IN THE HIGH COURT OF HIMACHAL PRADESH AT SHIMLA Civil Suit No. 38 of 2003 Judgment Reserved on 27th July, 2009 Date of Decision July 31, 2009 ________________________________________________________ Kapil Dev Bansal ….Plaintiff Versus State of H.P. & others ….Defendants ________________________________________________________ Coram The Hon’ble Mr. Justice Dev Darshan Sud, J. Whether approved for reporting?1 No. For the Plaintiff : Shri J.S. Bhogal, Sr. Advocate with Shri Suneet Goel, Advocate. For the Defendants: Ms.Ruma Kaushik, Addl. A.G. ________________________________________________________ Dev Darshan Sud, J. This suit has been preferred by the plaintiff praying for decree of declaration that order dated 21st September, 2002 Ext.PW2/C passed by defendant No. 2 Superintending Engineer, National Highway, Shahpur imposing compensation to the extent of Rs. 42,76,373/- in terms of Clause (2) of the contract Ext. C1 entered into between the parties is illegal, arbitratry and ultra virus. The plaintiff pleaded that he is ‘A’ class contractor and has been working for the government through HPPWD on a number of projects. He was successful in the tender for the construction of Kullu Bye Pass Km. 258/220 to 270/450 (SH : C/o retaining wall, breast wall, X-drainage, U shape drains, V shape drains and metalling and tarring) in which he had participated and was successful in his bid on 11.11.1997 and consequent thereto, agreement No. 153 for 1997-98 was entered into between the parties. The 1 Whether reports of Local Papers may be allowed to see the judgment? Yes. 2 contract amount was Rs. 4, 27,63,729/- and time limit for completion was fixed as one and a half years to be reckoned from 15th day of the issue of the letter of award. The work was to commence on 11.3.1998 and was to be completed by 10.9.1999. The plaintiff pleaded that in order to meet the time schedule as contemplated by Clause 2 of Ext.C1, the defendants were duty bound to provide:- (i) the site for the work (ii) the designs, drawings and instructions required for executing the work (iii) the required quantities of the material like cement, steel etc. which had been stipulated to be issued in the agreement (iv) the payments for the work done by a fixed date in eachmonth for all the works executed till the previous month. The plaintiff had arranged all necessary infrastructure, plant, machinery, labour, equipment and materials etc. for the execution of work, but due to various reasons, the defendants did not make the site available within time, designs, drawings and instructions for the execution of work, requisite quantities of material required to be used for work and regular monthly payments were also delayed by the defendants beyond the stipulated time. In terms of the agreement, extension to the plaintiff was granted upto 31st January, 2002. In these circumstances, the plaintiff pleads that time was not the essence of the contract and could not be treated as such. The plaintiff pleads that despite the handicaps/disadvantages suffered by him, the site was not handed over to him within time, but he still managed to execute a major portion of the work. The plaintiff pleads that the reason for delay was entirely on accounts of the acts of the defendants and not of the plaintiff, despite all this, defendants proceeded to determine and levy the compensation on the plaintiff to the extent of Rs. 42,76,373/-. A number of grounds have been taken by the plaintiff alleging this imposition to be illegal and ultra vires. 3 The suit has been resisted by the defendants. A number of preliminary objections have been taken. The main objections urged were that the suit is neither maintainable nor competent, the suit is pre-mature as before filing the suit, the plaintiff had an opportunity to challenge the penalty imposed under Clause 2 of the agreement by way of an appeal to the Chief Engineer (National Highway), no cause of action subsists in favour of the plaintiff. The suit was barred by the principles of estoppel, the suit was not properly valued for the purpose of Court fee and jurisdiction. On merits, the submissions made by the plaintiff have been denied. One significant submission which has been made is that site has been handed over to the plaintiff as and when they approached the defendants, but small portion of land measuring 440 metres in length could not be handed over to the plaintiff as local residents etc. were protesting and had raised objections with respect to this portion of land. The other ground urged for non-maintainablity is that some complaint had been made by the labourers to the Member of Parliament of Mandi alleging that the payments had not been made to them by the plaintiff as promised. On the pleadings of parties, this Court settled the following issues on 23.12.2003: 1. Whether the plaintiff is entitled to the declaration that the order dated 21.9.2002 as passed by defendant No. 2 imposing compensation under Clause-2 of the agreement between the parties is illegal, void and not enforceable against the plaintiff? …OPP 2. Whether the plaintiff is entitled to the relief of permanent injunction, as prayed for? …OPP 3. Whether the suit is not properly valued for the purposes of Court fee and jurisdiction? ...OPD 4. Whether the suit is premature, as prayed for? 4 …….OPD 5. Whether the plaintiff is estopped from instituting the present suit due to his acts, deed and conduct? ….OPD 6. Relief. For the reasons to be recorded hereinafter, my findings on the issues are as under:- Findings Issue No. 1 Yes. Issue No. 2 Yes. Issue No. 3 No. Issue No. 4 No. Issue No. 5 No. Relief Suit of the plaintiff is decreed as per the operative portion of the judgment. Issue No. 3 This issue has been taken up for decision first. There is no evidence oral