THE HON’BLE SRI JUSTICE V. ESWARAIAH AND THE HON’BLE SRI JUSTICE B.CHANDRA KUMAR C.C.C.A.No.252 of 1999 JUDGMENT: (per the Hon’ble Sri Justice V.Eswaraiah) Heard both the counsel. The appellant is the defendant in the suit filed by the respondent in O.S.No.7 of 1992 on the file of the VII Additional Judge, City Civil Court, Hyderabad. The respondent/plaintiff is the Andhra Pradesh Mineral Development Corporation and the appellant is the contractor. The suit filed by the respondent-plaintiff for recovery of a sum of Rs.6,96,553.25 ps., towards damages and interest @ 18% per annum was decreed with costs and awarded interest at 12% per annum from the date of suit till decree and 6% per annum from the date of decree till realization. Aggrieved by the same, the defendant filed this appeal. The parties hereinafter are referred to as they are arrayed before the court below. It is the case of the plaintiff that it is a private limited company, wholly owned by the Government of Andhra Pradesh and incorporated under the Companies Act, 1956, in the year 1961 and carrying on exploitation of minerals in the State of Andhra Pradesh. During the course of business, the plaintiff invited open public tenders for excavation and transportation of Barytes ore (Run of the Mine/ROM) and overburden (for short “OB”) in its Barytes mines at Mangamapeta village, Obulavaripally Mandal, Cuddapah District. Out of the tenders received, the defendant contractor offer was approved by the plaintiff corporation in terms of the rate quoted for removal of each tonne of ROM and OB. The contract was entered into between the plaintiff corporation and the defendant contractor under Ex.A-5-agreement on 12.01.1989 at Hyderabad. As per Clause 2 of the agreement, the contract was for a period of six months from the date of contract and as per Clause 3, the defendant contractor has to remove a minimum of 25,000 MTs of ROM and/or OB per month. Under Clause 4, the rate per MT is Rs.11.65 for removal of OB and Rs.13.45 per MT for production of Barytes ore. The defendant contractor under the contract agreed to excavate a total quantity of 1,50,000 MTs of OB and/or ROM. According to Clause 18, in case of failure on the part of defendant contractor to fulfill the excavation of the scheduled quantities, the plaintiff corporation with or without terminating the agreement and without prejudice to other remedies, shall be at liberty to get the work completed by making alternative arrangements at the risk and cost of the defendant contractor. The plaintiff corporation reserves the right to set off the losses incurred by it due to the failure of the defendant contractor against the security deposit and running bills if necessary. According to Clause 8, the plaintiff corporation shall be at liberty to engage any other agency to fulfill the contractual obligations / production targets, in case the defendant contractor fails to adhere the target of minimum 25,000 tonnes per month and the corporation agreed for new rates quoted by the new contractor. The defendant contractor, who commenced the work on 08.02.1989, should have fulfilled his obligation of production of Barytes ore and/or removal of overburden of 1,50,000 MTs by 08.08.1989. The defendant contractor carried on the excavation work till 20.03.1989 only. On 20-03-1989, the defendant contractor wrote a letter to the plaintiff Corporation that he was not able to carry on the excavation work on account of strike of the plaintiff’s staff. On 25-03- 1989, the plaintiff replied that according to Clauses 17 and 27 of the agreement, the plaintiff shall not be held responsible for labour unrest etc. On 03.04.1989, the plaintiff Corporation addressed a letter to the defendant informing that the labour unrest has ended by 03.04.1989 and requested him to resume work. However, the defendant contractor did not resume the work, and no reason was assigned for not resuming the work. Hence, the plaintiff Corporation was forced to engage another contractor viz., M/s Sri Rama & Co. in accordance with the terms of Clause 18 of the agreement, and get the work of removal of ROM and OB. M/s Sri Rama & Co. came forward to do the work and offered to do the excavation work at Rs.18.35 per MT for OB and Rs.19.35 per MT for ROM. The plaintiff Corporation incurred an extra expenditure of Rs.7,69,016.56 @ Rs.5.90 per MT of ROM and Rs.6.70 per MT for OB, for getting the work done by the new contractor compared to the expenditure that the plaintiff would have incurred for removal of the said quantity of ROM and OB in accordance with the terms of the contract entered into by the plaintiff corporation with the defendant. The defendant, by the time he had unilaterally stopped the work, had removed 30,24,398 MTs of OB and ROM. The defendant had