IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 17-10-2006 CORAM: THE HONOURABLE MR.JUSTICE S.J.MUKHOPADHAYA AND THE HONOURABLE MR.JUSTICE F.M.IBRAHIM KALIFULLA O.S.A.Nos.386, 390 and 418 of 2001 O.S.A.No.386 of 2001: M/s.Larsen & Toubro Limited, (ECC Construction Group), Madras. Rep. by its Manager (Legal), Chennai. .. Appellant vs. 1. Tamil Nadu Electricity Board, N.P.K.R.R.Maligai, Electricity Avenue, Anna Salai, Chennai-600 002, by its Chairman. 2. The Chief Engineer, North Madras Thermal Power Project Civil Division XII, Ennore, Madras-57. .. Respondents Original Side Appeal No.386 of 2001 filed under order XXXVI Rule 1 of O.S. Rules (under Clause 15 of the Letter Patent) against the judgment and decree of this Court in C.S.No.472 of 1999, dated 23.4.2001. O.S.A.No.390 of 2001: 1. Tamil Nadu Electricity Board, N.P.K.R.R.Maligai, Electricity Avenue, Anna Salai, Madras-2, Rep. by its Chairman. 2. The Chief Engineer, Mettur Thermal Power Project, Tamil Nadu Electricity Board, Anna Salai, Madras-2. 3. The Chief Engineer, North Madras Thermal Power Project, Madras-57. .. Appellants vs. M/s.Larsen & Toubro Limited, (ECC Construction Group), https://hcservices.ecourts.gov.in/hcservices/ rep. by its Deputy General Manager (Legal), Madras. .. Respondent Original Side Appeal No.390 of 2001 filed under order XXXVI Rule 1 of O.S. Rules (under Clause 15 of the Letter Patent)against the judgment and decree of this Court in C.S.No.110 of 1996, dated 23.4.2001. O.S.A.No.418 of 2001: 1. Tamil Nadu Electricity Board, N.P.K.R.R.Maligai, Electricity Avenue, Anna Salai, Madras-2, Rep. by its Chairman. 2. The Chief Engineer, Mettur Thermal Power Project, Tamil Nadu Electricity Board, Anna Salai, Madras-2. 3. The Chief Engineer, North Madras Thermal Power Project, Madras-57. .. Appellants vs. M/s.Larsen & Toubro Limited, (ECC Construction Group), rep. by its Deputy General Manager (Legal), Madras. .. Respondent Original Side Appeal No.418 of 2001 filed under order XXXVI Rule 1 of O.S. Rules (under Clause 15 of the Letter Patent)against the judgment and decree of this Court in C.S.No.705 of 1992, dated 23.4.2001. For appellant in O.S.A.No.386 of 2001 and respondent in O.S.A.Nos.390 and 418 of 2001: Mr.K.V.Ananthakrishnan For respondents in O.S.A.No.386 of 2001 and appellants in O.S.A.Nos.390 and 418 of 2001: Mr.N.Muthusamy JUDGMENT The plaintiff in C.S.No.472 of 1999 is the appellant in O.S.A.No.386 of 2001. The defendants in C.S.Nos.110 of 1996 and 705 of 1992 are the appellants in O.S.A.Nos.390 and 418 of 2001. The plaintiff and the defendants are common in all the three suits. 2. In C.S.No.472 of 1999, the plaintiff filed the suit for recovery of a sum of Rs.16,13,720/- being reimbursement claim of sales tax on Works Contract paid on behalf of the second defendant therein, along with https://hcservices.ecourts.gov.in/hcservices/ interest in a sum of Rs.8,68,573.26, in all, for a sum of Rs.24,82,293.26 with interest at 18% per annum on Rs.16,14,170/-. The suit was dismissed by the learned single Judge on the Original Side of this Court on 23.4.2001 on the ground that the plaintiff failed to prove the claim and that the suit was barred by limitation. O.S.A.No.386 of 2001 has been preferred by the plaintiff against the said judgment and decree. 3. In C.S.No.110 of 1996, the very same plaintiff filed the suit for recovery of a sum of Rs.49,08,690/- with interest at 20% for the work done in respect of the construction of 275 meter high R.C.C. multiflue chimney from the second defendant therein. The suit was decreed for a sum of Rs.32,20,611/- with interest at 12%. Aggrieved against the judgment and decree dated 23.4.2001 in C.S.No.110 of 1996, the defendants therein, the Tamil Nadu Electricity Board, have come forward with the appeal in O.S.A.No.390 of 2001. Pending appeal, by way of interim order, the appellants were directed to deposit a sum of Rs.65,19,604/-, which was duly deposited by the appellants. By a subsequent order dated 1.7.2002 passed in C.M.P.No.16519 of 2003 in O.S.A.No.390 of 2001, the plaintiff was permitted to withdraw the said sum after furnishing a bank guarantee. It is stated that though the bank guarantee was furnished, due to technical reasons in executing the same, the amount was not withdrawn by the plaintiff. 