or documentary on record to establish or prove that proper Court fee has not been affixed. The plaintiff has valued the suit for the purposes of Court fee and jurisdiction at Rs. 42,76,373/- on which ad- valorem Court fee of Rs. 44,117/- has been affixed. The order challenged is Ext.PW2/C which seeks to levy compensation to this extent on the plaintiff. The relief is properly valued; this issue is decided against the defendants. Issue No. 4 Both the parties rely on Clause 2 of the contract which had not been placed on record of the case. OMP No. 177 of 2009 was filed by the plaintiff for permission to place on record the contract Ext.C1. This application was not opposed for the obvious reason that it was the contract between the parties and to an end document which was fundamental to the rights of both the parties. The application was accordingly allowed on 5 6.5.2009 and the document exhibited Ext.C1 as neither party is disputed its correctness. Clause (2) reads:- “The time allowed for carrying out the work as entered in the tender shall be strictly observed by the contractor and shall be deemed to be the essence of the contract on the part of the contractor and shall be reckoned from the fifteenth day after the date on which the order to commence the work is issued to the contractor. The work shall throughout the stipulated period of the contract be proceeded with all due diligence and the contractor shall pay as compensation an amount equal to one percent, or such smaller amounts as the Superintending Engineer (whose decision in writing shall be final) may decide on the amount of the tendered amount of the whole work as shown in the tender, for very day that the work remains uncommenced or unfinished, after the proper dates. Any further, to ensure good progress during the execution of the work, the contractor shall be bound in all cases in which the time allowed for any work exceeds one month (save for special jobs) to complete one fourth of the whole of the work before one-fourth of the whole time allowed under the contract has elapsed, three-one half of the work before one half of such time has elapsed, and three-forth of the work, before three- fourth of such time has elapsed. However, for special jobs in a time schedule has been submitted by the contractor and the same has been accepted by Engineer-in-charge, the contractor shall comply with the said time schedule. In the event of the contractor failing to comply with this condition, he shall be liable to pay as compensation an amount equal to one percent or such smaller amount as the Superintending Engineer (whose decision in writing shall be final) may decide on the said tendered cost of the whole work for every day that the due quantity of work remains incomplete; provided always that the entire amount of compensation to be paid under the provisions of this clause shall not exceed ten percent, on the tendered amount of the work as shown in the tender.” 6 This Clause does not provide for resolution of dispute(s) by preferring an appeal and excluding adjudication by judicial intervention. This issue is decided against the defendants and in favour of the plaintiff. Issue No. 5 There is no evidence on record to establish estoppel as pleaded that is to say that there is nothing on record to show that the plaintiff has disabled himself through his acts, deed(s) and conduct to institute any suit against the defendants or that the relief which he seeks has either been abandoned by him or he himself has been contributory to the ultimate action which has been taken against him. This issue is also decided against the defendants. Issues No. 1 & 2 Both these issues are taken up for determination together as they determine the core of the controversy i.e. as to whether the plaintiff is entitled to the decree as prayed for. Adverting to the evidence on these issue, the statement of PW1 Khem Raj, who was working as Senior Assistant in the office of National Highway Division, Pandoh may be considered. He testifies that the work with respect to RD Nos. 270/200 to 270/450 are not available because these consist of forest land. The work for RDs No. 268/580 and 268/620 cannot be executed because of the pendency of some litigation and acquisition proceedings are in progress for RD No. 260/0 to 260/150. This witness has not been cross-examined on these points meaning thereby that delay in execution of the work is not cannot be attributed to any act on the part of plaintiff, but because of the circumstances which are beyond his control and the impediments require to be removed by the defendant-State. He states that the plaintiff has submitted reference for substituted items on 15 occasions. In cross-examination, this witness admits that communication dated 11.12.2001 Ext.DA addressed by the Executive 7 Engineer to the plaintiff imposing compensation to the extent of Rs. 42,76,373/-, communication dated 27.2.2001 Ext.DB addressed by the Executive Engineer calling upon the plaintiff to complete the work before 12.2.2001, Ext DC and Ext.DD addressed by the Executive Engineer complaining about no progress of work, Ext.DE extending the time upto 31.1.2002, Ext.DF communication addressed by the Superintending Engineer, National Highway Circle, HPPWD to the plaintiff levying compensation to the extent of Rs. 42,76,373/- and Ext.DG and Ext.DH notices sent to the plaintiff. He is a witness of record and has proved the letters/communications/notices from the record of the defendants. PW2 Jiwan Singh is Clerk in the office of Superintending Engineer, National Highway, Circle Shahpur and has proved Ext.PW2/C levying compensation on the plaintiff which he seeks to have a null by a decree of declaration. DW1 Shri G.C. Sonkhla, Executive Engineer, Ist Circle, HPPWD Mandi states in his