FA/1033/1985 1/50 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD FIRST APPEAL No. 1033 of 1985 For Approval and Signature: HONOURABLE MR.JUSTICE A.M.KAPADIA HONOURABLE MS.JUSTICE H.N.DEVANI ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? YES 2 To be referred to the Reporter or not ? NO 3 Whether their Lordships wish to see the fair copy of the judgment ? NO 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? NO 5 Whether it is to be circulated to the civil judge ? NO ========================================================= STATE OF GUJARAT & 1 - Appellant(s) Versus AJANTA CONSTRUCTION CO. - Defendant(s) ========================================================= Appearance : MS ASMITA PATEL, AGP for Appellants MR KG SUKHWANI for Respondent ========================================================= CORAM : HONOURABLE MR.JUSTICE A.M.KAPADIA and HONOURABLE MS.JUSTICE H.N.DEVANI Date : 19/07/2007 ORAL JUDGMENT (Per : HONOURABLE MS.JUSTICE H.N.DEVANI) FA/1033/1985 2/50 JUDGMENT 1. By this appeal, the appellants, State of Gujarat and another seek to challenge the judgement and decree dated 26th December, 1984 passed by the Joint Civil Judge (Senior Division), Amreli in Special Civil Suit No.27 of 1980 whereby their suit against the respondent (original defendant) for recovery of Rs.1209099-30 ps. has been dismissed. 2. The facts of the case are that the Executive Engineer, Bhavnagar Irrigation Division, Bhavnagar, (the appellant No.2 herein) had invited tenders for the work of Earthen Dam of Dhatarwadi Irrigation Scheme. The estimated cost of the work was Rs.13,42,347- 00 ps. The respondent, a registered firm carrying on work of contracts submitted it’s tender for Rs.16,17,875-26 ps. The respondent’s tender being the lowest; it was awarded the said work. An agreement (Exh.31) was executed between the parties being CB-2 Agreement No.15 of 1969-70. The tender was accepted on 25.3.1970 and work order was issued on 26.3.1970 and the respondent commenced work on the same day. The stipulated period for completion of contract was 24 months. Accordingly, the work was required to be completed on or before 25th FA/1033/1985 3/50 JUDGMENT March, 1972. 3. Thereafter the respondent executed part of the work and in all a total of 10 R.A. Bills amounting to Rs.3,25,983-10 ps. were paid. The 10th R.A. Bill was paid on 30.1.1971. It is the case of the appellants that thereafter, on 7.2.1971, the respondent abandoned the work, hence, vide a communication dated 10.2.1971, the Executive Engineer submitted a proposal to the Superintending Engineer to impose penalty under Clause (2) of the Conditions of Contract. 4. By a notice dated 22nd February, 1971, the respondent was called upon to show cause as to why action may not be taken against it under clause (3) of the Conditions of Contract. In pursuance of the aforesaid proposal dated 10.2.1971, the Superintending Engineer, by a communication dated 2.3.1971 gave his approval for levying compensation at the rate of Rs.9000/- per day with effect from 3.3.1971. As despite the aforesaid show cause notice dated 22.2.1971, the respondent did not resume work, by the aforesaid order dated 2.3.1971 penalty at the rate of Rs.9000/- per day was imposed on the FA/1033/1985 4/50 JUDGMENT respondent. 5. Despite action having been taken under clause (2) of the Conditions of Contract, the respondent did not resume work, hence, by an order dated 15.3.1971 (Exh.38) the contract was terminated and the remaining work costing Rs.12,85,300-00 was executed through another agency viz. M/s Patel Brothers at the risk and cost of the respondent as provided under clause (3) of the Conditions of Contract. 6. It is the case of the appellants that on 7.3.1971, a telegram was received from the Advocate of the respondent informing the department that they are terminating their contract on the ground that the department had failed to give designated borrow area for casing materials and design and data are misleading. That the reasons given by the respondent for terminating the contract were not admitted because as per specifications it was shown that there was availability of casing materials. The respondent thereafter instituted a civil suit in the court of the learned Civil Judge (Senior Division), at Amreli, being Special Civil Suit No.51 of 1972. By a judgement and order dated 24th FA/1033/1985 5/50 JUDGMENT June, 1976 the said suit was dismissed. Being aggrieved by the aforesaid judgement the respondent preferred an appeal before this Court being First Appeal No.930 of 1976. It may be noticed that, by an order dated 11th July, 1984 passed by this Court, the aforesaid First Appeal was disposed of in the following terms: “Miss Bhavnani for the plaintiff- appellant withdraws the main suit itself which in law is continuing before us in this appeal. The suit stands dismissed as unconditionally withdrawn and so the appeal falls through. The plaintiff- appellant to pay the defendant's costs in both the courts.” 