4. The plaintiff in C.S.No.705 of 1992 filed the said suit for recovery of a sum of Rs.35,63,818.34 with interest at 21% on Rs.24,79,178.04. The suit was decreed on 23.4.2001 for a sum of Rs.19,96,445.01 with interest at 12% per annum on Rs.19,96,445.01. Aggrieved against the said judgment and decree dated 23.4.2001, the defendants therein, namely the Tamil Nadu Electricity Board has come forward with O.S.A.No.418 of 2001. Pending appeal in O.S.A.No.418 of 2001, as per order dated 13.3.2002 passed in C.M.P.No.744 of 2002, a sum of Rs.15,42,096/- was deposited by the appellants and was also paid to the respondent-plaintiff. 5. Though the claim for reimbursement of sales tax made in C.S.No.472 of 1999 had nothing to do with the other two claims made in C.S.Nos.110 of 1996 and 705 of 1992, except that such a claim was in respect of the work with reference to which the claims came to be made in one of the suits, all the three suits were tried in common by the learned single Judge on the Original Side of this Court and the suits came to be disposed of by a common judgment dated 23.4.2001. As stated in the earlier paragraphs, while the suit in C.S.No.472 of 1999 came to be dismissed, relief was granted in the other two suits in favour of the plaintiff. Having regard to the nature of claims made in C.S.No.472 of 1999 as against the claims in C.S.No.110 of 1996 and 705 of 1992, we propose to deal with O.S.A.No.386 of 2001 separately, while O.S.A.Nos.390 and 418 of 2001 can be dealt with in common. Since the parties are common in all the three appeals, we will refer to the plaintiff in the same manner as the plaintiff herein, while the defendants who are the appellants in O.S.Nos.390 and 418 of 2001, will be hereinafter referred to as the TNEB (Tamil Nadu Electricity Board). https://hcservices.ecourts.gov.in/hcservices/ 6. In the first instance, we propose to deal with the appeals preferred by the TNEB in O.S.A.Nos.390 and 418 of 2001, which relate to the claim of the plaintiff in C.S.Nos.110 of 1996 and 705 of 1992. O.S.A.Nos.390 and 418 of 2001: 7. The brief facts which resulted in the filing of the above two Suits can be narrated as under: The TNEB published its Notification with its design and construction of two numbers of Cooling Towers (in short, C.T) C.T.3 and C.T.4 under Ex.P-1 dated 29.10.1985. The plaintiff submitted its bid for construction of the said two Cooling Towers and by Ex.P-2 dated 20.10.1986, the TNEB issued its letter of acceptance for the construction of the said CTs., by which the total price of the contract for the construction of both the CTs. was accepted for a sum of Rs.5,35,00,000/-. For certain stated reasons, the plaintiff did not commence the construction of CTs. as per the schedule. As per the terms of the contract, the scheduled date of completion of C.T.3 was 19.4.1988 and C.T.4 was 19.10.1988. However, the construction of the two CTs. was actually completed only on 31.5.1989 and 31.10.1989 respectively. Similarly, the plaintiff undertook the contract of the design and construction of 220 meter high chimney for the Mettur Thermal Power Project of the TNEB by its offer dated 29.12.1986, which was accepted by the TNEB on 20.5.1987 for a total value of Rs.1,69,62,000/-. As per the letter of acceptance dated 20.5.1987, the scheduled date of completion of 220 meter high chimney was 19.1.1989. However, the actual date of completion by the plaintiff was 19.7.1989. According to the plaintiff, in respect of the construction of the CTs. and the 220 meter high chimney at Mettur Thermal Power Project, a sum of Rs.13,70,008.10 and Rs.11,09,169.94 respectively was payable by the TNEB. The plaintiff therefore filed the suit in C.S.No.705 of 1992 claiming a sum of Rs.24,79,178.04 (Rs.13,70,008.10 + Rs.11,09,169.94). The plaintiff also claimed interest on the said sum @ 21%, which according to the plaintiff worked out at a sum of Rs.10,84,640.30. Therefore, the total claim in the said suit was for a sum of Rs.35,63,818.34. Be that at it may, the TNEB raised a claim dated 10.10.1991 as against the plaintiff by way of penalty of Rs.24,11,638/- for the delayed construction of the two CTs., plus a sum of Rs.5,71,543/- by way of notional penalty for the delayed construction of 220 meter high chimney and a sum of Rs.8,20,000/- towards recovery from the plaintiff, which was alleged to have been gained on account of the deletion of rack and pinion lift from the scope of 220 meter high chimney. In all, the claim of the TNEB was Rs.38,03,181/- (Rs.37,85,181/- as stated in the plaint in C.S.No.705 of 1992). Therefore, apart from claiming a sum of Rs.35,63,818.34, the plaintiff also prayed for a permanent injunction to restrain the TNEB from recovering any amount from other contracts towards penalty or damages for any alleged default in the construction of the contract pertaining to Mettur Thermal Power Project. 8. Be that as it may, the plaintiff undertook the construction of 275 meter high R.C. multiflue chimney at North Madras Thermal Power Project of the TNEB in the year 1990. In respect of the said contract, the plaintiff is stated to have raised a Bill in April 1992 for the work done and the Chief Engineer of North Madras Thermal Power Project was stated to have https://hcservices.ecourts.gov.in/hcservices/ certified the said Bill for the gross value of Rs.44,22,135/-. The construction of the said 275 meter high R.C.C. multiflue chimney was stated to have been completed and handed over on 4.10.1993. In respect of the said construction, the final Bill submitted by the plaintiff was stated to be at Rs.29,94,431/-. The TNEB is stated to have paid Rs.10,00,000/- and Rs.5,70,594/- on 13.3.1994 and 12.8.1994 respectively leaving a balance of Rs.14,23,837/-. That apart, a sum of Rs.17,35,095/- by way of security deposit for the said contract and a sum of Rs.61,679/- towards the alleged excess recovery made from the plaintiff for power supply, were stated to have been due to the plaintiff from the TNEB. According to the plaintiff, a sum of Rs.14,23,837/- with-held by the TNEB included a sum of Rs.13,90,535/- which was made by way of deduction towards penalty/liquidated damages on account of the delayed construction of C.T.3 and C.T.4. and 220 meter high chimney at Mettur Thermal Power Project. The plaintiff laid the suit in C.S.No.110 of 1996 claiming a sum of Rs.32,20,611/- (Rs.14,23,837/- + Rs.17,35,095/- + Rs.61,679) along with the interest claim of Rs.16,88,008/-. In all, a sum of Rs.49,08,619/- was claimed in C.S.No.110 of 1996. 9. The TNEB resisted the suit in C.S.No.705 of 1992 by contending that the total Bill amount due to the plaintiff towards C.T.3 and C.T.4 as well as the 220 meter high chimney inclusive of 5% retention money and security deposit, was only Rs.19,63,337/-, whereas the TNEB was entitled to impose penalty for delayed completion of the cooling towers as well as the chimney, which worked out to a sum of Rs.38,03,181/-. It was stated that a sum of Rs.19,63,737/- from the final Bill payable in respect of both the contracts, namely construction of cooling towers and chimney, was made, apart from recovering a sum of Rs.13,90,535/- from the amounts due to the plaintiff in respect of the contracts executed with North Madras Thermal Power Project, leaving a balance sum of Rs.4,49,309 to be recovered from the plaintiff. According to the TNEB, such penalty was leviable as per Clause 26 of the General Conditions of Contract. 10. Before the learned single Judge, since all the three suits were tried together, common evidence was let in. On the side of the plaintiff, P.Ws.1 and 2 were examined, while on the side of the defendants, D.Ws.1 and 2 were examined. The plaintiff marked Exs.P-1 to P-47, while on the side of the defendants, Exs.D-1 to D-24 were marked. 