testimony that he had written letters Ext.DA, Ext.DC, Ext.DD and Ext.DE to the plaintiff and on his failure to complete the work, he had taken action under Clause 2 of the contract and imposed penalty which was 10% of the contract amount. He states that clear site for execution of the work has been handed over to the plaintiff except a stretch of 440 metres. In his cross examination, he states that he has not seen the office copies of these letters. The work done by the plaintiff is to the extent of Rs. 2.27 crores. He cannot state the RD numbers of the stretch of 440 metres stretch/site of the work which could not be handed over to the plaintiff. He admits that the plaintiff vide his communication dated 11.7.2001 had complained that some site was not being made available to him for completing the contract. He states that 10% penalty was imposed upon by him on the contractor (plaintiff) in 8 January, 2002. The relevant portion of his cross-examination may be extracted:- “The 10% penalty was imposed by me on the Contractor in January, 2002.” He also admits that extension had been granted to the plaintiff upto 31.1.2002. DW2 Shri S.L. Sharma, who was posted as Executive Engineer, states in his testimony that the plaintiff had not completed the work within time and therefore, penalty was imposed upon him. In his cross-examination, he denies Ext.PW2/A which are the proceedings/hearings of the office drawn up on 21.8.2002 which are the basis for levying penalty and calling upon the plaintiff to submit his reply within 10 days i.e. upto 10th September, 2002. He denies the receipt of letter Ext.PW3/C addressed by the plaintiff to the defendants submitting his reply Ext.PW2/B, but admits the receipt of Ext.PW3/D which is a letter addressed by the Executive Engineer to the plaintiff accepting such receipt. The plaintiff has appeared as PW3 and has submitted in detail with respect to the consequence of events that he had commenced the work within time, he was facing a number of difficulties as the site for construction had not been handed over to him, he had submitted his detailed reply to the proceedings Ext.PW2/A and that he could not be faulted for the delay in execution of the project. The totality of the evidence on record with reference to the imposition of the compensation/penalty establishes that site was not handed over to the plaintiff as admitted by PW1 where he states that some record was not available because it relates to forest land and in two stretches litigation/acquisition proceedings were in progress. In these circumstances, it becomes difficult to comprehend as to how the plaintiff was expected to execute the work within the stipulated time and time 9 could be treated as of essence of the contract where breach of the schedule per-se would attract liability for compensation. It is also established on record from the documents of the defendants that the plaintiff had been granted extension by the defendants upto 31.1.2002 vide Ext.DE without prejudice to the right of the Government to recover liquified damages. The proceedings on 21.8.2002 were attended by the plaintiff and he was called upon to reply to the points so raised on or before 10th September, 2002. A detailed and comprehensive reply has been filed by the plaintiff on 28.8.2002 vide Ext.PW2/B. The order imposing the compensation is Ext.PW2/C. Compensation to the extent of Rs. 42,76,373/- had already been levied on the plaintiff vide Ext.DA and then re-affirmed by Ext.PW2/C (also Ext.DF) dated 21.9.2002. The question to be determined is as to whether these proceedings are in accordance with law or not. The case is no longer res- integra in Civil Suit No. 65 of 2001, titled Rajiv Chopra Vs. State of Himachal Pradesh construing the same Clause and relying upon the decision of the Supreme Court in Vishwanath Sood Vs. Union of India and another AIR 1989 SC 952, State of Karnataka vs. Shree Rameshwara Rice Mills AIR 1987 SC 1359, A. Mohammed Basheer Vs. State of Kerala and others (2003) 6 SCC 159, as also the decision of this Court in Executive Engineer, REC, Hamirpur Vs. M/s H.K. Sareen 1997 (2) S.L.C. 287 held that before imposing any penalty there must be judicial determination. In Vashwanath Sood’s case supra, the Supreme Court held “8………Firstly the reference in the clause to the requirement that the work shall throughout the stipulated period of the contract be proceeded with due diligence and the reference in the latter part of the clause that the compensation has to be paid “in the event of the contractor failing to comply with” the prescribed time schedule make it clear that the levy of compensation is conditioned on some 10 default or negligence on the part of the contractor. Secondly, while the clause fixes the rate of compensation at 1 percent for every day of default it takes care to prescribe the maximum compensation of 10 percent on this ground and it also provides for a discretion to the Superintending Engineer to reduce the rate of penalty from 1 percent. Though the clause does not specifically say so, it is clear that any moderation that may be done by the Superintending Engineer would depend upon the circumstances, the nature and period of default and the degree of negligence or default that could be attributed to the contractor. This means that the Superintending Engineer, in determing the rate of compensation chargeable, will have to go into all the aspects and determine whether there is any negligence on the part of the contractor or not. Where there has been no negligence on the part of the contractor or where on account of various extraneous circumstances referred to by the Division Bench such as vis major or default on the part of the Government or some other unexpected circumstance which does not justify penalizing