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2011 DIGILAW 652 (GUJ)

Kothari and Associates v. State of Gujarat

2011-09-07

JAYANT PATEL, R.M.CHHAYA

body2011
JUDGMENT : R.M. Chhaya, J. Both these appeals are directed against the common judgment and decree dated 04.04.1989 passed by the learned Judge, City Civil Court, Ahmedabad in Civil Suit No.3013 of 1982. 2. Being aggrieved by the impugned judgment and decree, the plaintiff and the defendant, both have preferred separate appeals. As both the appeals relate to the same judgment and order, the same are disposed of by this common judgment. For the sake of convenience, the parties shall be referred to as per their original status in the lower court. 3. The facts leading to filing of these appeals are as under: that the plaintiff is a registered partnership firm, inter alia, engaged in the business of Engineers and Contractors. The defendant, through its Executive Engineer, Irrigation Division, Ahmedabad invited tenders for work of providing lining of M.F.C. Ch.5550 to 9937 and Branch No.1 Ch.O to 1524 of Moti Fatehwadi Canal. The plaintiff filed its tender in response to the tender notice issued by the defendant and quoted Rs. 12,56,449/- for the said work. The tender filed by the plaintiff being lowest, was accepted by the defendant. Thereafter the plaintiff and the defendant entered into an agreement and work order was issued by the defendant to the plaintiff on 10.01.1978, with a specific stipulation that the work was to be completed by the plaintiff within 18 months i.e. on or before 09.07.1978. The plaintiff and the defendant entered into a contract, inter alia, providing for mutual performance on the part of both the parties i.e. to say reciprocal contractual obligations. The plaintiff paid an amount of Rs. 18,320/- as security deposit and thereafter further amount of Rs. 18,320/- was deducted by the defendant from its running bill to make up the security deposit of Rs. 36,640/-. 4. It appears from the record that in order to provide irrigation facility to the farmers, water was flown from the canal and, therefore, the defendant could not give the full site and hand over the possession of the canal for the tender work. It also further transpires from the record that in addition to it there was shortage of coal, cement as well as diesel, which retarded the work. 5. The plaintiff could carry out the work only to the extent of Rs. 7,37,473/- due to prevention on the part of the defendant. It also further transpires from the record that in addition to it there was shortage of coal, cement as well as diesel, which retarded the work. 5. The plaintiff could carry out the work only to the extent of Rs. 7,37,473/- due to prevention on the part of the defendant. The plaintiff time and again raised issues with the defendant. However, much work could not be undertaken because of the defects as aforesaid and as the plaintiff could not bear the price escalation, the plaintiff terminated the contract on 19.02.1981 and raised a demand for return of the security amount from the defendant. 6. As nothing was done by the defendant, the plaintiff issued a legal notice dated 28.03.1982 and raised various claims and also claimed interest @ 18% p.a. Even after the statutory notice as the defendant did not give any reply, the plaintiff filed the present suit and, inter alia, raised the following eight claims and also claimed interest @ 18% p.a.: (i) Rs. 1,03,795/- towards loss of profit on the remaining work; (ii) Rs. 1,36,115.30 on account of overheads; (iii) Rs. 4,41,840/- on account of non-recovery of advances paid to labourers; (iv) Rs. 4,35,000/- on account of over stay of capital machinery; (v) Rs. 27,350.70 on account of price escalation; (vi) Rs. 17,526/- for the remaining amount to be paid on materials supplied; (vii) Rs. 36,640/- on account of return of security deposit; (viii) Rs. 30,000/- on account of the work done and not measured and not paid; (ix) Rs. 3,11,451/- on account of interest at 18% from 19.02.1981 till 01.02.1982 i.e. the date of filing of the suit. 7. We find that the trial Court extensively considered the evidence on record in the form of oral as well as documentary evidence adduced by both the parties and after threadbare appreciation of such evidence partly allowed the suit and came to the conclusion that the defendant did not perform part of its contract and thus committed breach of the contract. The trial Court, after verifying each claim individually, partly granted the claim of loss of profit, overhead and overstate of machinery, price escalation, unpaid amount of material supplied and also on account of the work done but not measured and granted claim of Rs. The trial Court, after verifying each claim individually, partly granted the claim of loss of profit, overhead and overstate of machinery, price escalation, unpaid amount of material supplied and also on account of the work done but not measured and granted claim of Rs. 2,61,536.10 in toto and also granted interest @ 9% from the date of notice till the date on which the suit came to be filed and @ 9% interest from the date of the suit till its realization. The trial Court, however, rejected the claims made by the plaintiff on account of non-recovery of advance paid to the labourers in toto and granted claim on other heads partly as aforesaid. Being aggrieved by the said judgment and decree, both the plaintiff and the defendant have preferred the present appeals. 