference to each other and their provisions, read as one single whole, clearly mean that the contract was to continue to be in force till the completion of the work or its abandonment. The time was of the essence of the contract only in the sense that if the plaintiff completed it within the original period of one year, he would not be liable to pay any compensation but that in case he over-stepped the said time limit he would have to compensate the defendants for every day of the delay in completing the work and that the right to rescission would accrue to the defendant No. 2 only when the compensation due exceeded the amount of the security deposit or the plaintiff abandoned the work. Till the time the contract was rescinded, therefore, it was fully in force and the rescission was consequently well-founded, being squarely covered by Clause (3) of the contract, Sub-clause (a) of which conferred on the Executive Engineer the right to forfeit the security deposit. Far from being illegal, the forfeiture was fully justified and the High Court's finding to the contrary is liable to be reversed. 9. Ext. A2 is the agreement between the parties. Clauses 3 and 4 thereof read as follows : "The approximate quantities to be supplied are shown in the copy of order No. TA.33/Ele/4/79-80/ALJ/(117) dated 19.10.1979 herewith attached, which shall be treated as a part of this agreement, as nearly as can be foreseen; but they are merely estimates of quantities that may be required for general guidance of tenderers, and the Board in no case binds itself to purchase any quantity at all during the period of contract if no necessity arises, therefore, but the Contractor shall supply any quantity of any article at the rate tendered by him for that article upto 25%, in excess of the estimated quantity quoted, and in the event of his inability to do so, or to offer a suitable alternative to the satisfaction of the Board, the Board is at liberty to purchase the article or an article of similar quality from elsewhere and should the price of the articles so purchased be in excess of the tendered rate, to deduct the difference of cost from the Contractor's bills or his security deposit, as the case may be. The Contractor shall not, however, be entitled to the excess, if any, of the tendered rate over such purchase amount. In case the Contractor fails to supply and deliver any of the articles and things tendered for by him within the time provided for delivery of the same or in case the Contractor commits any breach of any of the covenants, stipulations and agreements herein contained, and on his part to be observed and performed, then and in any such case, it shall be lawful for the Board (if it shall think fit to do so) by an order in writing to put an end to this contract, and in case the Board shall have incurred, sustained or been put to any costs, damages or expenses by reason of this contract having been so put an end or in case any difference in price, compensation, loss, costs, damages, expenses or other money shall then or at any time during the continuance of this contract be payable by the Contractor to the Board under any by virtue of this contract, it shall be lawful for the Board from and out of any moneys for the time being payable or owing to the Contractor from the Board under or by virtue of this contract or otherwise to pay and reimburse of the Board all such costs, damages and expenses they may have sustained, incurred or been put to by reason of this contract having been so put to an end to as aforesaid, and also all such difference in price compensation, loss, costs, damages, expenses, and other moneys as shall for the time being be payable by the Contractor aforesaid." Ext. A1 is the copy of the order dated 19.10.1979 referred to in Clause 3 of Ext. A2. Clauses 21 and 22 of Ext. A1 read as follows : "21. Delivery : Supply should be commenced within one month from the receipt of this order. The entire supply is to be completed at a monthly rate of not less than 10,000 Nos. per month. 22. A2. Clauses 21 and 22 of Ext. A1 read as follows : "21. Delivery : Supply should be commenced within one month from the receipt of this order. The entire supply is to be completed at a monthly rate of not less than 10,000 Nos. per month. 22. Penalty : Penalty at the rate of 1% for every month or part thereof of delay subject to a maximum of 10% of the value of the belated supplies will be imposed for the supplies received after the last date of the scheduled period." Though the defendants were to supply the materials within more or less three months from the date of receipt of the order (Ext. A1), they failed to do so within the stipulated period, i.e, by 31.3.1980 Ultimately, time for supply of the same was extended by Ext. A7 letter of the plaintiff and they were called upon to supply the materials on or before 30.4.1984. Since the defendants failed to comply with the order in Ext. A7 the plaintiff cancelled the contract by Ext. A8 letter. The contract was not cancelled at the end of March, 1980 The defendants made correspondence with the plaintiff after March, 1980 and requested for extension of time for supply of the materials. Plaintiff, as has been said above, by Ext. A7 extended the time. It is also apparent from Clause 22 of Ext. A1 that the defendants would be liable to pay penalty for the supplies received after the last date of the scheduled delivery period. Similar stipulations were made in the contract, which came up for consideration before the Supreme Court in the aforesaid cases. The test laid down in Hind Constn. Contractors case are clearly applicable to this case. In this case also, penalty clauses were included for not executing the contract within the stipulated period and the time for completion of the execution of the supply was extended on the request of the defendants and finally Ext. A7 letter was issued fixing further period for supply of the materials making time the essence of the contract. Thus, until Ext. A7 was issued, time was not of the essence of the contract. The contention of the defendants that the contract stood terminated with effect from 29.3.1980 cannot be accepted inasmuch as time was not treated as the essence of the contract. Thus, until Ext. A7 was issued, time was not of the essence of the contract. The contention of the defendants that the contract stood terminated with effect from 29.3.1980 cannot be accepted inasmuch as time was not treated as the essence of the contract. Art. 55 of the Limitation Act lays down that the period of limitation is 3 years for the breach of any contract express or implied not specifically provided in the Limitation Act and the period shall run from the date when the contract is broken or where there are successive breaches when the breach in respect of which the suit is instituted occurs or when the breach is contained when it ceases. In this case, the breach of the contract in not supplying the balance quantity of materials occurred on 30.4.1981 in pursuance of the letter dated 25.1.1981 issued by the plaintiff. The suit was admittedly filed on 23.2.1984. The suit having been filed well within three years and a cause of action having arisen on 30.4.1981, in our opinion, it is not barred by the law of limitation. The finding of the learned Sub-Judge on issue No. 2 that the suit is barred by limitation, therefore, cannot be sustained 10. In the result, the appeal is allowed and the judgment of the learned Sub Judge dismissing the suit is set aside. The suit is decreed for a sum of Rs. 1,06,001.40 and the plaintiff is entitled to recover the same with interest at the rate of 6% per annum from the date of filing the suit still realisation of the same with proportionate costs. Appeal allowed.