IN THE HIGH COURT OF GUJARAT AT AHMEDABAD FIRST APPEAL No 668 of 1989 For Approval and Signature: Hon'ble MR.JUSTICE R.K.ABICHANDANI and Hon'ble MR.JUSTICE A.M.KAPADIA ============================================================ 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements? 2. To be referred to the Reporter or not? : YES 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the Civil Judge? : NO -------------------------------------------------------------- GUJARAT HOUSING BOARD Versus HARILAL JETHALAL -------------------------------------------------------------- Appearance: MRS KETTY A MEHTA for Appellant MR NV SOLANKI for MR RM PARMR for Respondent -------------------------------------------------------------- CORAM : MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE A.M.KAPADIA Date of decision: 01/02/2001 ORAL JUDGEMENT (Per : MR.JUSTICE R.K.ABICHANDANI) 1. The Gujarat Housing Board has preferred this appeal against the judgement and order dated 27th October 1988 passed by the learned Judge, City Civil Court No.2, Ahmedabad in Civil Suit No. 3799 of 1981 directing the appellant to pay Rs.6,50,691=00 with proportionate costs and interest at the rate of 12% per annum on the amount of Rs.6,08,879=00 from the date of the suit till realisation. 2. The respondent - plaintiff, a registered partnership firm dealing in building construction activities, had submitted a tender for construction of a building for the Employees' State Insurance Corporation, at Ahmedabad. After negotiations, the appellant original defendant had accepted the tender on 17th August 1973 and issued a work order to the respondent on 28th November 1973, fixing the date of commencement of work on 1st December 1973. According to the respondent, there was delay in issuing the work order due to the fact that the plans for construction had not been approved by the Ahmedabad Municipal Corporation and the commencement certificate was not granted till that date. Further more, the work was delayed due to the Board's inability to supply drawings of R.C.C. pillars in time. It was averred in the plaint that there was nearly eight months' delay in supplying the drawings. While the work was being carried out, according to the respondent, it had submitted an application to the Executive Engineer, as also to the Housing Commissioner contending that there was a most unusual increase in the rates of materials and labour, and as a result of the delay on the part of the officials of the Board, the respondent had to suffer a loss of nearly Rs.6,00,000=00. It was also alleged that there was a delay in supply of cement and steel, which had also affected the pace of the progress of the work entrusted to the respondent. The respondent had completed the contract and as contemplated by clause 30 of the agreement, had submitted a claim for enhanced rates to the Housing Commissioner. According to the respondent, this application was treated as a reference to the arbitration by the Housing Commissioner and a number of hearings were held commencing from 11th July 1978 till 17th January 1979, but no award was declared. The respondent gave notices on 11th January 1980 and 12th February 1980 through its advocate requesting the Housing Commissioner to declare the award, but it was not declared. It was further averred that the respondent came to know that the Board had taken up a stand in some proceedings in the City Civil Court that clause 30 of the agreement was not an arbitration clause. The respondent therefore concluded that the agreement between it and the defendant - Board did not have any arbitration clause and filed the suit. It was averred in para 13(E) and 14 of the plaint that there was increase in the rates of the R.C.C. work which was included in the tender to the extent of Rs.3,10,000=00, in respect of brick work to Rs.57,800=00, for steel work to the extent of Rs.85,300=00, for M.S. steel and reinforcement to the extent of Rs.26,250=00 and for flush doors to the extent of Rs.35,851=00. There was a further increase of Rs.17,559=00 for the water supply and sanitary fittings and an increase of Rs.76,129=00 for internal electrification. There was, thus, an additional cost of Rs.6,08,879=00 incurred by the respondent over the tendered amount for the contract. According to the respondent, this increase was caused because it was prevented from carrying out the work in time by reason of the delays and defaults attributable to the Board and its officials. In para 16 of the plaint, it was contended that if the Board took up a stand that, under the terms of the agreement between the parties, the respondent was not entitled to claim any increase in rates, then in that event, the respondent was contending that the agreement between the parties was required to be signed by the Chairman of the Board, and that since the same was signed by the Executive Engineer, it was per se illegal, and did not create any right in favour of the Board to raise such contention and that the respondent was therefore entitled to claim for the actual cost incurred by it on quantum meruit basis. It was admitted in para 16 of the plaint that the plaintiff had filed the suit more than three years after the work was completed and the amount became payable under the agreement between the parties. It was however contended that since the Housing Commissioner had started the arbitration proceedings under clause 30 of the agreement, but did not give an award till the date of filing of the suit, those proceedings were deemed to be pending as arbitration proceedings, and therefore, the cause of action continued in favour of the respondent and the suit was not barred by limitation. The plaintiff therefore prayed for a decree of Rs.6,08,879=00 as the amount due to the plaintiff "for carrying out the work of construction under the contract"; Rs.4,00,337=92 by way of interest at the rate of 18% per annum from 23-1-1978 till the date of the suit; and Rs.300=00 by way of notice charges, i.e. in all Rs.10,09,516=92. 