7. It is also the case of the appellants that after terminating the contract the respondent had been informed to remain present on the site at the time of recording final measurement or the work done by the respondent, but no one remained present on behalf of the respondent and ultimately, the Deputy Engineer recorded the measurements on 29.5.1971 and 30.5.1971. That, the remaining work has since then been completed through another agency viz. M/s Patel Brothers, at FA/1033/1985 6/50 JUDGMENT the risk and cost of the respondent. It is the case of the appellants that the final bill was received from M/s Patel Brothers, which included the work carried out at the risk and cost of the respondent. That, the same also takes cognizance of the material that was available at the site. As per the say of the appellants, the total amount of work done at the risk and cost of the respondent comes to Rs.1209099-30ps. The break up of the aforesaid sum is enumerated in paragraph 11 of the plaint. 8. It is further the case of the appellants that the Executive Engineer, Bhavnagar had by a communication dated 15.11.71 requested the respondent to remit the amount of Rs.28,314/- to the Government, failing which it would be liable for legal action. However, the respondent had not remitted any amount towards the claim, hence, the appellants had filed the suit to recover the amount of Rs.12,09,099-30 ps. 9. The respondent filed its written statement at Exh.17 and resisted the suit on diverse grounds, interalia contending that the suit does not disclose any cause of action; that the requirement of clause (30) of the FA/1033/1985 7/50 JUDGMENT Conditions of contract is not fulfilled as no inquiry as contemplated under the said clause has been carried out, hence, the suit itself is not maintainable; that the suit is not tenable because if at all the appellants had any claim against the respondent, the same ought to have been raised by way of counter claim in the suit filed by the respondent; that the suit is time barred; that the respondent had terminated the contract vide telegram dated 1.3.1971 on account of breaches committed by the appellants, which was legal and valid; that the notice dated 22.2.1971 is illegal and that the same was never served upon the respondent; that as the respondent had never abandoned the work, there was no question of resuming the work; that the imposition of penalty at Rs.9000/- per day is illegal. It was denied that the contract was terminated vide letter dated 15.3.1971, under clause (3) of the conditions of contract. It was alleged that the said letter is got up subsequently and that the respondent had never received the same. It was contended that there was no question of termination of the contract by the appellants as the respondent had terminated the contract prior in point of time. It was submitted that the FA/1033/1985 8/50 JUDGMENT telegram dated 1.3.1971 must have been received by the appellants on the same day, hence, the say of the appellants that the same was received on 7.3.1971 is false. It was denied that the remaining work was abandoned by the respondent and that the appellants had got it done through another agency at the risk and cost of the respondent in terms of clause (3) of the printed agreement contract. It was denied that the respondent is liable to pay the sum of Rs.12,09,099-30 ps. as claimed by the appellant. It was submitted that after commencement of work it was found that casing material was not available in the borrow area designated by the appellants. It was also submitted that the design and data were misleading and that the land was not acquired by the Government as a result of which the respondent had to even face prosecution and much humiliation. It was submitted that the respondent has brought the aforesaid facts to the notice of the department, but to no avail; that they had entered into lengthy correspondence with the department and it was only after the respondent was convinced that the appellants had no intention of performing their part of the contract that the respondent terminated FA/1033/1985 9/50 JUDGMENT the contract by wire dated 1.2.1971 wherein the grounds for termination had also been stated. It was, therefore, urged that the suit be dismissed with costs. 