IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE T.R.RAMACHANDRAN NAIR FRIDAY, THE 18TH JANUARY 2008 / 28TH POUSHA 1929 OP.No. 30796 of 2001(N) ---------------------------------- PETITIONER: -------------------- E.A.THOMAS, ERUVICHIRA HOUSE, PERAMBRA P.O., KOZHIKODE DISTRICT. BY ADV. SRI.P.K.SURESH KUMAR SRI.K.P.SUDHEER RESPONDENTS: ------------------------ 1. THE STATE OF KERALA, REP.BY ITS SECRETARY, DEPARTMENT OF PORT, THIRUVANANTHAPURAM. 2. THE EXECUTIVE ENGINEER, HARBOUR ENGINEERING DIVISION, KOZHIKODE. 3. ASSISTANT EXECUTIVE ENGINEER, FISHING HARBOUR PROJECT SUB DIVISION, CHOMBAL P.O., KOZHIKODE DISTRICT. 4. DEPUTY TAHSILDAR (REVENUE RECOVERY), VADAKARA, KOZHIKODE DISTRICT. BY GOVERNMENT PLEADER SRI.V.T.K.MOHANAN THIS ORIGINAL PETITION HAVING BEEN FINALLY HEARD ON 18/01/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: OP. NO.30796/2001 ORDER ON CMP. NO.50156/2001 IN OP. NO.30796/2001 DISMISSED 18.01.2008 SD/- T.R.RAMACHANDRAN NAIR, JUDGE APPENDIX PETITIONERS EXHIBITS EXT.P1:- COPY OF THE LETTER DT. 21.6.99 SENT BY THE PETITIONER TO THE 3RD RESPONDENT. EXT.P2:- COPY OF THE LETTER DT. 15.7.99 FROM THE 2ND RESPONDENT TO THE PETITIONER. EXT.P3:- COPY OF THE ORDER DT. 2.11.99 ISSUED BY THE 3RD RESPONDENT. EXT.P4:- COPY OF THE LETTER DT. 28.2.2000 FROM THE 3RD REP.BY TO THE PETITIONER. EXT.P5:- COPY OF THE REPLY DT. 16.3.2000 SENT BY THE PETITIONER TO THE 3RD RESPONDENT. EXT.P6:- COPY OF THE REVENUE RECOVERY NOTICE DT. 18.7.2001 ISSUED BY THE 4TH RESPONDENT. /TRUE COPY/ P.A. TO JUDGE tss T.R. Ramachandran Nair, J. - - - - - - - - - - - - - - - - - - - - - - - - O.P.NO.30796 of 2001-N - - - - -- - - - - - - - - - - - - - - - - - - - - Dated this the 18th day of January, 2008. JUDGMENT Aggrieved by the proceedings imposing damages and consequent revenue recovery proceedings to realise the same, the petitioner has filed this original petition. 2. The petitioner was a participant in an auction conducted on 22.4.1999 by the third respondent, in which the right to conduct a locker hall (cloak room) at the Fishing Harbour at Chombal was sold. The petitioner offered Rs.82,000/- and he was declared to be the successful bidder. According to him, there was no intimation as regards any further action in the matter by the third respondent which compelled him to inform the third respondent that he is not interested in taking the same and thus withdrew his offer. Ext.P1 is the letter stated to have been forwarded by the petitioner in that regard. 3. The petitioner was served with Ext.P2 by the second respondent, informing him that the auction has been confirmed in his name and further directing him to remit 50% of the contract amount along with another 10% towards security and to execute an agreement. It is the case of the petitioner OP 30796/2001 -2- that as he has already withdrawn his offer, he did not execute the contract or pay the amount. By Ext.P3, after a period of three months, he was informed that the offer in his favour stands cancelled. A reading of the order shows that the Earnest Money Deposit has been ordered to be forfeited to the Government. Finally, he was served with Ext.P4 stating that in the re-auction, the right was sold only for Rs.23,600/- and loss to the tune of Rs.98,614/- has been caused to the Government and after adjusting the Earnest Money Deposit, he is liable to pay a sum of Rs.96,614/-. By Ext.P5, the petitioner has informed the third respondent that he is not liable for any damages or loss, as there was no concluded contract at all. The petitioner blamed the third respondent for the delay in confirming the contract in his favour, which prompted him to withdraw from the offer. Accordingly, he denied the liability to compensate for the loss caused to the Government. 4. The respondents have filed a statement justifying the action taken in the matter. According to them, the copy of Ext.P1 was never served on them and there was failure on the part of the petitioner to execute the agreement and deposit the required amount. Accordingly, the Earnest Money Deposit of Rs.2,000/- was forfeited and a re-auction had to be conducted on 3.11.1999. As the highest offer was too low, a further OP 30796/2001 -3- auction was conducted on 10.12.1999, in which the highest bid amount was Rs.23,600/- which was confirmed by the competent authority. In the statement, reliance is placed on the general conditions of the auction which empowers cancellation of the auction or confirmation of the right to the next highest bidder. It is also stated that there is a further provision in the conditions of auction for recovery of loss caused to the Government and for forfeiting the Earnest Money Deposit. 