3. In its written statement exh.9, the appellant contested the suit and contended that the suit was barred by limitation and also under section 71 of the Gujarat Housing Board Act. It was contended that the tender was accepted within its validity period after negotiations, on 17th August 1978, and therefore, there was no delay in the matter of acceptance of the tender on the part of the Board. It was averred in para 5 of the written statement that the respondent did not complete the contract documents, income tax clearance certificate etc. and as soon as these requirements were completed, the work order dated 28-11-1973 was issued fixing the effective date of start of work to be 1-12-1973. It was contended that, before the completion of the requisite documents, no work order could have been issued. It was further contended that the question of drawings of R.C.C. pillars did not arise at the initial stage of excavation of the earth and that on receiving the soil test report in April 1974, the R.C.C. drawings were immediately given to the respondent. It is therefore denied that there was delay of about eight months in supplying the R.C.C. drawings to the respondent. It was stated that the original time limit was extendedk at the instance of the respondent without levy of any compensation by the Board. It was further stated that, considering the representations of the contractors, the Board adopted a liberal and humanitarian view and gave an ad-hoc increase of 7.1/2% for the work done from 1-4-1974 upto 31-12-1974, even though the contract did not provide for price escalation on the fluctuation of the market rates. According to the appellant, the respondent had accepted this ad-hoc increase. It was denied that there was any delay in supply of cement and steel affecting the progress of the work. It was denied that the respondent was entitled to any enhanced claim under the terms of the contract. It was averred that clause 30 of the agreement was not an arbitration clause and was only a superintending clause as held by the Supreme Court. It was also denied that the market rates had increased from 25% to 100%, as alleged. Various amounts which were claimed towards the increase in costs said to have been incurred by the respondent, were denied, and it was contended that the respondent was bound by the terms and conditions of the agreement and that the claim of the respondent was false and frivolous. 4. The trial Court held that the suit was not barred by limitation or by the provision of section 71 of the Housing Board Act. It was further held that there was no valid contract in the eye of law between the parties because the Chairman of the Board had not himself signed the contract. On this basis, it was held that the respondent was entitled to the suit claim on the principle of quantum meruit. It was also held that there was an unusual increase in the rates of tender items and the plaintiff had suffered a loss of Rs.6,08,879=00, as detailed in para 14 of the plaint. It was also held that the agreement was one sided, but it was binding. As regards the claim for interest, it was held that the respondent was entitled to interest from 20th May 1981. 5. It was contended by the learned counsel for the appellant that the suit was barred by limitation and was not saved by the provision of section 14 of the Limitation Act, as held by the trial Court. It was argued that the cause of action had arisen when the final bill was passed and the suit which was filed on 18th December 1981 was on the face of it barred by limitation even if Article 113 were to be invoked. It was further contended that the proceedings under clause 30 of the agreement exh.104 were not arbitration proceedings in view of the decision of the Supreme Court in The State of U.P. v. Tipper Chand reported in AIR 1980 SC 1522. It was contended that even if the proceedings under clause 30 were to be treated as arbitration proceedings, the respondent was not entitled to the benefit of section 14 of the Limitation Act, which did not apply in such cases. It was contended that the Housing Commissioner acting under clause 30 of the agreement was not a Court and he did not have any trappings of a Court. Resorting to section 14 by the trial Court was therefore erroneous. The learned counsel further argued that the respondent could not have claimed any increase in the rates in view of the clear stipulation contained in clause 10 of the contract exh.104, which debarred the contractor from putting up any claim for enhanced rate. It was also argued that there was no evidence adduced before the trial Court to prove any price rise or incurring of any extra expenditure and the photostat copies of the documents contained in the file exh.118 which was summoned were produced without leading any evidence or producing the original documents and proving their contents. It was further contended that the contract exh.104 was validly executed in accordance with the provisions prescribed for the manner and form of such contract. 