IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE S.SIRI JAGAN MONDAY, THE 26TH SEPTEMBER 2011 / 4TH ASWINA 1933 WP(C).No. 4751 of 2006(N) --------------------------------------- PETITIONER(S): ------------------------- R. VIJAYAKUMAR, MANAGING PARTNER, M/S. AVK TRADES, VI/1963, OPP.UCO BANK, ANAVATHIL, KOCHI-682 002. BY SRI.A.M.SHAFFIQUE, SENIOR ADVOCATE BY ADV. SRI.E.K.NANDAKUMAR SRI.A.K.JAYASANKAR NAMBIAR RESPONDENT(S): ---------------------------- 1. KERALA STATE CIVIL SUPPLIES CORPORATION LIMITED, MAVELI BHAVAN, MAVELI ROAD, GANDHI NAGAR, KOCHI, REPRESENTED BY ITS CHAIRMAN AND MANAGING DIRECTOR. 2. DR. JACOB THOMAS, I.P.S., CHAIRMAN AND MANAGING DIRECTOR, KERALA STATE CIVIL SUPPLIES CORPORATION LIMITED, MAVELI BHAVAN, MAVELI ROAD, GANDHI NAGAR, KOCHI. R1 & R2 BY ADV. SMT.MOLLY JACOB,SC,SUPPLY CORPORATION THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 26/09/2011,ALONG WITH WPC NO.5383 OF 2006 AND CONNECTED CASES,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: sts WP(C)NO.4751/2006 APPENDIX PETITIONER'S EXHIBITS: P1 COPY OF THE INVITATION TO TENDER AND INSTRUCTIONS TO THE TENDERERS FOR SUPPLY OF PULSES AND SPICES DATED 17/06/2004 ALONG WITH THE SCHEDULES ATTACHED THERETO. P2 COPY OF THE INVITATION TO TENDER AND INSTRUCTIONS TO THE TENDERERS FOR SUPPLY OF PULSES AND SPICES DATED 24/01/2005, ALONG WITH THE SCHEDULES ATTACHED THERETO. P3 COPY OF THE LETTERS DATED 22/12/04 ISSUED TO M/S.CHETTIAR & CO., MATTANCHERY (SPECIMEN) P4 COPY OF THE LETTERS DATED 29/03/05 ISSUED TO M/S. SAI TEJA ENTERPRISES (AS SPECIMEN) P5 COPY OF THE NOTICE DATED 10/10/05 NO.D22-2-202/2005 ISSUED BY THE 1ST RESPONDENT. P6 COPY OF THE NOTICES DATED 10/10/05 NO.D22-20202/2005 ISSUED BY THE 1ST RESPONDENT. P7 COPY OF THE LETTER DATED 24/10/2005 (REPLY OF EXP.P5) NO.NIL ISSUED BY THE PETITIONER TO THE 1ST RESPONDENT. P8 COPY OF THE LETTER DATED 24/10/2005 (REPLY OF EXP.P6) NO.NIL ISSUED BY THE PETITIONER TO THE 1ST RESPONDENT. P9 COPY OF THE NOTICE DATED 14/10/05 ISSUED FOR THE 1ST RESPONDENT TO THE PETITIONER. P10 COPY OF THE REPLY DATED 25/10/05 NO.AM/101/GC (REPLY OF EXT.P9) P11 COPY OF THE NOTICE DATED 01/02/06 ALONG WITH THE ATTACHMENT THERETO. P12 COPY OF THE PROCEEDINGS OF THE 1ST RESPONDENT DATED 23/08/2004, NO.B2-7951/04. RESPONDENT'S EXHIBITS: R1(A) COPY OF THE EXTRACT OF THE PARA 2/1/10, AND 2/1/12 OF C&AG REPORT. R1(B) COPY OF THE NOTIFICATION S.R.O.NO.137/85 R1(C) COPY OF THE JUDGMENT IN W.A.1154/2001 2/- -2- WP(C)NO.4751/2006 R1(D) COPY OF THE JUDGMENT IN WP.NO.32093/2001 R1(E) COPY OF THE RELEVANT PORTION OF THE REPORT. R1(F) COPY OF THE RELEVANT PORTION OF THE REPORT OF THE INSPECTION WING OF THE FINANCE DEPARTMENT, GOVERNMENT OF KERALA. R1(G) COPY OF THE ORDER. /TRUE COPY/ P.A.TO.JUDGE sts S. SIRI JAGAN, J. - - - - - - - - - - - - - - - - - - - - - - - W.P.(C)Nos.4751, 5383, 5425 & 5901 of 2006 - - - - - - - - - - - - - - - - - - - - - - - Dated this the 26th day of September, 2011 J U D G M E N T These writ petitions are filed by persons who had entered into agreements with the Kerala State Civil Supplies Corporation for supply of various commodities. The petitioners submitted tenders for supply of the goods pursuant to notification inviting tenders. The prices quoted by the petitioners were accepted and purchase orders were issued by the Kerala State Civil Supplies Corporation for supply of the commodities. The petitioners supplied the commodities as per the contract during the period from 2001 to 2004, which were accepted, distributed and the price as well as security deposits as per the agreements were released to the petitioners. Thereafter, in the year 2005, the petitioners were issued with notices holding that the goods supplied by the petitioners were of inferior quality violating the contract conditions and the price paid were far above the market rate in force at the relevant time W.P.(C)Nos.4751, 5383, 5425 & 5901 of 2006 -2- for the commodities in question. Despite the petitioners' objections, by the impugned orders, the Civil Supplies Corporation forfeited the amounts already with the Corporation as per the bills submitted by the petitioners and demanded payment of damages for alleged breach of contract. The petitioners are challenging those demand notices inter alia on the specific ground that the Civil Supplies Corporation being one of the parties to a contract cannot decide unilaterally by themselves that there is breach of contract by the other party and fix damages for such alleged breach of contract. 2. The respondents have filed counter affidavit and additional counter affidavit disputing the contentions and prayers in the writ petitions. According to them, the fact that the petitioners had supplied substandard quality quoting prices far above the market rate and supplied goods pursuant thereto with the connivance of the officers of the Civil Supplies Corporation had been proved by the report of the Comptroller and Auditor General of India as well as an W.P.