8. Heard Mr. Navin Pahwa, learned counsel for the plaintiff and Ms.Moxa Thakker, learned Assistant Government Pleader for the defendant. We have perused the record and proceedings. 9. Ms.Thakker has taken us through the impugned judgment as well as the relevant clauses of the contract entered into between the parties. It was further pointed out that even though the work order was given well in time and the plaintiff was given possession of the lands even after the extended time of two years, the plaintiff did not carry out the work. It was further submitted that the trial Court has wrongly come to the conclusion that there is breach on part of the Government. It was also submitted that the trial Court has thus not properly interpreted the relevant clauses of the contract. It was submitted that as per the covenant of the contract work was to be remained close during monsoon and material like coal, cement, etc., were to be supplied by the plaintiff, that is to say, the same were to be arranged by the plaintiff. 9.1 Mr.Thakker invited an attention to Clause 15 and Clause 42 in particular to point out that there is ample evidence on record to show that the defendant had performed its part of contract, however, the plaintiff knowing fully well that as per the contract he is to arrange for materials as aforesaid, unilaterally terminated the contract by notice dated 29.03.1982. It was submitted that the plaintiff is not entitled to any of the claim, as claimed for in the present suit and, in the result, the plaintiff is not entitled to any interest. It was further pointed out that the trial Court has erred in coming to the conclusion that there was breach on the part of the defendant. It was further pointed out that the trial Court has erred in granting the amount on loss of profit even though there is no evidence as regards any work done and it was pointed out that the trial Court has misread the evidence on record and has wrongly believed the case of the plaintiff and has erred in granting claim amounting to Rs. 2,69,709.10. It was therefore submitted that the very genesis, on which the trial Court has believed the case of the plaintiff, is on wrong appreciation of the evidence on record. It was further submitted that the plaintiff has in fact committed breach of the contract. The plaintiff has not even maintained proper accounts and such fact being admitted by the plaintiff himself in his deposition (Exh.91-Para-108). It was also pointed out that many letters were written to the plaintiff, however, the plaintiff did not start the work within time i.e. the season for which he was supposed to work as per the contract. It was submitted that the trial Court has committed an error in passing the impugned judgment and decree of Rs. 2,69,709.10 with interest @ 9%. It was, therefore, submitted that the appeal filed by the defendant-State deserves to be allowed by setting aside the judgment and decree passed in favour of the plaintiff and the cross-appeal filed by the plaintiff deserves to be dismissed in toto. 10. As against this, Mr. Pahwa for the plaintiff has taken us through the deposition of the plaintiff's witness (Exh.91) in particular and has also taken us through the relevant evidence Exh.91, Exh.122 and Exh.303 and submitted that in spite of work order given on 10.01.1978 the plaintiff could not work in the canal because the Government preferred to provide irrigation facilities to the farmers and the work had to be interrupted. It was further pointed out that the trial Court has wrongly denied the profit on the remaining work and has granted only to the tune of 10%. It was further pointed out that the trial Court has wrongly denied the profit on the remaining work and has granted only to the tune of 10%. It was also pointed out that the plaintiff had adduced sufficient evidence to prove his case and in fact had claimed the overhead as per the Government Resolution. It was further pointed out that the trial Court had erred in disallowing the claim of over-stay of machinery and capital, even though there is ample evidence on record to show, that because of the breach on the part of the State Government, especially in handing over the site for work to be carried out as per the contract, the plaintiff had to incur expenses on machinery and capital, which the plaintiff was forced to keep at the site. It was submitted that similarly the trial Court has also erred in coming to the conclusion that the plaintiff is entitled to claim of Rs. 3,664/- only for the work done, even though there is sufficient evidence on record to prove that the plaintiff had carried out work to the tune of Rs. 30,000/- as claimed for in the suit. 10.1 Mr.Pahwa vehemently submitted that the trial Court has erred in allowing the interest only @ 9% and that too from the date of filing of the suit. It was pointed out that as per Section 3(1)(b) of the Interest Act, 1978, the current rate of interest and that too highest of the interest has to be paid to the plaintiff. It was further pointed out that the interest therefore ought to have been awarded @ 18% p.a. from the date on which it was claimed. It was submitted that the plaintiff had specifically raised claim of interest @ 18% p.a. by notice dated 29.03.1982 and, therefore, the trial Court ought to have granted interest from the said date. 10.2 Relying upon the decision of this Court in First Appeal No.34 of 1992 between the same parties i.e. the plaintiff and the defendant, it was submitted that the plaintiff is