11. As many as 12 issues were framed in C.S.No.705 of 1992 and eight issues were framed in C.S.No.110 of 1996. 12. As far as the claim made in C.S.No.705 of 1992, the learned single Judge held that the plaintiff was entitled for a sum of Rs.12,22,008.10 under the contract for two CTs. and Rs.7,74,436.91 under the contract for chimney, in all, a sum of Rs.19,96,445.01. As against the claim for interest @ 21% per annum from May 1990, the learned single Judge awarded interest @ 12% p.a. from May 1990. The issue numbers 1 to 12 in C.S.No.705 of 1992 were answered as above. 13. In C.S.No.110 of 1996, the learned single Judge ultimately decreed the suit for the principal amount as claimed by the plaintiff, namely for a sum of Rs.32,20,611/- and as far as the interest was concerned, as against 20% claimed by the plaintiff, the learned single https://hcservices.ecourts.gov.in/hcservices/ Judge awarded only 12% p.a. from the respective dates as mentioned in paragraph 12 of the plaint. The issue numbers 1 to 8 were ordered on the above terms. 14. In the view of the learned single Judge, having regard to Ex.P- 15, the letter issued by the Superintending Engineer/Civil, Mettur Thermal Power Project to the plaintiff, directing the plaintiff to send proposal for extension of time for completion of C.T.3 and C.T.4 with an undertaking not to claim any extra monetary benefit for such extension and the failure of the TNEB from sending any reply to Ex.D-20 dated 9.9.1988, wherein the plaintiff sought for further extension, it will have to be held that the time sought for by the plaintiff was deemed to have been granted. 15. As far as the construction of 220 meter high chimney was concerned, hereagain, the learned single Judge held that though the construction of the chimney should have been completed on or before 19.1.1989, it was completed only on 19.7.1989 with a delay of 181 days, the plaintiff sought for extension of time on 21.1.1991, which was not replied at all by the TNEB, but a completion certificate was issued on 9.10.1991 under Ex.P-6 and therefore, having failed to refuse the extension of time sought for by the plaintiff and having allowed the completion of work without any murmur as to the delay, the TNEB cannot be permitted to say that the delay was attributable to the plaintiff. 16. The learned single Judge also observed that the TNEB failed to prove that due to the delay in completion of the C.Ts. and chimney, it had resulted in any loss to the TNEB. 17. As far as the alleged gain made by the plaintiff by way of deletion of the erection of imported rack and pinion lift in a sum of Rs.8,20,000/-, the learned single Judge held that by virtue of such deletion, the plaintiff did not gain anything. The learned single Judge also held that having regard to the inabilities of the plaintiff from importing the said lift, it will have to be held that, that part of the contract was impossible of performance and therefore, the TNEB was not entitled to claim any amount on that score. 18. The learned single Judge held that in view of the conclusion in C.S.No.705 of 1992 that the imposition of penalty by the TNEB cannot be sustained, the recovery of Rs.13,90,535/- from the running Bill of North Madras Thermal Power Project was not justified. 19. As regards the retention money of Rs.17,35,095/- towards rectification of certain defects in the aviation warning lights, the learned single Judge held that since the permanent power supply was given only on 12.1.1995, which was beyond the defects liability period, the said amount cannot be retained by the TNEB. 20. As far as the recovery of Rs.61,679/- on the ground of power supply, the learned single Judge held that since it was not the case of the TNEB that the plaintiff agreed to pay any current consumption charges or any electricity tax, the said sum cannot be retained. https://hcservices.ecourts.gov.in/hcservices/ 21. Assailing the judgment and decree in C.S.Nos.705 of 1992 and 110 of 1996, the learned Standing