5.1 In support of her contentions, the learned counsel relied on the following decisions : [a] The decision of the Supreme court in The State of U.P. v. Tipper Chand, reported in AIR 1980 SC 1522, was cited to point out that while construing the clause which was identical to the present clause 30 of the agreement, the Supreme Court held that the clause merely conferred power on the Superintending Engineer to take decisions on his own, and that it did not authorise the parties to refer any matter to his arbitration. It was held that the clause did not contain any express arbitration agreement, nor can such an agreement be spelled out from its terms by implication, there being no mention in it of any dispute, much less of a reference thereof. The purpose of the clause clearly appear to vest the Superintending Engineer with supervision of the execution of the work and administrative control over it from time to time. [b] The decision of the Supreme Court in Bombay Housing Board v. Karbhase Naik & Co., reported in AIR 1975 SC 763, was cited for its proposition that failure to cancel the order where the Engineer in-charge did not agree to the rates would not result in an agreement as to the rate or rates claimed by the contractor. [c] The decision of the Supreme Court in M/s Alopi Prasad & Sons Ltd. v. Union of India, reported in AIR 1960 SC 588, was cited for the proposition that quantum meruit cannot be awarded where the contract provided for consideration payable in that behalf. The Supreme court held that the compensation of quantum meruit is awarded for work done or services rendered where the price is not fixed by the contract. [d] The decision of the Supreme Court in Union of India v. A.L. Rallia Ram, reported in AIR 1963 SC 1685, was referred to for the proposition that section 175(3) of the Government of India Act did not in terms require that a formal document executed on behalf of the Dominion of India, and the other contracting party, alone is effective, and that, in absence of any direction by the Governor General u/s 175(3) of the Government of India Act prescribing the manner, a valid contract may result from correspondence if the requisite conditions are fulfilled. The Supreme Court held that though section 175(3) used the expression "executed", that by itself did not contemplate execution of a formal contract by the contracting parties. It was held that a tender for purchase of goods in pursuance of an invitation issued by or on behalf of the Governor General of India and acceptance in writing which is expressed to be made in the name of the Governor General and is executed on his behalf by a person authorised in that behalf would conform to the requirements of section 175(3) of that Act. [e] The decision in case of Devecos Garments Factory v. State of Rajasthan, reported in AIR 1971 SC 141 was cited to point out that where an agreement was signed by the Inspector General of Police without mentioning that it was executed on behalf of the Governor, that was sufficient compliance with Article 299 of the Constitution as the officer was authorised to execute it. The Supreme Court followed the ratio of its decision in Rallia Ram's case [supra]. [f] The decision of this Court in case of State of Gujarat v. Shirinbai Pirojshah Wadia and another, reported in 17 GLR 638, was cited for the proposition that it is only when the final bill is prepared and accepted by the State Government that it can be said that the work was satisfactorily completed. If there is any dispute as to the quality or the nature of the work, the contract document required that the contractor would re-execute the work. Therefore, till the final bill is prepared and accepted by the State Government, it cannot be said that the work is satisfactorily executed for which payment is due to the contractor. Article 18 of the Limitation Act of 1963 was therefore not attracted at all and the appropriate Article in the case would be Article 113. 6. The learned counsel appearing for the respondent - plaintiff on the other hand argued that, admittedly there was an abnormal rise in the prices in the years 1973 - 1974. It was contended that the additional cost of material and labour had to be incurred by the respondent due to apparent delay in supplying the drawings of the R.C.C. work. The learned counsel contended that the 7.1/2% increase in respect of the work done between 1-4-1974 and 31-12-1974 was granted by the Board to all the contractors and it was not any payment towards the satisfaction of the respondent's claim. According to the learned counsel, the respondent had putforth the claim for the enhanced rates in its letters at exh.89 and exh.90 and the correctness of the claim was not disputed, and in fact, a recommendation was made for paying such enhanced rates. It was argued that the trial Court had considered all the relevant aspects, namely, justification for the increase, recommendation made by the officer, and admission of the price rise, and therefore, even if the documents, photo copies of which are contained in the file exh.118, were not proved, it was not necessary for the respondent to prove them in view of the admitted fact that there was a rise in the price of materials, and that the Board had on its own administration granted an increase of 7.1/2% for the work done from 1-4-1974 to 31-12-1974 to all the contractors. It was further argued that the respondent was entitled to the claim without reference to the contract, and that clause 10 of the contract which prevented the contractor from putting up any claim for enhanced rate was not applicable as per the alternative plea of the respondent contained in para 16 of the plaint that the contract was not signed by the Chairman himself. It was contended that, in view of section 21 of the said Act, the Chairman was required to sign the contract. Therefore, in absence of any valid contract, the respondent was entitled to claim the amount for the work done as compensation quantum meruit. It was also argued that, in any event, clause 10 which prevented a claim for enhanced rates by the contractor was arbitrary and unconscionable and therefore, could not be enforced against the respondent. The learned counsel further argued