entitled to the interest from the date on which the claim was raised. It was therefore, submitted that the trial Court has also erred in granting interest from the date of the suit. It was therefore, submitted that the trial Court has also erred in granting interest from the date of the suit. It was submitted that the plea taken by the State that the plaintiff could not complete the work even during the extended time is an afterthought and even though the same is not believed by the trial Court, the trial Court has erred in not allowing the claim, as claimed for by the plaintiff in the present suit. It was further submitted that the defendant handed over the site late by more than 02 months in the first season, 60 days in the second season, 84 days in the third season and even though there was clear understanding between the parties that the site would be handed over to the plaintiff as per the time prescribed in the contract at the end of the season and even though this aspect has been proved and believed by the trial Court, the trial Court has wrongly calculated the claim as prayed for by the plaintiff. It was therefore submitted that the appeal filed by the plaintiff deserves to be allowed in toto and the appeal filed by the State deserves to be dismissed. 11. On overall consideration of the evidence on record as well as the reasoning given by the trial Court, we find that the trial Court has correctly come to the conclusion that the defendant had committed breach of the contract and had not given the site to the plaintiff as per the time stipulated during all the four seasons, for which the plaintiff was to carry out the work as per the contract. 12. On examining the reasoning given by the trial Court for grant of claim on profit of the remaining work, we find that the trial Court has correctly come to the conclusion, that the plaintiff is entitled to 10% as profit on the remaining work taking into consideration the overall factors, including the factors of escalation in price in material. In this context, it would be advantageous to refer to the judgment of the Apex Court in the case of Dwarka Das v. State of Madhya Pradesh, reported in AIR 1999 SC 1031 , after taking into consideration the ratio laid down by the judgments reported in AIR 1984 SC 1703 and AIR 1977 SC 1481 has held as under : "9. The claim of the petitioner for payment of Rs. 20,000/- as damages on account of breach of contract committed by the respondent-State was disallowed by the High Court as the appellant was found to have not placed the material on record to show that he had actually suffered any loss on account of the breach of contract. In this regard the appellate Court observed : 'It is not his case that for due compliance of the contract he had advanced money to the labourers or that he had purchased materials or that he had incurred any obligations and on account of breach of contract by the defendants he had to suffer loss on the above and other heads. Even in regard to the percentage of profit he did not place any material on record but relied upon assessment of the profits by the Income Tax Officer while assessing the income of the contractors from building contracts'. Such a finding of the appellate Court appears to be based on wrong assumptions. The appellant had never claimed Rs. 20,000/- on account of alleged actual loss suffered by him. He had preferred his claim on the ground that had he carried out the contract he would have earned profit of 10% on Rs. 2 lacs which was the value of the contract. This Court in A.T. Brij Pal Singh v. State of Gujarat, AIR 1984 SC 1703 , while interpreting the provisions of Section 73 of the Contract Act, has held that damages can be claimed by a contractor where the government is proved to have committed breach by improperly rescinding the contract and for estimating the amount of damages Court should make a broad evaluation instead of going into minute details. It was specifically held that where in the works contract, the party entrusting the work committed breach of contract, the contractor is entitled to claim the damages for loss of profit which he expected to earn by undertaking the works contract. Claim of expected profits is legally admissible on proof of the breach of contract by the erring party. It was observed (at p.1707 of AIR) what would be the measure of profit would depend upon facts and circumstances of each case. Claim of expected profits is legally admissible on proof of the breach of contract by the erring party. It was observed (at p.1707 of AIR) what would be the measure of profit would depend upon facts and circumstances of each case. But that there shall be a reasonable expectation of profit is implicit in a works contract and its loss has to be compensated by a way of damages if the other party to the contract is guilty of breach of contract cannot be gainsaid. In this case we have the additional reason for rejecting the contention that for the same type of work, the work site being in the vicinity of each other and for identical type of work between the same parties, a Division Bench of the same High Court has accepted 15 per cent of the value of the balance of the works contract would not be an unreasonable measure of damages for loss of profit....' Now if it is well-established that the respondent was guilty of breach of contract inasmuch as the rescission of contract by the respondent is held to be unjustified, and the plaintiff-contractor had executed a part of the works contract, the contractor would be entitled to damages by way of loss of profit. Adopting the measure accepted by the High Court in the facts and circumstances of the case between the same parties and for the same type of work at 15 per cent of the value of the remaining parts of the work contract, the damages for loss of profit can be measured'. To the same effect is the judgment in Mohd. Salamatullah v. Government of Andhra Pradesh, AIR 1977 SC 1481 . After approving the grant of damages in case of breach of contract, the Court further held that the appellate Court was not justified to interfere with finding of fact given by the trail Court regarding quantification of the damages even if it was based upon guess work. In both the cases referred to hereinabove. 