still to remove 1,19,766 MTs of either ROM or OB before the end of the contract period on 08.08.1989. The new contractor engaged by the plaintiff Corporation performed the remaining quantity of work of removal of OB and ROM left undone by the defendant within the period of the contract. The plaintiff Corporation incurred Rs.7,69,016.56 in excess of the amount to be paid to the defendant for the same work under the terms of the contract entered into by him. The plaintiff therefore is entitled to recover from the defendant the said amount of Rs.6,96,620.25 as damages under the terms of the contract, after adjusting the Security Deposit of Rs.68,162/- and pending bills of Rs.4,234.31 totalling to Rs.72,396.31. The plaintiff Corporation had issued a notice dated 25.09.1990 by Registered Post with acknowledgment due to the defendant demanding the amount of Rs.6,96,553.25. The defendant filed written statement stating that a formal written agreement was executed between the plaintiff and the defendant on 12.01.1989, at Hyderabad. The agreement was for a period of six months. As per the agreement, the defendant has to excavate and transport minimum of 25,000 MTs of ROM or OB per month at Rs.13.45 per MT and Rs.11.65 per MT respectively. The defendant further submitted that as per Clause 3 of the agreement, the defendant was obliged to execute a minimum quantity of 25,000 MT of ROM or OB per month. But, the agreement does not stipulate a total quantity of 1,50,000 MTs. The agreement is not a lumpsum agreement and does not contain any schedule of quantities, and as such, the contention of the plaintiff that according to Clause 18 of the agreement in case of failure on the part of the defendant contractor to fulfill the excavation of the scheduled quantities, the plaintiff corporation with or without terminating the agreement and without prejudice to other remedies, shall be at liberty to get the work completed by making alternative arrangements at the risk and cost of the contractor is not correct. The defendant commenced the work on 08.02.1989, but could not continue the work after 20.03.1989 due to several lapses of the plaintiff and causes beyond his control. The plaintiff has entrusted the mining operation in the same mine to the Irrigation Department, thus only a part of the site was made available to the defendant. Because of simultaneous operations by the department, there were restrictions to the vehicle movement. Only one weighing machine was available for weighing all the vehicles at the Corporation. The other weighing machine was under repair, which resulted in enormous delay in transporting ore to the yard. Further, the distance between mine and ore yard was more than the distance stated by the corporation. With all these difficulties, the defendant could execute a quantity of 30,243.98 MTs by 20.03.1989. On 20.03.1989, the plaintiff employees went on strike. The defendant was forced to suspend the excavation work and consequently he incurred heavy expenditure towards idle machinery and labour. Because of the said strike, the progress was hampered. By his letter dated 20.03.1989, the defendant notified the said difficulties to the plaintiff. The plaintiff, by its letter, dated 23.05.1989, disowned its responsibility wrongfully referring to clauses 17 and 27 of the agreement. Therefore, the said clauses have no application since the strike is by the staff of the plaintiff corporation itself. Subsequently, the plaintiff, by its letter, dated 03.04.1989, requested the defendant to resume the work stating that the labour unrest was over. He further submitted that since the conditions at the site were not favourable for proper execution of the work and the plaintiff did not allow the defendant to carry out the work round the clock, and due to other restrictions as to the vehicle movement and undue delay at the weighing machine, the defendant was forced to suspend the work. The defendant made several oral representations but the plaintiff corporation did not clear the difficulties, and the plaintiff corporation illegally and arbitrarily entrusted the work to another agency by name M/s.Sri Rama and Company at higher rates than the rates agreed upon by the defendant. He further submitted that the action of the plaintiff in entrusting the work to another agency without giving prior notice to the defendant is arbitrary, unjust and in violation of the principles of natural justice. The defendant further submitted that the plaintiff entrusted the work to other agency with a malafide intention of benefiting that agency. It is clear that the plaintiff entrusted the work to other agency, i.e. Sri Rama & Company on nomination without calling for tenders. The assertion of the plaintiff that the rates that were being