that the suit was not barred by limitation because under Article 113 of the Schedule to the Limitation Act, the cause of action had arisen when the right to sue accrued on the respondent's giving the statutory notice exh.137 dated 16th May 1981. It was therefore contended that there was no need to resort to the provision of section 14 of the Limitation Act, because the suit was filed within three years from the date of issuance of the said notice. It was then argued that if the cause of action is held to have arisen when the final bill was passed, on the authority of the decision of this Court in State of Gujarat v. Shrinbai Pirojshah Wadia and another (supra), the proceedings under clause 30 even if they were not treated as arbitration proceedings, should be treated as civil proceedings and the authority under clause 30 should be treated as Court, and therefore, section 14 of the Limitation Act applied to the case, bringing the suit within limitation by virtue of exclusion of time of pendency of the proceedings under clause 30 before the Housing Commissioner. It was argued that the Board officials had not disagreed to the plaintiff's claim in letters exh.89 and exh.90 and the proceedings under clause 30 had admittedly commenced. There was therefore no need for the respondent to file a suit till 23-10-1980 when the proceedings under clause 30 were alive. It was contended that the respondent had acted in good faith by carrying out the work under a bonafide belief that, at some point of time in the course of the proceedings under clause 30, the dispute will be resolved and the claim putforth by the respondent in its letters exh.89 and exh.90 be paid. It was contended that if the Housing Commissioner had not undertaken the proceedings under clause 30, then only the limitation would have started to run, but since the hearing was commenced and continued, there was no question of the limitation starting to run. It was contended that the claim of the respondent should be allowed under section 70 of the Contract Act, and there was no contract executed. It was contended that the object underlying section 70 was two fold, namely, to provide restitution and to prevent unjust enrichment. It was argued that the claim of the respondent has therefore been rightly decreed. It was also contended that the appellate Court should not lightly interfere with the decision of the trial Court, which is based on the evidence on record. 6.1 The learned counsel for the respondent, in support of his contentions, relied upon the following decisions : [a] The decisions of the Supreme Court in State of West Bengal v. M/s. B.K.Mondal and Sons, reported in AIR 1962 SC 779; New Marine Coal Coo. (Bengal) Pvt. Ltd. v. Union of India, reported in AIR 1964 SC 152; Mulamchand v. State of Madhya Pradesh, reported in AIR 1968 SC 1218; P.C.Wadhwa v. State of Punjab, reported in AIR 1987 P & H 117; P.Hanumanthiah & Company v. Union of India, reported in U.J. [S.C.] 134 (69); Mohamed Ebrahim Molla v. Commissioners for the Port of Chittagong, reported in AIR 1927 CAL. 465; Ram Chand Lotia & Sons v. Municipal Committee, Lahore, reported in AIR 1933 Lahore 14; and Palaniswami Goundar v. English & Scottish Cooperative Wholesale Societies Ltd., reported in AIR 1933 MADRAS 145; were all relied upon in support of the contention that there was no conflict between the provision of section 70 of the Contract Act and section 175(3) of the Government of India Act, and that whenever a contract is found to be illegal, invalid or unenforceable at law on account of non-compliance of formalities prescribed under the Statute for its formation, the Government or Corporate Bodies are bound to pay for the work done by the other party under section 70 of the Contract Act and compensation awardable would normally be the market price of the goods supplied or the work done. It was held in these decisions that if what was done in pursuance of the contract was for the benefit of the Government, and for their use and enjoyment or was otherwise legitimate and proper, section 70 would step in and support the claim for compensation made by the contracting parties notwithstanding the fact that the contracts had not been made as required by section 175(3) of the Government of India Act. [b] The decision in The Madras Port Trust v. Hymanshu International, reported in AIR 1979 SC 1144 was cited to point out that plea of limitation was one which the Court always looked upon with disfavour. [c] The decision of the Supreme Court in Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly and another, reported in AIR 1986 SC 1571, was cited for the proposition that the Courts will not enforce an unfair and unreasonable contract. [d] The decision of the Supreme Court in Kumari Shrilekha Vidyarthi v. State of U. P. and others, reported in AIR 1991 SC 537, was cited for the proposition that state action can be reviewed under Article 14 of the Constitution even in contractual matters. [e] The decision of the Supreme Court in Hyderabad Municipal Corporation v. M. Krishnaswami Mudaliar and Mudaliar and another, reported in (1985) 2 SCC 9, was cited to point out that where the contractor agreed to extension subject to extra payment on account of increased rates, it was held that the contractor was entitled to increased rates. In that case, the contractor was requested by the government itself to spread over the work for two years, and he had agreed to spread over the work for two years on a clear condition that extra payment will have to be made to him in view of increased rates of either material or wages. The Government did not intimate to the contractor that no extra payment on account of increased rates would be paid to him or that he will have to complete the