the contractor, the Superintending Engineer will be entitled and about to reduce or even waive the compensation. It is true that the clause does not in terms provide for any notice to the contractor by the Superintending Engineer. But it will be appreciated that in practice the amount of compensation will be initially levied by the Engineer-in-charge and the Superintending Engineer comes into the picture only as some sort of revisional or appellate authority to whom the contractor appeals for redress. As we see, it, clause 2 contains a complete machinery for determination of the compensation which can be claimed by the Government on the ground of delay on the part of the contractor in completing the contract as per the time schedule agreed to between the parties. The decision of the Superintending Engineer, it seems to us, is in the nature of a considered decision which he has to arrive at after considering the various mitigating circumstances that may be pleaded by the contractor or his plea that he is not liable to pay compensation at all under this clause. In our opinion the question regarding the amount of compensation leviable 11 under clause, 2 has to be decided only by the Superintending Engineer and no one else.” (emphasis supplied In Rameshwar Rice Mills’ case, the Supreme Court further reiterated this proposition holding that:- “7……Interest of justice and equity require that where a party to a contract disputes the committing of any breach of conditions the adjudication should be by an independent person or body and not by the other party to the contract. The position will, however, be different where there is no dispute or there is consensus between the contracting parties regarding the breach of conditions. In such a case the Officer of the State, even though a party to the contract will be well within his rights in assessing the damages occasioned by the breach in view of the specific terms of clause 12.” A. Mohammed Basheer was a case where it was held that a finding of fact as to breach must be arrived at before damages are levied. In H.K. Sareen’s case, this Court holds:- “9. So far legal proposition regarding levy of compensation under clause 2 of the agreement by the Superintending Engineer being not arbitrable is concerned, the same is no more in dispute in the fact of the findings of the apex Court in Vishwanath’s case (supra). However, at this stage it has also to be seen that whether the Superintending Engineer is required to apply his mind or he has just to be a dittoing authority to whatever is put to him by his subordinates as in the present case by the Executive Engineer. The Superintending Engineer has been given very vide power of levying compensation in terms of clause 2 of the agreement. In this context it may be appropriate to say that wider the power bigger the caution and a perusal of the action on the part of the Superintending Engineer while approving the notice of the XEN levying penalty in the present case shows that there is neither any adjudicatory process nor the order shows the application of mind in any manner whatsoever by the Superintending Engineer. Only thing that has been done by the S.E. is approving the action 12 of the Executive Engineer. This is neither in consonance with the principles of fair play nor it complies with the spirit of clause 2 and above all it also fails to meet the requirements of his action being in the nature of a considered decision which he has to arrive at after considering the various mitigating circumstances that may be pleaded by the contractor or his plea that he is not liable to pay compensation at all under this clause. From this it can be further safely inferred that before levying penalty under clause 2 Superintending Engineer is not to just straight away approve the action of his subordinates as has been done in the present case, but he is also expected to at least hear the contractor and then adjudicate the matter after considering the respective pleas/contentions of the parties, which prima-facie does not appear to have been done in the present case. So, in these circumstances, the submission of Mr. Sood that the claim of levy of compensation under clause 2 stood adjudicated and, therefore, release of earnest money on the part of the arbitrator while making award in respect of counter claim No. 2 of the defendant cannot be upheld and is accordingly rejected.” I need not multiply precedent since this principle of law is by now well established. It is strange that when penalty was sought to be levied vide Ext.PW2/A on 21.8.2002, a detailed reply Ext.PW2/B replete with each and every fact stating the reason as to why the penalty could not be levied was submitted, but there is nothing on record to show its consideration. Rather, an order Ext.PW2/C (also Ext.DA) dated 21.9.2002 is a terse one line statement which simply states that compensation is payable by the plaintiff. Of course, this is dehors the fact that vide Ext.DA dated 11.12.2001 the decision to levy the compensation had already been arrived at. In these facts and circumstances, I do not find that the defendants were justified in invoking the clause for levying of penalty. Both these issues are decided in favour of the plaintiff and against the defendants. 13 Relief In view of the above discussion, a declaratory decree is issued declaring Ext.PW2/C dated 21.9.2002 addressed by the Superintending Engineer, National Highway, Shahpur to be illegal and void and not binding on the rights of the plaintiff. A decree of permanent prohibitory injunction is also issued against the defendants and in favour of the plaintiff prohibiting and restraining them from recovering this amount from the plaintiff. Parties to bear their own costs. July 31, 2009 (Dev Darshan Sud), (ms) Judge