paid for the neighbouring mine owners are more than the rates quoted by the new contractor, cannot justify the action of entrusting the balance work at higher rates than the agreement rates, without calling for tenders but only on nomination. It is further stated that the rates during the contract period cannot be altered. But, the corporation has entrusted the further excavation work at Rs.18.35 per MT for OB as against the agreement rate of Rs.11.65 Ps., and at Rs.19.35 per MT for ROM as against the agreement rate of Rs.13.45 Ps. The said work was entrusted to the other agency on 12.05.1989 and the same was completed by 13.07.1989. As per the written agreement, the period of contract was six months from the date of commencement of the work i.e., 08.02.1989 to 08.08.1989 (as admitted by the plaintiff). It is pertinent to note that the excavation operation of mine was entrusted to the new agency on 12.05.1989 during existence of the agreement and as such, the higher rates cannot be given to the new agency. He further submitted that the alleged expenditure of Rs.7,69,016.56 Ps., the difference of rate paid to the other agency, is unsustainable and the defendant has not committed breach of contract. In any event, since the plaintiff failed to mitigate the loss by calling open tenders, entrusted the work on nomination at higher rates than the contract rates, even during existence of the contract period, it is not entitled to recover the alleged extra expenditure from the defendant and it has to bear the same. As already submitted, the plaintiff did not give prior notice to the defendant before entrusting the work to other agency. On this ground alone, the plaintiff’s action is unjustified and it is not entitled to recover any damages from the defendant. The defendant submits that the work turned out by him during the period from 08.02.1989 to 20.03.1989 is satisfactory. He further submits that by wrongfully entrusting the work to another agency, the plaintiff has committed breach of contract and as such, the plaintiff has no right to recover any damages from the defendant much less the alleged extra expenditure or adjust the E.M.D., F.S.D., amount due towards work done and the damages for breach of contract. The plaintiff issued a notice on 25.09.1990 illegally demanding Rs.6,96,553.20 ps. towards the alleged expenditure incurred after deducting the payment due to the defendant. Further, there is no proof of the alleged extra expenditure incurred by the plaintiff. Since the plaintiff itself is responsible for the breach of contract, the defendant is not liable to pay any amount much less the amount claimed by the plaintiff. As a matter of fact, for breach of contract, the plaintiff itself is liable to pay to the defendant a sum of Rs.1,42,362/- besides damages. On the above pleadings, the trial court framed the following issues:- 1. Whether plaintiff is entitled to the damages claimed? 2. Whether the claim is barred by limitation? 3. To what relief? On behalf of the plaintiff, the Assistant Geologist of plaintiff Corporation was examined as PW.1 and Exs.A-1 to A-23 were marked. On behalf of the defendant, the defendant was examined as DW.1 and no documents were filed. The trial court, on appreciation of the oral and documentary evidence, decreed the suit holding that the defendant did not commence the work in spite of issuing notices under Exs.A-8 and A- 9, which were returned unserved. It has further held that the plaintiff gave work to third party Sri Rama and Company on nomination basis, as the defendant did not complete the work. Further, the trial Court observed that the defendant having suspended the work on 20.03.1989 wanted to put up lame excuses for not resuming the work even after the labour unrest has ended on 03.04.1989, despite the plaintiff addressing letter under Ex.A2 to resume the work and also Ex.A6 and subsequent notices, and accordingly, held that the plaintiff had established that the defendant is liable to pay the suit amount for breach of contract, which was arrived at after adjusting the security deposit and pending bills including future security deposit and decreed the suit holding that the plaintiff is entitled for suit claim and the suit is in time and not barred by limitation. Learned counsel appearing for the appellant/defendant submits that there was no fault on the part of the defendant in suspending the work. The suspension of work was only due to strike of employees of the plaintiff’s Corporation. He further submitted that entrustment of work to third party with more facilities and at exorbitant rates, without calling for the tenders, is illegal. Further, entrustment of work to third party during subsistence of the agreement period, without terminating the contract and without giving an opportunity, is illegal. On the other hand, the learned Advocate General submits that as per the clauses of Ex.A-5 agreement, the entrustment of work to a third party is legal and valid and, therefore, the damages towards extra costs incurred by the plaintiff is permissible as per the agreement and, therefore, the court below had rightly appreciated the oral and documentary evidence and awarded the suit claim. The points that arise for consideration are:- 1. Whether the suspension of work by the defendant from 20- 03-1989 onwards is justified? 