10. From the pleadings of the parties the trial Court framed the following issues at exhibit-18: (1) Whether the plaintiff proves that the defendant has not completed contract and committed breach of contract? (1A) Whether the termination of the contract is legal and valid termination of contract entered into between the parties? (2) Whether the plaintiff proves that they are entitled to claim suit amount from defendant? (3) Whether the plaintiff is entitled to claim 12% interest? (4) Whether the plaintiff is entitled to claim relief as prayed for? (4A) Whether the defendant proves that FA/1033/1985 10/50 JUDGMENT certificate of Sup. Engineer is required under clause (30) of the agreement before filing this suit as contended? 11. The trial court after appreciating the evidence on record and considering the submissions made by the learned Advocates for the respective parties found that in view of clause (2), (3) and (6) of the agreement (Exhibit-31), time was not the essence of contract and held accordingly. The trial court found that the appellants were in the first instance, under a contractual obligation to hand over the borrow area to the respondent to excavate the materials for casing and hearting of the dam and that the appellants had not acquired sufficient land and that sufficient borrow land to meet with the requirement of casing material was not provided to the respondent. The trail court also found that there is no evidence on record to show that the other contractor had done the remaining work by taking casing and hearting material from the same land given to the respondent. From the evidence on record it was found that the respondent had made several complaints to the appellants in respect of insufficiency FA/1033/1985 11/50 JUDGMENT of borrow area, however, the appellants did not make available the necessary borrow area. From the borrow area plan Exh.47, and the other material on record, the trial court recorded a specific finding that the land bearing the survey numbers shown therein had not been acquired nor had the possession been taken over by the State Government at the relevant time. The trial Court found that the work commenced on 26.3.1970, whereas the appellants took the possession of the land from its owners in March 1971. Upon perusal of the village records, it was found that the lands situated in the zones of hearting and casing materials was under the personal cultivation of their respective owners and possession was not handed over to the Government. The trial Court therefore, held that the appellants had committed a breach of contract by not acquiring the land and not taking possession thereof before the work order was issued or on or before the contract was entered into. That as the appellants were not in a position to perform their part of the contract, the respondent was no longer obliged to continue the contract and was fully justified in terminating the contract. The trial court FA/1033/1985 12/50 JUDGMENT also found that the termination of contract on the part of the appellants is illegal and wrongful and that on the contrary it was the appellants who had caused breach of the contract and not the respondent. 12. As regards the validity of termination of the contract under clause (3) of the agreement, the trial court observed that clause (2) of the agreement was a penalty clause, while clause (3) empowered the appellants to terminate the contract when the contractor i.e. the respondent became liable to pay compensation to the extent of his security deposit. The trial Court found that thus, levy of penalty under clause (2) of the agreement and liability on the part of the contractor to pay penalty to the extent of the security deposit was a condition precedent for terminating the contract under clause (3) of the agreement. The trial court was of the view that before resorting to the provisions of clause (3) of the agreement, there must be a valid levy of penalty under clause (2) of the agreement. The trial court further found that under clause (2) of the agreement an item-wise programme was required to be fixed by the executive engineer, whereas there was no FA/1033/1985 13/50 JUDGMENT evidence on record, either oral or documentary, to show that any such programme was ever fixed by the executive engineer at any time. The trial Court, therefore, found that the imposition of penalty under clause (2) of the agreement is illegal and invalid and consequently held that the termination of the contract under clause (3) of the agreement is also illegal. The trial Court also held that since the order of termination had been passed without affording any opportunity of hearing to the respondent contractor, the same was bad on the ground of breach of principles of natural justice. The trial Court also found that there is no allegation of abandonment of the work either in the termination order or in any of the correspondence on record, and therefore the plea of abandonment raised in the plaint is an after thought and as such cannot be accepted. The trial Court accordingly, answered issues No.1 and 1A in the negative, i.e. against the appellants. 