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Jharkhand High Court · body

2014 DIGILAW 682 (JHR)

Neo Built Corporation v. State of Jharkhand

2014-07-02

R.R.PRASAD

body2014
Order Since the subject matter of both the writ applications are interlinked with each other, both the cases were heard and are being disposed of by this common order. 2. According to the case of the petitioner, the petitioner did enter into an agreement with the authority of the State for widening and strengthening of Madhupur Lahajori Road from 0.00 Km. To 21.643 Km. Right from the beginning, the petitioner faced difficulties in executing the work on account of possession of land being not given in the wake of serious objection being raised by the villager on account of non-receipt of the compensation amount. Ultimately, final measurement was taken on 22.6.2009 by which time only 10% of the work could be done, payment of which was made to the petitioner but without there being any fault on the part of the petitioner, the work order was rescinded, vide order dated 9.8.2010 (Annexure 10) and ultimately, security was forfeited and penalty was imposed. Thereupon, the Executive Engineer, vide its letter dated 17.8.2011 (Annexure 11) communicated to the petitioner that the petitioner is liable to pay a sum of Rs.2,29,40,620/- as penalty and if the same is not deposited, then in that event, the said money will be forfeited in respect of other work being done by the petitioner relating to widening and strengthening of Satsangnager-Bhirkhibad Road. In that event, the petitioner did file a writ application bearing W.P.(C) No.6344 of 2011 seeking quashing of the order dated 9.8.2010 ( Annexure 10) as well the order dated 17.8.2011 (Annexure 11). 3. A counter affidavit has been filed wherein it has been stated that as per the agreement bearing no.20F2/07-08 dated 10.3.2008, the work was to be completed by 8.3.2009 but the petitioner did not take any step sincerely to get the work executed. The petitioner in spite of being reminded repeatedly did not deploy adequate tools, plants, machineries and technical personnel which were necessary for ensuring timely execution of the work. 4. Whatever work had been done, that was found to be sub-standard not conforming the specification and under such situation, the work was rescinded and thereby a sum of Rs.2,29,14,620/- was found recoverable. 4. Whatever work had been done, that was found to be sub-standard not conforming the specification and under such situation, the work was rescinded and thereby a sum of Rs.2,29,14,620/- was found recoverable. Since the security furnished by the contractor against the said agreement was not sufficient to adjust the amount, rest recoverable amount has been adjusted against the security furnished by the same contractor in relation to another agreement (ISBD/08-09) relating to widening and strengthening of Satsangnager-Bhirkhibad Road. 5. Further it has been stated that the petitioner never started the work in right earnest. He always raised imaginary issue of law and order and thereby he caused huge loss to the public exchequer and under the circumstances, several notices were given. In spite of that when the petitioner did not do anything in carrying out the work, the contract was rescinded and thereupon the contract has been allotted to other person, who has been doing the work smoothly. 6. So far as the other case W.P.(C) No.1103 of 2012 is concerned, it is the case of the petitioner that the petitioner entered into an agreement (ISBD/08-09) on 17.3.2008 for strengthening and widening of Satsangnager-Bhirkhibad Road. Pursuant to that, the petitioner started work enthusiastically so that it be completed within time but in the meantime, pace of the work got hampered on account of the fact that electric poles and water pipes were not removed. In spite of that, the petitioner was able to do 90% of the work whereas 10% of the work could not be executed on account of the aforesaid difficulties. In spite of that, contract of the petitioner was rescinded, vide order dated 11.11.2011 (Annexure 8) which is under challenged. 7. It be stated that before the work was rescinded, the Executive Engineer passed an order as contained in Memo no.1359 dated 8.10.2011 (Annexure 10) for adjustment of the amount of damage relating to other contract (20.F2/07-08) from the amount of security and also from the miscellaneous amount deducted from the bills relating to contract (IBSD/08-09). That order was challenged by way of Interlocutory application. 8. However, the stand which has been taken on behalf of the State is that as per the agreement, work which commenced on 10.4.2008 was to be completed by 9.7.2009. The petitioner under the agreement was to construct 3.50 Km of concrete Road and 27.40 Km. of Bitumen Road. That order was challenged by way of Interlocutory application. 