2. Whether the plaintiff issued any notice to the defendant informing him that if you fail to resume the work, the work will be entrusted to another contractor and the cost and consequences are liable to be paid by the defendant? 3. Whether there was any termination of contract? 4. Whether the plaintiff Corporation is entitled to entrust the work to a third party without calling for the tenders? 5. Whether the defendant is liable to pay damages as claimed by the plaintiff? PW.1 was examined on behalf of the plaintiff. As per the evidence of PW.1, entrustment of work to third party at higher rate and suspension of work by the defendant from 20-03-1989 to 03-04- 1989, during which period there was a strike by the employees of the Corporation, is not in dispute. PW.1 stated that the defendant is a contractor and the plaintiff corporation has got mines at Mangampeta village. The plaintiff Corporation called for tenders for removal of ROM and OB. The defendant was the lowest tender. The Plaintiff Corporation accepted it and an agreement was entered on 12.01.1989. As per the terms of the agreement, the defendant has to complete the work within six months from the date of commencement of work. The defendant commenced the work on 08.02.1989. The defendant has to produce 25,000 MT tonnes of ROM and OB per month for six months. PW.1 further stated that OB rate is Rs.11.65 ps. per metric tonne and ROM rate is Rs.13.45 ps. per metric tonne. On 20.03.1989, the defendant stopped the work due to workers strike. The strike was called off on 03.04.1989. The plaintiff requested the defendant to commence the work vide Ex.A2-letter. The contractor has not commenced his work. The defendant has produced 30,243.98 metric tonne of ROM and OB together. The plaintiff gave a notice-Ex.A-3 to the defendant. The plaintiff again called for local tender and allotted the work to Rama & Company from 12.05.1989. Rama & Company completed the work in time. Ex.A4 is the letter under which Rama & Company was given the work. In respect of contract with Rama & Company, the rates for ROM is Rs.19.35 ps per metric tonne and OB is Rs.18.35 per metric tonne. PW.1 further stated that the plaintiff is claiming the difference of rates from the defendant. The plaintiff had spent Rs.7,69,016.86 for getting the work completed by Rama & Company, as the defendant failed to complete the work. After adjusting security deposit and other amount, the defendant is due Rs.6,96,563.20. In his cross-examination, PW.1 admitted that there was a strike by the employees of the Corporation from 20-03-1989 to 03-04-1989. Therefore, the defendant was forced to suspend the work and there were restrictions of working period. It is further admitted that the defendant made an oral representation to clear the problem. He further admitted that the plaintiff Corporation called for general tenders for entrustment of work to third party. In fact, the plaintiff has called for limited tenders in the site area and it has decided the party. But, no material was placed to show that the local tenders were called. It is stated that the plaintiff issued notice to the defendant before entrusting the work, but no copy of such notice was filed in the Court. He admitted that the plaintiff did not terminate the contract of the defendant, but the defendant himself did not carry on the work, therefore, the plaintiff entrusted the work to the third party. PW.1 further admitted that the defendant issued reply on 11-4- 1989 under Ex.A-7 in response to Ex.A-6 letter, dated 06-04-1989, issued by the plaintiff requesting the defendant to commence work. Under Exs.A-8 and A-9, the plaintiff requested the defendant to commence work and the returned postal cover is Ex.A- 10. The defendant, who was examined as DW.1, stated that as per agreement, he has to remove 25,000 metric tonnes every month and the contract was for a period of six months, but there was no agreement to remove total quantity of 1,50,000 MTs within six months. He further deposed that the plaintiff called for tenders for excavation and transportation of Barytes Ore at Mangampet village in Cuddapah District by way of paper publication. Five or six persons sent their tenders. As his tender was