Counsel for the TNEB contended that the plaintiff has admitted the delay in the completion of the construction of C.T.3 and C.T.4 as well as 220 meter high chimney, that the delay was wholly attributable to the plaintiff either in commencing the construction or in the completion of the works and that the TNEB was not in any way responsible for the delay. The learned Standing Counsel would further contend that as per the terms of the contract, unless the time extension was granted by the TNEB in writing, the plaintiff cannot avoid payment of liquidated damages/penalty. According to the learned Standing Counsel, by virtue of Clause 3.10 of Ex.D-1 acceptance letter, as well as Clause 26 of the General Conditions of Contract, the TNEB was entitled to levy penalty/liquidated damages @ ½% for every week of delay on the quantum of the left over work and since the period of delay was admitted, the quantum of damages levied cannot be challenged. 22. As far as the claim of the TNEB for a sum of Rs.8.20 lakhs by way of gain to the plaintiff pursuant to the deletion of the rack and pinion lift, the learned Standing Counsel would contend that had the TNEB insisted for the lift without making the amendment to the contract, the plaintiff would have incurred more than Rs.23 lakhs which was the sum provided for the provision of the lift, as the cost of the indigenous lift would have been more than Rs.31 lakhs and thus, the plaintiff stood to gain to an extent of Rs.8.20 lakhs. According to the learned Standing Counsel, in the absence of any challenge to the levy of penalty made under Exs.D-8, D-9 and D-16, the plaintiff cannot be permitted to make a claim for the said sum. The learned Standing Counsel for the TNEB also contended that there was sufficient evidence let in show that because of the delay in the completion of the C.Ts. and the chimney, there were consequential prejudice caused to the TNEB as well as the general public and in the circumstances, the levy of penalty/damages cannot be found fault with. As far as the claim relating to the retention money and the recovery of power consumption charges in the matter of construction of 275 meter high multiflue chimney, the learned Standing Counsel would contend that since the aviation lights did not function properly within the contract period and since the plaintiff failed to rectify the defects, the TNEB was entitled to retain the said money. The learned Standing Counsel also contended that the recovery of a sum of Rs.61,679/- towards power consumption by the plaintiff, was also justified. 23. As against the above submissions, Mr.K.V.Ananthakrishnan, learned counsel appearing for the plaintiff contended that it was only pursuant to Ex.P-15 issued by the TNEB, the plaintiff came forward with Ex.D-20 seeking for extension of time for completion of construction of both the C.Ts., that the TNEB impliedly extended the time for construction of C.T.3 and C.T.4 from 19.4.1988 to 19.12.1988 and from 19.10.1988 to 19.6.1989 respectively and that when the plaintiff needed further extension of time, the plaintiff applied for such extension in writing on 12.11.1988 and 3.11.1989 under Exs.D-7 and D-6, which extension sought for was not rejected by the TNEB and therefore, the ultimate completion of construction of the C.Ts. on 31.5.1989 and 31.10.1989 cannot be said to have involved in any delay. https://hcservices.ecourts.gov.in/hcservices/ 24. As far as the amendment to the contract for the deletion of the provision of the lift was concerned, the learned counsel appearing for the plaintiff would contend that since the provision for the imported lift became impossible of performance, the plaintiff cannot be blamed for its deletion from the contract. Learned counsel for the plaintiff would further contend that since the TNEB had agreed for the deletion by way of an amendment and since the plaintiff has not gained anything by such deletion to the contract, the recovery resorted to, to an extent of Rs.8.20 lakhs, was not justified. 