8. However, the stand which has been taken on behalf of the State is that as per the agreement, work which commenced on 10.4.2008 was to be completed by 9.7.2009. The petitioner under the agreement was to construct 3.50 Km of concrete Road and 27.40 Km. of Bitumen Road. There had never been proportionate progress as per the work programme submitted by the petitioner. Even after 28 months beyond stipulated time, he could manage to complete Bitumen construction only. In spite of giving reminders after reminders, he did not do work in that part of the stretch of road which was to be concreted, as a result of which, number of potholes came up which was quite hazardous and under the circumstances, the authority was compelled to rescind the contract. Further case is that a sum of Rs.2,29,14,620/- was found recoverable in relation to the agreement of the another contract (20.F2/07-08) but since the security provided by the contractor against the said agreement was not sufficient to adjust the said amount, the said amount has been adjusted against the amount of security furnished by the same contractor relating to agreement (ISBD/08-09) subject matter of this case. 9. Further it has been stated that electric poles and water pipes never put any hurdle in the work which was to be taken as mostly they were lying in the flanks of the road. 10. Thus, it does appear that the petitioner has challenged the orders course of hearing, argument was confined to that part of the order under which a sum of Rs.2,74,02,581/-upon rescinding of the contract bearing no. 20F2/07-08 relating to widening and strengthening of Madhupur Lahajori Road was ordered to be adjusted from the amount of the security and other deposit made by the petitioner in connection with another contract (ISBD/08-09) relating to widening and strengthening of Satsangnager-Bhirkhibad Road. 11. Mr. 20F2/07-08 relating to widening and strengthening of Madhupur Lahajori Road was ordered to be adjusted from the amount of the security and other deposit made by the petitioner in connection with another contract (ISBD/08-09) relating to widening and strengthening of Satsangnager-Bhirkhibad Road. 11. Mr. Rajiv Ranjan, learned counsel appearing for the petitioner submits that though there has been one of the clauses in the agreement which does stipulate that if there has been dues to the Government payable by the contractor, it would be adjusted from the security deposit or for any sum which is payable but if the amount due to be paid to the Government is not satisfied with the said securities and other dues, the said amount can be realized from the security amount and other amount with respect to another contract but any agreement for damage for breach of contract is not a claim for a sum presently due and payable and therefore, the authority was not entitled to recover the amount due to be paid from the other contract for adjusting it towards the claim for damage. 12. In this regard, learned counsel submits that almost similar type of clause of an agreement came up for consideration before the Hon'ble Supreme Court in a case of Union of India vs. Raman Iron Foundry ( AIR 1974 SC 1265 ) where the question fell for consideration as to whether clause 18 of the agreement in question does confer any right to recover the amount of the claim by appropriating other sums due to be paid to the contractor in connection with other contract. Their Lordships after considering the submission advanced on behalf of the parties was pleased to hold that a claim for damages for breach of contract is therefore, not a claim for sum presently due and payable and the purchaser is not entitled in exercise of right conferred upon under Clause 18 to recover the amount of such claim by appropriating other sum due to the contractor. 13. In view of the submission, it needs to be considered as to whether clause 18 of the contract subject matter of the case referred to above and the clause 1 of the agreement to which the parties entered into is operating in the same field or in different field. 13. In view of the submission, it needs to be considered as to whether clause 18 of the contract subject matter of the case referred to above and the clause 1 of the agreement to which the parties entered into is operating in the same field or in different field. According to the petitioner, clause 1 is not in parameteria to clause 18 which was subject matter of the interpretation before the Hon'ble Supreme Court but sum and substance of both the clauses is the same. 14. Under the circumstances, we must take notice of both the clauses. Clause 18 which was the subject matter of interpretation before the Hon’ble Supreme Court reads as follows: “18. Recovery of Sums 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. In 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.......” Whereas clause 1 to the agreement entered into the parties reads as follows: Clause 1: All compensation or other sums of money payable by the contractor to Government under the terms of his contract may be deducted from, paid by, the sale of a sufficient part of his security deposit, or from the interest arising therefore, or from any sums which may be due or may become due to the contractor by Government on any account whatsoever, and in the event of his security deposit being reduced by reason of any such deduction or sale aforesaid, the contractor shall within ten days there after made good in cash or Government securities endorsed as aforesaid any sums of sums which may have been deducted from, or arised by sale of his security deposit or any part thereof. 15. Upon reading both the clauses, it is evident that both the clauses are operating in the same field as both the clauses do stipulate that whenever there is a claim, the Government does have a right to recover it by appropriating any sums due or which at any time thereafter may become due to the contractor under the contract or any other contract. 16. The proposition advanced on behalf of the State is that under Clause 1 the Government is empowered to realize the sum which is payable to the Government by the amount of the security deposit or other amount subject matter of the contract but if it does not satisfy the claim the same may be realized from the security amount or other amount payable to the contractor with respect to another contract. The same proposition had been advanced before the Hon'ble Supreme Court by one of the parties. 