lowest, it was accepted. Then Ex.A5 agreement was executed on 12.01.1989. As per Ex.A5, the period of contract was six months. The rates as per Ex.A5 were 11.65 ps. per metric tonne for removal of OB and Rs.13.45 ps. per metric tonne for production of Barytes Ore. He further deposed that a minimum of 25,000 MT per month was agreed to be removed. There was nothing in Ex.A5, which stipulated that he has to remove total quantity of 1,50,000 M.Ts in six months. There is no schedule of quantities appended to Ex.A5. It was not a lump sum contract, but is a piece rate contract. Ex.A5 does not contain any stipulation for enhancement of rate. He commenced the work on 08.02.1989 and carried on work till 20.03.1989. From 20.03.1989, the workers went on strike. He informed the said fact to the plaintiff under Ex.A7. DW.1 further stated that the plaintiff levied penalty of Rs.12,000/- for delayed execution of work. The delay was only due to strike by labour. During strike period, his machinery was idle. He addressed a letter to the plaintiff requesting to reimburse the expenses towards idle charges for the machinery. He also requested the plaintiff that he would commence work after the bills due are paid. But, the plaintiff did not pay the amounts due. But on the other hand, told him to commence the work stating that the plaintiff would pay the amounts later. During the contract period, the Irrigation Department was also operating over burden work. Both the vehicles i.e., his vehicles and that of Irrigation Department have to go through the same route for dumping the material thereby restricting the traffic. There was only one weighbridge for all the vehicles, as a result, there was a delay for the vehicles to dump the material. The dumping area was also at far of place. Therefore, he requested the plaintiff to give permission to execute the work during night time also, in the light of the above circumstances, in order to complete the work of minimum 25,000 metric tonnes per month. But the plaintiff did not grant permission. The plaintiff who has to maintain the road leading to dumping area did not maintain properly. Further, the said approach road to the dumping place is a kacha road thereby hindering the movement of the vehicle to and from the dumping place. The workers at the weighbridge used to be scarce and when they were present, they were not cooperating with him, thereby leading to further delay. In view of the above facts and problems, he could not resume the work. DW.1 further stated that the plaintiff entrusted the work to the 3rd party without any prior notice to him. The plaintiff in similar circumstances has to call for tenders. But in the present case, the 3rd party was entrusted work on nomination basis at higher rate. After he suspended the work, the plaintiff did not pay EMD and security deposit and further security deposit. Therefore, he addressed letter for refund of EMD, FSD and amounts due on the work done and cost of explosive wrongfully recovered totalling to Rs.1,42,362/-. The plaintiff is not entitled to the suit amount and, on the other hand, the plaintiff is liable to pay the said amount to him. It is not in dispute that the plaintiff Corporation entered into contract with the defendant on 12-01-1989 and the work was commenced on 08-02-1989. First letter that was issued by the plaintiff to the defendant was Ex.A-2, dated 03-04-1989 informing the defendant that the labour unrest was ended and, accordingly, the defendant was requested to resume the work. The next letter that was issued by the plaintiff to the defendant was Ex.A-6, dated 06-04- 1989, stating that the defendant has not resumed the work by reason of which it was sustaining loss and accordingly, requested to commence the work. Operative portion of Ex.A-6 reads as follows:- “Further we write to inform you that the clauses 3 and 8b of the agreement entered with you on 12th day of January, 1989 will be levied on you for the month of April, 1989.” It is not known what has to be levied, but we are of the opinion that the plaintiff wanted to levy penalty for the shortfall quantity for the month of April, 1989 alone as per clause 8(b) of the agreement, for which the defendant addressed Ex.A-7 letter, dated 11-04-1989 pointing out certain difficulties faced by him due to the lapses on the part of the plaintiff Corporation. The defendant further contended that imposition of penalty of Rs.12,000/- on the ground of not transporting ROM and OB during the strike period, was not justified. The defendant further stated that due to the strike of the employees of the plaintiff Corporation, the work was held up and he could not transport minimum 25,000 metric tonne of ROM and OB per month as per the terms of their agreement and, therefore, levying