15% of the contract price was granted as damages to the contractor. In both the cases referred to hereinabove. 15% of the contract price was granted as damages to the contractor. In the instant case however the trial Court had granted only 10% of the contract price, which we feel was reasonable and permissible, particularly when the High Court had concurred with the finding of the trial Court regarding breach of contract by specifically holding that 'we therefore see no reason to interfere with the finding recorded by the trail Court that the defendants by rescinding the agreement committed breach of contract.' It follows therefore as and when the breach of contract is held to have been proved being contrary to law and terms of the agreement, the erring party is legally bound to compensate the other party to the agreement. The appellate Court was, therefore, not justified in disallowing the claim of the appellant for Rs. 20,000/- on account of damages as expected profit out of the contract which was found to have been illegally rescinded." 13. We find that the plaintiff is not entitled for any claim of overhead as once the loss of profit is given on the remaining work, non-recovery of advance cannot be given as the profit is once calculated as aforesaid, expenses are considered in it and no additional amount can be given as overhead. 14. We also find that the trial Court has rightly not granted claim for non-recovery of advance paid to labourers. We find that once when the profit is paid as loss of profit for the work not done, the plaintiff is not entitled to recover advance paid to the labourers as the amount, which is paid by way of loss of profit for the work not done, would only include the said amount. Further if any advance money is paid by the plaintiff, and the work not taken from the labourers, it was for the plaintiff to recover the same from the labour contractor or from the labourers. The plaintiff having failed to enforce such lawful right would not give right to claim damages from the defendant. Hence, considering the matter in either way would not call for awarding of additional amount than the loss of profit of the contract. 15. The plaintiff having failed to enforce such lawful right would not give right to claim damages from the defendant. Hence, considering the matter in either way would not call for awarding of additional amount than the loss of profit of the contract. 15. Similarly, we find that the trial Court, after appreciating the evidence on record, has rightly come to the conclusion that the extra work, which was done by the plaintiff was only to the tune of Rs. 3,664/- and has rightly allowed the claim to that extent which does not require any interference even on re-appreciation of evidence by this Court in its appellate jurisdiction. 16. Section 3(1)(b) of the Interest Act, 1978 reads as under: "3(1)(b) If, the proceedings do not relate to any such debt, then, from the date mentioned in this regard in a written notice given by the person entitled or the person making the claim to the person liable that interest will be claimed, to the date of institution of the proceedings : Provided that where the amount of the debt or damages has been repaid before the institution of the proceedings interest shall not be allowed under this section for the period after such repayment." 17. It would be evident from the above provision, that the plaintiff would be entitled to interest from the date on which it is demanded. Mr. Pahwa has relied upon the observations made by this Court rendered in First Appeal No.34 of 1992 dated 30.07.2003, which are as under: "5.14 As regards interest the learned counsel for the plaintiff has submitted that looking to the evidence at Exh.43, para 25 (page 119 of the paper book of the appellant) wherein witness has mentioned that for the ad hoc advance given by the appellant they have charged 15% interest and deducted from the bill. Thus, in fact, the trial court on the basis of the same, should have awarded 15% interest whereas interest awarded is 12% only. The principle of reasonability applied by the Hon'ble Supreme Court in the case of The Managing Director, J & K Handicrafts v. M/s. Good Luck Carpets reported in AIR 1990 SC 864 which clearly laid down in para 6 as under:- "para 6. This however, does not take away the jurisdiction of the Court to allow interest from the date on which the award is made rule of the Court. This however, does not take away the jurisdiction of the Court to allow interest from the date on which the award is made rule of the Court. In the instant case this date is 28th May, 1987. We are of the opinion that it is a fit case where the respondent may be allowed interest on the amount of rupees 95,997.60 ps. from the said date. Coming to the question of the rate of interest the agreement between the parties contemplates payment of interest to the appellant by the respondent in a certain contingency at the rate of 18% per annum. The said rate, in our opinion, can be taken as a reasonable basis for fixing the rate on which interest is to be awarded to the respondent for the simple reason that even the appellant considered that rate to be reasonable for recovery from the respondent". 