13. As regards issue No.4A, the trial Court found that the suit has been instituted without obtaining a certificate from the Superintending Engineer as envisaged under clause (30) of the Agreement. That clause FA/1033/1985 14/50 JUDGMENT (30) of the contract is a certificate clause and a condition precedent for filing of the suit and in absence of such certificate the appellants were not competent to file the suit in a court of law. Accordingly, it was held that on this ground the suit was liable to be dismissed. The issue was accordingly, answered in the affirmative, that is against the appellants and in favour of the respondent. 14. Insofar as issues No.2, 3 and 4 are concerned, the trial Court was of the view that in view of the findings on issues No.1, 1A and 4A, the appellants have failed to prove that the respondent had committed breach of the contract and as the appellants had wrongly and illegally terminated the contract and furthermore, since the suit was not maintainable in absence of certificate of the Superintending Engineer, the appellants are not entitled to recover any amount from the respondent. The trial Court was of the view that the burden of proving the claim for damages lies solely on the plaintiffs and that it was for the plaintiffs to prove the same by leading cogent and reliable evidence. After considering the entire evidence on record, FA/1033/1985 15/50 JUDGMENT the trial Court found that except for the bare statement of the appellants, there was no evidence on record in support of their claim of Rs.10,28,305-00 by way of extra payment to the agency which had completed the work. It was also found that the appellants had not proved the bills for the remaining work by leading cogent and trustworthy evidence. As regards the claim towards penalty levied under clause (2) of the agreement, the trial court as stated hereinabove had already found the penalty to the illegal; hence, the said claim was found to be bad. As regards the claims at serial No.3 for Rs.31515/-, No.4 for Rs.4927-08 ps., No.7 for Rs.858-08 ps., No.8 for Rs.315-62 ps., No.9 for Rs.1329-83 ps., No.10 for Rs.1129-03 ps., No.11 for Rs.814- 61 ps., No.12 for Rs.2614-85 ps., No.13 for Rs.335-93 ps., No.14 for Rs.123.36 ps. and No.15 for Rs.15224-80 ps., the trial Court found that the appellants had not produced any evidence to prove these recoveries, hence, they are not entitled to recover the same. The trial Court accordingly, held that the appellants had failed to prove the suit claim and were therefore, not entitled to claim damages as prayed for. Accordingly, the trial Court further held that as there FA/1033/1985 16/50 JUDGMENT is no entitlement towards claim of the principal amount, there cannot be any entitlement towards interest. The trial Court, accordingly, answered issues No.2 and 3 in the negative, that is, against the appellants. 15. In view of the aforesaid findings arrived at by the trial Court, the suit was dismissed with costs, which has given rise to the present appeal. 16. We have heard Ms. Asmita Patel learned Assistant Government Pleader for the appellants and Mr. K.G. Sukhwani learned Advocate for the respondent. 17. The learned Assistant Government Pleader has vehemently assailed the impugned judgement and decree. It was submitted that despite service of notice to the respondent, the respondent had failed to restart the abandoned work, which was sufficient to hold that the respondent firm had committed breach of the contract. It was submitted that accordingly, because of non-restarting of the work by the respondent, the executive engineer had, vide letter dated 15.3.1971, validly terminated the contract under clause FA/1033/1985 17/50 JUDGMENT (3) thereof. It was submitted that looking to the terms of the contract and the nature of the work, time was of the essence of the contract, and that the trial court had erred in holding that time was not of the essence of the contract. It was submitted that the trail Court erred on facts in holding that the land in question namely borrow area was not in possession of the Government. It was submitted that the trial court had erred in taking into consideration the documents Exhibit 150 and 151 namely the proceedings before the Mamlatdar, Rajula. That the trial court ought to have appreciated that the said documents were in the course of official proceedings and they do not detract from the fact that unofficially at least the land was in possession of the respondent firm and that it was actually working on it. It was submitted that the trial court had erred in interpreting clause (30) of the agreement and holding that unless a certificate of the Superintending Engineer was obtained the Government could not file a suit. It was submitted that the fact of giving contract