(C)Nos.4751, 5383, 5425 & 5901 of 2006 -3- Inquiry Commission appointed under the Commissions of Inquiry Act. They have also produced relevant portions of the documents in that regard. According to the respondents, this Court has ample power to decide the question of breach of contract and quantify damages if materials are available on record and therefore this question can be decided by this Court itself. They rely on various decisions of this court on the subject which are: [(1992) 1 SCC 534] Shrisht Dhawan (Smt) v. Shaw Brothers, [2010 KHC 4843] Coal India Limited and Others (M/s) v. Alok Fuels (P) Ltd., Th. Director and Others and [2010 (1) KHC 697] State of Kerala and Others v. K. Baburaj and Others. 3. I have considered the rival contentions in detail. 4. The question as to whether one of the parties to a contract, even if the party is the Government or a Government Company, can decide as to whether the other party is guilty of breach of contract and quantify damages arising from that breach of contract have been subject W.P.(C)Nos.4751, 5383, 5425 & 5901 of 2006 -4- matter of decisions by this court and the Hon'ble Supreme Court. Some of those decisions are as follows: [(2009) 2 SCC 337] Bharat Sanchar Nigam Limited and another v. Motorola India Private Limited, [2000 (2) KLJ 142] Build Tech. India v. State of Kerala & Ors., [AIR 1987 Supreme Court 1359] State of Karnataka v. Rameshwara Rice Mills, Thirthahalli, [2007 (2) KLT 388] Shriram Engineering Construction Co. Ltd. v. K.S.I.D.C. and [1988 (2) K.L.T. 290 (F.B.) Abdul Rahiman v. Divisional Forest Officer. In those decisions, it has been categorically held that the Government or a Government company cannot as a party to a contract decide by themselves unilaterally whether the other party is guilty of breach of contract and fix the damages for such alleged breach of contract. I do not think that any of the decisions relied upon by the counsel for the respondents lays down any law contrary to the said decisions of this Court and the Supreme Court on the question. The law as laid down in the decisions above, W.P.(C)Nos.4751, 5383, 5425 & 5901 of 2006 -5- continues to be the law governing the subject even today. The fact that the Comptroller and Auditor General of India, in his report found any collusion between the petitioners and officers of the Civil Supplies Corporation in the matter of acceptance of the tenders and supply of goods pursuant thereto or that a Commission of Inquiry appointed by the Government under the Commissions of Inquiry Act found collusion on the part of the petitioners with the officers of the Civil Supplies Corporation do not ipso facto empower the Kerala State Civil Supplies Corporation to decide as to whether there is breach of contract by the petitioners, that too long after the contract was completed. If at all, the reports of the Comptroller and Auditor General of India and the Commission of Inquiry would only constitute evidence which may or may not support the Kerala State Civil Supplies Corporation in an action for breach of contract and damages. But the respondents can recover damages for alleged breach of contract only after an independent judicial or quasi judicial authority competent to do so based W.P.(C)Nos.4751, 5383, 5425 & 5901 of 2006 -6- on such evidence finds breach of contract and quantifies the damages for such breach of contract. Therefore, on the basis of a unilateral decision of the respondents that the petitioners are guilty of breach of contract, the respondents cannot by themselves initiate proceedings for recovery of damages quantified by them which is what has been done in these cases. Based on the decisions referred to above, I hold that the respondents cannot unilaterally do the same before a judicial or quasi judicial authority empowered to consider that question and enter a judicial finding to the effect that the petitioners are guilty of damages and liable to pay specific amounts are as damages for such breach of contract. I also find that the decisions of CAG and Commission of Inquiry are only evidences which have to be proved appropriately before such authority. Until then the respondents cannot enforce the demand notices now issued to the petitioners. In view of the said declaration, it is not necessary to separately quash the said proceedings insofar as one of the contentions by the respondents themselves is W.P.(C)Nos.4751, 5383, 5425 & 5901 of 2006 -7- that the same are only demand notices which if not complied with appropriate steps would be taken. In the above circumstances, these writ petitions are disposed of holding that the respondents cannot decide the question of breach of contract by the petitioners and recover damages for such alleged breach of contract except on the basis of decisions of a civil court or other quasi judicial authority empowered to take such a decision. Sd/- S. SIRI JAGAN JUDGE //True copy// P.A. TO JUDGE shg/