5. Learned counsel for the petitioner contended that as there was no concluded contract, the petitioner cannot be saddled with any liability for the alleged loss caused by the re-auction conducted. It is submitted that he had withdrawn the offer at the earliest point of time and he is not responsible for the alleged breach of contract. Relying upon the principles stated by the Supreme Court in State of Karnataka v. K Krishnappa Naidu and Co. (AIR 1987 SC 1359) it is contended that the Government or the authorities are not competent to adjudicate upon the disputed question of breach and the loss, if any, has to be assessed only in independent proceedings and a party to the contract cannot be an arbiter of his own cause. It is therefore contended that Ext.P4 and the revenue recovery proceedings are totally illegal. OP 30796/2001 -4- 6. In the above cited decision, while considering the question whether in cases where breach is not admitted, the Government can adjudicate upon the disputed question of breach and seek recovery of damages, the Apex Court held in paragraphs 7 and 8 as follows: “The powers of the State Government under an agreement entered into by it with a private person providing for assessment of damages for breach of conditions of the agreement and recovery of the damages is confined only to those cases where the breach of conditions is admitted or it is not disputed. The crucial words in the relevant clause of the agreement are “and for any breach of conditions set forth hereinbefore, the first party (contractor) shall be liable to pay damages to the second party (State Govt.) as may be assessed by the second party.” The terms of the clause do not afford scope for a liberal construction being made regarding the powers of the officer of the State Govt. to adjudicate upon a disputed question of breach as well as to assess the damages arising from the breach. On a plain reading of the words it is clear that the right of the State Govt. to assess damages would arise only if the breach of conditions is admitted or if no issue is made of it. If it was the intention of the parties that the officer acting on behalf of the State was also entitled to adjudicate upon a dispute regarding the breach of conditions the wording of the clause would have been entirely different. A right to adjudicate upon an issue relating to a breach of conditions of the contract cannot be said to flow from or is inhered in the right conferred to assess the damages arising from a breach of conditions. The power to assess damages is a subsidiary and consequential power and not the primary power. Even assuming that the terms of the relevant clause afford scope for being construed as empowering the officer of the State to decide upon the question of breach as well as the quantum of damages, the adjudication by the officer of State Govt. regarding the breach of the contract cannot be sustained under law because a party to the agreement cannot be an arbiter in his own cause. Interests 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 OP 30796/2001 -5- the other party to the contract.” Therefore, it is clear that a party to the agreement cannot be an arbiter of his own cause and there shall be an adjudication by an independent person or body as regards the alleged loss caused in the reauction. 7. This question was considered by a Full Bench of this court in the decision reported in Abdul Rahiman v. Divisional Forest Officer (1988 (2) KLT 290) wherein the principles stated by the Apex Court in the above decision was followed. While considering a similar question, it was held in paragraph 2, as follows: “However, when a dispute arises as to whether the contract has been broken or not, that dispute cannot be settled by one of the parties to the contract, for, he cannot be an arbiter in his own cause. The dispute may have to be referred to an arbitrator or the matter has to be settled in a court of law. This principle applies to the Government also as a party to the contract.” 8. Herein, the petitioner has taken the position that he had withdrawn the offer at the earliest point of time and therefore, the confirmation of the auction, if any, done thereafter will not enable the respondents to claim the alleged loss caused due to re-auction. Even though it is stated in the statement that in the re-auction only Rs.23,600/- was obtained, why the auction had to be confirmed in that manner, has not been explained at all. It is not clear as to how the alleged loss has been arrived at. Further, recovery OP 30796/2001 -6- is sought to be effected from the petitioner by assessing the loss by the respondents themselves who were only parties to the auction. In the light of the principles stated in the decisions cited supra, the third respondent cannot be an arbiter of his own cause and the proceedings Ext.P4 cannot be sustained at all. Even in respect of Ext.P4, the petitioner was not put to any notice also before assessing the loss, if any, but in the light of the fundamental flaws, the same calls for no adjudication here. 9. For all these reasons, I hold that Ext.P4 and the consequent proceedings are unsustainable and hence Exts.P4 and P6 are hereby quashed. It is declared that only after adjudication by an independent body alone the liability, if any, on the part of the petitioner for the alleged loss can be assessed and any action can be taken. The original petition is allowed as above. No costs. (T.R. Ramachandran Nair, Judge.) kav/ OP 30796/2001 -7- T.R. Ramachandran Nair, J. - - - - - - - - - - - - - - - - - - - - - - O.P. No.30796 of 2001-N - - - - - - - - - - - - - - - - - - - - - - JUDGMENT 18th January, 2008.