17. The same proposition had been advanced before the Hon'ble Supreme Court by one of the parties. 17. Before coming to any conclusion, one needs to take notice of the fact of the case, referred to on behalf of the petitioner. Respondent Ram Iron Foundry had entered into a contact for supply of certain quantity of foam compound to the appellant Union of India. The performance of the contract ran into difficulties as a result of which the dispute arose between the parties giving rise to claims by either party against other. The respondent contended that since the appellant had committed a breach of contract, the appellant is liable to pay the respondent a sum of Rs.2,35,800/-by way of damages suffered by the respondent by reason of breach of contract. 18. The appellant, Union of India, on the other hand, took the stand that it was the respondent who had committed breach of contract and was liable to pay to the appellant by way of damages a sum of Rs.2,28,900/-. 19. Accordingly, the Assistant Director of Supplies called upon the respondent to make payment of the aforesaid amount and intimated that if the respondent would fail to do so on the stipulated date, the Pay and Accounts Officer would be authorized to recover the same from the pending bills of the respondent in respect of other contract. Subsequently, the claim and counter claim of the parties become the subject matter of reference to arbitration. During pendency of the arbitration, some amount became due and payable by the appellant to the respondent in respect to other contract. The respondent did apprehend that the appellant would appropriate those amounts towards recovery of the amount of damage claimed by it filed an application for injunction before Delhi High Court for restraining respondent from recovering the amount for adjustment of the damage. 20. The Delhi High Court took the view that Clause 18 did not authorize the appellant to appropriate the amount of any pending bills of the respondent towards satisfaction of its claim for damage against the respondent unless such claim for damage was either admitted by the respondent or adjudicated upon in arbitration or suit in civil court. 21. The matter came before the Hon'ble Supreme Court. 21. The matter came before the Hon'ble Supreme Court. There the argument which was advanced on behalf of the appellant is that clause 18 refers to a mere claim of a claimant of a sum of money arising out of or under the contract against the contractor and it is not necessary that the sum of money must be actually due and payable by the contractor to the purchaser. If the purchaser has claimed for payment of sum of money against the contractor, he would be entitled to exercise the right given under Clause 18. Even though such claim may not be for a sum due and payable but may be for damages and it may be disputed by the contractor and may not have been adjudicated upon in the court of Law or Arbitration. 22. The stand of the respondent was that Clause 18 applies only when a claim is either admitted or in case of dispute, adjudicated by the judicial process and therefore, when the purchaser has a claim for damages which is disputed by the contractor, the purchaser is not entitled under Clause 18 to recover the amount of its claim for damages by appropriating other sums due to the contractor until the claim for damage is adjudicated upon and culminates in a decree. 23. Their Lordships, after taking into account the submission advanced on behalf of the parties and regard being had to the stipulations made in clause 18 were pleased to hold as under: “As already stated, the only right which he has is the right to go 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. 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. But till that determination there is no liability at all upon the defendant.” Therefore, their Lordships did hold that 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 which under Clause 18 to recover the amount of such claim by appropriating other sums due to the contractor. 24. Here, in the instant case as has been noted above, since the petitioner allegedly breached the terms of contract, he according to the case of the State became liable to make payment of the damages to the Government in connection with the contract bearing no.20F2/07-08 relating to widening and strengthening of Madhupur Lahajori Road. After adjustment of the security furnished in respect of that contract when the amount of damage remains unsatisfied a sum of Rs.2,74,02,581/-. which is allegedly payable to the Government in respect to another contract bearing no.(ISBD/08-09) relating to widening and strengthening of Satsangnager Bhirkhibad Road was adjusted though the amount claimed seems to have been disputed to be admissible to the Government and hence the respondent in view of the decision of the Hon'ble Supreme Court was not entitled to recover the said amount and thereby any adjustment of the said amount was quite illegal and hence that order dated 8.10.2011 (Annexure 10 to the writ petition no.1103 of 2012) under which said amount of Rs.2,74,02,581/-appropriated for adjusting the amount of damage is hereby quashed. Consequently, the authority is liable to pay the said amount to the petitioner. However the State would be at liberty to realize it in accordance with law. 25. Thus, both the applications stand disposed of. Application disposed of.