25. Similarly, as regards the delay involved in the construction of 220 meter high chimney, it was contended that when the construction was at the level of 23 meters, the TNEB wanted the plaintiff to demolish the portion, though the construction was not defective, which was also established by oral evidence and therefore, even as regards the construction of the chimney, the delay cannot be attributed to the plaintiff and the consequent levy of damages/penalty as claimed by the TNEB, was not justified. 26. As regards the retention money of Rs.17,35,095/- against rectification of the aviation lights, according to the learned counsel for the plaintiff, sufficient materials were placed before the Court to prove that the defects were rectified during the defects liability period, i.e. before 4.10.1994, that since the permanent supply to the chimney was given only on 19.1.1995, no liability can be fastened on the plaintiff on the ground of the alleged defect to the aviation lights. As far as the recovery of Rs.61,679/- towards payment of tariff was concerned, it was contended that since there was no terms in the contract for payment of tariff, the said recovery by the TNEB was not justified. In any event, it was contended that as far as the rectification of the aviation lights was concerned, the TNEB can only claim any amount spent for rectification and cannot retain the entire security deposit given for the purpose. 27. On the above referred to pleadings and submissions, the following issues arise for consideration in O.S.A.No.418 of 2001: (relating to C.S.No.705 of 1992): (i) Was there any delay in completion of the construction of C.T.3 and C.T.4 and 220 meter high chimney? (ii) Whether such delay was attributable to the plaintiff? If so, whether the plaintiff was liable to pay the liquidated damages/penalty as per the terms of the contract? (iii) Whether the TNEB was justified in recovering Rs.8.20 lakhs being the difference between imported and indigenous make of the provision for the rack and pinion lift? (iv) Whether by virtue of Section 74 of the Contract Act, the TNEB is dis-entitled to recover any amount by way of penalty/damages? and (v) Is the TNEB liable to pay the suit claim of Rs.24,79,178.04 with interest @ 21% per annum? 28. The following issues arise for consideration in O.S.A.No.390 of 2001 (relating to C.S.No.110 of 1996): (i) Whether the TNEB was entitled to adjust a sum of Rs.13,90,535/- towards liquidated damages/penalty in respect of the works connected with Mettur Thermal Power Project? https://hcservices.ecourts.gov.in/hcservices/ (ii) Whether the TNEB is entitled to retain the security deposit of Rs.17,35,095/- on the ground of the defects in the provision of the aviation lights to 275 meter high multiflue chimney? (iii) Whether the TNEB was entitled to recover a sum of Rs.61,679/- by way of power supply tariff? and (iv) Whether the plaintiff is entitled for the suit claim of Rs.32,20,611/- with interest @ 12% per annum from the date of its claim? 29. Issue Nos.(i) and (ii) in O.S.A.No.418 of 2001 and Issue No.(i) in O.S.A.No.390 of 2001: Issue Nos.(i) and (ii) in O.S.A.No.418 of 2001: "(i) Was there any delay in completion of the construction of C.T.3 and C.T.4 and 220 meter high chimney? (ii) Whether such delay was attributable to the plaintiff? If so, whether the plaintiff was liable to pay the liquidated damages/penalty as per the terms of the contract?" Issue No.(i) in O.S.A.No.390 of 2001: "Whether the TNEB was entitled to adjust a sum of Rs.13,90,535/- towards liquidated damages/penalty in respect of the works connected with Mettur Thermal Power Project?" As the above issues in the two appeals are inter-connected, they are being dealt with together. At the outset, it will have to be stated that there is no dispute with reference to the terms of the agreement contained in Exs.D-1,D-9, D-19, D-26, D-1 ( = P-2 ) and D-3. Ex.D-1 = Ex.P-2 dated 20.10.1986 are one and the same, which is the acceptance letter issued by the TNEB in respect