5.15 However, the learned counsel for the plaintiff has stated that he supports the finding of the learned trial judge to that extent. The plaintiff has filed Cross Objection before this court in which the plaintiff has stated that the claimed interest from the date of written demand of the suit claim vide letter Exh. 262 wherein interest has been claimed from the due date i.e. 5.3.1982. The plaintiff has claimed interest from due date and even in notice under section 80 which is at Exh.57 wherein also the plaintiff has claimed interest from the due date i.e. from 5.3.1982 and therefore the plaintiff is entitled for interest from the date demanded in the notice and on construing due date, date will be 20.6.1980 when the work was completed. He has relied on the judgment of the Hon'ble Supreme Court in the case of B.V. Radha Krishna v. Sponge Iron India Ltd. reported in AIR 1997 SC 1324 in which at paragraphs 15, 16 and 17 the Hon'ble Supreme Court has observed as follows: 5.15A "Para 15 - Learned counsel for the appellant also submitted that the High Court went wrong in awarding interest only from 14.6.1984, on the ground that the notice demanding the amount was issued on that date only and, therefore, the appellant was not entitled to any interest prior to that date. According to the learned counsel, Section 3(1) (b) of the Interest Act, 1978, in unequivocal terms specifies that interest would be available from the date mentioned in the demand notice and without noticing that provision the High Court has wrongly given interest from the date of the notice. 5.15B Para 16- On the question of interest we think the learned counsel for the appellant is right in placing reliance on Section 3(1)(b) of the Interest Act. The appellant-Company (sic) had issued notice on 14.6.1984, demanding payment of the specified amount and interest on that specified amount at the rate of 21% per annum from 1.4.1983 till payment. Section 3(1)(b) of the Interest Act, 1978, reads as follows: "3. Power of Court to allow interest.- (1) In any proceedings for the recovery of any debt or damages or in any proceedings in which a claim for interest in respect of any debt or damages already paid is made, the Court may, if it thinks fit, allow interest to the person entitled to the debt or damages or to the person making such claim, as the case may be, at a rate not exceeding the current rate of interest, for the whole or part of the following period, that is to say,- (a) ........ (b) If the proceedings do not relate to any such debt, then, from the date mentioned in this regard in a written notice given by the person entitled or the person making the claim to the person liable that interest will be claimed, to the date of institution of the proceedings." 18. We find that the trial Court, after taking into consideration the totality of circumstances as per the evidence is correct in coming to the conclusion that the plaintiff would be entitled to interest @ 9% i.e. the prevailing bank rate. The claim of the present plaintiff was not for the payment of any unliquidated damages or for the payment of any amount arising out of an inchoate or contingent obligation. It was for the payment of sum which was uncertainable on calculation if made in accordance with the terms of the agreement and, therefore, it was clearly a sum certain within the meaning of the Interest Act. Therefore the trial Court, taking into consideration the vital factor of current bank rate has not committed any error while granting 9% interest. It was for the payment of sum which was uncertainable on calculation if made in accordance with the terms of the agreement and, therefore, it was clearly a sum certain within the meaning of the Interest Act. Therefore the trial Court, taking into consideration the vital factor of current bank rate has not committed any error while granting 9% interest. However, we find that the plaintiff has raised the demand of interest vide notice dated 28.03.1982 and had specifically claimed interest from 19.02.1981 and, therefore, the plaintiff would be entitled to interest @ 9% from the date of such demand. 19. For the foregoing reasons, First Appeal No.944 of 1989 filed by the State is hereby dismissed. The judgment and decree for the principal amount of Rs. 2,69,709.10 is hereby confirmed, but the plaintiff would be entitled to claim interest on the principal amount of Rs. 2,69,709.10 with 9% interest from 28.03.1982 till the date of filing of the suit i.e. 01.02.1982 remaining interest shall remain as per decree of the trial Court. Decree shall stand modified accordingly. Cost, as awarded by the trial Court, is also confirmed. First Appeal No.709 of 1989 preferred by the plaintiff is partly allowed accordingly. Considering the facts and circumstances of the present case, there shall be no order as to costs. 20. Registry to place a copy of this order in connected matter. F.A. No. 709 of 1989 partly allowed. F.A. No. 944 of 1989 dismissed.