to M/s Patel Brothers and the appellant State having spent an amount of Rs.10,28,308/- by way of charges for the remaining work had been sufficiently proved FA/1033/1985 18/50 JUDGMENT by the evidence adduced on behalf of the appellant State. It was contended that the other agency who had completed the work abandoned by the respondent had completed the contract by using the same borrow area which was made available to the respondent, hence, the grievance of the respondent that sufficient borrow areas was not made available is falsified. It was accordingly, submitted that the appellants had led cogent and convincing evidence to prove its claim against the respondent and that the trial court had erred in dismissing the suit. It was therefore, urged that the appeal be allowed with cost and the relief claimed for in the suit be granted. 18. Mr. K.G. Sukhwani, learned Advocate for the respondent has supported the impugned judgement and decree. Reiterating the contentions raised before the trial court, it was submitted that the trial court had rightly held that time was not of the essence of the contract. It was further submitted that it was the appellants who had committed breach of the contract, as they were not in a position to perform their part of the contract by providing necessary borrow land as well as proper design and FA/1033/1985 19/50 JUDGMENT data. It was submitted that due procedure as contemplated under the provisions of the contract agreement had not been followed prior to termination by the appellants. Moreover, as the respondent had already terminated the contract prior thereto, the termination of the contract by the appellants was itself misconceived, in that a contract, which had already been terminated, could not have been terminated again. In support of the decision of the trial court on the issue regarding non compliance with the provisions of clause (30) of the agreement prior to instituting the suit, it was submitted that clause (30) was in the nature of a certification clause, and certificate of Superintending Engineer admittedly had not been obtained prior to filing the suit. It was also contended that before termination of the contract vide order exhibit 38, it was incumbent upon the appellants to first obtain a decision of the Superintending Engineer, however, no such decision had been given by the Superintending Engineer. It was pointed out that none of the witnesses examined on behalf of the appellants could lead any cogent or convincing evidence, nor could the appellants produce any reliable and FA/1033/1985 20/50 JUDGMENT convincing documentary evidence, hence, the trial court had rightly come to the conclusion that the appellants could neither prove the damages sustained by them, nor could they prove that there was any breach on the part of the respondent. 19. The learned Advocate for the respondent raised a further contention that whereas the alleged breach of contract was committed in March, 1971 the suit was filed at a very belated stage in 1980, hence, the suit was barred on the ground of limitation and should have been dismissed on that ground alone. It was pointed out that the said ground had been raised in the written statement, however, it appears that due to oversight no issue has been framed in this regard, accordingly the said issue has not been decided by the trial court. It was submitted that it is settled legal position that the plea of bar of limitation can be raised at any point of time. In support of his contention the learned Advocate placed reliance upon the decision of the Apex Court in the case of Food Corporation of India v. M/s Babulal Agrawal (AIR 2004 SC 2926). It was urged that the court may also consider the issue regarding bar of limitation and FA/1033/1985 21/50 JUDGMENT decide the same. In conclusion, it was submitted that the impugned judgement and decree is just, legal and proper and does not warrant any intervention at the hands of this court. It was, accordingly, prayed that the appeal be dismissed with costs. 20. In rejoinder, the learned Assistant Government Pleader submitted that the plea regarding bar of limitation cannot be permitted to be raised at the appellate stage. It was further submitted that even otherwise the contention regarding the suit having been filed beyond the period of limitation is misconceived, inasmuch the appellant being a State Government is governed by the provisions of Article 112 of the Schedule to the Limitation Act, 1963 wherein the period of limitation for filing a suit by a State Government is thirty years and in the present case the suit has been filed within ten years, which was well within the stipulated period, hence, the issue regarding bar of limitation does not arise at all. 21. Per contra, Mr. Sukhwani learned Advocate